Beyond “Money as debt”4

I made this video as a starting point in explaining the how banks creates money (or more accurately credit) and correct some misconceptions in the video “Money as debt”. I would like to have feedback and proposals on how to improve it The voice in the video is made by a “text to speech” engine and should be replaced by a more pleasant voice (is there anyone that wants to do it voluntarily? When the text is finally edited?)

Most of this is based on a blogg written by “Sunda pengar” and in particular his excellent blogg dealing with Basel 2:

Here’s the “text to speech” text and I should very much appreciate corrections in grammar and other issues concerning the language – since English is not my native language. Feel free to come with pedagogical remarks as well – where I’ve been to vague and so on. This is meant as an outline so I’m opened for suggestions.

Please refer to the number you think should be altered. It will be an easy thing to correct and replace it in the “text to speech” engine and put it back into the video.


So the banks takes  portions of their bank reserves and multiplies it with a factor depending on different borrowers. The multiplier can  be from 10 times to almost infinity.
We will skip the math this time but it’s actually very simple.

Let us instead take a look on how a banks balance sheet with different sorts of borrowers. How high the multiplier varies  for different borrowers within the same group but we will assume an average.

Funds can be one sort of borrowers .
Note that a portion of the bank reserves are multiplied and create a multiple times more credit.
Note that this credit is created from nothing, backed only by the small portion of the banks reserves.

Households can use another portion that is multiplied with another factor.

Households with security a third

Companies can be a fourth


You might think that the bank now almost have taken all of their reserves and ballooned them up and that their ability to lend has reached it’s limits.

But banks can use this small portion left and lend to municipalities and states with an extreme multiplier.

As a matter of fact banks don’t even  have to have any bank reserves what so ever in order to lend to municipalities and states according to the Basel  2 accord .

I will repetae that! Banks don’t need any bank reserves what so ever in order to lend to municipalities and states.

Contemplate the consequences of this. The tax you are paying is going to banks that created them from absolutely nothing!


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