How Private Banks Create Money

dollars

Money and Life

Katie Teague (2013)

Film Review

I highly recommend this film for its clear explanation of the mechanism by which private banks (not government) create money out of thin air by initiating loans. Because the bank doesn’t create the compound interest they charge on new money, the borrower must find it elsewhere in the economy – when other new debt is created. The only way to sustain this exponential growth in public and private debt is through a frantic obsession with economic growth – leading to rapid depletion of all the earth’s natural resources, while simultaneously poisoning our air, water, and food with toxic waste.

The film features interviews with world famous antiglobalization and sustainability activists, including Vendana Shiva, David Korten, Ellen Brown, Charles Eisenstein, Bernard Lietaer and Vicki Robin.

For me, a highpoint of the film was the discussion of the role of artificially created consumer demand in this frantic drive to “liquidate” the earth’s resources. I also really enjoyed the section on the psychological factors driving billionaires to constantly acquire more money – and the replacement of “trickle down” with “suction up” economics.

A Cancer on the National Economy

My favorite part, however, was the section describing American’s finance sector as a “cancer” on the nation’s economy. As investment banking has morphed into casino capitalism, only 5% of Wall Street transactions relate to the production of real goods and services. This is in contrast to a healthy economy, where the finance sector functions like a utility and consumes only 10% of a nation’s wealth.

The trillions of dollars investment banks like Goldman Sachs, JP Morgan, and Bank of America speculate on derivatives is little different from betting on horses or roulette. The only difference, according to one economist, is that Las Vegas won’t let you gamble with money you don’t have. With some derivatives purchases, traders commit their banks to positions that are 30-40 times greater than their entire holdings.

Solutions Disappointing

The solutions offered by the filmmakers were a little disappointing. The need to end the role of private banks in money creation, by handing this role over to federal and state banks, is a no-brainer. The film calls for viewers to join grassroots groups (such as the US and UK Green Party) organizing to demand this type of reform.

The suggestion for people to opt out of the corporate money system by joining local groups using barter and local currencies is another extremely practical suggestion.

The third suggestion is to find concrete ways to value relationships more than money. Examples include socially responsible investing and extreme charitable giving (in the example, one family gives away 60% of their income). While the life histories of these individuals is extremely inspiring, I suspect they’re unlikely to resonate with the vast majority of Americans. They’re too busy working three jobs to put food on the table – or borrowing on their credit cards to buy shoes for their kids.

Enjoy

photo credit: TheAlieness GiselaGiardino²³ via photopin cc

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