“The wave like movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion.”
Can someone point me to where I can learn the technical details on how this actually takes place? I always hear…banks just create the money… the Fed just loans the money, ect. What I want to know is exactly how this is done step by step.
Simple. I start a bank with, say, one million in capital. Then I make a loan to some guy for one million, but instead of giving him the cash, I give him a note to an account for one million. He doesn’t withdraw the cash, or he spends it with some other people who decide not to withdraw the cash. Seeing that I still have the one million in reserves, I make a second loan from that same one million, and third loan, and so on, until there are 5 or 10 or 100 million dollars in accounts to my bank, but only one million actually in the vault.
Every year I collect 10% interest on 100 million dollars, which is 10 million dollars in profit on my 1 million in capital. I pay my managers record bonuses. Then one day someone finds out that there is only one million in the vault, and demands to withdraw the money promised on his note. When that happens I am bankrupt unless I can borrow money from the central bank/government for 9% or less. Once that precedent is set, I can borrow unlimited money from the government 9%, lend it at 10%, and earn infinitely many times 1% in profit (as much profit as the demand for loans will bear), because I the government insures my credit.