How Do Banks Create Money? A Walk-Through of Richard Werner's Papers

In 2014, Prof. Richard Werner provided the first empirical evidence that banks create credit out of thin air... They do this whenever they issue a loan or, more specifically, purchase a promissory note. This is a walk-through of exactly how they do it.

Note: In the example where the small business pays a supplier at another bank, it is possible, and likely, for banks to change the liability from 'small business' to 'bank B' instead of drawing down cash. 'The bank now owes the other bank £10M'.

I apologise for the poor audio quality, I've ordered a new microphone for future videos.

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References

[mgnm]

Hello again,
this is so fascinating, I must add another comment. Some of the highlights:

1. Although it's not giving anything in return (its asset is intact), the bank is, nevertheless, said to "purchases" a promissory note.

2. The bank "fulfills" its obligation of paying money to a client by owing that money to him!?

3. Even if nobody has deposited anything, a "deposit" magically appears on the bank's balance sheet.

If not ethically highly disturbing, (and also legally in my opinion), this whole process of creating money would be actually very entertaining. Almost like a script for a Monty Python movie about banking or finance where you have multiple misconducts and frauds involved, but nobody minds, and they all seem happy.

[deniseward]

No mention that the strawman estate pays the loan to the bank as soon as a loan is signed into existence. That means the bank gets paid at least twice (from the strawman account and the borrower paying back the loan) The interest is a premium paid for borrowing money but it is several times more than the money borrowed. These convolutions are designed to make you think banks are doing a lot of work to justify all the machinations, and therefore people see them as quite impressive. When really they are nothing but clever bandits. It's all based on illusion of credibility. Money should be a simple thing because the only reason for it is to measure energy exchange. It should be a measurement somewhat like inches - we don't have to borrow inches, there is always enough. But that is too simple and easily seen if you try to hoodwink someone. However money that is designed to generate an artificial scarcity has all sorts of convolutions built in to hoodwink the customer and enrich the bandit. Interest is never issued into the economy so imagine how much of a shortfall that causes. A money system that causes people to use loans is an admission of a stupid money design.

[widehotep]

All money is created by private banks when they issue loans with no need for deposits or reserves. Richard Werner deserves the highest praise for proving this empirically!

In one of his speeches Richard Werner mentioned two central bank admissions that the credit theory of money creation is true. The first is "money creation in the modern economy" by the Bank of England from 2014. The second was by the Federal Reserve, but I don't remember the title. Could you please tell me the name of this report and where I can find it?

[AleksandrVasilenko]

Please make a follow up video showing how the bank balance sheet changes when the customer pays back its loan. Aka, the newly created money is destroyed.

[stefan-stocksmadesimple]

Can that 97‰ credit vanish/be replaced..? Does that happen when CB's turn the printer and replace credit with actual cash, or there is another mechanism..? 👍

[ef]

Amazing how many people still think that a bank has loads of physical cash and goes into vault and gives it to you as a loan...
To those people - ever wondered why you don't see bank robberies anymore?

[Anza_]

Thank you for explaining the accounting & legal intricacies of today’s (Debt-) Bubble Economy!

[akribischerbeobachter]

How does the central bank fit into this? If commercial banks are free to issue lones to their liking independent from interest rates or reserves, what is the central bank needed for/ how does it influence the process?

Are US, EU, and other nations’ banks also exempt from their home countries’ Client Money Rules or equivalent? Seems like they must be, just checking.

[scott]

You left out the second half of this which is when the customer pays off their loan. The liability and the asset disappear back out of existence.

[mjsmcd]

Lcr % rate must be maintained so that lo
Iimits amount of loans it can make
of even created money does it not?

[mjsmcd]

You said recieves money from a banks credit for borrowers acount so its not created from nothing is it?

[mjsmcd]

Cam u explain svb bank failure when they lent out customer deposits or did they merely purchase treasury securities rhat devalued when interest rates rose causing the failure to repay depositors ? Thanx

[hughmccall]

When you have paid your loan back in full to the bank do you have a right to get your loan agreement back?

[susllim]

Do development banks such as the IMF operate in the same way?

[mjsmcd]

So bank loans reclassified as customer loan to bank?

[Car-guy]

How do banks make a loss on loans which are not repaid if the money was created rather deposited ?

[hughmccall]

when you have paid your loan back to the bank in full do you have a right to make the bank return your loan agreement to you?

[vihodanyet]

I asked my econ professor why low in come countries dont do their own form of QE (the type proposed by Werner originally) and he said because Low income country cannot monetize their debt.. so they have to use foreign creditor?
But why? Why cannot they monetise their own debt?

[mjsmcd]

Money created by loan is deposited to borrower from where?