How can the banking system be broke if the banks can create their own money?

I would like to thank Nonsensikvadrat for helping me translating this to English.


The system is broke – but how can that be if the private banks are able to create their own money?

This is a very valid question that creates a lot of confusion and it needs to be answered. The simple answer is:

Banks do not create money, they only create debt.

The understanding of this is critical, for herein lies the answer. Banks create debt, they do not lend anything to anyone, nor do they create money.

The numbers that appear on bank accounts are not the result of the bank lending the account owner this amount of money, it is the result of two simultaneously created fictitious debts. The banks debt to the account owner is the amount on the account, and the account owners debt to the bank is the agreement the bank made him/her sign.

No money has been created, nothing has been lent to anyone, all that has happened is the creation of two fictitious debts between the customer and the bank.

Hence banks can not create money, so they do the next best thing. The try to convince people that their debt (the amount on the bank account) is actually money. As long as they succeed in doing this, the trick is never exposed. If, however, enough people catch on and start demanding to get the actual money by withdrawing cash from ATM:s for instance, it quickly becomes apparent that the amount on their account is only the banks debt, their promise to pay this amount of money, not the money itself.

So again (and I’m sorry if this get a bit repetitive); banks do not create money, they only create debt. Hence, the banking system are exactly as indebted as all their customers combined.

Further, let us prove that banks do not lend anything:

a) The bank account of the customer is actually what the customer lends to the bank. In other words, the account is the banks debt to the customer, nothing more, nothing less. The customer can demand that the bank pay him this amount of money by withdrawing it from an ATM for instance.

b) Hence, the “loan” from the bank that ends up on the customers account is in fact the banks debt to the customer.

In other words, the money the bank claimed to have deposited on the customers account as a “loan” is immediately borrowed back by the bank. If you lend someone something and immediately borrow it back, did you really lend anything?

Again: what the bank really does is to create a fictitious debt to the customer (the amount on his or her account) and a debt to the bank (the agreement the customer signs), no money is lent to anyone.

The banking cartels strategy is therefore:

1) The bank “lends” money it does not have to the customer, makes him believe the money is in the account, then borrow this nonexistent money back.

2) Make the customer believe this nonexistent money is his debt to the bank that has to be repaid no matter what.

3) Hide the fact that the bank borrowed this nonexistent money they “typed into” the customers account back, and thereby making it their debt to the customer.

4) Keep telling the customer that they do have money on their accounts even though they do not because the bank has actually borrowed it back.

5) Create a system that allows banks to transfer their debts (the amount on the customers accounts) to and from each other by means of a central bank. Only members of the banking cartel can access the “digital cash” that they use to compensate each other for “taking over” each others debt to customers. This way, no member of the banking cartel ever has to actually pay their debts to the customers. Customers think that they actually transfer money to each others bank accounts, but all they are doing is moving bank debts around. In other words, they gain or loose some bank debts to or from their accounts, NOT money. The banks simply don’t have the money if the customers make to many withdrawals at the same time, so the banks are as broke as the rest of society and totally dependent on keeping their debt within the banking ”swap debt” system.

6) Ban the use of cash. Since this is the only way for the customer to demand the bank to pay up, a cashless society means a complete debt writeoff for the banks.

Summary and conclusion:

So the digital ”payment” system is actually not a payment system at all – it’s a ”bank debt swap system”. Customers don’t pay each other money through the banking systems accounts – they swaps bank debts so the banking system as a cartel don’t have to pay their debts to customers. The banks simply don’t have the money if the customers make to many withdrawals at the same time, so the banks are as broke as the rest of society and totally dependent on keeping their debt within the banking ”debt swap” system.

Positive money


“of all the many ways of organising banking, the worst is the one we have today.”
Mervyn King, Chef för Bank of England

16 thoughts on “How can the banking system be broke if the banks can create their own money?

  1. Jag la upp en kommentar på positve money blogg:

    ”A good interview but I actually think we have to take it a bit further.

    As Ben points out – the system is broke – but how can that be if the private banks are able to create their own money? Why are the banks in as deep water as the rest of the society? The answer is that the banks don’t create money – they only create debts. The banks put them self in debt when a “loan” is created to the same amount as the customer – no money is created – only two debts on the same amount. The banks then makes us think that their debt (the figures on the customers account) IS money by giving the impression that customers pay each other money when a transaction between two accounts occur. But in reality the only thing happening is that the receiving account is getting more bank debt registered and the “sending” account is getting less bank debt registered. So the digital “payment” system is actually not a payment system at all – it’s a “bank debt swap system”. Customers don’t pay each other money through the banking systems accounts – they swaps bank debts so the banking system as a cartel don’t have to pay their debts to customers. The banks simply don’t have the money if the customers make to many withdrawals at the same time, so the banks are as broke as the rest of society and totally dependent on keeping their debt within the banking “swap debt” system. The cash less society would, in other words, mean a total debt write off for the banks, since the only way in the current system that the banks can pay their debts are when customers make withdrawals.

    I wrote a blog showing this (sorry for any spelling and/or grammar errors – I’m from Sweden so feel free to help me improve the text)”

  2. La upp en till kommentar på Positive money:

    Thanks Tony and Dave!

    I agree! Preserving the physical cash I s very important!

    But what positive money is trying to achieve – trying to take away the banking cartels monopoly on “digital cash” at the central bank and make it a public resource is equally, perhaps even more, important (I prefer to call it “digital cash” instead of calling it “central bank money” – digital cash is more telling since it’s cash but in digital form stored at the banks digital deposits at the central bank).

    The banking cartel use the digital cash at their account at the central banks to compensate each other when one bank overtake another banks debt (the transaction between one costumers account on one bank to another customers account at another bank). The bank that receive the other banks debt will increase it’s debt to it’s customer (the customers account will increase – hence the banks debt to the customer increase as well) – the receiving bank therefore demand that the sending bank also put up an equal amount of digital cash so the receiving bank get compensated. The sending bank will reduce it’s debt to it’s customer (the customers account will decrease – hence the banks debt to the customer will decrease) and the bank will at the same time compensate the receiving bank with an equal amount of digital cash.

    So the banking cartel use their monopoly on the digital cash to compensate each other when they do debt swaps. This is done through the central banks clearing mechanism. That is to say when customers make a transactions between two different banks. The bank don’t need to use it’s digital cash if the receiving customer and the sending customer have the same bank since the bank wont increase it’s total debt to customers – the bank doesn’t need to compensate itself for overtaking it’s own debt so the transaction will occur between accounts within the bank not involving the central bank clearing system at all.

    What would happen if, let’s say, Positive Money open a bank that have access to digital cash at the central bank and this “Positive Money Bank” offered 100% reserve accounts? This would probably lead to a digital bank run from other banks to the “Positive Money Bank” when people realize that their bank actually are broke and don’t have almost any money – just a lot of debt (=customers account).

    So the real battle is making the digital cash at the central bank a public resource and Positive Money is making an excellent work in trying to take this monopoly held by the banking cartel away from the banking cartel and restoring it to the people.

    I made blog article in Swedish presenting the clearing process (debt-swap-compensation-system could be an expression substituting the words ”clearing system”). Perhaps it’s clearer then my presentation above (it’s actually rather convenient blaming any misconceptions and misunderstanding on the fact that my native language is Swedish🙂 ) I could try to translate that as well.

  3. Helt otroligt att du orkar med allt med tanke på vad du ofta kallas. Har läst på Positive Money nu och det är mycket intressant hur du blir bemött där. Aningen snällare än vad du är van vid. Men det klart, de är väl haverister hela högen;)

    Kommer fortsätta kolla denna länk, tack för infon!

    • Tack men Nonsensikvadrat ska ha mest cred då han översatta inlägget.

      Jag vet inte om jag kommer så mycket djupare – det konstiga är att ju djupare man förstår penningsystemet, desto mer frapperande tunt framstår det – det är ett simpelt bedrägeri som döljs under massa lager av nonsens och låtsasspråk.

      Jo, dom var riktigt snälla!

      • Nja, det är ju dina grundord så eventuell cred är din🙂

        Vad tror du om att göra en engelsk version av parasitstopp? Du har ju massa bra du skrivit som bara ligger här och längtar efter mer läsare på andra språk. Jag hjälper gärna till om det behövs, jag har fått ut mycket av att läsa din blogg så det minsta jag kan göra är väl att bidra lite tillbaka. Jag tror ärligt talat att du skulle få stor läsarkrets om du bara ville. Du har faktiskt något av värde att framföra.

      • Jovisst! Jag vet inte om jag hinner den närmsta tiden (bloggandet har ätit mycket av min arbetstid så jag har lite dead-lines som jag måste se till att klara – jag kan inte låtsasarbeta mer – tror de kommer på mig snart🙂 ). Men det skulle vara skoj.

      • Enligt Corny är det kunderna som skapar skulderna – fast han förnekar att det är bankskulder han säger att det är pengar:
        ”Nej, Lincoln förnekar att den som tar lånen har någon delaktighet eller ansvar, eller rent av är den som tar initiativet till pengaskapandet.”

        Jag stoppade in en kommentar som jag tror hamnade i ditt spamfilter på din blogg. Jag är bortplockad från att kommentera på alla möjliga ställen🙂 Även om jag är ologgad som Lincoln.

      • Låntagaren skapar inte pengar, den lånar pengar. Banken skapar pengar och lånar sedan ut dem. Aja, det är inget nytt för er på den här bloggen.

        Jag håller med om att bankskulder i sig inte är kontanter (det vi kallar pengar), men då deras skulder omfattas så fort de skapas av insättningsgarantin och har speciella förmåner som deltagare i RIX så är bankskulder pengar. Staten och Riksbanken garanterar att skulderna kan omvandlas till pengar -> kontanter.

        Ben Dyson från Positive Money säger samma sak, banker skapar pengar, inte kredit i början av det här klippet:

      • Jag är lite slö så jag kopierar och klistrar in mitt svar hos dig (så förhoppningsvis fler upptäcker din blogg🙂 )

        ” bankerna skapar egen inlåning” är en ”contradiction in terms”🙂 Hur kan du låna till dig själv? Om jag tar min stekspade och ”lånar” den till mig själv så måste jag nästan vara schizofren för att gå på det, eller hur🙂

        Jag kan svängen med RIX och ”insättnings”garantin (vilken insättning? – Inget sätts ju in) men det förändrar inte att logiken ovan är kortsluten. Dessutom finns inte en långivare och en låntagre det finns två till samma summa
        Det som står på kundens konto är ju vad banken lånar av kunden så man kan lika gärna hävda att banken är låntagare och kunden är långivare. Men om båda parter är i skuld på samma belopp samtidigt tar skulderna ut varandra så i realitet finns ingen långivare eller låntagare alls.

        Om bankerna skapar pengar hur kan de då vara skuldsatta? Svar – de skapar inte pengar de skapar två påhittade skulder samtidigt som de sätter kontokunden och sig själv i skuld med och inget annat. För varje påhittad skuld som en skuldslav sätts i finns mao en motsvarande bankskuld – så bankerna är lika djupt skuldsatta som alla skuldslavar tillsammans.

        Banksystemet behöver snurra upp folk i kortslutningar för att kunna få dem ge upp att studera systemet.

  4. La till en till kommentar på positive money:
    I totally agree with you, Tony – the real problem is that people seems to be stuck into a permanent ”Brave new world” coma.

    I should perhaps be more specific when I talk about the banking cartel. I refer to the so called tier1 banks that have direct access to digital accounts on the central bank (there are about 6 or 7 tier1 banks i Sweden – I don’t know the numbers in Great Britain but I guess number of tier1 banks are pretty few in your country as well)

    The tier2 banks operates within the tier1 banks meaning that tier2 banks don’t have accounts on the central bank and direct access to the digital cash (central bank money). Tier2 bank got regular accounts as ordinary customers on the tier1 banks instead. So tier2 banks are a sort of secondary player. These can often have very good intentions but they can only use tier1 debt since they only are annexes to the tier1 banks and don’t have any real accounts of their own.. We in Sweden got a couple of these well intended banks – for instance JAK is a Swedish tier2 bank that want to work according to 100% reserve banking but since they cant get to the digital cash (central bank money) they are stucked to re lending what ever they have on their tier1 banks account – JAK cant lend digital cash even if that’s JAK member banks inner wish.

    So the tier1 banks blocks banks that want to do banking according to the 100% reserve ratio. This is primary done by making the price of the ”entering ticket” extremely high so the tier2 banks can’t possibly enter the inner circle (costs for computer systems, ATM machines etc) .

    So I don’t mean that all banks are bad but the tier1 banks are looking after their interest. Hopefully PM nad other money reformers can wake the people up and demand that the payment system has to be a public utility and not a special interest utility.

  5. På tal om Positive Money, här finns två föredrag av Richard Werner på Tyska. Jag kan inte Tyska tyvärr men för de som kan så kan dessa vara väldigt intressanta.

    Detta verkar vara helt färskt tror jag

  6. Tack Lincoln utan din blogg hade jag aldrig hittat Steve Keen, Richard Werner, Michael Hudson mfl.

    På tal om Positive Money, har du sett deras senaste videor om hur pengar skapas? De är sjukt välgjorda, precis som boken ”Where does money come from?”

    Misconceptions around Banking – Banking 101 (Part 1)

    De har också gjort några korta informationsklipp om varför huspriser är så höga, varför vi har så mycket skulder och om banker är förenliga med demokrati.

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