Tag Archives: deficit

How Banks Create Money Out of Nothing, and Why It Matters

[This post replaces an earlier one, which does not properly reflect modern banking practice.]

coinsmedievalFor most people the question of where money comes from is probably a bit mysterious, that is if the question ever even occurs to them. They might recall that notes and coins are produced at a mint, owned by the government. However notes and coins comprise only a small percentage of the money circulating in a modern economy. The rest exists only as accounting entries in banks and other places. In other words it exists only as numbers in computers. How does all this money come into existence?

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The Problem is Private Debt, not Government Debt

The obsession on both sides of politics with cutting the Federal Government deficit is not only short sighted in the context of the recovery from recent floods.  It is also economically insupportable when private debt in Australia is more than twenty five times public debt.

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