Rizal Philippines
April 18, 2017
97% owned
I just watched a documentary from ANC which is in the You Tube, about money creation by private commercial banks. Banks create money by lending. I have understood it early on when we founded a savings and loan association. The largely held belief was that:
1. Deposits generation or money is a zero sum game. The deposits, money in circulation is fixed. That if you campaign for deposits, it would be taken from another bank. Thus the rural bank which was our competitor which had only P1 million in deposit (I used to work there) would lose a part of that deposit to us. However it did not happen that way. We ended the year with P5 million in deposits and the rural bank had two million deposits.
2. That deposits are just like money in piggy bank. Deposits are just like coins and bills put in a piggy bank and you take it when you break the piggy bank
Being a non banker,
1. I found out that the CB and commercial banks create money And you create money by lending. That money is an IOU a debt paper issued by the central bank
2. There is no gold reserve. It is fancy money. Created only by accounting system. It looks like crazy system
An entity like a savings and loan association can create money. 5 years later, the deposit of the bank was up to P100 million and they did not just come from savings of depositor. Some of them came from lending
3. That a business cant grow fast enough if you do not create your own money. SM created money by creating gift check. Now it creates more through credit cards. As far as our business is concerned we created money by lending retail mortgage loan to the buyers of the real estate company we organized. We lent to buyers, the buyers paid the real estate company, the real estate company deposited the sales proceed to the bank. The sales of the real estate company grew, the deposits, (deposited by the real estate company)assets of the bank (in the form of loans) grew. And these were all legal
