Originally Posted by
Gavilan
When is money created?
Well, in our present system of political economy there are two fundamental ways money is created.
One way is when government officials authorize and issued bonds, that is to say IOU’s or better known as promises to pay. The government officials cause the bonds to be issued and the amounts to be recorded in the financial books. Next, those bonds are pledged to the Central Bank, and the central bank credits the amount of the bonds to the government’s accounts. All right, that is one of the fundamental ways of money creation. Now the other, you create an IOU and give pledge it to your banker, but that is not enough security for your banker, yes, you are a nice guy and all, and your banker likes you a lot, but you need more security for your banker to create money, and what is that security? Glad you asked, your banker needs you to pledge real estate, yes, your house, farm, factory land and buildings, or commercial land and building. Got it? Good, yes you need a piece of land, and much better with improvements. Ok, so you pair your promise to pay, the IOU with your real estate pledge called a Mortgage, from that now your banker can create new money.