Money IS made from thin air

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." — Henry Ford

"Let me issue and control a nation's money and I care not who writes the laws." — Mayer Amschel Rothschild

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.” — Thomas Jefferson

Recently, I sent out an email with a letter I sent to the Prime Minister and the Treasurer about creating a new Australian Bank that works for Australians.  It's here: Overseas Banks Own Us

Some people found it difficult to believe that banks create money from “thin air”.

I asked Google’s Artificial Intelligence (Gemini) to provide details of how it is done. See the explanation below.

I also searched Youtube to find some videos about the process. Here are two videos:

1. Just 4 minutes: How Banks Create Money: 

https://youtu.be/O5DaC1Ujrrg?si=VVrtXtPr23xHTk8x

2. A longer explanation about the English Reserve Bank:

Can commercial banks create money out of thin air?

https://youtu.be/2Y0JOxRg5vE?si=Tg3wC4CHdKmiDOk5

A text explanation: I asked Google’s AI (Gemini) “How is money made from thin air”.  Gemini replied:

March 17, 2025.  Clem Clarke.

The concept of "money being made from thin air" is a common way to describe certain financial processes that increase the money supply without a direct increase in physical currency or tangible goods at the exact moment of creation. It's important to understand that this isn't literal creation of physical cash out of nothing, but rather the expansion of the digital money supply through various mechanisms. Here are the primary ways this happens:

1. Commercial Banks and Fractional Reserve Banking:

• Deposits: When you deposit money into a commercial bank, the bank is only required to keep a fraction of that amount in reserve (the reserve requirement set by the central bank).  

• Lending: The bank can then lend out the remaining portion of your deposit to other borrowers. This loan becomes new money in the borrower's account.  

• Money Multiplier Effect: This process can repeat as the borrower spends the loan, and the recipient deposits it into another bank, which can then lend out a portion of those funds. This creates a multiplier effect, where the initial deposit leads to a larger increase in the overall money supply in the form of bank deposits (digital money).

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Example: If the reserve requirement is 10%, and someone deposits $100, the bank can lend out $90. This $90 is then deposited elsewhere, and that bank can lend out $81, and so on. The initial $100 can potentially lead to a much larger increase in the total amount of money circulating as bank deposits.  

2. Central Banks and Quantitative Easing (QE):

• Buying Assets: Central banks (like the Federal Reserve in the US, the European Central Bank, or the Reserve Bank of Australia) can inject money into the economy by purchasing assets, typically government bonds, from commercial banks in the open market.  

• Increasing Bank Reserves: When the central bank buys these bonds, it credits the reserve accounts of the commercial banks. These reserves are essentially digital money created by the central bank.  

• Goal: QE is usually implemented to lower interest rates, encourage lending and investment, and stimulate economic activity, especially during times of low inflation or recession.  

It's crucial to understand that:

• This isn't free money: The money created through lending is a liability for the borrower, who has to repay it with interest.

• Central bank actions have consequences: While QE can stimulate the economy, it can also lead to inflation if too much money is created relative to the amount of goods and services available. Central banks carefully monitor these effects.  

• Bookkeeping entries: Much of modern money exists as digital entries in bank accounts and central bank ledgers. The creation of new money often involves these digital adjustments rather than printing physical cash.  

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In summary, "making money from thin air" primarily refers to the process by which commercial banks create new deposit money through lending based on fractional reserves, and how central banks increase the money supply by purchasing assets and crediting bank reserves. These mechanisms expand the digital money supply, which is the dominant form of money in modern economies.