How can a bank just create money?

  • SB
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Post 3+ Months Ago

I was reading this article on the BBC site which states how the Bank of England is to create £75 billion of new money. Money which just as far as i'm aware appear out of thin air.

http://news.bbc.co.uk/1/hi/business/7936319.stm

I've seen the video demonstration as to how it all works and still don't quite understand how someone can just create legal money.

Anyone fancy describing it all to me as if i were reading a "dummies" book?
  • joebert
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Post 3+ Months Ago

Where do you think the original money came from ?

Banks and governments create money all the time, just like a carinval hands out tickets you can turn in for prizes.

As long as the public trusts that the paper money is worth something, it is.
  • ATNO/TW
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Post 3+ Months Ago

To understand it you first have to understand a little of the history of the gold standard
http://www.economicshelp.org/2009/02/go ... ained.html

If you haven't read it, read their article on "quantitative easing". It essentially explains what they are doing
http://news.bbc.co.uk/2/hi/business/7924506.stm

The wiki definition also helps
http://en.wikipedia.org/wiki/Quantitative_easing
  • SB
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Post 3+ Months Ago

I've not read those links, so excuse me when i type this, if the UK can create 75 billion out of thin air then why don't poorer countries in South Africa (for example) do the same?
  • ATNO/TW
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Post 3+ Months Ago

Money is essentially worthless unless backed by something of value. In the old days it used to be gold. The way I'm reading it, in this case, they will be using it to buy government bonds (the "something of value") and then sell them back into the market when the economy recovers.
  • joebert
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Post 3+ Months Ago

The reason poorer countries can't do it, is the world knows they don't have anything to begin with.
  • SB
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Post 3+ Months Ago

Makes alot of sense now after reading those links. Thanks.

I loved how they used "bombs" as an example of what the bank would buy which has value in order to create the money.
  • George L.
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Post 3+ Months Ago

And when more money were made than the people can spend. That is where likely inflation happens. This is a great book for my holiday. Although, I am not residing in the U.S, but it is a good read for everyone to know something not easily can be found by normal business books.

That was also when money were a good source to spend building nuclear weapons.

I may be wrong because I have not finished with it.
  • Puneet Thakkar
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Post 3+ Months Ago

the money which people invest as a fixed deposit ... the same money bank uses for giving out loans ... and that too on high interest.

so i think that high interest which bank recovers from ppl while giving loan proves to be a gr8 income source.

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