Go Lean ... Caribbean

Blog - How to Create Money from Thin Air

“Money does not grow on trees”, according to the old adage. If it did then the tree would be special, it would be producing a chattel good that is designated as monetary currency. Even still, this scenario would not be “thin air”, it will be trading goods for goods. This can be illustrated with a barter exchange of fruit for some other merchandise, say silver. If the silver is viewed as money, then the process of growing and harvesting the fruit will result in money (silver) being acquired based on the fruit from the tree. So money can grow on trees! Something more amazing happens in our modern economic system, money is created out of “thin air” – no trees, no fruit, no silver. How is this possible? This is accomplished through the Commercial/Central Banking system. First of all, banks are financial institutions that take in deposits from people and use their money to give out loans to others. The reason why banks provide this service [to the community] for free is because they earn a profit by letting people deposit their money. Banks charge higher interests rates on the money they lend out compared to the money deposited. All in all, banks are both borrowers and lenders. People trust banks to store their money. The deposits allow banks to lend out money with higher interest rates with the expectancy that the loans will be paid back. Banks have something called a required reserve ratio, mandated by the Fed. This is the ratio of reserves to total deposits that banks are supposed to keep as reserves. Banks also have the right to increase the reserve ratio. They lend out the remaining percentage. For example, the bank has a 10% reserve ratio meaning it reserves 10% of its total deposits. It will then lend out the remaining 90%. When a person deposits $100, the bank is able to lend out $90 and keeps $10 for reserves. The $10 does not count as money since it is used as a reserve and may not be used for lending. So far, the bank has $100 and $90 currency loaned out. This is a total of $190 created as opposed to $100 before. Currency held by the public is money. Of course, the borrower doesn't simply keep the $90 but he will spend it. For instance, he will spend his money for a pair of soccer cleats at the Nike store. Now the Nike store has $90 but it will then deposit it back into the bank. The cycle then repeats itself. If the bank has more borrowers, it will certainly make a profit. If it lends again, it will lend out $81 and keep $9 on reserves. The way banks create money is a cycle and over time, the profit compounds on top of each other and the original $100 can be [extended] potentially [to as high as] $1,000.[a] So the new $900, compared to the original $100, is created from “thin air”. “To whomever much is given, of him will much be required” – Luke 12:48 (World English Bible) This scripture is quoted in the book Go Lean ... Caribbean, in the advocacy “10 Ways to Improve Leadership” (Page 171) showing the great responsibility and accountability of leaders managing monetary affairs; they can create money out of “thin air”. This power, however, has often been abused by Caribbean officials and has resulted in tragic cases of hyper-inflation, currency devaluation and ultimately: human flight - people’s money lost value overnight due to no fault of their own. The same as money can be created, it can also disappear into “thin air”– Anecdote (Page 149) & Appendices (Pages 315 - 7). The Go Lean roadmap does not just state the problems but provides solutions as well. Those solutions are proposed in the implementation of the Caribbean Union Trade Federation (CU) and the adjoined technocratic Caribbean Central Bank (CCB), as an independent agency. The mandates in the Go Lean roadmap focus on inflation (Page 153), foreign exchange (Page 154), interest rates/credit ratings (Page 155) & debt management (Page 114). The CCB is to be led by professionals who are well trained to execute the leadership roles for a unified Caribbean currency. They will be “given much”; because the CU is modeled after the European Union and the European Central Bank (ECB) – see (Page 130). The CCB leaders will be schooled in the arts and sciences of monetary affairs by the ECB. In addition, the leaders of the existing Central Banks of each member-state will serve as Governors of the CCB with appointments for 14 years, thus insulating them from political influences and persuasions – see 10 Reforms for Banking Regulations (Page 199). This is the hallmark of a technocracy! The book Go Lean ... Caribbean serves as a roadmap for Caribbean economic optimization. It posits that the creation of money will be enhanced when all Caribbean member-states integrate their currencies into a single currency, the Caribbean Dollar, and also their economies into a “single” market. The economic initiatives will create new services, jobs, investments and opportunities. Yes, the end result will be money created out of “thin air”, but more so because of a vibrant economy than just the deposit-loan-commercial banking paradigm. The originating activity, as defined in the roadmap, is the stimulus for economic gains. The roadmap projects an $800 Billion economy (GDP) after the 5-year implementation, up from $278 Billion. These numbers will be manifested with the creation of 2.2 million new jobs, and a better place to live-work-play.

Reference: a.      Wiki-Answers; retrieved on 03/19/2014 from http://wiki.answers.com/Q/How_are_banks_able_to_create_money.

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