The Money Scene

Headnote: after failure (temporary, we hope) to activate this blog's template, here is the content of it:

thelawofmoney.blogspot.ca 

The Cogs Blog (image of two connected gears)

A blog devoted to the law of money

 - money goes where money is - 

and how that law connects global history, economics, 

politics and tomorrow’s news-in-the-making. 

Heavy, heavy.

But not without a dash of whimsy and even, on good days, humour.  

BIO   (image of Gordon and a canon)

Just a retired geezerhead who has lived long and learned much.
Lots of credentials. Boring. 'Nuf said.
He also claims tho know a hawk from a handsaw, a debit from a credit,
a deficit from a debt, and the originals of democracy and republicanism.

Now on with the real Blog #2

No. 2  The Money Scene

Have I convinced you, dear reader, that there are two distinct kinds of Canadian (or American, or Chinese) money? 

There is cash, actually printed or minted by the governments, and there is what is known as credit money, created by the banks and rented to us.

You probably use the rented money for almost all of your transactions. As does General Motors or Exxon. It is not printed, except maybe as entries in your bank book. No printing press is needed for credit money. But it has to be rented.

But first, I promised to tell you how to get some money from the bank which you do not have to pay rent for. If I were an investment advisory, I would promise to tell you if you subscribe to my weekly Makeyourselfrich Investment NewsLetter at the special discount price. But just this once for you I’ll make an exception. Pay attention. The secret is  Buy bank stocks.

Now for the real secret. How do the banks create our money supply? It has been said by wiser economists than me, “It is so simple, it’s hard to believe.”

You may have seen those TV ads where a young couple beams at a bank officer - often a well-groomed, well-spoken young lady - with the couples’ best interests at heart - and she tells them what they want to hear. She will give them $25,000 for that new car, or for their daughter’s school fees, or whatever.

What follows - not shown in the ad - is a lot of document signing. In real life, one of them might want to read the documents. But she would have to be a super-fast, intelligent reader, like you, perhaps. At the critical moment, then, after you have signed the documents, the bank agent tells you that $25,000 has just been transferred to your account.

At that moment, at that very moment, $25,000 in new money has entered the national economy.

It is certainly real money. You write the cheque, and you get your car.

The process is so simple: a bank willing to lend makes an agreement with a client willing to borrow. And it is exactly the same process, if General Motors or Exxon wants to borrow a billion dollars. It's not cash, but it is real money, ready to be spent. 

And it is new money. The bank does not take it from a stack of cash in its vault nor shave it from an ingot of gold in the basement.

Next blog I’ll tell you how this works for the Borrower, and for the Bank. Remember the law, "Money goes where money is.”