Where Does Money Come From?
Money comes from banks. It doesn't come from central banks or government but from local banks.
If the central bank puts 1000 in bills into the local bank, that bank can lend out $10,0000.
The foundation of the money supply is not in the paper that the Bank of Canada prints, but in the collateral that is put up for the loans.
The fluctuations in the economy create oportunities for profit, but this profit is always toward the bigger players.
The fluctuations in the interest rates that seem universally accepted as being progressive, are in fact the biggest catalysts of instability that there are.
A common perception is that the paper dollars that are in use are backed by some gold standard. However, in fact, it is the borrower/user of money that provides the collateral for loans. Collateral is the basis for cash supply.
- a central idea that was evident in our discussion had to do with the need for financial/fiscal literacy and awareness regardning the current and historical misconceptions about where and how money is mobilized through the financial world and the markets. It is clear that with this current economic challenge, there is a much greater attention on trying to understand the issues and with respect to money and monetary policy, now is the time to educate the broader population.
Should the government regulate the Bank of Canada?
Fluctuations in the interest rate cause problems in today's economy.
The Bank of Canada as well as the Government of Canada should be more responsible for the effect of changing interest rates as they impact upon the ordinary citizens.
Cutting the interest rates impacts upon local bank who then become more selective in approving loans.
Only when the banks make the loans is the cash supply increased.
The question as to whether the government should regulate the central bank, I think would be better as to whether the government should further regulate. It is my firm conviction that base interest rates that are set by the central bank should not be allowed to fluctuate at all. The fluctuation is not at all desirable.
