MONETARY: Money creation, how are mortgage interest rates set

["Rodney Shakespeare" <Rodney.Shakespeare1@btopenworld.com>]

Dear Richard,

    Yes, the banks create money out of nothing, add interest and lend it.

    It is not for members of Monetary to try to defend the practices of
conventional banking e.g.,  a main justification for such banking is that
the money they create is lent for productive purposes -- and that is not
true, either.

    Could I invite you to visit www.globaljusticemovement.net and then hit
the orange button on the left to read about endogenous money?

Rodney Shakespeare.


----- Original Message ----- 
From: "Richard Collins" <richardc@richardc.co.nz>
To: <monetaryreform@cog.kent.edu>
Sent: Sunday, October 31, 2004 12:20 PM
Subject: MONETARY: Money creation, how are mortgage interest rates set


> Hello,
>
> This is not so much a question about money reform as it is a question
> about how the current system works.
>
> The traditional explanation of how banks lend money is that they take
> the money that their customers have deposited, pay interest to the
> depositors for the use of their money, which they lend on to other
> customers at a higher interest rate. The bank gets to keep the
> difference between the interest payed by the borrower and the interest
> payed to the depositer, which all sounds nice and fair, the bank did the
> hard work of organising it all. This apparently explains why borrowers
> are always charged higher interest rates that depositors are paid,
> otherwise the bank would be making a loss.
>
> However this explanation is not valid because the depositer's money does
> not become unavaliable to the lender when the money is deposited, and
> the lent money is in fact created by the bank.
>
> So my question is why are the interest rates changed to borrowers always
> higher that the interest rates paid to depositers (as far as I have
> seen)? Since the bank is creating the money it is lending, it could
> still make money at very low interest rates, though I expect a lot of
> inflation would occur in banks were to do so. Wouldn't the competition
> between banks make this outcome inevitable?
>
> Thanks,
>
> Richard Collins
>
>
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