ALB wrote: that New Economics

that New Economics Foundation video starts with a quote for Sir Reginald McKenna, dating from 1924, when he was chairman of Midland Bank (now HSBC) though it gives the impression that it dates from 1915-6 when he was Chancellor of the Exchequer, which is all over the internet on Monetary Reform sites including US ones.

I am afraid the ordinary citizen will not like to be told that the banks can, and do, create and destroy money. The amount of finance in existence varies only with the action of the banks in increasing or decreasing deposits and bank purchases. We know how this is effected. Every loan, overdraft, or bank purchase creates a deposit, and every repayment of a loan, overdraft, or bank sale destroys a deposit.

While banks have this power of creating money it will be found that they exercise it only within the strict limits of sound banking policy. Anyone who studies the monthly statements of the London Clearing Banks will find that these banks keep a reserve of cash fairly constant in relation to their deposits. If banks increased their loans and investments the result would be to increase the aggregrate amount of their deposits, but to add nothing to their cash resources. The proportion of cash to deposits would be reduced, and, in the judgement of those responsible for the management of the banks, would be less than sound banking principles dictated. Thus a limit is placed on a bank’s power of lending by the amount of its cash and, so long as the canons of conservative banking are conformed to, additional loans can only be made if this cash is increased. Banks lend or invest up to the full amount by their cash resources, but they do not go beyond that point.