Money supply 100% borrowed — the banking system lends us a dollar today for buying, hiring and paying debt in exchange for us returning a dollar of principal and a dollar of interest tomorrow

1. Money Supply 100 % borrowed — the consequences

2. Dick Eastman answers Lord Adair Turner

“Money supply 100% borrowed — the banking system lends us a dollar today for buying, hiring and paying debt in exchange for us returning a dollar of principal and a dollar of interest “tomorrow” — that is the hard fact Dick Eastman is telling you.” *

Yes, banks do create out of thin air. I know that.

All dollar and Euro deposits are from thin-air. When you find a hundred euro and deposit it in the bank — the euro itself was made from thin-air (but the loan is “secured” by a pledge of collateral, by home equity, by the borrower’s assets, by bankruptcy laws) the bank will use it as “reserve” and make 5 or 10 or some other multiple of the original sum. I always say that the money comes from thin air.

And what about reserves and fractional reserve banking. That is thin air too. It takes a thin air euro dollars to make more thin-air euros or dollars.

The explanation I gave you of how the thin-air system really works. But in my letter to you I explain much more than the simple fact that our money comes from thin-air — although I included that fact too SEVERAL TIMES! I explained the much more important fact of interest drain that is built into the system. Let me say it again with stronger and clearer words:

Our money is loaned thin-air money. The banking system lends one dollar today on condition of paying the bank one dollar principal and one dollar interest “tomorrow.” In Italy the people get from a loan 1 euro through a loan to use as money for buying, hiring, paying debt — but “tomorrow” they must repay 1 euro of principal and 1 euro of interest.

The extra euro to pay interest and the extra dollar to pay interest were never created. Someone has to default on loans – that is the way the system works.

You tell me I am wrong because, you say, my “view of money creation is totally fictional” — you imply that I am giving you a “mythical story about what banks do” and that Lord Turner of the City has the truth and that you believe Turner and not me.

Here is my letter of April 21, 2014 with the subject, “Dick Eastman versus Baron Adair Turner of Ecchinswell.” It would not occur to me to consider him a friend of the Italian people, or the Greeks, or the Irish or English or Americans or of anyone except the Money Power which he serves.

Perhaps if you read Lord Turner’s statements you will see that he is not the savior of economies that you think him to be.

As I wrote on April 21st — the full detailed critique of Turner’s false remedy for Europe follows below:

Damn it to hell! This guy has started off like he is addressing this new great depression — caused by deflation — but what he is really selling is new controls to make sure consumption (standards of living of the populations) does not get going due to lending “too fast”. He completely misses the interest drain cause of depressions — and yes the interest drain can be helped along by banks calling in loans and deliberately as a matter of policy making fewer new loans — BUT THAT IS EXACTLY WHAT HE IS CALLING FOR — tightening of lending that reachers consumers — in other words austerity — even though his language, his spin, is as if he were looking for solutions to the debt crisis.

I hope you will reconsider your too hasty rejection of my analysis.


Dick Eastman
Yakima, Washington
Every man is responsible to every other man.


About oldickeastman

Born 1949 Oakland High School 1967 Lake Forest College B.A. Western Michigan M.A. Texas A & M University M.S. and two years completed in the doctoral program in economics, passing prelims in Macroeconomics I am living in Yakima, Washington and spend much of my retirement writing on public issues.
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