I have posted an explanation of how banks create money out of nothing at
http://betternature.wordpress.com/2010/03/15/how-banks-create-money-out-of-nothing/

Kevin Cox has posted a useful comment there explaining how things have become even worse than the text-book process.

A couple of commenters have noted that super funds hold bank shares, thus benefitting Aussie workers. True, but only those workers who have significant super. It would be better for all Aussie workers if the financial system were more stable and if the financial cowboys weren't parasitically siphoning wealth into their own pockets.

Yabby,
"That does not mean that they don't have to pay interest"
I didn't say they have no costs, so this remark is irrelevant. I said charging interest on money created out of nothing is unearned income.

It would be legitimate to charge a fee for the service of providing a medium of exchange, and that can be done in a way that is transparent, that doesn't concentrate wealth to bank shareholders, and that doesn't mess up the dynamics of the economy, creating booms and busts among other things.

Arjay, it's nice to know we can agree about something, even if I find some of your claims a bit lurid. :-)

For it, of course Peter Hume.

>>Pericles So are you in favour of fractional reserve banking, or against it?<<

Why do you ask?

*I said charging interest on money created out of nothing is unearned income.*

Well that is exactly where I think that you still have your wires
crossed. We went through all this before on OLO, but all the
URLs are stored on my old computer, not this one.

But if you go to the Westpac website, they are a public company
and their financials are all online. Deep in the bowels of the
Westpac annual accounts, you can see how much they earned in interest
and how much they paid in interest.

What it comes down to is that if Westpac borrow 100 $, they can't
lend out 900$, more like 92$. That does not mean that the money
supply is not increased, due to bank lending and borrowing.

Sir,

In your academic dissertation on the power and monopoly of our banking magnates, you ask, “What can we do about it?” I would have asked; “What do we wish to do about it?”

As everybody knows, though very few are still alive to remember, the High Court of Australia ‘upheld’ the opinion of the combine - private Banks and non Labor Governments of Victoria, South Australia and Western Australia- to defeat Chifley’s attempt (Banking Act 1947) to nationalize the banking service.

Hence, now we are experiencing the consequences of a decision of a Court of Law and it is to that Court and more cogently, to the very Constitution that has oppressed this Nation of ours for one hundred and ten years, that we should direct our attention.

Attention that immediately would reveal a contrast.

Democracy, we are told, is the Government of the people, by the people and for the people.

In our Democracy, we have a Constitution, written by Squatters-Lawyers, understood by Lawyers and, ultimately, of benefit to Lawyers.

Armies of lawyers crowd the High Court, Supreme Courts, County Courts, Magistrate Courts and Family Courts, and perform rituals obscure to the ordinary person.

Does anybody see in them a Corporation of sort?

Does anyone see bankers monopolizing money as Lawyers monopolize Legality and call it Justice?

It all looks like a hopeless inbreeding.

Pericle
>Why do you ask?

To see whether you are in favour of licences to print money substitutes.

Yabby, read the my post at the link carefully. The first loan made against $100 deposited (not borrowed) can be $92. But that can be deposited at another bank and a second loan made against it of $83. And so on until up to $1250 is loaned (with the 8% reserve requirement you seem to have assumed).

KinkyChristian, you are accepting the false dichotomy of conventional economics. We don't have to have either kind of bank. We can have banks that are stable and do not extract obscene profits.