Credit Creation


The most important feature of banks: credit creation
(Extracted from: New Paradigm in Macroeconomics, Richard Werner*, Palgrave Macmillan,2005; pp. 174-180)


Many economics textbooks that mention banks still acknowledge that they can ‘create credit’. However, it appears that the original meaning of this expression has been lost.Those textbooks and authors that mention the words credit creation now give it quite adifferent meaning. Proponents of the present-day ‘credit view’ define credit creation as ‘theprocess by which saving is channeled to alternative uses’ (Bernanke, 1993, p.50).

To Bernanke, ‘credit creation’ is therefore the ‘diversion’ or transfer of already existingpurchasing power. This is also the understanding of the concept by economists from other persuasions, including monetarists like Meltzer (1995). They all therefore agree in classifying banks as mere financial intermediaries, providing services similar to and in parallel with non-banks and capital markets. [21]

Clearly, thus defined, credit creation would not be a unique feature of banking. proponents of the credit view consequently also argue that credit aggregates are not to be considered an ‘independent casual factor affecting the economy’; rather,credit conditions – best measured, by the way, by the external finance premium and not the aggregate quantity of credit – are an endogenous factor that help shape the dynamic response of the economy to shifts in monetary policy.

Thus the theory has no particular implications about the relative forecasting power of credit aggregates. (Bernanke andGertler, 1995, pp. 43ff.)

The representation of banks as mere intermediaries is perpetuated by the explanation of credit creation in textbooks, which depict it as a process of successive lending of already existing purchasing power by intermediating banks. Figure 12.1 reproduces the textbook representation of credit creation: Bank A receives a new deposit of US$100. If the reserve requirement is 1%, textbooks say that the bank will lend out US$99, and deposit US$1 withthe central bank as reserve.

The US$99 will, however, be deposited with another bank,Bank B, which will also be able to lend out 99% of that amount (US$98.01) . and keep 1% as reserve. This process continues until in the end a total of US$9900 has been lent out.

Textbooks represent credit creation as successive financial intermediation. According to this description, a single bank is unable to create credit…

Many years ago I was involved in food coops, and recently went to Kos.  I was impressed by the many small Greek Orthodox chapels, all with kitchens and dining areas, and looking up the numbers of Saint’s days, understood why!

Nearby islands are blue zones, with the highest life expectancy on the planet.


Why are we handing out food to the deserving poor?  Yessir, no sir, three bags full sir. What was that report that people cannot afford to cook it?

Why is it not a community celebration, eating good, well cooked, tasty, well presented food together in  beautiful surroundings, sharing, wine, music, people contributing what they can – what is that saying from each according to their ability to each according to their need?

There is some interesting stuff in the new testament – they ate together, maybe the alleged miracle of the loaves and fishes was actually people sharing?


Reading Charles Mann 1491, also have his 1493 that goes into more detail about the effects of pre Columbian American crops on the world. He quotes H Garrison Wilkes. The Milpa ” is one of the most successful human inventions ever created”. granta 2005 p198




“Charles C. Mann described milpa agriculture as follows, in 1491: New Revelations of the Americas Before Columbus:[2]

“A milpa is a field, usually but not always recently cleared, in which farmers plant a dozen crops at once including maizeavocados, multiple varieties of squashand beanmelontomatoeschilissweet potatojícamaamaranth, and mucana…. Milpa crops are nutritionally and environmentally complementary. Maize lacks the amino acids lysine and tryptophan, which the body needs to make proteins and niacin;…. Beans have both lysine and tryptophan…. Squashes, for their part, provide an array of vitaminsavocadosfats. The milpa, in the estimation of H. Garrison Wilkes, a maize researcher at the University of Massachusetts in Boston, “is one of the most successful human inventions ever created.”[2]

The concept of milpa is a sociocultural construct rather than simply a system of agriculture. It involves complex interactions and relationships between farmers, as well as distinct personal relationships with both the crops and land. For example, it has been noted that “the making of milpa is the central, most sacred act, one which binds together the family, the community, the universe…[it] forms the core institution of Indian society in Mesoamerica and its religious and social importance often appear to exceed its nutritional and economic importance.”[3]

Tool Libraries

I have a cellar full of tools and man stuff.  But why?  As we have libraries and car sharing and car clubs why not share many many more things like tools, gardening expertise, design skills?

Why do individuals drag around van loads of stuff when they could be picked up using a cargo bike from a local base that has ensured everything is in good working order and fit for purpose and curated for the specific tasks?

Why are many many workers driving around all over the place when people could be working for with and in their local communities?

Everyone has a dream of the local butcher, baker and candle stick maker, but why not truly local businesses, care taking  and place making localities?

In the care world there are moves to care workers working on patches so they are not going huge distances and are able to build up local knowledge and networks.  The community health worker is a similar geographically based idea.

But why not repair and maintenance services, care taking, cleaning, catering also locally based, working together in co-operative pro-active teams?


The Grip of Death

I was recommended this book somehere!


I am as McDonald’s say “luvin it!”

My degree includes Economics and it is wonderful to read something that brings together many loose threads and discusses myriad illogicalities.

Rowbotham uses the phrase “debt based financial systems.”

I just checked wiki and the government only creates 2% of the money in circulation in Britain M0, whilst banks, wonga et al create 98%, all of which involves interest charges…..

It has always puzzled me how come it is more profitable for a Post Office to stop using a building it paid for years ago and then rent a space in a WHSmith, how come companies are better off taking out huge debts to hedge funds, why mortgagees are still paying for properties that were built and paid for fifty, a hundred years ago….

Similarly, developing country farmers are told they must by seeds, fertiliser, diesel, pesticides with loans…..

Why? The potato park in Peru didn’t have that – the Aztecs didn’t actually have money.


I am a strong gnostic atheist – I know there are no gods except the flying spaghetti monster, (bless her noodliness), the invisible pink unicorn and the dark goddess of chocolate.

I did not realise how religious the world is with their god mammon, its holy spirit of the free market and its saviours the hedge fund and the banker!

Just got this from kindle and it is bringing a lot of threads together!  Anyone heard of Keri Smith or John Rowan?

I used to say to my children if they fell over “say sorry to the pavement”.

I have just come in from shopping and put my keys into the front door, the door opened with a creak, there were various rattles and squeaks.  

It is utterly and profoundly true that there are spirits everywhere and stuff has agency – a key broke recently causing chaos – I was not being mindful about what I was doing.  Another related book is a history of noise.  This discusses Wells Cathedral and the amazing sounds that come out of it if trumpets are blown at certain places.

I saw a few years ago a bloke repairing some sash windows in a house overlooking a canal in Amsterdam.  The house is 400 years old.

Sustainability is very easily achieved – we just have to go gently and say good morning to the front door lock!

Subversive Spiritualities discusses the peoples of the Peruvian high Andes and the mess caused by very clumsy modernist agricultural methods, and fascinatingly, the things in its coat tails, Marxist and evangelical xian ideologies.

 We need to reinvent our own rituals and dances of life.


Very interestingly pagan this!


“Most High, all-powerful, all-good Lord, All praise is Yours, all glory, all honour and all blessings.

To you alone, Most High, do they belong, and no mortal lips are worthy to pronounce Your Name.

Praised be You my Lord with all Your creatures,
especially Sir Brother Sun,
Who is the day through whom You give us light.
And he is beautiful and radiant with great splendour,
Of You Most High, he bears the likeness.

Praised be You, my Lord, through Sister Moon and the stars,
In the heavens you have made them bright, precious and fair.

Praised be You, my Lord, through Brothers Wind and Air,
And fair and stormy, all weather’s moods,
by which You cherish all that You have made.

Praised be You my Lord through Sister Water,
So useful, humble, precious and pure.

Praised be You my Lord through Brother Fire,
through whom You light the night and he is beautiful and playful and robust and strong.

Praised be You my Lord through our Sister,
Mother Earth
who sustains and governs us,
producing varied fruits with coloured flowers and herbs.
Praise be You my Lord through those who grant pardon for love of You and bear sickness and trial.

Blessed are those who endure in peace, By You Most High, they will be crowned.

Praised be You, my Lord through Sister Death,
from whom no-one living can escape. Woe to those who die in mortal sin! Blessed are they She finds doing Your Will.

No second death can do them harm. Praise and bless my Lord and give Him thanks,
And serve Him with great humility.”







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