After preparing an infographic on the gold standard, this follow-up seemed to be essential:
How to expand this image
If you press CTRL or Command and Plus (+) on your keyboard, your browser should increase the size of your page every time you do this. Press CTRL or Command and the Minus (-) key together to restore the screen to normal. I can get to at least 2 times the normal size by doing this.
How to download this image.
If you right-click the image, you should be given the option to download it to your computer. So long as you do so without a view to making a profit, you may do so without further permission. Commercial use requires consent. But if you just want to share it, do so with whoever and wherever you want. That is the purpose of these infographics.
The image library
We are planning a library of these images. It will be available soon.
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I appreciate what you’re trying to do here, but I feel that the “infographics” are becoming more info and less graphic. For the above, condensing each box to 3 or 4 points max would improve readability, while including relevant graphics could aid comprehension.
Also, Ctrl+0 will return the screen to normal in one go.
Noted
How would you rewrite this one then and keep the info, which I think the most important element?
I would split it into 3 panels, minimum. The first would consist of boxes 1 & 2 above. Boxes 3, 4 & 5 can consolidate into one box, “Where does money come from?” and join Box 6, “Where does money go?” on the second panel. Boxes 7 & 8 can form the 3rd panel, with some editing for conciseness.
It is a lot of information, so trying to fit it all into one panel could lead to overload, whereas spreading it out, drawing arrows between sections, for example, can ease comprehension.
A lot depends on your target audience, really, but I thought that the target audience for infographics would be those who might not have the attention to read through detailed blog posts.
We are still innovating. Your comments have been taken on board. See this afternoo0n’s versions….
Not sure you can – I think the trade off is “looks better” versus “less information”.
Now, I side with “more info” …. but that is me (and you, I suspect). But Richard C has a legitimate point… sometimes “less is more” and a piece with less text will appeal to many and, most importantly, stick in their minds and prompt further investigation.
The balance is hard…. and I am not the one best placed to judge.
PS. Content is as good as usual
See this afternoon’s efforts. The team are siding against me!
I love these infographics. Although I worked out many years ago that the current economic system since Thatcher was stacked against the best interests of most of society, I wouldn’t have had sufficient in depth knowledge to explain to others why this was the case. Since starting to read your blog a few years ago I do. These infographics are brilliant. I read them carefully and as I do I pretend I have to explain how the economy and financial system works to other people. This one on fiat money filled a gap in my understanding of a statement in an earlier infographic. I look forward to the image library. I hope it can be circulated very widely because it explains how the system works and why politics has become so degraded. I live in Farage’s constituency. Here many people have no idea how they have been deceived by the political choices made. You are doing really important work.
Thank you
As I have said before this is all about the government’s power to collect taxes and to make real goods and services available. It is not a self-contained system. Money is really just a set of promises and when those promises don’t deliver there’s a run on the bank. There is always an exchange rate and a black economy. And rich people who transfer their money offshore. A fiat currency depends entirely on the government’s power to enforce its use. That depends on its exclusive control of resources, including imports and its monopoly of violence. And all the world’s governments have in fact allowed control to pass to corporations and individuals who have contempt for national sovereignty and dictate to governments. They will use any currency they please, including crypto and oil, food, minerals, and they will determine the exchange rate. They decline to pay taxes or be held accountable in any way. So welcome to globalisation. As above, so below – ordinary people will inevitably follow the billionaires in avoiding taxes, walking away from debt and legal obligations, and selfishly grabbing whatever they want when they want. The whole system is collapsing because, led by the billionaires, respect for the law or any ethics is collapsing. Everyone for him /herself. The rot started with the ‘limited liability company’ and it is rapidly becoming the ‘no liability’ of supposed entitlement. As we are seeing in the Middle East, the only law is violence. Taxes cannot be collected. 10,000 Lebanese pounds are currently worth 85p.
The future will have to be local, modest, and co-operative. And exchange of goods and services will probably depend on home production and barter. The fiat currency was fine when there was still national sovereignty, but those days are gone.
I post this, whilst disagreeing with much of it. Your logic is wrong. Your conclusions, equally so.
I’ve been following your blogs and YouTube videos with great interest for over a year now, and have a question that has puzzled me for some time:
Given that one of the places that money is created in a country with a fiat currency is by banks providing loans, what is the interest/profit made by the bank on that loan called?
For personal loans, I realise that for most people, it will come from wages paid to them, but what about companies?
Must all of the interest paid back to banks by companies necessarily come from other government-created money? If not, what would be other possible sources?
That is a very good question.
The interest paid to a bank is simply part of the borrower’s income transferred to the bank in return for the loan and the services the bank provides. It is not new money.
For a business, the money used to pay interest can come from many sources: sales revenue, income from exports, payments from government, borrowing from elsewhere, or money received from other businesses or households. Once money has been created, it circulates many times through the economy before it is eventually cancelled through tax payments or loan repayments.
It is important to distinguish between repaying the loan principal and paying the interest.
When the principal is repaid, the bank-created money associated with that loan is cancelled.
The interest is different. It is the bank’s income. The bank uses it to pay wages, dividends, taxes, suppliers and other costs. In other words, it continues to circulate in the economy.
So, no, interest does not have to come directly from government-created money. It comes from the flow of money already circulating within the economy, whatever its original source. Government spending is one important source of that money, but it is far from the only one. Once created, money is continually recycled between households, businesses, banks and government. That is why there is no one-to-one link between a particular act of government spending and a particular bank loan or interest payment.
OK, thanks very much for your reply.
I guess part of my question has to do with the fact that the income (and presumably profit) for the bank appears to come solely from the money it is able to create and loan.
Perhaps it’s true of many forms of profit, but in the case of bank loans it seems to me as though it must necessarily be inflationary, since the only thing that results is the creation and removal of money, resulting in an inflated value to the bank.
No doubt it’s my ignorance and programmer’s brain, but that would seem to be value created out of nothing.
I’m sure you will clear it up for me, if not here then in one of your videos. 🙂
I think the point you’re missing is that banks do not simply create money; they also create an asset and a liability at the same time.
When a bank makes a loan, it creates a deposit for the borrower, but it also acquires the borrower’s legally enforceable promise to repay. The bank has not conjured up a profit at that moment. It has taken on risk. If the borrower defaults, the bank can lose money.
The bank’s profit arises over time from the interest it charges and after it has paid its own costs, including staff, premises, IT, defaults, taxes and the cost of funding itself. There is nothing inevitable about that profit.
Nor is lending necessarily inflationary. If the loan finances productive investment that increases the supply of goods and services, it may have little inflationary effect at all. If it simply fuels speculation in existing assets, such as housing, then it is much more likely to inflate asset prices.
So, as with government spending, the key question is not whether money is created. It is what that money is used for. That is what determines whether it adds real value to the economy or simply bids up the price of existing assets.