After posting yesterday's infographic on how banks create money by lending, there were questions and challenges, both here and on Substack, about how this suggestion is altered by the requirement to pay interest on this new money that has been created by a couple of entries in a double-entry bookkeeping ledger. This is my explanation:
I am not quite happy with the sketch in box 3, but I have not come up with anything better yet. I think the rest work, and this one is good enough.
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I really like this one.
Interest IS a transfer from poor to rich and the rate of transfer is decided by… errr…. the rich.
Thank you
I know one infographic cannot cover eveything, but is it worth addressing somewhere the question of who controls the interst rate on bank loans? It’s my understanding that the minimum interest rate that can be charged is set by the central bank via its base rate (given that interest is paid on central bank reserves) and not by the bank that makes the loan. So the bank making the loan is not fully responsible for the interest rate and its social consequences. A big part of that responsibility rests with the central government.
I have done one on central banks