According to some, banks only loan out depositors’ money. But, in fact, they create what they loan out, based on a system known as ‘fractional reserve banking’. This is explained quite succinctly in the following excerpt from the January 1993 edition of National Geographic Magazine, entitled, The Power of Money by Peter T. White, Assistant Editor. (Pages 83-86)

Bills and coins make up about 8 percent of the U.S. money supply — the rest is in bank accounts, including checkbook money; at this writing the sum total is 3.5 trillion dollars, says the Fed — the Federal Reserve System, which is the central bank of the government of the United States — and that is three billion more than a month ago. This is how that happens. Every business day, after a telephone conference call at 11:15 a.m., the Federal Reserve Bank of New York, acting on directives from the…