I learnt in economics banks made money from lending what was deposited and collecting more interest than they offered the depositors. The rule of seven meant they worked out at any time only a seventh of the customers would need to withdraw their money at any point in time so could lend the remainder out (I think that's the way round anyway). After deregulation it rocketed to a 40th (although the rule was a fixed proportion not related to changes in time) or in real terms they lent out something like five times the amount they would have previously, taking massive risks.

Recently the media report that rather than lend out depositor's money the banks lend money that doesn't exist, offering them credit for hundreds of thousands which is then repaid in hard cash. I don't know if this is exaggeration or misrepresentation, but if correct, then what right or mechanism would allow anyone to create money from nothing which can then be converted to the real thing, identical to forgery where fake notes are printed and sold for real cash.

I have no idea if the media description is right, but if so then how can banks now be allowed the right to basically profit from nothing, while elsewhere even governments have nothing they haven't earned from tax or nationalised industries? I am lost and am hoping someone will put me straight.

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