I used to believe that banks loaned out money to people, money that you and I gave them for safe keeping, and paid us “interest” for the privilege of loaning out our money to their customers. I also believed that money in the banks were a representation of the amount of gold, silver and other precious metals - which we deemed as wealth - the government had on hand (like at the Bank of Canada or the U.S. Federal Reserve) and/or in our economy. Turns out I was wrong… so very, very wrong.
If you've watched the documentary, “Money As Debt”, you now know from where our money comes. It no longer represents anything tangible, but rather is “magically” created out of thin air every time someone (or organization) takes out a loan. It's all created by debt. If people like you and me didn't owe the banks, we'd have no money.
Money isn't even created by the government, for the most part. It's creation has been delegated to private companies - which we call “banks”.
Before bankers were allowed to gain control of the world economies, money used to be silver and gold. Up until the late '60s, Canada's coins used to be made of silver, as well. Back then, they actually were worth something and not just because the bankers said they did. And if more money was needed, then more silver (and gold) needed to be gathered. But not any longer.
In Canada, it was once required of banks to only loan out sixteen times of what they had in reserves (gold, silver or other such assets). Over the years, this limitation has virtually been reduced to nothing. I've been searching through “official” documentation to confirm this, but it hasn't been easy. Most of the actual numbers I can find are from third-party sources (Wikipedia, etc.). Although they may be accurate, I'd like to find something more “official” to satisfy my curiosity. In any case, Canada is on a fiat (fractional reserve) banking system.. which means, in no uncertain terms, our banks have no where near the money on hand you may think.
This is the same in the US, the UK, and any other government using fiat money (which is most of the world).
Okay, so banks can legally create money out of the blue, when ever needed. So what, you may ask. Well, ultimately, what this leads to is your money getting devalued every time more is created as the years go on. This is called “inflation” - or robbery, depending on your point of view.
What the immediate danger is (especially for countries like the USA and Greece) is “hyperinflation”. This is when currency becomes relatively worthless and prices of things skyrocket, just because there's too much of it and those who've invested in it consider it to be worth less. This is what happened to Germany after WWI and, more recently, to Zimbabwe in 2008.
Many economists now feel the U.S. economy is positioned to go through a similar situation very “soon”.
You can learn more about this subject by visiting these links: