Banks and credit unions do NOT use depositors money to make loans to others.
The money creation "loan" comes FIRST.
The bank then needs to get an equivalent amount back as a deposit to balance its books.
See my posts above where I explain it in detail.

And there is no way anyone creates money just by moving paper around.
There must always be an asset against which credit is created.
For instance, banks can buy any asset they want - loans, bonds, stocks, real estate - simply by writing a check against the bank.

In every case, as long as the money created comes back as an equivalent deposit, the bank's books will balance.

In a gold -backed system the rich end up with all the gold and will only lend it. So the gold money system just becomes money-as -debt of GOLD. Read Charles Dickens for a glimpse of what life was like under a gold money system. There were no pensions for the elderly and the disabled. They begged in the streets.

NEW ESSAY
What is “Sovereign Money” and why do people think it’s a good idea?
https://moneyasdebtblog.wordpress.com/what-is-sov...

According to my analysis, reforming our system to sovereign money is most likely to bring about several undesirable outcomes: the crash the reform was intended to prevent, further concentration of the money supply into the possession of those who already own most of it, and massive devaluation of the currency, driving up prices for rich and poor alike.

You are - Bank credit money is NOT created out of thin air. Banks create a liability against themselves for legal tender (central bank reserves) in exchange for an asset, the borrower's PROMISE to REPAY. The new bank credit "money" the borrower spends (not the bank) is "backed" by the necessity to pay the money back and extinguish it. In most cases this will be accomplished by the borrower doing something of value for someone else that they are willing to pay for, whether as an an employee in a vast enterprise or self-employed. This "backing" is far more meaningful, appropriate and productive than gold or silver.

The problem lies in the fact that your debt to a bank gets saved at a bank by someone else and you can't have it to repay. In the current banking system, a savings deposit allows the bank to replace it with a new loan. In a sovereign money system, the actual savers deposit is lent out. In both cases the net result is multiple simultaneous principal debts of the SAME money, a situation that can only be escaped by default and kept going by continuous growth of the money supply The sovereign money reformers I have converesed with haven't given any of this even a moment's serious thought.

See moneyasdebt.net

article: "the only institution that really has the Constitutional power to create money – the Swiss National Bank?"

The sovereign power to create money. To whom does it rightfully belong?

Anyone who can produce something in assured demand has the natural "sovereignty" to issue credit money against it.
That includes tax-collecting governments at all levels but is NOT limited to governments.

Essentially that is what we do when we "borrow" from a bank. The bank won't underwrite our credit unless it is credible that our services/products will be in demand and we will be able to pay back and extinguish the credit we created. Money = Credit= Demand.

I suggest reading E.C. Riegel to clear away the conditioning that would lead you to believe in the author's POWER GRAB statement above. It is the very ROOT of the money problem, NOT the solution.
http://paulgrignon.netfirms.com/MoneyasDebt/MAD20...

article: "What Mr. Ermotti in essence says in this interview is that loans are backed by deposits. This is directly contradicted by the Swiss National Bank and the German Bundesbank (Central Bank). They say that “today about 90% of all the money is accounting money, created by loans the banks make to enterprises and private citizens. Pretending that banks use deposits to make loans, is not true.” The latter part was specifically expressed by the German Bundesbank. – So, how come Mr. Ermotti, CEO of UBS, wouldn’t know that?"

Neither is telling the whole truth.

I have to wonder whether they really don't understand their own system. For instance...
How come the author (a World Bank economist) can't give you the following simple logical answer?
Loans CREATE deposits AND are completely DEPENDENT on them. There is no contradiction.

Here is WHY step-by-step:

1. Borrower promises to pay Bank A $100,000 plus interest over time. No time has elapsed so the promise is worth $100,000 at this moment.

2. To balance its books the bank promises to pay the borrower $100,000 in legal tender upon demand. Large amounts are rarely withdrawn in cash allowing the bank to operate with about 3% of the cash it has promised. This gives rise to the mistaken idea that banks create "free money" that they lend out. There is no "money". Banks turn the borrower's private issuance of personal credit into the bank's issuance of institutional credit by UNDERWRITING IT.

3. The borrower spends the $100,000 of bank credit which is deposited at Bank B. Bank B now demands $100,000 in central bank credit (cash) ie. REAL MONEY CAPITAL from Bank A.

4. But Bank B is in the same business and if it has created $100,000 of new bank credit that gets spent and deposited at Bank A what is the net result? ZERO. No net debt. In real life with many loans and many banks it is incredibly messy but one very SIMPLE thing is true: If a bank fails to get back as deposits all the money it has created as loans its capital reserves will drain away until it goes out of business. Therefore commercial banks CREATING MONEY IS ENTIRELY DEPENDENT ON GETTING THE SAME AMOUNT BACK AS A DEPOSIT.

See? There is no contradiction at all. The logic and math are ELEMENTARY and all my facts I can document.
Now, why doesn't the author or those people he quoted know this? That's the question I cannot answer except to suggest that economists have no other function but to cover for the banking scam by keeping everyone confused.
http://paulgrignon.netfirms.com/MoneyasDebt/TheCo...

Banks don't get "free money". They underwrite the borrower's issuance of credit. The borrower's issuance of credit is backed by the borrower's promise to pay it back, in most cases by doing something of monetary value for someone else ie. REAL VALUE. If the borrower fails to extinguish the credit it created the commercial bank has to extinguish an equivalent amount of its own reserves (REAL MONEY to banks).

What is MONEY?
Cash and central bank credit for cash are normally created as principal debt of the national taxpayer on which interest is paid forever, as the principal is never paid back. Commercial bank credit is created as the principal debt of everyone else to banks. Quantitative easing is central bank credit created by purchasing private debt, previously an unacceptable practice. So ALL money is principal debt to a bank. ALL of it.

In the sovereign money proposals, to maintain a stable money supply every dollar spent would have to be taxed back on time to preserve its value. Therefore sovereign money is just taxes spent BEFORE collecting them rather than after. This makes so-called "debt-free" sovereign money nothing of the sort. In fact it is debt-on-a-repayment schedule just like bank credit, but without the INTEREST payments. So it is NOT debt-free but it is interest-free which is very significant. Given that sovereign money is just taxes spent in advance of collection why can't any tax-collecting government at any level do the same? There's no reason at all except for the IDEOLOGICAL BELIEF in a NATIONAL MONEY MONOPOLY.

Where does Money Come From? (1 page PDF) http://paulgrignon.netfirms.com/MoneyasDebt/Where...

Is it "Money" or is it "Credit"? What is the Difference? (4 page PDF) http://paulgrignon.netfirms.com/MoneyasDebt/Money...

article: "It would force banks to be more prudent in issuing mortgages and personal debt – it would provide for a more stable economy and for a financially less vulnerable personal life."

Really? I would appreciate seeing some PROOF of that.

If you borrow $100,000 in ANY form from ANY source and someone more powerful than you acquires $50,000 of it and will only lend it, what is the outcome for you? How about if they acquire all $100,000 of it? What if this happens to ALL of the bank credit money created by "loans"?

The real world situation is MUCH WORSE than this, plainly proven by the central bank's own published and completely misrepresented statistics that go unquestioned by economists. Invest 2 minutes in watching this animation,

Economists and a Pile of Nuts. http://paulgrignon.netfirms.com/MoneyasDebt/MAD20...

In the USA M2 (SAVINGS plus checking and cash in possession of the public) is typically 4 times M1 (checking and cash in possession of the public ). Except for the negligible amount of cash ALL of this "money" was created as M1 bank credit and therefore, if M2 is 4 times M1 the ONLY way this can happen is that the same bank credit money has been created and then saved and replaced 3 times over just within the banking system. That does NOT include the many times it may be re-lent as existing money by non-banks.

For a more sophisticated analysis invest a bit more time in this flow diagram animation:

Mr. IMF and the Mystery of the Thirsty Swans (13:18) http://paulgrignon.netfirms.com/MoneyasDebt/MAD20...

Why the design of banking is, itself, the root cause of money system instability.
Inspired by a conversation with a senior economist and central banker
who has worked at the highest levels of the IMF, and consulted for the World Bank and the Federal Reserve.

Paul Grignon, author of "Money as Debt" http://www.moneyasdebt.net

article: "Well, do you know that in Switzerland first mortgages do not have to be amortized? In fact, banks encourage you not to repay your mortgage, but just keep paying interest. "

This is because the Swiss bankers know their debt contracts are impossible in the aggregate (and thus fraudulent and invalid). If the principal is never paid back (extinguished) it is a big help in ensuring continuous growth of the money supply, the only thing that prevents the Ponzi scheme banking system from collapsing due to its own DESIGN.

Digging Deeper into Debt-Money
The Bank of England's confessional isn't the whole story http://paulgrignon.netfirms.com/MoneyasDebt/MAD20...

"... just consider what might happen if mortgage holders realised the money the bank lent them is part of an invisible trap, a game of musical chairs designed by the bankers in which losers are mathematically predetermined to default whenever the creation of new debt to banks slows down, for any reason. The only way to keep the music playing is for all of us as a whole to go further and further into debt to banks forever."

Paul Grignon, author of "Money as Debt" http://www.moneyasdebt.net
Monetary Sovereignty shouldn't stop at a national government MONOPOLY. ANYONE with assured demand for their output (as governments at ALL levels do) has the "sovereignty" necessary to issue credit money against that output. That includes YOU!!!! http://paulgrignon.netfirms.com/MoneyasDebt/MAD20...

I have debated this Issue at length with economist Steve Keen and sovereign money advocates at the American Monetary Institute (USA) and Positive Money (UK). I proved with simple logic and math that ANY form of money that is a limited quantity made valuable by its own scarcity will recreate the same mathematical problems, regardless of its source. No one was able to prove me wrong (admitted in writing by Keen).
They chose instead to continue regardless. Thus they demonstrated to me clear proof that the sovereign money movement is based on IRRATIONAL BELIEF and IDEOLOGY, not logic or facts. The Swiss would be well-advised to read the following:
https://moneyasdebtblog.wordpress.com/

SOVEREIGN MONEY CRITIQUE
"I claim the so-called “sovereign money” monetary reform movements are all misguided. That is because they mistake the root of the problem for the remedy. They do this because of habitual educational and ideological blinders which result in a stubborn refusal to think through the logical repercussions of lending in a limited “money supply”, regardless of its source. Instead, like the professional economists whose abysmal track record bespeaks a fundamental incompetence, they resort to a magical fallacy I call “fuzzible money” that allows them to avoid calling into question the assumptions that form the foundations for their presumably well-meaning but provably futile reform proposals."