Banks: Where the money isn’t.

You go through several traumas as a child. You find that father Christmas doesn’t really exist. You find that your parents don’t know everything, and sometimes tell you lies. And then, when you’re a bit older, you find that banks don’t have any money.

It’s not usually put like that, of course. When I was taught economics, in the good old days of full employment and economic stability, my teacher explained to a stunned class that banks (in the UK anyway) were obliged to keep 10% of their holdings in cash, in case people wanted it. So if 10% plus one of their customers turned up at the same time, they’d go out of business.

These days, such a figure would be regarded as laughably conservative. Estimates of how much “money” is in circulation, compared to how much money banks actually haven rapidly approach figures that are essentially meaningless. Banks have always been a confidence trick, but it was argued in the past that the trick was a benign one. Not many people would argue that now. After all, the money that you and I put into banks is real: we’ve actually earned it. But most of the money banks actually lend and use, and make, is about as real as one of Father Christmas’s elves.

A tired urban legend has it that the famous American bank robber (no, the traditional type) Willie Sutton explained that he robbed banks because “that’s where the money is”. He wouldn’t say that now.

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