Who REALLY Controls Our Money?

Banks, not governments, create most of our money through loans—a hidden mechanism that systematically funnels wealth upward and drives inequality.

At a Glance

  • Private banks create approximately 97% of money through loans, while central banks create only about 3%
  • This debt-based monetary system transfers wealth from the bottom 90% to the top 10% through interest payments
  • Rising income inequality correlates with increased corporate bond debt and household leverage
  • Low interest rates have inflated housing prices, making homeownership increasingly unaffordable
  • The traditional economics narrative about money creation deliberately obscures these mechanisms

The Banking System’s Hidden Power

Many Americans believe our government creates and controls the money supply, but this fundamental assumption is incorrect. According to monetary economists like Richard Werner, private commercial banks create approximately 97% of the money in circulation through the process of issuing loans. 

This revelation contradicts the standard narrative taught in economics courses nationwide. When banks issue loans, they don’t simply transfer existing deposits—they create entirely new money through accounting entries. This process effectively gives banks extraordinary power over the economy while remaining largely invisible to the public.

 The traditional understanding that banks loan out existing deposits has been definitively debunked. Banks create money “ex nihilo”—out of nothing—when they extend credit. This isn’t a fringe theory but has been acknowledged by major central banks including the Bank of England. 

The economics profession has largely failed to incorporate this reality into mainstream economic models, creating a significant gap between economic theory and financial reality. This disconnect serves powerful interests that benefit from the current system.

The Inequality Engine

The debt-based monetary system drives wealth inequality through multiple mechanisms. First, it creates a continuous transfer of wealth through interest payments. According to The Equality Trust, these payments systematically flow from the bottom 90% of the population, who are net debtors, to the top 10%, who are net creditors. This process happens automatically and continuously, functioning as a hidden tax on the majority that benefits the wealthy minority. The effects become starkly visible through phenomena like “Fat Cat Day,” when FTSE 100 CEOs earn the median British annual salary in just three working days.

Recent research from the Federal Reserve highlights how income inequality correlates with financial vulnerabilities. As wealth concentrates at the top, high-income households save more and seek riskier investments, increasing the demand for complex financial products. This drives up leverage throughout the financial system, particularly in less regulated sectors. The study found significant relationships between rising inequality and increased corporate bond debt relative to GDP, expanded mutual fund assets, and greater household leverage through mortgage debt. These patterns emerged consistently in data from recent decades.

The Housing Market Distortion

The current monetary system profoundly impacts housing affordability. Contrary to the common narrative about supply and demand driving house prices, The Equality Trust argues that low interest rates have been the primary driver of inflated housing costs. When interest rates fall, banks can issue larger mortgages relative to incomes, pushing up prices. This creates a self-reinforcing cycle where rising prices require even larger mortgages, benefiting banks through higher interest income and property owners through appreciation, while making homeownership increasingly unattainable for many.

The effects cascade through generations. Existing homeowners see their wealth increase, while young people face growing barriers to property ownership. This intergenerational wealth gap compounds over time. The mortgage market has expanded dramatically relative to GDP across developed economies, creating significantly more debt than productive economic growth. This expansion primarily benefits financial institutions and existing property owners, while creating structural disadvantages for non-owners and younger generations struggling with both high housing costs and stagnant wages.

A System at Risk

The current debt-based monetary system appears increasingly unstable. According to analyses on LifeSiteNews, monetary authorities have maintained the system by creating more debt and lowering interest rates, but these measures have reached their limits. With interest rates approaching zero in recent years and unprecedented levels of global debt, the system shows signs of strain. Financial markets now primarily revolve around debt refinancing rather than productive investment. Historical patterns suggest systems with this level of debt concentration typically require some form of reset or debt jubilee.

The Federal Reserve’s research indicates that rising inequality itself contributes to financial instability. As wealth concentrates, it flows into increasingly speculative investments through less regulated financial intermediaries. These “shadow banking” entities lack the safety mechanisms of traditional banks but manage growing portions of the financial system. This combination of high leverage, reduced regulation, and increased speculation creates conditions similar to those preceding previous financial crises. Without structural reforms addressing both the mechanics of money creation and its distribution effects, these vulnerabilities appear likely to increase.

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