Base money and broad money are two different concepts related to the money supply in an economy. They represent different measures of the amount of money circulating within the economy and serve as key indicators for central banks and policymakers to monitor and control the monetary system. Here's an explanation of the difference between base money and broad money:

Base Money (also known as High-Powered Money or Narrow Money):

• Base money refers to the total amount of money issued by the central bank in an economy. It includes two main components: - Currency in Circulation: This is the physical currency (coins and banknotes) held by the public and commercial banks outside the central bank. - Reserves of Commercial Banks: These are the deposits held by commercial banks in their accounts at the central bank. These reserves are a portion of the deposits that banks are required to hold as a percentage of their liabilities.
• Base money is under the direct control of the central bank and represents the foundation of the money supply in the economy.

Broad Money (also known as Money Supply M2 or M3):

• Broad money refers to the total amount of money in circulation in the economy. It includes base money (currency in circulation and reserves of commercial banks) and other types of money that are created through the process of credit creation by commercial banks. - Broad money includes the following components: - Demand Deposits: These are deposits in commercial banks that can be withdrawn on-demand without any notice, such as checking accounts. - Time Deposits: These are deposits with a fixed term, such as savings accounts and certificates of deposit (CDs). - Other Liquid Assets: These are assets that can be quickly converted into cash, such as money market mutual funds.
• Broad money represents the total money supply available for transactions and reflects the overall liquidity of the economy.

In summary, base money refers to the money issued by the central bank, including physical currency and reserves held by commercial banks. It is the foundation of the money supply. On the other hand, broad money encompasses base money and includes additional types of money created through the credit creation process by commercial banks. Broad money represents the total money supply available for use in the economy.

Does the Money Loaned in a Mortgage Exist before you Take Out the Mortgage?

No, the money loaned in a mortgage does not exist before you take out the mortgage. When you apply for a mortgage to purchase a property, the money is not physically sitting in a bank account waiting for you to borrow it.

Instead, the mortgage process involves a financial institution, such as a bank or a mortgage lender, providing you with a loan to finance the purchase of the property. Here's how it generally works:

1. Mortgage Application: You apply for a mortgage loan with a financial institution. The lender reviews your financial information, credit history, and the details of the property you want to purchase.
2. Approval and Loan Agreement: If your mortgage application is approved, the lender agrees to provide you with the loan amount required to purchase the property. The specific terms of the loan, including the interest rate, repayment period, and other conditions, are outlined in the loan agreement.
3. Funding the Loan: Once the mortgage is approved, the lender disburses the loan amount to the seller of the property on the closing date. The money is typically transferred to the seller's bank account or handled through other legal and financial mechanisms.
4. Property Ownership: With the loan funds now transferred to the seller, you gain ownership of the property. The mortgage serves as a lien on the property, allowing the lender to claim the property if you fail to repay the loan as per the agreed terms.
5. Repayment: You then begin making regular mortgage payments to the lender over the agreed-upon term, which typically includes both the principal amount (the borrowed money) and interest.
6. In essence, the mortgage loan is created when the lender agrees to lend you the money to purchase the property. The loan amount is not physically in existence before the mortgage is approved and the funds are disbursed. The lender facilitates the transaction by providing the necessary financing to make the property purchase possible, and you repay the loan over time through regular mortgage payments.

Do the Bank then Sell Your Mortgage Debt to Someone Else as a Security?

Yes, it is common for banks and mortgage lenders to sell mortgage debts to other parties as a financial security. This process is known as "securitization," and it involves packaging a group of mortgages together into a financial instrument called a mortgage-backed security (MBS). These MBS are then sold to investors in the secondary market.

Here's how the process of mortgage securitization typically works:

1. Pooling Mortgages: The bank or mortgage lender groups together a large number of individual mortgages with similar characteristics, such as interest rates, maturity dates, and credit risk profiles. These mortgages are pooled to create a mortgage-backed security.
2. Creation of Mortgage-Backed Security: The pooled mortgages are then transferred to a special purpose vehicle (SPV), which is a separate entity created solely for the purpose of issuing the MBS. The SPV issues the MBS to investors.
3. MBS Sale to Investors: The MBS is sold to investors in the secondary market. These investors could include other financial institutions, hedge funds, pension funds, or individual investors. The MBS represents a claim on the cash flows generated by the underlying pool of mortgages.
4. Investor Returns: As borrowers make their mortgage payments, the cash flows are passed through to the MBS investors. The investors receive periodic payments of interest and principal from the mortgage payments made by the homeowners in the pool.
5. Risk Distribution: By securitizing mortgages and selling MBS to investors, banks and mortgage lenders can transfer the risk associated with the mortgages to the investors. The investors assume the risk of potential defaults or prepayments, while the bank or lender receives funds upfront from the sale of the MBS.

Securitization allows banks and lenders to free up capital and generate additional funds for new lending, thereby increasing their capacity to offer more mortgages to homebuyers. On the other hand, investors in MBS can benefit from regular income streams and the potential for higher returns than traditional bank deposits or other fixed-income investments.

It's important to note that securitization is a complex financial process that involves compliance with regulatory requirements and adherence to industry standards. Additionally, the mortgage terms and conditions for homeowners usually remain unchanged even after the mortgage debt is securitized.

Doesn't That Make me an Unwitting Slave?

The process of securitization in the financial system does not make individual homeowners or borrowers "unwitting slaves." Securitization is a common financial practice that allows lenders to manage risk, free up capital, and provide more financing options to borrowers. It is an integral part of the modern financial system and serves various purposes for both lenders and investors.

Here are a few key points to consider:

1. Voluntary Transactions: When you take out a mortgage, you enter into a voluntary transaction with a lender. You agree to borrow money to purchase a home, and the lender provides the funds necessary for the purchase. This transaction is based on mutual consent and contractual agreements.
2. Terms and Conditions: The terms and conditions of your mortgage, including the interest rate, repayment period, and other contractual details, are specified in the mortgage agreement. As a borrower, you have an obligation to fulfill the terms of the mortgage, including making regular payments.
3. Securitization's Impact on Borrowers: For individual borrowers, the impact of securitization is usually indirect and transparent. The terms and conditions of your mortgage typically remain the same, regardless of whether the mortgage is securitized or not. Your relationship as a borrower remains with the original lender, even if the lender sells the mortgage debt as part of an MBS.
4. Lender's Perspective: From the lender's perspective, securitization allows them to access additional funds and manage their risk exposure. It does not change their obligations to you as a borrower or your rights as a homeowner.
5. Regulatory Safeguards: The securitization process is subject to various regulatory safeguards and oversight to protect the interests of borrowers and investors. Financial institutions are required to comply with legal and regulatory requirements to ensure transparency and fair treatment.

It's essential to recognize that taking on a mortgage is a significant financial decision, and borrowers should carefully understand and evaluate the terms and conditions of the mortgage before entering into the agreement. Responsible borrowing, financial literacy, and a clear understanding of your rights and obligations are essential for making informed financial decisions.

If you have concerns or questions about your mortgage or the securitization process, it's advisable to seek advice from financial professionals or housing counselors who can provide personalized guidance based on your specific situation.

But I am Working My Whole Life For Something Someone Made Up for Free

It is understandable to feel a sense of frustration or concern about the concept of paying interest on a loan over a long period, such as a mortgage. However, it's important to consider the broader context and benefits of accessing credit and homeownership.

Here are some points to keep in mind:

1. Access to Capital: Mortgages and other forms of credit enable individuals to make significant purchases, such as homes, that might otherwise be unaffordable. Owning a home can provide stability, a sense of community, and potential financial benefits over the long term.
2. Time Value of Money: Interest is a fundamental concept in finance and reflects the time value of money. By paying interest, you are effectively compensating the lender for giving you access to capital that you can use immediately. This allows you to enjoy the benefits of homeownership while spreading the cost over time.
3. Risk and Reward: Lenders take on a level of risk when they provide loans, including mortgages. Interest serves as a way to compensate them for the risk they are taking on. Without interest, lenders might be less willing to provide mortgages, reducing access to homeownership for many people.
4. Inflation and Asset Appreciation: Over time, inflation and potential appreciation in property value can work in your favor as a homeowner. While you pay interest on the mortgage, the value of the property may increase, and the real cost of the mortgage decreases relative to your overall wealth.
5. Individual Circumstances: The decision to take on a mortgage and pay interest is a personal one based on individual circumstances and financial goals. Some individuals may choose to pay off their mortgages quickly, while others may prefer to invest their money elsewhere, such as in retirement accounts or other investments.
6. Financial Literacy: Becoming financially literate and understanding the implications of various financial decisions, including taking on debt, is essential. This empowers individuals to make informed choices that align with their long-term financial objectives.

Remember that owning a home is just one aspect of financial planning, and there are multiple ways to build wealth and achieve financial security. It's essential to consider your overall financial situation, including budgeting, saving, investing, and managing debt, to work towards your financial goals.

If you have concerns about your mortgage or financial planning, seeking guidance from a financial advisor can be beneficial. They can provide personalized advice based on your specific circumstances and help you make informed decisions about managing debt and building wealth.

But if they Make the Money from Nowhere, it is not Worth Anything. I Make it Valuable by Working

Your concern touches on the concept of how money is created, its value, and the relationship between money and work. It's essential to understand how modern economies handle money creation and how the value of money is determined.

1. Money Creation: In modern economies, money is created by central banks and commercial banks through a process called fractional reserve banking. Central banks, like the Federal Reserve in the United States or the European Central Bank in the Eurozone, have the authority to create money and control the money supply in the economy. Commercial banks can also create money through the process of lending.
2. Fiat Currency: Most modern currencies, including the US dollar and the Euro, are fiat currencies. This means they have value because the government and people in the economy agree to use them as a medium of exchange, a store of value, and a unit of account. The value of fiat currency is derived from the trust and confidence placed in the issuing government and its ability to manage the economy.
3. Backing and Confidence: Unlike commodity money, which is backed by physical assets like gold or silver, fiat currencies are not backed by a tangible commodity. Instead, their value is supported by the trust and confidence that people have in the stability and strength of the issuing government and the overall economy.
4. Economic Activity: The value of money is closely tied to economic activity. As you mentioned, the value of money is reinforced by people's work and the goods and services produced in the economy. When people work, produce goods, and provide services, they contribute to economic growth and prosperity, which, in turn, supports the value of money.
5. Purchasing Power: The purchasing power of money is a critical aspect of its value. Inflation, which is the general increase in prices over time, can erode the purchasing power of money. Central banks aim to manage inflation to maintain price stability and preserve the value of money.

In summary, while money is created by central banks and commercial banks, its value comes from the trust and confidence placed in it as a medium of exchange. People's work and economic activity contribute to the overall value of money by driving economic growth and productivity.

It's essential to manage money responsibly, including budgeting, saving, and investing, to make the most of the value created through your work and to achieve your financial goals. Understanding the dynamics of money and the economy can help individuals make informed financial decisions and improve their overall financial well-being.

Was the Gold Standard a Fairer Solution?

The Gold Standard was a monetary system where the value of a country's currency was directly linked to a specific amount of gold. Under the Gold Standard, each unit of currency had a fixed value in terms of a certain amount of gold. This meant that the supply of money in the economy was limited by the amount of gold held by the central bank.

Advocates of the Gold Standard argued that it had several advantages:

1. Price Stability: The limited supply of money tied to the gold reserves helped maintain price stability and prevent excessive inflation.
2. Discipline on Governments: Since the money supply was tied to gold reserves, it provided a discipline on governments and central banks, restricting their ability to print money arbitrarily and incur high levels of debt.
3. International Trade: The Gold Standard facilitated international trade by providing a stable and widely accepted medium of exchange.
4. Value Backing: With currencies directly linked to a tangible asset like gold, people had confidence in the intrinsic value of the money they held.

However, the Gold Standard also had significant drawbacks and limitations:

1. Economic Flexibility: The fixed value of currencies limited the flexibility of governments to respond to changing economic conditions. In times of economic downturns or recessions, they couldn't easily increase the money supply to stimulate the economy.
2. Deflationary Pressures: The fixed money supply often led to deflationary pressures, where prices of goods and services declined. While this might seem positive at first, sustained deflation can hinder economic growth and increase the burden of debt.
3. Limited Money Supply: The Gold Standard constrained the amount of money available for economic activities, potentially limiting investment, growth, and job creation.
4. Gold Supply Limitations: The availability of gold reserves was limited by the availability of gold mines and trade imbalances. This could create problems in maintaining a stable money supply.

As economies grew and became more complex, the Gold Standard's limitations became increasingly evident. In the 20th century, many countries abandoned the Gold Standard in favor of fiat currencies, where the value of money is not directly tied to a physical commodity but is based on trust in the issuing government and its economic policies.

The choice between the Gold Standard and fiat currencies is a complex one with both benefits and drawbacks. Ultimately, the effectiveness of a monetary system depends on various factors, including economic goals, stability, and the ability to adapt to changing economic conditions.

Do the Central Banks Still have Control over Broad Money? Yes, central banks still have significant control and influence over the broad money supply in their respective countries or currency zones. Broad money refers to the total supply of money in an economy and includes various forms of money, such as physical currency (coins and banknotes) and different types of bank deposits. Central banks play a crucial role in the management of money supply and the overall monetary policy of a country. Here's how central banks exert control over broad money: Reserve Requirements: Central banks set reserve requirements, which mandate the percentage of customer deposits that commercial banks must hold in reserve. By adjusting these reserve requirements, central banks can influence the amount of money that banks can lend out and create through the process of fractional reserve banking.

• Policy Interest Rates: Central banks use policy interest rates (such as the federal funds rate in the United States or the Eurozone's refinancing rate) to influence the borrowing and lending behavior of commercial banks and the public. By raising or lowering interest rates, central banks can influence credit demand, spending, and investment, affecting the overall money supply.
• Discount Window Lending: Central banks also act as lenders of last resort and provide emergency funds to commercial banks through their discount window facilities. By adjusting the interest rate and terms of discount window lending, central banks can influence the liquidity and lending capacity of commercial banks.
• Quantitative Easing: In extraordinary circumstances, central banks may engage in quantitative easing, which involves purchasing large amounts of financial assets (such as government and corporate bonds) to increase the money supply and support economic growth during periods of economic downturn or crisis.
• Open Market Operations: Central banks conduct open market operations, which involve buying or selling government securities (bonds) in the open market. When the central bank buys government securities, it injects money into the banking system, increasing the reserves of commercial banks and expanding the money supply. Conversely, when the central bank sells government securities, it reduces the money supply.

Central banks use these tools and mechanisms to achieve their monetary policy objectives, which typically include maintaining price stability, controlling inflation, supporting economic growth, and ensuring financial stability. The control over the broad money supply allows central banks to respond to changes in economic conditions and manage the overall health of the economy.

Have their been Cases of Highstreet Banks Creating Broad Money Unreported to the Central Banks?

The creation of broad money (money supply) is a regulated process that involves commercial banks operating within the framework set by the central banks. In modern economies, commercial banks create money through the process of fractional reserve banking, where they are required to hold a fraction of their customers' deposits as reserves and can lend out the rest to borrowers.

Commercial banks do not create money in the same way as central banks, which have the authority to issue currency and create base money (physical currency and reserves). Instead, commercial banks create what is known as "broad money" through the extension of loans and the creation of new bank deposits.

It is essential to distinguish between "base money" (also known as "narrow money") and "broad money":

1. Base Money: Base money is the money issued by the central bank and includes physical currency (coins and banknotes) and commercial banks' reserves held at the central bank. The central bank has direct control over base money and can influence its supply through monetary policy tools.
2. Broad Money: Broad money includes base money (physical currency and reserves) and the various forms of money created by commercial banks through the process of lending. When a bank extends a loan to a borrower, the money loaned is deposited into the borrower's account, creating new bank deposits, which are part of the broad money supply.

The process of money creation by commercial banks is typically reported and regulated by the central bank. Commercial banks are subject to reserve requirements, capital adequacy regulations, and oversight by the central bank to ensure the stability and integrity of the financial system.

While commercial banks play a significant role in creating broad money, this process operates within the framework set by the central bank, and their activities are subject to regulatory scrutiny. Engaging in unreported money creation or other unauthorized activities would be illegal and could lead to severe consequences for the banks involved.

Instances of unreported money creation or fraudulent activities by banks are rare, but when discovered, they are subject to legal action and regulatory penalties. Central banks and financial regulators work diligently to monitor and ensure the proper functioning of the banking system and the stability of the money supply.

So Broad Money is What Commercial Banks Borrow from the Central Banks?

No, broad money is not what commercial banks borrow from the central banks. Broad money refers to the total supply of money in an economy and includes various forms of money, such as physical currency (coins and banknotes) and different types of bank deposits held by the public and businesses.

Broad money is created through a process known as fractional reserve banking, where commercial banks create new money in the form of bank deposits when they extend loans to borrowers. When a bank lends money to a borrower, the loaned amount is credited to the borrower's account as a new bank deposit. This new bank deposit becomes part of the broad money supply, as it can be used for transactions and represents a claim on the bank.

The process of money creation by commercial banks works as follows:

1. Reserve Requirements: Commercial banks are required to hold a certain percentage of their customers' deposits as reserves. These reserves are usually held in accounts at the central bank.
2. Fractional Reserve Banking: When a bank receives a deposit from a customer, it is required to keep only a fraction of that deposit as reserves (as mandated by reserve requirements) and can lend out the rest to other customers.
3. Lending and Money Creation: When a bank lends money to a borrower, it credits the loan amount to the borrower's account as a new bank deposit. This deposit is created "out of thin air" and is not taken from the bank's reserves or anyone else's deposits. It is newly created money that becomes part of the broad money supply.
4. Deposits and Transactions: The borrower can now use the newly created bank deposit to make purchases, pay bills, or transfer funds to others. The deposit circulates in the economy, effectively increasing the money supply.

On the other hand, when commercial banks need additional funds to meet reserve requirements or temporary liquidity needs, they can borrow from the central bank through facilities like the discount window or other interbank lending mechanisms. These borrowings do not directly create new money in the economy but are part of managing the liquidity and stability of the banking system.

In summary, broad money is the total supply of money in an economy and includes bank deposits created through the process of fractional reserve banking. While commercial banks may borrow from the central bank for various purposes, this borrowing is distinct from the process of money creation and the expansion of the broad money supply.