BANK OF ENGLAND ADMITS PRIVATE BANKS CREATE MONEY OUT OF THIN AIR

In a highly explosive quarterly report, The Bank of England has let the monetary cat out of the bag and admitted that privately owned banks create money out of thin air.

One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them.

...Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.

...This description of money creation contrasts with the notion that banks can only lend out pre-existing money, outlined in the previous section.

[source : Money creation in the modern economy, Bank of England, Quarterly Bulletin Q1 2014, http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneyintro.pdfm, Accessed 19th March 2014]

There appears to be a similar but slightly different bulletin being reported on by Positive Money.