Someone - let's call them Ieuan Wyn – gets £1000. He puts it in the bank. Someone else, let's call them Plaid Cymru, wants to borrow £500, the bank lends them the £500. Plaid Cymru then give Ieuan Wyn £500 to set up his office. Iuean Wyns pays £200 to his mate Elfyn, who promptly puts it in the bank, and sticks the other £300 in the bank. So the bank now has now turned that initial £1000 into a £2000 balance sheet – in other words it has created £1000. Just like that.Does Aneurin and his friends know what a balance sheet is? The answer is not-so-subtly included in the name. The clue is in the word balance. Think that paragraph through and it makes no sense.
We start with £1,000, which Ieuan has and puts in bank
That gives the Bank £1,000 in assets and £1,000 in liabilities. Ieuan is owed £1,000 by bank
Bank loans £500 to Plaid
That gives Bank £500 in assets, £1,000 in liabilities and £500 owing to them. Plaid has £500
Plaid give their £500 to Ieuan, Ieuan gives £200 to Elfyn
That gives Bank £500 in assets, £1,000 in liabilities, £500 owed by Plaid. Ieuan has £300, Elfyn £500
Ieuan and Elfyn puts money into bank
We end up with the Bank having £1,000 in assets, they owe £1,300 to Ieuan and £200 to Elfyn (plus interest). Plaid owe £500 to the bank (plus interest).
So on the Bank's credit side they have £1,000 assets and £500 owed plus interest on the £500. On their debit side is £1,500 plus interest on Ieuan and Elfyn's savings.
So the bank's balance sheet is the difference between the interest owed by Plaid and owed to Ieuan and Elfyn (i.e. pennies)
So, um, where's this additional thousand they're supposed to have created on their balance sheet? And these people are supposed to be in charge of our economy?