COVID-19: Who are the real “Money Printers”

With the COVID-19 pandemic punching a giant hole in the normal patterns of economic activity in Australia, the media has been full of debate about the best ways to respond. Not surprisingly much of the debate has concerned money. Who should get it and where will it come from. In that context accusations of “money printing” (aka money creation out of thin air) have been flying in all directions.

This post attempts to bring some clarity to the “money printing” finger pointing.

Money printing – Take a look at the RBA and the private bank balance sheets?

Every month the RBA publishes a measure of “money” they call Broad Money in their Monetary Aggregates spreadsheet. In June 2020 the Broad Money total was approximately $2300 billion ($2.3 trillion) dollars. The notes to the spreadsheet contain a specific breakdown of what Broad Money is but roughly speaking it comprises items on the RBA balance sheet and items on the balances sheets of the banks.

As at June 2020 the Monetary Aggregates spreadsheet recorded that:

  • The items on the RBA balance sheet that are included in the Broad Money measure (notes, coins, bank deposits) totalled about $167 billion
  • The items on the balance sheets of the private banks that are included in the Broad Money measure totalled about $2160 billion

Yes you read that correctly.

The amount of Broad Money items on the balance sheets of the banks is about $2 trillion dollars more than the Broad Money items on the balance sheet of the RBA. Looking back 20 years in June 2000 the total of Broad Money was only $546 billion with $28 billion on the RBA balance sheet and $518 billion on the balance sheets of the banks.

Photo by on

So in the space of 20 years, the amount of Broad Money in the Australian economy increased from $546 billion to $2300 billion. An increase of over 400% in 20 years and most of that increase (roughly $1.6 trillion) was an increase in the size of the balance sheets of the mostly private banks.

Did the private banks print all of that $1.6 trillion dollars?

The deposits of private banks can increase via two methods.

Method 1 Deposit by Customer receiving a government transfer

When the government makes a payment to a customer of a bank, the customer is depositing funds drawn on the government’s deposit account at the RBA. This results in an increase in the balance of the deposit account of the bank at the RBA and a decrease in the government’s deposit account at the RBA.

DR Government’s deposit account at RBA

CR Banks Deposit Account at RBA (Exchange Settlement)

Within the banks balance sheet the bank records an increase in the balance of the customers deposit account at the bank and also makes another entry in its accounts recording that its deposit account at the RBA has increased.

This means that when the government makes a payment to a customer of a bank the deposits recorded on on the private bank’s balance sheet increase.

Conversely, when a customer makes a payment to the government (say to pay taxes) using their private bank account the accounting entries are in the opposite direction and result in an increase in the government’s deposits at the RBA, a decrease in the bank’s deposit account at the RBA and a decrease in the customers deposit account at their bank (recorded in the bank’s accounts).

So bank deposits that increase via Method 1 involved “money printing” by the government and not the private banks.

Method 2 Private bank makes a loan to a customer

The second method is more mysterious and was poorly understood by most people until Central Banks around the world started publishing papers that explained how it works. Bank of England, Reserve Bank of Australia, European Central Bank, Bank of Norway

As the Bank of England link above notes.

“..Where does money come from?  In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood. The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money. This description of how money is created differs from the story found in some economics textbooks.”

A discussion of this process is found in the Glass Pyramid series “Fixing Oz Banks” Parts 1 to 7

In summary when the bank extends credit to a borrower it records the loan as an asset and the obligation to the borrower as a deposit.

DR Loan to Customer A in the amount of $100,000

CR Deposit Account of Customer A in the amount of $100,000

The banker does not need to raise or find $100,000 to make the loan as at the date the loan is made the banker has merely created a liability (the deposit) for $100,000. The banker need only find $100,000 if the customer makes a transfer to a customer of another bank or wishes to withdrawn the $100,000 in cash. If Customer A transfers the $100,000 to another customer of their bank, the banker need only make some more accounting entries.

DR Deposit Account of Customer A in the amount of $100,000

CR Deposit Account of Customer B in the amount of $100,000

So how much of the $2.160 trillion dollars of Broad Money currently sitting on the private bank balance sheets is the result of Methods 1 and 2.

The amount of private bank deposits resulting from Method 1 is approximately the amount of government transfers to bank customers less the amount transferred from bank customers to the government. In other words the outstanding government debt. This is roughly equal to what the deposit accounts balances at the RBA of the banks would be if they sold back to the RBA all of the government bonds they have bought.

According to the AOFM the current total of outstanding Australian Government Bonds is $741.4 billion. Had the government simply borrowed that $741.1 billion from the RBA as required, the RBA balance sheet entries would be as follows.

DR Assets – RBA holdings of Government bonds $741.1 billion

CR Government deposits at RBA $741.1 billion

and if those deposits were then used it to make payments to bank customers the total balance of the deposit accounts of the banks at the RBA would be $741.1 billion dollars higher than what is the current total of those deposit accounts (approximately $80 billion).

DR Government deposits at RBA $741.1 billion

CR Bank deposit account balances at RBA $741.1 billion

In effect selling government bonds to the private sector does little more than convert what would otherwise be a larger RBA balance sheet into a hundreds of billions of dollars of interest accruing wealth assets for rich people. See COVID-19: Is a mountain of public debt for JobKeeper necessary? for a detailed discussion of this scam and fraud on the public.

The above calculation suggests that Method 1 has generated approximately $741.1 billion of the $2.16 trillion dollars of Broad Money on the private bank balance sheets while Method 2 – credit creation by the banks – has generated approximately $1.4 trillion dollars of the $2.16 trillion dollars of Broad Money on the Bank balance sheet.

That means that the private banks are creating roughly two dollars of Broad Money for every dollar of Broad Money created by government.

When it comes to money printing, the private banks are leaving the public sector in the dust.

So where is all this private bank “money printing” going?

In some countries private bank money printing is used to fund the expansion of productive economic capacity but in Australia we are far too stupid to require that our banks do something as sensible and productive as that.

In Australia we have managed (a bi-partisan affair) to produce a model where our private banks spray most of the money they print at people speculating on the prices of existing residential assets. To the extent that they also extend credit for new economic capacity it is mostly directed to erecting sky boxes to house the endless growth of the human population of Australia otherwise known as the Big Australia program which is loved equally by right wing neoliberal Big Business interests and the cosmopolitan global socialists on the political left.

Photo by Henry & Co. on

So much money printing yet no inflation?

It depends what you mean by inflation because when it comes to asset prices they have been rising a bit like potatoes in Weimar Germany.

The reason for this quite straightforward.

When banks “print money” the impact on inflation depends on what happens to the deposit balances after the banker creates them by extending credit to borrowers.

If the created deposits mostly flow from the borrowers deposit account into the deposit account of other well off or wealthy people and those folk don’t spend it into the everyday economy then the deposits do not circulate and instead they congeal in the accounts of the rich and well off.

In other words, if the created credit does not trickle down then it is unlikely to stimulate demand for the goods and services that comprise measures of the CPI.

Bank “money printing” that does little more than inflate the prices of assets owned by the affluent tends not to result in inflation. If anything a growing amount of household debt, such as we have seen in Australia where our households are now the 2nd most indebted on the planet) will exert a deflationary effect as borrowers have to divert a growing amount of income into paying interest on their outstanding borrowings and a substantial amount of the interest paid finds its way into the stagnant deposit accounts of the rich and well off.

The RBA has sought to counteract the deflationary effects of the mountain of household debt by regularly cutting interest rates. It desperately hopes to encourage more working families and others to borrow from the private banks (expand the private banks balance sheets) and speculate on housing asset prices.

The RBA and more than a few Stone Age economic commentators still believe that the Australian economy can survive on a shrivelling wealth effect “trickle down” even as interest rates approach zero and the Big Australia population Ponzi has been stopped in its tracks by COVID-19.

Private bank money printing (induced by RBA interest rate manipulation) to inflate asset prices is not only unproductive but will not work well in the era of COVID-19. At best it might slow the collapse of the residential housing asset price soufflé as the government and RBA desperately blow harder and harder (in other words encourage the private banks to print money as fast as possible and spray it at housing speculators).


Over the last 20 years the amount of Broad Money in the Australian economy has expanded from $546 billion dollars to about $2.33 trillion dollars.

That is a lot of money printing and roughly 66% of the money printing has been performed by the private banks in the process of making loans and that money remains in the deposit accounts of bank customers, particularly wealthy bank customers who speculate on residential property and other assets.

Roughly 34% has been printed by the government and the vast bulk of that ($741.1 billion) is not even in circulation (only $86 billion dollars is in circulation as currency) as it has been converted into interest accruing wealth assets for rich people.

When people start talking about “money printing” in the context of COVID-19 pay careful attention to who they are talking about and who they are not talking about.

In most cases you will find that they exclusively talk about money printing as something the government does and NEVER talk about the high speed printing presses operated by the private banks to inflate the assets of the wealthy (also known as “credit worthy customers”).

It is time to start talking about the droids we are looking for.

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