As part of an ongoing discussion in our Guest Book about the failing economy, J****** sent us a link to this article by Bill Kruse. We think it's so valuable an insight that it shouldn't be hidden away on the Economania website ...
When you get a loan from the bank there's no actual transfer of funds. In fact, there's no loan, not as you or I would know it. The bank creates money literally from nowhere as a deposit in your account. This is usually conditional upon your prior agreement to eventually hand over that new money to the same bank that created it, together with some more money too (interest). Most people have absolutely no idea this is how banking works.
When you go to a bank for a loan, then - perhaps to start a business - the bank doesn't actually transfer money from its account to yours, it just creates new money in your account. This new money, that the bank's just itself created, plus the interest they expect you to find from somewhere, (tricky, this, as it's only the banks and governments who can create legal tender and governments tend not to), this new money the bank promptly counts as its asset. So, if your business fails and you can't pay them all the money agreed, they then start howling they'll be losing money. However, this is money they never had in the first place. When they talk about writing downs and losses, they haven't actually lost any money at all, other than some really rather basic administration costs.
If I start a business with money created for me by the bank and that business fails, I then owe money to the bank that they never had in the first place. It's money the bank made up out of nothing. If I had to offer collateral, say my house, then I owe the bank my house. If my business needs more ready money to survive an immediate unforeseen cash crisis, and the bank refuse to advance it, then the bank gets my business, or my house, or maybe both. The bank's done nothing for this except manipulate money creation, money it gets from nowhere. This seems to me monstrously damaging for the community as a whole, and a license to print money for the banks.
You might ask,"Isn't money just a way to make the exchange of goods easier?"
It facilitates trade, true. However, if an area is dependent upon money so they can trade, and you're the only one who supplies or restricts the money supply, you're in charge. Governments and their petty meddlings are incidental. Witness the invasion here by the Romans and the subsequent trading boom as we went from a stilted barter economy to a flourishing money one, and witness the consequences when the money supply, on which we'd become dependent, dried up. You'll have heard of this time. It's known as the Dark Ages.
The banks, though you probably won't have realised it, to a large extent rule your life. You live in an environment where you use the medium of exchange (money) that they're in charge of. Are there other monies you can use? Are you presented with a choice of which money you use to buy things? I'm not talking about Euros, or pfennigs or other currencies, I'm talking about other legal tender itself, money that hasn't been created by a bank. Realistically you're not, and there's the problem. The money that's in circulation has almost all of it come from banks. As such, they can charge what they like for it (interest) because effectively they have the monopoly. It's a bit like someone owning the air supply for the planet. It's not like you could use other air when there's only the one supplier. Everyone needs it, and there's only one supplier. That gives the sole supplier (or group of suppliers) an entirely disproportionate authourity over everyone else.
The banks charge interest for their supply of money. This is not in the form of sheep, or cattle, or pigs, but more legal tender. Where can we get this money from, you might ask, if the banks themselves are the only ones who can supply it? We have to go back to them and ask them to create more, which they'll only do on condition, again, if we pay them more interest, again... it's a vicious and unsustainable circle. In the endless drive to somehow find this interest we're collectively driven to expand the economy above and beyond any mathematical feasibility. It can't go on, not because you or I or anyone might wish it not to, but because it's physically impossible.
You may have argument with this. You may deny it on the basis that you use money because the government insists we should, for everyday transactions. It's your money, you may say, and you owe it to no man.
In some senses that's true enough, but the pound in your pocket, the euro you might exchange it for, the true loan you may get from a building society, all these monies are in circulation because they were first created, out of thin air, by a bank. Almost all the money in circulation is there because it was created as debt owed to banks.
Supposing, for example, everything switched over to electronic credit. ALL transactions. Let's say there was only one facilitator of such transactions, globally, and they charged a fee so small, so miniscule, for each transaction that while it made the facilitators tremendously wealthy, no-one else was bothered. Then let's suppose, for the sake of argument, that the facilitators got greedy, perhaps as a consequence of a little too much cocaine, and started to demand a far higher fee than was reasonable for their transaction service. You'd pretty soon start looking around for another way of doing things, wouldn't you? Well, no, you probably wouldn't if you'd been brought up all your life to believe this was the only way of doing things. This is precisely how we've been brought up.
Much of this can be difficult to come to terms with. The idea that money is simply created out of thin air is alien to our way of thinking. I doubt this is accidental. My feeling is we're schooled this way deliberately so our thoughts won't stray towards grasping the true nature of the society imposed upon us. I have read the suggestion from Professor Henry C. K. Liu that when this gets properly understood it'll be as significant as grasping that the Earth isn't flat or that it goes around the sun.
I agree. I think the true dark ages are those we're living in now.
The GOS says: OK, but many of us don't go to the bank for loans, because we've got enough money to live on and we manage it carefully. Instead, we give our money to the bank so they can look after it for us.
I understand that they probably use that money to make more money, and that they generally don't share those profits with us. Most of us probably accept that, because we think our savings are safe and we don't like those big hard lumps it would make in the mattress. But what I can't quite get my head round is ... when I give my money to the bank, it's real money, which I have earned or stolen or won. If I then went to the bank and got some of it out again, it would still be real because I could use it to buy bread, guns, drugs or underage sex in the usual way (look, I live in Ipswich, all right? - you live your life and I'll live mine).
So, if the money I lend to the bank is real, but any money I borrow from the bank is imaginary ... where's my bloody money gone?
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