I had always assumed that banks could only loan out the funds that other bank customers had placed on deposit with them. This had always seemed obvious to me after all wasn’t this common knowledge? If you wonder what people really believe, go ahead and do a little survey of your own: Ask people on the street where banks get the money to loan out, and they’ll tell you: banks get the money from folks who have deposited funds with the bank!
But is that really true? Since all banks are members of the “Federal Reserve System,” lets see what the FED has to say, in its book Modern Money Mechanics, A Workbook on Bank Reserves and Deposits Expansion published by the Federal Reserve Bank of Chicago, February 1994:
|“In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries. …The actual process of money creation takes place primarily in banks.” (my emphasis)
Money creation? What, I began to wonder, is a private bank doing “creating” money? After all, I reasoned, if I were to do that, it would be called counterfeiting! The answer was right there for all to see in the same booklet:
|“In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.
Stop, for a moment, and ask yourself: How do you build up “deposits” by increasing loans? Don’t you have to have the deposits first? Or, can they just “loan” something that they don’t actually have!?
What they describe next is something called “Fractional Reserve Lending” where a “bank” can “create notes” (today mere book keeping entries in a computerized bank ledger) thereby representing as “bank assets” something far in excess of the actual cash they have on hand!
|“It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold coins deposited with them. People would redeem their “deposit receipts” whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.
“Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to the borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of notes outstanding would be presented for payment at any one time.
Ask yourself this question: If the customers depositing their gold with these “bankers” had discovered that these guys were printing up receipts for gold that wasn’t even there and were “loaning” these bogus “receipts” at interest–would these customers have been upset? Would you? Of course! But, why?
To answer that, let’s ask another question: Did the “goldsmiths” admit to their customers that they were creating these bogus receipts (with no actual gold to back them)? Of course not! What do we call that? A lie! By omission. But, a lie nonetheless! Next, the gold receipts themselves were “counterfeit,” because there was no gold behind the bogus receipt! So, what were these “goldsmiths” actually doing? Counterfeiting!
Fast forward to the present, and our current, so-called banking “system.” When you read the above story of the goldsmiths, do you get any hint that the author of this FED publication either realizes or cares that these goldsmiths were liars and counterfeiters?
I don’t think so! In fact, aren’t you left with the impression that the author thinks these liars and counterfeiters were pretty smart?! Yep…
So, what does this have to do with your credit card debt?
Plenty! The FED is telling you in plain language that it is running the same scam the counterfeiting goldsmiths ran on their customers! –Only better! Because there is no gold backing any of the notes!
Imagine that! These guys are so proud of themselves–so arrogant–that they don’t mind admitting their scam, in print! Which might be okay, except that they are giving you evidence of their scam, in print! What good is that? Very good, because the laws on the books still require that if you pay for something (such as payments and “interest” on a “loan”) that you actually receive something in return for those interest payments! What the law calls “consideration.” If all you are really getting is just a “ledger entry” (sometimes called “checkbook money”) then the “bank” is risking nothing, and you have received no “consideration!” The fact that you may have bought products, or even a house, with that “ledger entry” makes no difference at all! The only issue is where the “loaned amount” came from! Especially if it came from you instead of other depositors!