Very interesting commentary from David Graeber (Occupy movement leader and author of “Debt: The First 5,000 Years“) on the Bank of England’s recent admission that money is created out of thin air. Graeber sounds as excited as me in describing it:
“Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy”, co-authored by three economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.“
It certainly is remarkable that the BoE would come out with this information at this time. This press release/paper is often characterized as “an admission,” but the thing is, this is not new information. It’s never been a secret or been hidden. It just hasn’t been taught in school. In fact, as discussed here, the BoE admits quite openly that there is a “long literature” on the fact that money is created out of thin air and that school textbooks which say it isn’t are incorrect.
And this is what I was trying to get at in my earlier post, titled “Bank Says: If You Believe Banks Lend Deposits, You Are Wrong.” We have been purposely misled about money creation. We have been purposely trained to think that banks lend deposits and/or the bank’s own, pre-existing money and that therefore we have a duty and–their favorite word–an “obligation” to pay it back. It is this mistaken belief that has caused the financial crisis and this belief that threatens to drag the United States, if not the entire world, into financial ruin.
The truth will set you free
Let me be very clear about what I mean by this. We have been trained and shamed into thinking that we must labor in order to “pay back” money that did not exist until we asked to borrow it (and even then doesn’t really exist except as binary code). As Graeber correctly notes:
“There’s really no limit on how much banks could create, provided they can find someone willing to borrow it.”
The only problem with that statement is Graeber uses the same incorrect term the banks do: “borrow.” Indeed, it’s difficult to discuss all of this properly because the very language required to describe it has become so perverted. That is, what we have been trained to call a “loan,” the bank calls a “deposit.” In reality, that type of transaction is neither of those things.
A REAL Loan vs. a bank “loan”
That is, when you go to your local bank and get a “loan,” your local bank is allowed to enter a few keystrokes into a computer and then pretend that it has lent you money–and expects you to pretend that you have borrowed it. The bank does not have the amount you want to “borrow” sitting in its vault–they literally “make” money (by typing it into a computer) off of your request to “borrow” it.
In reality, you have borrowed nothing and the bank has lent nothing but we all are forced to pretend that a real loan has been made.
An example of a real loan would be if I had a bike and my friend wanted to borrow it. For my friend to be able to borrow my bike, my bike has to exist in the physical world before I can loan my bike to my friend. My friend cannot come to me and ask to borrow my bike, then I type into a computer and the bike suddenly exists.
No, I do not have nor can I create unlimited phantom bikes, I only have the one. And when I loan my friend my one bike that actually existed in the physical world prior to his asking to borrow it from me, I no longer have the bike and cannot use my bike until my friend returns it. I have taken a real risk that my bike may not be returned to me. That is an example of a real loan, and that is how we have been taught to believe banking works, i.e, that banks take in deposits and then people come in and borrow those deposits of pre-existing money that the bank will have to do without until it is repaid and that there is risk for the bank in doing this.
The Bank of England has now told us in no uncertain terms that this is incorrect and is in fact a “common misconception.” The BoE is essentially telling us that banks have taken the common, correct understanding of the words “loan” and “borrow”–that we think of in terms of loaning a bike to a friend in the above example–and subverted and distorted their meaning for the express purpose of making us misunderstand what is actually happening.
Cookies vs. Crackers
It’s similar to when I was a young child and my mother told my sister and me that saltine crackers were cookies. She knew that cookies are not good for you but that our friends would talk about cookies and how delicious they were, etc. and that we would want cookies. She also knew that if we knew what cookies really were, we’d demand to have real cookies, and she wanted us to eat right and didn’t want to have to fight us on that.
So she tricked us, and we thought we were getting a delicious dessert food when in fact we were getting saltines. It’s the same thing with banks and “loans”–we are told that banks are “loaning” us money when in fact they aren’t loaning us anything at all. And just like my sister and I eventually discovered my mother’s well-meaning deception, the Bank of England has now plainly revealed the purposeful deception of the banking system.
But we’re getting off track here, so let me get to the point of how this stuff is the true cause of the financial crisis and the foreclosure fraud and all of it. We could be done with it all if we’d just listen to the BoE which is admitting to us that the money isn’t real. It is up to us to extrapolate the rest, which is this: since the money isn’t real, then the debt isn’t either. Indeed, If we all would accept the truth that the money that was “loaned” to us for houses, cars, educations, etc. was not in fact a loan at all but instead was a purposeful hoax–a trick played on us to get us to spend our lives in a perpetual state of anxiety, panic, and labor that benefits the corporation/state instead of ourselves–we could easily allow all of this “debt” to be forgiven/repudiated immediately and start over from scratch with a new and better system. Indeed, that’s the real story of the Bank of England’s press release about money creation: they are telling us in no uncertain terms that we’ve been had and that we were purposely misled.
One final attempt at an analogy: it’s as though we’ve been in a 2-player video game all this time, with the banks as Player 1 and society as Player 2. The banks have been given the cheat code to get unlimited lives in the game but society has not. The banks can therefore play forever without worrying about being killed in the game, which allows them to always get the high score and never worry about navigating the riskiest levels–because the banks are not taking any risks. They are playing the game risk-free; society is taking all the risks while the banks are getting all the rewards, i.e., power-ups and high scores. So the Bank of England has now openly told us this–they’ve had the cheat code–i.e., free money–and that the idea that banks are taking any risks by “loaning” money is completely absurd and incorrect.
If we would only accept and act upon these truths, we would indeed be set free…
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If the debt isn’t real how can they send my “loan” to collections? Is collections fake? Are the collecting fake money?
Yes. And if it were me, I would make any purported debt collectors validate the debt. I’m not an attorney and that’s not legal advice. Just saying what I would do and what I have in fact done.
How can I pick your brain? Can we email? Thank you!
I’m a computer programmer and when i was using my banks website i came to this realization by my self and it gave me a panic attack.
Could you elaborate? I would love to hear more of your take!
If your argument was true, there would be no need for taxes, the government could just print the money it needs.
The belief in money by the people, speculation in a sense, is needed to reinforce the illusion of its value. That speculative belief by people is then what causes “money” to enter the realm of being real when it’s just imaginative value supported by people’s belief in it. The government in theory could print money, but it would be valueless the more they printed because it would be too plentiful in circulation causing the people to lose their belief in its value, thus making it worthless. Money is just another check on individuals in our societies. Our belief in it gives it value, and belief alone. Since the Gold standard stopped being a thing, money is all in our heads.
Good stuff here. I was first turned onto this idea about a year ago by late philosophical speaker Alan Watts, and am slowly starting to better understand the idea that “money isn’t real.”
Is there a post where you elaborate on how this realization can help you practically? I’d be interested to read!
There’s no free lunch. The debt is real because the borrower SPENT IT and acquired something of real value for the “money” ( a house, a car, an education, a vacation, restaurant dinner etc.)
Money is created as principal debt to a bank, most of it on a schedule of repayment. It represents the future productivity of the borrower, most of whom will have to produce something of value to their fellow human beings in order to earn the money and extinguish it. Banks don’t have a magic wand… the borrowers do. They get to spend their future earnings now.
As the evidence shows, at all times, the amount of money in bank savings usually exceeds the amount in transaction accounts by a large margin. Thus, by design, and just within the reported banking system, total principal debt to banks always far exceeds the money available to pay it.
A bank “loan” is actually a game of musical chairs in which constant growth of principal debt to banks is needed to keep the music playing. THAT is the problem.
Your position is self-contradictory, it seems to me. Not so much in your comment above, but your comment above vs. your videos, which I have seen before and appreciate you making (and sharing here). They are well done. What I mean is, above you say “the debt is real because the borrower spent it” and got something of value. Yet in your videos, you correctly acknowledge that banks “lend” money which they do not have, and which is therefore fake by definition. Since it is fake money that is being “lent,” how can the “debt” be real? Wait…Let me clarify what I’m getting at–“fake” is not really the most precise word to use, which is why I have often opted to use the word “fictional” to describe money. That is to say, when a bank “lends” $10,000 to a “borrower,” the bank is writing a fictional story about that $10,000 in precisely the same way an author would write a fictional story about magic elves or fairies. Both the ten grand and the magic elves “exist” on paper or as binary code in computer hard drive. Similarly, they both can manifest in the real world–the $10K can be printed as bank notes or written on a check and the magic elf can be made into a costume that a person can walk around in on Hollywood Blvd. or wherever. But that doesn’t make either the $10K or the magic elf REAL and in fact, they are both figments of imagination. That is why I say that neither the money nor the debt is real.
Another analogy regarding the fictional nature of money vs. the real nature of other things…In a sense, banks are retail establishments, like a grocery store or a big box store. That is, banks (some of which are actually known as “retail” or “commercial” banks) purport to sell “money” in the same way that a grocery store sells food or a big box store sells electronics. That is how the banking establishment would like you to think of what a bank does–that you come into the bank (what they want you to think of as a “money store”) and buy (i.e. “borrow” with interest) pre-existing money just like you’d walk into a grocery store and buy a gallon of milk. But that’s not at all what happens, as you acknowledge in your videos. Banks don’t have the monetary equivalent of gallons of milk. Why is that? Because unlike money, gallons of milk exist in the real world and have to be shipped to a grocery store after a cow has been milked and once the store sells out of the gallons of milk (or the milk expires), the store has no more milk to sell. And unlike gallons of milk, money is created on the spot whenever a “borrower” signs a “loan” document. The banker does not give the customer of his “money store” a loan out of money that he has in his local vault–he manufactures it out of thin air. And unlike the grocer running out of milk, the banker can never run out of loans. That’s because money is fictional and gallons of milk are real. The problem then, is requiring that people use fiction to acquire something real, while requiring that only certain people (bankers) get to write the fiction even though everyone is equally capable of writing their own fiction.
Now that I think about it, you are contradicting yourself in the comment above. You’re saying both that a “borrower” owes a debt to the bank but really owes it to…himself. That is, you first say that the debt is real and is owed to the bank, but then say that it is the borrower himself who has a magic wand to create the money that makes up the so-called “debt.” I do agree with you that it is actually the “borrower” who creates the money, and that agreement is why I believe that banks are actually completely unnecessary third parties to any transaction. I say that because we can and do create money at will by “borrowing” it from a bank, what is the real purpose of the bank other than to scam us by skimming off a cut via interest payments? To my way of thinking, banks would like nothing more than for we the people to think of a bank “loan” as a representation of our “future earnings” or “future productivity,” as you called it. That’s how they keep us as their debt slaves and keep us working for everyone but ourselves. Instead, we ought to think of the money that we can and do create ourselves as CASH, i.e., money we’ve ALREADY earned (after all, that’s exactly how the banks treat our promissory notes for the “loans” they supposedly give us, as cash). How have we earned it? By being human, by living–the only real requirement a bank has for making a “loan.” You basically just have to be an adult who can fog a mirror and you can get a loan. You may have to pay exorbitant interest, but you’ll get a “loan.”
Here is an entirely opposite way to see “money”
REAL money is created via bank loans as a promise of the borrower’s REAL future productivity (something in demand sold to others). The bank changes the borrower’s promise of payment that few would trust into the bank’s promise of payment, which is a usually reliable promise to supply legal tender on demand.
Cash, “legal tender” is perpetual taxpayer DEBT (national gov’t bonds bought by the Central Bank) that we the people essentially RENT to use as a physical medium for transferring bank credit anonymously.
Ultimately BOTH forms of money are promises of the borrowers’ future productivity. Cash is a principal debt to the Central Bank that is never paid off. It is serviced by the national taxpayer with interest paid to the the Central Bank to pay for its operations with the surplus returned to the national government.
So where is there any “money”? What is money?
In Money as Debt II, Promises Unleashed (2009), I explained that, before the end of the 17th Century, English Common Law would only enforce or cancel a debt if the plaintiff was the original creditor or debtor, because only the original parties to the debt could actually know the circumstances of the debt. But expanding commerce needed to be able to exchange debts of gold and silver money as if they were gold and silver money, as many of these debts of money would then cancel each other out and cumbersome settlements in actual gold or silver would be reduced. The law was changed such that a debt of gold or silver money could be SOLD, and ONCE SOLD FOR REAL VALUE would then be enforceable and in law, equivalent to money.
Therefore literally, by law, a debt of money, regardless of its origins ( I listed 5 forms of fraud in a bank loan in MAD 2) becomes “money” the moment someone accepts it for value. Furthermore the borrower received the item of value they paid for and the seller got court enforceable bank credit money to spend. In essence, the seller got the borrower’s PROMISE OF FUTURE VALUE to spend NOW and the Borrower got real value NOW in exchange for it.
How was this done? The original act of “fraud” involved in a bank loan is committed by the borrower signing a document giving the bank a legal claim to property the borrower does NOT own at the time it is promised.
The most damaging of the frauds is the design of banking itself. Savings are someone else’s debt on a schedule that is UNAVAILABLE to them except as another debt, making bank debts and essentially all debts payable only in money IMPOSSIBLE in the aggregate without perpetual growth of principal debt to banks.
You pointed out a number of legal issues, and I don’t disagree with you that those are correct under current law. But that’s really my entire problem with the system as it now exists–the laws concerning money/debt. That’s all I’m really trying to point out. What I mean is, we know that money is created ex nihilo, out of thin air. The question is, by whom is it really created and to whom is anything really owed?
The law–case law, if not statutory law–as it stands now presumes that it is banks who create and lend money and therefore that same law presumes that citizens must repay banks. However, you and I (but not ONLY you and I, of course) know this is false. We know that it is the people–i.e., those who banks and the law call “borrowers”–who create the money.
So in that sense, the law protects and perpetuates a false state of affairs. That false state of affairs is the idea that we the people owe anything to a bank or anyone other than ourselves for money that has been created by us and for us. That is the sense in which I mean money is fictional (or as the title states, not “real”) and that therefore the debt to banks isn’t real either.
However, we use this fictional money every day and have since Nixon ended Bretton Woods. We have accomplished a lot since then using fictional money–the Internet, space exploration, medical breakthroughs, etc. But we’ve also put the vast majority of people as well as the country into a black hole of ever-increasing debt in that same period. That debt is crushing people and nations, but it shouldn’t and doesn’t have to. That is because the so-called debt is really money created ex nihilo, out of thin air–it’s fictional, just like the money that supposedly created it. All we have to do is acknowledge that, and do so legally. That’s all I’m trying to say.
“we know that money is created ex nihilo, out of thin air.” You say this and then you say the borrower creates the money by promising to pay it back. The latter is the more correct. Money is NOT created “ex nihilo” because there is NO MONEY apart from the debt of it.
That’s the whole point of Money as Debt.
A dollar of bank credit is a PROMISE to EXTINGUISH ITSELF according to the loan schedule. ALL Money in the current system is created as a DEBT of ITSELF (this includes cash and reserves which are interest only national taxpayer debt).
Is a gold coin “real money”? And how would “real money” solve the un-payable debt problem? A gold coin LENT into circulation is money as debt on a schedule just like bank credit. If it is then acquired and lent again there are now 2 principal debts of the same gold coin. In a gold coin economy with income disparity and no banks, rich people do the lending and the same situation of crushing unpayable debt would arise for the same reasons ( and DID historically, over and over). See page 3.
Click to access Grignon_Recursive_Re-lending_Analysis.pdf
” the idea that banks are taking any risks by “loaning” money is completely absurd and incorrect.”
With bailouts that is partially true but not true normally.
Banks take the RISK on the borrower paying back the loan and extinguishing the bank’s liabilities to provide legal tender on demand. When borrowers default, liabilities against the bank are left in circulation without any asset (the performing loan) to balance them. These liabilities will come home to the bank as demands upon its reserves, a REAL LOSS..
Disagree for a number of reasons: 1) Since the money never really existed in the first place except in the fictional sense, there is no loss and in fact, any interest paid by a “borrower,” even if it was only one interest payment, is a gain for the bank. 2) Banks “write off” bad loans, which is an accounting trick just like the “loan” itself. 3) Banks routinely securitize “loans” immediately, so if there is a “default,” there is no effect on the originating bank because they no longer have anything to do with the “loan” (or shouldn’t, anyway, having supposedly set aside and transferred all their beneficial interest to another party).
1. How would you charge for the bank’s services?
2 A “write-off” of an unpaid loan is for TAX purposes. Banks don’t pay taxes on income they have not yet received and may never receive. Bank losses are REAL. If you don’t extinguish the liabilities against your bank that you created when taking a “loan”, those liabilities come back as a claim on the bank’s reserves (legal tender) a REAL LOSS to the bank. That’s why banks are regulated for “capital adequacy” which in simple terms is the amount of real value the bank can sell to offset unpaid loans.
3. The bank sells the “loan” asset along with the risk, and takes a FEE for doing so. I learned about banking from a man who creates new money for all his short projects, extinguishes that money by quick repayment and then uses his existing money profits (someone else’s debt to a bank on a schedule) to buy mortgages.
The result is 2 simultaneous principal debts of the same bank credit money, one to the bank that created it and one to my mentor. Now get out of that trap without a default. Don’t even bother with all this nonsense about fake or real money. There is NO MONEY… ONLY IMPOSSIBLE AGGREGATE DEBT measured in MONEY UNITS.
To answer your points:
“1. How would you charge for the bank’s services?”
I would get rid of banks altogether because they are completely unnecessary. This is because as you and I both know, it is the people that create the money (more precisely, the currency) and therefore no banks are needed to do that.
“2 A “write-off” of an unpaid loan is for TAX purposes. Banks don’t pay taxes on income they have not yet received and may never receive. Bank losses are REAL. If you don’t extinguish the liabilities against your bank that you created when taking a “loan”, those liabilities come back as a claim on the bank’s reserves (legal tender) a REAL LOSS to the bank. That’s why banks are regulated for “capital adequacy” which in simple terms is the amount of real value the bank can sell to offset unpaid loans.”
You are correct that write-offs lower a bank’s tax burden, but they also remove the receivable from the bank’s balance sheet, which is what makes the bank’s tax burden lower. The story we are told is that banks are regulated for capital adequacy and the like, but they often fail or perform very poorly on their so-called “stress tests” which test exactly what you’re talking about. In fact, there is a headline today which reads: “RBS fails toughest Bank of England stress test as Barclays and Standard Chartered struggle.” Quote from the article: “Royal Bank of Scotland has promised to take extra steps to bolster its financial resilience after the Bank of England found the lender could struggle in any future recession or financial crisis. Barclays and Standard Chartered were also found to have ‘some capital inadequacies’ and will have to build further capital buffers to keep themselves safe.”
1. Anyone can create money. The problem is getting it ACCEPTED for VALUE. That is WHY we issue our personal credit via a government-regulated depository institution.
2. Banks break the rules. My analysis is about proving that, even run completely honestly, banking, and in fact our limited concept of money as a quantity of something, creates an inescapable black hole of ever increasing debt, BY DESIGN.
“1. Anyone can create money. The problem is getting it ACCEPTED for VALUE. That is WHY we issue our personal credit via a government-regulated depository institution.”
This is exactly the heart of my argument–not so much in the article under which these comments appear, but in articles like https://libertyroadmedia.com/2015/03/11/self-issued-currency-the-way-out-of-debt-slavery-2/
What I mean is, you have hit the nail on the head. Yes, anyone can AND DOES–create money. WE, not the the banks, actually create the money. And you’re right to say that in our current system, we are required to go through banks to convince other people to accept the money that we have created.
BUT–why not CHANGE the current system into one in which you and I can both create money and have it accepted without involving a bank? The bank is completely unnecessary when you consider the following example.
Let’s say I want to buy a house. The seller wants to sell me the house for $100K. And let’s assume that, like most people, I don’t have the $100K in my checking account or in cash to give to the seller. So under the current system, I have to go to the bank and get a “loan.” The end result of me going to the bank is that I sign a $100K promissory note stating I will pay the bank back, and the bank writes a $100K funding check to the seller. In the bank’s accounting, both a debit and a credit of $100K is made to represent that “loan.”
However, as you and I both know, my promissory note IS the funding check IS the promissory note IS the check. In other words, I lent the bank $100K to…”lend” back to me, at interest. The ONLY conceivable way this arrangement makes ANY sense is if you believe that only a bank can magically convert my promise to pay on a plain sheet of copier paper into the national currency. And that’s literally what the bank is doing–a magic trick. We do this because we have been taught this idea that I can’t just write out a promissory note for $100K and give it to the seller, who then gives me the house. That’s ridiculous, right?
No, it isn’t ridiculous at all, once you understand–as you clearly do–that the bank isn’t doing anything more than waving a magic wand over a piece of paper and claiming to turn it into dollars. So why NOT just cut out the bank’s completely unnecessary role and just let me give me promissory note directly to the seller of the house? What is the actual difference between the two scenarios?
Most people would say that the difference is that I have now paid the seller in my own private currency rather than the national currency, and that the seller would then have difficulty finding another party who will accept my own private currency. BUT this is not at all what I am saying. Under the system I am proposing, when I give my promissory note directly to the seller, it is written in US dollars (or whatever the local currency happens to be), NOT in my own private currency.
Most people ask how that promissory note could be useful to the seller, even if we agreed to go along with this crazy system. The answer is that, JUST LIKE THE CURRENT SYSTEM, we ALL can do that exact same thing–we ALL have the power to create money (or more precisely, currency) denominated in the national currency. In other words, we just completely cut the banks out of the equation, because they’re not actually lending–they’re converting and taking a fee for a service which is completely unnecessary and is only used because it is the law. This is what I mean when I say the debt isn’t real.
When such a system comes into being–and I fully expect that it will, once more people are educated about these issues–we will see that get money accepted for value is no longer an issue.
What say you?
The bank doesn’t “wave a magic wand” over your personal pledge to EXTINGUISH the bank credit by repayment. It REPLACES your personal pledge to EXTINGUISH the bank credit with the bank’s pledge to EXTINGUISH it with its own RESERVES. The thing of real value is the borrower’s promise of future value creation. So in your proposal, your promissory notes will come back to you for redemption in real value, which is precisely what my proposed Producer Credit is. And since most people work in groups called companies, the company is the entity that issuers the Producer Credits, not the individuals who work for the company.
Complete the story! What happens when your promissory notes of US dollars comes back to you for redemption in US dollars or equivalent value? In other words what of REAL VALUE have you promised in return for the house? You left that part out.
I’m not sure I follow you when you say the following: “The bank doesn’t “wave a magic wand” over your personal pledge to EXTINGUISH the bank credit by repayment. It REPLACES your personal pledge to EXTINGUISH the bank credit with the bank’s pledge to EXTINGUISH it with its own RESERVES.”
You seem to be saying that the bank credit is something separate from the personal pledge/promissory note. It is a distinction without a difference, because the personal pledge/promissory note IS the “bank credit.” I’m also not sure what you’re talking about when you say banks pledge to extinguish debts with their reserves. The amount of money a bank can loan has zero to do with its reserves. This was already widely known, but it was proven in the real world by Richard Werner back in 2014. He put it like this:
“It was examined whether in the process of making money available to the borrower the bank transfers these funds from other accounts (within or outside the bank). In the process of making loaned money available in the borrower’s bank account, it was found that the bank did not transfer the money away from other internal or external accounts, resulting in a rejection of both the fractional reserve theory and the financial intermediation theory. Instead, it was found that the bank newly ‘invented’ the funds by crediting the borrower’s account with a deposit, although no such deposit had taken place. This is in line with the claims of the credit creation theory.” https://libertyroadmedia.com/2016/04/19/conspiracy-fact-actual-proof-that-banks-create-money-out-of-nothing-part-1/
I may not have made clear in my proposal that when I give the seller of a house a promissory note, the seller does not have to keep that promissory note for later use. The promissory note I gave the seller in my example is more like a thank you note–it is an acknowledgment of an exchange, not a medium of exchange. We don’t need a medium of exchange, we can just have exchange. So my promissory note will never be redeemed–it’s not meant to be redeemed. The seller of the house in my example can then go buy a $200K house from another seller and simply write out a promissory note to that seller for $200K, as a thank you note.
That may sound completely absurd and unworkable, but in truth, that is exactly what we are doing now. Indeed, you asked “what of REAL VALUE have you promised in return for the house?” The answer is, nothing. What I can see so clearly but obviously have trouble relating to others is the following: what we use as money now HAS NO REAL VALUE and is infinite. We only pretend that it has real value, but every economist you will ever read acknowledges that what we use as money now has no intrinsic value whatsoever.
So the only difference between what we do now and what I’m proposing is that there would be no bank involved to serve as an unnecessary middleman, waving a magic wand a pretending to turn copier paper into cash. From the same link, in Werner’s words:
“Thus it can now be said with confidence for the first time – possibly in the 5000 years’ history of banking – that it has been empirically demonstrated that each individual bank creates credit and money out of nothing, when it extends what is called a ‘bank loan’. The bank does not loan any existing money, but instead creates new money. The money supply is created as ‘fairy dust’ produced by the banks out of thin air.32 The implications are far-reaching.”
It’s fairy dust–i.e., a magic trick, with emphasis on trick. It’s a giant ruse.
Apparently, given the completely irrelevant Lerner quotation you provided, you have no idea what “reserves” are nor how the banking system actually works. And, if you are positing Richard Werner as a source, forget it. I debated him already. You share the same absurd delusions. And here I thought we might possibly have a serious conversation. No such luck.
You and I are both amateur economists and have a passion for this topic. We both reach very similar conclusions, using the same source material. As you know, Werner is a professional economist who has studied these issues very extensively. I will be happy to defer to his judgment of the situation over both mine and yours. And he is only saying what many other economists have said and continue to say. Both the Bank of England and the Federal Reserve have already admitted to what Werner proved.
I also thought we were having a fruitful discussion, but it suddenly gets derailed when Werner comes up? That’s strange. Maybe you feel he is somehow flawed in some way I’m not aware of; at any rate, his findings are correct and in line with what is already admitted by banks and economists, as I said.
I would argue that it is you that doesn’t understand the banking system because you fail to appreciate the elemental fraud at the heart of it. Or rather, I should say it’s clear you do understand the fundamental fraud, but then choose to accept it and incorporate it a solution. I find that curious.
But thanks for all your commentary here, and your videos.
“Thus it can now be said with confidence for the first time – possibly in the 5000 years’ history of banking – that it has been empirically demonstrated that each individual bank creates credit and money out of nothing, when it extends what is called a ‘bank loan’ Richard Werner, economist.
First of all, economists are generally the last people to understand money. Their bank-funded education OMITS the true understanding of money ON PURPOSE. Then, after ignorantly believing in one version of nonsense, some have now discovered “endogenous money” and an even sillier version of nonsense. Meanwhile none have been able to refute my facts logic or arithmetic. Most refuse to even try given how obviously irrefutable my arguments are.
“5,000 years history of banking” ???!!!! Modern banking was invented in 1694. The truth about endogenous money was explained by the Fed in 1961, including the fact that the Central Bank provides new reserves as needed by the system and thus the total amount of central bank reserves does not limit total credit creation. Reserve creation FOLLOWS retail credit creation.
Click to access ModernMoneyMechanics.pdf
The Werner quote is UTTER NONSENSE as proven by his saying “money and credit” rather than money AS credit. The bank’s legal claim against the borrower for future earnings IS the “money”.
There is NO such a thing as “money” apart from the asset the bank acquired to create it, central or retail. In the case of central banks, cash and reserves are, in normal times, national taxpayer promises of repayment. In the case of a retail bank loan or a bond, bank credit is the borrower’s promise of repayment. At no time can any bank ever create “money” (whatever you think that is) out of “nothing”.
My movies are titled Money as DEBT for a reason that seems to have escaped your understanding.
“his findings are correct and in line with what is already admitted by banks and economists, as I said.
Only if you completely MISUNDERSTAND what has been admitted. Have you read all of this doc?
Click to access qb14q102.pdf
WHY do we need to fundamentally re-think MONEY? 8:26
Complete the story! What happens when your promissory notes of US dollars comes back to you for redemption in US dollars or equivalent value? In other words what of REAL VALUE have you promised in return for the house? You left that part out.
Once I read all this, I’ll have more considered comments, but for right now I’ll say only this–currency and money are two different things. Currency is created out of thin air, whereas money is, as you say, a concept of measurement and is therefore as real as any other such intangible concept. That much is true about your argument. And I admit that I blur the distinction between money and currency, as most people do, simply because having to explain the distinction all the time can be tiresome. But there is a big and very important distinction between the two things.
I think that creation of unlimited phantom bicycles should be a primary goal. As long as I get to ride them, and they are made of carbon or titanium (some steel one are okay, too). If they have sufficient travel for my local trails and a Fox 36 I am happy.