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…