We all know that all fiat money, such as the U.S. dollar, is created out of thin air not by banks but by the people and only has value because said people ultimately have “faith” in it. This is uncontroversial and neither my opinion nor an original observation of mine. It’s simply the way it is. For more information, check out the following articles:
BANK SAYS: IF YOU BELIEVE BANKS LEND DEPOSITS, YOU ARE WRONG
THE SOLUTION: SINCE THE MONEY ISN’T REAL, THE DEBT ISN’T EITHER
Given that the above is true, then why do we see ghastly stories like this one that was making the rounds yesterday (that’s when I saw it, at any rate): “Unseen Toll: Wages of Millions Seized to Pay Past Debts”. Here’s what we learn from the story:
“Back in 2009, Kevin Evans was one of millions of Americans blindsided by the recession. His 25-year career selling office furniture collapsed. He shed the nice home he could no longer afford, but not a $7,000 credit card debt.
After years of spotty employment, Evans, 58, thought he’d finally recovered last year when he found a better-paying, full-time customer service job in Springfield, Mo. But early this year, he opened his paycheck and found a quarter of it missing. His credit card lender, Capital One, had garnished his wages. Twice a month, whether he could afford it or not, 25 percent of his pay — the legal limit — would go to his debt, which had ballooned with interest and fees to over $15,000.”
Furthermore, and even more ghastly and disconcerting, we learn that Evans’ misery is a fluke of geography:
“Evans had the misfortune to live in Missouri, which not only allows creditors to seize 25 percent, but also allows them to continue to charge a high interest rate even after a judgment.
By early 2010, Evans had fallen so far behind that Capital One suspended his card. For months, he made monthly $200 payments toward his $7,000 debt, according to statements reviewed by ProPublica and NPR. But by this time, the payments barely kept pace with the interest piling on at 26 percent. In 2011, when Evans could no longer keep up, Capital One filed suit. Evans was served a summons, but said he didn’t understand that meant there’d be a hearing on his case.
If Evans had lived in neighboring Illinois, the interest rate on his debt would have dropped to under 10 percent after his creditor had won a judgment in court. But in Missouri, creditors can continue to add the contractual rate of interest for the life of the debt, so Evans’ bill kept mounting. Missouri law also allowed Capital One to tack on a $1,200 attorney fee. Some other states cap such fees to no more than a few hundred dollars.”
No risk for “lenders” because “loans” are not cash
One might wonder why Evans and millions of others are being hounded to pay these debts and having their wages garnished. Even more to the point, one might wonder why this sort of collection effort is allowed. I certainly did, because if we return to the opening paragraph of this post, we see the money that Evans “borrowed” was actually created out of thin air by the act of Evans asking for a “loan.” Again, this is not my opinion. The Bank of England explained it quite clearly in a recent press release:
“Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.”
Did you get that? They said it themselves—banks do not give “thousands of pounds of banknotes” when they make a “loan,” banks just credit an account with a bank deposit “of the size of the mortgage.” In other words, bank “loans” are not cash, they are merely keystrokes in a database that says you now have money in an account whereas you didn’t have that money the few seconds before the keystrokes were made. That’s it.
So since bank loans aren’t cash—says the Bank of England, not me—what risk is there in bank lending? None at all. But the idea that a bank “loaned” someone like Kevin Evans money—and took a real risk to do so—is the entire logic behind punitive wage garnishment, foreclosure, debt collection, etc. But that idea is totally false.
How many times have we heard those words—“did you borrow the money?” That’s the justification for our entire system, but it is based on an entirely false premise. The question should really be asked back—“did you loan the money, or did you just hit an ‘Enter’ key on a computer?” Because the real answer to that question is the latter, and that means that there is no risk in bank lending, whether that be for a mortgage, education, car, credit card, or what have you.
Some might scoff and say, “Well, but that’s the way the system works, and so you have to live with that.” For now, maybe. But that is the entire point of this site and the thousands of others like it—to raise awareness of what is actually happening and to question the not only the morality of such a system, but also the wisdom of such a system. Yes, it may be legal, but is it right? Hell no, it isn’t right. It’s slavery by another name. It certainly isn’t capitalism.
Capitalism IS risk, so we are not living under capitalism
Indeed, as Simon Heffer put it in The Telegraph when discussing the bailout of Northern Rock:
“All capitalism is about risk. Rewards do not come otherwise. Sometimes risk is high; at others it isn’t. ”
So since banks can “lend” money at zero risk—as we have shown that banks do as a matter of course—there is no capitalism. There’s especially not capitalism when the same banks can use the state to extract the artificial, fictional, risk-free money from people who can ill afford it, or even from those who can afford it. The lie that banks lend money and take risks in doing so is now so thoroughly discredited that the current system which enforces that lie needs to be junked immediately in favor of one that accepts that all money is fictional and is only a means to an end, not an end unto itself.
I have proposed such a solution a number of times:
“Fiat currency is, in short, the most important financial invention ever because of the fact that–as the article states–it “is not backed by any tangible commodities.” Fiat currency is the perfect form of money because it is admittedly and openly fictional, as all forms of money are (yes, even precious metals). The problems with fiat only arise when: 1) it is treated as non-fictional and as the primary obligation of a person, taking precedence over life, liberty, and the pursuit of happiness, and 2) when the issuance of it is monopolized, which inevitably leads to the first problem.
Self-Issued Currency
The solution to these problems, then, is self-issued currency. That is, every citizen in a fiat system ought to have the ability to issue his or her own money, up to any amount needed. This will solve both of the problems above, because when self-issued currency becomes the norm, paying money will be as easy and as painless and as much as an afterthought as saying “Thank you” is now. Problem one solved. And obviously problem two is solved because there would be no monopoly on the issuance of currency, hence no unnecessary control over anyone or anything, either by the state or by the issuer of the state’s currency.
For those that might recoil in horror at such an idea, keep in mind that all money is fictional. In fact, all money is already self-issued, as will be shown below. Money must be created by someone, somewhere, because money does not exist in nature–except to the extent that a natural item like gold or salt might be assigned the properties of money. Despite what the typical Western economics professor might say, money does not just naturally come into being as a consequence of people needing to exchange things. Indeed, as Bartolome de las Casas observed of the native Cubans in the 16th century:
“…[the natives] put no value on gold and other precious things. They lack all manner of commerce, neither buying nor selling, and rely exclusively on their natural environment for maintenance. They are extremely generous with their possessions and by the same token covet the possessions of their friends and expect the same degree of liberality.”
That is to say, money is a creation of man, and as such, it should serve man, not enslave him. Can it be that the “uneducated,” “pagan,” and “savage” natives of Cuba from centuries ago were more civilized and wiser about economics than we are today? It certainly would seem so.”
I invite any critiques and/or suggestions on the above. Whatever it takes to get this old paradigm immediately put out to pasture and give some relief to the millions of hard-working, honest people like Kevin Evans because to varying degrees, we are all Kevin Evans as long as the current system persists. Let’s get a discussion going, a dialogue, let’s do something about all this!
LIBERTY ROAD MEDIA 