Pouring money into the private banking system has only fixed the economy for bankers and the wealthy; it has not done much to address either the fundamental problem of unemployment or the debt trap so many Americans find themselves in.

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12 Responses

  1. Is this correct unless the banks acts as a central bank and prints money (in which case fractional banking is not relevant)

    For example the $100 would have to be loaned out and redeposited to loan out again.

    The person or company redepositing the money would also want 6% interest

    So it would not be $6 paid out but 6*9 = $54

    Or have I misunderstood something

    “For $100 in deposits, a bank can create $900 in new money by making loans. So, the BSF can pay 6 percent for CDs, and make mortgage loans at 2 percent. For $6 per year in interest paid out, the BSF can earn $18 by lending $900 at 2 percent for mortgages.”

    • Hello RJ, I believe you have. Fractional reserve banking is widely misunderstood and is not the only means by which commercial banks create money. They also use so-called “asset monetization”, but what they call “asset” is merely your loan contract and “monetization” is creating fresh, new money out of nothing by printing it (which FED does) or by typing it into your or vendors current account which is “technique” used by private commercial banks.

      Origin of that scam is blatantly mention in booklet called “Modern Money Mechanics” issued by Federal Reserve Bank of Chicago on page 3. They were happy to tell us that all began when goldsmits discovered they can safely issue (counterfeit) up to 10 or even 20 times more banknotes than they acually have physical gold deposited by their clients. In modern times, instead of banknotes, commercial banks (formerly goldsmits) create money using their privilege to run current or checking accounts (or any other a vista deposits).

      When they make loans in cash, new money is created by simply leaving a balance of correspondent current-account unchanged and thus practicaly creating a “double” or additional money, depending on how much is a reserve requirement. One physical or cash that is loaned and one that exist only on that account to which loaned cash was initially attached. All this tells us, that only time-deposits can be used (by private banks) for lending money to various clients. But in practice they do just opposite, effectively counterfeiting money. To be even worse, most of that money goes to non-productive purposis like speculation or final consumption, making additional harm and social unjustice in form of inflation and ruined production, because money goes to imported goods or services.

      When it comes to reserves, what only matters is “high powered” money or in other words dollar bills and coins (or some other currency). When clients visit the bank demanding their money, they naturaly wants tangible money or cash. So, it is obvious that book-entry money can`t be basis for any fractional reserve banking, how FRB of Dallas falsely implies.

      • Hi Malden, that’s pretty interesting! Have you worked as a banker? Here’s what I’ve been told and want to confirm: banks don’t actually worry about reserves or capital at all, except every 3 months when they have to report to the regulator. Then they scurry around and make the books tally up, either by selling off loans to their friendly neighbor banker, who buys them back later; or by borrowing from the money market or the Fed. When a client walks in wanting a loan, nobody checks to see how many deposits are on hand against which 90% can be lent. The loan officer is just told a loan limit, which is quite high (in the millions), and makes the loan if the client meets whatever the lending standards are for that type of client. Can you confirm if that is true? Thanks!

  2. Ellen have you read this. It seems that for most or many banks fractional banking no longer applies. The ratio for some banks is now way over 9 to 1 anyway. I read somewhere that some banks are closer to 50 to 1.

  3. Malden

    This is how I understand this. I believe (maybe incorrectly) that many people do not understand the significance of this fully.

    Banks do not print or create money now in any way. The banks only recycle money (thanks to Ken Denninger for pointing this out to me and others in one of his threads.) It’s similar but totally different as banks (as opposed to central banks like the Fed) must obtain money first to loan it out.

    Banks can obtain money in a number of way. For example deposits, from shareholders, by issuing bonds to a central banks in exchange for money (moniterization of debt) or by selling AAA+ rated bonds (supported by good or bad mortgages) to the likes of pension funds in exchange for cash.

    As I understand things the banks passed this responsibility of creating (or printing or crediting money) on to the central bank for good reasons (including to protect them when they expand the money supply as the banks have done recently and to make it more difficult for new banks to set up.)

  4. Hello Ellen, I have worked as a loan officer and regarding the procedure you have mentioned, it is basically the same in US and here in Europe. Whether a reserve requirement is 0% or more, like 10 or 20% it doesn`t really matter. In my country, central bank enacted that the reserve requirement cannot be less then 10%. But in practice, banks hold this requirement close to 40%, because people have a habit and like to use cash much more then in US. But such differences are just nuances. In both cases, private usurpers have control and grip over society.

    Lowering the reserve requirement means that commercial banks can issue more of their book-entry money and that certainly have advantages for them. Manipulating physical money is costly (printing, transportation, potential theft and security issues, etc.), but using current and other similar accounts to create money is far more profitable and easier. So they advertise and advocate for that kind of payments (that involves no cash) as much as they can.

    @RJ, I personally have no doubt that private commercial banks create money out of nothig, because those statements comes straight from the horse’s mouth and the same conclusion people can find if they look statistic data and reports. Having in mind that whole banking business is a giant scam, people shouldn`t take for granted official “explanations” and various terms that banks use.

    For example, banks cannot create “deposits”, but banksters often use that term to confuse people. What banks actually create is money (or credit to be precise) on accounts they run for various clients. Creating and lending money is the same operation for them. If you and I or some company would try to do something similar, we would go to jail. But banks do that all the time and for example in `Modern Money Mechanics` they arrogantly call that “unique attribute of the banking business”, unbelievable. This is happening because the very nature of modern banking bussiness is concealed from the public, even from the most economists.

    Another such example are so-called monetary aggregates. People are giving to much atention to M2 or even M3 aggregate, which have only statistical merits. But in practice, what really matters are M0 (high powered money) and especially M1 because the latter includes book-enty money on various current and other (ready-for-payment) accounts. This categorization may differ from country to country, but the point is that only those accounts from which companies or individuals can make payments can be treated like a part of money supply.

    On the other hand, time-deposits are not money (or medium of exchange). Those accounts are immobilized or “frozen” till bank decide to put that money back into circulation. And money that is “dead” in the sense of payments cannot be treated as money, because it doesn`t affect prices in any way, it “lay dormant” in the bank collecting interest. It only represents internal obligation of the bank to their clients. But bank have no imperative to loan this immobilized money or people`s saving, because it can itself create money out of nothing. It collects savings anyway, because it would be very suspicious to do otherwise. And also by pulling money out of circulation it creates additional stress and demand for its own (counterfeited) credit money.

  5. Malden

    This is an important point because if Karl Denninger’s ( ) explanation as I understand it is correct (that banks only recycle money) then the Democratic candidates example referred to in Ellens article is nonsense.

    And I still can not see how banks create money out of nothing. Central banks do this but banks do not. And if they could why would the banks bother with deposits or raising money and paying interest. And why would there be any need for a central bank.

    A bank might obtain money in suspect ways but the bank must obtain money first (and pay interest for this) before it can loan it out. (although I guess the bank could anticipate receiving money from another banks for eg)

    Otherwise they could not settle with other banks. And if there was fraud then the whole inter bank settlement process would break down.

    Ellen. What is your view on this.

    • RJ,

      To understand how commercial banks create money out of nothing, one have to be first aware of 3 kind of money in circulation: coins, dollar bills and so-called bankers or “funny” money. Sinonims for it are book-entry money or simply credit money. But that credit is not the same as credit that comes from people`s saving. Here we talk about new, fresh medium of exchange that exists only on bank`s accounts. It is equally liquid and demanded as dollar bills or coins and make most of nation`s money supply. The bad thing is that it`s created by private commercial banks (usurpers or counterfeiters backed by central bank), to whom we all paying racket in form of interest (directly or through taxation).

      Most of the people have never heard of this kind of money, i.e. medium of exchange, let alone how it is created. Let me give some additional clarification. Central bank creates money by printing it and than buying securities from Treasury, which is ridiculous and pure fraud, because Treasury should print its own money without any debt or interest payment and use it for productive purposis which is essential for keeping purchasing power of money).

      Similar to what central banks do with securities, private commercial banks use their privilage and discretional “right” to create book-entry money to buy your loan contract (i.e. your debt and promise to pay in future). Basically, they do the same thing, but with one difference: central banks use (print) tangible money, i.e. cash, while private commercial banks use current and similar “ready-for-payment” accounts to create book-entry money and indebt whole society. They work like a team or gang of parasites to control and rob people. Banking “business” is highly monopolized and concentrate in pyramidal manner, so there`s not real competition there.

      For example, I saw with my own eyes that commercial banks regulary lending cash to each other to create illusion that they are liquid and have enough tangible money that clients demand. This favor is then given back. Why would they, who are allegedly competitors, helping each other? But, if one understand that they are crooks and parasites with the same goal and in many cases the same owners, than all that make perfect sense.

      Regarding people`s savings, banks simply have to collect it, because it would be very suspicious in public eyes not to do so. People would ask: “Where the heck do you lend us money from?” and so the whole fraud would never succeeded. This is the first and most important reason. But, there can be some others, like when referent interest rates (given by central bank) are very high (above official inflation rate), so it is cheaper for commercial banks to take cash from people for some moderate rates, then to pay higher price lending cash from central bank. Don`t get me wrong, they lend saving also and charge interest on it, but only when this saving is in form of cash (tangible money). But cash make only a fraction of all money in circulation. The rest or majority of money, i.e. credit, they create themselves. In addition to that, I will quote Sir Josiah Stamp, former governor of the Bank of England, who said:

      “The modern banking system manufactures money out of nothing. The process is perhaps the most astounding sleight of hand ever invented. Banking was conceived in iniquity and born in sin…Bankers own the earth. Take it away from them but leave them the power to create money, and with the flick of a pen, they will create enough money to buy it back again…Take this power away from them and all great fortunes like mine will disappear and they ought to disappear for then this would be a better and happier world to live in…But if you want to continue to be the slaves of the bankers and pay the cost of your own slavery then let the bankers continue to create money and control credit.”

      • We will not agree on this. But here’s one last comment on this subject.

        It’s the word create money that seems to confuse people. Central banks create money (or credit which it really is today) out of think air. Agree with this.

        Banks do not. This point must be understood otherwise people give confusing examples as the Florida candidate has.

        Banks must today start with the money (or credit) created by the central bank first before they can do anything else (they can obtain this money / credit by issuing a bond to a central bank for eg or maybe a loan from another bank etc). They receive this money and loan it out. As long as this money is deposited back into a bank they can then loan it out again and again and again BUT they have to pay interest on all the deposits. It is not interest free as the example suggests. This is recycling money which some people confuse with creating money. Agree it has a similar effect but the process is different.

        The banks profit is made by the interest differential.

        Your explanation above shows that banks can not do this (create money out of thin air otherwise why do they need to loan money from other banks).

        And I agree with Sir Josiah Stamp. But the problem is due mainly to the interest factor. The banking system does not create this so the bankers have all the power, which they can abuse at any time as they are now doing with the help of supportive politicians.

        Democracy and capitalism without control of the money supply is a con. Always has been and always will be unless the public wise up (which is very unlikely as this would require a massive mind set change).

        But the world will be a better, fairly place if they ever do.

        Money is created when banks lend it into existence When a bank provides you with a $100,000 mortgage, it creates only the principal, which you spend and which then circulates in the economy. The bank expects you to pay back $200,000 over the next 20 years, but it doesn’t create the second $100,000 – the interest. Instead, the bank sends you out into the tough world to battle against everybody else to bring back the second $100,000.”- Bernard Lietaer, Former Central Banker

  6. RJ,

    Why is it so hard to believe that commercial banks create money, while at the same time bankers themselves openly admit they do? It doesn`t make sense to me. Moreover, you will find that in many textbooks.

    For example, let me quote “Modern Money Mechanics” page 3 were it says:

    “The actual process of money creation takes place
    primarily in banks.’ As noted earlier, checkable liabilities
    of banks are money. These liabilities are customers’ accounts.
    They increase when customers deposit currency
    and checks and when the proceeds of loans made by the
    banks are credited to borrowers’ accounts.”

    As you can see, they admit that banks create money when loans are given to borrowers account or as Sir Josiah Stamp said: banks create money “with the flick of a pen” (or in modern times by typing over keybord).

    About your question why banks lending money from other banks, it is simple really. Banks can create money (debt) out of nothing ONLY when they lend money to others (firms, individuals or goverment itself), because in present banking system, money and debt are the same thing for those crooks. But when bank need money to gamble with derivatives or to adjust its books with capital ratio requirement (given by its masters behind the curtain), it have to acquire money some other way, usualy from other banks, financial organization or FED as a lender of last resort. But FED usualy helps only the biggest banks, because they secretly own and control central bank (tip: Jekyll Island meeting back in 1910. when private bankers founded FED, similar to Bank of England couple centuries ago).

    Creating and lending money in the same time is ok only when its done by some public bank or Goverment itself. When private entities do so, it is pure counterfeiting and criminal activity of epic proportion.

  7. Ok maybe this will explain it better

    Central banks create money (or credit) out of thin air whereas

    Banks create money (or credit) BUT only by recycling money.

    This impact of this difference does not seem to be fully understood. It means banks can not do what is suggested in the candidates example unless they operate as a central bank.

    Also you comment on counterfeiting is a bit over the top.

    If for eg a banks net interest only covers bad debt write offs and reasonable bank expenses for running the bank (not huge bonuses and excessive dividends especially if they flow overseas) which are mainly recycled back into the countries economy as consumption then there is not a problem.

    Governments need to regulate banks to stop destructive practices (eg loans to people who can not pay the loan back which is then sold on as AAA+ rated). Unfortunately these controls have been sweep away in some / many countries so that banks can now do what they want. Incompetent (or corrupt) Government’s and the public who voted them in and allowed banks to exploit them are mostly to blame here.

    One solution is Govt run banks but it would not be the route I would go unless the bank is bankrupt or guilty of criminal practices.

    The main problem at present is huge debt and incompetent Governments. These problems need to be solved. Otherwise the outlook for the West is not good.

    • How can banks create additional money and expand the money supply by recycling the existing one?! You don`t see any logical problem in that statement?

      The role of the central bank is to act as a lender of last resort for commercial and other banks when they become short with cash to pay off their clients, who naively believe that every dollar on their current accout is backed by tangible money, i.e. cash. That is why they emphasize so much public confidence in banking system and advertise credit cards, mortgage loans and other money (credit) transfers that include no cash. Majority of people (let say 99%) believe that dollar bills and coins are the only money that exist, but nothing could be farther from the truth.

      Tangible money makes only a fraction of money supply, and all the rest are simply various “ready-for-payment” accounts backed with no cash. To create such money (i.e. credit), banks don`t need FED or any other institution. Commercial banks (or goldsmits before them) are older then FED and have operated long before. FED and every other central bank are founded to support `regular` banks in their criminal activities and to get them out of trouble when they are short of cash (tangible money). That will happend every time when large number of people visit the bank in the same time expecting to be paid in cash. But that won`t happend, because banks are ALWAYS short of cash, just like goldsmist were short of gold in old times, but kept that a secret.

      About the argument that banks recycle their net interest (income) back into the countries economy through consumption, I would only ask why then you or I or some company for example, don`t have the same right. Why bother to work and produce something, when we could just lend money (credit) to others. I promise I would put all my profit back into economy through consuption 🙂 Here we talk about parasitism and social unjustic or even concealed slavery if you like.
      Banks indeed are recycling some of their income back into economy, but when we are aware how they acquired that money in the first place, that argument is highly irrelevant.

      Secondly, most of that money is taken back from people through taxation. Income tax was enacted in U.S. right after FED was founded! Mere coincidence? Also, banksters spend much of their income abroad, not just in domestic economy. They are not involve just in banking, but possess many other resources, land, industry, mines, real estates, you name it. As far as now, they have always financed both sides in every modern war. From your statement, someone could conclude that bankers are innocent like a lamb.

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