To understand why The Banking System is The World’s Most Immoral Institution, you need only to understand how it actually works.
Not how it works in the lofty, rarefied atmosphere of incomprehensible acronyms like ARM and RMBS and CFD and CDO and QE and LTRO.
Just the basics of banking.
The works that you and I deal with every day, at our local bank.
Fortunately, The Banking System has grown so proud of its near God-like power, it is happy to tell us how the basics really work.
From Modern Money Mechanics – A Workbook on Bank Reserves and Deposit Expansion, a complete booklet originally produced and distributed free by the Public Information Center, Federal Reserve Bank of Chicago, now out-of-print (emphasis added):
Who Creates Money?
Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.
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.
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.
NB: This is why governments the world over are so obsessed with maintaining public “con-fidence” in the banking system. It is why they so fear any hint of a “run on the banks”. As we have seen previously ( “Think You’ve Got Cash In The Bank? Think Again” ), the Australian banking system only has around $183.50 in stored ‘reserve’ cash for every employed person in the country. According to Australia’s central bank, the RBA, there is only $53.2 billion in actual cash notes in existence (or $4,655 per employed person) … even though Australian households and non-financial businesses believe that they have a combined $986 billion in total Deposits. If 1 in every 19 Aussies insisted on withdrawing their bank “Deposits” at the same time … all the cash would be gone. To add injury to insult, The Banking System is “earning” (?!) interest (thus, profits) from a grand total $1.95 Trillion in “loans” created out of thin air, and “lent” to Australian households and businesses. Interest on “money” that does not exist … except as a series of electronic digits that a banking clerk typed into a computer.
It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and 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 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 the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment.
Transaction deposits are the modern counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could “spend” by writing checks, thereby “printing” their own money.
Consider what this really means.
A bank creates “money”, authorised by your signature on a loan document.
Your signature is your legally-binding agreement, to become the bank’s debt slave.
With a few taps on the keyboard and clicks of a mouse, the “loan” that you must pay back, with interest, is created right out of thin air.
An electronic book-keeping entry is made under your name, as a new bank “Deposit”.
And another electronic book-keeping entry is made under the bank’s name, as an “Asset”.
Your legally-binding agreement to pay back the “loan” … with interest … is the bank’s “Asset”.
Every person, every business, every nation with a debt to a banking institution, is in plain truth a slave to their own wilful ignorance.
Working and slaving away, day after day, to pay back with interest something that came from nothing.
While the “Big Club” of elite bankers stride the earth like princes, on the back of everyone else’s daily toil and trouble.
Producing no thing.
Gaining every thing.
The Banking System.
It is the World’s Most Immoral Institution.
It is also the World’s Most Unnecessary Institution.
Here is my solution, for how we should do it.
Some of you, we all know, are poor, find it hard to live, are sometimes, as it were, gasping for breath. I have no doubt that some of you who read this book are unable to pay for all the dinners which you have actually eaten, or for the coats and shoes which are fast wearing or are already worn out, and have come to this page to spend borrowed or stolen time, robbing your creditors of an hour. It is very evident what mean and sneaking lives many of you live, for my sight has been whetted by experience; always on the limits, trying to get into business and trying to get out of debt, a very ancient slough, called by the Latins aes alienum, another’s brass, for some of their coins were made of brass; still living, and dying, and buried by this other’s brass; always promising to pay, tomorrow, and dying today, insolvent; seeking to curry favor, to get custom, by how many modes, only not state-prison offences; lying, flattering, voting, contracting yourselves into a nutshell of civility or dilating into an atmosphere of thin and vaporous generosity, that you may persuade your neighbor to let you make his shoes, or his hat, or his coat, or his carriage, or import his groceries for him; making yourselves sick, that you may lay up something against a sick day, something to be tucked away in an old chest, or in a stocking behind the plastering, or, more safely, in the brick banks; no matter where, no matter how much or how little.
I sometimes wonder that we can be so frivolous, I may almost say, as to attend to the gross but somewhat foreign form of servitude called Negro Slavery, there are so many keen and subtle masters that enslave both North and South. It is hard to have a Southern overseer; it is worse to have a Northern one; but worst of all when you are the slave-driver of yourself.
- Henry David Thoreau, Walden; or, a Life in the Woods, 1854