Ending the banking crisis forever: democratizing the banking system

DEMOCRATIZE BANKING THE INDICATED PROBLEM

“… it is clear that in our days not only wealth accumulates, but that immense power and despotic economic domination are concentrated in the hands of a few, who for the most part are not the owners, but only the trustees and directors of funds invested, which they administer as they please. This dominion is most strongly exercised by those who, by owning and controlling money, also govern credit and determine its allocation, thereby supplying, as it were, the lifeblood. to all the economic body, and holding in his hands, so to speak, the very soul of production, so that no one can breathe against his will. “

Pope Pius XI, in the encyclical Quadragesima Anno, 1931.

Today, a growing number of economists, parliamentarians, bankers, and observers acknowledge that national economies and international trading systems are seriously malfunctioning. The misery and human deprivation generated by these problems in all nations are so obvious that they do not require further details. The factors that contribute to this breakdown have been reduced by the sheer weight of experience and events, with many now increasingly focusing on the most common denominator: debt.

There is no national economy that has not been deformed by the debt factor, whether external or internal. There is no industry, primary, manufacturing or service, that has not been distorted from its original purpose by the impact of debt. There are no nations, peoples, communities or families that have escaped the ramifications of inflation, recession, punitive interest rates, etc. Perhaps the latest revelation has been that of Professor RT Naylor, from Canada’s McGill University, who has shown in his “Hot money” (Unwin Hyman, 1987) that the world as a whole has an annual deficit that can never be paid under current policies, and that is inexplicable for organizations such as the International Monetary Fund.

These pivotal events have forced a growing number of leaders in many parts of the world to turn their attention to the source of the debt, rather than its effects. In the author’s opinion, the debt crisis cannot be remedied without drastic changes in the accounting procedures involved in the creation of money and debt. Unless they themselves have the strength to initiate and take part in the necessary remedies, Commercial Banks, particularly private Commercial Banks, are destined to become victims of a revolutionary rethinking generated by this crisis. Communities prefer to see the profits, assets and even the banking viability of banks sacrificed before their own future. In a world of unprecedented productive capacity, it must be possible to make it increasingly safe for people, industry and financial institutions. It is with this looming scenario in mind that the following proposals should be considered.

THE PROBLEM OF THE PROBLEM

Deeper than the debt problem itself, with all its associated problems, are the factors associated with society’s inability to focus on it clearly. The targeting problem is not due to a shortage of advertisers. Millions of people have come to understand it, with high-profile names including, from Lord Acton to President Lincoln, William Jennings Bryant and Charlie Chaplin. Thousands of volumes have been written in the hope that recognition of the debt problem will reach “critical mass” and generate corrective action. This it has not, although a small movement to maintain this knowledge is well grounded in self-perpetuation.

Many monetary reformers have attributed their lack of success to the entrenched powers of those who control money creation. This influence can hardly be overstated. No media mogul, for example, is in a position to antagonize its top funders. However, this acknowledged, their lack of response has been a lack of response. The first question is, why?

The elementary proposal brought to the public has been approximately: –

• “The creation of money has been captured by private interests. These interests have indebted all nations, financed and heavily influenced media, industry and government around the world, first to defend their privileges and later to direct politics.
• “The result is massive global debt, with debt dependence bringing inflation and depression, much as alcohol dependence results in bingeing and withdrawal symptoms.
• “National efforts to pay off debts through exports in order to obtain funds to do so have led to ‘trade wars’ and sometimes gunfire wars. Greater gain in leverage.
• “Nothing has worked, and nothing can, except to issue a new debt-free loan. “A reform to issue all the national money debt free to its people is the answer.”

The problem with the above is not that it is not true. Is. The problem is that it is not credible. Most people are of the opinion, quite reasonably, that for the above to be true, there would have to be an identifiable entity (or entities) with assets the size of all the money in the world. Where is this incredibly wealthy mortgagee, who creates and owns all the money in the world? The short answer – “The banks” – it just isn’t credible.

Why? Take the balance sheet of any commercial bank (or all of them together), and there are usually several non-bank companies of comparable size in most countries. All the shares of all banks in any country could be bought for a month or two of gross national production. Who can believe that banks create practically all the money in the world, own it and lend it at interest to increase it, and yet they are only an investment of average returns, with assets comparable to other large companies?

The above could only be true and credible for a lunatic or for someone who understood some other factor, some missing clue to the enigma. This key lies in the accounting procedures of the Banks. Yes, banks create money and therefore create their own assets. The assets thus created represent more than 90% of the world money supply. Why is it not so obvious?

Why Banks creatively account for liabilities themselves, equal to your asset creations, that involve this activity. When a nation’s money supply is created by its banks, the Balance of that banking system looks like this: –

PASSIVE

1. Shareholders funds

ASSETS

1. The money supply * (as loans) (legal tender, here around 5-7% of M3 is excluded)

2. Other assets: – Bank buildings, reserves, office equipment, etc.

However, when borrowers spend the loans that create our money supply, the beneficiaries make a deposit in the banking system. These deposits are kept strictly in trust. Nobody’s bank deposit is ever reduced to lend it.

Non-bank companies never post other people’s funds in trust, either to increase or decrease the net worth of those companies. These funds are accounted for as assets held in trust for which there is an equal liability for the depositor. Lawyer trust funds don’t make lawyers richer or poorer by owning them, for example.

If Bill gives you his wallet containing $ 100 to keep while he goes swimming, you have a deposit of $ 100 (an asset) and a liability to Bill of $ 100. Your net worth is not affected. However, what happens when you deposit your $ 100 in a bank?

To return to the balance of the previous banking system, what happens when the money supply is deposited again in the trust banks? The previous balance is modified as follows:

PASSIVE

1. The money supply (as deposits)

2. Shareholders’ funds

ASSETS

1. The money supply * (as loans) (excluding legal tender)

2. Other assets: – buildings, reserves, office equipment, etc.

Deposits are added to the Liabilities column. Suddenly, the richest business in the country, which creates and owns practically all the money in existence, masks this fact with the erroneous accounting of trust funds.

The erroneous accounting of deposits, which the law prohibits them from touching and holding strictly in trust, creates a lie to cover an originally fraudulent, though now accepted and authorized by the government, practice of a banking system that creates money for itself. This is the fence around fraud. The next thing to say, however, is that this was not a cunning stunt, created to fool a world of innocent citizens, and even the Bank’s own shareholders.

It was a historical accident. With a few notable exceptions (William Paterson, the founder of the Bank of England in 1694, said: “The Bank benefits from interest on all the money it creates out of thin air”), the early bankers did not understand their role as creators of money.

They began by lending their gold deposits, so their deposits were passive and their loans active. Only later did he realize that by making a loan they created an additional deposit. Later, again, the world completely abandoned the gold standard, leaving the Banks creating all the money.

None of the above turns bankers into bastards, nor is it intended to defame, but it has left us all, bankers, bank shareholders and people of the world with a curious financial system that we have to survive.

Perhaps most curious of all, if bank deposits were ever accounted for correctly, two big winners would emerge, bank shareholders and their citizen customers. The first because the banking companies will lose perhaps 90% of their liabilities, while retaining their assets. The latter because the debt system will be exposed and discarded by a system that originates national money as a free issue for citizens.