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By: David Deschesne

A common misconception, which has been sold to the American People, is that banks loan either their own money, or their depositors’ money. Nothing, however, could be further from the truth.

Banks, as well as Credit Card companies (they are banks, too), don’t loan any pre-existing money at all. They loan fresh new money, just as a counterfeiter, manufacturing new money as needed.

Banks create new money as easily as one would open a notebook full of blank paper, print numbers on those pages with a marker or pen and tear the page out. They then “loan” that notebook paper to unwitting borrowers who agree to pay that notebook paper back, with interest. Since the bank never extends any of its own money, the banker literally earns “money for nothing.”

All borrowers today fund their own loans with their own property - their signature. Since the bank doesn’t disclose this term in the contract, the contract is fraudulently conceived.

When you "borrow" money, you sign a promissory note that becomes a negotiable instrument at the time it is signed.¹ “All instruments are like money in that they represent a right to payment and are transferred in the ordinary course of business from one party to another.”²   The bank then accepts that promissory note, a.k.a. negotiable instrument, for a certain value as an asset on their books. They then create brand new "money" in the form of a bank check/bank credits, the amount of which is governed by the Reserve Requirements established by the Federal Reserve Bank. This bank check had no actual “money” in its account before. Instead, the bank deposits the borrower’s Promissory Note as if it were money and loans it back to them. What they are doing is reaching into that figurative “notebook” and making new money to loan out. That new money is then paid back, with interest, with somebody else’s newly created and borrowed money. In any other business, this would be called a “pyramid scheme” and rightly shunned, but not with banks.

It is because of this slight of hand, that the banks perpetrate on unwitting "borrowers," that most never realize that, since the banks never loaned any of their own money, they are never “damaged” as a result of non-payment.

“...suppose that a bank buys part of a new issue of municipal bonds. The bank's cashier draws a check to pay for the bonds - a check addressed to himself , and calling on himself to pay money to the order of the city which sold the bonds. This check goes to increase the city's bank balance, just as much as if the bonds had been bought by a private citizen. But the check does not come out of any private balance with the bank...The check with which the bank pays for the bonds immediately becomes a deposit liability of the bank...This leaves the bank's books in perfect balance because at the same moment the bonds became an asset. An extra deposit has been ‘created.’ The same thing happens when the bank makes a loan, or buys stationary.”³

Imagine, if you can, walking into your bank, going behind the counter, calling up your checking account in their computer and depositing new money into your account with no actual money in your hand. That is exactly what happens when a bank “loans” money. “The loan transaction does not affect the pre-existing level of demand deposits elsewhere, nor does it affect the pre-existing amount of coin and currency in circulation. Thus, since the demand deposit level at the lending bank rises, and the transaction does not otherwise affect existing components of money supply, new money is created and added to the total money supply.”⁴

“Bank dealings and operations are predicated upon a basis and principle of chance, speculation, and gambling per se, from the hazards and uncertainties of which depositors must be safeguarded by double liability of stockholders and by insurance of their deposits. For every $100 cash assets banks are allowed to loan $1,000; loan $900 they do not have in the bank and draw interest on $900 they do not own, and will not be checked out at one time. This is one of the speculating and gambling operations, one of the hazards and uncertainties increasing the liability of stockholders, jeopardizing the savings deposits, and creating a doubt in the public mind.”⁵

Notes

1. Uniform Commercial Code §3-104

2. Fundamentals of American Law, ©1996 NYU School of Law, p. 379.

3. Money, Debt and Economic Activity, ©1948 Albert Gailord Hart (professor of Economics, Columbia University), p. 65

4. Principles of Bank Operations, ©1975 American Institute of Banking, American Bankers Association, p. 207

5. Congressman Finley Gray (Indiana) Congressional Record, U.S. House of Representatives, May 29, 1933, p. 4545