Rabbits
Banking
 

1. Are bank loans fraudulent?
2. Are banks creating currency or loaning back the actual cash value of the promissory note?
3. For bookkeeping purposes, does the bank record the promissory note as a loan from borrower to the bank?
4. Does the bank use the $100,000 they obtained from the borrower to create $100,000 of new money called checkbook money?
5. Checkbook money has equal value to legal tender because the promissory note can be sold for legal tender.
6. The bank uses the newly created checkbook money (counterfeit money) to transfer the stolen $100,000 back to you (the victim) as a bank loan. (Stolen means received for free.) Right?
7. Doesn’t the bank owe the borrower the original amount borrowed? Isn’t the borrower actually the lender and funds the loan? The Fed publication The Two Faces of Debt even state as much.
8. I’ve seen information about canceling bank loans. Can this be done?
    

Are bank loans fraudulent?

Hardly.

Some people claim that “When a bank grants a $100,000 loan, all the bankers are doing is taking $100,000 of actual cash value from the borrower and transferring that value to the bankers for free.”

This is incorrect for several reasons.

First, banks take a person’s promise to repay, that is a person’s “debt,” and monetizes that debt (creates currency) for the person by way of the bank’s special government license to do just that. That is why the system is called a “debt-money system.” Those words mean exactly what they say. That is, currency gets created through debt. Currency gets loaned into existence.

Second, the transfer is not free. The borrower willingly signs the note (a debt instrument), and expects to receive currency in return. This is exactly what happens. However, the currency is created by the bank at the moment the note is signed. The bank then loans the currency.

Third, the note does not create the currency, the bank creates the currency. Yes, the note “funds the loan” only in the sense that without the note—the promise to pay, the bank cannot create the currency. However, the note does not have cash value—at least not until the loan has been consummated and the borrower receives the cash. After loaning the currency the note certainly can be sold by the bank to other investors, and therefore the note is considered a negotiable instrument, but the cash the borrower received is not extracted or created from the note. However, even if the bank sold the note, all the bank is doing is transferring ownership of the debt. Also, banks do not sell the notes at face value—notes are always sold to investors at discounted rates.

The bank did not loan bank credit. Credit cannot be loaned, credit must be established. Credit is a mere bookkeeping term that means repayment of debt has been postponed. When a person is given credit, the person is not given money, but a postponement of repaying the debt. A loan established the debt, that is, the borrower promises to repay, but not today.

The bank did not loan other people’s deposits, the bank created money.

No, bank loans are not fraudulent or illegal. This is not to say that bank loans are equitable, where a bank receives up to 1½ times the amount originally loaned (created), only that bank loans are made under the current rules, according to the law.

This is also not to say that by charging compounded interest rates for the privilege of creating money does not effectively create a serfdom environment—most certainly such usury does exactly that. If banks were loaning their own funds some justification could be provided to explain the rates; but the bank does not loan their own funds, they create currency out of thin air, and through a special license at that. The fees the banks receive for monetizing debt indeed might be grossly unfair, but the fees are not fraudulent.

This is not to say that bankers do not always provide full disclosure, but this problem is also caused by a naive public who fails to demand full disclosure.

The principal of a loan, although repaid by future labor, is nonetheless represented by the perceived value of the object the currency purchased. The interest of a loan, again repaid by future labor, is not immediately represented by any object. That future labor represents goods and service that do not yet exist as the borrower has yet to convert that future labor.

Yes, such an arrangement essentially creates a serf out of the borrower. However, being unfair is not the same as being fraudulent. Moreover, nobody forced the borrower to borrow under those conditions. Nonetheless, NESARA changes the rules so that people will not feel like they are being taken to the cleaners.
 

Are banks creating currency or loaning back the actual cash value of the promissory note?

Creating currency.

Banks are granted a special government license to create currency. With a paper currency, a mechanism must exist to continue growing the money supply. That mechanism is largely provided through bank loans.

The currency loaned in a bank loan (the principal) represents the wealth created by property. That property is created by the community, sometimes by one individual and often by many.

A promissory note has no cash value until the borrower receives consideration, that is, the currency being loaned. Once the currency is loaned, the bank owns the promissory note. The note then is considered an asset of the note holder, and represents the value of the object purchased with the loan.
 

For bookkeeping purposes, does the bank record the promissory note as a loan from borrower to the bank?

Nope.

The bank records the note as an asset—not a loan, and indeed as long as the loan remains unpaid, the unpaid balance represents an asset according to the rules of accounting. That note represents a claim against currency the bank created and then gave to the borrower. There must be a mechanism to track where that currency went.

However, double entry bookkeeping requires that for every asset recorded, there must be an equal and offsetting liability recorded. The bank does this when they create the terms of the loan. The bank records the note as an asset, then records the currency they just created as a liability to the borrower. Then the bank gives the borrower a check for the amount of the liability.

Conversely, for every change in the ledger’s liabilities, an equal and offsetting entry must be made in the assets column.

However, unlike a Demand Deposit Account (DDA) whereby additions and subtractions to the account are recorded almost instantaneously, these similar entries for loans takes place over the life of the loan (for example 15 or 30 years). DDA transactions are virtually instantaneous. Loan transactions introduce a tremendous time delay in balancing the books. Hence the confusion.

Once the bank gives the borrower the check for the amount borrowed, the bank records the payment and the liability owed the borrower is zero. The asset (the note) remains on the books. As the borrower repays the loan, the bank records each repayment. With each repayment, the negotiable market value of the note decreases accordingly (although the bookkeeping rules allow the note to be kept at full value). Eventually, the borrower (hopefully) repays the loan. The market cash value of the note becomes zero. At that point in the life of the loan, the bookkeeping once again resembles a DDA.

Of course, the borrower also pays the bank interest. These payments are recorded as assets and also can be later used in the reserve ratio calculations. After meeting expenses and overhead, the offsetting “liability” entry for these interest payments is recorded as the bank’s “net worth” or “equity.”

When a person builds a new home, the local bank monetizes the debt for the loan. The actual wealth to build that house comes not from the bank, but from the future labor of the homeowner and the wealth of the community (in labor and material). The completed home, in turn, adds to the wealth of the community.

Because of the typical time delay in reconciling the bookkeeping, the equations eventually balance but not instantly (as in a DDA). Technically speaking, that time delay is a phase angle shift which makes the entire money system unstable and difficult to control.

Any money system that allows the creation of money, that is, the monetization of debt, will contain some kind of time delay to quash the effects of creating that money out of thin air. An honest money system reduces this phase angle shift, but can never completely eliminate the problem. However, smaller shifts make for a more stable and more efficient system. In any such system each person is still a “prisoner” of that system, but the serfdom sentence is “reduced.” By the way, even in a 100% pure commodity money system, where no money is ever created out of thin air, the interest paid on such loans must be paid by future labor, thus introducing a time delay into the bookkeeping reconciliation.

The current monetary system is very unstable, and thus terribly unfair. Money is a public utility and serves the needs of the aggregate, not the few. NESARA solves these problems.
 

Does the bank use the $100,000 they obtained from the borrower to create $100,000 of new money called checkbook money?

Hardly.

The bank never received $100,000 from the borrower, the bank received only a promissory note—a promise to pay. The note allows the bank to create currency. The bank monetized (created out of thin air) the debt for $100,000 and put that much in a checking account for the borrower. However, for many loans, placing the cash in the account and then giving the borrower a check both occur at basically the same moment.
 

Checkbook money has equal value to legal tender because the promissory note can be sold for legal tender.

Apples, oranges, and bananas.

Checkbook money is money, but a check is not money. A check represents funds stored elsewhere. Not confusing the terms is important.

Legal tender is simply some thing declared to be currency.

A signed promissory note is considered a negotiable instrument, and therefore can be used as money, but the note can have value only after the loan is made.

Money is money, legal tender or not, if accepted as such. The promissory note has no relation to checkbook money except to be related as another element in the game. Under the rules, signing a promissory note allowed the bank to create money, but signing that note did not establish the money’s character.

The form that money takes is irrelevant. If property is exchanged, then the medium used to simplify that exchange is considered money. That medium can be specie coin, paper currency, promissory notes, sea shells, or buffalo chips.
 

The bank uses the newly created checkbook money (counterfeit money) to transfer the stolen $100,000 back to you (the victim) as a bank loan. (Stolen means received for free.) Right?

Whoa! Counterfeit money?! That checkbook money the bank created is just as legal or lawful as anything else used for money.

Money is anything used as a medium of exchange to help grease the wheels of commerce. Any time two parties desire to exchange wealth (goods and services), they can do so by direct barter or by using money. Money can be considered counterfeit only when the medium of exchange has no backing of true wealth (goods and services).

Creating paper currency in one’s basement is counterfeiting. Monetizing debt at the local level, that is, creating money that is represented by virtual wealth, is not counterfeiting. Remember that at the local level, monetized debt represents some part of the total wealth of the community, or at least within the time domain, future wealth, such as a house, a car, a business, etc. The currency created in the basement is represented by no such wealth.

Please remember that the banks have a government-issued license to create money. This license is not evil and this mechanism is useful in a 100% paper based currency. Unlike a commodity based currency where the commodity money is produced by human labor through mining and refining, there is no such mechanism with paper so that the quantity of money can be increased to meet the supply for goods and services.

Even if the world was still using a commodity money supply, newly created checkbook money still cannot be considered “counterfeit.” Under such a system, the paper currency is simply considered “receipt” money, that is, redeemable in specie. As long as the creation of money is represented by true wealth being created within the community, the creation of that money cannot be considered counterfeit. All money, regardless of substance, always represents some thing, that is goods and services.

The $100,000 placed in a borrower’s loan “checking” account represents the wealth of the community which, undoubtedly, the borrower intends to spend on a new car, home, boat, vacation, etc. That wealth comes from the community, not the bank.
 

Doesn’t the bank owe the borrower the original amount borrowed? Isn’t the borrower actually the lender and funds the loan? The Fed publication The Two Faces of Debt even state as much.

The statement you are referring to is from page 19, fifth paragraph, “A deposit created through lending is a debt that has to be paid on demand of the depositor, just the same as the debt arising from a customer’s deposit of checks or currency in a bank.”

The sentence cited must be read in context. We provide part of the original text below:

…a money creation function

Debt does more than simply transfer idle funds to where they can be put to use–merely reshuffling existing funds in the form of credit. It also provides a means of creating entirely new funds–funds needed to finance the greater volume of new projects and spending that contribute to economic growth.

Again, checkable deposits in commercial banks and savings institutions are debts—liabilities of these depository institutions to their depositors. But checkable deposits are also the money used for most expenditures. How do these deposit liabilities arise?

For an individual institution, they arise typically when a depositor brings in currency or checks drawn on other institutions. The depositor’s balance rises, but the currency he or she holds or the deposits someone else holds are reduced a corresponding amount. The public’s total money supply is not changed.

But a depositor’s balance also rises when the depository institution extends credit—either by granting a loan to or buying securities from the depositor. In exchange for the note or security, the lending or investing institution credits the depositor’s account or gives a check that can be deposited at yet another depository institution. In this case, no one else loses a deposit. The total of currency and checkable deposits—the money supply—is increased. New money has been brought into existence by expansion of depository institution credit. Such newly created funds are in addition to funds that all financial institutions provide in their operations as intermediaries between savers and users of savings.

“But individual depository institutions cannot expand credit and create deposits without limit. Furthermore, most of the deposits they create are soon transferred to other institutions. A deposit created through lending is a debt that has to be paid on demand of the depositor, just the same as the debt arising from a customer’s deposit of checks or currency in a bank. By writing checks, the borrower can spend the deposit acquired by borrowing. The recipients of these checks deposit them in their depository institutions. In turn, these checks are presented for payment to the institution on which they are drawn. As a result, the newly created deposit can be shifted out of the originating institution, but it remains part of the money supply until the debt is repaid.”

The originally referenced text in question is emphasized and bolded.

The referenced paragraph is found in a section titled “...a money creation function.” This section does not describe the details of the currency creation process and a footnote on page 19 refers readers to Modern Money Mechanics for a detailed explanation. Although not describing the currency creation process, the author nonetheless uses this process as a foundation for this section.

The authors explain that with a typical checkable deposit, the aggregate money supply does not change because funds are merely being transferred from one depositor’s account to another person’s account. Individually the liabilities of the bank do change for each depositor, but in the aggregate the money supply does not change.

The authors then explain that an individual depositor’s account can be increased by depositing a loan. That loan was created out of thin air. No transfer took place, no other depositor’s account was debited to provide for the increase. The author then explains that this is how the money supply is increased.

With that background we can now transition into the paragraph of question. In the first sentence, the authors merely make a statement of observation.

In the second sentence, the authors again make an observational statement. Funds created through loans are often transferred to other accounts at other institutions. For example, in a typical loan for a house or car, the newly created funds are often immediately transferred to another person’s account at another institution. In other words, the loan is usually sent directly to another depositor at another institution. That newly created currency does not remain with the borrower, but is forwarded to another depositor. When people buy cars, for example, the currency is created and the check is usually made payable to the car dealer, not to the borrower. Likewise with house loans.

The third sentence, the sentence in question, is not stating that the borrower funds the loan and that the borrower is entitled to a refund of the promissory note. The authors are merely stating what they previously stated about how deposits work. That is, with a checkable deposit, the deposit is payable on demand. Likewise with a deposit made with newly created currency. That is, that deposit is payable on demand.

The question we must ask about that third sentence is payable to whom? Who exactly is the “depositor” that is being referenced in the third sentence? The authors have already provided us the answer: to the third party receiving the funds of the newly created loan. That is, the car dealer or house seller. The car dealer or house seller has standing to demand immediate payment, not the borrower. The depositor in question is not the original borrower, but the person to whom payment is being transferred.

Reading the sentence in context helps us understand the meaning of the sentence. There is nothing sinister going on, nor is there deceit or fraud.

However, we are familiar with the nuances of writing and language. We readily agree that language is imperfect. Especially the English language. Likewise, so is the writing and editorial process an imperfect process. That is one reason why we are careful to explain ourselves throughout our web site. We greatly dislike confusion or misunderstandings. Those two elements alone preclude us from shouting conspiracy or fraud about the particular sentence you cited. Peculiar sentences appearing in any publication does not necessarily mean fraud or deceit.

We agree that perhaps future revisers of The Two Faces of Debt might pay some attention to the sentence in question, or perhaps the entire paragraph, in the hopes of removing any cloud from the information. Nonetheless, we believe the sentence you cited makes sense when read in context of the entire section of the booklet.
 

I’ve seen information about canceling bank loans. Can this be done?

Sure, if you want to lose the property that serves as security for the loan. Go ahead and cancel the loan.

Canceling a bank loan based upon such flawed information is fraudulent. As is true in any contract—written or unwritten—receiving benefits and privileges without exchanging due consideration is unlawful, immoral, and inequitable.

Canceling a bank loan using such information is robbing the community of its wealth, not the bank. Banks certainly create the money used to purchase property, but the wealth created by the purchase is owned and created by the community, not the bank.

Banks create money by monetizing debt. That newly created money represents some portion of the total wealth of the aggregate community. Yes, the money supply increased but the total wealth of the aggregate community probably increased too. The equation of Supply = Demand remains stable. There is no inflation. The interest paid on the loan is grossly unfair, but totally lawful. That interest is paid by future labor. That future labor contributes to increasing the total wealth of the aggregate community. Therefore, where is the fraud?

If a person brings before a judge the flawed arguments some people are peddling, that person is going straight to jail, not passing Go and not collecting the $200. That is exactly what an honest judge did to some northwest “patriots” who were issuing “Public Office Money” without the special license banks have. The same thing happened to the Freemen and to the Posse Comitatus. The same thing is now happening to those who have been suckered into the “redemption” process.

If a borrower wants to claim the bank never loaned any money, but is in possession of goods and services purchased from that loaned money, and then attempts to cancel the loan based upon such information, who is stealing from whom? Such a person is not stealing from the bank, but from the entire society.

The problem today with bank loans is gross unfairness, not fraud. The current rules are flawed and outdated. The bigger problem is gross ignorance of people in trading their God given natural rights in exchange for the immediate gratification of their wants. An unsound money system certainly contributes to the problem of heavy debt, but does not excuse people from paying their lawfully contracted debts.

Let’s tackle the true problem—socialism, legal plunder and runaway greed—and stop chasing rabbits and myths.