The reality of modern banking

Articles on this blog are intended to introduce the reader to the nature and shortcomings of our financial system and ways to change it to free us from debt slavery

By Bob Beresford, whose website is here

When Fractional lending started it was pure fraud ( still is, technically )....the money changers were pretending they had more money/gold deposits than they did to make extra loans and extra profit.
They would traditionally lend out as much expanded money as possible to make more profit and gain more economic control. The 2nd US bank 1816 - 1836 had its member banks creating paper money/loans based on a capital holding of 10%gold. That was a 10 to 1 free expansion, but based on a retail bank's capital in Gold.
Someone quoted Katherine Austin Fitts as saying that pre 2008 crash they were just illegally creating derivatives in a 10 to 1 type ratio....9 not repayable ? So they'll get away with what they can - those Merchant banks holding most debt and pulling the strings - but they need/want to be able to create an economic rhythmn and have the retail banking network locked into that.... eg via Reserve Bank controls.

The basic retail Fractional system, at least since the war, has been holding back some deposits - usually 10% - as security/reserves while the other 90% got lent out. So the bank's Capital position wasn't so stringent. This - of course - means the money supply is being controlled via Quantity, while the money recycles as deposits in ever decreasing circles. So the Reserve could fix deposit ratios ( Fractionally ) and Prudential requirements, working to a plan. Canada was running a huge 25% ratio at one stage ( 1956-81 ? ), no doubt with prudent lending criteria.....and it worked okay. Controlling money via quantity is the best way.

But the big change was done to chime in with world Neo-Liberalism ( as endorsed by the IMF , eg via their Shock Therapy program ....we got the full impact in NZ, from 1984 on, following massive IMF debt ).
That change was to control money via pricing, while reducing national controls and barriers ( eg Trade barriers ), and also floating currencies.
This allows the Carry Trade, and the big Banks and Financialists, money changers, speculators, to take over, as everything gets Internationalised, manipulated and interdependent and national Govs lose economic control. And the New World Order - world government based around economic control by big banks and their favoured World corporations - is ushered in.

The shift in retail banking - as per Basel 1, 1988, was towards banks basing lending on Capital held, with various ratings - called Tiers. While the loan itself had various Risk Weightings. Notably, this frees up the money supply and will accelerate it, since Deposit ratios as such were suspended by it ( hence you could now lend All the Deposits you got - not just 90% - constrained only by your Capital ratio). This is commonly only 8% ( eg 4% Tier 1, 4% Tier 2 ) on a full risk loan, for USA banks. But Foreign Central banks are given a 0% risk rating, so big Merchant/retail banks can lend to them with even less Capital banking ( it's all set up cleverly to allow more business and control by the big banks ).

BUT...note that banks are still supposed to be lending out against their Deposits....in a perpetual balancing act, probably balancing books every night and topping up off the short term money market, other banks, the central Reserve bank on its Overnight rate etc. That's the US Fed rate, and in NZ it's the OCR ( official cash rate ) and in NZ it works a bit differently. Our Reserve sets the base market money/interest rate by offering Interest, say 2%, for the retail banks to leave their money with the Reserve. So the market rates then build above that. I think the US Fed just sets its base money rate as a wholesale charge for issuance ( currently zero ? ). The NZ Reserve will cautiously follow BIS rules and US FED initiatives ( even the dreaded Securitisation ) ...as does Australia.
The Reserve banks now expect to control money via pricing ( The NZ Reserve ignores retail bank deposit ratios ), following foreign leads - ultimately BIS and IMF.

The main point about this method is that is Wrong....that's why the money powers push it. It will put a country more into debt and dependency, while International money controls the world. And the IMF wants to act as a new world central bank, basing on its SDR's - Special Drawing Rights - which are just money created from nothing.

The big bankers have always been International, and parasitic, but have used America and its Dollar for colonisation, since 1944. They own the Federal gov ( and the NZ gov ) but under your Federal system the States have much power and there's the great chance for a State revolution in public banking. It would be a chain reaction. Once one state went, clusters would form. Oregon or Cal would tip the whole Western seaboard....and then there could also be a North West grouping around Alberta ( with its huge resources ) and Montana and North Dakota. And elsewhere ?
But act asap because they're now trying to destroy the US and its dollar to allow a new world system to be imposed. And meanwhile, I'm sure Geithner and co will try to legislate you out of existence before the State banks start. Note that Geithner and Paulson are on the board of the IMF. I predicted 18 months back that USA would be pushed close to civil war. It's being bled , currently, in the dreaded debt deflation death spiral.
Money supplies, at least at grass roots/Main st level are being contracted most places. They're prepping worldwide for public Asset Sales....which will finally hit America too. I figured the plan was for China ( and others ) to buy you up big time.

The thing about State banking is that it stabilises the money supply and gets it flowing the right ways and places ( money is like a blood supply ) - especially if you spend into Infrastructure. US states have much power and leeway, incl when working with the Federal money supply. And now, it's nearly all electronic, so money expansion is easy. Couldn't do that easily with finite Fed paper currency.

When this group first started I said we have to get all our facts straight, eg via technical people....some, happily, have come on board. And then make sure our State Bank protocols don't exceed whatever the Private banks do. Then no-one can criticise us unduly....we can say -' but BOA etc does that and the State has greater real assets than they do, in any one area '.

Note here that while US banks often play looser than the BIS standard, loans are not supposed to exceed deposits much, or for long. Happens temporarily, and other banks can and do join in the action as they lend short term to the bank making the loan ( who is without enough instant funds ), so all benefit and are part of the rhythmn. And banks must also have specific Reserve requirements of cash etc to cover normal activity. This level is set by the national Reserve Bank and all/part may even be held at the Reserve ( think US Fed does hold part of it? ). After that , they can lend all deposits until they max out their Capital ratios. Then, they can increase their Capital ( mainly done via shareholder stock ) or otherwise they can revert to the older Deposit Ratio fractional system and start holding back eg 8-10% of incoming deposits, or borrowings on the wholesale money markets, before lending out the rest.....that's what happens in New Zealand anyway.

So....main point of the State bank is to get the money supply adequate, flowing and in step with the Real Economy . It is the lifeblood that Facilitates real economic productivity....not an end in itself, since it's only paper and data on computers. Meanwhile, Wall St is strangling the Real Economy with paper and electronic tricks and Compounding Interest . They own the Feds and National Gov and so the States need to take economic control for their people.

It won't be hard to improve on what Wall St does, and we can say that various systems are workable and beneficial to some degree, from the grassroots systems, eg where work hours are traded, to a full social system like Social Credit, which is also more complex to set up and regulate.
But meanwhile, noting that it's possible to morph a system later, I believe we should push the basic system that starts easily and gets most impact on the whole economy.

That's essentially the Ben Franklin and co State system, where they controlled the money supply via Quantity, while monitoring the results. They didn't care how many pounds they actually released, as long as the economy was bouncing, and obviously it would grow. Abundance equals Good. So they loaned to farmers at 5%, no doubt at Simple Interest - Compound Interest should be illegal - and spent into Infrastructure, creating cash as necessary. Result was spectacular.

So lets follow that, noting that States now have contracted money supplies at street level. And even deflation. First question then is how to get adequate money expansion using a Federal currency ( unlike Ben Franklin's State money ) ?
For a while we thought here we could create loans purely based on Capital ratios...and States have huge capital. But even if restricted to Deposit money - eg paid in as Tax, revenue or bonds - there'll be ways around it. Ellen and I both thought of rolling loans over indefinitely till adequate revenues came in. As long as the State sets up various departments, eg State bank, development bank, Retail banks ( buying out an existing private chain ? ), Ag and Industry funding deps, Infrastructure Department, Revenue deps....one thing can be paying off another........even slowly. Eg , the parks dep can borrow money from the state bank, based on its real assets, and then use that for park improvements, hiring workers and releasing more money into the state. There would be a strong policy of keeping cash in state hands and borrowers would have to use State retail bank accounts. The State Bank would run low Simple Interest, and soon drive down private bank rates. It can systematically buy out mortgages this way, even forcibly, by legislation ( and then even use Securitisation to free up more cash ! At least these mortgages would be State owned and guarranteed ).

The system of one state sector lending to another creates much debt that is Internal only - it hurts no-one and can be rolled over. It's a solution for creating money, within existing boundaries. Since most money creation now is electronic, it's easy. It would vitally ease the Federal strangulation of the money supply. And Private banks in the state initially benefit because more money is in circulation.

The ideal solution is for States to simply Create more new money outright( as the Fed can ) and spend it into Infrastructure etc. But that illegally breaches the Fed's monetary monopoly, so we have to think of clever ways to expand the money supply, and productivity, that are less blatant.

So....worth pushing for a state bank, eg via Referendum. California is ideal there. Try raising taxes somehow at same time ? Schwarzeneger is a corrupt waste of time, but Jerry Brown may well back this, and he's running in the mid year Gov elections.

We need to have basic pamphlets or email-type short writeups, even with pictures, for different audiences, that can be bounced around. Making sure we don't get our facts wrong at all.
The current banking system is an arbitrary creation, and it does create money from nothing, but we can still rescue the economies, I'm guessing, while working within its rules.
It's been set up by the Merchant banks, to suit their plans, and relies on a money supply being expanded by constant re-lending ( which is fraud ) to create more money.
Most people don't realise that it's actually new money being created, but it's backed by deposits....same money getting deposited over and over. As all power and Interest flows to the private banking network.
So any trick a State bank uses to expand its money supply is no worse. Eventually, the fed Gov or States should just admit that money is being created and withdrawn to suit an economic situation....as Ben Franklin did.

To understand why fractional banking/re-lending is a fraud, note that the Private system treats money as having real value, the same as a material object , like gold. If you can't pay back the paper, plus Interest, then the banks want a real payment - like gold.....or your house.

But you cannot lend real objects twice ( or 9 times ) at exactly the same time. Couldn't do that with Gold, either, until banks came along. If you had a great lawnmower costing $1000, you could hire it out and get some cash...but only once at a time. But the private banking system is at any stage lending the same hunk of money - or bits of it - to many people. And without constraint by deposit ratios now, so that's to even more people. And wanting Interest - more money - paid from every bit of re-lending. Which must be unworkable, long term, sucking the money supply/blood dry. Therefore, $1000 of money cannot be worth the same as a $1000 lawnmower, which can't be in several different places at once. Since the money is in several places at once - thanks to swappable paper and electronic data - then it can't be real wealth or the equivalent.
It therefore must be just a device for exchange....which is what we thought of it originally - a claim on real wealth, that you earned or inherited.

This fraud of lending the same article/substance/money to several customers at the same time would be more obvious if only one bank existed....and much less clear when there are many banks linked by a common Reserve.

Therefore, making money out of money, via compound Interest, ultimately erodes the whole system, and the only honest way to do things is for the State and/or National gov to control the money supply, as a fluid and arbitrary thing, in the best interest of the citizens. While admitting that it is simply creating and extinguishing money as needed, to benefit the people. The money would be flowing in the right ways and as 'deep' as possible - eg via Infrastructure - to get best results. And not running loan cycles and bubbles to punish the people and benefit the private banks.

Could people please read this properly and think hard first if responding too or about it ? We need more thought and less emails to be going places.

Bob

PS - if anyone wants to sing about their income tax, they can always download free my Taxation song off my whacky music website ( bobberesford.com). It's a bit of an anthem.


Bob Beresford
bob@bobberesford.com