By Llewellyn H. Rockwell, Jr.

ludwig Von Mises Institute

Do you know where the bank gets the $160,000 for your mortgage? It’s very simple. Someone walks over to a computer and types 160,000 beside your name.

With only $27.93 of cash reserves for every $10,000 of assets (as of June 1999) the bank has just created the remaining $159,553 of that interest-earning money out of thin air.

When, after 25 years of hard work, you pay off your mortgage, the $159,553 vanishes back into thin air. Not so the interest however. It vanishes into the banker’s pocket.

Chartered (i.e. privately owned) banks, such as The Bank of Montreal, The Royal Bank, The CIBC, etc. have created about 95 percent of our total money supply ($589.1 billion as of Sept 1999) in exactly this way.

But the cash reserves in their vaults amount to only a paltry $3.893 billion. (About $32 billion of cash circulates in public hands.) This is called fractional reserve banking, and it’s the greatest scam of all time because it creates debt for no reason other than to enrich the banking class.

Its long term effect – as becomes clearer every day – is to steadily suck wealth out of the community and into the hands of a few people, a fact that bankers and most politicians stubbornly refuse to admit.

Charging interest on money created out of nothing is, in the main, unjust and immoral, and Plato, Aristotle, Cicero, the Bible (Deuteronomy 23:19), the Koran (2:275-278), the Catholic Church, many codes of law and most writers on morals have condemned it for more than two thousand years.

The historical name for this evil is usury. Nevertheless bankers enjoy peace of mind because they know that the public thinks they merely lend out the savings of their depositors.

In fact, banks create more than 95 percent of all deposits, for when a bank creates a loan it simultaneously creates a deposit. What banks do to justify the accusation of being economic parasites is to lend out interest-bearing money of their own creation using a very thin sliver of legal tender (cash) to back it up.

How did the banks gain this oppressive power of charging interest on mere computer entries? Very simply they lobbied and hoodwinked our politicians into giving it to them.

Before World War II cash reserves of 1:10 had been the norm in practice. This meant that if you deposited $100 of cash in a bank, the banking system (though not that one bank) would eventually use that $100 to create up to $900 of credit.

That credit shows up in their books as $900 of interest-bearing loans (assets), and $900 of deposits (liabilities). Note that credit is not cash – only the Bank of Canada (BoC) can print and coin money – but it’s money nonetheless because you can buy things with it as long as the bank honours your cheques.

In 1991 legislation was quietly passed that eliminated required cash reserves by mid 1994. The result? Figures from the Bank of Canada Review show that by September 1998 the ratio of the banks’ cash reserves ($3.893 billion) to their total assets ($1393 billion) had soared to 1:358, a ratio that was never more than 1:15 in the first half of this century.

That means for every dollar of cash in their vaults or deposited with the central bank (i.e. the BoC) the banks have conjured up $357 from the void which they’ve invested or lent out with interest. Hence the record profits.

Meanwhile not one person in a hundred grasps the fact that our government permits private banks to create about 95 percent of our money supply bringing huge profits to them and endless debt to us.

Nowadays the big profits lie in government bonds, currency speculation, the stock market, and derivatives; and banks, with their power of money creation, are up to their eyeballs in all four.

But there’s always a day of reckoning. History teaches us that banks are forever finding new ways to commit financial suicide, and when they do they bring the public down with them. (With the collapse of their debt-pyramids the once mighty Japanese banks have been living off the public purse for years.) But what we witnessed in 1998 was unprecedented in human history. In South East Asia, Russia and Latin America, national economies were plundered and millions impoverished, almost overnight, through the deliberate manipulation of “free” market forces.

Now that our money supply has been essentially privatized, how can we free ourselves from this sly form of economic tyranny? In the three quotes below a famous American president, a famous Canadian prime minister, and a governor of the Bank of England in the 1920s tell us exactly what needs to be done.

Unfortunately, there’s never been a reform of the banking system while the banks were in the driver’s seat. They must first be rendered helpless by an economic collapse. When that blow comes two facts should be etched in our minds: 1) a government can lend interest-free money into existence by borrowing from its own bank, The BoC, — unfortunately The BoC has become a puppet of the financial elite, despite its mandate to serve the interests of all Canadians — or, it can borrow interest-bearing money into existence by borrowing from privately owned banks; 2) a government that borrows with interest from private banks, when it can create its own interest-free money, is a government of idiots or thieves.

Unfortunately, the human mind finds it easier to believe a lie it’s heard a hundred times before than to believe a truth it’s hearing for the first time. We hope that the words of Jefferson, MacKenzie King and Stamp will help break down any natural scepticism you may feel when we claim that the chartered banks, in collusion with The Bank of Canada and with the complicity of our government, are riding on the backs of the citizens of this country. The right to create money belongs to the people (see notes on “It’s Your Money” by William Hixson), and it is the sacred duty of the state to exercise this right for their benefit.

Instead, the bonanza of money creation has been handed over to private bankers by ignorant, irresponsible politicians.

“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs”. Thomas Jefferson.

“Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of sovereignty of Parliament and of democracy is idle and futile… Once a nation parts with control of its credit, it matters not who makes the nation’s laws… Usury once in control will wreck any nation”. William Lyon Mackenzie King.

“Banking was conceived in iniquity and born in sin… Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of the pen, they will create enough money to buy it back again… Take this great power away from them and all the great fortunes like mine will disappear and they ought to disappear, for then this would be a better and happier world to live in… But, if you want to be the slaves of the bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit”.
Sir Josiah Stamp
(Governor of the Bank of England in the 1920s)

By Llewellyn H. Rockwell, Jr.

ludwig Von Mises Institute


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  1. J.Lacroix (from Belgium) Says:

    I could’nt agree more, mainly with Shakespeare.

  2. J.Lacroix (from Belgium) Says:

    I could’nt agree more (mainly with Skakespeare)

  3. Jim Lunsford Says:

    Thank you for your words. I only hope that this world has the courage to do the right thing. Maybe Shakespeare should have said “Shoot all the bankers” instead. Peace, Jim

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