So, what is the national deb? When government spends more than it collects in taxes, it has to borrow the difference by selling interest bearing IOUs, such as US bonds. When a US bank buys a $100 dollar US bond, it gets to loan out ten times that amount. So, the bank not only gets back the $100 dollars plus interest from the Federal Government, it gets to loan out another $1000 dollars it doesn’t have and charge additional interest. Banks are allowed to create this extra money out of thin air. So, banks aren’t making just 6% interest, for example, they are really making over 1000% interest. That’s why bank buildings are the biggest in every town on the planet.

This system of lending way more than you have is called fractional reserve lending. Almost all our money is created by banks, lending it to people, to companies, or government.

As we’ll see, there is a better way for our government to get money. Simply issue it without debt for the benefit of all citizens equally. Abraham Lincoln did it. Ben Franklin did it, Jefferson wanted to do it. Honest Americans have fought against this bank controlled-debt money system throughout American history. But unless we change it soon most of our freedoms will soon be lost in a tidal wave of debt.

75 years ago an employee of the Atlanta Federal Reserve explained the importance of the debt money system and how it can strangle our economy:
“Someone has to borrow every dollar we have in circulation… If the Banks create ample money we are prosperous if not we starve when one gets the complete grasp of the picture the tragic absurdity of our hopeless position is incredible… It is the most important subject intelligent persons can investigate and reflect upon.” -1934, Robert H. Hemphill, credit Manager of the Federal Reserve Bank of Atlanta

Nobody’s talking about the debt problem as such. They’re talking about the fact that the the bankers aren’t making enough money to live in the way that they’re accustomed to.

After 600 years, the money changers were finally able to reassert their control over English money when they convinced the Parliament to create the Bank of England. This put the banking community back in control of manipulating the quantity of English money. Now England had to borrow its money supply from banks and pay interest on it, instead of the government simply issuing its own money without such debt. So in England we learned that simple sticks of wood broke the monopoly of gold money. This debt free money lasted for seven centuries and allowed a small island nation to rule the waves and freedom to root deeply in the new middle class, With the goldsmiths back in control, England was now financing its wars with this bank loaned money.
Just 75 years later, England’s war debts consumed 75% of its budget. Three quarters of British taxes were spent just on paying the interest on its war bonds. As a result England needed to squeeze more and more money from all her colonies to pay the interest on this new growing debt.

America was no exception.

Pre-revolutionary America was still relatively poor. There was a severe shortage of precious metal coins to trade for goods. So the early colonists were increasingly forced to experiment with printing their own homegrown paper money. This paper money was called Colonial Scrip. Colonial scrip was a dangerous concept for bankers. It broke the colonies free of the privately owned central banking system where a money had to be created by banks and then loaned to governments, as Franklin put it:
“In the Colonies we issue our own money. It is called Colonial Scrip. …we control its purchasing power, and we have no interest to pay to no one.” – Benjamin Franklin

In 1764 the British Parliament passed the Currency Act. Again it ordered all Americans to pay their taxes in gold or silver coin. For those who believe that a return to a gold backed money is the answer for America’s current monetary problems, look what happened to America after the Currency Act of 1764 was passed. As Franklin put it:

“In one year, the the conditions were so reversed that the prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed.” -Benjamin Franklin.

To Ben Franklin, this return to a gold money system was the basic cause of the American Revolution.

“The Colonies would have gladly borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction.” -Benjamin Franklin.

Americans were mad and did everything they could to get around Britain’s gold money system. In 1765 Parliament past the Stamp Act, requiring that every item sold had to have a stamp placed on it indicating that a tax had been paid on that item and paid in gold. This is what drove America to open revolt.

Do you understand what that means? Without gold you could literally buy or sell nothing. Why? Because the British had successfully forced the colonies to pay for everything using only a precious commodity, gold. This is the very definition of the word plutocracy, ruled by the rich.

By the outbreak of the revolution in 1775, the colonies started printing a new form of paper money to finance the war. I was called Continental Currency. Because unlike Colonial Scrip, it was the first issued by the new central government. Continentals worked great at first, but then the British started counterfeiting it massively sending it to America literally by the bail. By the end of of the war the currency was virtually worthless, as George Washington lamented: “A wagon load of money will scarcely purchase a wagon load of provisions.”

Earlier Colonial Scrip has worked, because just enough was issued to facilitate trade and counterfeiting was minimal. In other words the quantity was controlled by the government that issued it. Gold bugs today try to claim that because paper money didn’t work during the Revolutionary War, it shouldn’t be used today. But keep in mind it doesn’t matter what backs your money. All that matters is who controls its quantity. Will it be your elected officials? Or will it be some unelectable banker? Colonial paper money, before the revolution had worked so well, that the Bank of England had Parliament outlawed, and forced America to use only gold money. Gold which they controlled.

On our next stop on the yellow brick road, which represents the bankers gold money system, we find how the curse of the privately owned central bank first came to America.

In 1781 towards the end of the war, the Continental Congress met here in Philadelphia. They pondered what to do about their grave financial situation. The money was so worthless that the people papered their walls. Congress finally agreed to give a group of bankers a monopoly on creating US money by loaning it to the Government. It was the first privately owned central bank. The plan of course was modeled on the bank of England. The new bank would be called the Bank of North America. It would be the first of a string of controversial privately owned central banks which Congress would charter, and then in the face of public outrage, uncharter over the years.

Four years later in 1785, the value of the new currency had plummeted. Inflation was rampant. Prices had risen by 72%. So after a stiff battle, Congress killed this, the first privately owned central bank in America.

Two years later when it came time to write the Constitution in 1787, many of the delegates did not remember how well America’s government issued paper money had worked in Pennsylvania. They were still stung by the inflation of the Bank of North America and the hyper inflation during the revolution, primarily caused by British counterfeiting. Strangely the Constitution allows the Federal Government to borrow money, but is silent on the federal role on printing paper money, known in the language of the day as emitting Bills of Credit. This defect in the Constitution is at the root of all our economic problems today.

Two years after the Constitution was signed, debt free money was tried in Sweden in 1789, but with tragic results. To pursue a war with Russia, King Gustav III persuaded the Swedish Parliament to print debt free money called riksdalers. This was very costly to the bankers. Sweden had learned the secret to printing its own money without debt. In 1792, only three years into the experiment, King Gustav was assassinated by money lender Jacob Johan Anckarström. As is frequently the case in time of war, too many riksdalers were printed. The quantity was not controlled. A nation with sacrifice everything for survival during time of war. So inflation ruined the debt free money experiment in Sweden by 1834 just as it had a few years earlier during the American Revolution, again, because the quantity was not controlled.

“If two parties, instead of being a bank and an individual, were an individual and an individual, they could not inflate the circulating medium by a loan transaction, for the simple reason that the lender could not lend what he didn’t have, as banks can do….. Only commercial banks and trust companies can lend money that they manufacture by lending it.” – Professor Irving Fisher, economist in his book 100% Money (1935)

“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.” – John Kenneth Galbraith economist, author

“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” – Lord Acton (1834-1902) English historian

Maybe your first experience of putting money in the bank wasn’t quite as heartwarming as this. But odds are, years later, you still refer to the balance showing on your bank account as being your money in the bank. But it isn’t.

If we have a deposit box at the bank, the valuables we put in it are still ours. We’re just renting secure space to store them. In common usage, the word “deposit” means to set something down. But the use of the word deposit to refer to a bank account is misleading. A bank deposit is in reality… a loan. What the amount in our bank account really indicates is how much money the bank owes us. It is a record of the bank’s promise to pay us money, not the money we deposited itself. The difference is important. The truth is, when we hand the contents of our piggy bank to the bank teller, our money becomes the bank’s money to do with as it pleases. All of the money in the bank is the bank’s money. None of it is ours. That’s why the bank pays us interest. We have loaned the bank our money.

This may seem to be a semantic distinction. We know we can go to the bank at any time and take our money out in cash if we want to. But the distinction is not semantic. Nor is it trivial. The distinction is crucial. What happens in banking affects everyone and yet few of us know anything at all about how banking really works. The entire world economy now runs on a system of credit provided by banks. And when that credit system breaks down, everyone suffers.

To make things worse, the explanations for these breakdowns offered by the experts never look at the root cause… namely that, other than cash and coins, which make up just 1-5% of money in circulation, all the money in existence today was created as the principal of a bank loan, with the banks requiring principal plus interest as so-called “repayment”. Not only does this make the existence of money entirely dependent on the existence of bank credit, it makes the system as a whole bankrupt by design, as total debits, principal plus interest exceed total assets, from the moment the first loan document is signed.

As the global banking system staggers towards worldwide collapse, more and more people are realizing they can no longer ignore the realities behind banking as it is practiced today. Many have lost their homes and jobs due entirely to the unsustainable practices of moneylenders. It is time people understood money and the pressing need to fundamentally change the way it works. Clarifying what the words used in banking really mean is the first step. Now that we know that a deposit is, in truth, a loan to a bank, the next question is … what is a loan that we take out from a bank?

When we sign for a loan, we give the bank a pledge to pay the amount of the loan plus interest. In return, the bank credits our account in the same amount as this so-called loan. While we speak of the bank as having put the loan money into our account, in reality, the only thing the bank puts into our account is its promise to pay the money.

What has actually happened is an exchange of promises. Neither party has delivered anything to the other, except matching pledges of debt. So, who is the borrower and who is the lender? The terms loan, lender and borrower are all misleading. The truth is that the two parties have traded promises to pay, and in the process created something called “bank credit” or “checkbook money” that can be legally spent as money.

Bank credit can be spent because we, in our innocence, notice that, each time we deposit into our account, it increases our balance by the same amount. In fact, unless we put something in, our account will be empty. Thus it’s a natural assumption that money in an account is money someone put in. Uh-uh. The account is a promise to pay, not the money itself. In fact, a promise always indicates the absence of the item promised. Otherwise why does it need to be promised? Now, because all bank accounts are just promises to pay, the bank and the borrower can simply exchange promises and, in the flash of a few keystrokes, a positive balance appears in the borrower’s bank account without anyone putting existing money in.

Now you know the real source of what we call a “bank loan”.

“Commercial banks create checkbook money whenever they grant a loan, simply by adding new
deposit dollars in accounts on their books in exchange for a borrower’s IOU.” – Federal Reserve Bank of New York, I Bet You Thought, p.19

How different would it be if two parties just got together in a basement with a printing press and created new money that way? We intuitively understand the act of fraud called counterfeiting. In printing fake $100 dollar bills, the counterfeiters also create new money out of thin air.

Money gives us the ability to purchase the real goods & services of the world. It’s clear that the counterfeiters have created new ability to purchase real goods & services without giving anything in exchange… except a fancy piece of paper. Counterfeiters get something for nothing, directly at the expense of whoever gets caught with their counterfeit money. And if the counterfeit money is not discovered, it dilutes the money supply, stealing from everyone. Counterfeiting is a serious crime and it is easy to understand why. It’s cheating on a basic social agreement… Thou shalt not steal.

But, taking a loan from a bank also creates new purchasing power. However, instead of being considered a form of theft, it is the very basis of our monetary system. How did one form of creating money out of thin air become a crime, and the other become standard business practice and the source of almost all our money? For this is what has happened.

To understand how, we need to look at the history of the laws governing commerce, but before that, we need to understand the logic of the loan process itself.

The borrower wants to purchase an item but doesn’t have the funds to do so at the present time. However the borrower does have confidence in having sufficient funds over time to pay both the original price of the item and the interest on a loan. So he goes to a bank to arrange a loan. The borrower is capable of making a credible promise of money in the future, but otherwise, at this moment, he comes with empty pockets. That’s why he needs the loan.

We’re probably all familiar with what happens next. The bank gets the borrower to sign an agreement in which the borrower promising to pay the bank the amount of the loan plus interest or, in default, surrender to the bank the object that is to be purchased with the loan. This is done countless times every day all over the world, but there’s a problem. How can the borrower pledge as collateral something that the borrower does not yet own? If I wanted to borrow $10,000 from you to go on a luxury cruise to Europe, would you accept my
neighbour’s car as collateral?

Of course not, because you know very well that I have no legal right to give you my neighbour’s car no matter how much I owe you. But, if instead, I promise to buy my neighbour’s car with the $10,000 you lend me, the situation is different. You might agree to lend me the $10,000 believing I will buy the car and will pledge it as collateral for the loan once I obtain legal title to it. However, until the transaction is completed, your $10,000 loan cannot be secured by title to the car. This sequence of events problem could be very simply avoided. You could buy the car and then sell it to me.

The bank could do it this way too. If the borrower commits to the bank to buy the item, why doesn’t the bank just buy it with its own money and then sell it to the borrower on time payments at interest? Well… the answer to that question is also very simple. It’s because the bank, like the borrower, has come to the transaction with empty pockets. The bank fulfills its part of the so-called loan transaction by creating an “account” for the borrower. The truth is… the so-called borrower has funded his own account by fraudulently pledging a car he does not yet own, as collateral. And the bank, the so-called lender, hasn’t put up any existing money at all…and, if all goes well, it never will.