Money As Debt II: Promises Unleashed Page #2

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an existing money in.

Now, you know the real source

of what we called 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 hundred dollar bills, the

counterfeiters also create new money out of thin air.

Money give us the ability to purchase

the real goods and services of the world.

It's clear that the counterfeiters have created

new ability to purchase real goods and services...

without giving anything in exchange

except the fancy piece of paper

Counterfeiters get

something for nothing...

directly at the expense of whoever

gets caught with the 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.

Banks lend by creating credit. They

create the means of payment out of nothing.

Ralph M. Hawtrey 1879-1975 former

secretary of the British Treasury

How do one form of creating new money

out of thin air become a crime...

and the other becomes standar business

practise and the source of almost all our money?

For this is what it happened.

To understand how, we need to look at the

history of the laws governing commerce.

Before that we need to understand

the logic of the loan process itself.

Anatomy of a Loan

The Motive

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 the 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.

The Method

We propably all familiar

with what happens next.

The bank gets the borrower

to sign an agreement...

in which the borrower promises to pay the

bank the ammount of the loan + interest

or in default surrender to the bank the object

that it is to be purchased with the loan.

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