The Mystery Of Banking - 2

I was going to take the discussion one step further, but a reader has written saying that he does not understand how credit is created out of thin air. I will therefore pause to review this important point. It is crucial to a correct understanding of what will follow.

Let us return to the goldsmiths of London, in the era before bearer paper notes came to be circulated in markets as money substitutes. All paper notes in this age have a name on them. These notes cannot be circulated. No goldsmith in this age would issue more notes than the gold he had in stock. The note is a liability. And there is no incentive for increasing liabilities. All notes are therefore Property Titles Based On Real Property: Gold.

Enter the bearer note. And paper becomes money. And some goldsmiths find that their papers have “gained currency” and are widely trusted and circulated.

Now, someone turns up at the office of one such goldsmith asking for a loan of 1,00,000 pounds sterling. The goldsmith does not have that much gold in his reserves to lend. He therefore thinks of something crooked.

He lends out 1,00,000 pounds sterling in PAPER.

He will earn interest although NO CAPITAL is being lent.

We now have Property Titles Without Property. The chap who gets the loan uses the notes to “buy” assets. There is thus a “redistribution” of assets.

As for the crooked goldsmith, his liabilities (notes) are greater than his assets (gold) – but he is gambling on all notes not coming up for redemption at once. If they do, he knows he will be caught out, because the claims to property exceed the property.

At this stage, The Law is perfectly clear. The paper note is a debt, and is payable on demand. If any goldsmith defaults, he goes to a debtor’s prison, where he is put on a diet of bread and water till his properties are sold and his debts repaid.

The crooked goldsmith does not like this Law. And, for him, and some of his friends, the profits from lending out mere paper are too alluring. They therefore think of a scheme called “central banking.” They pool in a percentage of their reserves in the central bank that will be “lender of last resort.” The idea is that all banks will not crash together. And whenever any one has a problem, the central banker will step in. In the meantime, their banking cartel, all members of the central bank, will earn interest by lending out PAPER. Credit will NOT be based on Capital.

Yet, this is NOT a legal solution to the problem. The problem in law is the existence of Property Titles Without Property. These exist because credit has been de-linked from Capital. That is, credit is being created out of thin air – and this thin air is being lent out at interest. Real properties are being redistributed. This is the game that is afoot.

Of course, any such scheme is prone to crises, as the multiplication of Property Titles Without Property is inherently unstable. However, when The Law is jettisoned, the only recourse available is State Force.

With central banking, monetary nationalism, and The State as the sole issuer of currency notes, The Law is hijacked by the crooks.

This makes The Law ineffective. Once Property Titles Without Property become “legal,” the banksters are allowed free rein. Within a few hundred years, all currency notes, throughout the world, become Property Titles Without Property.

The “real robbery” that occurs is when these currency notes are used, as “legal tender,” to take over “real” goods. There is a “redistribution” of real assets. Borrowers gain; savers lose. The resulting inflation causes further redistribution.

The critical error is in The Law, which has always been based on Property. With central banking, the name of the game becomes property-less papers. And the game is one of constantly increasing the supply of these papers. How can The Law cope? It cannot. It was therefore pre-destined that the US dollar would finally break all ties with gold – as happened in 1971.

In other words, the peculiar problem of our age is that The State and The Law are on the side of crooks. Force is being misused. What should be illegal is legal. This is inevitable when The Law is no longer based on Property.

Recommended reading: An Islamic scholar’s judgment on paper money. Note how the basic understanding is simple, based on judgments of the past, all looking at the matter from the viewpoint of Property.

I will continue the discourse on money and banking tomorrow.