A Loophole Allows Banks – But Not Other Companies – to Create Money Out of Thin Air

One of the Main Causes of Our Economic Problems

The central banks of the United States, England, and German – as well as 2 Nobel-prize winning economists – have all shown that banks create money out of thin air … even if they have no deposits on hand.

The failure of most governments and most mainstream economists to understand this fact – they instead believe the myth that people make deposits at their bank, and these deposits are then lent out to new borrowers – is the main cause of our rampant inequality and economic problems.

But how do banks actually make loans before they have sufficient deposits on hand?

Economics professor Richard Werner – the creator of quantitative easing – noted in September that the field of economics has been lost in the woods for an entire century because it has failed to understand how banks actually create money.

Professor Werner wrote an academic paper in 2014 concluding:

What banks do is to simply reclassify their accounts payable items arising from the act of lending as ‘customer deposits’, and the general public, when receiving payment in the form of a transfer of bank deposits, believes that a form of money had been paid into the bank.


The ‘lending’ bank records a new ‘customer deposit’ and informs the ‘borrower’ that funds have been‘deposited’ in the borrower’s account.  Since neither the borrower nor the bank actually made a deposit at the bank—nor, in connection with this transaction, anyone else for that matter, it remains necessary to analyse the legal aspects of bank operations. In particular, the legality of the act of reclassifying bank liabilities (accounts payable) as fictitious customer deposits requires further, separate analysis. This is all the more so, since no law, statute or bank regulation actually grants banks the right (usually considered a sovereign prerogative) to create and allocate the money supply. Further, the regulation that allows only banks to conduct such creative accounting (namely the exemption from the Client Money Rules) is potentially being abused through the act of‘renaming’ the bank’s own accounts payable liabilities as ‘customer deposits’ when no deposits had been made, since this is also not explicitly referred to in the banks’ exemption from the Client Money Rules, or in any other statutes, laws or regulations, for that matter.

Professor Werner explained:

Although the implementation of banking services relies heavily on accounting, hardly any scholarly literature exists that explains in detail the accounting mechanics of bank credit creation and precisely how bank accounting differs from corporate accounting of non-bank firms.


It can be deduced that this ability of banks is likely derived from the operational, that is, accounting conventions and regulations of banking. These either differ from those of non-banks, so that only banks are able to create money, or else non-banks have missed out on the significant opportunities money creation may afford.

In order to identify the difference in accounting treatment of the lending operation by banks, we adopt a comparative accounting analysis perspective.


When the non-financial corporation, such as a manufacturer, grants a loan to another firm, the loan contract is shown as an increase in assets: the firm now has an additional claim on debtors — this is the borrower’s promise to repay the loan. The lender purchases the loan contract, treated as a promissory note. Meanwhile, when the firm disburses the loan (and hence discharges its obligation to make the money available to the borrower), it is drawing down its cash reserves or monetary deposits with its banks. As a result, one gross asset increase is matched by an equally-sized gross asset decrease, leaving net total assets unchanged.

In the second case, of a non-bank financial institution, such as a stock broker engaging in margin lending, the loan contract is the claim on the borrower that is added as an asset to the balance sheet, while the disbursement of the loan – for instance by transferring it to the client or the stock exchange to settle the margin trade conducted by its client – reduces the firm’s monetary balances (likely held with a bank). As a result, total assets and total liabilities remain unchanged.

While the balance sheet total is not affected by the granting and disbursement of the loan in the case of firms other than banks, the picture looks very different in the case of a bank. While the loan contract shows up as an increase in assets with all types of corporations, in the case of a bank the disbursement of the loan …  appears as a positive entry on the liability side of the balance sheet, as opposed to being a negative entry on the asset side, as in the case of non-banks. As a result, it does not counter-balance the increased gross assets. Instead, both assets and liabilities expand. The bank’s balance sheet lengthens on both sides by the amount of the loan (see the empirical evidence in Werner, 2014a and Werner, 2014c). Thus it is clear that banks conduct their accounting operations differently from others, even differently from their near-relatives, the non-bank financial institutions.


Surprisingly, we find that unlike the other firms whose balance sheets shrank back in Step 2, the bank’s accounts seem in standstill, unchanged from Step 1. The total balance sheet remains lengthened. No balance is drawn down to make a payment to the borrower.

So how is it that the borrower feels that the bank’s obligation to make funds available are being met? (If indeed they are being met). This is done through the one, small but crucial accounting change that does take place on the liability side of the bank balance sheet in Step 2: the bank reduces its ‘account payable’ item by the loan amount, acting as if the money had been disbursed to the customer, and at the same time it presents the customer with a statement that identifies this same obligation of the bank to the borrower, but now simply re-classified as a ‘customer deposit’ of the borrower with the bank.

The bank, having ‘disbursed’ the loan, remains in a position where it still owes the money. In other words, the bank does not actually make any money available to the borrower: No transfer of funds from anywhere to the customer or indeed the customer’s account takes place. There is no equal reduction in the balance of another account to defray the borrower. Instead, the bank simply re-classified its liabilities, changing the ‘accounts payable’ obligation arising from the bank loan contract to another liability category called ‘customer deposits’.

While the borrower is given the impression that the bank had transferred money from its capital, reserves or other accounts to the borrower’s account (as indeed major theories of banking, the financial intermediation and fractional reserve theories, erroneously claim), in reality this is not the case. Neither the bank nor the customer deposited any money, nor were any funds from anywhere outside the bank utilised to make the deposit in the borrower’s account. Indeed, there was no depositing of any funds.

In Step 1 the bank had a liability — an obligation to pay someone. How can it discharge this liability? A law dictionary states:

“The most common way to be discharged from liability … is through payment.” 1

And yet, no payment takes place in Step 2 (and hence in the entire ‘lending’ process), which is why the bank’s balance sheet in total remains stuck in Step 1, when all lenders still owe the money to their respective borrowers. The bank’s liability is simply re-named a ‘bank deposit’. However, bank deposits are defined by central banks as being part of the official money supply (as measured in such official ‘money supply’ aggregates as M1, M2, M3 or M4). This confirms that banks create money when they grant a loan: they invent a fictitious customer deposit, which the central bank and all users of our monetary system, consider to be ‘money’, indistinguishable from ‘real’ deposits not newly invented by the banks. Thus banks do not just grant credit, they create credit, and simultaneously they create money.


Instead of discharging their liability to pay out loans, the banks merely reclassify their liabilities originating from loan contracts from what should be an ‘accounts payable’ item to ‘customer deposit’ (in practise of course skipping Step 1 entirely and thus neglecting to record the accounts payable item). The bank issues a statement of its liability to the borrower, which records its liability as a ‘deposit’ of the borrower at the bank.


What enables banks to create credit and hence money is their exemption from the Client Money Rules. Thanks to this exemption they are allowed to keep customer deposits on their own balance sheet. This means that depositors who deposit their money with a bank are no longer the legal owners of this money. Instead, they are just one of the general creditors of the bank whom it owes money to. It also means that the bank is able to access the records of the customer deposits held with it and invent a new ‘customer deposit’ that had not actually been paid in, but instead is a re-classified accounts payable liability of the bank arising from a loan contract.


What makes banks unique and explains the combination of lending and deposit-taking under one roof is the more fundamental fact that they do not have to segregate client accounts, and thus are able to engage in an exercise of ‘re-labelling’ and mixing different liabilities, specifically by re-assigning their accounts payable liabilities incurred when entering into loan agreements, to another category of liability called ‘customer deposits’.

What distinguishes banks from non-banks is their ability to create credit and money through lending, which is accomplished by booking what actually are accounts payable liabilities as imaginary customer deposits, and this is in turn made possible by a particular regulation that renders banks unique: their exemption from the Client Money Rules. [Werner gives a concrete example on British law for banking and non-banking institutions.]


It would appear that those who argue that bank regulations should be liberalised in order to create a level playing field with non-banks have neglected to demand that the banks’ unique exemption from the Client Money Rules – a regulation benefitting only banks – needs to be deregulated as well, so that banks must also conform to the Client Money Rules.


Alternatively, one could argue that it would level the playing field, if the banks’ current exemption from the Client Money Rules was also granted to all other firms — in other words, if the Client Money Rules themselves were abolished. This would allow all firms to also engage in the kind of creative accounting that has become an established practise among banks. It would certainly ensure that competition between banks and non-bank financial institutions would become more meaningful, since the exemption from the Client Money Rules, together with the banks’ deployment of this exemption for the purpose of re-labelling their liabilities, has given significant competitive advantages to banks over all other types of firms: banks have been able to create and allocate money – virtually the entire money supply in the economy – while no other firm is able to do the same.


Basel rules were doomed to failure, since they consider banks as financial intermediaries, when in actual fact they are the creators of the money supply. Since banks invent money as fictitious deposits, it can be readily shown that capital adequacy based bank regulation does not have to restrict bank activity: banks can create money and hence can arrange for money to be made available to purchase newly issued shares that increase their bank capital. In other words, banks could simply invent the money that is then used to increase their capital. This is what Barclays Bank did in 2008, in order to avoid the use of tax money to shore up the bank’s capital: Barclays ‘raised’ £5.8 bn in new equity from Gulf sovereign wealth investors — by, it has transpired, lending them the money! As is explained in Werner (2014a), Barclays implemented a standard loan operation, thus inventing the £5.8 bn deposit ‘lent’ to the investor. This deposit was then used to ‘purchase’ the newly issued Barclays shares. Thus in this case the bank liability originating from the bank loan to the Gulf investor transmuted from (1) an accounts payable liability to (2) a customer deposit liability, to finally end up as (3) equity — another category on the liability side of the bank’s balance sheet. Effectively, Barclays invented its own capital. This certainly was cheaper for the UK tax payer than using tax money. As publicly listed companies in general are not allowed to lend money to firms for the purpose of buying their stocks, it was not in conformity with the Companies Act 2006 (Section 678, Prohibition of assistance for acquisition of shares in public company). But regulators were willing to overlook this. As Werner (2014b) argues, using central bank or bank credit creation is in principle the most cost-effective way to clean up the banking system and ensure that bank credit growth recovers quickly. The Barclays case is however evidence that stricter capital requirements do not necessary prevent banks from expanding credit and money creation, since their creation of deposits generates more purchasing power with which increased bank capital can also be funded.

In other words, banks have been granted a loophole – not available to other businesses – to use a fiction that the banks’ liabilities are really assets -which has given them a huge competitive advantage over everyone else.

No wonder banks now literally own the country … including the entire political system.

But why don’t mainstream economists understand how banks actually create money?

Economics professor Steve Keen explained last week in Forbes:

In any genuine science, empirical data like this would have forced the orthodoxy to rethink its position. But in economics, the profession has sailed on, blithely unaware of how their model of “banks as intermediaries between savers and investors” is seriously wrong, and now blinds them to the remedy for the crisis as it previously blinded them to the possibility of a crisis occurring.

A wit once defined an economist as someone who, when shown that something works in practice, replies “Ah! But does it work in theory?”

Mainstream economic models are fundamentally wrong.  The theories taught in economics programs are riddled with errors.  For example, they don’t take into account such basic factors as private debt.

That’s why the 2008 crash happened … and that’s why the economy is heading south now.

So things are going to get worse and worse until the actual manner in which money and credit are created is taken into account.

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  • Don Robertson

    Of course all this is true, however, the real effect is the complete devaluation of YOUR money. YOUR money has inherent value represented by the interest that is paid on your deposits. That value is stolen by these practices. Instead of banks competing for the business of depositors, they are now “selling” (read parking) assets inside the Federal Reserve System, and making more fallacious loan purchases that also end up being transferred to the Federal Reserve System.

    And now the Federal Reserve System is coming up insolvent because the whole system (Ponzi scheme) has run out of able borrowers upon which to keep the system’s teetering efficacy in check with more FED-crap-hole credit growth.

    So, the Federal Reserve System is now in the process of lowering the standards that qualify an able borrower. That means, the economy is increasingly relying on borrowers who have neither the ability or intention to pay back their loan. This lowered borrower standard is reflected in the insolvency of the Federal Reserve System member banks.

    So, the banking system lobbies (and gets) more federally-backed loan programs, student loans, housing loans and now auto loans.

    Who is paying for all this? We all are, because this practice is devaluing OUR money while inflating the cost of everything in the marketplace. That inflation is like a spring being stretched, because with less and less money in circulation on Main Street due to the shutting down of the whole system, the inflation due to these reckless credit practices is also now springing back into deflation.

    Vote with your wallet against these banking practices by refusing to buy anything, cash or credit.

  • Lynn Walker

    The article begins by stating economists and politicians have not understood how money is created for the past century. This is the wrong perspective. They have known, but have been paid off complicit partners in the scam.

    It is good to finally see someone here explain the accounting trick that occurs in fractional reserve banking. My attempts to describe this have gone unnoticed. I would like to point out that due to this accounting trick, if the books were ever set straight, the banks truly own nothing, every penny they have ever earned or hold as asset would need to be repaid to balance the books. We, the people, can literally take everything from them as legal right if restitution is ever enforced.

    • mothwhoflysbackwards

      From my understanding of the article banks create money out of thin air, thus they don’t really need even a fraction in reserve. So if you thought fractional reserve banking sucks … well this is much worse.

      • Procopius

        Why worse? It works.

  • Robert Colescott

    Banks lend you “money” by a few keyboard strokes on their computers. However, they usually require some kind of collateral or guarantee. Their money creation out of thin air is backed up by people’s hard-earned real assets, the biggest scam of all.

  • SRVES339

    Is GW really suggesting this is all somehow an accident?

    This is the core of the banking cabal’s takeover of the world… imagine being gifted the ability to create all the money you can possibly ‘loan’ out at zero cost (including governments in most countries), and charge interest (always front loaded… “we want our profit now”) for basically 100& guaranteed profit!

    And having the power & influence to wipe it clean at every… even finance/economic post grad programs (to the point where knowledgeable people even deny and defend it). Why… another core principle was sharing (bribing) the booty with an entire swath of society needed to make the plan work and maintain status quo once it was (and now we know why CEOs make >$10M in bonuses… they know where the bodies are buried)

    Breathtaking… corrupt to the core… and they do absolutely nothing an elected government couldn’t do… and earn massive income and the ability to roll back tax levels significantly.

    This could go on for ever so I’ll leave with one final comment to try to put this in context… isn’t it hard to imagine having this incredible, risk free, money making machine, and still manage to lose it all (and much more) in the various greed fed casino bets (and millions of working stiffs were left penniless making them all whole again… every last bad mortgage was bough up by the Fed at full value)!

    Every bank should be shut down, assets confiscated, and the entire financial model re-designed to meet the needs of the people… not a few mega wealthy family cabals that run the world in the shadows today!

  • ClubToTheHead

    “In any genuine science, empirical data like this would have forced the
    orthodoxy to rethink its position. But in economics, the profession has
    sailed on, blithely unaware of how their model of “banks as
    intermediaries between savers and investors” is seriously wrong, and now
    blinds them to the remedy for the crisis as it previously blinded them
    to the possibility of a crisis occurring.”—Steve Keen

    “In science you need to understand the world; in business you need others to misunderstand it.”—Nassim Nicholas Taleb

    Yes, banking is a business.

    That’s why the audit of the Fed will never be allowed. The Fed’s endless supply of “nothing” which it converts into money would be revealed; and the Fed has “nothing” to hide and plenty of it.

  • July 26, 2011 The Federal Reserve ADMITS that Its 12 Banks Are PRIVATE – Not Government – Entities

    Much of the tens of trillions in bailout money and “easy” money from quantitative easing went to foreign banks (and see this, this and this). Indeed, Ron Paul noted recently that one-third of all fed bailout loans – and essentially 100% of loans from the New York Fed – went to foreign banks.


  • “Who controls the issuance of money controls the government!” Nathan Meyer Rothschild

    The Federal Reserve Explained In 7 Minutes


    The Inflation chart you will not see or hear about in our government run media!

    Is Inflation the Legacy of the Federal Reserve?Jan. 17 (Bloomberg) — In today’s “Single Best Chart,” Bloomberg’s Scarlet Fu displays how inflation has increased in the 100 years since the creation of the Federal Reserve.


    • Libertybellle

      Yes, it is government run media. And it is buttressed by 12 years of government run mis “education” and indoctrination at gunpoint in government schools which teach children to be government slaves while hating its culture and heritage.

      How many Americans know what a republic is? What federalism is? What the Constitution says (about our money)? What nullification is (marijuana law in Colorado)? This ought to be the highest goal of a government school in America.

      Hardly anyone in America knows how our government should work. Why? Because of government controlled (at gunpoint) media and government controlled schools. Liberty in America is actively destroyed by the media and the schools, except when they advocate for sexual perversion and debauchery. Then it is anything goes.

  • jadan

    Maybe the developing financial crisis that will bring the corrupt Fed system to its knees will stimulate the people to examine their money and ask simple questions like: “What is a Federal Reserve Note?” This article may be news to many, but to a growing number of people, it is old hat. Ellen Brown, whose article GW reprints here now and then, has been and continues to teach the facts about our money since the publication of her first popular book: The Web of Debt. It should be clear that the money creation process described here through an accounting trick is also debt creation. Our money, our FRN’s, represent consumer debt owed to the creators of the money we use. It is private money, the money of the 1%. Not only does they create money “ex nihilo” ( from nothing ) they create at the same time an obligation to repay this money-from-nothing plus interest. You borrow money, then you have to earn more money to pay not just the principle, but also the interest. The reason the stock market is collapsing is that the growth of the economy is not enough to repay the interest the elite sob’s have demanded for the use of their money, which they created in their banks from thin air. This is the system friends, the con game put into law in 1913 called the “Federal Reserve System”. This private system of debt-peonage is in the process of collapsing….we must create another system if we want to have hope of a sustainable future.

    • The folks in Germany are better informed than the government schooled Americans.

      Jun 19, 2014 Establishment is Afraid of End The Fed Movement in Germany

      The protests in Berlin are not a left or right movement but a social media movement against the establishment that have grown to over a 100 cities and 3 countries.


      • The video is wrong. The Fed does not “create the nation’s money supply”, it gets the money from the Treasury after posting collateral of equal value to the notes received, the Fed also pays for the printing. Neither the Fed or the banks possess the legal authority to create money, and they don’t, they create credit denominated in the money. There is no law anywhere that designates or acknowledges the credit they do create as being a money, or currency or even a medium of exchange.

    • mothwhoflysbackwards

      You are absolutely right about the FED, having a sovereign country borrow in own money into existence is crazy. Then the “ex nihilo” part is not so disturbing to me because the government could just do the same thing by printing money “ex nihilo”. All money defined as a medium of exchange is “ex nililo” … what is really loathsome is that we have to pay interest to the FED bankers to pull it into existence. If you are the “sovereign” and can create your own monopoly on money (it comes from you ex nihilo) and there are only two ways to get it into circulation, spend it in exchange for goods and services already rendered, or loan it out where the goods and services will be rendered later. We should ditch the FED and have money drawn into existence by work already done. So I am 100% with you on the foolishness of the FED system.

      Then I don’t think this article has anything at all to do with the FED. When money is drawn into existence from the FED by a willingness to go into debt that debt is sovereign (T-bills etc.).

      When money is created by the methods described in this article the debt that creates the extra money is not sovereign or held by the government but instead by individual people. This is a whole other way to screw you. Read the article again and note that it is not talking about sovereign debt (the way the FED creates money) but private debt creating money via accounting tricks. It’s a whole other way, albeit somewhat similar) to screw people.


      • jadan

        Let your outrage burn the whole fucking thing down!

        • mothwhoflysbackwards

          Wish it could, but at my age the outrage does not burn as hot. Sometimes I think it best to cultivate a sense of bemused detachment.

  • Nexusfast123

    The current banking system is a gigantic skimming operation set up to extract value from the real economy that the rest of us live in. It is parasitic in nature and destroys value. We could eliminate 90% of what the banking system does and reduce it to a high regulated utility operation.

  • mothwhoflysbackwards

    I already understand how the FED creates money out of thin air, this is a whole other level of what the fuck. Just to make sure I have it right I will restate what the author said.

    NON BANK: Starts with $1000 and loans $500 to somebody with $1000. The lender now has $500 and the lendee has $1500, but the lender has a $500 asset (the I.O.U. from the lendee) and the lendee has a $500 liability to the lender. So the lender $500 + $500 I.O.U. = $1000, and the lendee has $1500 – $500 owed to the lender. This simple math means “total assets and total liabilities remain unchanged”, this is true for the balance sheets of the lender and lendee (each still essentially have $1000) and the total amount of money the lender and lendee have between them is unchanged at $2000.

    BANK: lender bank starts with $1000 (yes I know banks have far more then $1000 in assets, but the principals are the same) and loans $500 to the lendee who already has $1000 just like the example above. If bank loans worked like non bank loans the balance sheets and total money would be the same. Instead (if my understanding of the article is correct) banks do not subtract the $500 loan, they include it as a deposit. It still works the same way for the bank’s lendee ($1000 original cash + $500 loan – $500 liability/debt to bank =$1000 and no change in lendee’s balance sheet) but the bank books the made loan as a deposit in lendee’s account. So $1000 -$500 loan + $500 I.O.U (so far the same as non bank) +$500 deposit = $1500. Poof $500 has just been conjured out of thin air, the banks balance sheet has just gone up by $500, and the total amount of money (held by the lender bank and the lendee) has just gone up by $500. Do I have that right? Is that what is going on?

    One thing that is confusing (presuming I am on the right track), wouldn’t the lendee withdraw the loan from the bank? So the “extra created money” pays the banks interest, but I don’t think it would stay in the bank for long Thanks for the interesting and disturbing article, hopefully this can be explained in a simplified manner, but I think I’ve got it — though part of me wishes I didn’t.

  • Marco Saba

    The problem is that money creation is not evident in the cash flow statement: Cash Flow Accounting in Banks— A study of practice, Ásgeir B. Torfason, 2014 https://www.scribd.com/doc/294880212/Cash-Flow-Accounting-in-Banks-A-study-of-practice

  • November 9th, 2015 We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

    If you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived. Never before in history has global trade collapsed this dramatically outside of a major worldwide recession.


    Nov 19, 2011 SF Fed admits a private corporation, pay dividends!

    David Haynie: “I had a really quick question, the Federal Reserve Bank of San Francisco specifically, is that formed as a private corporation itself?” David Lang: “Ah yes it is actually. yes our state chartered banks, banks under a charter share that and we pay a dividend on those shares.”


  • Now all we have to do is to get people to stop calling the credit the Fed and the banks create “money”, because it’s not money, it’s their debt credited to your account.


  • J Christensen

    Commercial banks creating the money is an interesting bit of prose attributable to those who want us to think of the private banks and not the government as the ultimate issuer of the national unit of account or the national currency.

    Without the all important operations between the central bank and the treasury with commercial banks the story is incomplete and thus misleading.

    The government is the issuer of money period!

    • jadan

      Then why is the unit of paper currency called a Federal Reserve Note?

      • J Christensen

        Hi Jadan, that’s a good question. It all goes back to the 1913 federal reserve act, an act of congress, which essentially gave the fed the right to issue the dollar as it’s own liability while the note remained the governments legal obligation.

        The reason for this, I suppose was that a decision was made for the government to remain at arms length from the day to day banking operations ie to make banking services a private commercial business rather than a public service.

        This not the same as saying it made private banks the issuer of the dollar as either a currency or a unit of account.
        For a good talk on money issuance listen to Prof L. Randall Wray talk here: https://www.youtube.com/watch?v=-KRi9nF8BiA

        Prof Eric Tymoigne is currently running a series of blogs that might interest you at neweconomicperspectives.org which is the website at the economics dept at University of Missouri Kansas City.

        • mothwhoflysbackwards


          Way back before money people made things to survive. When they had a surplus of goods they traded them by barter. This is very difficult. Say I have a surplus of wheat and want to trade it for some cloth, but the cloth maker does not want wheat, so I have to say trade my wheat for something the cloth maker wants.

          One day a real bad ass who became the king took third of my wheat by force. The next year he offered me “money” for my wheat. This money could be anything that the king could have a monopoly on and was difficult to fake, even an intricately knotted rope. This was the “coin of the realm” and was drawn out from the sovereign by work. I do not have to pay it back with interest that could never be repaid.

          One day I became king and created “moth bucks”. I did not loan them to my subjects, I spent them. So in year one I issued, or spent into circulation 300 “moth bucks” and got stuff in return. These “moth bucks then became the coin of my realm and circulate freely as a debt free currency.

          Why would I want to loan them out instead? I wouldn’t get any “stuff” just a promise to pay back the “moth bucks” at interest — lets say 5%.

          So next year I have 315 moth bucks coming back to me. The problem is only 300 exist. If they were all paid back my realm would be out of money! Furthermore, why in the world would I go through this trouble when in year two I could just print up 15 extra ‘moth bucks” if I wanted to?

          Note also that when my “moth bucks” currency is drawn into circulation by the willingness of people to take on debt at interest I MUST increase the money supply each year.

          No sovereign with brain in his or her head would create such a system, it makes no sense.

          We (under the FED system) create our money by borrowing from the FED (owned by private banks) at interest. The FED MUST buy our debt (we are drawing our own sovereign currency out by going into debt) but the FED can control the interest rates we pay by snapping up the debt (creating low rates) or refusing to buy it unless rates are high — like in the late 70s early 80s.

          The money that is drawn into circulation this way is known as a federal reserve note. During many periods in our history we did not have this system (which allow a huge skim by the private banks who own the FED) and I myself have have a “red seal” Treasury note.

          So, with respect, I think you are wrong. As the Steely Dan song goes …. see the glory… of the royal scam.

          • Most of what you’ve written here is utter bullshit, the actual legal tender monetary system doesn’t work that way and the Fed/bankster debt based credit system doesn’t work that way either.

  • diogenes

    Wow, reading the comments below I conclude that someone called out for smoke and mirrors, dust throwing, decoys and diversions — and the call was answered. How much of it represents hopeless confusion and how much of it represents a will to confuse — is a question that need not detain us.

  • CatNamedJava

    I’m pretty sure the professor as never taken an accounting course. Because this is so wrong.

  • pseudolaw.com

    It’s not a loophole it was designed that way, and if you want to understand it you can easily do so by reading a wiki. Banks don’t earn as much as you might think from money creation. Their total profits across the US for everything they do was, what, $150B in 2015? US GDP was $18T… Fear not.

  • It would be one giant step forward if people stopped referring to the asset backed, debt based credit generated by banks as being “money” when it is no such thing. Money doesn’t require third party intermediation and permission for its use and its existence is not dependant upon the solvency of the banks. As a bonus, there is no law anywhere that designates or even acknowledges bank generated debt based credit and being a money, or a medium of exchange, and it sure as hell isn’t a legal tender.

    (Legal Tender is the official monetary medium, codified in law, of a nation.)

    So, banks do not create money, period.

    • Procopius

      Well, money is complicated. We know that longer that 3800 years ago, i.e. prior to 1800 BCE, people were using some form of “money,” because around 1800 BCE thousands of cuneiform tablets record a collapse of the financial industry, presumable because a king cancelled all debts by mistake, rather than just debts owed to the government, which had, apparently, been going on for hundreds, if not thousands, of years. Mortgages and financing of large shipments of commercial goods suddenly became unenforceable. Now, such a sophisticated system of debts and assets, when there was no currency (not invented for another thousand years, in Greece) could not have arisen in a couple of centuries, so we can infer that some form of accounting and debt was in use for a long time before then. Saying that something billions of people use daily and call “money” is not really “money” is not realistic.

      • Well, what happened 3800 years ago is not germane to our current legal tender monetary system. Pointing out the fact that the Fed and banking system’s debt-based private credit is not not recognized in law as being a money is merely stating the obvious. Most people use it under the assumption that the legal tender it represents is available upon their demand.

      • Let me see if I can convey the obviousness of our monetary system and money.

        Since 1792, with the first ‘Coinage Act’, the U.S. has operated under a ‘Legal Tender’ monetary system, with law defining the money. The current ‘Coinage Act’ of 1965 defines U.S. Legal Tender Money as: “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.” https://www.law.cornell.edu/uscode/text/31/5103

        Nowhere in any law within the U.S. will you find the debt based credit generated by the Fed and the banking system designated, or even acknowledged, as being a U.S. legal tender, or a money of any type. The Fed refers to this debt-based credit as ‘credit dollars’, an undefined term it made up in 1933 in a hearing before congress. The only public reference to their ‘credit dollar’ was on the Feds H.6 report, which was deleted from the report in 2014 following the 2013 Cyprus banking crisis when the term ‘Bank Bail-In’ was coined, which gave rise to the idiotic notion that deposit accounts (bank accounting entries) were money. The Fed obliged that notion by removing its explanation of a ‘credit dollar’ from their H.6 reports.

        Anyway, the Fed’s explanation for the term ‘credit dollars’, which is a derivative of ‘credit denominated in dollars’, is: “Credit dollars are a debt generated currency that is denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange. As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply.” The ‘unit of account’ being referred to is: “United States coins and currency, including Federal reserve notes”, our ‘public’ legal tender money, the official, and only, currency of the United States. It’s what the government owes in final payment of its debts and what the banks owe, by law, to their deposit account holders, either upon demand or over time.

        Let’s dispel another myth here, the notion that Fed and bank generated debt-based private credit is a ‘medium of exchange’. Credit is nothing more than a bank maintained accounting entry. As such, it is intangible, it’s not a medium that can be readily exchanged. Secondly, it does not circulate in the economy, it’s an accounting entry maintained by banks and between banks. Third, and most important, it requires bank intermediation for its use. You have to get their permission and approval each time you use it, and that’s because it’s their credit you are using, not your money. There is a 97% probability that ‘your money’ doesn’t even exist anywhere within the banking system.

        People are confusing a means of payment, the transfer of a debt obligation (credit), for the medium of exchange, what is owed as payment (an asset). Checks as well as debit cards, credit cards, money orders, etc., are a means of payment, referred to as a generally accepted (institutional) arrangement or method that facilitates delivery of money from one to another. Actual payment has not been made unless or until actual money proper has changed hands. This necessarily implies that: ‘Crediting your account with the amount’ and ‘payment’, are two different things. Bank managed credit is the accounting for the legal tender money owed in payment.

        The notion that we’re using ‘digital money’ or ‘digital currency’ or ‘digital dollars’ or ‘credit dollars‘ or ‘credit money‘ (an oxymoron) as a medium of exchange is nothing more than a trick of the mind, a figment of our overactive imaginations, a deception, it’s how we rationalize the transaction, and it’s how the banksters get away with stealing our labor and wealth.

        Currently, there are a total of $1.48-Trillion in U.S. legal tender money in circulation around the globe. Of that, there are $280-Billion in circulation within the U.S.. Of that, $71-Billion is held in bank vaults. That $71-Billion backs the $1.9-Trillion in demand deposit accounts, it also backs the $9.3-Trillion in savings accounts, it also backs the billions n credit transactions that occur daily, it also backs Wall Street and all the listed corporations.

        That, is the reality of Fractional Reserve Banking.

        the Frog

  • Johnny Carpenter

    Let’s go back to the Tally stick.. money is what ever is chosen to be money..it could be Rock’s…we are set up for paper money and coinage..we could keep that system and create our own money out of thin air..I have a debit card and direct deposit..if the bank says I have money then I do even if I don’t….face the truth,,it is all designed to keep us under control,,to keep us poor so we have to keep working.. America is a corporation and we are it’s product..ever heard of corporate America??

  • se7ensnakes

    The corruption does not stop with the private money (endogenous money). When you go to court in a foreclosure and challenge jurisdiction the judge ignores you. You see you cannot have trial unless the court has jurisdiction and one of the things you need to have when you introduce a piece of paper like the promissory note is a competent witness. An officer of the financial institution to state the facts under oath. But the judge does not allow this to happen. You can sue the judge if he does not have jurisdiction but where do you take this case that does not involve another judge? Perhaps the trick is the common law

  • se7ensnakes

    There are three issues which are subject to misinformation.
    1) MONEY

    1) Over 90% of the money in circulation is private commercial bank money (endogenous money).

    2) Where do you find the rules and procedures for the common law. A court of record is suppose to be able to vacate judges order.

    3) the 16th Amendment is not what you think it means. YOU NEED TO READ THE HOLDINGS!
    The most important is two unanimous supreme court decisions specifically about the income tax in which Justice White says: “IN ITS NATURE THE INCOME TAX IS AN EXCISE TAX”!
    This means that the income tax is an indirect tax. Indirect taxes are on activities not income! If this is the case where the nature and cause for income tax trials? Even if the irs were able to tax all income producing activities they still need to show NATURE AND CAUSE!

    Imagine the irs maintaining that a doctor using cpr to save a life is a taxable event. How about showing nature and cause for a journalist: read the first amendment.