How the banks steal your money in the form of a loan

This is your answer to every question put to you. The banks loan out ten times their reserve. This means that they create money for loans out of thin air and charge interest on that money they didn't have. And to that point I have provided you with references that bear this out. And your failure to acknowledge that fact is glaringly obvious. Here, I'll show you again what you refuse to acknowledge:

Firstly, here’s a short explanation of bank lending. Under normal circumstances, deposits and loans are more-or-less equal across the banking system as a whole. This is because when a bank creates a new loan, it also creates a new balancing deposit. It creates this "from thin air", not from existing money: banks do not "lend out" existing deposits, as is commonly thought.

https://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/#6d9363c47d20

You claimed that I had misinterpreted that. I asked you to interpret it. You failed to do so.

Max's house cost him one-hundred and fifty thousand dollars in interest to a party that didn't even put up real money. That the implication of that is not obvious to you is rather strange. Don't you think. Do you know what it means that there was no lawful consideration tendered to support the loan in the contract?

If you could print money that had no intrinsic value at no cost to yourself, and loan it out to whomever you want, you can sit back and not even care if ninety percent of those loans were not repaid since it cost you nothing to produce the loan in the first place. Additionally, you would also be able to confiscate what was put up as collateral. I think you're just having a hard time admitting that this is the way it is. What else could prevent you and you supporters here from comprehending the obvious.

You also didn't even attempt to explain what I've written below concerning the consequences of pumping extra money into the economy and the consequences of having it disappear should debts be paid off. I'm interested in hearing you refute it.

If almost all of the money we use is created by banks when they make the loans, then for every dollar, there has to be a dollar of debt. If we want more money in the economy, we have to go further in debt to the banks because more borrowing from banks means more new money is created. But the process happens in reverse when we repay loans. When we pay off our loans, the money effectively disappears. This makes it impossible for all of us to reduce our debts. If we start paying it off, then the amount of money in the economy shrinks. Less money in the economy means less spending, and less spending means fewer jobs. So you can have either more money and more debt, or we can have less debt and less money. Some choice.

When the only way to get money into the economy is to borrow it from the banks and thus creating it, then we'll always be trapped under a load of debt. But it doesn't have to be that way. If we took the power to create money away from the banks, and instead have money created by a public institution whose purpose isn't to create short-term profits for itself, then this new money would not only supports jobs and the economy, but could also be used to pay down the debt.
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And though you've so far ignored the question of who has the power to coin money, perhaps you'll give it a shot this time. Or maybe one of your supporters here will. Whuduya say?

I'm going to town for supplies, but will be back to discuss this later.

Because you fail to answer it. You claim the bank has hurt Max via all the mechanisms you post. Max says he is completely happy and I can't see any harm to any party, but perhaps we are ignorant as you say. So show us where Max was harmed. He said he borrowed $19k at what he considers a reasonable interest rate and successfully bought a car. Where is the harm?

I am not entirely comfortable with this discussion... which right now is an argument about whether I am a loser or not.

At least you are on my side on this one, Engineer .

Whether or not Max is happy with paying interest on money that did not exist has nothing to do with the fact that there was no lawful consideration tendered to support the loan. I know you understand what that means, and that's why you won't address it.

Also, I've asked you to interpret what I've posted below because you said that I misunderstand it. So go ahead and give your interpretation.

Firstly, here’s a short explanation of bank lending. Under normal circumstances, deposits and loans are more-or-less equal across the banking system as a whole. This is because when a bank creates a new loan, it also creates a new balancing deposit. It creates this "from thin air", not from existing money: banks do not "lend out" existing deposits, as is commonly thought.

https://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/#6d9363c47d20

And you've also failed to answer the question of who has the power to create money. This would be a great starting point from which to determine the legitimacy of the banks' practice of creating money from nothing. So go ahead and give me your best answer.

Fancy words, but Max is happy because what he received from the bank was useful in buying a car. If you think he used money that did not exist, but bought a real car, then perhaps you think the loser was the car dealer? If Max had borrowed real money, say from a neighbor, at the same interest rate, how would he be better off?

Nope. No matter how funny the money was, he used it to pay off part of his floor plan note to the bank. Hey, maybe the bank was the loser. They lent phony money and got paid back with phony money.

That is the policy by which bank earns the money and the method used by any organization to earn money cant be called stealing unless the means used by them are unethical.

Fancy words? I take it that means you're unaware of the legal term "consideration." Here is something from Wikipedia:

"Consideration is the concept of legal value in connection with contracts. It is anything of value promised to another when making a contract. In common law it is a prerequisite that both parties offer consideration before a contract can be thought of as binding."

There, now it's not fancy anymore.

I've already established that banks create money for loans by simply making an entry in a book. In fact, I told you about a bank president admitting in court that his bank routinely created money out of thin air for its loans, and that this was standard banking practice, which means that the money for loans first came into existence when they created it, and that the bank president also admitted that no U.S. law or statute existed which gave him the right to do this. And this goes to the question of who has the power to create money; a question that you are still avoiding like the plague.

Also, you accused me of misinterpreting the segment from the Forbes article below, and I've been asking you to interpret it properly. You've avoided doing that, too, like the plague. So I will ask you one more time to explain how it doesn't mean exactly what it says.

Firstly, here’s a short explanation of bank lending. Under normal circumstances, deposits and loans are more-or-less equal across the banking system as a whole. This is because when a bank creates a new loan, it also creates a new balancing deposit. It creates this "from thin air", not from existing money: banks do not "lend out" existing deposits, as is commonly thought.

https://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/#6d9363c47d20

You also didn't respond to my point concerning the consequences of creating money out of this air. So here it is again. If you don't want to address it, just say so.

If you could print money that had no intrinsic value at no cost to yourself, and loan it out to whomever you want, you can sit back and not even care if ninety percent of those loans were not repaid since it cost you nothing to produce the loan in the first place. Additionally, you would also be able to confiscate what was put up as collateral. I think you're just having a hard time admitting that this is the way it is. What else could prevent you and you supporters here from comprehending the obvious.

You also didn't even attempt to explain what I've written below concerning the consequences of pumping extra money into the economy and the consequences of having it disappear should debts be paid off. I'm interested in hearing you refute it.

If almost all of the money we use is created by banks when they make the loans, then for every dollar, there has to be a dollar of debt. If we want more money in the economy, we have to go further in debt to the banks because more borrowing from banks means more new money is created. But the process happens in reverse when we repay loans. When we pay off our loans, the money effectively disappears. This makes it impossible for all of us to reduce our debts. If we start paying it off, then the amount of money in the economy shrinks. Less money in the economy means less spending, and less spending means fewer jobs. So you can have either more money and more debt, or we can have less debt and less money. Some choice.

When the only way to get money into the economy is to borrow it from the banks and thus creating it, then we'll always be trapped under a load of debt. But it doesn't have to be that way. If we took the power to create money away from the banks, and instead have money created by a public institution whose purpose isn't to create short-term profits for itself, then this new money would not only supports jobs and the economy, but could also be used to pay down the debt.

I did that for you, walked you through an entire loan process, showing the balances for all three parties (bank, Max, car seller) at each step of the process using the accounting rules from the article. Don't know what more I can do for you.

Sure I did - there are no negative consequences for Max or the dealer. Refuting the title of the thread, the bank does not "steal your money in the form of a loan." I can't prove a negative, but you can prove a positive if it is true.

The problem with saying the bank is doing that is that the car dealer did get money. Max got a check from the bank, gave it to the dealer for a car, the dealer went to the bank and cashed it, receiving a bunch of legal US currency from the bank. Again, the bank gives the dealer currency on demand when presented with the check. You say banks are perfectly fine if 90% of their loans go belly up. That's wasn't true in the Great Depression, it wasn't true during the S&L crisis of the 80's and it wasn't true for lenders in the recent Great Recession. Banks write bad loans, banks go under.

This is all pretty straightforward, but if I have it wrong, please explain the hole with this simple example that Max started back on the first page. Are you saying that when the dealer presents the check to the bank it will refuse to cash it?

Except, of course, that you omitted the actual beginning of that process; namely that the money for the loan was created from nothing. You're not addressing the issue concerning the consideration on the part of the bank that was never put up. Neither are you acknowledging that the bank is collecting interest on money it never really provided.

I could go on, but you'll simply ignore my points. So we'll do it this way. This is the question for you to answer in your next post. And then we'll move on to the next obvious question pertaining to this issue.

Interpret this:

Firstly, here’s a short explanation of bank lending. Under normal circumstances, deposits and loans are more-or-less equal across the banking system as a whole. This is because when a bank creates a new loan, it also creates a new balancing deposit. It creates this "from thin air", not from existing money: banks do not "lend out" existing deposits, as is commonly thought.

https://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/#6d9363c47d20

Nope, included the transaction where the bank created two ledger transactions, one a credit, one a liability. I also included the step where the dealer goes to the bank and the bank provides the money. In your world, Max gets a car, the dealer gets paid, but somehow the bank doesn't provide the money. So who does? When the dealer is looking at a stack of $100's, where did it come from?

You have an extremely easy, straightforward route to victory here, basic arithmetic. Show us where Max (or the dealer) gets hurt. But let's be clear - if Max uses a loan from the bank to buy a car and if Max isn't hurt and the dealer isn't hurt, the bank is not stealing money. There are no other parties here.

You know, I've done this before too, but what this refers to is the accounting part of the loan, the part that allows banks to function nationally. The next step in this process is that the borrower withdraws the deposit. To support that withdrawal, the bank has to provide assets on hand. By leaving out the next step, this seems nefarious. It's not.

If the dealer wants cold hard cash instead of having that amount transferred to his account, the bank has sufficient reserves to cover such demands for cash. But the fact is that there are few enough patrons who ever demand such large amounts of cash that there is always enough for such withdrawals. However, if even half of the bank patrons want to withdraw their accounts, that would be called a run on the bank because there would not be sufficient funds to cover withdrawals. And how could there be, when ninety-seven percent of the banks' reserves are simply punched in on a keyboard as I have said?

Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

I've posted numerous articles and sources that show otherwise. That's what fractional reserve banking is about. If the bank has a reserve of one-hundred thousand dollars, it can loan out a million dollars, collecting interest not on one-hundred thousand dollars, but on a million dollars. Of course this violates the consideration aspect of the loan contract because the million dollars the bank loaned out was not backed by anything but--as the Bank of England refers to it as--the stroke of a pen.

The problem with your interpretation of those multiple articles is that it directly conflicts with what people know - when you take out a loan, the bank gives you money. You keep saying that doesn't happen, that when Max took out a loan, there was no money, but everyone who has ever taken out a loan knows that you take out a loan, you get money to buy something.

Every day, I go to work and I present a bunch of PhD's difficult problems and they bring their considerable knowledge to the table to generate sometimes pretty amazing hypotheses that they are often very enamoured of. Then I challenge them to show how, step by step, their hypotheses match the real world observations that I came to them for help in solving. If they can, then it goes on the list of possible explanations and we are willing to spend lots of time and money on further testing, but a fair number of times they try to connect the dots and fail and that is all it takes to disprove the hypothesis. If your hypothesis doesn't explain what is happening in the real world, it's not correct. Max took out a loan. He was given money by the bank. He used that money to buy a car. At the end of the day, Max has a car, and the car dealer has a stack of cash. These are facts, they are not in dispute. Where did the bank steal from Max? If you can't connect those dots, your hypothesis is wrong. That is why I keep challenging you to show us exactly how Max was harmed. That will do more to support your ideas than any number of misunderstood articles from other people.

You know that what I've said is that the bank creates the money simultaneously with the loan. The point being that the money for the loan did not exist, and only exists as an IOU from the bank to the borrower. You say that Max got his money, and so did the car dealer. This is because 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.

Richard Werner is an economics professor who obtained his PhD in economics from Oxford. He was the first Shimomura Fellow at the Research Institute for Capital Formation at the Development Bank of Japan; Visiting Researcher at the Institute for Monetary and Economic Studies at the Bank of Japan; Visiting Scholar at the Institute for Monetary and Fiscal Studies at the Ministry of Finance; and chief economist of Jardine Fleming (Jardine Fleming was a Hong Kong-based investment bank that operated in 15 countries. He was granted access to study a bank’s books, and he confirmed that private banks create money when they simply create fictitious deposits into a borrower’s account.

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.

No balance is drawn down to make a payment to the borrower.

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.

Now, the important thing for you to consider in all of this is that 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. Max paid interest on money that was never there. Also, I've pointed out how 97% of circulating money is created on a computer screen, and that every dollar represents a dollar of debt which, when paid off, leaves the economy and causes inflation. The Federal Reserve is responsible for creating the devaluation of the U.S. dollar through its money creation. It's not really rocket science.

Oh, and who has the power to create money?

EDIT: From the last paragraph above:

Now, the important thing for you to consider in all of this is that 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. Max paid interest on money that was never there. Also, I've pointed out how 97% of circulating money is created on a computer screen, and that every dollar represents a dollar of debt which, when paid off, leaves the economy and causes less spending and job loss. The Federal Reserve is responsible for creating the devaluation of the U.S. dollar through its money creation. It's not really rocket science.

So if the banks create fake money and loan fake money and are paid back with fake money....explain how this is good for the banks?

Gives them a lot of fake income?

But what is sitting on the dealer's desk is not an IOU, it is a pile of US greenbacks.


Just about everyone who has ever taken out a loan will disagree with that statement. I take out a loan, I am given money and I use it to buy stuff.


Exactly. You have made three pretty remarkable claims.
- The bank does not give out real money when it issues a loan.
- The bank does not care if 90% of the loans it makes are never repaid because it is not real money.
- The bank is stealing money from Max in the form of a loan.

I think the vast majority of readers here will disagree with the first one. I take a cash advance loan, I receive cash. I take out a car loan, I receive money to buy a car.

If the second one is true, why did all those banks go under a few years ago in the Great Recession? The loan default rate went up from less than 2% to 10% for a few years and several national banks either went bankrupt or were forced to agree to be purchased for next to nothing. With their reserves hammered, the banks significantly curtailed lending resulting in a massive credit crunch. If they manufacture money from thin air, why would they stop lending? All the facts go against your interpretations.

Finally the third one, harm to borrowers. Show the harm. If Max borrows from someone other than the bank at the same terms, how does he come out better?

You are right, it is not rocket science, just arithmetic. If you can't show that, something is wrong with your hypothesis. We had an interesting poster here some time back that was pushing hard that the value we use for PI (3.1415...) was incorrect. It's an internet conspiracy theory out there, you can find it if you want. His problem was that nothing in reality matched his statements. You are running into the same problem. Show Max was harmed and you have the starting point of an argument. If you can't show that, you should reconsider your position.