The Banking Racket Laid Bare; by late Dick Eastman
John Churchilly
The Banking Racket Laid Bare
by Dick Eastman
Maybe or maybe not banks started dealing in gold money or national legal tender paper money and the notes of the banks or checks were claims to gold or such paper money. If so, the bankers soon found that if all of the checks and notes were cleared against each other, offsetting each other, the banks would not really need any paper money or metallic money at all — they could provide an entire community with purchasing power simply with issuing credit — creating deposits. But there is more to the racket than that.
The bankers set up rules by which each was able to create credit. Each dollar of transferrable deposit credited to the account of a “borrower” had to be co-created with an obligation for that borrower to pay to the bank a larger amount over time in the future, to pay the amount of the loan, called the principal, plus the fee for making the deposit available, called compound interest, a percentage of the principal per year compounded.
It’s very simple. Deposit is the bank’s IOU which can be transferred from one person’s account to another as means of payment and the obligation to subsequently pay principal and interest is the borrower’s IOU.
Notice that the saver’s deposits in banks are not necessary for the binary creation of deposit (bank credit) and borrower obligation to return principal and interest, but it has been made a rule that a bank have to have saver’s deposits of a required amount before a specific amount of deposit and debt obligation can be co-created. What is the benefit to banks of requiring the public to keep idle deposits in the bank (called required reserves) before they can create deposit in exchange for the borrowers debt bondage? Very simply, the banks, who sell purchasing power, who sell command over transferable deposits, face a better market as seller’s of loanable funds if the non-bank public keeps its own spare deposit money confined in an idle account, that is, in a savings account. The less money in circulation the more loanable funds (new deposit) the public will demand and, by the law of supply and demand, the higher the price (interest rate) that may be charged for the funds. The banker’s don’t want the non-bank public lending to people, so they bribe the public with a small interest rate to keep their funds idle in the bank. That way the banker’s lend more and get most interest payment for their provision of purchasing power to the public.
That is not the story you usually hear about what the banking system is all about, but this is the factual explanation, the one that lays bare what is done and the payoff for doing it that way.
Nations derive their entire money supply through this borrowing process.
It is important to notice that the purchasing power put into circulation (the deposits) for all borrowers is less than the total amount that the borrowers are obligated to pay back to the lender as principal and interest.
On the day the deposit is created for a borrower and the debt obligation he later must meet — there is a boost in total purchasing power in the economy — but as debt payments are made month after month the purchasing power in circulation diminishes, until at some point the borrower has given back as much in principal and itnerest as the loan deposit amount he originally received — yet he is obligated to pay more. And that is the situation of every borrower. Obviously many borrowers have to default. The most competitive of the borrowers may scrape the money (cash flow, command of deposit money) to pay down his debt, but that only means that others will default sooner than if all borrowers were equally competitive in earning money with which to service their debt.
The only way to keep the economy from failing all around is to keep up the volume of lending and debt creation. The result of this being in this trap is that businesses, households and governments get deeper and deeper in debt.
The only relief from this interest drain on the economy’s hired purchasing power is when firms, instead of paying full principal and interest over time, instead fail to make the required payments on time — a condition called default — allowing the creditor to take pledged collateral — ownership of real assets which borrowers offered to secure their loans. In the event of default, the rules are set up, so that the borrower bears the full risk of default, the bank getting the proceeds from liquidation of the borrower’s assets or the assets themselves.
The bankers — and lenders in general — have dollars owed to them and often keep large idle dollar deposits which they have received from borrowers servicing their debts. Having such money and such money owed to them, this creditor class / moneyed class gain a windfall of wealth whenever there is deflation — whenever purchasing power drains out of the economy, as it does drain when interest and principal paid to the banker.
Deflation means economic default and depression for the general economy — because less money is in circulation so there can be less buying, less hiring, less paying of taxes, less investment, less payment for maintenance. Firms go bankrupt — and their assets go on the market for the creditor class to buy at very low prices.
Note that when bankers are paid interest they do not go out and buy the goods and services that the people produce. Instead they buy the people’s IOUs. Their goal in life is to have bond wealth which will keep paying them interest throughout their lives and throughout the lives of their children who inherit their bonds or who participate in the family trust. Their success and wealth is the borrowers’ debt and servitude.
The other thing the creditor class likes to maximize is ownership and profit from the productive assets they gain when lenders go bankrupt. In the deflation that is created when payments to principal and interest swallow up the money supply created by loans — businesses go bankrupt and governments that can’t meet their debt obligations will privatize their utilities. These assets the creditors bundle into the corporations they own. Corporations are made up of the body parts of all of the failed enterprises of borrowers. Of course bankers give the best credit terms to the corporations they themselves own.
And so the world is enslaved through this system of credit money and debt creation and the manipulation of money supply so that the creditor class can have permanent interest incomes and continuing dividend checks from the corporations whose stock they own.
It's a racket. Six billion people are suffering every day under this crooked system.
The answer is a permanent national money supply and an end to credit money creation by banks.
Not many know all this. Most have a false picture or no picture at all of how the money and lending system really works and whom it serves and whom it plunders and enslaves. If they did they would never tolerate this terrible situation, they would not permit this racket to continue operating.
Dick Eastman
Yakima, Washington
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