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 banks create money out of thin air 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 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.