Back to Quack Off
Balances On a Sea of Debt
Mar 06, 2010
Re-issued Feb 05, 2013
“The banks that control the world’s supply of money are no better than
counterfeiters – and their systems of juggling debt have left the global
economy teetering on the brink of ruin.”
Darius Guppy, convicted Dutch counterfeiter
The following article aptly describes how fractional reserve banking is
simply another form of counterfeiting, pointing out the conceptual
difference between (1) real money and (2) a paper receipt for real money.
Then as the counterfeiting by fractional reserve bankers grows
exponentially, as it must, the central bankers – witness former Federal
Reserve Chief Alan Greenspan as he embraces the erroneous concept that he
can impute value to paper money per se -- start believing in their own
monetary lies and create even more complicated counterfeit investment
vehicles backed by nothing but hot air, such as fake mortgage-backed
securities, collateralized debt obligations based upon non-collateralized
future daydreams, and then gambling pieces of paper called Credit Default
Swaps whose clever function consists of betting against the
previously-created fractional reserve derivatives. That’s like a
counterfeiter soliciting bets that the cops will soon catch him at his
counterfeiting activities, in order to mitigate his losses. So, the
investment bankers at Goldman Sachs who sit on the board of Governors of the
Fed Reserve sell fractional reserve hedge fund derivatives to clients while
down the hall they short their clients’ very same hedge funds with Credit
Default Swaps, betting that their hedge funds will fail. That’s worse than
prostitutes who only make their money going in; the bankers make their money
both going in and pulling it out, shorting their own hedge funds. This
continues until they can’t keep it up any longer and the market crashes and
burns. Not to worry. It’s called a Recession, then a Depression
as everybody points fingers at everybody else and the bankers blame it on a
“systemic risk,” or the U.S. Congress who is also participating in this
monetary gang bang, or the vagaries of a non-existent free market capitalism,
or a mysterious virus from Mars.
– FM Duck
“If I could counterfeit the Pink Slip to my ’57 Chevy and sell a million
copies to the suckers in my neighborhood for $1,000 each, while replacing
’This is to Certify that There Exists One ’57 Chevy on Deposit at FM Duck’s
Warehouse Payable to the Bearer of This Note on Demand’
’Virtual Non-Existent Car,’
I could make a fortune. And that’s exactly what the Federal Reserve is
doing with fractional reserve banking of the U.S. Dollar and going off the
– FM Duck
there resided in the cell next to mine a certain “Tommy”. He had been
imprisoned for counterfeiting Dutch Guilders to such a high standard that he
had fooled the banks themselves.
customary among prisoners who became friends, Tommy allowed me to read his
legal papers and I became fascinated by the judge’s sentencing speech, the
gist of which was that his activities had been parasitical. By creating
money out of thin air he had reduced the purchasing power of more deserving
members of society. What would happen if everyone behaved like him?
of arguments used, in a different context, regarding inflation. Like
counterfeiting, it dilutes the value of the community’s wealth and
constitutes a social evil. Creating too much money – “real” or “fake” – can
wreck an economy. Such was the Nazis’ reasoning when they planned to ruin
Britain’s economy by flooding the country with near-perfect counterfeit
A lot of
nonsense has been written about the world’s current economic woes – about
how the crash is the fault solely of the banks and, by implication,
governments are blameless; and how it could all have been avoided, and can
be put right, by greater financial regulation.
It is a
classic example of what the philosopher Alasdair MacIntyre terms “the
fallacy of managerial expertise”: an attempt by “experts” to blind us with
science to justify their overpaid existences and mask their confusion. After
all, not one of them was able to predict the current debacle.
“experts” will tell you that the present difficulties are simply the result
of abuses and excesses in a system that is basically sound. All that is
required is for some faults to be corrected. Do not believe them. The
reality is that the problem is systemic and a little tinkering here or there
will achieve nothing in the long term.
needed is a root-and-branch re‑evaluation of that most curious of cultural
inventions, money: how it is created, how it circulates, and how it can best
be used to serve the interests of the community.
the experts must explain in the simplest terms how money actually works.
Were one to ask the man on the street – or, indeed, most politicians and
bankers – who creates the money that rules our lives they would reply “the
State”. They would be wrong. It is true that governments create legal tender
– the physical notes and coins that circulate in an economy – but that
represents, at its highest, only 3 per cent of the total money in
circulation in the global economy. It is the commercial banks, largely
unaccountable and privately owned, that create the world’s money.
even if Tommy were responsible for printing every note in circulation
throughout the world his power to dilute the rest of our wealth would amount
to only a tiny fraction of that of the real manufacturers of money. His
activities and the activities of the bankers are, in essence, identical: the
creation of money out of nothing.
knowing it, therefore, Tommy’s judge punished him for usurping not so much
the role of the State as the role of the banks. The same mistake – the mis-identification
of where money truly originates – has been made by virtually all of our
politicians, economists and financial commentators.
the contradiction at the heart of neo-liberal, monetarist economics that has
constituted the Western orthodoxy for the past few decades: to emphasize on
the one hand that the money supply should be brought under control while
simultaneously allowing banking – where the money is actually manufactured –
to run riot.
how the global fraud works we need to step back in time and imagine
ourselves next to the original goldsmith-banker.
vault, 10 of his customers each deposit a bar of gold weighing 1 kilogram –
for safekeeping and in the hope of a return. Our banker lends the 10 gold
bars to other customers, who embark on profitable ventures that generate a
surplus. The vault now contains 11 gold bars, out of which our banker can
pay his depositors and himself a reasonable return.
soon questions the wisdom of keeping all the gold bars in his vault. He
creates a token that will represent a given quantity of the gold either in
his own vault or held to his account at some giant, more secure vault. Such
a token can then be exchanged within the economy. Historians credit one of
the first examples of such an instrument – the cheque – to the Knights
Templar, allowing a pilgrim to cash a cheque drawn on a European preceptory
at a Templar branch in the Holy Land.
So far, so
good – as long as, for the face value of each of the pieces of paper in
circulation, there exists a corresponding amount of gold sitting in a vault
somewhere in the real world.
it is at this point that something wondrous and diabolical occurs. For
experience has taught our banker that the bearers of the pieces of paper
that they have created rarely attempt en masse to claim the gold their paper
reasons: “So long as the pieces of paper that my friends and I have put into
circulation are not encashed simultaneously then it is academic how many we
crucial part of the scheme is to create a culture of confidence. The bearers
of our pieces of paper must feel secure about our ability to convert their
paper back into gold, or real wealth.
of the scheme is that instead of earning interest on a single piece of paper
our banker can earn interest on 10 such pieces of paper. Moreover, while
charging interest on these 10 pieces of paper, he has only to pay out a
reduced rate of interest on the single gold bar that has been deposited with
is exactly what happens.
the average fractional reserve requirements for banks amount to under 10 per
cent, which means that for every dollar the banks have on deposit they can
lend out at least 10 such dollars – virtual dollars summoned from nowhere –
on which they charge interest.
fact – the key to understanding how the international financial system
operates and why the world is in such a mess – is discussed virtually
nowhere in mainstream circles.
Governments do not control the single most important mechanism when it comes
to their economies: the production and distribution of money. That role has
been diverted to the banks, which manufacture money out of nothing and
charge interest on that conjured-up money. Beyond an interest rate cut or a
token change in VAT rates our politicians have no real power to direct their
picture has become a great deal more complicated. Soon pieces of paper are
no longer required and instead entries on a bank’s ledger will suffice.
Eventually, a further layer of virtuality is added when computers emerge and
with them credits in cyberspace. Likewise all sorts of financial instruments
and “products” are devised by the experts – collateralised mortgage
obligations, put and call options, floating rate notes, preference shares,
convertible bonds, semi-convertible bonds and endless other “derivatives” –
but in essence they are mere variations of the same basic three‑card trick.
the illusion becomes self-reinforcing. Those involved in the process,
sitting behind their computer screens, no longer control the beast they have
may be argued that while it is true that money is manufactured in the manner
I have described – in other words by creating loans to the banks’ clients –
surely just as much money is destroyed every time a loan is repaid? This is
true to an extent. However, the point to be grasped is that while money is
indeed created and destroyed in vast amounts every second of the day, the
interest on that money remains un-destroyed and accumulates within the
system – and at a compounded rate, moreover.
process is far more inflationary and parasitical than the activities of all
the Tommys in the world put together. For while that money, which by now has
mutated into a vast monster of mutual indebtedness, grows exponentially, the
wealth it is supposed to represent cannot grow at the same pace for very
long. While there is no limit to the number of zeros we can create on a
computer, there is a limit to the amount of oil in the ground, the wheat in
the fields and the livestock in our farms.
Capitalism, banking and growth become inseparable, but logic dictates that
the virtual economy must eventually peel away from the real one and sooner
or later the day of reckoning arrives – when the gulf separating these two
economies is too large to be sustained – for no power on earth can match the
power of compound interest in the ether.
the tale of the Chinese emperor and his chess opponent. The emperor asks
what reward would satisfy him if he wins; the opponent replies that a single
grain of wheat, doubled for each of the 64 squares on the chess board, would
suffice. The emperor, imagining that he has a good deal, loses, only to
learn that he now owes his adversary the equivalent of 2,000 times the
current annual worldwide production of wheat.
the miracles of compound growth; and the reason why financiers have been
able to award themselves astronomical sums. For their virtual printing
presses are calibrated to an exponential production while no such
calibration applies to Mother Earth.
Soddy, the 1921 winner of a Nobel Prize for chemistry (not economics), was
among the first to articulate the mechanism by which money is created by the
banks and how it mutates into debt. His arguments have been developed by
thinkers such as Herman Daly and Richard Douthwaite.
reasoning can be extended to cover the financial sector as a whole. A
company makes a certain profit; a multiple of many times can be applied to
that figure to arrive at a “value” for the company – based on the assumption
of future growth. That value can then be leveraged yet further for it to
raise debt against its share price and so on. Such super-ovulation can mean
that a single company with nothing more than an idea to be applied to the
internet can create yet more tokens – share certificates – worth several
times the entire annual production of diamonds for the continent of Africa,
a process known, retrospectively, as the dotcom bubble.
constitutes a redistribution mechanism from the poor to the rich – which is
precisely why the banks and Western governments are so desperate to ensure
breeds more money. Indeed, the banks never really want their loans to be
repaid. So long as the interest is funded it is to their benefit for the
capital to remain outstanding on their books as “assets” and for the debts
to be rolled over. Every time the IMF or World Bank extends a line of credit
to some impoverished nation, are they being “charitable” or simply
perpetuating the enslavement?
system relies entirely, as do all Ponzi schemes, on the assumption of
continued growth, hence its inherent instability. Once that growth is
threatened the edifice collapses. Householders in Britain will appreciate
such a phenomenon only too well: put up 10 per cent for a property and
borrow the rest from the bank. That property’s value need rise by only 10
per cent and you have doubled your equity; if it falls by only 10 per cent
you are wiped out.
explains why a contraction of a mere 2 or 3 per cent in the global economy
leads not to a correspondingly minute fall on international stock markets,
but to financial Armageddon.
with the banks – lend 10 times more money than you possess and when the
economy grows, or at least pretends to grow, it’s Porsches galore, but when
the lack of growth is exposed it requires only 11 per cent of the loans on
your books (in value terms) to be bad and you are bust. The truth is not
that these institutions have suddenly become insolvent but that they were
never really solvent in the first place. By rolling over their debts they
have been able to keep them on their books as “assets” rather than losses
and forestall the evil hour.
There is a
name for this – “usury” – and our predecessors from the ancient and medieval
worlds appear to have appreciated much better than us its ultimate
It is a
simple and devastatingly effective swindle, but largely invisible because it
has become so deeply embedded in our culture. The consequences of that
swindle – the desperate need for economic growth; the environmental and
cultural despoliation it engenders – requires some radical thinking one
encounters nowhere in any of today’s political parties.
(Note by FM Duck: and what’s true in European
politics and central banking is equally true for American politics and
central banking.) – FM Duck
back to top...