The Banks Lend 70 Times Their Capitals
The banks do not lend the money of their depositors - they create the money that they lend
This way for the private banks of creating new money goes back to the Middle Ages, when gold was the only form of money. Those who owned gold, for fear of being robbed, deposited this gold in the strong-rooms of the goldsmiths, who gave gold owners receipts for the gold they kept for them in their vaults. So, instead of paying in gold when they purchased goods, these individuals paid with the receipts they had received from the goldsmiths, which proved that they had gold in the goldsmiths' vaults. The one who was paid with these receipts was thus becoming the new owner of the gold kept in the goldsmith's vault, and was free to go and withdraw this gold any time from the goldsmith.
The goldsmith noticed that most of the people preferred to exchange receipts instead of going to the goldsmith and withdraw their gold. For example, for one person who actually came to the goldsmith and ask for his gold, ten people did not come, preferring to exchange the receipts issued by the goldsmith. The goldsmith soon realized that he could thus issue, without risk, ten times more receipts than he had actual gold in his vault. As long as the same ratio of people did not show up at his place and ask for their gold, the goldsmith could go on with his confidence trick, but if all of his customers show up and want their gold back, the whole system collapses, and the fraud is unveiled: the goldsmith cannot repay them all, since there is ten times less gold than he pretended to have in his vault!
Today's private banks operate exactly the same way. They noticed that for one person who came to the bank and wanted to be paid in cash (paper money), about ten people only transfer figures from one account to another one, without using any cash. (Today, over 95% of our nation's monetary transactions are done by cheque, and less than 5% by cash.) This is what allows the banks to lend more money than they actually have. For example, with $1 million in cash reserve, a chartered bank can lend $10 million in credit, or bookkeeping money (not paper money, but figures written in bank accounts). The only restraint to this creation of credit is the fear that too many people show up to the bank and ask to be paid in cash, since the bank could only repay in cash about one consumer in ten. One of the ways for the banks to protect themselves against such a possibility is to encourage depositors to leave their money at the bank as long as possible, by paying higher interest in fixed deposits, which are tied up with a bank for one, two or three years.
Seventy Times
Over the recent years, the use of cheques or bookkeeping money has increased significantly, and the bankers can thus create a larger percentage of bookkeeping money. For instance, for the third quarter of 1995, the Canadian chartered banks held $3.1 billion in cash, and lent, for the same period, $216 billion (non-mortgage loans) - seventy times the amount of cash they actually held!
Until a few years ago, according to the Canadian Bank Act, the minimum reserve required in cash was 4%, but in December, 1991, the Federal Government enacted a new version of the Bank Act, which stated that as of January, 1994, the primary reserve in the form of cash that a chartered bank has to maintain is nil, zero!
In other words, chartered banks are no longer limited by law in creating credit. The only limit is the fact that some bank customers still want to be paid in cash. So, one can easily understand why banks do everything they can to eliminate the use of cash, by encouraging the use of debit cards, direct payment, to eventually eliminate all cash in circulation. They promote the existence of only one kind of money - electronic money. The citizens of our country must do their utmost to prevent the elimination of cash, for it the bankers' wish comes true and there is no more cash, it would be the greatest swindle in the history of our nation, and it would give the banks absolute control over the economy and every individual.
