From State Debt to State Money

Bankers among each other

Bankers have agreed upon rules among themselves about the required capital in relation to the calculated risks, like those of the outstanding loans. That capital is only a fraction of these risks, but in this way the creation of money out of thin air is tempered somewhat and banks get more in line with each other with the supply of loans. This increases the mutual confidence in lending money to each other, so that all of them can optimize their possibilities for benefits.

So, first of all, bankers are bankers among each other. When the customers of big Dutch banks were angry about the grab-culture at their bank and massively took their money to Triodos Bank (a kind of green bank), the big banks were short of that money. Fortunately for them, Triodos was not the meanest bank and ended up lending  the money back to those same Dutch banks. (Sorry folks, ethical banks simply don’t exist, sympathetic looking banks do. But with such a money system, you can’t expect otherwise, can you?)

But as soon as dark clouds show up at the horizon and severe losses threaten the banks, the mutual confidence is immediately gone. Then each banker tries to keep up his own trousers. Each of them tries to increase his cash reserves and lower his risks. As a result, over the period of months, the industry hardly gets any loans anymore and the waves of dismissals and failures start to ravage the country again. And if the bad weather stays, it can even last for years. Wonderful, isn’t it, such a banking system?

Amounts move from account to account

Back to the sold house. The seller now disposes of 250,000 Euros of thin air, he will spend on his turn. This way, this so-called money goes from one account to the next. So even if you have never contracted a loan, in your account there is only thin air you received for your work or for goods you sold. If, for example, you are at the ING-bank, this bank only has 3 cents of real money for each Euro you have as a balance in your account.

All the time less money in your pockets

In fact, with thin air they multiplied the 3 cents by 33. This means that when you deposit a banknote of 100 Euros in your account at ING, they lend out 3300 euros. To put it an other way, for each Euro we don’t keep in our pocket, the banks collect a multiple of interest.

Maybe you do understand now too, why the bankers seduce us to make our payments electronically as much as possible. Credit cards, bank cards, fuel cards, prepaid, chip and public transportation cards, it all serves just one goal: to make sure we need the least possible amount of cash money in our pockets.

However, this has also a reverse side. The cash reserves (the bank notes and the exchangeable balance at the central bank) do not only serve to give cash to the customers and to pay the little differences between incoming and outgoing payments, they are also the first reserves to absorb losses. But since the income at lower cash reserve percentages increases disproportionally, the temptation to take more risks is big. This way, with our modern plastic money we contribute to the reckless loan behavior of our bankers.

Let us see what happens when we bring a bank note of 100 Euros to our bank and deposit it in our account. At 3% of cash reserves the bank only has 3 cents for each Euro in your account.

In the right column you see that the revenues rise disproportionally when the cash reserve percentage lowers. And – the other way round – if you want to go back from 3% to 4% with the same amount of cash reserves, you need to get rid of 1/4 of the outstanding loans…

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