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How To Collapse a Global Economy (1 of 7)
Read 6 and 7 in particular
The Matching Principle
by Roberta Kelly
January 2007
I have been looking back at the moment in time when we learned the terminology "Enron-like Accounting." This accounting method was synonymous with The Arthur Anderson Firm.Read 6 and 7 in particular
The Matching Principle
by Roberta Kelly
January 2007
Arthur Anderson simply applied the Generally Accepted Accounting Principles ("GAAP") to serve his customers at the highest level of returns, and why not?
GAAP follows a legal and financial history of treatises, an acceptable accounting convention known as the Matching Principle. The Matching Principle is a double-entry bookkeeping system which operates as follows: When a bank accepts "instruments" which come as an acceptable form of "money" (checks, promissory notes, notes secured by trust deeds, etc.) from customers, and or deposits from other sources, the instruments are recorded by the bank as assets. The banking institution must also offset the assets by creating liabilities - i.e., debits - that "match" the asset ledger entries.
Now, a subtle nuance of GAAP is that all banking institutions in the United States, because we have a "fractional reserve banking system," do not ordinarily transfer funds from one set of accounts to another. In other words, almost all of the funds that are advanced by the banks are advanced as credits, and there is no exchanging of funds; most of the funds advanced to borrowers are created by the banks themselves.
Unfortunately, this unstable form of money has been around for a long, long time, and may be found in most parts of the planet. But people are awakening daily to the truth about fractional reserve banking and the volatile, unsound principles of GAAP.
The 300 plus years of ongoing obfuscation and worse - purposeful fraud - of the organic and inorganic development and growth of money, which is a necessity to sustain human life and promote global exchange, is criminal.
Once economic exchange was no longer bound to the classical monetary theory, money was carefully and strategically considered to be "money of account" and not "money of exchange."
Fractional reserve banking has been an acceptable form of "money" practice since the 1930s, and it is considered a basic "law of the land," so to speak. But, what is not acceptable and what is far more nefarious than fractional reserve banking, are the "credit instruments" that have created a global economic nightmare of unprecedented magnitude.
This is Part 1, in a Series of 7: I sincerely hope we immediately educate ourselves and spread the word, as to how the operation of banking instruments has been set up. There is still time to "save our wealth."
Lawful Money
With fractional reserve banking, money of exchange seldom changes hands - not in almost any business, nor in any of the other facets of money transactions. Almost all business transactions are completed in money of account, according to GAAP. This fact brings a very important piece of information to the surface: When a banking institution uses the term "lawful money" on an "instrument of credit," which then becomes an "instrument of debt," it becomes subject to scrutiny under the RICO and UCC statutes that govern in the USA.
Congress defines "lawful money," and to this day this definition remains as the traditional and legal medium of exchange. "Lawful money" is and was whatever the state or federal government receives for taxes or other debts. This money of exchange was required to be in the form of gold or silver, and or currency notes redeemable for gold or silver.
A basic overview is that lawful money is gold, silver or any token of exchange with an agreed upon "lawful" value. Prior to 1913, lawful money included the forms of money of exchange - silver, gold and currency notes previously mentioned, as well as U.S. bonds and notes redeemable for gold; this is what the measure of "reserves" in the national banks of the United States was - not money of account. Lawful money is not instruments of credit which become instruments of debt. Lawful money is not created unlawfully, in other words.
Money of account is what measures the sum of credit extensions in the economy, not money of exchange. This means that all economies set up on fractional reserve banking run on credit instruments which are instruments of debt. It stands to reason that societal economic structures based on fractional reserve banking are not considered solvent.
How to change this should be our first question - how to solve this problem before it is too late. The problem is critical and it is global. At this time the sum of credit extensions in the economies operating on fractional reserve banking are predominately in moneys of account, and this means the sum of bank-defined money transactions is the sum of this credit.
Does the Federal Reserve System, with its 12 Federal Reserve Central Banks, its member banks, thrifts, non-banks and credit card companies, create unlawful money?
Does omitting the terminology "lawful money" on an instrument or money of account, forgive the banks, thrifts and non-banks for their participation in creating "unlawful money" - and, are instruments of credit lawful money exchanges, when there is no value agreement between all parties involved?
Legal Tender
It is an accepted practice that money of account is to be exchanged for money of account. The banking institution that exchanges the money of account by way of a promissory note, for example, expects to be repaid by way of money of account. This is not to say that the banking institution would not accept lawful money in exchange for money of account.
Banks do not disclose and they do not educate. The fact that, when the money of account was set up, any third party had to "agree" to the terms of the "credit extension" proves that the banksters were up to no good when they began the full blown extension of credit without any oversight by the United States Congress.
To go up against the banks simply because a borrower does not want to repay a note is somewhat ludicrous. After all, when we go to the banking institution and sign a promissory note, we are expected to repay the note. The note is created in money of account and although one could argue that lawful money produced by labor repays the money of account, all parties accepted the money of account transaction. It could also be argued that the borrower’s enrichment from the note was an exchange of real value, with the repayment in money of account as agreed by all the parties.
However, this argument ignores credible proof of the banking practices of non-disclosure. Money form definitions can be lawful money, credit instrument, money of account and "legal tender." Legal tender is defined by US law, and currently the law says that legal tender Federal Reserve Notes cannot be redeemed for silver - not since June 15, 1967 - and gold currency was suspended in 1934. Basically the Federal Reserve Note is not of any value other than what it can be exchanged for as agreed by the parties to the exchange.
How does the Uniform Commercial Code (UCC) validate "money?" In other words, does the UCC recognize legal tender as money? Money is defined in the UCC, Section 1-201 (24) as "a medium of exchange authorized or adopted by a domestic or foreign government and includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more nations." Thus, the UCC’s view of money appears to include "legal tender," however, it also appears the traditional and classical acceptance by the UCC of "a medium of exchange," is "lawful money."
The understanding of "credit as money" can be found in Money, Credit & Commerce by Alfred Marshall and A Financial History of Western Europe by Charles P. Kindleberger. In 2007 we are at a crossroads, where the global economy is being driven by a specific few who apparently inherited the system of fractional reserve banking, and the brains to enter into the 21st Century’s globalization of currencies was and is, obviously, absent.
Credit versus Real Money
Commercial banks, private bankers and discount houses established themselves in Europe; the House of Rothschild in particular began a partnership with Prince William of Germany. It has been said that Prince William was probably the first known modern day loan shark. Amschel Rothschild became Prince William’s "agent" of money exchange. It is rumored that Rothschild was to have "taken care of" a sum of approximately three million dollars for his business partner Prince William while the Prince fled Germany to escape certain accusations of war. The "funds" entrusted to Rothschild by Prince William is the money that predominantly set up the banking system in Great Britain. It seems that Prince William who was a "peddler of flesh" (selling troops) got himself into trouble for funding both sides of wars. Both he and Rothschild enjoyed this highly lucrative mercenary war profiteering business.
It was Rothschild who first set up the initial models for fractional reserve banking, and for the Federal Reserve System. We are now experiencing the critical mass of this economic experiment, and it is not about global economic solvency or "free market globalization."
Money of account serves to enrich only those who profit from it. This form of "exchange" creates "debtors" who are at the mercy of those who create the rules of the game, and unfortunately genuine education about money is lacking in almost every regard.
By mid-19th Century, bankers were extending their own credit to borrowers or a third parties of the borrower’s choice. This practice was common in all of Europe, especially the U.K., and of course in North America where the international bankers invested in "England’s new colonies" - especially the wars. The extensions of credit were found most typically in drafts, bills of exchange or extensions of credit drawn upon the banks themselves, that is, the "bankers’ credit."
The Federal Reserve Act of 1913 was the commercial economic vehicle of "credit money," where the extensions of credit drawn upon a party’s signature could provide further credit money for a third party, or parties, who must agree to the value of this "credit money." This created the "discount window" and the "open-market trading desk."
How it worked initially was that "certain types of credits" would be extended by the "bankers’ credit" and this credit could be "exchanged for Federal Reserve credits." At that time the bankers’ credit, after being exchanged for Federal Reserve credits, could be repaid in "lawful money." But in 1934 the Federal Reserve became principally an institution of credit instruments due to the suspension of domestic transactions in gold.
Prince William provided the model of flesh peddling, and those who were creating the money understood that a superior military would be necessary to maintain their great wealth. The families who inherited these practices are the same people who have assured global citizens that nuclear war is nothing to be concerned about - forget about Hiroshima, Nagasaki, Chernobyl - all toxic poisons are "safe for civilians" and therefore can be administered in certain dosages.
Subtle Money Distinctions
It is interesting that here in the United States, where the banking practices have been accepted on the 300 year-old model established in Europe, the confusion about money of account and money of exchange persists today and has done so since the 1930s. This confusion has created a custom in the US of treating these two forms of money as "equal."
For example, on certain "promissory notes," there can be language such as: "Payments due under the Note and other Loan Documents will be made in lawful money of the United States." This language creates, at the very least, the "inference of inequality of obligations" because the bank created "credit" and it did not provide "lawful money," but it is demanding "money of exchange," lawful money, as repayment.
"The commercial bank lending process is similar to that of a thrift, in that the receipt of cash from depositors increases both its assets and its deposit liabilities which enables it to make additional loans and investments. When a commercial bank makes a business loan, it accepts as an asset the borrower’s debt obligation (the promise to repay) and creates a liability on its books in the form of a demand deposit in the amount of the loan." Money and Banking, by David H. Friedman.
When the bank takes a promissory note from a customer, the original bookkeeping entry (the "bank’s general ledger") will show an asset increase as a credit and correspondingly it will also show a value asset in its liability bookkeeping entry. In other words, the customer signed the note as a promise to repay as a bank asset and not what it supposedly stands for, a promise to repay a debt. This means the bank did not lend its money or any other asset to the customer as what would be anticipated or believed. Rather, the bank created its own credit asset funds for the customer’s transaction account while simultaneously using the customer as a third party lender to create more credit to loan.
The customer’s Note, it could be argued, was changed in its economic substance by the bank in its "contemplated credit application form agreement," that was first executed, thereby changing the original costs and risks to the customer.
Bank credit practices are disingenuous, and it is criminal fraud when the equation of third party creditor is added; when there is absolutely no agreement by and between all the parties, and the monetization of customer’s signatures is most certainly omitted in the bank’s disclosures.
The legal practice is that the bank is supposed to hold the demand deposit in a transaction account on behalf of the customer who signs the note. However, bank notes mislead customers, and without any authorization, permission or knowledge of the customer, the bank changes the terms of the note to profiteer at maximum level off its customers. This is in violation of the law.
Monetization of Signatures
"[T]he customer signed the note - a promise to repay - as a bank asset." The Federal Reserve System actually encourages its member banks to extend credit by way of the banks’ reserve requirements - at the current date the percent of demand liabilities is set at 10%.
It began about the mid-nineteenth century, when loans were commonly made to borrowers by the extension of the credit of certain commercial banks and discount houses - the bank’s own credit was extended to borrowers. The typical credit extension was found in the forms of "drafts" or "bills of exchange" drawn upon the "creditors’ credit extension." Eventually, third party transactions in the forms of drafts and bills became one of many standard operating procedures serving the functions of money.
The current explosion of the expansion of credit into the global economy has created the "inflation" of the Federal Reserve Note (the "US Dollar"). Non-bank providers of credit are credit card companies for example, or any non-bank that provides credit as an extension of "books credit." Credit card lines of "advance credit checks" are an example of the modern economic model of extending credit by way of GAAP - clearly the 10% reserve deposit requirement is non-existent in these cases.
When a bank receives a customer’s signed promise to repay in the form of a Note, the signature of the customer is "monetized." This entry on the bank’s books is an asset, but it shows also as a liability created in the form of a demand deposit or demand liability, by the bank. The customer would be led to believe that the bank would keep a deposit in the amount of the exchange, and the law actually requires that the bank to hold the demand deposit in a transaction account on behalf of the customer. Pathetically, this is not the case - on the bank’s official, original general ledger, the entry of its bookkeeping records will show the amount of the credit extended as an increase on the asset side of its books and the bank’s general ledger will also show the liability as an equal value, corresponding as an increase to further expand its credit to other borrowers.
Once the customer’s signature is monetized, the bank, thrift or non-bank creates more credit to loan to other customers, basically creating the original customer as a third-party lender. When a bank, thrift or non-bank creates funds to further extend and expand its credit, by or through the customer’s signature monetization, and the customer is not informed of the practice and therefore does not authorize this third-party non-disclosed transaction, it is fraudulent. The liability for the bank’s extended credit is bootstrapped onto the original customer’s signature.
Furthermore, the bank then demands repayment of the note as though the customer owes "money." Upon a thorough and investigative audit by an official bank examiner, the bank’s general ledger will prove that there is no note and no money is actually owed - in fact, the bank owes the customer for the monetization of his or her signature to create more credit for the bank to extend to other borrowers.
Failure of Consideration
Banks have not lent any pre-existing money, credit, assets or considerations of exchange that belong to their own institution or institutions since before 1933-34.
• "Credit Banking" - "Bookkeeping entry representing a deposit of funds into an account." Barron’s Business Guide Dictionary of Banking Terms ~ Thomas P. Fitch.
• "Money is anything that has value that banks and people accept as money; money does not have to have to be issued by the government." ~ New York Federal Reserve Bank.
• "Banks create new money by depositing IOUs, promissory notes, offset by bank liabilities called checking account balances." ~ David H. Friedman.
"Modern Money Mechanics" a publication by Anne Marie L. Gonczy, reveals that the bookkeeping entries of banks prove that they accept all forms of "money" which are considered assets and therefore deposits.
When a bank, thrift or non-bank fails to "setoff" the "deposit" that has created credit to further expand the credit which extends the profit of the bank, it defrauds the customer and most certainly debases the currency - nationally and globally. Banks actually owe money to any and all customers who have "deposited funds" because the deposits create more credit for the banks to lend.
The practices of the Federal Reserve System, the Federal Reserve Banks and their member banks, as well as thrifts and non-banks, are insulated by countless legal arguments: Federal Deposit Insurance Act - wherein "deposit" is defined as "cash (money of exchange), is money, and credit or promissory notes (money of account), becomes money when banks deposit promissory notes with the intent of treating them like "deposits of cash."
"Money and Banking" a publication by the Federal Reserve Bank of Dallas, states unequivocally that when a bank provides a loan to a customer, it is the creation of new money. The publication clearly stipulates that the new loan is handled exactly like a "paycheck" and therefore the new loan becomes a "deposit."
What they [banks] do when they make loans is to accept promissory notes to exchange for credits to the borrowers’ transaction accounts."1 An act of creating money is processed in the capacity of a lending or banking institution, and any
and all newly created credit is considered "money" to be instantly recorded into the general ledger as a "deposit." All "coiners of money" must be brought to a legal forum, regarding their failure of consideration, unjust enrichments and debasing of the global economy - a "tip of the iceberg."
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Modern Money Mechanics, pg 6 1
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