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Zeitgeist: Addendum - Part One - Page 6

Author: Edward L Winston
Added: August 16th, 2009

This is page six of part one of four in my series of articles on Zeitgeist: Addendum. Please refer to the introduction if you were lead to this page.

As dysfunctional and backwards as all of this might seem, there is still one thing we have omitted from this equation and it is this element of the structure which reveals the truly fraudulent nature of the system itself.

The application of Interest.

When the government borrows money from the Fed or when person borrows money from a bank, it almost always has to be paid back with accrued interest. In other words, almost every single dollar that exists must be eventually returned to a bank, with interest paid as well. But, if all money is borrowed from the central bank and is expanded by the commercial banks through loans, only what would be referred to as the 'principle' is being created in the money supply. So then, where is the money to cover all of the interest that is charged?

Nowhere. It doesn't exist. The ramifications of this are staggering, for the amount of money owed back to the banks will always exceed the amount of money that is available in circulation. This is why inflation is a constant in the economy, for new money is always needed to help cover the perpetual deficit built into the system, caused by the need to pay the interest.

What this also means is that mathematically, defaults and bankruptcy are literally built into the system. And there will always be poor pockets of society that get the short end of the stick. An analogy would be a game of musical chairs, for once the music stops someone is left out to dry.

And that's the point. It invariably transfers true wealth from the individual to the banks, for if you are unable to pay for your mortgage, they will take your property. This is particularly enraging when you realize that not only is such a default inevitable, due to the fractional reserve practice, but also because of the fact that the money that the bank loaned to you didn't even legally exist in the first place.

Interest on loans has existed for as long as money has existed. The film implies this is inherit in the fractional reserve banking system, but it would exist regardless. This time around, however, the movie says that inflation is a means to deal with the interest of loans, not just a "hidden tax on the public." Bankruptcy and foreclosures are indeed built into the system, but this isn't as arbitrary as the film suggests. 

For example, if a business does not make a profit it will go bust and creditors will have claim on assets of the business, but that's all. This is an inevitable fact of the capitalist system and the credit system. While capitalism is extremely complex and highly exploitive, the malevolent nature of it does not originate from the monetary system. The film, and other conspiracy theorists, seem to suggest that if banks were more controlled and decentralized (logical fallacy), and the monetary system were changed in their favor, then social change would occur. This is completely illogical and it makes no difference how the monetary system or banking system works, the contradictions and exploitive nature of capitalism will not change in the favor of pro-social reformers will less regulation and less centralization. With or without central banks money has interest for loans, because most people cannot pay $30,000+ for a home and must get a loan. Loans existed before the fractional reserve system and are not a consequence of it.

In the 1969, there was a Minnesota court case involving a man named Jerome Daly, who was challenging the foreclosure of his home by the bank, which provided the loan to purchase it. His argument was that the mortgage contract required both parties, being he and the bank, each put up a legitimate form of property for the exchange. In legal language, this is called "consideration."

Mr. Daly explained that the money was, in fact, not the property of the bank, for it was created out of nothing as soon as the loan agreement was signed.

Remember what Modern Money Mechanics stated about loans? "What they do when they make loans is to accept promissory notes in exchange for credits." "Reserves are unchanged by the loan transactions. But deposit credits constitute new additions to the total deposits of the banking system." In other words, the money doesn't come out of their existing assets. The bank is simply inventing it, putting up nothing of its own except for a theoretical liability on paper.

As the court case progressed, the bank's president, Mr. Morgan, took the stand, and in the judge's personal memorandum, he recalled that, "The Plaintiff (bank's president) admitted that, in combination with the Federal Reserve Bank, did create the, money and credit upon its books by bookkeeping entry, the money and credit first came into existence when they created it, Mr. Morgan admitted that no United States law or statute existed which gave him the right to do this, a lawful consideration must exist and be tendered to support the note." "The jury found that there was no lawful consideration and I agree," He also poetically added, " Only God can create something of value out of nothing."

And upon that revelation, the court rejected the bank's claim for foreclosure and Daly kept his home. The implications of this court decision are immense, for every time you borrow money from a bank, whether it is a mortgage loan or a credit card charge, the money given to you is not only counterfeit, it is an illegitimate form of consideration and hence voids the contract to repay, for the bank never had the money as property to begin with. Unfortunately, such legal realizations are suppressed and ignored, and the game of perpetual wealth transfer and perpetual debt continues.

There's a reason there hasn't been more court cases like this, it's because in this specific case the Plaintiff had mixed M0 and M1 money (treating M0 as M1 - just like Zeitgeist does) and this is indeed illegal and logically the Defense was deserving in this court case. The difference here is, since then more legislation and regulation has kept situations like this from emerging; even then it didn't happen too often. Even if the fractional reserve system didn't exist and the bank tried to pass off assets that didn't exist the situation would be the same. The difference is that when a new loan is given it's created as a deposit into the bank (from the central bank) and not as "new money".

Regardless of the fractional reserve system, if you don't pay your loans, you still default - period. In this case the Defendant was lucky because of the large clerical error made at his bank.

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