Hi: I wrote this last summer but it seems appropriate to Chris’ article. It is called The Great Kited Liability Bubble. It is specifically about the credit/charge-card business but it also applies to banking generally.
Preamble
The bankers are not equity-lenders - they are legal-debt reinsurance underwriters and liability-kiters who almost never actually pay anyone but only ever agree that they owe them by issuing credits that do not cost them anything of substance to produce - or what the Canadian judiciary refers to as “substitutes for currency”. The appeal Court, below, directly addresses the system employed by the chartered banks and the Alberta Treasury Branches, but which applies equally in theory and practice to all (circa 135) members of the Canadian Payments Association (CPA):
The chartered banks in Canada issue obligations, namely, deposit liabilities, which are generally accepted as means of payment in Canada although they do not have the status of legal tender. In like manner the treasury branches create deposit liabilities. These deposit liabilities are a form of book debt owing by the bank to the customer and in most cases, including the treasury branches, are subject to transfer by cheque. These payments by cheque provide the means of settlement of a large percentage of the transactions of Canada. Likewise, the treasury branches' deposit liabilities furnish their customers with a similar means of making settlement of transactions by orders drawn on the treasury branches because the treasury branches have been able to persuade the public to regard their deposit liabilities or promises to pay as the equivalent of legal tender by undertaking to convert them into legal tender on demand. These deposit liabilities are used by the customers of the bank or treasury branch which created them as a substitute for currency. (Breckinridge Speedway v. R [The Crown] (1967) 63 W.W.R. 257)
The banks/bankers globally endlessly kite their liabilities while re-setting our financial perception calibration by a factor of 1,000 roughly every ten years to accommodate the massive ballooning of their aggregate liabilities. In the 1960’s we were accustomed to dealing with substantial (richest-family-based) wealth in the hundreds of millions. Then in the early seventies we were introduced to the words billion and billionaire. In the 1980’s we were introduced to the words trillion and trillionaire. Then toward the end of the 1990’s and early 2000’s we were introduced to the word quadrillion. In just my adult lifetime we have gone from a measurement standard calibrated in millions to one that is calibrated in million-billions (a quadrillion is a million billion). If a million is one inch, then a quadrillion is15,700 miles.
The Great Kited-Liability Bubble
Kiting means to keep (financial) paper in the air.
The aggregate existing global credit/charge-card business (about 50% controlled by visa and mastercard banks), especially, is a delivery mechanism/gateway for a massive ever-expanding liability bubble or ponzi scheme or what the Criminal Code (of Canada for example) calls a money increment scheme. Although to be more cognitively accurate it is a kited-liability-scheme.
Assume that I am your payment agent and that you spend $60,000 from your salary ($5,000 per month) over the course of a year at various merchant establishments via a card that I give you for that purpose. Over the course of the year you also repay or reimburse me in cash/equity from your earned-income or monthly paycheques for that $5,000 per month or $60,000 total that I have paid out to merchants on your behalf.
Now assume that you discover that I have not in fact paid any of the said merchants, but have only agreed that I owe them, such that I have also retained or pocketed your $60,000 of cash (equity) reimbursement.
Does that make a difference?
It makes all the difference in the world.
In terms of procedure, approximately one billion card-users globally went to work an average of 25 days per month last year to earn at least an aggregate of $7 trillion (USD-equivalent) cash money/equity that they then paid to aggregate credit/charge-card companies (visa and mastercard banks alone) as what they believed to be reimbursement, while the said companies/banks have merely increased or kited their aggregate liabilities to the same merchants (and their assigns) by nearly $7 trillion while pocketing the $7 trillion of cash/equity.
It works out to about 10% of global GDP (i.e., just through the credit/charge-card system alone).
Do you think that that has some substantial effect on human socioeconomic relationships as opposed to a world where the aggregate card-issuers are required to actually pay the merchants instead of merely kiting/ever-inflating their liabilities?
I was a high-school junior/freshman in the early1970’s when Howard Hughes purportedly became the world’s first billionaire. And although undoubtedly a great entrepreneur in his own right, his greater fortune had been given an immense head-start by, among other things, his inheritance of the Hughes Tool Company from his father.
So at that time we basically first needed the number “one billion” or 1,000,000,000 to account for the inter-generationally-accumulated fortune of the world’s purportedly richest man.
And also at that time I would estimate in good faith that the majority of my classmates and the public generally would have had some trouble identifying the precise concept of a trillion. We had only just been introduced to only very occasional references to a billion and the word trillion would normally have been used as merely a general or generic reference to an astronomically large number.
Then as I lived my life through the 1980’s and 1990’s the term billion and multiple billions came into increasingly common use, especially in reference to the major financial fortunes won on the world’s stock markets.
Then the word trillion was increasingly needed to describe the aggregate fortunes of relatively small groupings of what were called dot-com billionaires. Notwithstanding that a billion is a thousand millions and a trillion is a thousand billions or a million millions.
Then as we passed into the first decade of the 21st century we were introduced to the term quadrillion (1,000,000,000,000,000) or one thousand trillions or one million billions to describe the nominal exposure of what is called the derivative markets (and which only exists to account for the money/liability itself).
So for all of human history to about the middle of the 20th century the concepts of million and multiple millions were sufficient to account for the inter-generationally-accumulated fortunes of the world’s richest man/men/families. But once then introduced and educated to appreciate what a billion is, at least we could have reasonably expected not to have to make the same adjustment again in our lifetimes or even our great-grandchildren’s lifetimes.
I also recall the major breakthrough of the late 1970’s when we achieved the great pre-tax $5 per hour for wages on entry-level jobs. Forty years later $10 per hour is about the minimum wage in practice. So based on that criteria we ought to be now speaking in terms of about two billion to describe the same top-of-the-pile that we needed one billion to describe in the 1970’s. And certainly no more than about ten billion.
But after the last fifty years of the global credit/charge-card system, if we pause and look back, we see that globally we have collectively earned the USD-equivalent of at least $100 trillion or $100,000,000,000,000, and that we have paid that amount to the aggregate banks as cash/equity reimbursement for the same amount that the banks have ostensibly paid to broadly-defined merchants on our behalf over the same 50-year period. (Less about $3 trillion in concealed interest/credit charges called “merchant discounts” - but that is a different fraud).
But then we look a little more closely to discover that the banks/bankers collectively still owe the world’s merchants (and their assigns) the same $100 trillion and that they have never paid them at all, but instead endlessly kite their liabilities while taking our cash/equity to wager in the financial markets, to buy up most everything else, and to pay themselves ever larger dividends, salaries and bonuses.
The Big Five private banks in Canada, for example, had about $32 billion of total assets balanced by $32 billion of liabilities (i.e., they owed about $1,600 per Canadian times 20 million Canadians) in 1968 when the visa credit card system was introduced into Canada. Almost fifty years later the same five banks have over $4 trillion of assets balanced/off-set by $4 trillion of liabilities (they owe about $120,000 per Canadian times 35 million Canadians). The near $4 trillion or $4,000 billion difference is a function of endlessly-kited liabilities. We keep feeding them our cash earnings from labour and other forms of production, and they keep pocketing the cash and kiting their liabilities to anyone and everyone.
The bank(s) merely agree that they owe the merchants by issuing them deposit account credits (“substitutes for currency”) that do not cost the banks anything material to produce. The merchant then writes cheques to its employees, suppliers and other service providers. Now the bank(s) agree that they owe the entities to whom the cheques have been written instead of the original merchant(s). But except in about 2% of cases the banks never actually pay anyone.
Economists are trained to say that banks may create credit for free, but also that the same credit is destroyed when it is repaid, so it is not really as bad as it appears. But that is only half the equation and they essentially deal with the other half by ignoring it.
The bank’s credit asset is indeed destroyed when it is repaid in cash/equity, but the bank continues to hold and own the cash repayment as a much more valuable replacement for it. By process the loan asset was created by the mirror-image creation of an off-setting liability to the vendor or merchant, and that liability persists long after the credit asset has been re-paid or converted to the debtor’s former equity (mostly from labour). In fact it persists forever or until the scheme collapses.
Taking today (the current 24 hours) as a snap-shot-in-time, the banks globally (through visa and mastercard alone) will collectively kite another $20 billion or $20,000,000,000 in new liabilities to merchants. Seven trillion dollars per year in gross throughput works out to about $20 billion per day and that is the current expansion rate of the gross credit/charge-card liability-kiting bubble.
As at early 2017 there have been a number of articles in the media about who from the current crop of mega-billionaires will become the world’s first genuine trillionaire. So we see that over the past 50 years the measurement standard for the world’s single richest human has increased by an approaching 1,000-fold (from $1 billion to $1 trillion), while the minimum wage in practice for the little people has only doubled or tripled. In practice it would appear that the vaunted level playing field has an actual slope of about 500-to-1 in favour of the entrenched money power.
Any bleeping moron could rule the world with the benefit of rules like that. Bankers are not financial geniuses. The only reason they own and/or control everything is because their great-grandfathers accidentally discovered the great stupid-ray that keeps the rest of us believing whatever they tell us regardless of how obviously and profoundly stupid.
We only need to keep in mind one thing to grasp/comprehend the fraud and scam that is banking, and that is that the global banking system essentially still owes to someone every last dollar that it has ever allegedly loaned/advanced to anyone. At the very end the bankers will both own everything and owe everything.
In 2007 the High Court of (the Province of) Gujurat in India made the following decision in a dispute involving two banking companies where one had sold/assigned its nominal portfolio of bad debts to the other: (Assignment of Debts (Appeal no. 156 of 2007) in KOTAK MAHINDRA BANK LTD. versus O.L. of M/S APS STAR IND LTD. (emphasis added):
24. In fact the concept of trading in debts is, by its very nature, abhorrent to the concept of banking in any form, either the form of primary business of banking or the additional activities…
48. (n). [T]he entire [sale or assignment] transaction is based on a speculative form of activity which can never be a permissible mode of activities as part of, or in addition to, or incidental to or conducive to the promotion for advancement of the business of a banking company;
So why would the judges of the Court say that? What is it that these judges know that the global public generally do not? There are a number of independent reasons or routes by which the Court/judges would arrive at the same conclusion, but the short answer here is that equity dominates law (in this case the law of the contract) and the original merchants and/or their assigns have a superior equity title to the assets of the defaulting debtor(s) (who are the financial creditors-in-fact but that is another issue). The merchandise provided by the original merchants is what created the legal-debts and the merchant(s) have still not been paid (i.e., the debts have been discharged (passed on or assigned to someone else) but not paid). The original bank has still not paid the merchants but only agreed that it owes them, and so that bank has an inferior claim to the money owing by the defaulting card-users. The nominal selling bank cannot sell the debts to another party because that original bank has itself still not paid for them. Is that clear? This decision may well turn out to be one of the first cracks in the global system of control by the entrenched-money-power. If you think that the financial system is crooked at the front-end, it is breathtakingly and scandalously criminal at the back-end. Global nominal debt-collection and deemed-debtor-management practices would make Al Capone or even Attilla the Hun blush. From a different perspective, the kiting of liabilities is also how and why Bernie Madoff, for example, was able to run a flagrant ponzi scheme in broad daylight for 25-plus years. It is all one massive on-going ponzi scheme and Mr. Madoff wasn’t doing anything that would cause anyone to point and say “Hey he shouldn’t be doing that!”. He wasn’t running a ponzi scheme on the back of an honest system - he was running a ponzi scheme nested and disguised within a larger ponzi scheme.The larger system/arrangement is contrary to every rule of law and equity and is in fact utterly ridiculous but the bankers and the entrenched-money-power generally have employed the power of language to fraudulently induce the rest of us to believe that that is the way things ought to be.
It now becomes clear regardless as to the real purpose of the massive global movement to nominally eliminate cash. It is not the cash that the private bankers want to eliminate so much as cash convertibility of their liabilities.
Eliminating cash convertibility is functionally indistinguishable from printing a global aggregate of the USD-equivalent of about $200 trillion (or $200,000 billion) and making a gift of it to the private banking system. Over the past 50 years they have collectively kited $200 trillion of liabilities and now they are going to effectively/constructively cancel (default on) their debts for the common good.
But in both law and equity the nominal anti-cash movement defines the private global banking system as an absconding debtor whose goal is to avoid and evade their lawful and legal debts.
Another false premise in the systemized delusion here is that the socioeconomic damages created by pyramid/ponzi/kiting schemes occur when they collapse. The truly massive socioeconomic damages (misdirection and misuse of resources) occur while the schemes are working and not when they collapse.