(Traduzione in italiano sotto)
From: Marco Saba, IASSEM
Milano – August 18, 2015
Dear Mr Juncker,
I am the president of an Italian think-tank on Economic and Monetary Research on Sovereignty (IASSEM – Istituto di Alti Studi sulla Sovranità Economica e Monetaria). In the last 15 years I have been researching mostly the topics of money creation and bank accounting and I have found evidence of what under certain assumptions may be regarded as a fraud that I would like to share with You to know Your opinion.
When money was convertible in gold (if ever…) the accounting principles were that gold sit in the ASSET side of the balance while money (banknotes or money under denomination of ‘bank credit’) as an I.O.U. of gold – was in the LIABILITIES side of the balance. The sum was zero (although the banks had to explain how they gained the gold in the first place…).
With the abandonment of the gold convertibility, the money created by the central bank and by commercial banks have no liabilities at all. i.e. banknotes and electronic funds are pure profit generating assets for the banks. But in the central bank balance sheet You still see the money created as a liability (a fake liability) hiding the real asset/liability and profit position of the bank.
The correct way of accounting should be to register non-convertible money as an asset. In the commercial bank balance sheet something similar happens: You see the equivalent of money created as LOAN RECEIVABLES but You don’t see in the cash flow the newly created money as an asset in the first place !
The LOAN RECEIVABLES are countered by CLIENT DEPOSITS in the other side of the balance as if the deposits were a liability of the bank. To understand the foolishness of this just imagine as if the deposits were SAFE KEEPING; should the deposits in the Safe Deposit Boxes be registered as ‘bank liabilities’ ? No, because the content of the boxes is not in the ownership of the bank, it is segregated from the bank.
In fact this way of accounting the customers deposits is an abnormal way of not segregating those deposits from the assets of the banks. It is a way to make believe that the enormous gains that banks get from capital creation is equalized by the clients deposits as liabilities, i.e. a way to keep the profits very much underestimated.
What happens is that banks financial statements are construed in a specific way to let the people think that banks do lend (or spend) the money deposited by the customers and that money creation doesn’t happen at all.
The MIFID (DIRECTIVE 2004/39/EC) supports this mythological tale by way of article 13:
“8. An investment firm shall, when holding funds belonging to clients, make adequate arrangements to safeguard the clients’ rights and, except in the case of credit institutions, prevent the use of client funds for its own account.”.
Now we know that this exception is unnecessary and misleading by evidence in academic papers (see below). The banks do create inconvertible legal tender money (banknotes and electronic funds) that must be accounted for as ASSETS in the financial statements, else the simulated banking crisis can go on forever damaging the public and the Treasury of EU Member States.
My idea is to bring this case in front of the Commission and/or the EU Parliament as whistle-blower and I am asking to You if You would like to assist me – as I am an Italian citizen – in putting forward this case to the upper echelons of the institutions involved.
Thank You for any answer and best regards,
tel. +39 331 334 1239
Banks are not intermediaries of loanable funds – and why this matters
How do banks create money, and why can other firms not do the same?
Can banks individually create money out of nothing? — The theories and the empirical evidence
Lettera aperta a Jean-Paul Juncker
Con l’abbandono della convertibilità in oro, la moneta creata dalla banca centrale e dalle banche commerciali non hanno nessuna passività cioè le banconote e i fondi elettronici sono puro profitto che genera attivi per le banche. Ciononostante, lo stato patrimoniale della BC segna la moneta creata come passivo (finto passivo) nascondendo il vero rapporto tra attivo e passivo e la reale posizione patrimoniale della banca.