Money creation and the revolution. Along the Path to Real Change
When you store your belongings in a private locker, does the owner of the locker pay you? On the contrary, you pay the owner, for he is providing you with a service called safe-keeping. In effect, the owner holds your belongings safe until you take them back. So, why is it that you accept money from a bank to hold your money for you? The obvious answer is that the bank is not holding your money; it is lending it out and rewarding you with a portion of what it collects in interest. If you are happy with this arrangement, you have likely sought out a bank in your neighborhood that provides you with the greatest return on your deposit. Unfor tunately, there are several things very wrong with this type of transaction. Most important is that you are engaging in a tran saction that is commercially unsound.
You and your bank engage in a legally non-binding agreement when, on the one hand, your bank promises to return your deposit on demand, and on the other hand, loans a portion of it to others for a specified period of time. Contractually, these two acts are incompatible, as the same money cannot be both a de-mand deposit and a loan simultaneously. Either, you deposit your money, reserve the right to de-mand it back at any moment, and pay the bank for holding it on your behalf. This is called a demand deposit. Or, you surrender your right to your money for a specific period of time, permit your bank to lend it to others, and receive interest for your risk and sacrifice. This is called a time deposit. Commercially, treating your demand deposit as money that can be loaned to others is not an
enforceable contract, for the law insists that there must be mutual assent when two parties enter into an agreement. You and the bank are simply at odds when you expect to retrieve your money at any moment on demand, and the bank lends a portion of it to others for a fixed period. Legally speaking, both parties to the transaction do not agree to the same contractual terms in the same sense.