Do Banks Actually Loan Money When Making You a Loan?

What is the Problem?

This one comes from Colin in Yorkshire, and his question “I’ve seen a lot of debate online about Bank loans. Do Banks actually loan anything when they make a loan?”
In order to understand the question and the answer, you are advised to engage in some homework and learn about the creation of money: Modern Money Mechanics, the Chicago Plan (IMF Website), and the Bank of England Quarterly Bulletin 2014 Quarter 1, Volume 54, No. 1; are good places to start.

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About the Presenters

Simon Goldberg

Simon, began his working life with Messrs. Coutts & Co, bankers to the Queen. During a career which has, thus far, spanned 29 years, Simon has served time as a Bank Manager, Financial Adviser, and General Manager of a major UK Broking Firm, which later became London Scottish Broking. An ex-Qualified Mortgage Adviser, Simon set up his own broking firms in late 2002... Find out more about Simon

Your hosts - Mark Moxom and Alain Braux

Mark Moxom

Mark is a multiple best selling author on food, health and business. He has had decades of experience in natural health and is an outspoken advocate of natural nutrition and drug free living. He's also the founder and executive editor of Low Carb Mag. More about Mark

The Rest of The Story

The Outline Solution

It always makes good sense to work through the actions involved in any process, slowly.
Pay particular attention to the movement of the paper.

  • Customer Applies for Loan
  • Bank Approves the Customer for a ‘Loan’
  • Bank agrees monthly repayments with the Customer, verbally:

This is the ‘agreement’.

  • Bank needs “security”
  • Customer signs a Credit Agreement
  • Agreement to Pay = Promise to Pay = Treated as Cash
  • Customer MUST hand over the security BEFORE the Bank can advance the funds (note the words: advance the funds, not loan the money)!
  • Every ‘loan’ creates a new deposit
  • Banks do NOT loan money! Banks have no money!

Possible Arguments Against You

Banks have been known to argue that they perform a “currency exchange”.

  • Paper Promise in exchange for Electronic Digits.
  • To RE-pay the ‘loan’, customers must work, spend time, and burn energy, to obtain Electronic Digits which can then be used to pay the loan.

The Almost Legal Info

Every ‘Loan’ is comprised of two parts:

  • Customer Loan to the Bank (the paper security) deposited with the Bank
  • Bank Loan to the Customer, in the form of Electronic Digits

Helpful Paragraphs:

  • When a loan is paid back, what MUST the Bank return to the Customer?

(think pawn broker and what he/she would do with the item deposited as security, once the loan has been paid back).

Need More Help?

Ultimately, it starts with you. If you’ve suddenly realised that what you’d been led to believe about bank loans isn’t the entire truth, and or if you feel misled in respect of what the banking fraternity have been passing off as loans all these years; then here’s your chance to level the playing field.
We’ve put together some examples of how we’ve successfully challenged “loan” facilities; putting the Bank into a position it cannot pursue. In each case, the customer did not have to pay!  So, if you want a more detailed guide together with templates of letters you can personalise and send to the Bank or any other finance company. These will be coming soon. If you’d like to know when they will be available, sign up to our members list above before you leave this page.