"If all the bank loans were paid, no one could have a bank deposit,
and there would not be a dollar of coin or currency in circulation.
This is a staggering thought. We are completely dependent on the
commercial Banks. Someone has to borrow every dollar we have in
circulation, cash or credit. If the Banks create ample synthetic money
we are prosperous; if not, we starve. We are absolutely without a
permanent money system. When one gets a complete grasp of the picture,
the tragic absurdity of our hopeless position is almost incredible, but
there it is. It is the most important subject intelligent persons can
investigate and reflect upon. It is so important that our present
civilization may collapse unless it becomes widely understood and the
defects remedied very soon."
by:
Robert Hemphill
Credit Manager of Federal Reserve Bank, Atlanta, Ga.
Source:
In the foreword to a book by Irving Fisher, entitled 100% Money (1935)
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Reader comments about this quote:
 -- Anonymous      
Why DO I feel something so like like a dangerous epiphany? I guess I won't be dying of old age, after all.
 -- David L. Rosenthal, Hollywood     
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    Well this may be disturbing only if you consider money as an object in itself. I regard money as a means to obtain real objects. That I am so readily able to buy an object with someone else's money at little to no cost renders this 'profound' observation absurd in the extreme.
     -- Eric Engstrom, Wichita, KS     
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    I thnk that Eric is going to be shocked when he finds that, not money itself, but the money sytem has turned the world into a pit of woe. Or if he is not shocked by that, he may be surprised when the really poor no longer honor that system. Or maybe this is not profound enough for his intellect.
     -- David L. Rosenthal, Hollywood     
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    It's surprising Hemphill became a highly-placed banker with such an attitude. Maybe he had a conversion experience, an epiphany, because academia and the banker training infrastructure carefully avoid this truth, in order to keep the system intact. PS David, "the poor" will do no harm to the system by not honoring it, only to themselves, as I see it. The system has a lock on our spending priorities, -able to starve any opposition. What's become of Hemphill? Is the system managing to "starve" him?
     -- Urban Kohler, Ashland     
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    The Truth shall set You free...as it has for all those who accept and find serenity in it's profound Grace. May You find what You are looking for.
     -- Nicholas Walter Mattson, Atascadero     
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    A lot of subtleties come to mind in support of the final sentence, none the less, it is far too accurate to ignore.
     -- Mike, Norwalk     
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    With this system we will always have "business cycles" and "bubbles". So we can never really plan anything like a retirement through simple hard work. The value of every dollar saved will depreciate faster than you can work your way towards a retirment fund. Freedom 55 becomes...Freedom never.
     -- J Carlton, Calgary     
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    Perhaps a more accurate quote would be, " You shall know the truth and the truth shall make you mad."
     -- jim k, austin     
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    True but shallow and misleading and terribly stated. Of course if all the loans were paid and no one was borrowing the banks would have to reduce their saivings deposit interest rate to zero. Every one would then take their deposits out of the bank. Banks are just a clearing house for neighbors who have to much and neighbors who don't have enough. It is true but wriiten to be scraps for dogs.
     -- Waffler, Smith     
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    Urban Kohler I feel certain the man is taken out of context. Again I repeat a bank has deposits and loans, no depostis no loans, no loans or investments then they would have to return the deposits. If a bank is unable to make investments (e.g. loans) it has no reason to exist and should return its deposits to the depositors.
     -- Waffler, Smith     
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    Waffler, It's okay not to know anything about a subject! Plus you're missing the point! It's about money created out of debt, synthetic money!
     -- Tony D., Toronto, Ontario     
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    "When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is." Waffler is still under the impression that banks loan the money of their depositors. ;-) Well, not for a LONG time has that been the case. Hemphill tries to explain: the banks CREATE the 'money' they 'lend.' When the IOU is paid, the 'money' is destroyed. When you buy something with a credit card, the 'money' is created out of nothing except your promise to pay it back. Banks USED to have to keep a percentage of COIN on hand to cover the demand for specie of their depositors -- but that has totally changed. All the real money is gone, already taken by the central banks, through this trickery. Every 'dollar' in your pocket, in your bank account, every dollar in Bill Gate's empire has been borrowed by someone, and interest is being paid by someone on it right now. This is not good for anyone but the issuers of the 'credit.' "It is the most important subject intelligent persons can investigate and reflect upon." I wholeheartedly agree.
     -- E Archer, NYC     
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    Waffler doesn't understand the concept Tony; the concept of "synthetic money" would make his head explode, if he ever actually began figuring some things out.
     -- Logan, Memphis, TN     
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    Don't be stupid Logan. When you deposit money into a bank you are making an investment on which they pay interest, just like when you buy stock. The purpose of the bank management on the corporate board of your stock company, be it a factory or for that matter a bank is to earn a net profit from which they can pay you dividends. All your and Archer's talk about sythentics is just bullshit. I am sorry to be so graphic but if I had a hammer maybe I could hammer it into you guys. You will never figure anything out Logan and a hammer to you and Archer's heads is what I think is required.
     -- Waffler, Smith     
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    Oh Brother! It's not that complicated. Think 2 thoughts: Federal Reserve NOTE and Parker Brothers MONOPOLY.
     -- Raymond George, West Seneca, N.Y.     
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    Waffler, when you deposit "something", it comes from somewhere, no? The fact is it comes from someone -- not you, not me. Some real live human beings do have the power to create money. Until you have understood that power structure you have understood nothing at all.
     -- Trudy, toront     
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    Finance has been with us since the earliest days, for thousands of years. For this official to make this statement is ludicrous. Fire him, and hire someone who understands how money has always worked.
     -- HB, Kirkland, WA     
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     -- Anonymous      
    Waffler, Smith and anyone who doesn't understand their monetary system...I had to buy this video: "The Money Masters". But you can find it for free on the the list of vids at the top...to the right...on the following website. It will be well worth your time to watch all of it. http://www.dgswilson.com/wpsite/cap-n-trade/
     -- Beth, SF Bay Area     
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     -- Cap Matifou, Free Earth      
    Waffler, your smoke and mirrors, off topic explanation, made for public consumption and enslavement doesn't address what the quote is addressing. You used some of the words of the quote but skipped its subject matter all together. The Federal Reserve lends notes (bills of debt that it creates out of nothing - a god's prerogative of ex nihilo) to the US government, banks, companies, foreign entities of all types, and otherwise and charges interest. I will write this hammer real slow so maybe you can understand. If all the notes the Federal Reserve issued were given back, where would the notes come from to pay back the interest? Only your Federal Reserve god has ex nihilo powers. Your ongoing commercial activities don't apply to the question.
     -- Mike, Norwalk     
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    Waffler, real money (a tangible with intrinsic value such as gold and silver) can be acquired by anyone without a bank or government's issuance.
     -- Mike, Norwalk     
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    Waffler, I know it may be a futile attempt, but I will try to explain one more time how a fiat currency system works -- if you don't get it, perhaps someone else will. Firstly, every currency trader in the world knows how this works -- in fact, fiat currencies dominate most currencies world wide, including the crashing Euro as well as the US dollar. Most of the world's banking systems were forced into this arrangement in 1913 (US, UK, Canada, and more). Prior to then, 'money' was gold and silver coinage, and certificates were issued by banks to facilitate trade. Gold and silver certificates were essentially bearer bonds for specie stored in the vaults of the Treasury or other trusted banks -- this is the true origin of the words 'trust' and 'security' in the financial world. Today however, we no longer trade in hard currency, but in promissory notes called Federal Reserve Notes. We also use checks and electronic transfers, but every so-called 'dollar' represents an IOU -- it is a debt -- that is how money is issued. Commercial banks do require deposits in order to make loans, or more accurately, issue credit. The banks may 'loan' more money than they have on deposit -- you understand that bit I hope as the percentages that banks have to have on deposit are regularly changed by the Federal Reserve. So, if I deposit $100 into a bank, and the bank's 'reserve' is 10%, that means that it can now lend $1000 as long as $100 remains on deposit. Here is the essential question you must answer, Waffler: where did the other $900 come from that the bank is loaning out? Specifically, it came from nowhere other than the borrower's promise to pay it back -- a promissory note. The official term for this is called 'monetizing debt' which means that we are turning the borrowers promises-to-pay into a form of currency. Now people buy and sell these IOUs (called mortgages or other debt instruments -- essentially commercial paper) every day. So today, every so-called dollar in whatever form has been created by someone borrowing it at interest and does indeed disappear when it is paid back. In fact, what Hemphill is saying is that if we ever try to get out of debt, there will be no money to trade with. Banks DO create and destroy money daily. 'Quantitative Easing' is simply the creation of more money (without any 'reserve' backing) and loaning it into circulation -- it is called credit expansion but it is really debt expansion. By increasing the money supply without an increase in backing, the value of the currency decreases and inflation results. Every currency trader (like George Soros and Warren Buffet) knows how this works and fortunes are being made by those that understand the crashing of the US dollar and currently the Euro. The name of the game is bail-outs, and the biggest banks get bailed out to cover their losses -- which are entirely unavoidable. Study the history of money, and it will all make sense. But some people can't handle the truth -- especially those that have worked in collusion with the system (like the IRS). A return to honest money is the only solution.
     -- E Archer, NYC     
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    Archer thanks, said well.
     -- Mike, Norwalk     
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    Good on ya Archer. A five year old could understand that. Maybe Ol Waffler will even get it. ;-)
     -- J Carlton, Calgary     
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    Banks create money backed by collateral on loans so that more money can exist than would exist if only the money backed by gold were present. This produces prosperity, but the fact that the banks must have collateral, and are responsible for what they loan, avoids the problems with fiat money. Yes, our system is flawed, but it's better than the two alternatives that people keep suggesting; that, and not some conspiracy, is why we're stuck with it.
     -- John Savard, Edmonton, Alberta     
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    Total bullshit, written by an idiot who does not know how the U.S. legal tender monetary system actually works.
     -- Dwain Dibley, Texas     
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    Yeoman's defense, explanations and rational thought re the sovereign money system.
    Sorry to lesser informed, but please catch up.
    Does someone think that Hemphill did not understand, fully, fractional-reserve banking?
    "we are without a permanent money system'.
    This was the intro to Fisher's 100 Percent Money book.

    A permanent money system is what we NEED to get.
    It's been proposed again by Dennis Kucinich and James Conyers.... 112th Congress, HR 2990

    https://www.govtrack.us/congress/bills/112/hr2990/text

    For the Money System Common

     -- joe bongiovanni, Harborton, Virginia     
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    More "FedSpeak".

    Our Founders had it right. Congress coins our money, monitors our spending. Monetary & Fiscal responsibility has been relegated to the Fed.

    Results: over-leveraged debt-laden country with a currency falling to zero.
     -- Bruski, Naples FL     
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