Deferred Doesn’t Mean Free – Understanding Mortgage Deferrals, Banks and Your Money
I was reading an article a few days back about how Canadians have taken to social media to express frustration with the proposed 6-month mortgage deferral program. This deferral program was announced by the Big-6 banks and the nation’s mortgage default insurance companies. The deferral policy states that interest will continue to be applied during the deferral period which will, in the end, increase your total mortgage loan amount.
Among many intelligent and less than intelligent commentaries, one angry scribbler contributed this nugget of naivety to the social media onslaught.
“This isn’t right. Banks are supposed to help the public, not push them deeper into more debt. Profiting from this situation is inhuman!”
This poor soul has clearly not been paying attention to history.
This article will address the banking business model, how money is created and what it actually is, the level of concentration of the world’s wealth and by how much the Canadian and US public debt has exploded since 1980s bank deregulation. Spoiler…Banks are not here to help the public.
Let’s start by looking at what happened the last time we had a massive crisis.
How the financial sector responds to crisis? – Money Creation
During the financial crisis in 08-09, captured governments handed trillions of dollars over to the international network of financial corporations.
Bailouts were common place worldwide.
Canadians during that crisis heard repeatedly how Canada had the “most sound financial system in the world” and that Canadian banks didn’t need any bailouts.
Canadian banks, according to the Canadian Centre for Policy Alternatives, received $114 billion in bailouts.
The Government of Canada denied these accusations of course, instead calling the bailouts “liquidity support”.
During my time as a communications specialist in the office of a Canadian provincial health minister, I learned that governments will tell you about 10% of the story at any one time. Obviously they emphasize the 10% that serves their ideological narrative best and makes them look somewhat competent. Government communications specializes in downplay and euphemism and aims to make the “issue” go away.
So…the Canadian government’s “liquidity support” was a euphemism for a bailout.
At the same time, the Obama administration oversaw the biggest wealth transfer in history. Between TARP and Quantitative Easing, the administrations have showered more than $4 Trillion over Wall Street, driving the real estate market and stock market back to epic levels. Cue debt fueled asset price speculation.
Education…or lack therof
Society is not well informed enough on the subjects of money, debt, finance and banking. As a result, we are emotional about these subjects rather than rational while being kept in the dark about money inflation and the true costs of banking actions.
Our schools lack instruction on these essential subjects and our higher level economics and politics courses lean towards the “trickle down” teachings that benefit the privileged class. This is part of the reason why Canada’s consumer, public and mortgage debt levels are so dire.
Finance, money and banking interests control our governments and stop progress from taking place on issues as wide ranging as the environment, poverty, homelessness and government corruption.
What’s the connection?
When finance rules government and finance profits from the status quo, the issues of the day remain unaddressed at the highest levels despite negative effects on humanity. But why is finance so powerful?
Concentration of the World’s Wealth
A 2011 Swiss Institute Study by Vitali, Glattfelder and Battison discovered the following:
There are approximately 37 million corporations worldwide. 43,000 of these are Transnational Corporations (TNC), A core of 1318 of these TNCs with interlocking ownership influence the actions of the other 43,000 transnationals.
Within the 1318 lies a “super-entity” of 147 tightly knit companies.
This 0.00039% of the world’s corporations exert control over 40% of the entire international business network. See related article, click HERE
So most of world wealth is hoarded by a thin film of inherited, aristocratic privilege at the apex of society.
Most of these super entity corporations are financial institutions.
Wake Up Facts – Banks are NOT Public Servants
For-profit banks are not here to serve the public.
Banks are not designed to teach sound financial education or encourage the population to get out of debt.
Banks have business models that aim to maximum profit by encouraging the extension of debt to the limits of an individual’s (corporation’s or nation’s) economic surplus. Meaning, they extend credit up to the maximum that you can pay back monthly out of your total gross earnings.
Money is debt. It springs into existence the moment it is borrowed and vanishes the moment it is paid back.
If all the debt was paid back, “there would be no money left in existence”. (G.E. Griffin)
Money today has no gold or silver backing it. There is no fractional “reserve” amount. The reserve amount is 0%. It is fiat money (CLICK HERE for FIAT DEFINITION).
You can’t go to the central bank and redeem your currency for gold or any other precious metal. Our money is “legal tender” meaning the government decrees by law that we must accept paper fiat money as currency.
With that being said…The Federal Reserve Bank has stated that:
“neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper.” (Modern Money Mechanics, Federal Reserve Bank Chicago)
Banks create money by monetizing private business and personal debts. Monetizing means taking those loans and using them as backing to create more loans. Creating more loans creates more money.
“If the commercial banks create ample synthetic money we are prosperous; if not, we starve.” (Robert Hemphill, Credit Manager, Federal Reserve Bank, Atlanta)
How do central banks create money?
A central bank writes a cheque to buy government bonds (the cheque is backed by nothing)
The money received for the government bonds is spent by the government.
Bonds now in central bank possession act as reserves to create further loans. Approx. $9 in fiat money is created for every $1 fiat dollar in reserve.
The fiat money created on those bond reserves is the source of all bank loans; personal and business.
Every time this fraudulent slight of hand takes place the nation’s purchasing power declines. Prices rise because the currency is worth less. This is called inflation.
Inflation is a hidden tax. It hits hardest those who are thrifty, on a fixed income and middle or low income.
Because money=debt, when people are borrowing, the money supply is high. When lenders curtail credit or citizens stop borrowing due to a period of contraction, the money supply falls.
These are your booms, busts and depression. The average citizen doesn’t benefit but lives under the yoke of a modern, high-tech feudalism.