REPOST OF AN INTERVIEW WITH VIENNA ECONOMICS PROFESSOR FRANZ HOERMANN EXPLAINING HOW THE FRACTIONAL RESERVE BANKING FRAUD WORKS, THE ROLE OF DOUBLE ENTRY BOOK KEEPING, INFLATED BALANCE SHEETS, DEBT AND INTEREST AND AUSTERITY BUDGETS.
HOERMANN DOES NOT MENTION THE ROLE OF THE CENTRAL BANKS IN ENABLING PRIVATE BANKS TO COMMIT FRACTIONAL RESERVE BANKING FRAUD OR RULES ON SOLVENCY AND LIQUIDITY IN HIS INTERVIEW IN 2010 .
BUT HE DOES EXPLAIN THE BASICS OF HOW THE FRAUD OF THE ROYAL BANK OF SCOTLAND AND OTHER BANKS WORKS.
Excerpt of my translation on 14th October 2010:
“Banks create money out of air”
By Daniela Rom 13. October 2010
Why the financial system is a model for fraud, what role balance sheets play and why the ultimate crash is impending: Vienna economics expert Franz Hörmann explains.
For Franz Hörmann, Professor at the Economics University in Vienna, the era of banks and money is over. A paradigm shift both in economics and in society as a whole is unavoidable. In an interview with Der Standard, he explains why we can cheerfully ignore banks, why the free markets are “bubble-producing machines for misuse by the elite” and why the entire system could collapse in the next three years.
der Standard.at: You are assuming that society and economics is going to completely change in the next few years. Has this system reached the end of its usefulness?
Franz Hörmann: Definitely and in every respect. This is because it is based on legal and economic models that go back to ancient Roman times. The system of interest dates back to the second millennium before Christ; double-entry booking to the 15th century. And there is no area in our societies or in the sciences where methods this old are still taken seriously. But they serve to keep our society’s elite powerful and rich and that’s why nothing changes.
der Standard.at: Will this crisis change the way we think?
Hörmann: I think so. The current crisis stems from the banks. The banks invent money as part of the credit creation process. But if you create money out of the air and then pass it on to others while adding interest to something that did not exist before and also make physical assets the collateral, then that is in reality a model for expropriation if the social model goes wrong. This is also the reason for bank secrecy rules. Banks are not in a position to reveal where the interest for savings books, property saving contracts and such like comes from and so show that it is all a complex pyramid scheme or ponzi game in reality.
This hidden expansion of the money supply began with double entry book keeping. If you buy a thing or object using money, then the money actually changes ownership. The seller has the money and the buyer has the thing or object. From that moment on, the thing or object can no longer be evaluated in money terms if you take a theoretical perspective. Nevertheless, we put these sums of money onto balance sheets.
der Standard.at: Is it then a mistake to trust the banks and the financial system?
Hörmann: Trust has been systematically abused by the banks in the last few years. There is a model of systematic fraud in an institution that has been given a monopoly power to create money through credit in our economic system. As long as people go with their own capital to banks for security and they create real money out of air that serves as a medium of exchange, we have a problem. Capital is not money: it is a unit of counting. The active side of a balance sheet is calculated according to some set of rules or other and then the debts are subtracted. If I have a piece of wood that is three metres in length and cut out a two metre long piece, then I do not have a one metre piece; I have a difference. If I want a one metre long piece of wood, then I have to saw the two metres piece. In economic terms that means I have to liquidate the assets to get my cash. But the companies in the world today are all too broke to get much value from a liquidation. In addition, a nation cannot really go into debt. Just to whom should a state when seen as the sum of all its total money flows be in debt too? A state should produce its own money and in a grass-roots and democratic way actually.
der Standard.at : What about the rescue packages as in the case of Greece?
Hörmann: The European countries have not necessarily saved Greece but their own banks, and primarily the German banks, who have given absurd amounts of credit in this case. The way things hang together are also completely absurd if you consider the following. The state goes into debt to banks to pay the interest on the debts that it has with banks or to save a bank that it owes money to. No one understands anymore who has debts with whom and what the debts actually are.
der Standard.at : Do you think the system relevance of banks and the “too big to fail” argument as well as the bank rescue packages are just pure self interest?
Hörmann: The Too Big to Fail is a business model. There is proof banks are trying on purpose to make themselves too big to fail by taking over other banks. There are huge numbers of links between the financial world and the politics. In fact, you can t take governments that consist of current or former employees of the financial system seriously. There has been one courageous act, and that was to nationalize the capital of the Austrian National Bank and so to make the National Bank independent of the banks that they are supposed to be controlling.
But the monetary policy is made by the European Central Bank and not the Austrian National Bank. The bank rescue packages are the most incredibly funny things of all. The banks are not going to be saved. There is just a plan for the future which people even today know is not going to work because the money has to come from the upcoming “austerity budgets” by means of taxes, and the ciritzens have to be milked of cash. The banks are broke all around the globe. That is why we can cheerfully act as if they don’t exist any more.
der Standard.at : But they are still there, no?
Hörmann: When it comes to credit, we can ignore them. In 1969 an American architect won a court case because he didn’t want to repay his mortgage. He argued the legal point that when a thing was created as part of a loan that did not exist beforehand, this thing does not need to be repaid. In view of the fact that money comes into existence only in the process of credit creation there is no need to repay the credit. In the USA there are already citizen’s movements that say to Americans that they should unite and not repay credit.
der Standard.at :Let’s get back to the balance sheets. The problem starts there already in your view?
Hörmann: The large sums used in balance sheets are not countable. If someone who buys a house for two million instead of one million because he negotiated poorly, does that person have more own capital? And if he finds someone who buys it for ten million is that then the market price? It is sick.
Fair Value [mark-to-market accounting which enables a company to book the value of an asset or a liability based on current market valuations or perceived changes in market valuations significantly from the historical cost method of asset valuation] is also a model for fraud because it can has been seen to be misused by the use of money given as a money and straw men. Fair Value should be abolished once and for all. It is nothing other than the so called “market or ordinary value” [Gemeine Wert] which was eliminated from the German commercial law books at the end of the 19th century because it resulted in massive numbers of fraud when it came to the establishment of corporations. It is a blanket fraud by incorporated companies and banks in our economic system. But the political class can’t admit that because they would need to turn to concepts that Marxists used to use in times goneby. And that would be too embarrassing. That said, it has, of course, to be noted that state socialism and the planned economy couldn’t funciton because they really were terror regimes.