#8 - Global debt hits $315T ???

Word Magic, again. (~ 11 minute read)

Another word game!

Readers appreciated my previous article on bank accounting fraud (click the following insert to read it),

#7 - If you don't believe "bank-lending" uses fraudulent accounting, you must believe in "Bank Magic"*.

so I’m trying something similar with “global debt”, which seems to be increasing by about 2 trillion US dollars a month¹. That’s $2,000,000,000,000 each month. But all is not as it seems.

Mapping the Word-Jungle

Discussing global debt is complicated by the tendency to assume every debit is also a debt and to treat credit as a form of money. Such linguistic laziness has catastrophic consequences, as you’ll see shortly. Let’s not fall for that type of Word Magic.

Credit is simply an accounting artefact, the accounting partner of debit.²

You can’t touch or pick up a piece of credit;

When a credit annihilates an equal debit, it also destroys itself;

Credit only exists as a number in an account;

A credit balance is a banker’s ‘IOU’ or ‘promise’. (which is her liability); and therefore,

A credit balance can’t be lent (like an asset).³

Money⁴ is much simpler. It’s notes & coins, often called “cash”. Because a payment of money can discharge a debt, I can call money “anti-debt”, but, unlike credit (which disappears when it destroys a debit) money stays intact after discharging a debt.

You can feel and pick up a piece of money;

Money can discharge a debt and remain intact;

Money exists outside bank accounts;

Money is an asset of its rightful holder [but a liability of its issuer]; and therefore,

Money can be lent by its rightful holder [but not by its issuer].

Money: 1 oz., 99.99% Gold, $100 face value, to buy ~$4,282 (AUD)

You (or a bank) can lend money but, as the Bank of England explained in 2014⁵, a bank can’t lend you a credit balance, because it’s the bank’s liability. Banks' apparent “loans” of credit balances are literal Bank Magic, the subject of two of my previous articles (#1 & #7), and all magic relies on deception.

This accounting rule is not being enforced yet because too few people are even aware of it. This accounting reality will only be enforced when pressure from “We, the people” reaches a tipping point. So please spread the word.

That should tidy up the language problem.

So, what is the “Global Debt problem”?

Using available data, I’ve created a model of the problem to simplify the discussion. We’re looking at concepts, rather than precise magnitudes, so it’s a “ballpark” model summarising the gist of the problem, thus:

“Global Debt” is ~$315T⁶, of which banks hold roughly 30 - 40%, say, $105T in round figures; and globally, the total amount of Anti-debt (money) in existence is somewhere between $5T and $9T.

People worry about Global Debt because they know you can’t settle a $315 Debt with $5, or even $9, but here is the good news:

• The world is not simply “in debt”; it’s largely “in debit”; and

• The banks owe us more money than there is in the world; they have a huge “credit problem”. 

In other words, if we enforce accounting rules on banks the way they enforce them on us, the banks have a real problem - which many may doubt. “Of course, the world’s in debt!”; “We borrowed it and must pay it back!”, they’ll say, or, “The banks can’t possibly owe us money!” Accountants might say: “Those bank debits represent our “promises to pay” the bank, don’t they? Don’t we have to pay what we promised to pay?

To those accountants, I say: “Yes, they do!” and, Yes, we are morally obliged to keep our promises!” But they still owe us more money than there is in the world. Before I explain, please read my disclaimer:

DISCLAIMER: I am neither a lawyer nor an accountant. My comments below are NOT legal or accounting advice; they are my personal (forensic engineering investigator’s) opinions.

Promise obligation vs. Debt obligation

Taking only the $105T part of “the problem” held by banks and calling it a debit instead of a debt is a small but important linguistic step forward.

But your “giant leap” will be understanding the difference between a debt and a promise. As you’ll see, the former obligation is legalistic, while the latter is has a biblical twist.

In brief, if you’ve made an unsolicited promise, your obligation is unilateral, self-imposed and voluntary.⁷ Failure to honour it could damage your reputation, but the beneficiary of it acquires no right to the thing promised. A <promised gift not received> is not a LOSS. You can’t lose what you never possessed. Disappointment is an emotional condition, not a legal basis for enforcement.

But if you’ve incurred a debt, you’ve not yet performed as required by a prior bilateral agreement and the other party can enforce performance.⁸

Contracts and “performance”

In contract law, “performance” relates to “consideration”, one of the essential elements of a contract, and “consideration” is what the parties offer each other. In simple terms, each party agrees to swap one asset for another (equivalent?) asset and failure to “perform” as agreed can breach the contract.

For most purposes, “consideration” is usually the “assets” being swapped.

But a bank “loan” transaction is an unusual contract because the “things” being swapped are “IOUs”, which can be seen as both assets and liabilities by each party. My IOU [the loan agreement/ mortgage] is my liability and becomes the bank’s asset while the bank’s IOU [a credit balance] is its liability and becomes my asset.

This is why it is not a “loan”.

Prof. Perry Mehrling rightly calls it a “swap of IOUs”, but he could equally call it an “asset swap” since the bank’s IOU becomes my asset and my IOU becomes the bank’s asset.

When is a loan not a loan?

A “loan” is not a loan when it’s funded by the “borrower’s” promissory note (i.e. a signed mortgage or loan agreement), and provided in the form of a “credit balance”.

We have to resolve a logical contradiction here, remembering the Bank of England’s advice that liabilities can’t be lent.⁹ Bankers claim they’re lending us what the Bank of England says “can’t be lent”. They're asking us to believe that the term, “loan of credit”, is NOT a self-contradiction.

As this can be confusing, let me recap slowly.

When you deposit a signed mortgage, that document is your “promissory note”, worth (at least) the “principal amount” of the mortgage. When you give it to the banker, the mortgage becomes your liability (and the banker’s asset). The credit balance the banker creates for you, in response to your deposit, is her liability (and your asset). You already own that credit balance as the “creditor” on that account. The banker can’t lend you something you own.

I said that a contract involved the swapping of equivalent assets. So it’s logical to ask, can a “swap of liabilities” also create a contract? It can in this context because the transaction can be viewed in two different ways: (a) as giving your liability (mortgage) to the bank and receiving the bank’s liability (credit balance) in exchange, or (b) as the bank getting a new asset (your mortgage) by providing you with a new asset (your credit balance). Both views are correct. A contract is formed based on the agreed equality of the values of the assets being received (and of the liabilities being undertaken) by each party.

Bank “loan” = giving Liabilities <=> getting Assets

We should be able to agree now that <no debt is owed to either the bank or the depositor of the mortgage> because each party has agreed to receive an asset and also undertake an equal liability. Both have made equal promises and imposed equal obligations on themselves.

Neither party is in debt, because each party’s obligation to perform a promise is perfectly “offset” by the receipt of a matching “promise” made by the other party. But BOTH promises must be kept.

If that’s too complicated, think of it this way: it’s like swapping a single $100 note for five $20 notes. The $100 and the five $20 notes are all promises of a central bank, i.e., liabilities of that central bank as issuer, but are assets of their holders, so nobody loses anything. Swapping an asset for an equivalent asset is just that, a SWAP. It’s NOT a “loan”. That those notes are also liabilities of the central bank is a “side issue”.

Though no “debt obligation” exists for either party, their promises must be kept!

Honest people do their utmost to keep the “promise” they made to the bank, but banks have put themselves in a dangerous position: they are in very deep water and must paddle furiously to avoid sinking under the weight of the impossible promises they’ve made to the world; promises they cannot possibly keep.

How Banks Avoid Performance

Long experience has taught bankers they can successfully avoid performing on their promises because their promises (our credit balances) can be circulated within the banking system and never discharged by payment of money. If they are clever enough (and we remain ignorant) money never needs to leave their vaults.

If we believe their liabilities are money, we’ve lost the game before the kick-off whistle has even been blown. That is how crucial “bad language” can be.

Why do you think banks promote their “credit promises” as the superior alternative to the community’s “anti-debt devices”? Why is there such an urgent determination to abolish cash? Who is behind that push?

#4 The Bank of England exposes the illusion of bank "credit-lending"

Banks have not paid out $105T of their money assets to create those $105T debit balances in their accounts. They've incurred the obligation to pay $105T of their money assets but will do anything to avoid meeting that commitment.

If the banks could honour their $105T worth of “promises” in cash there would be $105T in cash somewhere in the world - in which case a $105T debt would exist - but such a massive cash dispersal is physically impossible when only $5T - $9T in cash exists.

Banks have falsely pretended that the $105T liability they undertook was their asset, which they provided to the world; or that it was in the form of money they rightly owned and could lend. Neither pretence can be true and both are proven to be false by the account statements they provide to customers. I’ve demonstrated that fact in three previous articles.

Their $105T worth of debit balances are completely offset by their $105T of undischarged credit balances, which record how much money the banking system has promised to pay us … and still owes us … in cash!

There is no way they can deliver on their promises when only $5T - $9T in cash exists. 

A false belief (viz. that “credit is money”) is the only thing that underpins the fear of “Global Debt”. The accounting truth will rid you of that fear.

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So, Who owes What to Whom?

Start with the “Interest Claim”

Microsoft’s AI [Copilot] has estimated that about 1/3 of the $315T “global debt”, or $105T, is “accumulated interest” on alleged “loans” of Credit, which we have shown above are not “loans”.

Since no bank assets are ever transferred to society in those “loan” transactions, there was never a “loan” from any bank, and all interest banks have collected has been taken under false pretences.

To start the ball rolling, why don’t we ask bankers to refund that ill-gotten $105T in interest?

They also have no proof they lent us the outstanding $105T of credit balances. If they had done so, we would have at least $105T in “global cash”.

As I read their “accounts”, bankers have outstanding credit balances of $105T, meaning they OWE us that amount in CASH and must renege on all but $5T of those promises. 

Let’s talk about that, shall we? Or, as Elon says, “Let that sink in!”

Please share these articles. The whole world needs this information.

1. Based on an estimate of 2% for the global average interest rate.

2. The meaning of “credit” can change. If you don’t know how the noun or adjective can change, my introduction to accounting here might help you.

3. See how the Bank of England describes it here.

4. I’m not discussing the different TYPES of cash here; it can be fiat money (of no significant value) or commodity money, like gold and silver coins.

5. The full Bank of England story is dissected here.

6. A “quite reasonable … estimate”, according to Microsoft’s Copilot. “T” means “Trillion” (with 12 zeros) and the squiggle “~” means “estimated to be”;

7. It’s almost biblical. Consider: “Give, and you will receive. Your gift will return to you in full …” Luke 6:38; “Cast your bread upon the waters …”. Ecclesiastes 11:1. The promise-receiver (promisee) is free of any strict obligation to respond to the promise-maker (promissor); only personal honour impels the promisee to respond in kind.

8. It’s contract law and implies a previous unilateral transfer of an ASSET to you.

9. See footnote 5, above.