The Star (Nairobi)

Kenya: Banks Loan People Money They Don't Have

(Page 2 of 2)

Furthermore, paper money used to be backed by gold and the US dollar is the world's reserve currency. By 1971, the US had printed so much money it could not be redeemed in gold and President Nixon suspended the convertibility of the dollar into gold; the dollar became just a piece of paper. You may wonder if some of that paper is not given out as aid or loans with interest.

Fractional baking today takes over from the goldsmith but with the same trickery; for example (rules may slightly vary country to country) when a hard working farmer goes to deposit Sh10,000 from sale of his produce, the banker can retain Sh1,0000 as readily available reserve and lend Sh9,000.

If the person loaned this Sh9,000 deposits it in another bank, that bank is allowed to retain 10 per cent (Sh900) and thus can lend Sh8,100, and if this is deposited in another bank, that bank retains Sh810 and can loan out Sh7,290, and so on until the farmers original deposit of Sh10,000 has been turned by banks to Sh100,000 (this process would stop if the money is turned into cash).

When you get a loan from a bank, the bank gives you money it does not already have. The papers you sign are what authorize the bank to create credit for you. Technically the bank does not lend you money because it cannot lend what it does not have. The bank is then allowed to exchange that credit with government legal tender. The only real thing of value involved in the transaction is the collateral which you pledge to forfeit if you don't pay. The banker has no money to give, just credit and your debt becomes money.

Now, do you remember the court case of one Sam Gichuru of the Power Lighting Corporation fame; he is accused by the UK government of concealing and transferring proceeds of crime amounting to over Sh900 million and depositing the money in offshore accounts (tax havens) including Jersey, UK? He has denied the criminal charge, so let us not go there; but he has admitted that it is his money that they are talking about.

Now tax havens are repositories for dirty money. It is where the corrupt hide their stolen money and where fraud money is stored. They are used for money laundering where illegal businesses clean up their money and by smugglers and con-artists to hide their stolen booty; and the wealthy use them to evade taxation; they are also useful facilities for the intelligence community, etc.

By the beginning of the 21st century, UK banks' balance sheets were worth over five times the GDP; so the question to ask is who benefits from the tax havens? Whose crime is greater, the UK government which allows these criminal activities and benefits from them or an individual who is lured by these products?

The point is that the UK banks benefited from the Gichuru deposit. And going by fractional banking, the UK banks stood to benefit not only Sh900 million but possibly by as much as Sh8 billion through fractional banking which benefit would go to the UK pool of money (in tax havens where there are hardly any banking rules the leverage can be as high as 40:1 making the Gichuru deposit potentially even more lucrative for the UK).

The deposit in Jersey is an opportunity loss to all Kenyans. If the money was in Kenyan banks, Kenyans could have had access to it to the same tune and opportunity that was presented by Gichuru to the UK people. And here lies the problem with Africa. How many Gichurus are there in Africa? Do you think there are 10 Gichurus in Africa? Perhaps 100 Gichuru's? Thousands? Whatever you think, multiply by 10 the amount you think they have stashed outside Africa and that's the potential opportunity that the motherland has lost. And that loss is directly related to malnutrition, death by curable diseases; lack of adequate educational facilities for all, inadequate clean water and power transmission, and all manner of ills that beset Africa.

It needs to be noted that assets held outside Africa by the elite far exceed the debts that African countries owe.

Through your own imagination, you will notice that those who we have given responsibility to chart our course after we broke the political and social chains of colonialism are the very ones who have turned our hands in to be chained to economic servitude and to be tethered to poverty.

And why should profit from money created out of nothing belong to private banks? Why not at the least the employees and the borrowers who have a stake? Why not the franchise of all Kenyans who as a whole toil to create the Kenyan wealth? Is not a bank an institution to merely facilitate economic/financial transactions? There are no goldsmiths or gold standards in banking anymore, so why is banking treated different from the other public institutions?

This is only a part of the absurdity of the money in finance. Have you wondered why they don't create enough of the stuff? Let us listen to the warning of Russian writer Leo Tolstoy: "Money is a new form of slavery, and distinguishable from the old simply by the fact that it is impersonal- that there is no human relation between master and slave.

Ads by Google

Copyright © 2014 The Star. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.