Introduction

• I’ll dial the phone.
• I’ll hang-up the phone.
• Let’s watch the sun rise.
• Let’s watch the moon set.
• I’m going to deposit my money [cash, check, or debit card transaction] into the bank.

Most people know that a person does not dial or hang up a modern phone (which is actually a radio). Watching the sun rise or the moon set, has more to do with romance than with reality. They have learned to adapt their thinking to use outdated expressions to describe reality.

But, how many people have adjusted their thinking to clearly understand that people have not made “deposits” into banks for over a hundred years?

They have instead transferred claims. When you present a check to a teller at a bank, you do not give them something that they will put in the bank vault. You are instead presenting them with a claim on an account at another bank and asking the bank to transfer that claim to your bank in your name. Assuming the other bank honored the claim, you now have a claim recorded at your bank in your name.

Almost the same thing happens when you present currency to your bank teller. Although we use currency in daily transactions, we do not transfer commodity money to another party or to a bank. We transfer a claim to the other party. A claim on what?

This last question has become tricky (if not impossible) to answer.

I remember when many of the bills people used were silver certificates, and I think the U.S. Treasury issued them. Later, “Federal Reserve Notes” became the national currency. Both silver certificates and Federal Reserve Notes represent claims. With a silver certificate, you could claim silver coins, but even those represented claims.

If you presented the bank a silver certificate for your “deposit liability” account, the bank would replace one form of claim for another.

When we transfer a claim in the form of a Federal Reserve Note or a check, what does that claim represent? I cannot answer. I just know it does not represent a claim on anything on “deposit.” They consist of claims on claims.

Conclusion

I do not suggest changing the words you use when referring to monetary transactions with your bank. I simply hope that when you say, “I’m going to the bank to deposit this check,” that phrase does not describe what actually occurs.

I offer this example as a suggestion that you fully examine many of the inaccurate statements you hear.

Examples of accurate statements:

• The Fed does not raise/lower “rates.”
• The Fed does not increase/decrease the quantity of “money.”
• When the government increases the national debt, it does not borrow “earned money.”
• Businesses do not create value; they create goods and services that individuals value.
• And more…
  

I will address misleading statements in future publications.