Check kiting is a term applied in a method of floating checks between various bank accounts in a never ending circle. Here is how it works: Suppose Tom, Dick and harry each had a checking account of three different banks, Bank A, Bank B, and Bank C. Tom writes a check for $3,500 from his account at Bank A to Dick. Dick writes a check for $3,500 from his account at Bank B to Harry. And harry writes a check for $3,500 from his account at Bank C to Tom, thus finishing the circle. Together, they have written checks totally three times $3,500 or $10,500. Yet between the three of them there is less than $100 in all three checking accounts.
Will any of the three checks bounce? The answer if "No," unless the banker figures out the scheme. If any of them withdraw the checks for cash, they can be charged with fraud, and just for writing them, they can be charged with check kiting, which is a federal crime. Some check kiting schemes involve millions of dollars of bad checks floating between various accounts, which the depositors suddenly cash in before vanishing with their ill-gotten gains.
E. F. HUTTON
In the summer of 1985, E. F. Hutton gained national notoriety for floating up to $270 million dollars’ worth of checks each day in what was up until now, the largest check kiting scheme ever perpetuated in the country. E. F. Hutton never cashed the checks, but instead collected an estimated $25 million dollars in interest each year on the checking accounts through which all the bad checks were floating. The Department of Justice, even after a thorough investigation, could find no one to indict, incredible, but true-believe it or not.
THE GAMES PEOPLE PLAY
If a group of people sits down to play a Monopoly games, and only one person (the "banker") has the power to create money, there can be little doubt who will win the Monopoly game. Here's the strategy. The "banker" lends money to the people who want to stay in the game, AND he gets mortgage and security liens against all their personal and real property. The interest he charges for the money he creates and lends out is all gray-virtually all profit and no overhead. Once everyone is in debt to him, he just cuts off their credit and calls in his loans. Because the interest on the loans creates a debt greater than the supply of money to repay it, all the lender does to foreclose on everyone is to stop making new loans. When the existing loans are paid off, the money supply dries up, and prices of land, buildings, and commodities fall. Then, the lender forecloses.
All this is done very smoothly as lenders deprive people of property under color of law.
Taking the Monopoly game from the parlor into today's real life is simple. What is happening is merely a repeat of a script written long ago. We the People, have been conned into a trap, tempted by the lure of money, and have signed our land and freedoms away with contracts that have made us perpetual economic slaves to the lenders. Under our right to contract, we have signed notes, entering ourselves "voluntarily" into a debt dictatorship - although few, if any, of us realize the trap we were led into.
WHO CREATES THE MONEY?
Under the U. S. Constitution in Article 1. Section 8, Congress shall have the power "to coin Money, and regulate the Value thereof." Today money is defined by 31 U.S.C.A., Section 5103, which say, "United States coins and currency.... are legal tender for all debts, public charges, taxes and dues." It is quite clear that the U.S. Government has exclusive power to coin money, and this power has not been delegated by the Constitution to private individuals or corporations. It is important to realize here that evidences of debt are not money and are not legal tender. Such evidence of debt includes checks, credit cards, lines of credit, demand deposits, credit, letters of credit, and checkbook money. These latter instruments pass as money only as long as people have confidence in them.
DO BANKS CREATE MONEY?
In their own publications, the banks claim they create money. Because money is defined by law as coins or currency, we must look at the evidence to see if they create coins or currency. A close examination of the evidence shows that the banks neither create coins nor currency, as these are exclusive function of the U.S. Government. What, then, do they create? They create something that passes as money yet isn't real money.
DID THE LENDER CREATE THE MONEY? OR DID HE MERELY WRITE A BAD CHECK?
When we looked at what the E. F. Hutton people did, we saw that in a sense they created money and benefited by it. They wrote bad checks which passed as money because Hutton always backed its bad checks with more bad checks in a never ending check kiting scheme. Yet, what difference is there between what E. F. Hutton did and what a commercial bank does on a regular basis? Consider this, "Modern Money Mechanics," published by the Federal Reserve Bank of Chicago, says: "The actual process of money creation takes place in commercial banks." "Deposits are merely bank entries." "Banks can build up deposits by increasing loans..." ".... bankers discovered that they could, merely by giving borrowers their promises to pay (bank notes.) In this way banks began to create money." "Demand deposits are the modern counterpart of bank notes. It was a small step from printing notes to making book entries in the credit of borrowers which the borrowers, in turn, could spend by writing checks."
A publication by the Federal Reserve Bank of Boston, called "Putting it Simply," says "When the Federal Reserve writes a check, it is creating money."
Another publication by the Federal Reserve Bank of New York, called "I Bet You Thought," says "This checkbook money is bookkeeping money created mainly by the nation's commercial banks."
Now, you may want to buy the story that the bankers are creating money, but I will not. The courts have clearly decided that checks and evidence of debt are not money. (See Hegeman V. Moon. 131 N.Y. 462.30 NE 487 and/ or State V. Neilen, 73, Pac 321, 43 Ore 158.) IF YOU OR I WRITE A CHECK WITHOUT HAVING THE FULL VALUE IN CASH TO BACK IT UP YOU OR I HAVE WRITTEN A BAD CHECK. IF A BANK WRITES A CHECK WITHOUT THE FULL VALUE IN CASH TO BACK IT UP, THEN THE BANK, TOO, HAS WRITTEN A BAD CHECK. The bank, however, is in a unique position to circulate its bad checks as 'money' by stamping the "PAID" and crediting the depositor's checking or savings account with some book entries. The banks are getting away with this fraudulent activity because most of us don't cash our checks because we use checks and credit cards as substitutes for cash (money). As a result, many banks are making loans up to 33 times the amount of actual money (cash) they have to loan. This technique is known as "fractional reserve banking."
Today the American people have become a party to the check kiting scheme of the bankers by accepting checks and depositing them, and then writing checks against those book entry deposits. We unwittingly help the banks pass on bad checks as "money."