Tuesday, 8 March 2011

Money as Debt?

We humans submit our labour in exchange for money daily across the entire planet. We have been told this is called 'work'.  What we are not told is the process by which this money we are paid is created so I aim to break it down a little more simply than the 'Modern Money Mechanics' document or 'Fractional Reserve Banking' by which the banks operate on.

First up you need a Government and a Central Bank, say the Bank of England or Federal Reserve.  The Government goes to the central bank and asks for a loan (because Governments do not issue their own money paradoxically) and there is an exchange in promises, i.e the Bank of England prints (out of thin air) say £10million to, issue to the Government, and the Government promises to pay back the loan PLUS interest at a rate set by the central bank. You may see a problem occurring here but we shall come back to this later.  So the Government now has its £10million and the Bank has its promise to repay...but where does this money go?

The newly created money is then deposited by the Government into another bank (Bank A) this money now forms part of this banks reserves and, providing Bank A keeps back 10% of the money deposited, it can loan out the rest (up to £9million) Now you would think that the money that Bank A could loan out would come DIRECTLY from the ORIGINAL deposit, however this is not the case. If a human, Human 1, went to Bank A and asked for a £9million pound loan the bank would just print £9million in new notes.  This means the original £10million has now become £19million.
This process can be repeated time and again. As Human 1 deposits this money into Bank B, another Human will come along and ask for a loan and again, providing that Bank B retains 10% of whatever is in its accounts as a reserve, it can loan out the rest and again by printing out an entire batch of new money.

All this money has been created at a debt and the real onion splitter is that it has INTEREST slapped on it at a rate set by the bank that pays out the loan.  How can this debt of interest ever be repaid if the money to do so does not exist? Not forgetting that the original £10million is a debt the Government owes to the Central Bank?
The answer is it cannot.  This is why foreclosure/bankruptcy/default or whatever you want to call it is built into the system, for the banks 'trawl' their assets in like fishermen and then they can re-sell them and go through the whole process again. This is why there are tent cities popping up all over America, but you will not see this in the Rupert Murdoch owned news.
Rather perversely this process of creating new money is what inflation is. Each time however new money is created and pumped into circulation it DEVALUES the money that is already in the system. The Economists call this 'Quantitive Easing' and you may have heard about this in the news of late so next time that the Government declares it will be pumping £50million into the economy in a bid to help the crisis just feel those pounds and pennies in your pocket being devalued.

This may seem confusing but this is the beauty of it and I take my hat off to the people behind it all. Maths, Economics, Stocks etc are made to sound just boring or difficult enough to understand that people brush over it as not being important enough to understand or worry about. This could not be further from the truth as it is this very thing that keeps us in our place.  I mean what would happen if everyone was to stop and ask themselves this..."is the money I used to buy my house counterfeit? And did it not exist before the moment I asked the Bank for a loan?" It is likely that there would be a few million people refusing to pay their mortgages and the system would come crashing to a halt. A dream? Maybe but ever more likely the worse the current money crisis gets that is gripping the planet. People will soon be faced with a choice between paying for their ever increasing bills for energy and their mortgage and food.  Why do you think the recent revolts have arisen in the Middle East and Africa?  A rise in food prices and unemployment are a major driving factor.

There are many documentaries you can turn your head to that will help clear the muddy waters regarding this, one particular one is 'The American Dream' which can be found on YouTube and is only the length of a less than credible episode of Eastenders, 30 Earth Minutes, and will give you a good grasp on what is going on. I have attached the link below.

http://www.youtube.com/watch?v=ZPWH5TlbloU

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