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The Radical Revolution

Introduction

Society today is composed of a series of institutions. From political institutions, legal institutions, religious institutions to institutions of social class, familiar values and occupational specialization. It is obvious, the profound influence of these traditional structures have in shaping our understandings and perspectives. Yet, of all the social institutions, we are born into, directed by and conditioned upon, there seems to be no system as taken for granted and misunderstood as the monetary system.

“Something is very wrong”

Taking on nearly religious proportions, the established monetary institutions exists as one of the most unquestioned forms of faith there is. How money is created, the policies by which it is governed, and how truly it affects society are unregistered interests of the great majority of the population. In the world where 1% of the population owns around 40% of the planets wealth, in a world where 34000 children die every single day from poverty and preventable diseases, and where 50% of the world’s population lives on less than 2 dollars a day, one thing is clear “Something is very wrong”. And whether we are aware of it or not, the lifeblood of all of our established institutions and thus society itself is MONEY. Therefore understanding this institution of monetary policy is critical to understanding why our lives are the way they are. Unfortunately, economics is often viewed with confusion and boredom. Endless stream of financial jargons coupled with intimidating mathematics, quickly deters people from attempts at understanding it. However the fact is the complexity associated with the financial system is a mere mask designed to conceal one of the most socially paralyzing structures humanity has ever endured.

The Fractional Reserve System

“None are more hopelessly enslaved than those who falsely believe they are free”

                                    -Johann Wolfgang won Goehte (1749-1832)

A number of years ago, the central bank of the United States, the Federal Reserve, produced a document entitled Modern Money Mechanics. This publication detailed the institutionalized practice of money creation, as utilized by Federal Reserve and web of global commercial banks it supports. On the opening page, the document states its objective. The purpose of this booklet is to describe the basic process of money creation in a ‘fractional reserve’ banking system. It then precedes to describe this fractional reserve process through various banking terminology.

The Creation of Money

The United States government decides it needs some money. So it calls up the Federal Reserve and requests, say 10 billion dollars. The FED replies saying that they will buy ten billions in government bonds from the government. So the government takes some pieces of paper, paints some official looking designs on them and calls them treasury bonds. Then it puts a value on these bonds to the sum of 10 billion dollars and sends them over to the FED. In turn the people of the FED drop a bunch of impressive pieces of paper themselves. Only this time calling them the Federal Reserve notes. Also designating a value of ten billion dollars to the set. The FED then takes these notes and trades them for the bonds. Once this exchange is complete, the government then takes the ten billion in Federal Reserve notes and deposits it into a bank account. And, upon this deposits, the paper notes officially become legal tender money, adding ten billion to the US money supply. And there it is, ten billion in new money has been created. Of course, this example is a generalization. For, in reality, this transaction would occur electronically, with no paper used at all. In fact. Only 3% of the US money supply exists in physical currency. The other 97% essentially exists in computers alone. Now, government bonds are by design, instruments of debt. And when the FED purchases these bonds, with money it essentially created out of thin air, the government is actually promising to pay back that money to the FED. In other words, the money was created out of debt. This mind numbing paradox of creating value from debt or liability is fascinating. So the exchange has been made and now ten billion dollars sits in a commercial bank account. Here is where it gets really interesting. As based on the fractional reserve practice, that ten billion dollar deposit instantly becomes part of the bank’s reserves, just as all deposits do. And, regarding reserve requirement as stated in Modern Money Mechanics, a bank must maintain legally required services equal to a prescribed percentage of its deposits. It then qualifies this by stating, under current regulations, the reserve requirement against most transaction accounts is 10%. This means that with a 10 billion dollar deposit, ten percent or one billion is held as the required reserve, while the other nine billion is considered as excessive reserve, and can be used as the basis for new loans. Now, it is logical to assume that this nine billion is literally coming out of the existing ten billion dollar deposit. However, this is not the case. What really happens is that the nine billion is simply created out of thin air on top of the existing 10 billion dollar deposit. This is how the money supplier is expanded (money multiplier). As stated in Modern Money Mechanics, the banks do not really pay out the loans for the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes, loan contracts in exchange for the credits, money to the borrowers’ accounts. In other words the nine billion can be created out of nothing, simply because there is a demand for such a loan, and that there is a 10 billion dollar deposit to satisfy the reserve requirements. Now let’s assume that somebody walks into this bank and borrows the newly available nine billion dollars. They will then most likely take that money and deposit it into their own bank account. The process then repeats. For that deposit becomes part of the bank’s reserves, 10% is isolated and in turn 90% of the nine billion or 8.1 billion is now available as newly created money for more loans. And, of course that 8.1 can be loaned out and redeposited, creating an additional 7.2 billion to 6.5 billion to 5.9 billion etc. This deposit money creation loan cycle can technically go on to infinity. The average mathematical result is that about 90 billion dollars can be created on top of the original 10 billion. In other words, for every deposit that ever occurs in the banking system, about nine times that amount can be created out of thin air.

What gives money its value?

So now that we understand how money is created by this fractional banking system, a logical yet illusive question might come to mind, “what is actually giving this newly created money value?” The answer is the money that already exists. The new money essentially steals value from the existing money supply. For the total pool of money is being increased, irrespective to demand for goods and services. And as supply and demand defines equilibrium, price rises diminishing the purchasing power of each individual dollar. This is generally referred to as inflation. And inflation is essentially a hidden tax on the public. So how do you increase money supply without causing inflation? The logical answer would be “it can’t”. The fractional reserve system of monetary expansion is inherently inflationary. For the act of expanding the money supply without there being a proportional expansion of goods and services in the economy, will always debase a currency. In fact, the quick glance of historical values of the US dollar versus the money supply reveals the inverse relationship. One dollar in 1913 required $21.60 in 2007 to match value i.e. a 96% devaluation since the Federal Reserve came into existence.

Now, if this reality of inherent and perpetual inflation seems absurd and economically self- defeating, hold that thought for absurdity is an understatement, in regards to how our financial system really operates. For in our financial system, money is debt and debt is money. For the more money there is, the more debt there is. The more debt there is, the more money there is. To put in a different way, every single dollar in your wallet is owed to somebody by somebody. For remember, the only way the money can come in existence is from loans. Therefore, if everyone in the country were able to pay off all debts, including the government, there would not be one dollar in circulation. In fact, the last time in American history, the national debt was fully paid off was in 1835, after President Andrew Jackson, shut down the Central Bank that preceded the Federal Reserve. In fact Jackson’s entire political platform essentially revolved around his commitment to shut down the Central Bank. Unfortunately the message was short-lived. International bankers succeeded to install another central bank in 1913, The Federal Reserve. And as long as this institution exists, perpetual debt is guaranteed.

The Mechanism of INTEREST

Now so far we have discussed the reality that money is created out of debt through loans. These loans are based on a bank’s reserves and through the system of fractional reserve mechanism any deposit can create 9 times its original value. In turn, debasing the existing money supply, raising prices in society. And since all this money is created out of debt and circulated randomly through commerce, people become detached from their original debt. And a disequilibrium exists, where people are forced to compete for labor in order to pull enough money out of the money supply to cover their costs of living. As dysfunctional and backward as all of this might seem, there is still one thing that is yet to be considered in this equation and it is this element of the structure which reveals the truly fraudulent nature of the system itself- “the application of INTEREST”.

When the government borrows money from the FED or when a person borrows money from a bank, it almost always has to be paid back with a crude interest. In other words, almost every single dollar that exists may be eventually returned to a bank with interest paid as well. But, if all money is borrowed from the Central Bank and is expanded by commercial banks through loans, only what would be referred to as the principal is been created in the money supply. So, then where is the money to cover the interest that is charged? The answer would be NOWHERE. It doesn’t exist. The ramifications of this are staggering for the amount of money owed back to the banks will always exceed the amount of money that is available in circulation. This is why inflation is a constant in the economy. For new money is always needed to help cover the perpetual deficit build in the system caused by the need to pay the interest. What this also means is that mathematically, defaults and bankruptcy are literally build into the system and there will always be poor pockets of society that get the short end of the stick. An analogy would be a game of musical chairs, as the music stops, somebody is left out to dry. It invariably transfers true wealth for the individual to the banks. For if you are unable to pay for your mortgage they will take your property. This is particularly enraging when you realize, that not only is such a default inevitable due to fractional reserve practice. But also because of the fact that the money that bank loaned to you didn’t even legally exist in the first place.

Legal Realizations

Another intriguing factor that can be considered is that the money that banks loan out is in fact not the property of the bank for it was created out of nothing. According to the Modern Money Mechanics, “when a loan agreement is signed, it is obliged to accept promissory notes in exchange for credits. Reserves are unchanged by loan transaction. But the deposit credits constitute new additions to the total deposits of the banking system”. In other words, the money doesn’t come out of their existing assets. The bank is simply inventing it, putting up nothing of its own, except for a theoretical liability on paper through booking keeping entries. The money and credit first came into existence when they created it. Moreover no law or statute existed which gave banks the right to do this. This creation can be compared to God, as only God can create something of value out of nothing. This implication is immense. For whenever you take a loan whether it is a mortgage loan or credit card charge, the money given to you is not only counterfeit, it is an illegitimate form of consideration and hence voids the contract to repay for the bank never had the money as property to begin with. Unfortunately, such legal realizations are suppressed and ignored.

Conclusion

The game of perpetual wealth transfer and perpetual debt continues. The fractional reserve mechanism developed by FED has spread in practice to a great majority of banks in the world, is in fact a system of modern slavery. If we think about it, money is created out if debt and what do people do when they are in debt? They submit to employment to pay it off. But if money can only be created out of loans, how can society ever be debt free? It can’t and that’s the point. It is the fear of losing assets coupled with the struggle to keep up with the perpetual debt and inflation inherent in the system, compounded by the inescapable scarcity within money itself created by the interest that can never be repaid will keep the wage-slave in line. This system ensures that it benefits only the elite at the top of the pyramid. For at the end of the day, who are you really working for? The Banks. Money is created in the bank and invariably ends up in a bank. They are the true masters, along with the corporations and governments they support. Physical slavery requires people to be housed and fed. Economic slavery requires people to feed and house themselves. It is one of the most ingenious scams for social manipulation ever created. It is an invisible war against the society- Debt is the weapon used to conquer and enslave societies and interest is its prime ammunition. As majority walks around oblivious to reality, the banks in collusion with governments and corporations continue to perfect and expand their tactics of economic warfare spawning new bases while also inventing new types of soldiers- economic hit man.