Let us consider this thesis: Centrals Banks own us and our ignorance is their cheese for the rats.
Deceit by the deceiver and ignorance of the deceived is always an
excellent and deadly mix – excellent for those who have know hows and
deadly for those who are fooled. Unfortunately, we are all amazed,
though none in his sane mind would ever accept being one of the fools (since it requires a peculiar encounter and honesty to recognize oneself as one of the fooled), majority of the population are so.
One economist said that the creation of money is so simple that in
its very simplicity, paradoxically, lies the very reason why the mind
deferred the understanding of it. Men unknowingly created web of tangled
principles about it and at the same time developed strict adherence to
these principles and from time to time slowly forgot the very basic
principles that governs all about money. What is it that we need to know
about money then? Is it not enough we are able to acquire money then
save it or spend it?
Every time the prices of goods increase, majority of the
population hurts. If the prices of good jumps 10% it means that the
price of your money, which is the purchasing power, is reduced by same
extent. Saving on a
bank account or investing on a profitable business is encouraged by the incentive that you will get the principal back plus the
interest or profit it makes. However with inflation or prices soaring
up, when the time of profit taking comes, though your money seemingly
increased in amount, its value is substantially less than when it was
first invested. Its purchasing power simply declined over time. That is
the mess we all need to recognize. Failing to do so will further add up
to the mess created against our well beings. How did it come about is a
very much less understood phenomenon. People like to ask but not
persistent enough to really seek and at least understand the cause of
the problem.
Unmasking the thief means knowing the truth how money is created, who
creates it, why there is inflation (and deflation), how does it affect
every level of society (the lower and middle and the elite).
We must understand the nature of money. Forget once and for all
religious myths demonizing money, ergo money is the root of all evil.
Money is firmly a lifeless object or representation of something
subjected to our own and varying perceptions. How then MONEY came into
being?
And the gods said…. “Let there be money!”
Say, you were cast in a faraway island with Wilson. You don’t need
money in there for you’re not concerned buying anything. And because you
have no one else around to exchange with, survival just needs you to
have the skill to climb a coconut or an ability not to drown in the sea
easily while catching a fish. But if you are in a community of people,
exchange is inevitable. Exchange, therefore, is as paramount as
survival.
So the system of barter came into being. But then again, out of
convenience and practicality, barter can not stay for very long. Barter
or direct exchange is an awkward way for larger and more complex trade.
So as time passed, human cleverly adapted to a more convenient system of
exchange, called indirect exchange. An indirect exchange uses a
medium for exchange, which is called money. Earlier monies were metals
of any shapes, honey, rare stones and gems, feathers, tobacco and
ivories. Obviously no one eats metals but anyone can use it to buy food.
You’ve got to have one of these, depending what the society prominently
uses to avail other commodities or services desired. Money is any
commodity which is rare, naturally produced, difficult to counterfeit
and commonly acknowledged in the market as a medium of exchange. It is
inconvenient and quite a joke, therefore, to carry rice grains, since it
is not considered money, to pay for your daily jeepney rides or when
you pay fuel for your car. You’ve got to have with you the accepted
medium of indirect exchange to avail such service.
As for gold and silver, those requirements of money are met. Gold is
rare and it is malleable that jewelry can be made out of it and most
importantly, it is naturally produced and impossible to fake. Through
the ages, gold and silver, broken into desired shapes and pieces, served
the very purpose of money. Because of the inherent value these metals
contain, attributed mainly to their physical properties and rarity,
humans promoted these commodities as money.
Money’s existence was necessitated by the inside drive of human self
to be as convenient as possible whenever he trades. It never came into
being by a single snap of fingers or a good fairy waving her wand. Money
evolved in centuries through human desire of easy and convenient way of
exchange. In fact, technological advancements were made possible by the
ability of human to initiate trade with money just carried in their
pockets. An advance civilized society is quite impossible if we still
trade in barter.
We must understand the most important thing about money: that money serves only one purpose in human civilizations: as a medium of exchange.
It means that money is just a representation of something like human
labor, services, or other goods. A carpenter and his family need food
and clothing but he can not acquire food and clothes if you give him,
say, a toilet bowl as payment for his labor, unless he can sell it right
away to a person who doesn’t have a toilet bowl. However, in anyways it
should be burdensome to pay him that way. You have to pay him money
right away.
Short History of Banking and the Grand Deceit
The propensity of human mind to innovate more convenient ways of trade has brought him into the age of banking.
How banks came to being is amazingly a very simple story.
In the beginning, long time ago, when it was just usual to carry a
bag full of real gold and silver without the fear of being robbed and
killed, people eventually somehow became too lazy carrying real gold and
silver around. The merchant grew too tired having ‘bulky’ metals in his
pockets. The miner became too anxious where to keep his new gold. With
these problems in mind, luckily someone, a very intelligent lender, came
up with a very bright idea to solve the problem. Just one word he said:
VAULTS! Yes, vaults for safekeeping or warehousing. That was how banking begun…
So the miner, weary keeping his gold in his own house, visited the
vault owner and had an agreement to keep his gold in the latter’s vault.
And as a proof of safekeeping, the vault owner shall give the miner a
warehouse certificate or a proof of receipt that a certain volume of
gold was delegated upon agreeing on a certain service charge. The miner,
at any time, can also pull out his gold upon showing the proof of
safekeeping whenever he needs the actual gold. The lender-keeper being a
trustworthy person, upon receiving fees, stood on his promise to give
back the actual gold whenever the gold owner needed it provided the gold
owner can surrender back the warehouse receipt held. The business was a
success that not few miners came to deposit their gold. As a
lender-keeper, people also came to him to borrow capital. The debtors
may choose to have the actual gold or just certificates. The number of
miners wanting to have their metals kept in the lender’s vault grew. And
the market of warehousing grew. That was how banking flourished…
The only purpose of gold certificate or gold receipt is to attest the
existence of real gold in the vault and be a gold substitute. Anyone
who can issue such certificate should adhere to that rule in extreme
care and must be so strict that the issued paper receipts were genuine
and the gold backing it really exists. The receipts or certificates
issued by the trustworthy lender-keeper became usable in the market.
More and more people accepted that the circulating certificates as if
they were literal gold. Why not? They are certificates of actual gold
and they trust the lender-keeper when redeeming time comes. Instead of
using the ‘cumbersome’ gold to buy goods, trade became easier and more
convenient using these certificates since these certificates or receipts
were also light weights. The certificates were then eventually used as
money substitute in the market since the gold in the vault, which is
itself money, provided the valid existence of the certificates. And of
course the people must continue to believe that the lender-keeper stays
trustworthy. From time to time, the people developed the habit of using
paper receipts, or paper money, as a medium of exchange. They got used
to the convenience of using paper money. That was how paper money begun…
The incentive of doing business is profit. The profit of the
lender-keeper basically comes from the fees he charged from the
miners/depositors and the from the collateral and interest payments he
acquired from the borrowers. However, the lender-keeper, somehow, was
not satisfied by his earnings. After a quite sometimes, he came into the
most important realization of his life and business: that fewer and
fewer miners come back to redeem their receipts and while more and more
debtors/borrowers demand certificates or paper receipts instead of the
actual gold. And realizing also that all the miners never come back at
the same time to get their gold and that the debtors trusted the
certificates, the lender-keeper was amazed on how far he can prop up his
profits. And so, aha! a unique scheme suddenly came to him: since no
one knew the actual gold in his vault, he could then create more
receipts than the amount of the actual gold kept. He can then increase
his profits by only doing one thing: creating bogus certificates! He can
use the bogus certificates to expand his lending business. The
borrowers never had the smallest hint that the certificate on their
hands is an empty certificate and created out of nothing. They never
knew that the supposedly trustworthy lender-keeper is cheating on them
by giving them fraudulent and counterfeit certificates. Counterfeiting
is the word you need to remember all through out. That was how modern-day banking started…
Fraud is implicit stealing. Counterfeiting is a kind of fraudulent
act. Creating a bogus certificate is a fraud since it deceivingly
deprives the holder of the certificate the actual property the
certificate represents. As long as the lender-keeper is greedy and the
people can not sense something is wrong, the lender-keeper will keep
creating fake or bogus certificates. These certificates, fake or not
does not show distinctions since they look the same, will be loaned out
to debtors, and these will circulate in the market. For example, in
strict rule, if he keeps on his vault a total of 1000 oz of gold, the
amount of certificate given out should be 1000 oz only. The ratio of
gold to certificate should be 1:1. But if he is tempted to create fake
receipts, say, 1000 oz more of empty certificates, then he is increasing
the certificate supply to the ratio of 1:2. The only time that this
swindling is exposed is when the lender-keeper can not meet his
obligation to give all back the actual gold to all the certificate
holders. It happens if and only if all certificate holders demand their
actual gold from the lender-keeper at the same time.
Obviously a “run” or bankruptcy occurs. In fact, the moment the
lender-keeper created the first bogus certificate, his business is
already practically bankrupt. Since there is more certificates
circulating in the market than the actual gold in the vault, the
lender-keeper’s greatest problem would be how to come up with the same
amount of gold as the amount of certificates he printed when all the
certificate holders demand the actual gold. The ones who are first in
the line to redeem their gold will have no problem. But the ones who
came last will get nothing. He can only muster out 1000 oz worth of
certificates and the remaining 1000 oz worth certificates are worth
zero, much less than the value of a used toilet paper. This kind of
fraud is punishable by death a century back then.
The Grand Deceit (and the real definition of Money and Currency)
Before we go on, we have to make a very important distinction this
early in order to understand what we are going to talk about. Above
discussions mentioned the word money numerous times but not currency.
Unless we understand the difference between money and currency we will
be having hard time grasping the truth. Why? What is the difference
between currency and money?
Money, as stated previously, is the medium of exchange. This means
that it is just a representation of something like human labor,
services, or all other goods. It can not be created. It can not be
printed. Gold and silver are monies. But they are not Currencies. Gold
and silver cannot be printed and cannot be created. Currency, on the
other hand, is just a representation of money, a representation of gold
or silver. Currency is not the actual money. It is just a substitute for
the real money. In the case of the lender-keeper, the gold in his vault
is the money and the receipts and certificates he issued are the
currencies.
But today money and currency is used interchangeably. But money =
currency is not right. And in this misconception alone lies the very
problem why we the people have hard times understanding what is really
happening around. Bankers wanted it that way. They want the populace not
to know what money is and what currency is. Mass media men are doing a
hell of a very good job of promoting that misunderstanding maybe because
they, too, are part of the grand scheme or maybe, just like the
majority of us, know little about the matter. All they wanted is for us
to accept the lie that currency is money and money is currency. A very
clever way to impede the people’s awareness and consciousness as to what
is the truth, that money is not currency and currency is not money in
order for them to continue their dirty work.
Knowing real money is the very first key needed to unmask the thief.
Only by this knowledge that you will be enabled to teach yourself that
currency is the very tool the deceiver, the central bank and the banks,
uses to steal from you. On how they use this tool will be discussed in
the following sections.
Inflation
There is a tale that one night, a good fairy came to visit every
citizen, and slipped into their pockets and every bank deposit an
additional one million cash each thus increasing the supply of money big
time! In the morning, there was huge commotion and excitement and all
people rush to every mall, bought all they wish to have, made love with
anyone, dined lavishly and got drunk 24/7. But sadly the frenzy lasted
only for a week and all their money was gone, all used up. And as their
money slowly drying up, the people idly expected another visit by the
good fairy. But the good fairy never came back. Eventually, the people
became destitute because they can no longer sustain the lavish lifestyle
they created in one week. No more fine dining, no more expensive wine,
no more attractive ladies, and no more money to pay bills and credits
for acquired house and cars. But more painful truth is that because the
supply of money increased tenfold, so as all the prices of goods and the
people can no longer afford the tenfold increase of commodity prices.
And the saddest truth is that there is no more money left in the
pockets.
INFLATION is thought to be the price increase of commodities and
services. However, to fully believe in that kind of meaning is a grave
mistake. It is incomplete and it is deceiving. That is the definition
the banks and the mass media cohorts want us to believe – that inflation
is just rising of prices, period. They purposely and zealously
propagated that definition because they do not want us to learn what the
real problem behind inflation is. Educating the citizenry is the least
of their concerns. They remove a very essential part on the definition
of inflation itself, which should be known even to a first grader and
for all of us – that is the part of increased supply of money.
So what is inflation? Inflation, as defined by honest economists, is
an economic condition where in there is an increase of supply of money
(or currency) that bids against goods and services. Prices of goods are
governed by the law of supply and demand. When prices fell for a certain
commodity maybe there is a surplus volume/overproduction of that
commodity or maybe that commodity is not in demand and the supply of
money is the same. And increasing prices of goods is brought either by
the scarcity of the commodity and high demand of it and the supply of
money increased. Please take note, however, of the both supply of
commodity and supply of money, the one that is easier to manipulate is
the supply of money or currency since, not like commodities, currency is
much easier to counterfeit. Consumer commodity is much harder to
overproduce, not like currency.
Rising of prices of a commodity does not mean entirely that the
commodity became more valuable or in demand, though they want us to
believe that way. Rising of prices just signifies one very important and
unsung fact – that the purchasing power or the price of money was
reduced. There is too much money in circulation bidding against a
limited number of goods and services and as a result, prices of goods
increase. So how do they come up with inflation? How do they do it?
Answer: Fractional reserve banking.
Fractional Reserve Banking
We now introduce a new term called ‘Fractional Reserve Banking’. We
are in the age of fractional reserve banking folks, the modern way of
banking.
Fractional reserve banking is simple. Today’s banks are fractional
reserve banks. What does this mean? Any business ought to have some
capital to start business. Plain and simple. But a bank’s capital, as
required by today’s law is very different. Fractional reserve banking
law requires a bank, say Bank A, just to maintain in its reserves a
fraction of its total assets or deposits, thus the name fractional
reserve, in which the other fraction of the bank’s asset will be made
available for potential borrowers. It is opposed to the full or 100%
reserve banking wherein a bank is required all its assets as reserve,
not just a fraction of it.
For example, depositor Maria opened a savings account on Bank A and
deposited P1,000.00 pesos. Bank A’s asset grew by P1,000.00 after
Maria’s deposit. By law, Bank A is allowed to keep a fraction of the
1,000.00 pesos as a reserve and loan out the remaining part. For
simplicity, let us use 10% rate of allowable fractional reserve
requirement. By this rate, Bank A is allowed to keep just 10% of Maria’s
deposit, which is 100 pesos and the other 900 pesos will be available
for the borrowers. But the story does not end there. Bank A
found a debtor named Juan. Juan borrowed all the allowable maximum
amount of P900.00. But debtor Juan decided to defer using the loaned
amount immediately and instead saved temporarily on his account at Bank
A. The cycle of the fractional reserve scheme again commences. Bank A’s
asset now grew by P900.00 after Juan’s deposit. This sums up to
P1,900.00 of Bank A’s new asset. At this time, at 10% percent, the
fractional reserve made would be, by the same computation, 10% of
P1,900.00, is P190.00 and the maximum allowable amount to be loaned out
would be PhP1,710.00. After just three identical transactions, Bank A’s
asset, starting from Maria’s P1000.00 deposit, will become P13,032.1!
And the cycle goes on and on as long as debtors line up and the certain
amount of deposits stays in Bank A. This cycle increments the supply of
money or currency indefinitely.
Fractional reserve banking is a big, big, big
counterfeiting machine, just like the good fairy. Fractional reserve
banking is just as fine for those who benefit from it and those who have
no knowledge about it. But to the minds who understand it, fractional
reserve banking system is huge fraudulent and stealing scheme. It is
strictly a counterfeiting of currency since the supply of currency is
created by some defined multiplier and not by actual savings and hard
commodities.
Fractional reserve banking is swindling since it enables bank to
multiply the amount of currency by creating it out of nothing. It is
just as phony as the lender-keeper creating bogus certificates. But
people do not question this disgusting scheme since the law provides the
legality of it. And people, for a long time tend to believe that when
it is a law, it must be just fine. In short, fractional reserve banking
is a legalized counterfeiting after all.
The supply of money is maliciously created by the act of lending. The
more debts subscribed by borrowers, the more money will be in
circulation. Thus a very valuable insight: that the money you are
holding right now is a product of debt transactions. So no wonder why
banks are happier when unsuspecting citizens engage in more debts. That
is why big bankers rake billions of profits, while the middle class and
ordinary citizens are getting more hapless. Bank’s motto: more debts, a
merrier would it be!
Effects of Inflation
We must realize that inflation is the number one result of fractional
reserve banking. By using some rate of fractional reserve requirements,
the banks can create unlimited amount of “money”. But because people
tend to be happier with more money on their hands, there is no time to
be annoyed at all. Little do they know that when all money created
evenly distributed in the whole system, the purchasing power of the
money on their hands, no matter how plentiful it is, is substantially
reduced. The value of the newly created currency forcefully takes its
value from the already circulating currency. Thus, the value of every
cent in circulation is diluted.
Inflation discourages investments and savings. Increasing cost of
business operation is one of the biggest reasons why businesses close.
People who understand inflation and the havocs it brings are too
cautious to engage in business since they expect of very little return
value or profit value of their investment. For those who are maintaining
saving accounts are also hesitant to sustain frugality since their
saving are of little value over time. And the bad effect is large scale.
There will be large number of middle class or employer forced to close
business and consequently leaving many people jobless. Inflation worsens
poverty.
This increase of supply of money is the main reason why prices go up.
And what it makes difficult for everyone, specially the wage earners,
to survive is that wages doesn’t increase at the extent of inflation
rate. Commodity prices go up steadily and frequently while wages and
salaries go up rarely. It is a mistake therefore to put blame on your
employer why your salary doesn’t increase at inflation rate. The wage
earner and the employers are both victims of inflation.
Surplus in consumer goods, say enough rice production, brings social
benefit for it makes the entire community not worrying of any scarcity
of needed commodities. It is the basis of wealth. The availability of
these goods satisfies the need and demand of all. What about money? Is
increasing the supply of money makes everyone happy? Unfortunately, it
is different. Expanding the money supply doesn’t bring any social
benefit. What is the difference? Take note that survival depends on the
availability of goods like food. Survival never depends on the
availability of money but solely on the availability of the goods you
are going to buy. Consumer goods are consumable, like rice that can be
cooked and eaten. Money is not. As pointed out earlier, money does one
thing and one thing only – as a medium of exchange. Increasing the
supply of the medium of exchange only decreases the value or buying
power of it. Though it may seem that having plentiful of money in one’s
hands shows prosperity, in entirety it is not. Large part of the
community suffers every time inflation occurs.
Inflation has another disgusting effect. Massive transfers of wealth.
What does this mean? When the lender-keeper finally decided to produce
the very first bogus certificate, he unintentionally (or intentionally),
created a machinery for a fraudulent transfer of wealth. Since the
purpose of money is to buy goods or to acquire tangible assets like
land, appliances, house, car etc, the seller and the buyer entered into a
seemingly fine but very anomalous exchange. How? Simple. The assets
were acquired by using currency created out of thin air, out of
fractional reserve banking. In this sense, a transfer of wealth from a
currency, that was printed out of nothing or a gold certificate which
has no real gold, in exchange for a tangible asset like a peace of land.
The dirty scheme is much more visible when a person borrowed some
amount from a bank involving a collateral like land title. Imagine a
land title which certifies the existence of an owned land in exchange
for a currency produced from nothing. If the borrower defaulted on his
debt, the bank will get the collateral. Whew! If I am the banker, that
would be a massive acquisition of somebody else’s property. But wait.
You might say, the borrower got the money and spent it on something he
felt valuable so losing the land worth it. At first glance, this seems
so right. But with the same misunderstanding we were brought to so much
mess and blindness. We must then stop awhile and think about it. How
come it was a very wrong impression to think that it worth it? Because,
please understand, with this scheme, eventually at the end of the day
all the people’s assets and properties previously owned will be
possessed by the very bank who issued the currency. The lender-keeper
always gains! And by that time, all ‘money’ you got in exchange for
those properties worth just a cup of coffee with no sugar. And you will
be left of nothing but a paper money that worth lesser and lesser
everyday.
So don’t be ever too complacent that you are able to keep savings in
the bank for your future. Though it is commendable for someone to be
thrifty, never let your money sit idly in the bank for long. Every
second of the day, there is someone big stealing it. And also, knowing
these knowledge, though it might be unacceptable at first, never aspire
for frequent salary hike because in the long run everyone might just
well end up losing his own job when the hapless employer decided to
close business because of bankruptcy.
Summary
“Power corrupts and absolute power corrupts absolutely.” – Lord Acton (1834-1902)
I hope the thesis presented at the beginning of this discussion is
proven and well understood. The one who had been given the sole power to
print or create money has the enormous power over our lives.
Paper money or electronic balance sheets are not wealth. They are
illusions. As long as we are using money not backed by real commodity
like gold and silver, as long as we are owned by central banking and
fractional reserve banking, as long as the lender-keeper produces bogus
certificates, as long as we are pacified by smiling celebrities on huge
billboards, as long as noontime television shows and trivia news and
unnecessary showbiz news of somebody else’s life dominate our attention
we will be forever held as slaves of the ones who control the currency
supply.
Money is indispensable item in human life and exchange. Maintaining a
sustainable life or ruining it depends mainly on the soundness of the
financial base. Financial base depends on the stability of monetary
unit. A healthy monetary system makes every citizen prosper. Ruining it
means ruining every life while making very few influential individuals
feasting on fruits of our daily sweat.
I am so optimistic that our consciousness will awaken and eventually
notice that we are living in a broken and printing press monetary
system. Ending our complacence that everything is fine is a very big and
the most vital step towards understanding our self worth. And
eventually, in the near future, if we could teach well ourselves, our
children, friends, neighbors, relatives, everyone on this planet will
live in dignity and liberty when all those thieves will be finally
exposed and gone.
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