Reserve Requirements

Hey, wait a minute, Moneychanger! What about the banks’ reserve requirements? Aren’t they supposed to keep in reserve a certain percentage of all the money deposited with them?

It’s amazing how effective the banking system’s propaganda is. Whenever I ask people how much banks keep in reserves, their answers vary from 50% to 10%, but never come close to the real truth – probably because it’s so outlandish that nobody could imagine it.

For every $100 you deposit in your bank, the banking system can create $16,258.45 to entice and enslave your neighbours. Friends, meet the Tapeworm. This is the ultimate financial ju-jitsu, leveraging your own financial strength against you and your neighbours.

What Does The Bank Loan You?

From my loan example you ought to draw two obvious conclusions. First, that the bank risks nothing at all in the loan. If you default on the loan, they lose nothing -- their credit cost them nothing, remember? -- but they gain the property you pledged. If you pay the loan off, the bank gets your money for which they laboured not a second and risked not a penny of real value. They have enslaved you with a non-existent abstraction. They got your “something” for their nothing (“credit” or symbolic money).

Second, it is obvious that the value of the bank’s franchise — the privilege of creating money out of thin air – is not sufficiently measured by the bank’s “income.” That is, the value of the bank’s privilege is measured not only by the “dollars” that it receives in interest for loaning out its credit, but also by the full capital amount of the credit it creates. Therefore the profit to the bank on this $10,000 loan is not the $1,000 in interest the borrower will pay over the life of the loan, but the $1,000 in interest plus the $10,000 credit the bank created.

From this, it ought to begin to dawn on you that whenever government grants an entity the monopoly privilege of creating money out of thin air, sooner or later that entity will own all the property in the country. By the power of an abstraction, an artificial mental construct, a thing that does not exist, namely, symbolic money, all property in American society has been gradually being taken over by the banks.

Now perhaps you are beginning to understand why I said earlier is that the whole issue is, which will rule us, reality or an abstraction? And why I also said that freedom and private property cannot long coexist under a symbolic money system.

Credit Cards and Seigniorage

Let’s examine also what happens with credit cards. First, I need to explain “seigniorage” (SEEN – yur – idg)

Seigniorage is the difference between the value of money and the cost to produce it. Once upon a time it accrued to the government that minted coins. When the bullion value of the coin is less than its face value, the difference is seigniorage.

For example, in 1853 the U.S. price of silver had risen so much against gold that even the small change was being melted down and sold as silver bullion. In order to keep small change in circulation, congress made dimes, quarters, and halves subsidiary coins. That is, they reduced the amount of silver in them to less than a dollar’s worth. (The law defined (and still does) a dollar of silver as 371.25 grains of pure silver. Until 1853, 10 dimes or 4 quarters or 2 halves contained 371.25 grains of silver, same as a dollar. After 1853 they contained about 6-1/2 less silver. That 6-1/2% was seigniorage or profit to the US government.)

Now think about credit card companies. What do they do? At your order – whenever you use the card – they create money for you. Only the money they create isn’t minted out of metal, it’s minted out of imagination and administration. And other than the tiny cost of that administration, it costs credit card companies nothing to mint credit card money. And because you and thousands of businesses willingly accept imaginary credit card money, the credit card companies are willing to profit from near 100% seigniorage.

Once again, you give them your substance, and they give you a symbol.

Borrowing Money Into Existence: The Game of Cards

All money today is borrowed into existence. At its birth, it comes into the world with a burden – an interest rate burden. Here’s how it works.

Imagine five people shipwrecked on a desert island. After a few weeks they get bored. One survivor, whom we’ll call “Banker”, has a deck of cards. Another person approaches Banker and asks to borrow his cards.

Banker answers, “I’ll be glad to loan you my cards, but nobody plays for free. At the end of an hour, each of you must pay me the 13 cards I loaned you, plus one card as interest. As security in case you can’t pay me back, you can put up all your real and personal property as collateral.”

So the other four shipwreck victims pledge their property, take their 13 borrowed cards, and sit down to play. Now you don’t need to be a mathematics professor to know that a deck of cards contains only 4 times 13 cards = 52 cards, and that at the end of the hour, it will still contain only 52 cards. But at the end of the hour, each borrower must repay 14 cards. Obviously, it can’t be done, so at the hour’s end, at least one player, and maybe more, will go broke and lose all his property. If all play cards equally well, they’ll all go broke in the first hour.

As long as the players keep playing – keep borrowing money into existence – then some will continue to go broke. Eventually banker, who owns all the cards, will wind up with all their property.

This story illustrates two inevitabilities about our present monetary system:

• Eventually, the money issuer winds up with all the property, and




• Whenever the money supply fails to grow by enough to pay the interest burden created by borrowing the money into existence, bankruptcies will multiply and the economy will slip into incurable deflation and depression.

Why There Will Be No Deflation

The federal reserve (and every other central bank) is a machine created to inflate the money supply by loaning money into existence. Like Kryptonite to Superman, its mortal enemy is deflation. So the Fed will always inflate the money supply. Always.

How hilarious, then, is the idea that the Federal Reserve is “fighting inflation”? The Fed doesn’t fight inflation, it is inflation.

However, it is the Fed’s job to “fight inflation fears,” in the same way that the beaters in a big game hunt are used to flush the game into the shooters’ sights. They keep the animals in the trap until the shooters are ready to shoot them. Whenever inflation fears threaten confidence in the dollar, whenever the nervous victims threaten to flee from the line of fire, the Fed will roll out the propaganda cannon and fire loud, noisy blanks about how hard it is fighting inflation, so you won’t notice that you’re running smack into the shooters’ guns.

By Their Fruits Ye Shall Know Them

What is the outcome of this monetary system? All consumerism, all boom/bust investment cycles, all bubbles, all abuse of debt, have their roots in this monetary system – plus the death of the local economy

It creates money that otherwise wouldn’t exist, imaginary money. Do you remember what happens when you’re playing Monopoly™ and the game’s banker hands you $2000? Why, you spend it just as fast as you can. After all, it’s not like money you had to earn yourself.

When banks make huge amounts of credit available, it lowers interest rates. Low interest rates make all sorts of projects appear to be profitable that really are not. So people borrow money, because it’s cheap.

To consumption it adds huge artificial demand at the margin because it makes consumption look much cheaper than it actually is.

That additional consumption demand also hurts the local economy. Once the money flowed in a circle in local economies. People bought what they needed from their neighbours. But when most of what they “need” is not available, it must be imported. Then the money that used to circulate locally must leave to pay for the imports. Pretty soon, nothing produced locally is consumed locally.

If it is not spent on consumption, that hot borrowed money then goes looking for a big return. It flows into whatever is fashionable at the time. Right now, that happens to be real estate. Any sane person knows that property has an economic value, that is, how much return can it generate? Any sane person also knows that a 1,500 square foot home, even in California, cannot have an economic value of a million dollars.

So our present monetary system not only transfers all property eventually to the banks, it not only teeters always on the edge of collapse because it borrows money into existence, it also funds the insane, wasteful consumerism that American society is addicted to, and it funds the ridiculous investment bubbles that continually fleece us.

The fruit of the system is seen in the debt.

Today, the US government admits to a debt of about $8.3 trillion. If they were forced to use honest accrual accounting, it would be closer to $60 trillion. Before the Federal Reserve system, the debt was 10% or less of Gross Domestic product. Today, it’s about 66%.

Personal and corporate debt is estimated at another $30 trillion dollars, about 2-1/2 times the current GDP of $12 trillion.

We were once a nation of independent freeholders who owned property and worked for ourselves. Today, we are a nation of serfs. The banks own our property and we work for them or some other corporate master. All of this has happened because we were willing to accept abstract, rather than real, money.

Witnesses

Don’t take my word for the contention that the money we use is wholly symbolic and backed by nothing. Let’s get some credible witnesses. Let’s call somebody from the government.

G. Thomas Woodward, Specialist in Macroeconomics, Economics Division, Congressional Research Service, the Library of Congress, from “CRS Report for Congress “Money and the Federal Reserve System; Myth & Reality”, July 31, 1996, Publication 96-672 E.

“The principal form of currency in the United States consists of Federal Reserve notes. These notes are by law “legal tender” . . . A great deal of concern is often expressed about what “backs” a Federal Reserve Notes. Technically, the notes are collateralized by holdings of securities – mostly those of the United States government. Many people, however, feel that this begs the question. What then “backs” the securities that back the Notes? “The short answer is nothing. There are no real assets, public or private, that are specifically pledged to collateralize the debt of the government. The government borrows on its “full faith and credit,” which is to say that it borrows as long as everyone thinks it is able to service the debt. This means that ultimately nothing backs the money (Except the full faith and credit of the US government.) (ii.) [All italics in original]