“The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in iniquity and born in sin.
Bankers own the earth.
Take it away from them, but leave them the power to create money and control credit, and with the flick of a pen, they will create enough money to buy it back again…
But if you want to continue as the slaves of bankers and pay the cost of your own slavery, let them continue to create money and to control credit”
Sir Josiah Stamp, Director, Bank of England, 1929
Fractional Reserve Banking and Fiat currencies
This article takes a look at how a fractional reserve banking system works and some of its effects.
Before I start, I must warn you that you will not believe what I am about to explain to you. And if you do it will probably make you pretty angry that nobody has explained the true nature of our monetary system to you before – I know it did me. If it sounds like obvious insanity doomed to inevitable and catastrophic failure, then I am afraid you will have understood perfectly.
Let’s say that a bank receives a $1000 deposit from a customer. Once the bank puts that $1000 in its vault it becomes part of that bank’s reserves. According to the rules of the world’s fractional reserve system, the bank is required to keep 10% * of that deposit as a reserve and can then lend out the remaining $900 to other customers. However, it does so not by lending the other $900 it has in the vault. Instead, it creates, out of thin air, $900 of new money which it then lends.
* I have used 10% as an example as it’s easy to follow the arithmetic, but be aware the smaller the reserve requirement, the faster the money supply expands, and many reserve requirements are much less than 10%
That $900 of new money that never existed before is then deposited into the accounts of the customers that borrow it and become part of the reserves of those banks. Again, they are required to hold back 10% as a reserve and can then issue up to $810 in new loans to their customers, and so on. The process repeats again and again, with money that has been created out of nothing by one bank becoming the reserves of another bank, so that it can create even more money out of nothing, which goes on to become the reserves of another bank, etc.
It is crucial to remember that every dollar created is a loan, or debt. Money cannot be created without lending it. Therefore, money is debt. The words are literally synonymous – and I mean actually literally, not literally as in “I literally died laughing”. Try replacing the word money with the word debt in everyday conversation and notice how uncomfortable it is. But that is the true nature of our system of money – don’t ever forget it.
Some may ask, so what? What’s the problem? Excellent question, which will be answered again later, but first of all, debt inevitably creates rich people and poor people and inexorably widens the gap between them.
It’s pretty obvious when you think about it. Who has surplus money to lend? Rich people. And who needs to borrow money? Poorer people. So, poorer people end up paying interest to rich people, making the rich people even richer and and the poor even poorer. Which is good for business because poor people are easily exploited.
More often than not poor people become prematurely dead people and this debt-based model of money/debt creation has already effectively murdered billions of “poor” people.
If we think that we are somehow immune, that the same kind of poverty, deprivation and hopelessness could never happen to those of us in rich countries we are deluding ourselves – the signs are already all around us.
Anyway back to our $1000 deposit.
The net result of all of this jiggery-pokery is that for every $1000 dollars deposited, about $10,000 ends up in the money supply. This leads to two hugely important questions.
First, where did the person who deposited the $1000 dollars in the first place get it from – in other words, what is the beginning of the sequence, the creator of the money supply?
Secondly, what gives all of this new currency its value?
To answer the first question, money is originally created by central banks and LOANED to governments, at interest, by exchanging government bonds (guarantees to repay money) for bank notes (currency). That interest is then collected by the government through the taxation of its citizens.
In other words, the government takes out a loan, guaranteed by us, the taxpayers, placing us, literally, into bondage – bond is, after all, the root word of bondage. The money supply
then expands as outlined above. So, our governments borrow money on our behalf from a
central bank and we pay said central bank interest on that money until it is repaid.
What possible justification exists for the central bank to receive interest just for printing
money? They are not putting up any assets as collateral to underpin the value of the money
they are creating, they just abracadabra the money into existence. Tons of it. In fact, the
more the better because every dollar they lend eventually comes back with interest. Believe
it or not, most of the income tax we pay goes not to financing infrastructure and social
welfare, but to covering the interest payments on the loans our governments have taken
out from their central banks, on our behalf.
It is extremely revealing that the IRS was set up to collect income taxes in the same year as
the Federal Reserve was created to start lending money to the US government: preparing
for the gathering of interest payments as soon as the bank came into being. It is also
extremely interesting to note that there is absolutely nothing in the Constitution or the Bill
of Rights that allows for the collection of income taxes from the citizens. The law setting up
the IRS is therefore unconstitutional and non-payment of taxes is, technically, the patriotic
American thing to do.
And there is no need for it.
Governments could print their own money, at no interest, and all tax revenues could be
spent on that for which they were intended, at least by those who paid the taxes.
In fact, Abraham Lincoln tried to do exactly this back in the 1860s when he issued what
became known as the Greenback, a Government backed currency that was deemed legal
tender and which was used to finance the Civil War effort. In the end he was pressured into
allowing a cartel of European and American bankers to lend him money to finish the war
when it became clear that he would not be able to get Congressional support to issue more
Greenbacks, but signing the National Bank Act was a decision that plagued him thereafter as
he realised the debt stranglehold into which he had placed the US.
He had intended to reverse this legislation following the election that he won after the war
was over, but was famously assassinated just 41 days after being re-elected. Who knows,
perhaps that may even have had something to do with the reasons he was assassinated –
“…slavery is but the owning of labour and carries with it the care of the labourers, while the
European plan…is that capital shall control labour by controlling wages. This can be done by
controlling the money. It will not do to allow the greenback…as we cannot control that.”
Hazard circular, London Times, 1862. (quoted in Charles Lindburgh’s, “Banking and
Currency and the Money Trust”, 1913)
It was noted around then that “In numerous years following the war, the Federal
Government ran a heavy surplus. It could not (however) pay off its debt, retire its securities,
because to do so meant there would be no bonds to back the national bank notes. To pay off
the debt was to destroy the money supply.”
This is a hugely significant point. Because all money is debt, if all debt is discharged there is
no longer any money left in circulation. So in order to function and have a currency, under
this system the society must remain in debt. It is literally impossible for a society or a
government to clear their debts because to do so would require the complete seizing up of a
system whose very lifeblood is debt. Sorry, money. See what I did there?
In fact, the last time that the US was debt free was in 1835 when the then president Andrew
Jackson was actually re-elected on the promise of paying the national debt and dismantling
the central bank that was the predecessor of today’s Fed. He duly did so, saying afterwards,
“The bold efforts the present bank has made to control the Government… are but
premonitions of the fate that awaits the American people should they be deluded into a
perpetuation of this institution, or the establishment of another like it” He himself rated this
the most important action he ever took as President.
So, who are these central banks? They have official sounding names like The Bank of
England, The Federal Reserve and so on, but the truth of the matter is that central banks are
mostly privately controlled institutions which have cleverly manoeuvred themselves into a
position where they sell and control the supply of the national currency. Not in the national
interests but in the interests of making profits for themselves. They are cartels of wealthy,
influential men of money, mostly from way back – The Bank of England came into being in
The Federal Reserve is entirely in private hands and consists of a network of 12 regional
”Fed” banks, the largest and most important of which is the New York Fed.
The people who sit on the boards of these banks are exactly the same people who sit on the
boards of the commercial and investment banks too. Who owns the Fed? Almost impossible
to say exactly who for sure, so shrouded in mystery is the whole filthy scam, but for certain
it is the owners of other big banks. And guess who regulates the banking industry – the
Federal Reserve. Cool, right? You get to control the world’s largest currency and all you have
to do is keep a careful eye on yourself.
As part of his programme of deregulation and giving independence to the financial sector,
Gordon Brown made the bank of England, brought under Treasury control in 1946, a
separate institution again with independent responsibility for controlling the money supply,
setting interest rates and keeping within inflation targets.
Once again we have not been properly educated here, in fact deliberately misled, because
the expansion of the supply of money and inflation are inextricably linked. We have been
trained to think of inflation in terms of rising prices of food, fuel, property etc. But these are
just symptoms, not causes. The cause of inflation is far more insidious and inevitable than
you might think.
With the understanding that new money is constantly being created and added to the
money supply, it is now time to consider the second question posed earlier: what gives the
new money value? The answer is that it simply joins the existing pool of money in the
supply, thus diluting the value of all money. The value of goods and services in the economy
do not grow as quickly as the money supply that expresses their value and so more money is
required to achieve the same purchasing power.
In other words, prices rise.
Growth in economic activity and increases in productivity can mask the effects, but inflation
is an inevitable consequence of an ever expanding money supply. The need to slow the
devaluation of the currency is the main reason why all of our economists are so obsessed
with growth. The less economic growth there is, the greater is the diluting effect of the
expanding money supply. But of course, nothing can grow forever so relentless inflation is
inevitable in the long term.
Inflation is essentially a hidden tax on everyone, especially savers. Unless your worth is
continually increasing, you are actually falling behind in real terms as each pound in your
pocket, your savings and your pension become worth less and less with each new loan that
is issued. A dollar in 1913 was equivalent to over 21 dollars in 2007. That’s a more than 95%
devaluation in the value of the currency in as many years. Because our currency has no
intrinsic value, it can become worthless as soon as everyone stops agreeing to exchange it.
Assets, however, do have intrinsic value and so their prices rise as the money supply
increases, reflecting the fact that they are real. In the long run, therefore, assets have far
more value than currency and hold that value far better.
So, wouldn’t it be great if you could just print money and use it to buy up assets when they
are cheap? Banks think so – they do it all the time. The final piece of this jigsaw is by far the
most evil and insidious of them all and exposes the truly flawed, exploitative and fraudelent
nature of the system itself: the application of interest.
Given that money is created in response to the need for loans and is therefore debt, every
unit of currency in circulation is owed by someone, to someone, and has accumulated an
amount of interest. The longer the principal sum lent remains in circulation without being
repaid, the more interest it accumulates.
In our global economy, there are many millions of loans/debts at various stages of their
existence – some barely paid off at all, others almost completely paid, etc. and so the
connection between any individual lender and borrower is often lost.
So, to simplify matters, imagine the entire economy stripped down to a single transaction.
Bill gets a £100 loan at 10% interest. The £100 is created out of thin air and off Bill goes.
After the agreed time, he goes back to the bank to pay off his debt. But, because the only
money in circulation is the £100 he was originally lent, from where is he to get the £10 to
pay the interest he owes? He can’t. It doesn’t exist. And that’s the point.
There is NEVER enough money in the money supply to cover the total amount owed,
because the money to pay the interest was never created. Only the principal sums exist in
the money supply. The only way to get the difference into the supply is to create more
money, which means more interest and more debt and an even bigger difference between
the amount owed and the amount in circulation later on.
The fact of the matter is that our entire monetary system is nothing more than a giant Ponzi
scheme and like all Ponzi schemes, there comes a point where you can no longer bring in
enough cash to cover your obligations and that is pretty much where we are now.
This kind of currency is known as Fiat money. The Latin word “fiat” means “let it become”
and every country in the world now uses this model. There have been many hundreds of fiat
currencies tried throughout history and every single one of them has collapsed and gone to
zero eventually. After the 2008 crash, unimaginable new sums of money were
“quantitatively eased” into existence, all of which is debt, all of which has to be paid back at
some point, with interest. It took 200 years to go from zero dollars to 850 billion dollars;
since 2008, over 3 trillion yummy new dollars have been created, out of thin air, in order to
“recapitalise” the banks.
No mainstream outlets are talking about it, but the dollar and as a consequence all the
other world currencies are in danger of imminent collapse and this time there is no way out.
And it will be terrifying. This is not scaremongering. There is plenty of solid evidence out
there, but you have to look for it. The powers that be will lie to us about it right up until it is
too late to deny it any longer and seeing as how every major news outlet is in the hands of
Big Money, we won’t be getting the truth from them any time soon.
In short, our banking and monetary system was created for the specific purpose of
controlling, manipulating and ultimately robbing the population of its labour, its ability to
look after itself and ultimately all of its assets and wealth too. It is a form of modern slavery,
plain and simple.