Be prepared for panic if you do not know. Every day countless millions of transactions are easily made with cash. Why do we need money? How does it get into the "cycle?" Who puts it there? Who makes money? And on what basis? Is it the government? If not, why not? Who? And how do they know how much "printing?"
What if they add more or less to the economy? Three chapters of my book How to Profit from the Coming Great Depression provide the answers. Many people are shocked when they first learn about our “fractional reserve” financial system, which has fueled the seeds of its devastation.
First of all, we need money because the trading system has no money. If you are a construction contractor and I am a potato farmer, I want you to build a house for me, how will I pay you? How many potatoes can you and your family eat before they rot? Clearly we need something to represent housing and potatoes. But note that that does not make money a resource in itself.
It is simply a vehicle for transferring a number of resources from one person to another. There are natural resources, both underground and above them, and there are human resources - work and intelligence. Combine these and one can produce. But while money may be used to value and transfer these resources, money is not a service in itself.
Those in charge of money really want resources that represent money. Centuries ago objects like gold and silver were used as money, before we had notes and coins like today. Do you remember the old western films when street criminals raised a stage coach and people had to give up all their essentials? Why, on earth, did the people carry their gold and silver? Because they had no other place to put it.
This opened the way for goldsmiths, who were the forerunners of modern banks. They form large, secure vaults and allow people to place their precious metals in these filters. They give people “receipts” that confirm the amount of gold stored in their name. In time, people began to trade in receipts for gold. Today these receipts are called banknotes. But not all goldsmiths do that.
They even paid interest on those who put gold in their basement (e.g. 3%), but then borrowed gold from others (in the form of additional receipts) saying 6%. Thus they cover their expenses. The goldsmiths later realized that no one had returned to collect their gold, and not all the trustees began to borrow new “receipts” from the gold mines in their basement. In time, ten times more “money” was distributed than gold in the basement.
That is exactly how our financial system works today. For every dollar you put in the bank, the bank borrows about ten dollars. Money is created by banks - in a small way! All money is earned through a bank loan. Less than 5% of it is converted into notes and coins. Most of you have nothing but balance on a computer in a bank. Hundreds of questions come to your mind. Okay? All are answered in my book. Why do I say that the system has sewed within it the seeds of its destruction? It has a date to use.
That is why we have economic stress at least once every century. It is not a question of whether the system explodes. Only when it explodes. Suppose you borrow $ 100,000 from a bank (which costs $ 150,000 in security). But you should return $ 110,000 for an additional benefit. Where does that other $ 10,000 come from? You will have to find someone else. Where will they get it? What is the only way to get money? They will have to borrow it from the bank.
Do you see that in our credit system it is not possible for everyone to pay their debts? Some have to die. And as money is absorbed into the system by interest rates by banks, the availability of funds decreases.
The only way I can get rid of a lot of borrowed money. So the debt has to go up a lot. Do you see now why we have a debt bubble and why there is no solution to it other than a major cleanup, with all the terrible economic consequences, not to mention the social divisions that will come with it?
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