Money is the most important thing for any human to understand, as it is the core problem for all the economic crises, ecological crises, wars and humanitarian crises.
“There are two ways to conquer and enslave a nation, One is by the sword. The other is by Debt” – John Adams, 2nd President of the United States
I think we can agree that debt is a form of slavery. Well, at least John Adams agrees.
But what is money?
It is easy to imagine that if you loaned money to someone, that you would want extra money back, via interest, so that you make a profit out of the transaction. But there is another way to look at this scenario…
Imagine a hypothetical scenario where no money exists initially and there is 1 bank and 1 person. The bank prints £100 and loans it to the person at 10% interest. The person does his business with the money, and eventually all the £100 returns to him. The person then pays the £100 back to the bank, but he must also pay the 10% interest of £10. How does he pay this? There is no more money in existence in this scenario. He has two options: he either takes out a new loan (if the banks let him) to pay off the interest and therefore is in a perpetual state of debt until he goes bankrupt, or he declares bankruptcy straight away and hands over any assets that he allowed the bank to claim from the contract he signed.
One assumption that was made is that there was 1 person and 1 bank. This does not affect the analysis, as all money originates from a bank and that person can represent the entire population. Another assumption we made is that initially there was no money. However it is easy to see over time that the interest that is in addition to the loan amount, would quickly erode any money that existed prior to the bank existing. This can be shown in the figure below for the UK money supply:
The interest on the bank created money (red) quickly exceeds any cash in existence (green) due to compounding interest. Thus not only does money = debt, but debt > money meaning it is never possible to pay back the debt. A figure of note is that global debt stands at $230 trillion.
From before: debt = slavery, and debt > money, therefore money = eternal slavery. It is worth nothing that this only applies when interest is charged on money.
Fractional reserve banking – hypothetical history for explanation purposes
A long time ago (prior to electronic banking, when gold was the currency), people started accruing large amounts of gold which was unsafe to keep. Therefore someone setup a business where they held onto the gold and kept it safe from thiefs. However gold is not easily tradable, so the trusted business offered a promissory note (a promise for a certain amount of gold) so that the customer could withdraw his gold with the note any time he wanted. The customer realised that his gold could essentially be traded by trading the promissory note in its place, avoiding trading the physical gold itself.
Banks eventually noticed that their customers never withdrew any more than 20% of the gold reserves, as they preferred to use promissory notes to trade rather than keep the gold themselves. This lead them to the realisation that the remaining 80% of their gold was sitting doing nothing, and was very unlikely to be called upon by the customer. So they created additional promissory notes, such that 20% of their promissory notes represents 100% of their gold, and lent these notes out at interest. The amount of promissory notes totaled 500% of the value of the gold reserves giving a ratio of 5:1. This meant, from an internal view that they had created 400% of gold reserves from nothing; but from an external view it appears as if they have 5x the gold reserves that they do in reality. As before, only 20% of the value of the promissory notes would be withdrawn by their customers, so they knew that the maximum that would be withdrawn at any one time would be 100% of their physical gold reserves, and no one was likely to ask for any more gold than that so they were never at risk of running out of gold. This is fractional reserve banking. The 20%=0.2 figure is known as a fractional reserve ratio.
The bank, in order to ensure people were less likely to remove their gold from the bank, realised there needed to be an incentive to keep the gold there (this would attract more customers to the bank). Thus it started paying its customers if it stored its gold with the bank (deposit interest), so that it could have a safer/lower fractional reserve ratio and hence could make more loans (generating higher revenue and profits).
In the modern day, we use digital, fiat money and credit cards. Fiat money means that the notes do not represent any promise for a physical commodity such as gold as in the past; they are only worth something if the market believes they are worth something. Credit cards and digital money allow nothing physical to be ever moved from place to place as all payments are made digitally. This allows banks to use even smaller fractional reserves than in the past (such as the 20% gold example) as people are far less likely to withdraw the physical cash. An example is given by the Royal Bank of Scotland, where at the peak of the 2008 financial crisis their fractional reserve ratio was a mere 2%. It is worth noting that the banks that are allowed to do this are private banks, owned by private interests, and yet they have the power to control the money supply. In the UK in 2009, banks gained £30bn from having this power; power that should be in the hands of a democratically elected government.
There have recently been calls, from the Federal Reserve and Bank of England, to ban cash completely, cementing the private banks control over the money supply (as well as allowing all transactions to be traced through banks).
It is a common misconception that because financial activities constitute a large proportion of our tax income, that it means they are beneficial to society. This is like looking at someones income, but ignoring their out goings. In 2009 the amount banks contributed in tax (salary + profit) was £25bn, this is obviously a very tiny proportion of their actual profits. And the only reason this is so high in the first, place is because the taxpayer (via the government) provided a £100bn safety net that bails them out if they take on too much risk. But the only reason they take on so much risk, and hence generate large profits, is because we provide them with an incentive to do so by providing a safety net. As mentioned before, we also lose £30bn from banks having the licence to print money.
In Britain RBS, Santander, Lloyds, Halifax, Barclays, HSBC control 85% of market share. In total, these banks have around 78 board members, of which 35 or so have power. This means that these 35 people have more power than our government. This is clearly a crisis of democracy, as we have no say over the actions of these 35 people, in fact they have large sway over our government (particularly given that half of Conservative party funding in 2010 came from the financial sector) and hence control over us.
It is a common conception that if a loan is taken out, it is the person who takes out the loan who is responsible if he is not able to keep up with the repayments (take the example where Germany have essentially enslaved Greece). Given that these loans are created from nothing, that the people who are issuing the loans have hundreds of experts that can assess the risk of these loans, how can the blame fall on a poor person who most likely lacks significant education? The responsibility should obviously fall on the lender. However in these lending institutions, the workers are given financial incentives in order to give as many loans as possible, which exposes the bank to risky loans. The incentives for giving loans are: commission, bonuses, keep job and get promoted. If you don’t loan, you get fired. The bank do not mind doing this because they can sell the loans that were created from nothing to someone else, taking all the money and putting the responsibility of reclaiming the money on someone else’s shoulders. These people unfortunately tend to use violence and intimidation on the debtor in order to get the repayments.
Because all money is debt, the only way to get out of debt, is to push someone else into debt. Every bit of money you hold in your hand, have in your bank and earn, represents someone else’s debt that is enslaving them to banks and corporations. If you want to earn lots of money, the monetary system inherently means that you want to push someone else further into debt.
This monetary system inherently transfers wealth from the real economy (manufacturing) to the non-real economy (housing and stockmarket bubbles). In the UK it inherently siphons money from the rest of the country, into the City of London. And it is clear that the interest of the money supply which goes to private banks, siphons money disproportionately from the poor to the rich – ‘trickle-up’.
If this monetary system was abolished such that the poor did not have to pay this disproportionate amount of interest, then a lot of the benefits that the poor need to survive could be eliminated. The poor/middle class also suffer severely from the inflation caused by all the non-real money being pumped into the economy. Most of the new money that is created by either private or central banks is pumped straight into house prices and stock markets which raises their prices. Only the rich invest in such high value assets and therefore they benefit from this. Below you can see a ridiculously strong correlation between margin debt and stock prices.
However the increase in the money supply causes inflation which decreases the purchasing power of money, and as the poor can’t invest in the inflated bubbles, their standard of living actually decreases as basic commodities get more expensive. In addition wages would have to rise with this inflation, but corporations often take advantage of inflation in order to keep real wages low. Therefore inflation and interest are essentially hidden trickle-up mechanisms that take from the bottom portion of the population, and benefit the richest. So if someone is against your claims to re-distribute wealth, you can tell them that it is already happening – just in the opposite direction.
A debt-based monetary system requires constant growth in order to reduce the value of the debt as a percentage of GDP. This is obviously not possible on a finite planet as resources are limit – food, water, energy, etc. – leading to the destruction of the planet.
A rather sinister way of getting people into debt slavery nice and early on is by making kids pay ridiculous prices for their education via student loans. Students now leave with £53,000 worth of debt after graduating on average.
History and Introduction of the Monetary System (long)
The Money Masters (long video)
How private banks create money (video)
How private banks create money (6 part video) – recommended detailed version
How the monetary system is inherently trickle-up, creating inequality
The creation of money by private banks is giving them more power than governments, with no accountability
Money creation contributes to environmental destruction
Currency And The Collapse Of The Roman Empire
97% Owned (documentary) – 97% owned present serious research and verifiable evidence on our economic and financial system. This is the first documentary to tackle this issue from a UK-perspective and explains the inner workings of Central Banks and the Money creation process.
Four Hoursemen (documentary) – This film criticises the system of fractional reserve banking, debt-based economy and political lobbying by banks, which it regards as a serious threat to Western civilisation. It criticises the War on Terror, which it maintains is not fought to eliminate al-Qaeda and other militant organizations, but to create larger debt to the banks. As an alternative, the film promotes a return to classical economics and the gold standard.
Oil Currency (Petrodollar)
- Iran – Trades oil in gold with China instead of dollars
- Iraq – Saddam proposes oil traded in Euros instead of Dollars
- Libya – Qaddafi tries to unite Africa under a gold-backed dinar currency for trade
- Syria – Assad doesn’t sell his oil in dollars (but does not have much oil)
- OPEC – Saudi Arabia, Kuwait, Qatar, UAE etc – Trade oil in dollars
- Libya – Used interest-free Libyan dinar currency under Qaddafi and proposed gold-backed currency for all of Africa
- Abraham Lincoln – Created interest-free money (Greenbacks) in 1861 to fund a war. Assassination attempt in 1864. Assassination in 1865. Greenback revoked in 1866.
- WW2 Germany – After Hitler was elected, the Nazi government issued its own interest-free currency known as Reichmarchs
Economies with Interest-free Currecy
- Basic Income
- Discount on housing and vehicles
- No international corporations
- Free healthcare
- Free education
- Free electricity
- Increased literacy rate from 25% to 93% under Qaddafi
- Free land, house, equipment for farmers
- World’s largest irrigation project to bring water to the desert country
- Housing was considered a human right
- Built Africa’s first communication satellite
- People’s committees ran the country
Full employment, prosperity and financial security. No poverty.
Took what had essentially been a 3rd world country after WW1 and made it into one of the most prosperous nations in Europe
As well as looking at absolute values, the cost of debt (i.e. the interest rate on the debt) should also be considered. In this context the overall interest rate on the national debt between 2000 and 2012 worked out at around 5.6% per annum (Webb & Bardens, 2012). In contrast, the interest rate for household debt ranges between 6% and above for mortgages, right up to 17% on credit cards and up to 29% on store cards. Overall, the average interest rate is undoubtedly higher for households than it is for the government. For these reasons, the government should focus on enabling the public to reduce its debts, assuming that the government works to the benefit of its public.
This used to be where central banks buy long term bonds off banks and non-banks. Recently, it has consisted of central banks buying treasuries and Mortgage Backed Securities (MBS). The central bank cannot directly buy treasuries from the government due to legalities, so it must do it indirectly through a primary dealer. Printing money, in the normal sense, does not create inflation if it is printed in proportion to the growth of GDP and the demand of the currency.
Traditional QE – Buying treasuries to pay off government debt
- No money change in public hands
- If the debt is paid off right to its source bank (i.e. you borrowed from another government that was also in debt, so when you repay them, they repay their debtors) then the new money is destroyed and no inflation/deflation occurs
Pure QE 1 – Buying MBS from banks
- Increases excess reserves of banking sector
- Changes mix of assets in banking sector
- But no change of money in public hands, essentially acts as a bail-out to the banks by the public through the process of buying failed assets
Pure QE 2 – Buying MBS from shadow banks
- Same effect on reserves as Pure QE 1
- Increases money in circulation in shadow banking system
- Lowers the yield curves meaning investors more into riskier assets which drives up asset prices
- In this scenario only about 13% of created money finds its way into the real economy, the rest is in stock markets and housing
Infrastructure QE – Making money to pay for public infrastructure
- Stimulates the economy
- Creates jobs
- Public benefit from new infrastructure
- Causes inflation
People’s QE – Giving money directly to the people – AKA sovereign money
- This allows people to pay off their debts to private banks which destroys money, meaning that the net effect of People’s QE on inflation would be zero.
- It will also allow people to spend more, stimulating the economy, increasing tax revenue etc.
- Which of these dominates the use of People’s QE depends on public confidence. When the public is confident (or driven out of necessity) they will spend more, if not they will pay down their debts.
- If done on a regular basis this could be seen as a form of basic income, although this would be better funded through taxes on the rich
The interest rate is essentially the price of money. Below you can see it vary over the last… 5000 years apparently.
Central banks around the world are currently able to decide what interest rate is suitable at a given time. Keynesian economists believe that it is important that the government has some level of control over such an important figures, while Austrian economists believe that it should be left for the ‘free market’ to decide. Personally I find this discussion void as I don’t believe interest should exist as a concept at all, given what I have said about in the ‘Money’ section.
There are two countries that I know of that used interest-free money and they are: Libya under Qaddafi and Germany under Hitler. Both of these people were able to turn what essentially were 3rd world countries, into some of the most prosperous nations on the planet (irrespective of your opinion of what they did with all of that wealth). I am well aware that correlation does not imply causation, but it is definitely worth considering given the effects interest rates have.
Negative interest rates
Common sense says the 0% interest barrier should not be breached – well tell that to Denmark, Sweden and Switzerland. And heads of Federal Reserves in the US and the Bank of England governor.
A Negative Interest Rate Policy (NIRP) essentially means that you will have to pay to store your money in the bank. Due to the low fractional reserve ratios that private banks operate under, it may be necessary to put capital controls on the banks, i.e. limit or cease cash withdrawal, to prevent people from taking their money out of the bank in order to avoid paying interest on their deposit. This prevents the bank from running out of cash. It may even be necessary to ban the use of cash completely in order to prevent the escalation of bartering.
In theory, this forces consumers and businesses to spend, and banks to lend their deposits. NIRP is therefore pure desperation to keep an economic system going when it is destined for failure. Note that a NIRP is a nominal interest rate below zero i.e. inflation hasn’t been accounted for. If you have low interest rates and high inflation, you technically have negative real interest rates.
In reality however, as our entire monetary system is based on debt, people (and banks) will first start paying off their debts with the money they have in their bank accounts. Then after that has happened people may spend more. But as there is more debt than money in the system, there will be no money left over for further spending after debts have been repaid.
Precious Metals as Currency
Gold has been the store of value for a long time due to its properties. Gold is a chemical element so it can only be found, not manufactured. It is largely inert meaning that it is immune to decay via corrosion and oxidation, not overly useful for industrial/chemical processes and it is easy to store cheaply for long periods.
Unlike fiat currency, gold can not simply be created from nothing to fuel the demands of the government. This is the reason it was abandoned in the first place, to fund wars and again to escape the Great Depression. As the increase in supply of gold is dependent on the rate of it being extracted from the ground, it tends to increase in supply which could be tied to economic growth . However the economic growth that is currently generated is dependent on huge amounts of money creation, thus a return to precious metals as a form of currency would put restrictions on growth – which is pretty good considering we have already saturated the planet and cannot afford to grow any more without severe environmental destruction.
Gold, however, can still be used under a fractional reserve banking system. At the moment many banks are refusing to publish how much physical gold they have and where it is, or they just simply lie about how much gold they have. The COMEX gold exchange is an example of this where is happening. In September, the ratio of paper claims to an ounce of gold and an actual physical ounce of gold was 228:1 or less than 0.44% (Update November: 296:1).
Silver, unlike gold, is much more involved in industrial processes – 65% of annual demand over the last decade has been for industry. However the proportion has decreased since the 2008 financial crisis where it is found its use again as a store of value to savers.
Petrodollar (and gold-backed currency)
The Petrodollar (4 parts) – This is useful for understanding part of US foreign policy
- “We began planning the Revolutionary War in order to issue our own money again” – Benjamin Franklin, American founding father
- “[The] Bank of the United States… is one of the most deadly hostility existing, against the principles and form of our Constitution… An institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx, may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of the United States, with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we then to give further growth to an institution so powerful, so hostile?” –Thomas Jefferson, American founding father, principal author of the declaration of independence, 3rd president of the United States
- “I sincerely believe… that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.” – Thomas Jefferson
- “The spirit of war and indictment, … since the modern theory of the perpetuation of debt, has drenched the earth with blood, and crushed its inhabitants under burns ever accumulating” – Thomas Jefferson
- “History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it’s issuance.”― James Madison, 4th president of the United States
- “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” – Andrew Jackson, 7th President of the US
- “The issuing power (of money) should be taken from the banks and restored to the people, to whom it properly belongs” “The government should create… all the currency and credit needed to satisfy the spending power of the government and the buying power of the consumers… Money will cease to be the Master and will then become servant of humanity” – Abraham Lincoln, 16th president of the United States.
- “Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear, and they ought to disappear, for this world would be a happier and better world to live in. But if you wish to remain slaves of the Bankers and pay for the cost of your own slavery, let them continue to create deposits.” – Sir Josiah Stamp, President of the Bank of England in the 1920s
- “Whoever controls the volume of money in our country is absolute master of all industry and commerce…when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” – James Garfield, 20th president of the United States
- “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.” – Woodrow Wilson, after signing the Federal Reserve act into existence, 28th president of the United States
- “The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson” – Franklin D. Roosevelt, 32nd president of the United States
- “Until the control of the issue of currency and credit is restored to government and recognized as it’s most conspicuous and sacred responsibility, all talk of sovereignty of Parliament and of democracy is idle and futile…Once a nation parts with the control of it’s credit it matters not who makes the laws…Usury once in control will wreck any nation.” – MacKenzie King, Canadian Prime Minister
- “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” – Henry Ford, American Industrialist
- “The study of Money, is one in which complexity is used to evade truth, not to reveal it” – John Kenneth Galbraith, Economist, public official and diplomat
- “They who control the credit of a nation, direct the policy of Governments and hold in the follow of their hands the destiny of the people” – Reginald McKenna, British banker and politician
- “There is no other agency of government which can overrule actions that we take” – Alan Greenspan, ex-Chairman of the Federal Reserve
- “The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” – The Rothschild brothers of London writing to associates in New York, 1863.
- “I care not what puppet is placed on the throne of England to rule the Empire. The man who controls Britain’s money supply controls the British Empire and I control the British money supply.” – Nathan Rothschild, Jewish Banker.