Thread: how money really works

All right, maybe there's enough interest now, to have an intelligent and eye-opening discussion on this topic.



And, I don't claim to be the expert, so definitely knock me down if I'm wrong - but here's what I think I know:



a ) the Fed prints dollars. It PRINTS them - it "creates" dollar bills out of thin air, with nothing to back 'em up.



b ) member banks then BUY those dollars, by giving up some of their credit - they don't have to give up anything of real worth, just "credit" (which is nothing more than a "promise to pay") - and the Government, is no different - if it wants dollars, it has to BUY them from the Fed, by giving up some of its (our) credit!



c ) the member banks then LOAN those dollars out to people (whereas, the government uses 'em for operating expenses). But because of the fractional reserve system, the member banks make out like bandits, while the government ends up eating dirt.



d ) When you go to the bank to get a loan, the loan is created right there, just with some entries on a ledger. The money you're getting, is not "real", it is actually the CREDIT of the bank! But the collateral you put up, is used by the bank, as a "reserve", which means the bank can BORROW MORE MONEY against it. In fact, because of the fractional part, they can borrow TEN TIMES AS MUCH as they put on reserve. At least ten times - right now it's something like 12-1/2 times, somethin' like that. The key point here, is that "money" is not being created - you're not getting actual dollars - you're getting a deposit into your bank account, which is nothing more than a few digits in a computer somewhere!



e ) Here's how the bank works: when you get a 10,000 dollar loan, 1,000 dollars of that has to be deposited as reserves into the central bank (the Fed). The other 9,000 stays in the bank, in your bank account (ie it's "virtual" money). But when someone else puts 10,000 dollars into hard currency into their bank account, the bank can pay off that 1,000 dollars and get their reserve back from the Fed, and it then has the other 9,000 in actual money that it can loan out to other people!



f ) Here's the REAL trick though - the real SCAM I mean - when you deposit 10,000 dollars into your bank account, the bank doesn't take just 1,000 dollars of it - they take NINE thousand dollars of it, and deposit it on reserve - which means then, that they can loan out NINETY thousand (because of the 10% reserve requirement)! They keep 1,000 dollars of your money in cash, and they can now loan out 90,000 more to someone else! !!!



g ) the government is just another depositor and lender at the bank - the bank treats the government just the same as everyone else! The government has to put up "collateral", which is nothing more than paper - it's a promise to pay! The government paper (securities) promises repayment at interest, and of course this is entirely and exactly the opposite of what the Constitution says is supposed to be happening, which is that the government is supposed to be issuing the money, not the bank!



h ) When the loan gets repaid, the INTEREST is the property of the bank. The 10% reserve is recalled from the central bank, and the other 90% goes to wipe out the "virtual debt" that was created by transferring numbers in the computers. So, just as your loan was "created" out of thin air, it is now "destroyed" back into thin air. BUT THE INTEREST REMAINS WITH THE BANK! That interest, can now be deposited on reserve at the central bank, which means it's now worth TEN TIMES AS MUCH in new loans! So, the REAL capture rate of the bank, isn't just 6% (or whatever the interest rate is) - it's TEN TIMES THAT! Sixty percent! !!!



And finally, the knee-capper is, that the government is unable to create its own money! It has given the Federal Reserve Bank a monopoly on the creation of money! The only way to make sure there is enough money to buy the goods that are on offer in the economy at large, is to continue taking loans! And that means to continue to pay interest!



That's why the government never has enough money! Go here http://www.usdebtclock.com - and look at the INTEREST figure - that is FIFTEEN PERCENT!!!



And THAT is why we have to be taxed to the hilt - it's to pay for debt service, in addition to the government's operating expenses!



Diabolical, isn't even the word for it. Tragic, is the word. Our government is beholden to the banks. That explains everything - it explains "too big to fail", it explains everything we're seeing in relation to this climate thing, it explains the healthcare mess (which really has nothing to do with healthcare, but everything to do with money) - it explains why taxes will go up 4800 dollars apiece next year - that's 400 dollars a month, LESS, that you're going to get in your paycheck every month. And that doesn't even include the effect of inflation!



This is a rotten, devilish SCAM, and in a matter of only a few short months, we're going to be so heavily in debt that China's going to have to float its currency, and if THAT happens our economy's going right into the toilet. No WONDER these politician clowns are scrambling for money! They gotta do all kinds of rotten stuff just to keep our system going for another few months!



And ultimately, this all devolves on US - We the People. 'Cause there's no one else, who can pay off the government's debts. There's only ONE way that's going to happen, and that's on the backs of We the People. Sh*t. :shit:

[quote name='nonsqtr' date='09 December 2009 - 05:22 AM' timestamp='1260354164' post='75747']

b ) member banks then BUY those dollars, by giving up some of their credit - they don't have to give up anything of real worth, just "credit" (which is nothing more than a "promise to pay") - and the Government, is no different - if it wants dollars, it has to BUY them from the Fed, by giving up some of its (our) credit![/quote]

Well there's the problem! Why don't we just make em free to the govt and then just print enough to pay off the debt? Problem solved.

[quote name='Pragmatist' date='09 December 2009 - 07:27 AM' timestamp='1260361634' post='75767']

Well there's the problem! Why don't we just make em free to the govt and then just print enough to pay off the debt? Problem solved.

[/quote]



Ha ha - well, that seems like a good idea at first, but then here's what happens:



a ) the government pays off the debt, which means dollars go overseas



b ) the foreign countries end up with a big reserve of dollars



c ) when they want to get rid of 'em (sell 'em back), no one wants to buy 'em because they've already got plenty



d ) the "price of dollars" therefore goes down, meaning the value of the dollar -



e ) that dilutes the buying power of Americans, because Chinese goods end up being more expensive on the WalMart shelves



There's no easy way out of this. What you can do, is raise tariffs (taxes) on imports, which is a form of protectionism, and that's bad because historically it's resulted in "trade wars". But if you do it in small amounts and across the board, it might not be so offensive to foreign countries. They'll scream and yell, but they'll probably go along if the taxes/tariffs are "small" relative to the price of goods.



The other thing you can do, is raise taxes on Americans, and simply destroy the money when it arrives in the government coffers. That takes dollars out of circulation, thereby increasing the value of the dollar.



Any way you do it, the result is painful for American citizens.

A few omissions in your scheme:



Multiplier-- income/income - (Savings, Taxes, Physical depreciation + maintenance of durable assets, debt service and "non-tax" required paycheck deductions)

Velocity -- How fast you convert money into assets and consumable inventories.



Both of those things get larger with monetary growth so the problem is much worse than what you are saying.

It's a system of perpetual debt that will never be paid off.