The Banking System

Fiat Money Explained - the easy way

How the Monetary System works

G. Edward Griffin: The Creature from Jekyll Island - A Second Look at the Federal ReserveIn today's world, which is headed full steam towards a financial crisis of epic dimensions, it is essential to understand how the financial system works, and why it is doomed to disaster. The formula is actually very simple to understand, once one manages to lift the smoke screen: Central banks create money out of nothing for the purpose of lending. All money is created as debt by a bank and disappears where it came from when it is repaid. On its way it drags the real wealth of the people back to the banks, because since there is no way that all borrowers can pay back their debt (i.e. loan + interest), somebody will always default for mathematical reasons and will lose their collaterals. That's what the banks are actually interested in, particularly when it happens on a massive scale. Banks can create as much money as they please, but they can't create real values. Banks syphon away the values that people force themselves to create in order to repay the collective debt and the interests.

One Simple Way of Explaining the Banking System

Let's shrink the whole world to one little island and the world's population to 10 men living on that island - and let's throw in one bank. Everyone agreed upon the rule, that only the bank is allowed to emit the common currency and that no other commodity will be used as a currency. Let's call that currency Dollar. Now all 10 men from that island borrow 100 Dollars each from the island's bank in order to build a house for themselves. Every single man agrees that he will pay back $100 (loan) plus $5 (interests) at the end of one year. It also says in the contract that if a man defaults on his loan, the bank is entitled to seize all their property.

Now they all go home and start doing business with each other. The first man pays the second to dig the ditches for the foundation of his house and gets paid by the third man to manufacture the windows for his house, while the fourth man pays for the fifth, who is a brick layer and gets paid by the sixth for tiling the roof, and so on. The economy is doing well, because the people are working and spending money. But even if they all do well, there is one problem that nobody paid attention to: Somebody just has to default. It's not a matter of greed or lazyness or bad luck or poor talent. It is simple mathematics: There are only 1000 Dollars in circulation. If each agreed to pay back $105, then $1050 are needed in order for all ten men to be able to fulfill the contract.

That is exactly the trick: The $50 extra were never made. They never existed. That means that if 9 men pay back their loans plus interests there will be only $55 left in circulation. Even if the bank spent the $45 profit that it "made" on the loan repayments to have the men building a house for the bank, the total amount of money in circulation would only be $100 - not enough for the 10th man to pay back his loan plus interest. He will default, and his house will go to the bank, since contracts must be honored.

This is why every single man involved will do everything in his power to make sure that he doesn't become the 10th man. He might put up a hell of a fight, before he lets that happen, and he might even attack his fellow neighbors in order to take their money. All ten men will always have to be very careful and suspicious in dealing with each other, but they will have to outsmart each other at the same time in order to keep their worldly goods.
They have to become creative and come up with something that the others would pay money for to have. But no matter how well they all do and how smart and cunning they all are, in the end, at least one man is going to lose. And then there is another thing: Even if 9 man ally in order to kill the unfortunate 10th man, then take his money and repay their loans, all money would disappear and the economy would stand still. They all would have no choice, but to rinse and repeat the procedure. In the end there will be one bank that owns 95% of everything on the island, one slave to the bank and 9 graves.

Back to the Desert of the Real

Now think of the island as the world and of those men as nations, and you will understand why the world is the way it is. We are in constant competition, we are all working to make the economy grow, and we are constantly at war somewhere. This is called "strategy of tension". No matter who wins amongst us, the bank is always the biggest winner because we all ultimately work for the banks. The banks are the Α and the Ω. Nations just win the wars, but it's the banks who always take the profits, because the nation that won is deeply in debt by the banks that financed the victor's and most likely also the loser's war machines. So the victor plunders the loser and hands everything over to the bank, which then cancels all debts, collects the values of victor and loser, issues a new loan to both wranglers, and we're ready to start over. A new cycle is initiated.

Money rules the world - but who rules the money?

Brett King: Breaking Banks - The Innovators, Rogues, and Strategists Rebooting BankingOne common misconception is that money is created by the state or the government. If that was true, then why are all states and all governments in debt? If this was true, mathematically the indebtedness of all countries should amount to exactly 0. Because if I owe $100 to my neighbor and he owes me $100, then we don't have $200 of total debt, but $0. That's not the case, though. All countries are deep in the red, the richest and most advanced nations are the ones with the highest public debt. So, who does the world owe all that money to? To Mars? Negative. It is owed by the public which is indebted by its own government to a few private banks. To the FED, to put it more precisely. States and governments are merely the henchmen that make sure the public will carry the burden.

All "lawful money" in most of the world is created by central banks that are in one way or other linked to the Federal Reserve. The US-Dollar is the world's reserve currency. Companies, individuals and also governments have to borrow money from privately owned merchant banks. The central banks create money out of nothing and lend this money to the merchant banks, which in turn lend it to their customers at a higher interest rate than the one given by their central banks. No matter how low this rate may be, this is where the mechanism gets started that forces people to work always harder and always longer, that forces the economy to grow faster and faster. The final destination is crisis, war and collapse. The interests in the system grow at an exponential rate, while the economy grows linearly, and from a certain point on, can't keep up anymore. After running at full throttle with the needles buried deep in the red, it is only a matter of time until it finally colapses. The coming collapse is not only inevitable, it is overdue and it is intended by the very nature of system.
What happens in a collapse? Wealth is transferred from many to a few. What average citizens would perceive as a large crisis, the central banks call 'Christmas', because that's when they get their presents, which are the assets millions of people had worked a lifetime for to create. But every crisis also bears a lot of opportunities.

After the Titanic struck the Iceberg[1], Bruce Ismay said that this ship could not sink. Thomas Andrews answered: »She's made of iron, Sir. I assure you she can. And she will. It's a mathematical certainty.«


Banking is nacessary. Banks are not.


[1] Lets not forget that what we call the 'Titanic disaster' was an absolutely unexpected miracle for the lobsters in the galley of that 'unsinkable' vessel.


© 2017 by Markus Besold