So a while ago I watched this extremely disturbing documentary called Zeitgeist Addendum which basically shows you how destructive and brutal the capitalist system is in so called ‘democratic’ countries. I was so shocked by what I saw that I found myself crying throughout it, and felt disgusting for ever partaking in the consumerism that we find all around the world. It’s a complex and long documentary which I’ve decided to sum-up over a few posts.
Money is created out of debt (The US Fractional Reserve System)
Have you ever wondered where money comes from? We all know it doesn’t grow on trees but what we don’t know is that only 3% of a money supply is physical- like the notes in your pocket. The rest is digital and is created out of thin air- literally. It’s a crazy and absurd system and goes like this:
1- The Federal Bank Reserve (FBR) is the central bank of America and is in charge of printing the country’s bank notes.
2- Imagine you’re the US Government and want to start pumping money into your economy. So you ask the FBR for 10 dollars (I’m bad at Maths so like to use small numbers). The FBR says ‘ok, we’ll give you 10 dollars but in exchange you give us some government bonds worth the same amount of money. Plus you have to pay me back’
3- You say ok, and the FBR goes and sticks some paper in a printer and prints out 10 dollars to give you. You exchange some bond notes with it and voila! You have 10 dollars in your own bank. But don’t forget! You owe this money to the FBR so you’re already in debt.
4- Now that the money is in your bank, by law you must have 10 percent of it available in your bank reserve and the rest you use to give out loans. So you keep 1 dollar in the bank and 9 you can play with.
5- Now listen closely, you don’t actually loan people from that original 9 dollars. That would be stupid because if you did that you’d run out of money and end up with that untouched 1 dollar you kept in the bank. Plus you want your money supply to expand; so you basically, create another 9 dollars that only exists on paper. So now you have a total of 18 dollars plus that 1 dollar you have in the bank- making 19 dollars. As long as there’s a demand for money, the bank is allowed to create money on paper to meet this demand. If a man walks in and says I need 100 dollars, you can add to your reserve 100 electronic dollars, and give them a paper saying you’re loaning them these 100 dollars. Which is crazy because you’re loaning money that doesn’t exist! Remember you only have 10 physical dollars.
6- Now imagine you loan your sister these new digital 9 dollars. What she will do, is transfer it into her own account. Right? When she does this, these 9 dollars ( that were yours in the first place) become part of the bank’s reserve once again; and get added onto the reserve as though its new money. So now you have 19 plus another 9 which is 28 dollars. Insane.
7- This process goes on and on producing billions of dollars that don’t exist. Each time a person takes a loan and deposits it into their account it gets added onto the bank’s reserve again. This is how new money is created in banks.
8- Without debt, people would not take out loans and thereby increase the bank’s reserve. This is why money is created out of debt and debt creates money. If everyone in the country could pay off their loans (including the government) there would be no money in the banks.
9- How is this possible? This is all possible because all bank transactions are electronic, as the money isn’t actually there. This is why banks don’t allow everyone to withdraw all their money at the same time. There’s no money in there to begin with.
10- This cycle of perpetual debt has dangerous repercussion which will be discussed in the following post on inflation and interest.