The Banking System - Revealed

The Banking System – Revealed

 

          Imagine a world in which money is simply conjured up into existence, loaned out by a bank and then reeled back in for profit using interest. This is the monetary system used by almost every major bank in the world, and it is the cause of inflation and current economic collapses happening globally. Supporters of the current system say that it stimulates economic growth and spending, which is true; however they leave out an inescapable collapse of the economy that will inevitably occur. One that is unavoidable due to the banks sole mission of more and more capital gain, at the cost of leaving us all in debt. This means that radical solutions may be the only way to save our economy and possibly the world as we know it. An analysis of our current monetary system shows that by default it is built for collapse and that serious reform is necessary.

To understand the issue at hand we must first look at the current monetary system and evaluate the issues it has. Currently the modern monetary system gives banks the power to issue and create money. A government enforced system called the fractional reserve system gives banks the power to issue money they do not have, simply given the fact that they have specified quantities of money in their vaults. Basically how it works is the instant you sign a contract with a bank, the bank rather than loan you its own money, as the word loan would suggest, actually creates the money in the form of debt, using the fractional reserve system.  But how can this be? Doesn’t the government issue and print our money? The answer is simple, yes but only to an extent. In fact only about 5% of the money in circulation is government issued. The other 95% is created in form of debt by the banks.

The second issue is profit from interest. Although banks can loan out money they do not have, they do not make money off the repayment of the principal amount of the loan. Because as the money to pay off debts comes into the bank (from you the borrower), the bank can pay off its “debt to you,” or the debt money it gave you in the first and thus they cannot make profits off this principal money. For this reason the only way for banks to make a profit is through interest. But since most of the money out there is actually debt money, or a promise to pay back that money there isn’t enough money to pay the principal loan plus interest. Consequently the system’s only solution is to create more money through debt which momentarily satisfies demands for the needed interest money. Sadly this doesn’t actually resolve anything and more debt money is once again needed to be produced in a never ending cycle of more and more debt. And in times of crisis when people aren’t willing to take loans, there becomes a shortage of money with which to pay off the debts and the whole system inevitably begins to crumble!

On the contrary though, many supporters of the system continue to say that it promotes steady growth of the economy and enriches the people, creating higher standards of living. They also say that the interest can easily be paid back and that endless debt is not what will occur. Furthermore they say that the system nurtures a strong and healthy economy, showing the United States as a prime example. And that current recessions and global economic crashes are simply little bumps in the road created by countries that had poorly guided economies to begin with, such as Greece, Italy and Spain. And that within a few years it will be possible to set all the economies back in order again and that current issues are simply temporary.

However, as I see it current issues are a little more than temporary. Although economic growth is insured by the current system, the growth is not steady, in fact it is upwardly exponential and in a world that simply does not allow for infinite exponential growth. Theoretically the system can function properly and save itself if all debt is paid off, interest included. Now contrary to what you may be thinking the interest can be paid off without creating more debt or money for that matter. Simply all the extra money that enters the banks profit reel, (or the interest of your loan) would have to be recycled 100% back into the system to be used by someone else to pay off their interest bearing debt. But this solution has an obvious flaw, which is if the interest money is recycled 100% back into the money supply then the banks would make no profit, and that is something bankers are not going to let happen. Furthermore, since almost all the money in the money supply is debt money, if all the debt were paid off there would be no money! And that creates even more problems.

So what are we to do? Well maybe there’s a middle ground that can be reached, one that gives the power of money creation solely to the government, and away from the banks. In doing so interest free money could expand and strengthen our economies, without getting the banks involved. And by making the basis of money creation tied to the amount of real goods and services being made rather than debt, inflation which would normally cripple an economy has no way of coming to exist.

In conclusion, this is simply a brief overview of what the banking system really is, what supporters of the current system say it is and what first steps I believe must be taken to begin insuring the safety of our economy. By ceasing to create money from debt and taking money creation power back from the banks and into the hands of the people and the government we would be able to grow our economies safely. If proper reformation of the system were to occur it could save the economies of the world’s greatest nations and fix the global economy once and forever. There is no perfect solution, however an analysis of our current monetary system shows that by default it is built for collapse and that serious reform is necessary, whatever it may be.