Magic Money

Ian R Thorpe 7th February, 2013

The Fractional Reserve Banking System: Money from Fresh Air Hands up anyone who as a child or teenager was not told by their Dear Old Mum or Dad, "Money doesn't grow on trees you know." One, two two more over on the right and one at the back ready to make a uick e!it i" the debt collectors show up. # had no idea so many leading $abour politicians read our blog. %hile our political leaders have spent the past "ew years e!plaining why they will have to cut public spending i" they get elected and "uriously back&pedalling on

earlier promises that their parties can reduce the de"icit without cutting services, socialists like 'rance's 'rancoise Hollande, the () $abour *arty's "inance spokesman +d ,alls -his real name and a description o" this economic policies., and ,arack Hussein Obama -who as a child was not advised that money does not grow on trees because that would be racist or something. have been happily swanning about in their respective money tree orchards and telling the media how when they would be handing out "ree laptop computers and cellphones to empower "the needy" and make them part o" the connected generation /ust as soon the silly realists stopped obstructing their plans to take all o" everybody's money and give it to everybody else. %ith the world already e""ectively bankrupt due to politicians's and economists' ability to delude themselves that the money "ruit harvested "rom the orchard grows naturally on the branches o" his trees rather than being pinned there by us compassionate ta!payers who do not want to traumatise these retards by stripping destroying their illusions. %hat our leaders hope to achieve by using the money & "ruit harvest to give laptops or cellphones to the needy is unclear. 0he needy have more need o" a bowl o" soup, a servicable pair o" underpants and some cash to help with their meganormous "uel bills that a "ree laptop computer they will not be able to use because the electricity has been cut o"" due to non payment o" bills and even pay&as&you&go cellphones, as the name implies, do not go i" the owner cannot pay. *erhaps when he says needy he means in need o" a bribe to persuade them to vote. #n our e!perience there are two types o" destitute people, the truly unlucky and the wasters and no & marks. 0he "ormer could get a lot more bene"it "rom a hot meal and a thick blanket. 1ou can't eat a laptop computer even i" you boil it "or a very long time, nor can you wrap it around yoursel" when huddled up in a doorway on a cold night. %asters and no&marks on the other hand would be very happy to get a "ree laptop computer as they could take it down to 2ash 2onverters and hock it to get money "or boo3e and drugs.

0he people mentioned above are not the "irst political leaders to believe money grows on trees. 0he entire sub & species seem a""licted with the same problem. *erhaps they are predisposed to "inancial pro"ligacy by something in their D45. # know "or a "act there is a gene that causes people to spend money they don't have, my wi"e and daughter both have it. ,ut even those wonder"ul people do understand that when you have emptied the bank account and ma!ed out the credit cards you have to stop. %ith political leaders the silly & spending gene leads to a belie" that the only way to cure the problems caused by overspending is more overspending. 5nd the bankers, who would happily make slaves o" us all, glee"ully run their hands together and say bring it on O), let's get serious. Most people know little or nothing o" how the banking system really works, "or e!ample how many o" you understand the "ractional reserve system which is the basis "or so much o" the global economy. #n "act, how many people have even heard the phrase '"ractional reserve system'. 'ractional&reserve banking re"ers to the standard practice "ollowed by most banks in the developed world o" lending out more money than the bank holds as reserves. ,anks in modern economies typically loan their customers many times the sum o" the cash reserves that they hold. Did you know that "or every buck or mark or yen or a pound in your current or savings account, the bank can legally loan out ten times that or even more6 Once upon a time, or maybe '"5 long time ago in a gala!y "ar, "ar away...." although it was not that long ago and right here on earth, there was a thing called 70he 8old 9tandard:. 0he 8old 9tandard is o"ten misrepresented as a system that re uired there to be an amount o" gold in the national treasury to underwrite the value o" every coin or banknote in circulation. 0his has never actually been the case since be"ore the ;oman era when base metal was alloyed with gold in coins that represented a value in pure gold.

72entral banks and governments have always trusted in gold to the e!tent that they own over <=,>>> tons o" it, about <>? o" the above ground stocks in the world. 0his level o" gold was necessary to ensure the maintenance o" the gold standard. 0he gold standard was essentially a monetary system where the currency is backed by gold, and allows currency holders to convert their currency into gold. 0he ,ritain abandoned the gold standard in (.9. went o"" the gold standard in @AB@:. -bi3Ced.co.uk. 0he gold standard on which national economies were based "rom the renaissance until the twentieth had three essential re uirements. 0he "irst was government had to "i! the currency value to the price o" gold. 0his price o" gold in terms o" the currency is known as the par value o" gold. 'or e!ample, @o3 o" gold may be worth D@>>> e uivalent in D sterling. 0he second re uirement is that the government must maintain the convertibility o" gold. #n other words, they must notionally allow the public to convert their currency into gold. 0he ultimate situation would be @>>? backing o" the currency. 0his would mean that all paper money in the economy was backed by an e uivalent amount o" gold in the vaults o" the government and central bank, which is how the myth o" gold arose. #n reality @>>? backing was rare i" not non e!istent as it re uired very large gold reserves. Operating on the gold standard means there is automatic

control over the money supply as the only way that the government could print more money would be i" they bought gold back o"" the general public. 0hus gold acts as a brake on governments printing money to in"late away debt, a practice notorious "or eroding savings and the buying power o" earnings. 0he third and "inal element is convertibility o" the currency with other currencies. *eople need to be able to convert their currency into others i" they are to be able to trade internationally. 0he e!change rate will be given by the relative gold par values o" the two currencies. 'or e!ample, i" @o3 o" gold is worth D@>>> and is also worth -at today's e!change rate as # type this. E@=B>, then the e!change rate would have to be D@ F E@.=B. 9imples. 9o where does 'ractional ;eserve ,anking come in6 1ou might well ask. Here's a description o" "ractional reserve banking's origins "rom a standard university macroeconomics te!tG "%hen the ancients began to use gold in making transactions, it became apparent that it was both unsa"e and inconvenient "or consumers and merchants to carry gold and have it weighed and assessed "or purity every time a transaction was negotiated. #t there"ore became commonplace to deposit one's gold with goldsmiths whose vaults or strongrooms could be used "or a "ee. (pon receiving a gold deposit, the goldsmith issued a receipt to the depositor. 9oon goods were traded "or the goldsmiths' receipts and the receipts became the "irst kind o" paper money. "5t this point the goldsmiths H embryonic bankers H used a @>>? reserve systemI their circulating paper money receipts were "ully backed by gold. ,ut, given the public's acceptance o" the goldsmiths' receipts as paper money, the goldsmiths became aware that the gold they stored was rarely redeemed. 0hen some adroit banker hit on the idea that paper money could be issued in excess of the amount o" gold held. 8oldsmiths Jthen began to issueK additional notes or tokens into circulation by making interest&earning loans in the "orm o" gold receipts. 0his was the beginning o" modern banking:.

0he college te!t "rom which the above uote is taken does not uestion the propriety o" goldsmiths creating these new "receipts" or money without any gold backing, without any authority, and indeed without any real reason to do so other than to enrich themselves. #n "act, the te!t even praises the uestionable behavior o" the
Heraldic Arms of London's 'Worshipful Company of Goldsmiths', a prototype banker's association

one who began this hidden "orm o" corruption as "adroit." 0he public had no idea that goldsmiths were

issuing paper receipts accepted as money which were backed by no gold deposits at all "or ten times or more the amount o" gold that had been entrusted to them and "or centuries the system worked on trust with "ew bankers de"aulting. 0he goldsmiths were had stumbled upon a way o" creating money out o" thin air. 0hey thus made themselves "antastically wealthy without anyone noticing what was going on. 5s long as the pretence that a bit o" gold was held in a vault somewhere to underwrite the value o" any dollar, mark, yen or pound, people were happy to trust the system and it worked so long as people trusted it. 0o better hide the deception and divert people's attention, the goldsmiths stopped their old practice o" charging "or storing gold and instead began to pay customers a small interest on their gold deposits to keep them happy. 5ma3ingly, apart "rom the /argon and the scale o" banking operations the system has changed little today. 4obody involved with banking and "inance, "rom +conomics tutors and politicians themselves ever uestioned the ethics or morality o" this "ractional reserve system. 0hey knew that i" they did the whole system might easily collapse. +ven now with the system having teetered on the edge o" the abyss "or several years, "ew people challenge in any meaning"ul way the ethics and corruption involved in creating money out o" thin air. #n "act, the "ractional reserve system was "ormali3ed into law centuries ago, probably "irst in +ngland where 0he ,ank O"

+ngland was "ounded in @LAM, and continues to be both legal and the accepted common practice around the world today. #" you ever wondered how banks a""ord those massive, opulently "urnished o""ice blocks i" they charge only @>? or so on loans and pay =? or less interest on deposits, it is because they can create money out o" air. #" the banks had to operate like other businesses they would be making only a "ew percent a year on every loan issued, "ar "rom enough to build the towering skyscrapers owned by banks in practically every ma/or city. ,ut by creating credit - "ait money. using the "ractional reserve system, bankers can legally claim credit to @> times or more the amount o" any loan, in other words i" they lend you E@>>> they have added E@>,>>> to their working capital and thus can lend @> people E@>>> each. #" they lend that at @>? that is E@>>> per year interest they have earned "rom lending you E@>>>. 0hey don't care i" you de"ault, they're still ahead o" the game. 4ow you can understand the shaky, insubstantial "oundation upon which banking empires and the global economy are built. 5s this system has been used "or centuries by every country in the world, it clearly works to maintain a relatively stable economic order. %hether it is even possible to change the system at this stage is a moot point, suppressing in"ormation on how economies work and otherwise hiding this key in"ormation is a massive deception which does not serve the public and only serves to allow the bankers to easily become e!cessively power"ul and corrupt. 0heir corruption is what led to the economic crisis o" N>>O. If you are interested in knowing more, take a look at these documentaries on money and the banking cover-up: Money, *ower P %all 9treet -*,9 & M hours, best to take this in several sessions. 0he 5scent o" MoneyG 5 'inancial History o" the %orld -*,9. Money Masters -N@> min., transcript available here.

Goldsmith's Hall, London. An 1 th century en!ra"in!.

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