"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson
The fractional reserve gold standard evolves into the fractional reserve debt money standard of today.
Since August 15, 1971, we have been living in a system where our paper money is not backed by gold, but rather by debt. No debt equals no money in the system.
95% of all the money in our system is debt money.
Debt is known as a loan which is also known as credit.
What does this mean?
The system will work fine as long as credit is being issued. However, no debt equals no money.
The Fed creates money by simply purchasing bonds on the open market. For instance, let's say you have a bond now worth $10,000 that your grand parents gave you as a baby. When you cash that out, or sell it back to the Fed, the $10,000 check you receive in the mail is money created out of nothing. The Fed does not take this money from anywhere, it just creates it by typing it into a computer.
The $10,000 check is now deposited into a local bank. The reserve requirements of a local bank allow it to legally hold 10% of every
deposit and loan the other 90%, or $9,000 at interest. Once this $9,000 is spent into the economy and deposited into another local bank it is once again split 1 to 9 and reloaned out once again. This process will repeat itself until the original $10,000 deposit equals $90,000 in new money. As you can see, the Fed creates 10% of our debt money, or $10,000 in this example, and the local banks create the other 90%, or $90,000, resulting in $100,000 in new money created out of nothing.
In the example above there is now $100,000 total in the money supply, but there is interest to be paid on the $90,000. Let's say the interest is 10%, or $9,000. That means there is now $109,000 in total debt, but only $100,000 available in the money supply. How does the debt get paid back? Unfortunately there is only one way to pay it back - by creating more money!
Once the issuance of credit is slowed down the economy leads into a recession and the transfer of wealth goes from the people to the corporate banks.
This occurs because
the banks only create the principal on the loan, minus the interest, thus creating an eternal demand for credit.
In other words, there is more money out in the form of loans than there is in the entire money supply!
How can people pay back their loans if there simply isn't enough money in the system to pay back all the debt?
There simply isn't enough money out there for everyone.
This monetary system of ours is one of the main reasons we have poverty in the so called richest nation on the earth.
And guess who has the legal right to issue the credit of our nation?
No, not the people, but rather a privately owned central bank known as the Federal Reserve System.
By controlling the speed of the issuance of credit, or loans, the Fed creates something known as "business cycles." This is simply accomplished by the Fed increasing or decreasing the interest rate on loans. Higher interest rates equal less demand for loans taken out by the public, thus less deposits are made, meaning less new money is being created, and the greater the credit crunch becomes. As the interest rate lowers, more loans are demanded by the public and once
deposited the money making process is increased. So, by simply raising the interest rate on loans the Fed can effectively lower the supply of new money being created, resulting in the banks confiscating houses, cars, or whatever was purchased with the loan that was created out of nothing. Now the banks have the real tangible wealth, your property! This system eventually leads to
fascism, for this system of credit controlled in private hands could never exist without the cooperation of the government.