"I couldn't agree with you more that inflation is a tax and that inflation currently is too high." -Ben Bernanke

Discover right now - in less than 5 minutes - the truth about how it is mathematically impossible for everyone in our society to have money!

Read the condensed 5 minute version of this website below, then click on the related links below for complete details.

Alright, here it goes, 300 years of monetary history condensed into a few paragraphs...

For this example there are 1,000 people in our community, with one bank, and 1,000,000 gold coins in the bank, each coin being backed by one dollar, thus the money supply is at $1 million.

Let's say a depositor gives the bank 10 gold coins. He receives 10 gold I.O.U. receipts in the form of paper. Since these paper notes are backed by gold, they are as good as gold, and are accepted as money in the marketplace.

Within the next year, the banker unethically counterfeits $1 million paper dollars and loans them into circulation at interest. As a result of the manual doubling of the money supply there is now a surplus of money in the market, and as a result the market responds by raising the prices on everything!

There are now $2 million paper dollars in circulation, but the gold reserves stayed the same, they are still at 1 million gold coins. There is now only half an ounce of gold backing each paper dollar, but the banker cannot let you know that, or he will be exposing his counterfeit scam. Each paper dollar has now devalued by 50%!

Inflation in the price of goods and services is the result of devaluation in the value of currency. It is caused by the deliberate counterfeiting of the money supply. This is known as usury, or stealing.
"I fear that foreign bankers with their craftiness and tortuous tricks will entirely control the exuberant riches of America, and use it systematically to corrupt modern civilization." -Otto von Bismarck

Once the 1,000 people in the community realize the scam, they simultaneously go to the bank to redeem their paper dollars for their gold. Since the banker secretly increased the money supply through his counterfeiting, he cannot give back the true equivalent of gold of 1/2 an ounce for each dollar being redeemed, or he will be exposing his scam.

What the banker does is this - he issues back one ounce of gold for each dollar being redeemed, in hope that no panic will arise. If the first few depositors receive one ounce of gold back for every dollar redeemed, they will not express any worry to their friends or family. However, in this example, it does not work.

Everyone in the community demands their gold in redemption for their paper dollar notes, resulting in something called a "run on the bank." The first 1 million dollars to be redeemed are all redeemed with one ounce of gold. The other 1 million receipts in the marketplace become worthless, and those who own these receipts lose everything.

Now let's say that before the run on the bank, a gold miner goes to the banker and says, "I need some paper cash, but I have no gold for you this month. All my gold mine workers are sick or on vacation. Can you please loan me some paper cash anyways, and I will pay you your gold next month?" The banker says in response, "Sure, but keep in mind that these paper dollars I am giving you are not backed by gold, but rather the 'full faith and confidence' that you will pay back your debts with gold."

This is an over simplistic analogy showing how it works today, only the monetary rules of today state that you do not have to pay back your debts with gold, but rather productivity. Why pay back your debts by having to work in the gold industry when you can pay back your debts with productivity in another sector of the economy? However, a productivity backed currency can still turn into a fractional reserve currency if unethical people take over the system...

Fast forward to today. This is an example of how the money making process works today.

Bonds are paid off using telectronic checks, or money that is created by the Fed typing the amount into a computer.

Let's say that you, the business world, foreigners, and the biggest contributors, the banks, want to loan money to the government in return for interest. This is how it works...

People do not just loan money to the government. Instead, the government sells I.O.U.'s, or bonds, with a fixed rate of interest.

When the Fed wants to increase the money supply at a high rate of speed it will inject a credit infusion into the economy by doing the following.

If $400 billion is needed in the economy the Fed will first purchase $40 billion in bonds.

The Fed purchases this $40 billion with a telectronic check, meaning the check is drawn on itself. The $40 billion is not withdrawn from any reserves, but is rather typed into a computer and the credit is created out of nothing.

The bond holders are paid by the Fed and the $40 billion in checks make their way to the bond holders bank accounts. Because of fractional reserve banking, the banks hold onto 10%, or $4 billion, of these deposits and then loan out the other 90%, or $36 billion at interest.

That $36 billion in new loans is then spent into the economy and then deposited into the banking system where it is split again: 10% goes into the banks reserves, the other 90% is loaned out at interest. This process will repeat itself until the banks have created nine times the original $40 billion deposit, or $360 billion in new debt money. There is now $400 billion in new money in the money system. The Fed creates 10% of our money, and the local banks as a whole create 90%.

Unfortunately, there is a very serious problem with this system. The banks only create the principal of all these loans, but not the interest. There was $400 billion in new money created, but with a 5% interest rate, where does the $20 billion in interest come from?

The answer - a new loan!

You see, 95% of all the money in our money supply is debt money. Because of this fact, as well as the fact that banks only create the principal on new loans, there is always going to be debt, and there is always going to be a need for new loans (debt money) to pay off the existing loans. How stupid is that? Even if the governmental debt sector of the economy gets paid off, there is still debt in the private sector. Put simply, it is mathematically impossible for everyone to have enough money to pay off their debt which results in catastrophic consequences to society. Unfortunately, most of the world uses this banking system.

Related Pages:

Inflation | Introduction to money | The birth of usury | Fractional reserve banking | Debt as money | How gold can manipulate inflation | There is hope | Conclusion

Main Pages:

Home | How banks make money | Petrodollars | Inflation

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