Archive for the ‘Fractional Reserve Banking’ Category

https://www.khanacademy.org/economics-finance-domain/macroeconomics/monetary-system-topic/fractional-reserve-banking-tut/v/overview-of-fractional-reserve-banking

This praiseworthy organisation is known for providing free, all accessible learning for everyone on a range of core topics.

It does a sterling job of condensing hard to understand subjects, into bite size, digestible knowledge

Few areas have escaped its coverage, and I was fascinated to discover a number of sessions on Banking and Money.

The attached video is one of a three part series explaining how money is created by the private banks, something most people still know little about. This touches many key areas such explaining what Money is, how it actually works and raising valid questions about alternatives.

It doesn’t stop there, you can search for further tutorials on more how banks work, and again how they create money, as well as other technical aspects of the money supply, to name one example.

Its always good to see those of understanding laying bare these facts in a plain manner demonstrating just how easy it is to lift the veil which seems to cover these elements of a modern economy.

Too good not to share….you would think the public at large would notice something that big….guess not

One argument which is used to discredit any realistic attempt to return to a gold standard in todays environment of ever expanding money supply, is that currently there is too much money in the system and too little gold to be able to adequately replace one for the other.

Well, Jim Rickards has one answer for us to consider…..

It is true that at today’s price of about $1,300 an ounce, if you had to scale down the money supply to equal the physical gold times 1,300 that would be a great reduction of the money supply.

That would indeed lead to deflation. But to avoid that, all we have to do is increase the gold price. In other words, take the amount of existing gold, place it at, say, $10,000 dollars an ounce, and there’s plenty of gold to support the money supply.

The limiting factor here is not the commodity….but the price itself.

Basic supply and demand economics and its impact on price…..don’t let so-called experts make simple concepts seem impossible. We can’t change the quantity, so change the price! Guess that means the market does not give us a correct price signal in view of this?

I’ve done that calculation, and it’s fairly simple. It’s not complicated mathematics

A Fascinating and extremely pertinent view expressed by MoneyWeek in the following article

A question which has certainly been raised in discussions about the nature and indeed, the durability, of this cryptocurrency, one must decide whether this trend will fall victim to many of the faults of other fiat currencies or does it take of the allure of precious commodities which can potentially outlast humanity itself?

On the surface I cannot think of Bitcoin as anything other than pseudo-fiat, however we may never even know the authority behind it, even if it is everyone of those that use it – can we not fall victim to the same whims of the State? Any man made invention will have its deep flaws and cannot be assumed to be beyond manipulation.

However, I understand the commodity like nature of it too, but as Buffet once remarked about gold, you certainly cannot eat bitcoin, you can’t even touch it, so how much of a commodity can we really think of it as?

..if someone were to hack the algorithm behind a bitcoin, that might have the same effect as a central bank printing money: it could lead to a loss of faith and value. Now there’s an irony! Central bankers are to fiat currencies what hackers are to cryptocurrencies!

My research will continue….

This past week, the London School of Economics, hosted an event on the Nature of Money, see details here.

One of the speakers was Dr Waltraud Schelkle, part of the LSE, an Associate Professor of Political Economy.

Please play the audio from time stamp 52.05 for a question put to the panel regarding the fraudulent aspects of the system. Dr Schelkle answers that she disagrees that the system is indeed based on deceit and she points to the ‘success’ of the Capitalist nations….

I think Susan Steed, another panellist, does an excellent job of refuting her shallow argument, without mentioning by name what I think is most key when understanding how the rich became rich…the Transatlantic Slave Trade…

I would also point the Dr to the numerous posts examining this on this blog, and will make an effort to highlight other key counterarguments in future

Fortuitously, this week I received a post from MoneyWeek entitled…”A 92bn Scam

It went on to state;

The $92 billion was income generated on the Federal Reserve’s portfolio of US government bonds. It bought vast numbers of these bonds by expanding its balance sheet and printing money. The government then paid interest on those bonds. That interest is the Federal Reserve’s return. That return is then passed back to the government as an important source of income.

To be clear, this is the state creating money from nothing… to lend to itself… to then pay interest on… and then use that interest as another source of revenue. That’s Deep State financial policy.

Misrepresenting transactions, making it seem as though the government is solvent when it is using a glorified Ponzi scheme…..that’s Fraud in my book.

Riba is not merely interest. Interest itself can take a numbers of forms, remove or change the English term, and the entire issue cannot simply be dismissed. For, whatever term is used, the actual application of this phenomena exposes the real use of Riba itself – a percentage number, applied to a principle amount, which continues to generate more and more of this result over time, a self feeding and ever-increasing to infinity.

Albert Einstein once commented…

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it 

An earlier blog entry showing the ticking debt clocks for many nations public debt shows a profound example of this constantly increasing compound effect, it is a wonder how much more debt will be added to the total by the time you stop reading this piece?

From the above link one can see clearly the overriding effect of compounding interest. Un-payable amounts, totals which need to be serviced regularly just to keep your head slightly above water. Whether it’s a third-world nation spending large proportions of its tiny revenue to make monthly repayments, to some of the strongest economic power houses of today, the debt burden will never disappear, that is not even the intention. The true purpose of debt is to show you can afford the repayments, and that the proportion of it is ‘reasonable’ as compared to the size of your economy. Why would a government choose to waste precious funds on clearing the principle debt? They can easily just generate higher inflation, and erode the value of the loan over time…..there are many tricks of this trade.

Turning our attention to the Islamic Banking industry, their trick is to call interest ‘Rent’ or ‘Profit’. But see that both of these terms appear as percentage rates, applied to principle amounts….giving us clear instances of compounding, ie RIBA by any other name.

Now consider this verse from the Qur’an, and others like it;

(3:130);

O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful.

And contrast the language with ayahs such as this

(2:245);

Who is it that would loan Allah a goodly loan so He may multiply it for him many times over? And it is Allah who withholds and grants abundance, and to Him you will be returned.

The concept of compounding is evidently shown in such signs in the Qur’an, proving that Riba must be linked and concerned with avoiding this particular form which exacerbates the problems it causes.

Expanding upon this, the natural order that has been created gives an element of entropy in everything. All things must decay at some rate and reach the end of their useful life. However the effect of compounding is directly opposite to this fact, it continues to grow and grow, never-ending. It goes well beyond the bounds set by our Maker.

Notice too, how the Qur’an contrasts the negative effects of Riba with the positive attributes of giving for the sake of Allah/charity, not expecting a material reward, but deferring your compensation to a point in time not necessarily of your choosing

For further analysis of the Arabic terms in use in these verses, please refer to the RRMCR journals here. Note the links given to works by El-Diwany, Vadillo and others.

 

Further reading of Dr Nazeer Ahmed’s insightful history of the Islamic world, and all related developments, brought me to the following piece which touched upon the establishment of the global system of credit, which nowadays drives the global market for capitalism/trade.

I have used the below extract as an example of the underlying motive for creating this sub-system of global dominance, which also shows the nature and purpose of its exploits and manipulation.

Please read for yourselves;

The rise in the power of commercial banks in the 18th century was directly related to the Industrial Revolution in England. It was a convergence of several historical events that transformed England from a mercantile society to an industrial society and finally led to the triumph of the bankers. The arrival of fresh capital from Calcutta and Oudh (1757-1767) enhanced the substantial wealth that was flowing in from the Atlantic slave trade, and enabled the funding of innovative ideas. Inventions need capital to see the light of day. Without it, they wither and die. The first thrust of British innovation was the replacement of cotton goods from India. The spinning jenny went through rapid modifications and was “perfected” in 1767 by Hargraves. The colonization of Bengal provided a large captive market of thirty million consumers. The British East India Company slopped on a hefty 70% duty on Indian made goods while opening the floodgates to imports from England

I also make a connection to the previous post in Ahmed’s compilation;

The loot from Bengal heralded the onset of the capitalist society. Industrialization further consolidated the accumulation of capital. With the wealth of Bengal at their command, the British successfully fought off Tippu Sultan of Mysore (1770-1799) and subdued India. With the resources of the great subcontinent of India at its command, European colonization of Asia and Africa in the 19th century was only a footnote 

Using these two articles in another post, I intend to explore another vital factor which led to the state of global poverty as it exists today.

However the first quote comes from an entry in which Ahmed further enlightens us with the development of the modern usurious system at the time of the onset of colonialism. It gives an overview of the entire history of money, a subject well covered already, however the author does a brilliant job of contextualising this history with that of imperialism and the modern world.

This links European colonialism with the development of paper money and the rise of the nation state, it is therefore highly recommended to read this in full, selected extracts however appear below;

Islam maintains that usury is debilitating to civilization. It saps the strength of individuals and nations, encourages greed, and discourages trade. It works in the direction of economic centralization, makes the rich richer and the poor poorer, creates instability in the society and ultimately destroys it. (“Those who devour usury will not stand except as stands one whom Satan by his touch has driven to madness”, Qur’an, 2:275-276)….

The issue transcends the Islamic world, and affects it only because it is now a part of a global community of poorer nations. Whether it is coffee, coconut, spices or oil, the international banks have a major influence on the economic sinews of the world. Interest payments are a major factor in the enormous flow of capital from the poorer countries of the world to the richer nations….

From times immemorial, the merchant had depended for his protection on the soldier. After the Battle of Plassey, the tables turned and the soldier was to be a servant of the merchant and his hired hand. Civilizational initiative passed from the soldier to the merchant….

Monetary policy passed on to the bankers who could either fuel an expansion by increasing the supply of money and easing credit, or cause a contraction by withholding credit. This was a fundamental paradigm shift. From times immemorial, one of the essential privileges of a sovereign soldier-king was his authority to mint coins. This privilege now passed on to the bankers, although they printed money in the name of their sovereign….

….The merchant makes his money when the value of his goods relative to the money he has borrowed goes up over time. The usurer, on the other hand, makes his money when the value of the credit he has advanced goes up in relation to the goods that are held in mortgage. Thus it is in the usurer’s interest to ensure that your property is worth less tomorrow than it is today so that he can get more of it when payment is due.

For more than a century, until 1972, when the United States abandoned the gold standard, those who controlled the gold, controlled the monetary veins of the world….

Major contractions in the British economy were recorded in 1815, 1825, 1847, 1857, 1866, 1893 and 1929. The last one caused a global depression and was a contributory cause for the Second World War.

The disengagement of the world monetary system from the gold standard did not change the fundamental relationship between creditor and debtor. Whether the standard is gold, the American dollar, the British Pound or the Japanese Yen, the process remains unchanged. Credit, with interest, works to the advantage of the lender in favor of economic centralization…

Bereft of capital, the emerging countries of the world turned to international bankers for loans after the Second World War. The credit system increased the span of control of the international bankers over the entire globe. New mechanisms of international credit were created through the World Bank and the International Monetary Fund. Loans were offered against the natural wealth of the borrower nations (commodities such coffee, jute, oil, bananas, spices) as collateral…

To continue debt financing, the bankers often force the poorer nations to devalue their currencies and accept international oversight of their economies. The cycle continues…