Money is like an iron ring we’ve put through our noses. We’ve forgotten that we designed it and now it is leading us around.
~ Bernard Lietaer (born:1942 age:73), Belgian currency expert
|Introduction||How Crooked Are They?|
|The Sneaky Flat Tax||The Way Out|
|The Banks’ No-Win Game||Books|
|How Banks Work||Links|
But where did the money come from in the first place?
In Canada, new money comes from two sources:
You were probably aware the Bank of Canada can just print money or create it by entering a line in a ledger, but you might be surprised to learn the chartered banks can do so as well. This was not always the case. Prior to Prime Minister Mulroney, banks were required to maintain an 8% reserve. This allowed them to lend the same money out 12.5 times. Mulroney dropped the reserve rate to 0%. This means banks can lend out as much money as they please, even if they have nothing to back it. (In the USA, reserves are 3% for current accounts and 0% for savings accounts).
When you consider how serious a crime counterfeiting is, it is rather odd for the government to have effectively handed over the printing plates so that banks can create money too. Unlike the Bank of Canada, the banks don’t literally print money; they create it out of thin air with a ledger entry any time they lend money.
It is a strangely generous act of the federal politicians to the Canadian banks who were Canada’s most prosperous institutions even before this boon.
It is amusing watching the banks so vigorously go after deadbeat creditors for principle and interest, when the money the bank lent cost them nothing in the first place and when they set up the rules by which a certain percentage of people mathematically had to default. It is a bit like a game of musical chairs.
The banks have the cheek to create the money they lend out of thin air, but insist on being paid back the principal and interest in real money, earned with the sweat of the brow.
The banks today don’t quite create money out of thin air to lend, but close.
Consider this simplified version. Imagine an isolated town with only one bank. Somebody comes into the bank and deposits $1000.
The bank then lends out $900 of that money to other people in the town. The borrowers of course keep the money in the same bank. Even if they spend it, say at the town lumberyard, the lumberyard will deposit that money back in the bank. So the bank still has $1000 on deposit, even though it also has $900 of it out on loan, generating interest for them.
So they lend $900 of the $1000 on the books out again. The government used to insist they keep some 8% of it on hand in case someone made a withdrawal. Since Brian Mulroney, the bank is not required to maintain any reserves at all, though common sense insists they have to keep some reserves to handle daily withdrawals.
The bank can lend the same money out over and over and over. This is equivalent to creating money.
This all falls apart if for some reason people start withdrawing money, since the bank doesn’t have the money. It is mostly out on loan. The bank has insurance to rescue them should they get an unexpected run of withdrawals.
The bank lends the borrowers money the bank does not really have, but the borrowers pay back with real money plus interest, quite a sweet deal for the banks.
The same process works even if there is a bank with two branches in the same isolated town, two indepdent banks, two independent banks in two towns, or 5 banks with hundreds of branches in an entire country. They work as an coordinated whole. Who gets the profits from which branches is irrelevant to this process of relending the same money over and over. I don’t mean relending the same money after a loan completes, I mean lending the same money over and over at the same time to different people.
If the banks could do the same thing with paintings, you could leave your fine art with them for safekeeping and they could rent that same original painting out to dozens of people at once. It would be considered a form of temporary counterfeiting.
The whole game depends on the fact that when people borrow money, they usually keep it in a bank, not necessarily the same bank, even though they are not strictly required to, so that it becomes subject to relending.
The right of the banks to lend out the same money over and over is equivalent to the right the print temporary money. Just like printing real money, this ability causes inflation. The more money there is, the less each dollar is worth. Many people, myself included, think there is no reason banks should be be granted what effectively amounts to a get-out-of-jail-free-for-counterfeiting card. The ability to be the goose that lays the golden eggs should be reserved for the government. Otherwise it forfeits much of its control over the money supply and inflation.
In one scheme, scheme, LETS money can be created simply with a transaction. When A sells B a good or service, A’s account in incremented and B’s is decremented by the amount of the sale. The total balance of all accounts is still 0, just like a bookkeeping general ledger.
One big advantage of a LETS scheme is that it recirculates money in the local economy and encourages people to buy locally produced goods and services. It can function no matter what the IMF (International Monetary Fund), crooked politicians and big banks have done to the national currency.
The savings would be so drastic, that Canada could abolish the hated GST (Goods and Services Tax) or institute a guaranteed annual income.
Nature teaches us that the more diversity there is in an ecosystem, the more stable it is. Nature teaches that if you want something not to fail, you have to have a backup system and a backup system to that. Putting all your eggs in one basket is a recipe for disaster. So it seems to me, the solution is to develop and use three parallel currency systems: local, national and international.
|recommend book⇒Funny Money, A Common Sense Alternative to Mainline Economics|
|Published by Chimo Media. Hellyer is the former defense minister of Canada famous for his bureaucratic miracle of unifying the Canadian armed forces. His argument basically is why let the banks create money when we the people already own a bank — the Bank of Canada. Why should the banks reap the benefits? Why should government projects be funded at high interest, when the government’s own bank can lend to them at low or no interest?|
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