So where exactly does our money come from?

“All of the perplexities, confusion, and distress in America arises, not from the defects of the Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation.”

- John Adams, former President of the United States

A number of years ago, it was reported that the Canadian deputy prime minister surveyed scores of individuals, both highly educated professionals and common people on the streets and found that not one of them had an accurate understanding of how money is created.

In fact, it’s probably safe to say that most people including the front line employees of banks have never given the matter a moment's thought.

Have You?

For most of us, the question “where does money come from?” brings to mind a picture of the mint… money most people believe is created by the government. This is partially true as our coins and paper dollars we usually think of as money, are indeed produced by an agency of the federal government called the mint. But the vast majority of money - more than 95% of all the money currently existing int he world - is NOT created by the mint or the government at all, but rather, it is CREATED in huge amounts every day by private corporations called BANKS in the form of loans and mortgages.

Most of us believe that banks lend out money that has been entrusted to them by depositors. Easy to picture, but not the truth. In fact, banks CREATE the money that they loan, not from the bank’s own earnings or the money already deposted, but directly from the borrower’s promise to repay.

The borrower’s signature on the loan paper is an obligation to repay the bank the principal of the loan plus interest or lose the item the loan was used to pledge as collateral - the car, the home, or other item of value. What does the same signature enable the bank to do? The bank gets to conjure into existence the amount of the loan and just write it into your account.

In fact, banks are allowed to CREATE from nothing and lend out 9 dollars for every 1 dollar on "deposit", where deposits include previously created loan money! So, you deposit $1000 into your savings account and receive a small amount of interest for "lending" your money to the bank. In return, the bank gets to create $9000 out of nothing and loan it to someone else at a much higher interest rate.

Sound far-fetched? Surely, this cannot be the way it actually works. But it is! Banks don't loan their own money at all, they create it when you sign the loan document. Then they get to charge you interest on money that they created out of nothing while you pay back the principal. Pretty good deal, hugh! If an individual does the equivalent of this, it is called counterfeiting and is a federal crime. Yet, banks practice this "activity" every day, completely protected by the government and legal system.

This system has a name - the fractional reserve banking system - and over the past 300 years, it and and its integrated network of banks backed by a central bank has become the dominant money system of the world.

Have you ever wondered how everyone – governments, businesses, corporations, and individuals – can all be in debt at the same time and for such astronomical amounts? Have you ever questioned how there could be that much money out there to lend?

Now you know. There isn’t. Banks do not lend money. They simply create it from debt and because debt is potentially unlimited, so is the supply of money and commensurately, the amount of debt.

More on debt and interest in my next post!

Questions Questions Questions

Welcome!

This blog is about the questions that nobody asks - THE topic and related topics that are most taboo in our society today. People are more comfortable talking about their sex lives or race relations than this subject.

Can you guess what it is yet?

Even when we do talk about this subject, we're not really talking about IT. When we do actually talk about IT, we somehow have this deep-seeded belief that IT's like a natural law - like the law of gravity and that all we can do is deal with the way things are, not actively and creatively change HOW things are.

So I am going to mention the taboo word now, and it's not Voldemort!! But, it might as well be... MONEY.

There is no other thing in our world today that has a bigger impact on the quality of our lives - how we live, where we live, what we do for a living, how much or little we work, how we think, how we relate to each other, how we feel about ourselves and others - than MONEY. It permeates everything in our lives today. It's like the air we breath (and if our air was as "dirty" as our monetary system, we'd all be dead already)

Now, you might be saying to yourself, hey what's he talking about! People talk about money all the time, in fact that's all many people talk about. Well, yes, people are talking about how much money they have or don't have, or how to make more money, or how to manage their investment portfolio, or what they are going to spend their money on, or even how much debt they have.

But do YOU ever think about or talk to your friends and/or your kids about these kinds of questions:

- Where does money actually come from?
- Who controls our money system?
- Who/what is the Federal Reserve? Who are they regulated by? Who are they accountable to? What powers do they have?
- Who benefits most from our current monetary system?
- Are our boom/bust business cycles that cause so much chaos and suffering a natural or contrived economic phenomenon?
- Does the nature of our monetary system contribute to the seemingly endless and intractable cycles of violence in the world?
- How much money is actually out there?
- Is our current economic/monetary system sustainable?
- Why am I and almost everyone I know in debt?
- Why is our country and the entire world in so much debt?
- Who are we all in debt to?
- What do our income taxes actually mostly go to pay for?
- Why do the rich seem to get richer while the poor get poorer?
- How did our current monetary system come into being?
- Where is our current system inevitably leading us?
- Does our monetary system have anything to do with the fact that over time most people experience the need to work harder and harder for less and less?
- Is this the only way that things could work?
- Have there been other monetary systems in the past that worked better than our current model?
- What can I personally do about this?

Ever wonder why this subject is so obscure? Why it's not taught in school? Why politicians (except maybe Ron Paul) never talk about it? I went to a Top 10 business school for my MBA and not once in two years were ANY of these questions mentioned or discussed!

Ever hear Warren Buffet, Alan Greenspan, Barak Obama, George Bush, or Henry Paulson address any of these questions? Ever hear Suzy Ormand talk about this stuff? All we ever actually hear about from our politicians and finance "experts" is how they are going to "fix" the existing system. And no matter which party or which politicians are in office, does IT really ever get "fixed"?

And all we hear about from our psuedo-spiritual wealth-building gurus and celebrities (Kiyosaki, Oprah, Tony Robbins, Jack Canfield, All "The Secret" people, etc.) is that we can have anything that we want as long as we just want it the RIGHT way. They supposedly teach us how to get rich, how to maximize our PERSONAL benefit in the current economic system. How to WIN at playing the money game. But do any of these people ever talk about any of the questions I posed above. Do any of these people ever address the issue of the quality of life of the average person on the planet, what our current economic/monetary system is doing to the environment, or the sustainability of our consumer society on a planet of limited and dwindling natural resources?

Are you starting to understand why I call this a "taboo subject"? Is there another topic less acknowledged and less honestly talked about and yet one so crucial to the quality and sustainability of our lives on this planet?

Do you consider this to be a mystery?

Well, these are the kinds of things that I am going to explore in this blog. For those of you who are up for it, I invite you along for the ride. This is not a journey for the weak of heart. The more conscious you become about this taboo subject, the more you are called to action and the less willing you will be to tolerate the status quo. This is truly a journey down the rabbit hole, and if you have the courage to take it, the journey will change your life - or at least the way you choose to live it.

My belief is that we, as a species, do not have a whole lot of time left to make the transformations necessary to avoid a complete collapse of our economic and social systems. I also believe that the best way that we as individuals can contribute to such a transformation is by educating ourselves and by raising our personal level of consciousness about the true underlying, unaddressed, and hidden cause of our major societal problems - our Private Central Banking Controlled Corporatocracy (my name for the largely invisible world system under which we all currently live).

I welcome your thoughts, feelings, ideas and insights.