Society nowadays is formed by so many institutions that if we had to count them we wouldn't stop!
These institutions could be religious, social, financial and so on and the truth of the matter is that we, as human beings, have been affected by these institutions and they are the reason why we think the way we think.
The church, the largest religious institution on earth has been "put on trial" by many people, writers and philosophists. And the truth is that the church has received critics from both secular and religious people.
Having said this, one of the systems followed by all of us but never discussed is the monetary system. in other words, we all want to make money but how many of us really know where money comes from? what laws regulate its creation and distribution? Many of you will say that the governement of each country decides how much money has to be printed and how it has to be distributed. As logical as your answer is, the truth of the matter is that the western monetary system is one of the biggest frauds ever!
Before explaining it to you, I would like to mention that Finance is the science that deals with money management. it has nothing to do with society. it only has to do with money!
And believe it or not money has the potential to be the cause of lots of bad things!
As I've already mentioned, in a world where 1% of its population owns 40% of its wealth, in a world where 34000 children die every day for preventable diseases and hunger, in a world where 50% of its population lives with nearly 2 dollars a day, something is terribly wrong. And i'm afraid to tell you that money is the root of all evil!
In order to understand what money is and how it is created, I would like to make you notice something that I've observed and comprehended. I'm referring to the concept of national debt. What's the national debt of a nation? Who do nations in this world owe money to? how is it possible that there's someone out there willing to land money to all of these countries that are not repaying their debts.
Before answering these questions, I would like to ask you another. Whose property is the money of a nation?
The answer's very simple: the money of a nation belongs to its government which means that, since it's elected by the people and governments are nothing but juridical inventions, money belongs to the people of that nation. Just like any other resource on earth belongs to the citizens of that nation, money also belongs to the citizens of a given nation. So the question now is the following: if money belongs to us, why do they land it to us?
The answer's very simple! The central banks in most of the world are private. they call themselves "Federal Reserve Bank" or "Central Bank of England" but the truth of the matter is that the Federal Reserve Bank is no more federal than federal express and the Central Bank of England is "of England" as much as F.C London belongs to London. Therefore, from this first observation of mine, I've comprehended that central banks just print money and land it to us. At this point, observing is not enough anymore but research is necessary. So I looked into money creation and found out a document released by the Federal Reserve of Chicago in 2007.
The name of this document is Modern Money Mechanics. if you wish to have it, please go on google or email me at newfinancialtimes2011@gmail.com
Basically, this document explain the process of money creation and the process of money expansion and distribution. The booklet begins by stating its aim, which is the explanation of money creation in a " fractional reserve banking system". It then goes on with the explanation of the fractional reserve banking system by using extremely difficult words and graphs. The aim of today's post is to explain in much easier words how money is created in this so called fractional reserve banking system using a document released by the american central bank.
Of course, the system is the same all over the world basically: China, Europe, Russia, UK etc etc
So, let's assume that the American Government needed 100 million dollars. They would ask the Federal Reserve for the 100 million dollars and the Fed would accept. Therefore, the governemnt would print a bunch of pieces of paper and call them "bonds" and the Fed would print a bunch of pieces of paper and call it money. The exchange takes place and now the government has 100 million dollars. Before going on into the explanation, I would like to make you notice the first weird thing in this process. As we all know, bonds are instruments of debt. Therefore, if money is created as a result of an exchange for bonds, it means that money is debt and debt is money. Weird right?!?!?!?!? Well, this is just the beginning. That's right, we're only at the beginning!In fact, if money is debt, the very first consequence of this concept is that if all the citizens of the u.s paid their debts, money would finish! But hold on! There's more to it. When the Government borrows money from the Federal Reserve, the Fed actually charges an interest rate. So now the question is the following: If the government borrows 100 million dollars from the central bank and the central bank is the only institution that can create money and they apply an interest rate to the lent money, where does the money to repay the interest come from? That's right! It comes from the central bank! So money keeps on growing and growing. However, this is not the only deception. With regards to money growth, according to the booklet, money grows through the fractional reserve banking system. Interested in knowing more about it? follow tomorrow's new post and you will know about it!
Question or comments about this blog? email me at newfinancialtimes2011@gmail.com or follow me on facebook at new financial news and on twitter simonax1
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