What is money and how does the supply of money actually come about?
When THE FED issues those cheques, it starts printing money to honour them and at this point currency is created for the very first time. The banks then take that currency and buy more bonds at the next Treasury Auction and repeat the same cycle indefinitely, enriching themselves and raising the National Debt, lol. So what’s really happening is that the National Treasury and THE FED are really just swopping IOU’s using the banks as middle-men and ‘presto,’ the banks walk away with money, also known as “Fiat Currency.”
A build-up of bonds occurs at THE FED and a similar build-up of currency at Treasury, this process is called, “Base Money.” The Treasury then transfers the monies to different departments of the government, and the government does some “Deficit Spending,” (a euphemism for spending when you don’t have cash), on paying its employees (all governments are the largest employers), spending on Social Programs, spending of Infrastructure, rewarding themselves (the President and Ministers) huge Salaries and financing Wars. Now, let’s just taking a step back, there’s a big difference between money and currencies as you’ll see in the following comparison
Money is a store of value, maintains its purchasing power over long periods of time, and is a medium of exchange (backed by either gold or silver). Remember the promise printed on the old paper money that you could redeem the note for a portion of gold at THE FED. And because it’s backed by gold, gold is finite; gold cannot be printed nor magically increased
Money is a unit of account, is durable, is indivisible, is portable and fungible, meaning it has the same value for all who trade with it.
Currency isn’t a store of value, and its purchasing power fluctuates from month to month, (through the exchange rate and inflation), currency is also a medium of exchange, durable, indivisible, is portable, is fungible BUT, it isn’t backed by the limited and tangible resources of gold or silver, therefore it can be printed in unlimited quantities, (remember Zimbabwe). Essentially, currency is a claim check, (like the ones you get at a Laundromat), a token, an IOU or a promise, made by THE FED. I hope you now understand the important differences between the two; the one is make belief, the other real, tangible and everlasting.
Back to the bankers, see this is how banks generate most of their profit, off debt the government makes on our behalf, to build and make things for us based on campaign promises, which we in turn pay through our taxes, thus taxation screws us and makes us poorer. Please Note: prior to December the 23rd 1913, personal tax was unheard of until the world’s biggest Central Bank was created by an act of Congress, also known as the Federal Reserve, or THE FED, of the United States of America.
Step Three: Government employees (the state is always the biggest employer), and all other workers then deposit their pay cheques into the same banks. Now the banks don’t hold your money in a special vault, in fact legally they’re allowed to do with it pretty much as they please without your consent which includes gambling it out, playing on the stock market and lending it to other borrowers. Now this is where the machinery of currency really comes into play, because of a legal device called, “Fractional Reserve Lending,” this means that the banks can borrow out a large portion of the monies you deposited with them, say 90%, and reserve a fraction, 10% of your deposit. Although reserve ratios vary, but for the sake of this discussion, we’ll use 10% as a benchmark, though it can be as low as 3%, or even zero.
So in our example, if you deposit $ 100, the bank can take $ 90 and lend it to someone else without your permission, and keep the $ 10, just in case you need it, also known as, “Vault Cash.” The bank then puts another IOU, called a “Bank Credit” in place of your R 90 it just borrowed to someone at a higher rate of interest. Suddenly there’s now $ 190 in existence?
Please follow me nicely now.
Let’s follow the trail of the original $ 100 you deposited?
The bank borrowed out $ 90, which in currency terms magically means there’s now $ 190 in existence? Get it? We all know that people take out loans from the banks to buy things like houses, cars, furniture and so forth. So the borrower takes the R 90 the bank borrowed him and pays the Seller for X, the Seller now takes that same R 90 and deposits it with his bank. His bank in turn takes 90% of the $ 90 and borrows it out to another person, and so the cycle is repeated, over and over, so on the assumption of a 10% reserve ratio, the original $ 100 has generated $ 1000 of bank credit, read currency within 7 transactions, lol. This dear people is how our currencies expand, and between 92% and 96% of all currency is created within the banking system, this is known as ‘Bank Credit.’ Now where there’s too much credit available, read currency, Inflation is thus created.
Inflation can be described like this, the prices of goods and services act as a sponge to the money supply, the more money available in circulation, the higher the rate of inflation. What this means is that the more credit, read currency we have, the more we pay for less, in other words, the more expensive the goods and services. Remember Zimbabwe, where billions of dollars could barely get you a month’s groceries? The true definition of inflation is the rising currency supply, read massive amounts of cheap credit available; higher prices are merely the symptom, not the other way around folks. So that’s it folks, currency is merely numbers on a banks computers and some cash floating around in our economy. The U.S Fed has roughly $ 850 billion floating around, the bulk of which is used overseas on international trade.
Step Four: Where it gets really weird is that we who work for a living, (the actual workers, not the bosses), our wealth can best be described as trading our time to fulfill a task for money or those numbers on a banks computer. We trade our blood, sweat, tears, ideas, labour and talents for those numbers, lol. We are what gives the currency its value, because if we stopped working or purchasing goods and services for a month, we would collapse the false system of currencies, unjust wealth, ill-gotten gains, the larcenous banking system, all international trade, all government activities in one go. In other words, we’d make the world grind to a screeching and sudden halt, the only known way of collapsing the system!
