One must ask the question; why are we continually bailing out these banks? Why do our governments care more about the banks than us? Why are banks so important that they can’t be allowed to go bust? All very interesting questions and no politician is willing to answer them. Why? Because, if the people knew exactly how banks and the money system worked, there would be widespread outrage and the whole system would come crashing down. A such, the powers that be like to keep people in the dark by saying things like ‘’Boost job creation’’ and ‘’Get credit flowing’’. The latter is my favourite, simply because it sums up the entire money system as it exists today.
I speak to many people about fractional reserve banking and how the current money system is quite literally based on slavery and cycles of perpetually increasing debt. Most look at me blankly, as though they have no idea what fractional reserve banking is, and others refuse to believe it, saying that I am being paranoid.
Many people make the mistake that; banks lend out money that they have in there own deposits and the deposits of other people. In other words, these people assume that banks work like credit unions, lending out the money that members put in. This is a false assumption and it is one that all banks and commercial financial institutions wish to maintain. In fact, banks use a system know as Fractional Reserve Lending/Banking.
Fractional Reserve Lending requires that a bank place deposits in the Central bank, e.g. ECB, and they are then permitted to lend many times that deposit to customers. They, in fact, are allowed to print new money in order to lend it to their customers, whether they be humble individuals or massive property developers. In many cases they are permitted to lend 20 times the amount of money that they have on deposit. For example, if Tom deposits €1,000 in a bank, and Tom’s country allows banks to have a fractional reserve policy of 15:1, the bank is then permitted to lend €15,000. Where does it get this money to lend? It prints it, creating it from nothing. The bank guarantees to be able to give Tom back all of his money, while lending out 15 times that money to others. As long as Tom keeps his deposit in the bank, the bank can lend out 15 times it’s value.
By using this system the banks can both have their cake and eat it. They can print money for customers by using capital instruments (contracts) as permission for justifying the printing of this money. Banks cannot print money for their own use, they need permission to print it, and only for customers. Banks then charge interest on this printed money, essentially making profits on money they have literally created from nothing. The banks only print the principal of the loan and not the interest. The Money to pay the interest has to be produced by the person (who takes out the loan) by earning it. This money exists in the economy and has gotten there because the banks have printed it into existence. As banks demand we give back more money than they lend, this creates a situation where more money has to be printed in order to pay the interest, thus the debt loop is formed. This process occurs constantly, everywhere. It is pervasive throughout the world, and it is responsible for the creation of debt mountains that are spirally ever higher.
Now if Tom were to get a mortgage of €100,000 from the bank, he would have to sign a contract. On this contract is Toms signature and various credentials saying that he has promised to pay back the loan + Interest.This contract is used as permission to create the money. The banks then proceeds to add a balance of €100,000 to Tom’s account. [This is the funny part]: Tom then goes and ‘buys’ his house and hands the deeds over to the bank as collateral for the mortgage (this was agreed in the contract). The bank then claims the house as it’s OWN property by placing it on it’s OWN assets sheet. For the next 30 years, Tom will be paying back not only the actual loan, but all of the interest that the bank will add on to it (every year or even more frequently). Most people now believe that Tom owns his house, but in fact he has not yet bought it. The truth is, Tom borrowed money from the bank to buy a house, but now he doesn’t even own the house, the bank does (it has the deeds). On top of that, tom will be crippled by monthly loan repayments for the rest of his life, as he pays back the mortgage + Interest in order to buy the house deeds back from the bank. Tom will likely have to pay more than twice the value of the loan back to the bank in order to get his deeds back.
In simple terms, Tom is now a slave to the bank, in that he is legally obliged to pay back money (that the bank never really had in the first place) + Interest. Thus the bank will receive all of the money it created from nothing + the interest that Tom has to work to produce. The end result of this system is that the bank eventually gets to use the money it printed for it’s own use.
Please see this video at Youtube; http://www.youtube.com/watch?v=Dc3sKwwAaCU