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Fiat Monetary System Revealed
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By Peter Costa
For over 3000 years from the formation of banking to the creation of currency there have been 2 systems that have ruled. One of these systems has been beneficial to a small group who has sought to control the money supply while the other has been beneficial to the whole. Civilization has gone back and forth between these 2 systems for centuries and a great deal of time and energy has been spent keeping it beneficial to a small group. After diligent research I have come to see that practically every economic catastrophe happening globally right now can be traced to the current monetary system every developed nation operates from.
The 2 systems we have gone back and forth from for centuries can be broken down into a backed monetary system and a fiat monetary system. All monetary systems that have ever existed have been either one. A backed system is when a monetary exchange is backed by something such as gold or precious metals thus limiting the expansion of the money supply. With a backed system it is difficult for the money supply to expand rapidly because it is based on the reserves that are held. When a system is backed and has limitations to the expansion of money it becomes beneficial to the whole and can create a lot of stability in the economy. When a monetary system is backed it makes it very difficult to manipulate the money supply. A fiat system is exactly the opposite of a backed system this is a monetary exchange that is backed by absolutely nothing. In a fiat system currency is typically issued by a ruling entity such as the government and is backed up or enforced by jail time or fees if not accepted. Normally this exchange is paper money or some other form of portable currency that is hard to replicate or forge. With a fiat system the money supply can be expanded as often as needed because there is absolutely nothing backing it. This type of system is typically manipulated and beneficial to a small group rather than the whole. Throughout history fiat systems have failed and have never worked. Fiat systems have been the catalyst for the rise and fall of many great nations.
The current system most developed nations are on right now including the United States is a fiat system. A majority of the currencies being issued today are backed by absolutely nothing. When you boil it down they are useless pieces of paper that are on a path of no return and will soon be used as nothing but paper to light a fire. The Wymore Republic and Former Soviet Union have been the most recent prey for this type of a system and the whole global economy will soon follow. For a fiat monetary system to properly exist there needs to be a central banking system put into place. A central banking system is setup where you have an entity such as the Federal Reserve commonly known as a central bank, print up the countries money and all banks in the nation are attached to this one reserve. The alarming thing with this setup is that the central bank is never owned by the government it is typically owned by bankers or private investors. This system is beyond faulty and can create a lot of volatility in an economy and cause everything from depressions to recessions. The most detrimental part of this setup is that it promotes fractional reserve banking. Fractional reserve banking is when a bank loans out more money than they have in deposits. As recent as the Clinton administration days banks were encouraged to loan out more money than they had and were given a 1 to 9 ratio. How a 1 to 9 ratio works is for every $1 a bank receives in deposit they are allowed to loan out $9. Ever since banking was formed this has been a standard practice between banks. On a backed system it is harder for banks to indulge in this type of practice because if word got out depositors would take all their funds from the bank causing a bank run. A fiat system with a central banking system put into play protects banks from this threat because it acts as a reserve and has all banks in the nation attached to it. If there were any threat of depositors taking out large sums of money they would simply cover that bank. This in itself is the recipe for economic instability and an eventual currency collapse because it allows banks to artificially inflate the money supply.
Now that you understand how the system works let me explain what this type of system enables. For decades now the United States has been on a fiat monetary system. In this type of a system the name of the game for banks is to get as much money out into the economy in the form of loans as they can. Many companies have understood this and have used it to their advantage. Companies have been lining up at banks to receive loans for their companies. With these loans they create companies, include the citizens of the United States in the workforce and start to become an asset or liability on the banks balance sheet. As the years go on these companies run out of money and keep going back for more loans so that they can pay off the outstanding ones. Due to banks wanting to keep money out in the economy they continue lending these companies money giving them enough to pay back interest on the loans and survive for a little longer. Before you know it these companies get to a level where they are “too big to fail” and if they were to go bankrupt they would take the bank down with them. So companies start spending lavishly and keep going back to the banks when they run out of money. This is why companies like AIG and countless others have been able to continue to exist. They have borrowed so much money from the banks and if they were to go bankrupt they would take the bank with them. This exact same scenario has been replicated with individuals through mortgages. Countless banks in attempt to keep money out in the economy have taken individuals who should not have mortgages and approved them. When the individual can no longer make payments they apply for another loan or restructure their mortgage driving them deeper into debt. As long as the money continues to stay out in the economy the bank is satisfied. The problem with this whole type of practice is that sooner or later it all falls apart because everything has a breaking point. This exact scenario has been the catalyst for our current economic state. All that is unfolding right now was lead by subprime mortgages faltering where scores of individuals could no longer afford their mortgages and had to walk away. Once this happened the bank’s game of artificially expanding the money supply was up. With so many people defaulting on their mortgages banks were no longer able to loan money freely which leads to more loans defaulting and sooner or later it all unravels into what we are currently experiencing.
The jig is up and banks are being forced to close their doors for business. Now you can start to understand why over 195 banks have failed in the last 2 years and why 26 have already filed for bankruptcy in 2010. In addition there are 500 more banks on the troubled list that will soon face a similar fate. One of the biggest banks in the country is on the list which is Citigroup who have over $1 trillion in assets. Effective April.1st, 2010 Citigroup is going to need 7 days notice for anyone making a withdrawal from a saving, checking or money market account. The scary thing is this is already effective in Texas and they have been warning depositors about this since the start of the 2010. This is only the beginning and many more banks will follow suit as more loans default and depositors want to withdrawal their holdings. The only problem with this whole thing is that it is not the banks that suffer from this practice it is the people. Like these large companies that have become too big to fail many of the banks have become too big to fail. We are now in a situation where if certain banks were to fail our currency would collapse. That is why banks will now start exercising the right to take up to a week to provide you with money from your accounts because the government has no choice but to bail them out in hopes that this will all turn around. So far out of $600 billion plus used to bail out troubled banks $537 billion of it has been handed out in executive bonuses. “The banks have no remorse for the current economic crisis and are going to guarantee hyper inflation in the coming times which will lead to a currency collapse” stated Ronald Fricke president of Regal Assets in response to the current banking crisis. As we print more money to solve these situations it only devalues the dollar guaranteeing inflation. If things continue to escalate we will face hyper inflation which if not handled correctly could render our currency useless. As you are probably starting to understand this economic crisis is so inner woven.
As much as it pains me to say this, at this point it may be better off for the United States if the currency collapsed rather than continue to bail out the banks. This would free us up from the web our banks have spun and allow us to start off anew. There are too many things holding back any kind of economic recovery and as Obama put it when he first stepped into office this thing is much deeper than anyone could possibly imagine. The only system that has ever offered stability and the only time period where the United States deficit was completely paid off is on a backed system. All the way up until 1933 the United States was on a backed system and with manipulation from the certain parties we were transferred over to a fiat monetary system. When this system gives way and a new one is introduced rest assured it will be a backed system. If you look around you will already see this beginning. A currency collapse is inevitable in the United States and for the first time in over 30 years countries have started to buy gold in an attempt to back their currency. China is leading the way and plan to purchase over 6000 metric tons in the next 3-5 years. This alone is going to cause the demand for gold to sky rocket thus making it more and more difficult to acquire. If you have not already started backing your green back with gold now is the time.
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It isn’t bankers’ bonuses that are the problem, it’s the fact that banks alone in society can make up legal tender that’s the real, barely understood, problem.
You failed to address the most important aspect of what makes our monetary system so volatile. The federal reserve combined with bank loans has created the world’s largest ponzi scheme. A summary of how this works is as thus: the US government borrows say $10 million from the federal reserve. The federal reserve in turn buys $10 million in government bonds. The government then prints out the sum of $10 million in bonds and gives them to the fed. The fed then prints out $10 million in fait currency and gives it to the government. The government then deposits this sum into a bank account, thus, out of thin air, adding $10 million to the money supply. Of course this would happen electronically in reality. When the government does this it is promising to pay back the money to the fed with interest, essentially creating money out of debt. Now when this money is deposited into a bank, it becomes a part of the bank’s reserves. The reserve requirement against transactions is 10%. This means that $1 million is required as a reserve while the remaining $9 million is an excessive reserve and can be used in loans. It would seem logical to assume that the $9 million is subtracted from the $10 million when given away in loans, but this is not the case. From this the money supply is expanded by adding an additional $9 million to the $10 million (supposing it has now been given away in loans). This has again created money out of thin air. Now lets suppose that the individuals who have borrowed this $9 million have deposited this money into their bank accounts. The bank in this way has essentially expanded their money supply to $19 million from the original $10 million and can now loan out more money based on the 10% reserve requirement on the additional $9 million, which comes to $8.1 million. Again this money created out of thin air can be loaned out and deposited back into the bank the same way as it was above, thus creating an additional $7.29 million. This process can be replicated essentially creating an additional $90 million on top of the original $10 million. The only thing giving this “fake” money value is the current money supply. This is what creates inflation: “fake” money that waters down the value of the money that already exists. Considering that the government acquired their $10 million at the current value of the dollar before it was watered down by the subsequent inflation, inflation essentially is a hidden tax, which has devalued the dollar by 96% from 1913 to 2007, all caused by the federal reserve. What this means, considering that all this money was created out of nothing and thus is debt, is that the more debt there is, the more money there is. Money is debt and debt is money. But it gets worse. Now consider that interest must be paid on all money loaned. This concept is what makes it impossible to pay off the national debt, for there will never be enough money to pay back the original amount plus interest, because there simply would not be any money left over after paying back the original amount to cover the interest accumulated. And this is why the government must continually borrow more money, to pay off the interest of its debt, which causes more debt and more interest. Thus the ponzi scheme is born, and like all ponzi schemes, this one will eventually collapse. – Zeitgeist Addendum