I think the whole idea that banks "make their profits by charging interest on loaned money that doesn't exist" comes from a grossly mistaken understanding of fractional reserve banking. This video explains fractional reserve banking as if when you deposit $100 it allows the bank to loan back out 7, 8, 9 + times that to other clients. Such is ass-backwards; when you deposit $100 in a bank, the bank is allowed to loan out 7, 8, 9 (or what have you) times the amount OF that $100 it keeps for its reserve--i.e. if a bank operating on a 9:1 fractional reserve ratio received a $100 deposit, it would keep at least $10 in reserve and be able to offer up to $90 as loans to other clients.
I don't know if people who get behind this idea are genuinely operating and simply mislead or mistaken, or if they are preying upon ignorant/credulous anti-establishment drones and spreading disinformation.
I think the whole idea that banks "make their profits by charging interest on loaned money that doesn't exist" comes from a grossly mistaken understanding of fractional reserve banking. This video explains fractional reserve banking as if when you deposit $100 it allows the bank to loan back out 7, 8, 9 + times that to other clients. Such is ass-backwards; when you deposit $100 in a bank, the bank is allowed to loan out 7, 8, 9 (or what have you) times the amount OF that $100 it keeps for its reserve--i.e. if a bank operating on a 9:1 fractional reserve ratio received a $100 deposit, it would keep at least $10 in reserve and be able to offer up to $90 as loans to other clients.
I don't know if people who get behind this idea are genuinely operating and simply mislead or mistaken, or if they are preying upon ignorant/credulous anti-establishment drones and spreading disinformation.
When the bank loans out $90 from your initial $100 it doesn't subtract it from your deposit, so the money supply increases to $190. This is the keystone of the scam, it loaned out your money but you can still spend it along with the borrower. In effect the bank has created new money out of nothing with the loan. But it doesn't end there. The $90 that gets loaned out gets deposited again to one or more other banks and they loan out 90% of that $90 which is $81, and then 90% of $81 and so on ad infinitum. The general formula for the total increase of the money supply from these new loans is:
let "d" be the initial deposit and "r" the reserve ratio (.1 for 10%)
d + d(1-r) + d(1-r)^2 + d(1-r)^3 + ... d(1-r)^n
d(1 + (1-r) + (1-r)^2 + (1-r)^3 + ... (1-r)^n)
so the total money supply/loans is the initial deposit ("d") multiplied by the following infinite series: which converges to 1/r, so it's d/r
with an initial deposit of $100 and the reserve ratio of 10% the money supply becomes 100/.1 = $1000. The newly created $900 are loans from different federal reserve member banks.
When a loan is repaid, it disappears from the borrower's demand deposit account reducing the money supply. This disappearing act just highlights the embezzlement nature of the operation, because the new money appeared essentialy out of a double counting trick, once for the original deposit and second time for new deposits genereated from the loaning out of the reserves backing the original deposit. If you "borrow" let's say your employer's money and take it to a casino and win something, you don't keep the principal, you put it back so he doesn't find out, and only pocket the winnings. Fractional reserve banking is legalized embezzlement, and counterfeiting. Embezzlement, because the bank uses depositors' money for its own purposes while claiming the depositors have full access to it; and counterfeiting, because by doing so it is increasing the money supply.
And another thing to keep in mind is that this scam was operating in the US from the beginning, the Fed in 1913 just made it more organized and centralized. And the Founding "abusive" Fathers were all in on it, although they talked a good game, not only did they fail to found a sound banking system, they were shareholders and founders of banks operating this way.
Even more importantly than profiting from crime, when directed by the central bank, the banking system as a whole can expand and contract credit (money supply) creating inflationary booms and deflationary busts.
Last edited by al_9x on Sun Apr 29, 2007 9:56 am; edited 2 times in total
Tue Apr 24, 2007 8:50 pm
tardus
Joined: 30 Mar 2007 Posts: 32 Location: Northern Virginia, USA
Thank you for your corrections. I am a laymen when it comes to modern economics. I made my initial post based on what a friend explained to me on the subject, and even that I misunderstood.
I see how my example was mislead, and how the money supply indeed does increase in such circumstances. I wanted to comment though on your statement that fractional reserve banking qualifies as counterfeiting. While the money supply is indeed increased, this is not a secret. If the government wants to increase the money supply by $90[and ultimately $900] (going back to our example), then it will then loan $100 to the banks, yes? "Counterfeiting" is not solely increasing the money supply, and there is no secrecy on the part of the banks to conceal the source of the new funds or their methods of operation. How does this qualify as crime?
Also, as far as I know, the central bank today tries to maintain a steady 1-3% inflation with their manipulation of credit. Inflationary booms and deflationary busts are more a think of late 1800's early 1900's economics.
But it doesn't end there. The $90 that gets loaned out gets deposited again to one or more other banks and they loan out 90% of that $90 which is $81, and then 90% of $81 and so on ad infinitum.
This logic presumes that none of the money is used to pay off debt. If I deposit $100 into a bank, and they lend out the $90 to someone who then pays off a debt with it, the numbers change.
But it doesn't end there. The $90 that gets loaned out gets deposited again to one or more other banks and they loan out 90% of that $90 which is $81, and then 90% of $81 and so on ad infinitum.
This logic presumes that none of the money is used to pay off debt. If I deposit $100 into a bank, and they lend out the $90 to someone who then pays off a debt with it, the numbers change.
Ok, this gets a little complicated, but here it is. The primary component of the money supply, M1, are demand deposits at commercial banks. Commecrial Banks hold their reserves in vault cash and demand deposit accounts at the Fed. These reserves are not included in M1, because they are an internal representation / backing of the deposits which are already counted. To include reserves and deposits would be double counting. When a loan is repaid money is subtracted from some one's demand deposit account at a commercial bank and returned to the bank that issued the loan where it is added to that banks's reserve. This decreases the money supply. But as soon as that bank gains this extra reserve, which is more than it needs to respect the reserve requirement, it can immediately loan it out. This again increases the money supply.
So the answer to your objection is that the portion of the money that is used to pay off debt, quickly returns as new debt, and the money multiplier formula still holds.
Last edited by al_9x on Fri Apr 27, 2007 6:19 am; edited 1 time in total
some more on deposits reserves loans and the money supply.
When you deposit $100 cash into a bank, internaly, via double entry bookkeeping it is entered twice, as an asset ($100 in reserves) and a liability ($100 demand deposit). Now obviously $100 doesn't turn into $200 simply by being deposited, which is why reserves don't count towards the money supply, only the deposits. The reserve and the deposit are one and the same, after all there is only a single $100 bill, but already they are listed separately, and the bank begins to treat them separately. Now the bank loans out $90 which is subtracted from its reserves, but not from the deposits. Now the bank has $10 reserves for $100 deposits, thus fractional reserve.
$90 loaned is deposited at another bank which again lists it twice as $90 in reserves and $90 in deposits. The second bank loans out $81 subtracting it from the reserves. It then has $9 reserves for $90 deposits, again 10% reserve.
The money supply is the sum of all the demand deposits and is now $271, from the initial $100 cash.
Fri Apr 27, 2007 7:41 am
tardus
Joined: 30 Mar 2007 Posts: 32 Location: Northern Virginia, USA
Thank you for again verifying that it is as good as counterfeiting in your understanding, but could you respond to the rest of my question?
If the government wants to [see the money supply increased] by a certain amount, then understanding the dynamics of the fractional reserve banking system, it will loan it the certain amount that effectively increases the money supply by the amount they aim for, yes? I understand that the inclusion of fractional reserve banking in our money system creates a double standard between bankers and common people. What I am trying to be settled upon is that the dynamics of the banking system are not covert, are understood or able to be understood by the government and other involved parties, and are in essence generally operated with regardless of any fundamental moral or ethical problem they produce?
I am not in opposition to the ideas you are presenting, I am just trying to understand them with the sensibilities of a skeptic or a traditionally educated economist.
Thank you for again verifying that it is as good as counterfeiting in your understanding, but could you respond to the rest of my question?
If the government wants to [see the money supply increased] by a certain amount, then understanding the dynamics of the fractional reserve banking system, it will loan it the certain amount that effectively increases the money supply by the amount they aim for, yes? I understand that the inclusion of fractional reserve banking in our money system creates a double standard between bankers and common people. What I am trying to be settled upon is that the dynamics of the banking system are not covert, are understood or able to be understood by the government and other involved parties, and are in essence generally operated with regardless of any fundamental moral or ethical problem they produce?
I am not in opposition to the ideas you are presenting, I am just trying to understand them with the sensibilities of a skeptic or a traditionally educated economist.
If you are asking if credit expansion and contraction are chaotic and haphazard or centrally directed, the answer is, centrally directed by the Fed, not the Government. The Fed controls the quantity of bank reserves, as well as the reserve ratio, which together are the primary determinants of the money supply, M1. It creates/destroys reserves by "buying"/"selling" US Govt Securities from banks or anyone with a bank account, or "loaning" new reserves to banks. This "buying" and "loaning" is actually creating.
"Open market operations affect the supply of Federal
Reserve balances {reserves that banks keep at the Fed}
to depository institutions {banks}. Purchases
of securities increase the quantity of Federal Reserve
balances because the Federal Reserve creates the
balances to pay the seller by crediting the account of
the seller’s depository institution at the Federal
Reserve. Conversely, sales of securities decrease the
quantity of Federal Reserve balances because the
Federal Reserve extinguishes balances when it debits
the account of the purchaser’s depository institution
at the Federal Reserve. In contrast, when financial
institutions, business firms, or individuals conduct
transactions among themselves, they simply redistribute
existing balances held at the Federal Reserve
without changing the aggregate level of those
balances."
http://www.federalreserve.gov/pubs/bulletin/1997/199711lead.pdf
The Federal Reserve Banks are private corporations owned and controlled by the largest member banks, like JP Morgan Chase (a product of several mergers, Morgan, Chase (Rockefeller), Manhattan (Warburg), among others). Most of the directors of the Fed are picked by these super banks. It's true that the US President appoints the chairman, but the super banks or the powers behind them "appoint" the President. They had to own the Government to pass the Fed in the first place. In a capitalistic/materialistic society where cash is king and money makes the world go around, what does it make those who can create and destroy money at their discretion?
Last edited by al_9x on Thu Jun 21, 2007 9:56 am; edited 1 time in total
Sun Apr 29, 2007 9:46 am
tardus
Joined: 30 Mar 2007 Posts: 32 Location: Northern Virginia, USA
I am beginning to get a grasp on the "alternative" understanding of the Fed. Thank you for your patience with me thus far.
Now I wanted to ask you if you knew anything about the supposed unannounced bankruptcy of the USA declared at the Geneva Conventions of 1930-1932. Some seem to believe that this bankruptcy (which I haven't been able to find any direct evidence of in my research, only Executive Orders from FDR and Senate Reports that are supposedly "expressions" of it but also have regular history textbook rationalizations) made the USA become the property of its creditors. If you are part of this camp, then perhaps you can straighten some things out for me--if not, perhaps you would be interested in helping me research the theory or perhaps you've the knowledge to debunk it outright.
What parties, exactly, are implied as the USA's "creditors"? The private owners of the Fed? If so, could you explain the mechanisms by which the owners of the Fed gained ownership of the Federal United States when the bankruptcy was declared?
I have seen it suggested that the United States is actually two separate entities, and has been for some time (since 1871?); one being the original, sovereign United States of America, and one being a corporate entity (the Federal United States?) that has been mildly restructured to administer the bankruptcy of the country (itself? the original USA?). I have also read that there is some distinction with the two in the presentation of their names, such as the "UNITED STATES" (all caps) refers to the corporate US (just like your own name in all caps, like on your driver's license or SS card, refers to your legal strawman) while the "United States of America" refers to the real, territorial USA--but then I've also read in some places that the corporate US has "the United States of America" as its trade name.
How far back does the history of this duality go? How does the adjournment sine die of the Congress in 1861 and its alleged ceasing to exist as a lawful deliberative body at that point figure in?
What about the alleged secret meeting of all the top judicial officials in 1938?
What about the snowballing of the Uniformed Law movement up through the 1960's? What about the UCC?
What about the gold fringes on the flags hung in courtrooms (in Federal courts only?) What about Statutory Jurisdiction, how does it differ from Admiralty jurisdiction? Can you explain how we moved from Common Law to the Law Merchant to whatever we have now?
If the Federal United States is actually administering the (its own?) bankruptcy on behalf of its owners, then are her courts (Federal courts only? all courts?) merely administrative tribunals? Are our votes on propositions and in elections merely "recommendations" as if we were a panel of corporate employees? Do we actually become assets of the bankruptcy administration when we are informed by our mother on our birth certificate (I also read something a bit dubious-seeming about all of us being legally indicated as Bastards by the lack of a father's name on our birth certificate and thus coming under the care and jurisdiction of the Federal government by default?)?
If our courts (Federal courts only?) operate under an international contract jurisdiction, then are the vast majority of the ordinances, codes, and "laws" we are held to outside of Common Law actually contractual terms applied to us when we unknowingly accept the compelled benefit of the right to discharge our debts with Federal Reserve Notes rather than pay them with lawful currency? Do we have remedy in a reservation of rights under the UCC 1-207 with the amendment to our signature: "-without prejudice UCC 1-207" and a recourse in UCC 1-103.6? How do we go about establishing this reservation of rights--simply signing all contracts with an amendment under the UCC 1-207? What about contracts required to be accepted "unconditionally", such as court summons, licenses, etc?
Everything you can tell me about these things, I want to know. I will greatly appreciate you taking the time to tell me about them, should you.
Tue May 01, 2007 11:25 pm
tardus
Joined: 30 Mar 2007 Posts: 32 Location: Northern Virginia, USA
Disregard the above questions. I did the research myself. They don't lead anywhere other than the cold trails of self-proclaimed tax law gurus and pages of court cases lost by using the implied legal arguments.
Don't give up on some of the ideas just yet. I'll put you back onto the trail--it seems that the activists have switched tactics. Instead of directly attacking the system, they are probing it for weaknesses. They won't say this anywhere, but if you take a step back and look at the big picture, it becomes more obvious. You will see questions being asked, and court cases being tried with the intention of forcing them to admit things. I think they KNOW they are going to lose the cases when they go in. This is hard to explain until you know a bit more about the court system. I'll try to explain.
The best argument the "case law" people will give is that these ideas are false and ridiculous since there is no case law to back it up. You will see them chanting their "show me the cases!" line. This is designed to discourage those who are looking for the truth, which it tends to do quite effectively until you know these things:
1. Any time a case is going to be won in a way that the courts do not want on record, they dismiss the case and order it non-published. If the case is non-published, the case is not recorded! If there is no case record, there is no proof that this or that method works! This prevents anyone else from trying it again. The courts have been, through time, building up a list of recorded cases that protect their power. http://www.clr.org/rule23orders.html
Quote:
It has been reported that approximately 85% of Illinois appellate proceedings are not published.
2. If the paperwork is handled correctly, the case never gets to court. These methods also will not show in case law.
Now that you know that (which I hope you research and verify for yourself), here are two ongoing cases that I am following:
1. We The People Foundation Inc. v. United States
http://www.wethepeoplefoundation.org/
Through their studies, they found that their is a section of the Constitution that forces the government to answer questions from the people. It is called "the right to petition for redress of grievances". They used this right to ask the Federal government about the exact details of the Income Tax laws (lol!). The government has refused to respond (and incriminate itself), so the We The People Foundation have responded by refusing to pay taxes to a government that does not answer to it's people. "No answers, no taxes."
The founding fathers, in an act of the Continental Congress in 1774, said, "If money is wanted by Rulers who have in any manner oppressed the People, [the People] may retain [their money] until their grievances are redressed, and thus peaceably procure relief, without trusting to despised petitions or disturbing the public tranquility."
This very American Right of Redress of Grievances Before Taxes is deeply embedded in our law.
The founding fathers could hardly have used words more clear when they declared, "the people … may retain [their money] until their grievances are [remedied]."
By these words, the founding fathers fully recognized and clearly stated: that the Right of Redress of Grievances includes the right of Redress Before payment of Taxes, that this Right of Redress Before Taxes lies in the hands of the People, that this Right is the People’s non-violent, peaceful means to procuring a remedy to their grievances without having depend on – or place their trust in -- the government’s willingness to respond to the People’s petitions and without having to resort to violence.
2. Gilmore v. Gonzales
http://www.papersplease.org/gilmore/
or read all the other cases at http://www.papersplease.org/wp/
John Gilmore, one of the founders of Sun Microsystems, now independantly wealthy, is fighting the constitutionality of the request for identification within the united States. In particular, the right to fly without being forced to identify yourself multiple times whenever challenged by either Federal or Corporate employees. By fighting and appealing in court, he found that the entire basis for the airport identification requirement is a secret law that citizens are not allowed to read.
Quote:
The demand for ID does nothing for security while making honest Americans less free.
Quote:
John worked his way up the bureaucratic chain and was eventually told by United Airlines that there were security directives that mandated the showing of ID, but that he couldn't see them. These secret directives, issued by the Transportation Security Administration, are revised as often as weekly, and are transmitted orally rather than in writing. To make things even more confusing, these orally transmitted secret rules change depending on the airport.
Quote:
John Gilmore's case before the Supreme Court is about one thing: Secret Law.
In many ways, this is unfortunate. John's core issue has been the right of every American to travel freely in their own country. That issue has been obscured by the secret law issue. TSA lawyers claim in court that people CAN travel without an ID, by being searched more intensely. But when people actually try to do that, TSA employees in airports refuse. There's no published law to point them at, no way to say, "THIS is the real rule, not that sign you printed up and posted. Let me travel, you lawless thugs!".
Quote:
Oral arguments were heard on the 8th of December 2005 by the United States Court of Appeals for the Ninth Circuit. After arguments, the Court ordered DOJ [Department of Jusice] to provide them with the Secret Law for in camera [by the judge], ex parte [without the Defendant or Defense Attorneys]review. The 9th Circuit later rejected Gilmore's appeal.
His cases have been repeatedly thrown out, but he did manage to accomplish the discovery that secret laws exist. Another point won for the activists! Here is John's personal website for more information about him: http://www.toad.com/gnu/
I'm sorry that I can't answer all of your questions. I am looking into some of those topics myself. Just don't give up yet. The more people we have researching this information the better!
Thank you for your corrections. I am a laymen when it comes to modern economics. I made my initial post based on what a friend explained to me on the subject, and even that I misunderstood.
I see how my example was mislead, and how the money supply indeed does increase in such circumstances. I wanted to comment though on your statement that fractional reserve banking qualifies as counterfeiting. While the money supply is indeed increased, this is not a secret. If the government wants to increase the money supply by $90[and ultimately $900] (going back to our example), then it will then loan $100 to the banks, yes? "Counterfeiting" is not solely increasing the money supply, and there is no secrecy on the part of the banks to conceal the source of the new funds or their methods of operation. How does this qualify as crime?
Also, as far as I know, the central bank today tries to maintain a steady 1-3% inflation with their manipulation of credit. Inflationary booms and deflationary busts are more a think of late 1800's early 1900's economics.
So now are you now basicly saying you were wrong and the movie was true!
Fri May 25, 2007 11:32 am
tardus
Joined: 30 Mar 2007 Posts: 32 Location: Northern Virginia, USA
CrossDressingNazi wrote:
tardus wrote:
Thank you for your corrections. I am a laymen when it comes to modern economics. I made my initial post based on what a friend explained to me on the subject, and even that I misunderstood.
I see how my example was mislead, and how the money supply indeed does increase in such circumstances. I wanted to comment though on your statement that fractional reserve banking qualifies as counterfeiting. While the money supply is indeed increased, this is not a secret. If the government wants to increase the money supply by $90[and ultimately $900] (going back to our example), then it will then loan $100 to the banks, yes? "Counterfeiting" is not solely increasing the money supply, and there is no secrecy on the part of the banks to conceal the source of the new funds or their methods of operation. How does this qualify as crime?
Also, as far as I know, the central bank today tries to maintain a steady 1-3% inflation with their manipulation of credit. Inflationary booms and deflationary busts are more a think of late 1800's early 1900's economics.
So now are you now basicly saying you were wrong and the movie was true!
I think you are quite lost. It is never wrong to ask questions, and all of what is said in a 30-40 minute long nonfiction video presentation isn't going to be simply true or false. I have not been in opposition to anyone in the thread thus far, only in incomplete understanding. A bit of truth is more often useless unless every one of its facets is understood; what's more, it does not seem like any of us here are even close to reaching the truth of this matter, as dedicated as we are.
So now are you now basicly saying you were wrong and the movie was true!
Most sources deliberately (in my view) misrepresent / under-explain how the process works, a well designed tactic to later discredit those who object to the system.
which converges to 1/r, so it's d/r