“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.” -Jonathon Galbraith, Former Harvard Economics Professor

“It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford

Fractional Reserve Banking

Fractional Reserve banking originated many centuries ago, before the existence of governmental monetary authorities such as the Federal Reserve or the Swedish Riksbank, the oldest Central Bank in the world established in 1668. Even before the existence of institutions which now resemble modern banks. It originated with Goldsmiths; precious metal owners would keep their deposits within the confines of the smiths' safekeeping depositories, and in exchange they received a note of deposit which was accepted as currency in trade. Early on, the smiths noticed that very few people would ever exchange their notes for gold at the same time, and began issuing more notes than they had gold reserves as a form of income. It was this action that transformed the goldsmiths from passive holders of metal currency to interest earning banks, and Fractional Reserve Banking was born.

In the 1600s, Governments began establishing Central Banks, which were granted the legal authority to set reserve requirements and to issue the 'monetary base'.

Reserve Requirements

The United States Federal Reserve has a 'reserve requirement' 10% (3% for institutions with under $79.5 million in total accounts).

What this means functionally in the United States:

• A bank will receive a deposit of $100

• They will put $10 aside as per the 'reserve requirement', and loan out 90 dollars to another person.

• After financial transactions take place, the 90 dollars will end up in another bank. This bank will put 9 dollars in reserves and loan out 81 dollars to a new person.

• The process repeats until there are 1000 dollars now in the banks' books, with only 100 having been deposited originally. In addition, banking institutions earn interest on all of these loans, reaping profits on all 1000 dollars in new money creation.

Interest

Lets take an example of a mortgage. If someone wants to buy a house, they will need to take out a loan. For this example, the loan is $200,000, and the interest rate is 7.5% fixed interest, and the time frame is 30 years.

What this means functionally:

• Interest is usually computed monthly, so 7.5% divided by 12 is .625.

• Every month, you will pay .625 in interest on the mortgage, and then pay off some of the principle, that is, the actual money you owe.

• For the first month, you will pay .625% of 200,000, which is $1,250.

• But this is only the interest payment. On top of that you will pay off some of the principle, the actual mortgage.

• To pay off 200,000 with even payments each month over 30 years, ~555 would be the payment. However, banks will often structure the payments so the money going towards principle starts out small and gradually increases. Likewise, the payment on interest will gradually decrease as the principle gets smaller each month.

Regardless, the person who took out the loan will end up paying more in interest than they originally received in their loan, paying back between $400,000 and $500,000 in total depending on how the deal was structured.

Without context this is disturbing, and some will try to justify it, citing 'bank risks' or other talking points, but when you understand fractional reserve banking, how the bank is profiting immensely off of this money not just with the person who took out the mortgage but also with nearly a dozen others, all without producing goods or services, simply with a few clicks of a button, and how money is debt, the bigger picture starts to become clear. But there is still a lot more context to add.

I will return to this mortgage example soon.

Who owns the Federal Reserve?

(ex)Congressmen, Dennis Kucinich, once claimed that "The Federal Reserve is no more federal than the Federal Express". How true is this claim? The skeptic communities will admit to the Fed being privately owned, but point to the fact that policy is partially governed by the Federally-appointed Board of Governors as evidence that it operates in the interest of the American people. The actual policy setting committee is the Federal Open Market Committee, which consists of the 7 members of the Board of Governors and 5 Federal Reserve Bank presidents (The other 7 Federal Reserve presidents attend meetings and participate in discussions but do not vote). It is important to note that the President is required by law, as per section 10 of the Federal Reserve Charter, to "have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests... of the country" in his Governor appointments (And I want to emphasize, these are appointed officials, not elected officials. Not one person involved in monetary policy is elected by the people). Once appointed, Governors are entirely independent and cannot be removed due to their policies. The FMOC meets 8 times a year and its minutes are secret. Their decision is only meant to "provide guidance to the Manager in the conduct of day-to-day open market operations", where 'manager' refers to the Federal Reserve Bank of New York, according to federalreserve.gov. Beyond these 8 meetings a year which set guidelines, the 12 Federal Reserve banks operate independently and are owned privately. Specifically, they are owned by other banks, who are considered 'member banks', which amount to 40% of the banks in the United States.

Money is Debt

Check out this Global Debt Clock over at The Economist. Apparently, the world is 50 trillion dollars in debt.

Who owns all this debt? To answer the question, we need to answer 'where does money come from?'

All money originates from banks. Either a commercial bank creates money through fractional reserve banking, or the Federal Reserve creates it.

When the US Government wants to create more money, they exchange Treasury Bonds for Federal Reserve Notes, what we know as money ('Federal Reserve Note' is affixed on the top of our bills, indicating who owns the money process). This creates government debt, and most of the time, money isn't even created, it is simply 'electronically credited'. To print money, the Federal Reserve only needs to pay the physical cost of the printing.

Every country in the world, with the exception of North Korea, Cuba and Iran, operate this way with private central banks.

It is not a coincidence that the US Dollar has lost 95% of its value since the inception of the Federal Reserve in 1913. The government has to create more debt to pay off interest, thereby creating more interest.

The United States government pays about $450 billion per year for interest.

You can trace back the $50 trillion dollars of global debt back to a variety of institutions, but ultimately they all trace back to a private central bank. This is why the US National Debt of ~16 trillion will NEVER be repaid, and any politician who claims to have this as part of their platform without also having massive reform of the monetary system, is either intentionally dishonest or underinformed.

By the very nature of private central banks and the process of money creation, there will always be more debt than there is actual money.

Fiat Currency

In 1971, Richard Nixon unilaterally made the move to officially sever all ties of the US Dollar to gold. I say officially because the Gold Standard effectively ended in practice in 1933, when FDR unilaterally required all citizens to turn in their gold to the Federal Reserve and stopped accepting certificates in exchange for gold. By 1971, between the full escalation of the Vietnam War, whose cost was nearing 100 billion dollars and the bloating programs of Johnson's Great Society, it was clear that the United States was spending more money than there could possibly be in gold reserves.

Understanding that there is nothing tangible backing the dollar is important to the big picture of how our monetary system is a scam.

I have written an in depth analysis of the Petrodollar, how the stability of the US Dollar is now tied to the international pricing of Oil on the dollar, here.

Back to the Mortgage Example, Briefly

When the bank gave out the original $200,00 loan, we can say that they have created $200,000 dollars through fractional reserve banking. However, between $400,000 and $500,000 was repaid to the bank. How does this work, exactly? The recipient of the mortgage must compete on the market for those other ~$250,000 from an intrinsically scarce money supply, and therefore, someone else (or more accurately a combination of people) must lose ~$250,000 dollars on the market.

The combination of interest and debt means the money supply must grow continuously for the system to work. In addition, interest takes money out of circulation, causing money to circulate slower, again requiring more money to enter the system.

The Web of Ownership

For those who are interested, here is a fascinating study of bank and corporate ownership. The methodology was datamining the Orbis Marketing Database, containing information on more than 30 million economic actors. It was published in New Scientist (the article linked goes into the details I lay out here), a respected and mainstream publication.

The study identified the top 1,318 transnational companies, mainly banks, and found some fascinating characteristics.

• Between them, they generated 20% of global revenues

• The ownership of these 1,318 mainly came from other owners within the group of 1,318.

• These 1,318 companies collectively owned through their shares most of the other 40,000 firms, representing a further 60% of the global revenues, for a combined 80%.

From the article:

"When the team further untangled the web of ownership, it found much of it tracked back to a "super-entity" of 147 even more tightly knit companies - all of their ownership was held by other members of the super-entity - that controlled 40 per cent of the total wealth in the network. "In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network," says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group."

James Glattfelder's TED Talk can be viewed here.

Conclusion

It is not a hyperbole to say that the global financial system is one connected system, controlled top-down, with a global elite controlling a vast majority of the worlds wealth. The handful of owners of this economic web are the owners of the member banks of the Federal Reserve and other private central banks.

There are two types of people in this world, those who have debt, and those who own it. The latter have constructed a system that both is beneficial only to themselves and is unsustainable.

I'll post Part II, examining specific, modern examples of economic hegemony and corruption, probably this afternoon. Thanks for reading. As always, input and criticism is appreciated.