Monday, November 17, 2008

BAILOUT 3: WTF?

I just want to make one thing crystal clear: the bailout is about propping up a failed, fraudulent system. We are being asked to preserve what even Kashkari calls "the system" but we are not supposed to question the system itself. All the bailout articles in the mainstream press proceed from the assumption that the system is good and needs saving and only quibble about whether or not the bailout is the best thing for the system or not.

But I'm saying that the very system needs to be questioned. And if you read what follows, you'll understand why...

How "the system" works--against us and for the bankers

This "system" that Kashkari referred to is used to keep us in debt slavery. And I'm using the term "debt slavery" quite literally. We are literally slaves to our debts. It's why we never do the things we really want to do--we have to pay a mortgage, don'tcha know. Meanwhile, the mortgage company is literally robbing us because they didn't have the money to lend us in the first place. The only thing that created the "money" to "lend" us was our "borrowing" of the "money."

That's right, our borrowing is the only way more money can be created. Here's how the Federal Reserve Bank of Dallas explains it:

"Banks actually create money when they lend it. Here's how it works: Most of a bank's loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank once again holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times."


Just think about that for a minute. Let that sink in--money created by lending. I wish I could create money by lending. If I had that power, I'd never stop lending so I'd always make more money. And just when I was about to run out of money to lend, I'd simply lend some more so I'd have more money...that...makes sense, right?

We understand then, that this is the way our wobbly, fraudulent system works--there are a few people at the top (i.e., bankers) who are given magic powers to produce money out of nothing and the rest of us have to pay them exorbitant fees on pain of asset confiscation and/or financial ruination because...because...because we gave them these magic powers? That doesn't make any sense at all.

Divine Right

In fact, this scheme is terribly familiar and it's one that we thought we'd rid ourselves of for good. This scheme is just like the "divine right of kings," in which rulers in the past claimed to be ordained by the gods to rule over the people. It became evident (and was surely evident at the time) that such claims were poppycock, so eventually people correctly decided that they should rule themselves and the United States is a prime example of an attempt to do just that.

But then we allowed a privately-owned central bank (i.e., the Federal Reserve) to take over the creation of our money. They essentially assert a "divine right of money creation" over us. They openly tell us that they create their money out of our debt.

Think about it--in the Federal Reserve quote above, they openly admit that banks keep only a fraction of their deposits on hand. Indeed, the article puts it this way:

"Very little of this money (from savings and checking accounts) is kept in the bank's vault, however. While the Federal Reserve requires banks to keep a specified percentage of customer deposits on hand to meet routine withdrawals, they lend the excess."


Long story short, banks do not actually have on hand the money they are "lending." And the very act of "lending" creates more money on which they base their reserve requirements to then "loan" more "money," on and on, in a circular fashion of upward-spiraling profit for them and downward-spiraling debt for you and me (unless you're a banker).

In the Fed's own example of money creation, they point out that "a bank's loans are made to its own customers and are deposited in their checking accounts." Fine and dandy, but here's the catch--when one goes into a bank and gets a loan, the bank does not give one the amount of the loan in cash or gold or anything with inherent value. They simply "approve" the loan and get you to sign a promissory note. Bingo! That's the moment the "money" is created that puts you in debt and allows them to say they have that much more in deposits so they can do the same thing all over again. BUT NO ACTUAL CASH OR ANYTHING OF REAL VALUE EVER ENTERED INTO THIS TRANSACTION (except maybe what you put up as collateral).

And that's how "money" is created by banks--we do it for them. They can't "loan" us "money" unless we agree to pay them the money over time, plus interest. So not only are the banks keeping us in debt slavery, we are essentially financing our own indebtedness. We're creating only money/profit for the banks and debt for ourselves.

The conventional wisdom is that it all balances out, but that's not really true. Let's say I agree to an auto "loan" for a $30K car. At the end of 5 years (or whatever the loan period is), my labor has created $30K for the bank that didn't previously exist before the bank "loaned" it to me. And I've paid them interest on top of that.

So conventional wisdom says that well, it's true that the bank now has the money, but you've got the car, which is equal in value to the amount of money "lent" to you. Not true--the car is worth less 5 years later than it was when I first bought it. It's no longer worth the amount of money my labor has put in the bank's coffers. In short, the bank is way ahead (thanks to my labor) and I'm still behind (thanks to their chicanery). Indeed, since only banks can create money and they only loaned me the amount of the principal, how can I pay the interest and not still always be in debt? Remember, they only created the amount I financed, not the amount it takes (i.e., interest) to make good on the debt.

Why don't banks bail themselves out--they "create money when they lend it?"

I say all that to say that it's obvious that the system is fraudulent. That's why it makes no sense to continue to prop it up--unless you're one of the people with magic powers. Then it makes perfect sense. Except that it doesn't. If, as the Fed tells us, that banks create money through lending, why don't they just make more loans and bail themselves out?

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