understand fractional debt currency or understand nothing (loans, transaction, credit)

[gwynedd1]

Most of the solutions I see is which mittens would warm a naked man?

Our currency is a fractional debt based currency. What is that?

First a debt currency:

A debt currency is an IOU that is passed around. Allow me to demonstrate. This mirrors better gold backed fractional reserve currency where it started.

It usually needs two things, trust and ability to support it. You and I go out for coffee but I have no money. Before we go out I show you a bag of coffee beans and I request that you buy me a cup of coffee and I give you an IOU because surely I can produce a cup of coffee. You trust me as a "friend" and I can back it with performance because the beans are there. Now you and a mutual friend go out for coffee. You have no money but you say to your friend, "I have an IOU from gwynedd and you know he has a bag of coffee beans". Our friend accepts it and is now circulating. Its an IOU currency. Also notice two trips to the coffee house where before there would be none because currency is a valuable tool.

Now if you recall it requires trust and performance. Now what if I have another "friend" and I show him my bag of beans so he buys me a cup of coffee. Now the currency is growing and soon these IOUs may be used to buy tea as well and transactions seem easy. I do this 10 times but only have beans for 3 cups. I now have 7 cups more than actual performance. However since no one knows all seems well but in reality your IOU is at risk and I have engaged in fraud. I now have 7 more cups than I ever could have produced and enjoy a free ride. That is what we call fractional reserves. Since most don't all collect at once its OK in good times but when you need it most its not there. Keep in mind what would happen if I made good on paying off these IOUs or defaulted as worthless. The currency would be destroyed ( a depression).

Now realize in a banking scenario the bank pays interest instead of a benfiting from a friend's favor. The bank instead of drinking a cup of coffee enjoys its own interest benefit. The problem is when banks loan it out they promise it to you as a demand deposit. You see a $100 on the books but $90 is loaned out assuming a 10% fractional reserve. This has committed $190 dollars in circulation. Typically the $90 comes back into the banking system as a deposit and now another $90 is on the books. This then may be loaned out again at $81 dollars and so on with the banks collecting the spread in interest. A mere 3% spread fully loaned out is a 30% real rate of return on the initial deposit. Banks collect the spread on all currency in existence.

As grim as giving away the inflation tax to the banks is, it is even worse. All deposits either originate as dollar deposits from the Treasury which is borrowed by the Feds infinite money supply or is borrowed directly from the Fed by banks to create their initial reserves. These initial deposits then are loaned out to the public at interest and recycled through fractional reserves. However it is the taxing power of the government that underwrites the value of the loans. In other words its not even the banks coffee that is lent but our own. At best we are fleeced with inflation taxes that banks collect interest on or at worst the loans unravel and destroy our currency into depression.

Finally, since all dollars in circulation are given birth from bank loans all money is someones debt to a bank. The $100 in you pocket is someone else's car loan in circulation. Individuals may get out of debt but is impossible for everyone to get out of debt or there would be no currency. As of now with all the personal finance advice it will only work for you to pay off debt if another goes into debt or we simple have currency deflation which we are seeing today. How much can a fraudulent system be fixed?


"The few who understand the system, will either be so interested from it's profits or so dependant
on it's favors, that there will be no opposition from that class." -- Rothschild Brothers of London, 1863 "Give me control of a nation's money and I care not who makes it's laws" -- Mayer Amschel
Bauer Rothschild


"We are completely dependant on the commercial banks. Someone has to borrow every dollar
we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous;
if not, we starve. We are absolutely without a permanent money system.... It is the most important
subject intelligent persons can investigate and reflect upon. It is so important that our present
civilization may collapse unless it becomes widely understood and the defects remedied very soon."
--Robert H. Hamphill, Atlanta Federal Reserve Bank

[killer2021]

How many times are we going to go over this? Everyone knows that United States Dollar is just pieces of paper that eventually goes to zero. Why do you think everyone spends it as fast as possible?

[Woof Woof Woof!]

We know all this already.

[gwynedd1]

Originally Posted by killer2021

How many times are we going to go over this? Everyone knows that United States Dollar is just pieces of paper that eventually goes to zero. Why do you think everyone spends it as fast as possible?

Hello Killer,

Again fiat currency has nothing, absolutely nothing to do with the problem with fractional reserve debt instruments. They have nothing to do with each other. What you are talking about is black and what I am talking about is white. Do you know the difference between a Lincoln green back and a Federal Reserve note? That's why I am going over this.

[gwynedd1]

Originally Posted by Woof Woof Woof!

We know all this already.

Hi Woof,

I mean no disrespect but your post indicated you don't know the problem. There are many forms of fiat currencies. Tally sticks were sound fiat currencies based upon taxing power. That dollars have no value because they are a fiat currency is a myth because by paying taxes with it I say out of prison aka taxing power. Yes it may be abused.

[GregW]

A fiat currency is worth something because everybody believes it is worth something. The size of the something depends on the level of belief. We are losing our belief in our currency because we made up too much of it without creating the real wealth to back it up. Low belief = low value = inflation in prices = collapse = new currency