Before there were banks, bartering was a common tool used by people to acquire the things they needed or wanted. Goods and services were exchanged for other goods and services. Eventually, a need to "standardize" became a prevalent idea, and "commodity" based trade came in the picture. One could trade goods for essentials such as grain and rice etc.. We can find examples of all of these forms of trade in many cultures from Biblical times, Egyptian history, the Greeks etc. As time progressed, the notion that gold and other items were valuable came into play, and thus began "commerce." A price for gold and other precious metals was set, and it made it easier to trade, as there was now a standard.
This gave birth to modern banking. People needed a place to store their coins, and "banks" offered a safe place to keep them. A small fee was incurred for the service of protecting the coins, and a piece of paper was issued stating how much "currency" one had stored there. This is the birth of paper money. People deposited their coins and were given a "note" stating how much was stored, with a value attached to it. However, merchants began to increase the "cost" of their goods and services, and this led way to "inflation." Banks were issuing more notes than they had gold to back it, and merchants continued to raise prices to offset the effect of it. Over a long enough timeline, the value of the notes becomes worthless and a "collapse" of the economy based on these notes would take place. The collapse was sped up when people realized their notes weren't as valuable as their coins, and they would rush to the bank to pull out their currency. The bank would go bust in the process.
We can observe this all through history. There are many examples, from the collapse of the great Roman Empire to the fall of the Weimar Republic of Germany. In fact, this is happening right now in the United States of America. Let's see how history repeats itself. On December 23, 1913, Woodrow Wilson signed the Federal Reserve act into law. This established the first centralized banking system in the country. The Federal Reserve Banks are privately owned and only banks that are members of the system hold stock. Directors of the Federal Reserve are chosen by stockholders. It's interesting to note that at the time, the U.S. Dollar was backed by gold. The government was limited to how much money it could spend, as our currency was backed by gold... Or was it really?
The Vietnam War brought doubt from several nations, who as a result, tried to get their gold back from the U.S.. They suspected that the U.S. was printing more money than it had gold to back it up. France was the nation that tried first, but Nixon put an end to that. On national television, under executive order, he froze the transfer of the gold and the birth of "fiat" currency in America began. America abandoned the gold standard for a new system. One would say, "Well that doesn't make sense. Where does the money come from then?" It comes from debt, and starts with the Federal Reserve.
Here's how it works- The government creates "Bonds" which represent our debt. The Federal Reserve holds the bonds in exchange for money, or "Federal Reserve Notes." Obviously, there is a fee, in the form of interest, attached to the loan. The FED prints the money and it becomes distributed in the economy. One should also be aware that other countries such as Japan and China, and people in the private sector purchase our debt in the form of "Treasury Bonds." Of course, the U.S. has to repay these loans, with interest, and still have enough to pay it's overhead. Enter taxes. The population provides the money to pay back on part of the interest, but not enough to lower the principle. I should add, there are attempts to control this debt, but as soon as the "Debt Ceiling" is reached, several things start to happen- More taxes are incurred, to generate more income, budget cuts are incurred, to lower expenses, or the ceiling is raised, allowing the government to borrow more money.
Another way money is generated, is through "Fractional Reserve Banking." For example, you take $100 to the bank. The $100 doesn't stay at the bank though, only a fraction of it does. The bank turns around and loans the money out with fees and interest added, using your initial $100 deposit. The bank makes money with your money. In other words, money is generated out of thin air, fueled by debt. More debt is created, than the amount of money created. And we haven't even started on the stock market or credit cards and how money is created there either. I think by now, you're getting the picture.
The system is a perpetual debt machine, but anyone who knows anything about perpetual motion, knows it can't exist without a constant energy source. With work comes the transfer of energy, and subsequently a loss of energy, according to the Laws of Thermodynamics. As long as we fuel the fires of debt, the perpetual debt motion machine will continue to work. However, what happens when inflation kicks in and everybody runs to the bank? Will printing more and more paper money be the solution in the form of "Quantitative Easing" from the Federal Reserve? We already know that this has never, not even once, worked in history.
Over a long enough timeline, the value of the paper currency will eventually reach zero and the economy of that paper money will collapse. It doesn't matter how many taxes or budget cuts there are. Inflation kills the value of the paper money as more and more money is printed and it becomes worth less and less and "Hyper-Inflation" takes hold. See any connections with the history of money and banking now? People have fought this machine for centuries. Remember Jesus in the Bible (Matthew 21:12)? Our forefathers left Britain to get away from the control of centralized banking. After the signing of the Declaration, the U.S. Constitution was written to try to protect future generations from this. Thomas Jefferson said that if he could make one amendment to the Constitution, it would be to prevent the government from borrowing money. True story. Remember Kennedy? He stood up to the Federal Reserve, but after his death, his actions were reversed....
Now that you have a highly simplified understanding of the history of money and banking, you can begin your journey to understand more complex economic terms and concepts. I would encourage you to research the terms used throughout this article in an effort to gain a better understanding of the current state of affairs, both in the U.S. and globally as well. I leave you with the following data to observe, and hope that you will seek out additional information which will help all of us make better decisions to prepare for our future, which we can make more positive. That's right! We can make our future more positive! Change begins with us, first through education, and then taking action in our own lives to set the example for others to follow. Here's the data, you provide the decisions for a better future!
-The current U.S. Debt is past the 16 Trillion $ mark and is exponentially climbing.
-On average, the U.S. debt has risen 9% each year for the last ten years.
-Since 2009, the U.S. has accumulated more debt than it did under the first 42 Presidents.
-According to the U.S. Census Bureau, 146 Million Americans are considered "low income."
-The # of Americans on food stamps is reaching 50 Million.
-Utility bills (such as electricity) have risen faster than the rate of inflation 5 years in a row.
-According to U.S. today, in some parts of the country, water bills have tripled over the last 12 years.
-The U.S. Congress to date, has never passed a law authorizing an audit of the Federal Reserve.
-At this point, one out of every four working class Americans have a job that pays less than $10/hr.
-Today, the wealthiest 1% of American's net worth, is greater than the combined net worth of the bottom 90%.
-According to Forbes, the top 400 wealthy Americans have more wealth than the bottom 150 Million Americans have combined.
-Today 40% of Americans have less than $500 in savings.
-The U.S. government hands out money to 128 Million Americans each month.
-In 11 separate U.S. states, the # of U.S. government dependents exceeds the # of private sector workers.
-Entitlements accounted for 62% of all government spending in the fiscal year of 2012.
-Here's the price increase of some of the essentials we buy, since 2002:
*Gasoline 158%
*Bread 39%
*Eggs 73%
*Milk 26%
*Ground Beef 61%
*Pasta 44%
*Coffee 90%
*Margarine 143%
*Electricity 42%
-The U.S. debt to GDP ratio has risen from 67% to 103% since 2007. Let's examine some other countries debt to GDP ratio since 2007-
*France increased from 64% to 81%
*Spain increased from 40% to 69%
*Ireland increased from 25% to 106%
*Portugal increased from 64% to 108%
*Italy increased from 107% to 121%
*Greece increased from 106% to 171%
*Japan increased from 172% to 211% (it should be noted that 95% of Japan's bonds are owned domestically)
Sources:
www.wikipedia.org
www.federalreserveeducation.org
www.economiccollapseblog.com
Glyn Davies-"History of Money"
I wonder if and when they manage to pawn off all of our historical landmarks if people will be more apt to respond to this? Or do they care?
ReplyDeleteThere is a lot of debate, discussion and concern about this going on right now. In a future post, we will discuss the acquisition of property and resources from outside our country, and the future potential of it as well. Education is key, and I believe people, in fact, do care and will take steps to improve the future for our children. Thanks for reading and taking the time to post.
Deletecheck out http://mises.org/ for access to lots of Austrian Economic info if you have not already. Reason.com is a decent source for news. I have more books I can bring from home as well. I will give them to Vada for you both. Tehe!!
ReplyDelete