What is Money These Days?

What ever your thoughts are about money, there is no getting away from the enormous power it has to influence and control our lives.

It is what makes the world go round, the essential tool at the core of our civilised world.

With peoples behaviour so closely linked to money, it is essential to have a good understanding of money before forming an opinion on why stuff happens.

There are many great people out there who’s moral, political or environmental judgements can become misguided by not fully understanding the true nature of our money system.

Very few people do, and this includes many of our leading bankers and politicians.

Money is at the heart of all of our lives and it is time we understood what money is and how it works.

Your Bank Account

Many people who put their savings in bank accounts believe the interest payment they receive each year is money for nothing.

But the bank isn’t giving you this money because it likes to give away money, it is rewarding you for taking a risk with your savings
What risk though?
The very small risk that the bank will go bust and leaves you penniless.

A risk that is so small that many people assume it isn’t a risk at all, they begin to believe that money in their bank account is just cash that they own.
This is not true, They are not the owners of money, they are owed money by that bank.
The legal owner of the money is not you it is your bank.

If you want to be the legal owner of your money you would have to withdraw it physically as cash.

You just have a dubious IOU from them, otherwise known as credit, which is what money has become these days.

There nothing physical to back this modern credit money and there is no real limit on how much can be created.

How is money created

Over time the total amount of credit money that exists increases, this is inflation.
So where is this extra increase of new money coming from and how is this new money created?

We all know that the money we earn comes from our employer. But where did that money come from in the first place?
What happens if you follow the paper trail of your money all the way back to the day it was originally created?

This is Dave.

If I lend Dave a tenner, I am giving him £10 of my money with the hope I’ll get it back one day.
This is what we would all consider to be a loan.
This is simple. No new money has been created.

However

This is not what happens when you borrow money from a bank.

Dave is in his overdraft,
So when Dave withdraws a tenner from the cashpoint he is borrowing £10 from the bank.
When that £10 note comes out of the cash machine £10 of brand new credit money is instantly created on that banks balancesheet/computer system as an asset.
Or said another way
When that ten pound note that comes out of the cash machine, £10 is created instantly.
You have to understand that when Dave borrowed that £10 note
It was not someones savings,
It was not money the bank had set aside for lending,
It was not money the Bank of England or the Government decided to add to the economy that day
It just simply did not exist.

It was created out of thin air by that bank.

They’re not actually printing new £10 notes but they are creating more promises to pay which is what modern day money is.

Many people wrongly assume that banks lend out other customers money, but this can’t be true.
This may have been true in the past. But these days banks are labeled as too big to fail and are bailed out by governments and because of this, money in a bank account is now widely regarding as being just as real and safe as cash in your hand and therefore the same.

Lets say you put £50,000 in your bank account,
The government has guaranteed its safety which makes it just as real as the cash in your hand.
A new bank customer walks in to your bank and borrows £40,000 which he takes out in cash.
where has that £40,000 come from?
If you look at your bank statment it says you still have £50,000 so you know it hasn’t been lent out from your savings
In fact it hasn’t been lent out from anyone’s savings.
It was created out of nothing.

Money is created by the banks on your high street and they have created 97% of all the money in existence today.

So if anybody ever asks you where does money come from? You can tell them:

Money is created out of thin air when a bank makes a loan.

It is loaned into existence.

Hard to believe I know, but it’s true, one famous economist described it like this:

“The process by which banks create money is so simple the mind is repelled”

Such a small number of people understand this great power that private banks have, that it could be described as bankings greatest secret and it is this little understood power that allows them to make the enormous profits they do.

So what is money?

There are many ways you can get money
But there is only one way you can get newly created money and that is to ask a privately owned bank to put you in debt.
And if money is created from putting people in debt and nothing else.
Then that is what it is.

Money is Debt (aka credit)

And therefore

Debt is Money

If Money is Debt, then what happens if everyone starts paying off their debts?

Money is created when someone takes out a bank loan but it is also true that it vanishes when someone pays off a bank loan.

So if the majority start to pay off their debts the amount of money that exists starts to shrink.

And with money harder to come by, people start spending less

And this is what causes a recession.

It may seem bizzare but the great depression of the 1930′s actually happened because more loans were being paid back instead of being created.

The same applies to our world today, If the world and its people ever stop increasing the amount of debt they owe to the banks we will have a global recession.

With our current system the only way to stop recessions is to hope and persuade the majority of world to go more and more into debt for eternity.

This is not only ridiculous but unsustainable in exactly the same way a ponzi scheme is unsustainable.

To Conclude

Our over extended debt money system may soon be approaching an inevitable crisis whether this be a depression or hyperinflation.

There is no way of stopping it now, only ways to delay it or drag it out for longer.

But when it is over maybe we should try and find a new system of living,

a system that doesn’t rely on an ever growing mountain of unsustainable debt based money.