9 Mind-Blowing Facts About Money

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China Invented Every Form of Money

China:

  • Seized gold six centuries before Franklin Roosevelt, in order to prop up its fiat currency and prevent runaway inflation

Debt Forgiveness Is The Basis of Modern Civilization

Religions were founded on the concept of debt forgiveness.

For example, Matthew 6:12 says:

And forgive us our debts, as we forgive our debtors.

Periodic times of debt forgiveness – or debt “jubilees” – were a basic part of the early Jewish and Christian religions, as well as Babylonian culture.

David Graeber, author of “Debt: The First 5,000 Years” told Democracy Now:

If you look at the history of world religions, of social movements what you find is for much of world history what is sacred is not debt, but the ability to make debt disappear to forgive it and that’s where concepts of redemption originally come from.

Ambrose Evans-Pritchard wrote in 2009:

In the end, the only way out of all this global debt may prove to be a Biblical debt Jubilee.

Indeed, the first recorded word for “freedom” in any human language is the word for freedom from debt.

(Moreover, there is a long-standing legal principle that people should not have to repay their government’s debt to the extent that it is incurred to launch aggressive wars or to oppress the people … what is called “odious debt”).

The Real Reason Money Was Created?

Everyone was taught that money was invented to replace the messy business of barter. It’s hard work walking my cow all the way to your village to trade for firewood … and then carrying all of that firewood back home. And what if no one wants my cow?

But economist Charles Goodhart – a former member of the Bank of England’s Monetary Policy Committee – anthropologist David Graeber, and other experts on the history of money say that this is a myth.  (Bloomberg has written on this issue.)  Instead, they say that money was invented to finance war, and to keep score while armies went about pillaging and looting.

(We’re not vouching for their theory, or saying that money is inherently bad.  We just think it’s interesting that there are alternatives to the “cumbersome barter” theory.)

Lifespan of Currencies

The average life expectancy for a fiat currency is less than 40 years.

But what about “reserve currencies”, like the U.S. dollar?

JP Morgan noted last year that “reserve currencies” have a limited shelf-life:http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/10/Reserve%20Currency%20Status.png

As the table shows, U.S. reserve status has already lasted as long as Portugal and the Netherland’s reigns.

Will the dollar last as long as Spain, France or Britain’s reserve currencies?  It’s impossible to know.

But given that the dollar’s reserve status has been slipping away for many years – and that the European Union (the world’s largest economy) has now entered into a currency swap agreement with China – the dollar’s reign may only have a couple of years left.

Big Banks Are Not Really In the Banking Business

Everyone thinks of banks as holding our deposits safe, and extending loans based upon the amount of deposits they hold in their vaults.

This is no longer true.

The big banks currently do very little traditional banking. Most of their business is from financial speculation (which, sadly, metastasizes into manipulation and criminal behavior).

For example, less than 10% of Bank of America’s assets come from traditional banking deposits.

Time Magazine gave some historical perspective in 1993:

What would happen to the U.S. economy if all its commercial banks suddenly closed their doors? Throughout most of American history, the answer would have been a disaster of epic proportions, akin to the Depression wrought by the chain-reaction bank failures in the early 1930s. But [today] the startling answer is that a shutdown by banks might be far from cataclysmic.

***

Who really needs banks these days? Hardly anyone, it turns out. While banks once dominated business lending, today nearly 80% of all such loans come from nonbank lenders like life insurers, brokerage firms and finance companies. Banks used to be the only source of money in town. Now businesses and individuals can write checks on their insurance companies, get a loan from a pension fund, and deposit paychecks in a money-market account with a brokerage firm. “It is possible for banks to die and still have a vibrant economy,” says Edward Furash, a Washington banks consultant.

Indeed, even though the taxpayers have thrown trillions of dollars at the “too big to fail” banks, they largely stopped loaning to Main street … and it was only the smaller banks that kept making loans.

Inequality Today In America Is Worse than In Ancient Slave-Owning Societies

Inequality is much worse than you think …

Indeed, inequality in America today is twice as bad as in ancient Rome, worse than it was in Tsarist Russia, Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America.

Quantitative Easing Hurts the Economy

81.5% of all money created through quantitative easing is sitting there gathering dust … instead of helping the economy.

Indeed, quantitative easing actually hurts the economy, Main Street, and the average American.

Yes, The U.S. Has Defaulted

It is widely stated that the U.S. government has never defaulted.  In reality, the U.S. has partially or fully defaulted on numerous occasions.

How Money Is Really Created

Banks create money out of thin air, without regard to whether or not they have deposits on hand.

This sounds like an outrageous statement … but the Federal Reserve has said as much.

For example, a 1960s Chicago Federal Reserve Bank booklet entitled “Modern Money Mechanics” said:

[Banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.

Economist Steve Keen notes:

As long as 4 decades ago, the actual situation was put very simply by the then Senior Vice President, Federal Reserve Bank of New York, Alan Holmes. Holmes explained why the then faddish Monetarist policy of controlling inflation by controlling the growth of Base Money had failed, saying that it suffered from “a naive assumption” that:

The banking system only expands loans after the [Federal Reserve] System (or market factors) have put reserves in the banking system. In the real world, banks extend credit, creating deposits in the process, and look for the reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand; over time, its influence can obviously be felt. (Alan R. Holmes, 1969, p. 73; emphasis added)

Moreover:

(1) William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, said in a speech in July 2009:

Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They don’t need a pile of “dry tinder” in the form of excess reserves to do so. That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference.

(2) On February 10, 2010, Ben Bernanke proposed the elimination of all reserve requirements:

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

Under the current fractional reserve banking system, banks can loan out many times reserves. But even that system is being turned into a virtually infinite printing press for banks.

Germany’s central bank – the Deutsche Bundesbank (German for German Federal Bank) – has also admitted in writing that banks create credit out of thin air.

Steve Keen points out that 2 Nobel-prize winning economists have shown that the assumption that reserves are created from excess deposits is not true:

The model of money creation that Obama’s economic advisers have sold him was shown to be empirically false over three decades ago.

The first economist to establish this was the American Post Keynesian economist Basil Moore, but similar results were found by two of the staunchest neoclassical economists, Nobel Prize winners Kydland and Prescott in a 1990 paper Real Facts and a Monetary Myth.

Looking at the timing of economic variables, they found that credit money was created about 4 periods before government money. However, the “money multiplier” model argues that government money is created first to bolster bank reserves, and then credit money is created afterwards by the process of banks lending out their increased reserves.

Kydland and Prescott observed at the end of their paper that:

Introducing money and credit into growth theory in a way that accounts for the cyclical behavior of monetary as well as real aggregates is an important open problem in economics.

In other words, if the conventional view that excess reserves (stemming either from customer deposits or government infusions of money) lead to increased lending were correct, then Kydland and Prescott would have found that credit is extended by the banks (i.e. loaned out to customers) after the banks received infusions of money from the government. Instead, they found that the extension of credit preceded the receipt of government monies.

Indeed, Keen says that 25 years of research proves that creation of debt by banks precedes creation of government money, and that debt money is created first and precedes creation of credit money.

This angle of the banking system has actually been discussed for many years by leading experts:

“The process by which banks create money is so simple that the mind is repelled.”
– Economist John Kenneth Galbraith

“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.
– Robert B. Anderson, Secretary of the Treasury under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report

“Do private banks issue money today? Yes. Although banks no longer have the right to issue bank notes, they can create money in the form of bank deposits when they lend money to businesses, or buy securities. . . . The important thing to remember is that when banks lend money they don’t necessarily take it from anyone else to lend. Thus they ‘create’ it.”
-Congressman Wright Patman, Money Facts (House Committee on Banking and Currency, 1964)

The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented.”
– Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920s.

“Banks create money. That is what they are for. . . . The manufacturing process to make money consists of making an entry in a book. That is all. . . . Each and every time a Bank makes a loan . . . new Bank credit is created — brand new money.”
– Graham Towers, Governor of the Bank of Canada from 1935 to 1955.

Additionally, in First National Bank v. Daly (often referred to as the “Credit River” case) the court found that the bank created money “out of thin air”:

[The president of the First National Bank of Montgomery] admitted that all of the money or credit which was used as a consideration [for the mortgage loan given to the defendant] was created upon their books, that this was standard banking practice exercised by their bank in combination with the Federal Reserve Bank of Minneaopolis, another private bank, further that he knew of no United States statute or law that gave the Plaintiff [bank] the authority to do this.

The court also held:

The money and credit first came into existence when they [the bank] created it.

(Here’s the case file).

Justice courts are just local courts, and not as powerful or prestigious as state supreme courts, for example. And it was not a judge, but a justice of the peace who made the decision.

But what is important is that the president of the First National Bank of Montgomery apparently admitted that his bank created money by simply making an entry in its book ….

Moreover, although it is counter-intuitive, virtually all money is actually created as debt. For example, in a hearing held on September 30, 1941 in the House Committee on Banking and Currency, then-Chairman of the Federal Reserve (Mariner S. Eccles) said:

That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.

Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, said:

If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent 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. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. 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.

(Former Fed chairman Alan Greenspan was so worried that the U.S. would pay off it’s debt – causing the fed to “lose control of monetary policy” – that he suggested tax cuts for the wealthy for the purpose of increasing the debt.)

There is a growing movement to give the power to create money and credit back to the government, so that the people can save many billions of dollars in interest payments to the big banks.

But the giant banks are close to negotiating a secret trade treaty which would allow them to keep their monopoly on money creation.

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  • Syrin

    Great article

  • gozounlimited

    You Can Go Your Own Way …….. http://www.youtube.com/watch?v=p8Ojjn35kP8

  • HappyGirl

    Basically, you lost me at the video.;

  • Honest Harry’s Used Cars

    That’s a great graphic, for a Cracked Magazine article. But it does not add any credibility to this extremist rant about the end of the world as we know it. Though I’m sure this article will get posted on What Really Happened and ZeroHedge. But, even if they’re fun to read, they’re are not really credible news sources.

    TPP is not what is described here. TPP is something else. It depends on the perspective one takes looking at the evidence thus far. TPP may not ever even be passed into law. Like ObamaCare, it may be passed into law, and ultimately, removed from law because it is seen as just another pie-in-the-sky mistake thought up by doom-saying reformers. That was the justification for ObamaCare. It was passed because the country would fall part trying to pay for Medicaid and Medicare. Now, it looks like ObamaCare is about to be rescinded because it is so foolhardy.

    Here’s the problem with what’s being said here about TPP. There is a tremendous amount of anxiety and animosity felt by the authors of this and other similar blog sites. These blogging-kooks all believe that the country should be some sort of socialist paradise where everyone has a full head of hair, a pretty young wife and a coyote hide with the head still attached hanging from their belt. LoL!

    The current social unrest is no different from what has happened in the U.S. every time there is an economic downturn. The socialists come out of the woodwork, howling about conspiracies and murmuring vague and snide insinuations about some supposed criminal acts of the imaginary 1%

    These malcontents are invariably disaffected America-hating losers. Malcontents have been predicting the downfall of the country since before Lincoln, since before Madison and even before Hamilton died in a duel. There were even those in Britain who predicted the disintegration of the colonies while Joe Warren was still alive. He died at Bunker Hill.

    But there’s no evidence of anything of the sort anywhere today. But it makes good copy on the idiot-blogs. There’s really only all this hubbub being peddled in the alternative media about how the whole country is about to sink beneath the waves. -Take a deep breath. Take a deep breath, put down the can of Mountain Dew, shut off the computer, and go take a good look outside. Is there water rising in the streets? Are people pushing wheelbarrows full of dollars down the street? Are the local stores only taking gold and Yuan as payment for groceries and gasoline?

    LoL, you jackasses. Get a life.

    • h5mind

      Why is it that otherwise intelligent, rational adults think the only way they can get their point across is by insulting anyone who doesn’t share the same viewpoint? OK, I get it: people overreact; they’re often gullible, panicky, and perhaps a little too quick to believe the sky is falling. But look where they get their “news”- infotainment, actually- from one of only 6 major corporations. All are owned by huge defense contractors and investment banks, and they all spout the same company line of how government and corporations are good, and big ones are better. Reporting pretty much the opposite of what most folks see out their window each day. Is that conspiracy, or simply an effective monopoly?
      But I’m curious- have you personally lived in a country which suffered through an honest-to-God economic meltdown, like Argentina in the 1990’s, Brazil every 20 years or so, or Egypt right now? I have, and it’s not pretty. Imagine having half the money on Monday you thought you had on the previous Friday, because the central bank reset exchange rates or held an unannounced bail-in. Pensions, savings, and investments are all decimated; they never recover. Maybe you should tell the “jackasses” in Caracas (where my wife’s family lives) to ‘get a life’ while earning the equivalent of US $65 a month? They’ve lost 99% of their purchasing power in the last 15 years alone.
      Since we’re talking about botched predictions, we should mention how the US government has never, ever rolled out any major initiative as promised, and under budget. Social Security was touted as a “temporary emergency measure”, to be dissolved after the crisis of the Great Depression had passed; and is now largely responsible for a $100 trillion unfunded liability. This sort of senseless deficit spending cannot be supported forever, particularly when 25% of global trade (aka the BRICS) no longer relies on the dollar, and US policies seem hell bent on alienating everyone else. There are so many FRN floating around the fed no longer reports the total amount- known as the M3. Is this just the Mountain Dew talking, or something people should be concerned about?
      Now, I agree that too many people are addicted to what Gerald Celente calls “disaster porn”. They romanticize EOTWAWKI, maybe secretly hoping for a Zombie Apocalypse to put their video game skills to the test. But this doesn’t mean we ignore the bigger panorama of what’s happening right now: massive and increasing debt; uncontrolled Wall Street speculation; and God’s-Own-Ponzi-Scheme of global derivatives. Once aware of risk, it’s only prudent to lay in some insurance- whatever form that may take. “It could never happen here” only holds true until the day it actually does happen here.

      • Honest Harry’s Used Cars

        –Once aware of risk, it’s only prudent to lay in some insurance- whatever
        form that may take. “It could never happen here” only holds true
        until the day it actually does.–

        Holy shit! The EBT system broke down yesterday and allowed EBT users to purchase with no limit on their EBT balances. So, “aware of risk”, they emptied the shelves of at Walmart buying everything in sight because to them it was “free”.

        In reality, their business sense took off. These 300+ pound welfare pigs only thought of the business opportunity. None thought there was any risk. They’ll whine and howl when their “benefits” are docked the extent of what they rang up in their gorging frenzy.

        It’s the same way with Bernanke’s low interest loans to the banks, and the same way for low-interest real estate loans too. Some people will just keep on spending the “free” money, never becoming “aware of the risk”. And then when they’re foreclosed on for non-payment of the low interest real estate loan they took out, they whine and howl because they never considered the risk would catch up to them.

        Some people never ate to such excess, until they had an EBT card. That’s the real reason behind America’s obesity epidemic. The government has gone mad with EBT cards. The government has gone mad with easy money for the banks too. And the government has gone mad with low interest real estate loans that cannot be paid.

        In essence the government has gone mad trying to prop up the credit economy with more debt that cannot be paid off. Why? Because the risk everyone faces, is only the risk of today, not tomorrow. So, these ridiculous articles write about the immediacy

        the inherent danger.

        But, there is no immediate danger. The danger is not today. The danger is tomorrow and what we are fostering with everyone panicking because they are sure their head is going to blow up like in the animation above, or like in Venezuela.

        It’s time to take away all the low interest money. It’s time to take away the EBT cards too. There is an entrepreneurial (middle) class in this country. And it is time we let their best sense about how things worked well in the past take over the rebuilding of the economy and the world around us. Interest rates should rise to market levels. And wages should fall to sustainable levels. All the phony government jobs should be scaled way back too.

        Everyone knows all this instinctively. Keep the government shut down. Keeping the government shut down is our only possible economic salvation. Gutting the welfare system is our only possible social salvation. And removing the minimum wage barrier to employment is the only way to put all these labor-worthless, fat-assed, lazy, spoiled people back to work.

        And shut down the hospitals too, because these welfare miscreants are going to claim they are sick when they cannot buy food with their EBT cards anymore. I noticed today, even Michael Rivero has lost some weight. Trust me, when Michael Rivero loses weight, it’s rapidly going out of vogue to be a fat bastard in a sick world. So, things are looking up.

        • h5mind

          I agree that welfare creates dependence, and in the case of government welfare, it has made generations of Americans dependent upon a corrupt, amoral entity. We can’t blame it all on the Kenyan, as this has been decades in the making. Here’s the part that sucks about cutting folks off cold turkey- they’re programmed to think YOU owe them a living, so when you remove government as the go-between, they will come straight to the source. That’s when you’ll be treated to your own version of the zombie apocalypse.
          Unless you live in a hardened bunker, a better choice is to tell the truth. Admit we’re broke, and announce a gradual phase out of federal welfare programs. Let states, communities, churches- and most importantly- families find ways to cope with taking care of each other. You know, like we did for generations before Washington stepped in “to help”. Like doctors negotiating directly with patients for treatment; communities hiring their own teachers to deliver quality education instead of social programming and government propaganda; and the biggie- mandatory volunteer state militia to replace the bulk of the paid military currently housed in 800 overseas bases.
          Most government agencies would become redundant and be dissolved. It would create a huge renaissance in American productivity, independence, and pride. The opposite of what the globalists have in mind. Which is probably why we won’t see it in our lifetimes.

          • Honest Harry’s Used Cars

            Your scenario looks to be a good prognostication, except for the fact, they’ve got Obama by the tail right now. Let go, and the ongoing assault on the middle class (the entrepreneurial class) in this country will be escalated.

            That’s what ObamaCare is. It is another vicious assault on the middle class. The middle class already is being forced to pay for welfare, food stamps and section 8 housing for the welfare class, and with ObamaCare they will also have to pay for boob jobs, botox injections, sex changes, heroin, and hormone therapy for them too. Immigration reform is no different. 20 million illegals in the country already, and another 20 million coming in every year as far as the eye can see.

            Enough is enough. Agreed? I say, don’t let go of Obama’s tail. Don’t raise the debt ceiling, not even if Obama caves. Obama is a liar through and through. And he shouldn’t be trusted with another nickel. Obama has to be told, it’s over. That his reign is essentially terminated with no new funding. Otherwise Obama is going to continue on as if he were the dictator of the United States.

          • h5mind

            Even our hopelessly corrupt politicians know this is an end-game scenario for the United States. That’s why they’re fighting Obamacare. They don’t give a rat’s patootie for any of us, but they do want to keep their own gravy train running a while longer. If the intention was to improve the health of the average American, instead of the health of the insurance companies’ profits, then this monstrosity would have been laughed out of congress, like when Clinton proposed similar crap in 1993. The difference of course, is “Hillarycare” didn’t force citizens- with threat of fines- to buy something they didn’t want. Which is why it died in committee.

  • locutionwizard

    Boycotting has always seemed to be the most effective method of mass-protest. If the American taxpayer is upset with the way American tax dollars are being spent, either run for office or stop paying American taxes. I think with 75% or so participation we could start making some demands.

    It’s interesting though, the focus on money in recent articles. Seems to be the primary rationale for the government shutdown. Something still feels fabricated about the whole mess. There’s a grander scheme to all this and I’m curious to see what happens next.

  • markii

    next
    question, when you think about who would want the dollar to decline so
    much? ?? it becomes easy to imagine the dynamics, Wall street has been
    sucking up fed money QE buying assets globally on the cheap for five
    years, now with the dollar decline they can buy US$ and pay back their
    loans cheaply. It isnt looking like an accident, nor like a political
    argument so much as a massive market manipulation, eca nomic terra rism,
    what they nailed “sah da men who sayin” for after that shocking
    september day. and the market ploys in behind it.??
    Welcome any comments.

  • AmagnonX

    George – I may have missed it if you made a post on it. Hungary is kicking out the IMF, they are prosecuting the politicians responsible for indebting the nation and are now issuing their currency debt free from a nationalized central bank.

    Would love to see this amazing event circulated as widely as possible – here, ZeroHedge – everywhere.

  • johann silencio

    Full tubby