Friday, November 9, 2007

Why Money is Debt - Part 1

So a few days ago - Monday - namely, I came to a very surreal conclusion: Money is Debt

I watched the mini documentary Money as Debt which explains in very simple terms how Money essentially creates more debt by it's mere existence.

This may only be interesting to the financially savvy but in essence it affects and has an effect on us all. It explains why the rich continue to get richer and why the poor get poorer.

In the video, it explains something most of us know - that the money originated as a way to simplify the barter system.

What most of don't know is the middle-age to present day history of money. The first uniform type of money that crossed cultural and country borders was gold. With the acceptance of gold came the birth of the Gold-smith.

The goldsmith's tale: The Goldsmith was the first form of a Banker. The Goldsmith job was to craft Gold in order that people could exchange things for there goods in services without necessarily lugging said goods and services around. At first, the Goldsmith created a vault in order to keep his gold safe when it wasn't being lent out to people in exchange for their goods & services. Eventually though, people began to hold onto more and more of their gold coins and since the gold was becoming more and more accepted as rightful exchange for other goods and services - people began asking Goldsmith's if they could keep there excess gold in his vault as they were worried about someone stealing it.

The Goldsmith agreed and soon he had piles and piles of Gold. The Goldsmith eventually decided to begin loaning out his gold to others who wanted to borrow it. He made a decent amount of return on his gold but eventually he wanted to make even more due to the fact

Government created money represents less than 5%, of the money in circulation today. 95% of money in circulation today is due to bank debt and/or interest agreements - i.e.,: Loans. Money that you put into the bank is now immediately loaned back out again at a rate of 9:1 . The federal reserve requirement ratio is now about 9:1 - that means for every $100 you deposit into the bank, the bank only has to have a maximum of $10 available. If you multiply this thousands of times or millions of times over it ends up being a pretty precarious situation if everyone decides to pull out more than 9% of their deposits - the banks and then slowly the American economy will come to a halt.

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