Banks

What was it that moved Lord Acton and Abraham Lincoln to make the comments above. Both statements were made a long time ago so it is fair to ask if they are they still relevant today?

Those observations are indeed still relevant today and, given the explosion of knowledge with the advent of the internet, it is surprising that so few people really understand what goes on in the world banking system. What goes on affects everyone who uses money as a medium of exchange. Which is all of us!

The feature which seperates banks from all other kinds of busineses is what is known as 'The Fractional Reserve Banking System'. To understand this feature let's have a look at it in action.

Let's say that as a result of pure ignorance you decide to invest One thousand Rand of your hard earned cash in a savings account at a Bank. To simplyfy calculations let's assume that the current interest that banks will pay on savings is 10% interest per annum.

For having use of your money they pay you a R100 at the end of the year. (By way of a credit on your account .... less charges.)

The Bank will probably charge the person, who borrows your money, 20% interest per annum.

You may think.... and the bank wants you to think...that they are only making 10% profit ... the difference in interest rates between what they pay you and what they charge the borrower ... but in fact this is not correct. We need to look at the difference in the money generated, not the difference in interest rates. The cost, to the Bank, of having your money to lend out for a year is R100. That's the interest they pay you. They earn R200 per year from the borrower. That is the interest the borrower has to pay the bank.

So the Bank has in fact earned R200 from money that cost R100. In my book that is 100% return !!!!!

But that's just the tip of the iceberg...

This is where 'The Fractional Reserve Banking System' spins its magic! Like most 'controlling' banks in the global village, the SA Reserve Bank requires that banks hold only a small percentage of deposits in liquid funds, deposited with the Reserve Bank, against loans they make....currently this is a mere 10% That means that the Bank, using your R1000 as the minimum cash reserve, can create (legal) loans of ten times that amount! That's R10,000!

In our example your savings of R1000 represents the 10% liquid reserve against a possible (legal) loan of R10,000 (10% of R10,000 is R1000)

On a loan of R10,000 at 20%p.a. the interest the Bank earns is R2000 .... for a cost of only R100!!! That's 20 times their cost...or 2000% ROI . Are you begining to get the picture?.

The Banks loan out to borrowers... and earn interest...on thousands of Rand which actually don't exist! Well they did not exist, but they sure do now!!! And now, not only the interest, but also the capital amount of the loans so created also have to be repaid!!!!
Remember that in order to get their loans the borrowers will have been required to put REAL ASSETS on the line as security ... just in case they are unable to pay it back!

Clearly creating money in this way has the effect of increasing the (virtual) money supply. First to benefit from this situation are, naturally, the banks since they have created debtors who now has to repay money which never existed before and for which no tangible goods or services were exchanged. But the debt which must now be repaid, with interest, has to be paid with money earned or generated from real honest hard work done or services rendered. In addition this new money, when introduced into the community as the borrowers spends it, has the effect of raising prices since there is now more money chasing an unchanged pool of resources, goods and services.

Those who have their money on deposit at the bank may believe that their money is safe. (Hence the saying ... 'you can bank on it' ) It would be wise to understand that if all those who actually have real money deposited at the bank decided to withdraw it at one point in time, (such as
rumours of impending bank failure) the bank would not be able to meet their obligation. When this happens most depositers will very likely lose their money ... has happened to those unfortunate folk who had their hard earned savings with Saambou and Regal banks not so long ago.

What have other people had to say about the banking system?

" The essential and distinctive feature of a bank and banker is to create and issue credit payable on demand, and this credit is intended to be put into circulation and serve the purpose of money. A bank, therefor, is not an office for the borrowing and lending of money; it is a manufactory of credit"

'The Theory and Practice of Banking' H.A.D. Macloed, MA, Barrister-at-law.

"The banker creates the means of payment out of nothing"

R.A.G. Hartwell. Assistant Secretary to the British Treasury

" 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. Banking was conceived in iniquity and born in sin. Bankers own the Earth.... If you want to continue to be slaves of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit"

Sir Josiah Stamp. The Bank of England.

" By means of a loan, an advance, an overdraught or by the cashing of Bills, the banks are able to increase the volume of deposits in the community, and because of this process it is not correct to say that a bank loans out deposits which the people make with it. It is clear that it creates the deposit by the issue of a loan. The loan travels back to the bank, or another bank, and assumes the form of a deposit"

Professor A.L.Mackey. Professor of Economics, Rangoon University.

"The few who can understand the system will either be so interested in its profits, or so dependent on its favours, that there will be no opposition from that class; while on the other hand the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint and perhaps without even suspecting that the system is inimical (contrary, undesireable, destructive, empoverishing) to their interests"

Extract of letter: Rothschild Brothers of London to New York bankers. (June 25 1863)

"Whoever controls the volume of money in any country is the absolute master of all industry and commerce. Banking institutions are more dangerous to our liberties than standing armies".

James Garfield President USA

"Capital must protect itself in every possible way, both by combination and legislation. Debts must be collected' mortgages foreclosed as rapidly as possible. When, through the process of of law, commom people lose their homes, they will become more docile and more easily governed, through the strong arm of the government applied by a central power of wealth, under leading financiers.. These truths are well known under our principle men who are now engaged in forming an imperialism to govern the World. By dividing the voter through the political party system we can get them to expend their energies in fighting for questions of no importance. It is thus by discreet action we can secure for ourselves that which has been so well planned and so successfully accomplished"

United States Banking Association magazine August 1924.

PEOPLE versus BANKS

"The issue that has swept down the centuries, and must be fought sooner or later, is, The People vs. The Banks"

Lord Acton. Chief Justice of England (1875)

"If the American people knew tonight, exactly how the monetary and banking system worked, there would be a revolution before tomorrow morning."

Abraham Lincoln, President USA

200? and counting ... NOTHING HAS CHANGED!!!

NOW YOU KNOW !!!
(how we are being screwed!)

So what???

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