Yes

by Bill Parks

Created on: March 26, 2009

Of course the U.S. is headed for a depression, like so many other nations, England, Japan, and the Philippines to name a few, using the British Banking System with its privately owned central bank we are going to suffer a similar fate.

Any government abdicating its sovereign responsibility to provide plenary, monetary resource for the nation, delegating its authority to a private banking system, as the U.S. has done, condemns its citizens to poverty, misery and a form of economic slavery. When American money is created as debt, when the total debt in the US is $53 trillion, when repaying that debt will require the entire money supply, and when the unfunded interest is nearly $3.2 trillion; an acute shortage of money results throughout the entire economy. This acute shortage of money has generated a climate of competition and greed that is destroying our economy and eventually will tear apart the social fabric of our nation: a depression.

A parasite on economic activity, a central banking system hides its true operations, obfuscating its actions with complex jargon, disguising its workings to look like a government function, printing money using government departments to give the appearance of legitimacy, magically creating money out of nothing by using fractional reserve procedures, lending other peoples money and making profit on it at every turn at the public's expense. Banks do not risk their own money, using money deposited for safe keeping, keeping only a small fraction of it in reserve to pay customers who demand to withdraw their money, lending out most of the money intrusted to them to other people and businesses, collecting interest, their profit, on the loans, draining the life blood out of the economy. Banks never lend their own capital.

If you have a bank account, you are an essential part of the banker's game. Fractional reserve procedures work by crediting the same money to two or more people at the same time. If you have a bank account, you provide a necessary ingredient in their scheme - money. For example, if you deposit $1,000 in a savings account, the bank can turn your deposit into $9,000 of new money, creating it by simple bookkeeping. In general, for every $1.00 deposited in an account, the banks can create $9.00 out of thin air using fractional reserve lending procedures.

If the reader is interested, here is how they do it. Using a fractional reserve limit of 10%, the bank may lend $900 of your money to a second client, reporting $1,000 in your account while recording $900 in the new account, but keeping a mere $100 in reserve to service your account. They balance their books by counting your $1,000 deposit as their liability because they must pay you that amount, while classifying the $100 kept in reserve and the $900 loan as assets because the borrower must repay the $900. As the loan is repaid, they deduct the payment of principal from the loan, crediting the payment back to your account or lending out to a new borrower, keeping the interest as profit. Although loans are usually made to purchase something, sooner or later the money gets deposited in a bank account, and fractional lending continues to the last penney of your money. Lending 90% of each new deposit, $810, $729, $656.10 and so on, the banks may create as much as $9,000. The banks can continue lending until they are down to the last penny of your money. The sum total of these loans may be as much as $9,000. All of it stemming from your initial deposit of just $1,000.

The Federal Reserve works a little differently, restricting its banking activity to the U.S. government, using government debt instead of conventional loans, creating new money by simply writing it into the government's account.

Virtually all money, 99.92%, is created as debt using these techniques.

Here is the rub. Loans must be repaid with interest. Since the Federal Reserve and the banks lend only the principle of loans, and there is no independent source of money to pay the interest, the system is fatally flawed. There is no escape. Depressions are an inherent consequence of all privately owned central banking systems.

An interested reader can see the principle in the following example. Repaying the $9,000 in the example above, reveals the fatal flaw in this banking system. If this were the only series of loans, the fault would stand out clearly. The loans created $9,000 as principal and repaying the loans will require $9,000 to pay off the debt. If the interest rate is 6.0%, the interest payment on $9,000 is $540. The total payment then is $9,540, but there is only $9,000 in play. Thus, the terms of the loans cannot be met; the contracts are impossible to fulfill. This simple fact is obscured by the interplay of numerous other loans and accounts in the economy. But as we will see, the flaw is operating in the entire economy, but on a much larger scale.

A simple way to avoid a depression is possible. Like Dorothy in the Wizard of Oz, a story about the struggle for using silver along with gold as a standard for currency, we need to lift the curtain on our thinking. To succeed we must change in our mind set. Government issued money is the key. Only governments, not private corporations, have the sovereign authority, power and flexibility to issue a nation's money. Only Governments can lend money like banks, issue money and spend it directly into the economy without taxation, and regulate the economy with tax policy. When government creates and spends money for goods and services, the money is backed by the value of those good and services. It is a form of monetary receipt that can be treated as legal tender, permeant money that need not be repaid, creates no debt and bears no interest.

I fear that America is at a crossroads. A monetary system based on government issued money, would usher in a new era of shared abundance, replacing the current system of shortage, competition and greed. However, Convincing members of the Administration and Congress to change their mind sets and reclaim the nation's authority may be difficult because the banking industry is very rich, powerful and dedicate to keeping their source of wealth. Bankers make huge contributions to political campaigns, buying influence at the highest levels. They own many of the media and information corporations, controlling the content of news and talk shows, and limiting public discussion of the financial crisis.

If the depression becomes too difficult and costly for people to endure, the central banking system has an Achilles heel. The Banking system relies on people keeping large amounts of money on deposit in the banks. Nothing strikes fear into the hearts of bankers like a run on the bank. If large number of people were to simultaneously withdraw their money, numerous banks would instantly become insolvent and crash. If banks became insolvent because of coordinated action of the citizenry, the government would be forced to act. But I am not certain what action it would take. We may become a nation of economically free people, prospering beyond dreaming, or the U.S. may become a totalitarian state, suppressing the people who would be paying the banks for our own slavery. More people have been forced into slavery though debt than by all other means combined.

As things stand now, our privately owned monetary system is limited in its actions to lending money. Interest rates are the only means they have of controlling the money supply. Their failing to provide money needed to pay interest on debt making loan contracts impossible honor. Our central banking system is incapable of avoiding failure and eventual collapse.

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