The bank works by way of a pyramid scheme, one which is deceptively legal – although if you or I, or any business tried this, we would be jailed for fraud.
If you ever wondered how the bank system works (in layman’s terms), here’s one explanation…
The banks count on the following assumption:
That most people won’t figure out the apparent Pyramid/ Ponzi scheme.
While you might think that after you’ve deposited your money, that your money remains in the bank – you would be wrong…
Fractional Reserve Banking
The bank begins the pyramid scheme by taking your deposit (which you might think goes into the vault) and they loan most of it out. In fact, generally, with some variation, for every $1 dollar that you deposit, the bank will loan out approximately $10. In other words, the bank uses your deposits to loan out more (way more) than they have in reserves in order to make big profits. This is ‘Fractional Reserve Banking’. The banks only keep a fraction of the overall money on hand.
An effect of loaning out ten times more than the bank has in reserves, the money supply is increased – created out of thin air. Poof.
This scheme works only so long as people don’t start asking for their money back. Oh by the way, the money you deposit in the bank is technically no longer yours anyway. During the recent G20 meeting of NOV-2014, apparently the member nations decided that your bank deposits will become property of the bank if a crisis takes it down (a bail-in).
To visualize Fractional Reserve Banking, think of a pyramid upside-down, with bank assets being a small point at the bottom while all the debt and loans are piled on top.
How easy would it be to fall over due to some small ‘breeze’?
The ‘Federal Reserve’ is the Central Bank of the United States. It is at the center of our financial system. They print money (currency), they control interest rates, and they loan money to commercial banks. Today’s interest rates for such transactions are near zero (given the perpetual state of our current economy and the apparent necessity for ZIRP – zero interest rate policies). Today’s ‘Fed Funds Rate’ is 0.25%.
By the way, today’s ‘money’ (currency) is actually called ‘Fiat’. A fiat money system is one of paper dollars with zero backing except the government’s promise to pay (e.g. no gold backing up the dollar).
The Central Bank (The Fed) lowers the interest rate when the economy is slow, with the intent to stimulate more borrowing (the system NEEDS MORE DEBT to stay afloat). Today’s (near) zero interest rates and easy credit (easy money) have resulted in more speculative risks (bubbles) than even before the 2008 ‘crash’. In other words the pyramid is even more top heavy than ever before…
Sitting on top of the inverted pyramid of the banking system are the Derivatives. Similar to Fractional Reserve Banking, it is yet another scheme in which bankers gamble huge amounts of ‘money’ with only tiny (fractional) underlying assets. I read a description once which stated, “Think of a dollar bill in a Hall of Mirrors. There is only one dollar, yet there appears to be hundreds more. Bankers can use these hundreds of dollar bills, even though they are not really there.”
When you think about today’s ‘dollar’, the unit in which we are required to trade and exchange our work and productivity for, it is interesting to visualize how we are actually exchanging a piece of essentially valueless paper.
I read this recently (a comment on zerohedge.com) which I found enlightening:
I’m a Banker. For those of you that haven’t yet figured out the scam, let me explain it to you.
Let’s say I have some sand I can loan you with interest. But I won’t accept the interest payments (sand) from any other source than mine, because all other sand is counterfeit under my laws. Only my sand will be acceptable as interest payment. Which means you will have to borrow even more of my sand, in order to pay me back the interest (in sand).
You don’t have to be a genius to figure out that it basically means you will never be able to get out of debt, unless of course, you forfeit something of value of yours in exchange for my sand.
Which is my intention all along – to steal your land, resources, your labor, your flesh and all your assets. Oh, and to pay me rent. And taxes.
Given the apparent impending toppling of the pyramid (it’s inevitable, isn’t it?), I personally feel safer by eliminating debt (mine is all gone – although it took hard work and time), and exchanging these pieces of fiat paper for hard tangible assets. Assets which will help me in my self reliance, self sufficiency, and sustainability – while leaving enough for the tax man… 😉