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How MONEY & BANKING Really works - Part 1 (3 of 5)
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despite the endlessly presented mint footage government created money typically accounts for less than 5% of the money in circulation more than 95% of all money in existence today was created by someone signing a pledge of indebtedness to a bank what's more this bank credit money is being created and destroyed in huge amounts every day as new loans are made and old ones repaid Banks can only practice this money system with active cooperation of government first governments pass legal tender laws to make us use the national fiat currency secondly governments allow private bank credit to be paid out in this government currency thirdly government courts enforce debts and lastly governments pass regulations to protect the money system's functionality and credibility with the public while doing nothing to inform the public about where money really comes from the simple truth is that when we sign on the dotted line for a so-called loan or mortgage our signed pledge of payment backed by the assets we pledge to Forfeit should we fail to pay is the only thing of real value involved in the transaction to anyone who believes we will honor our pledge that loan agreement or mortgage is now a portable exchangeable and sailable piece of paper it's an IOU it represents value and is therefore a form of money this money the borrower exchanges for the bank's so-called loan now a loan in the real world means that the lender must have something to lend if you need a hammer my loaning you a promise to provide a hammer I don't have won't be of much help but in the artificial world of money A bank's promise to pay money it doesn't have is allowed to be passed off as money and we accept it as such once the borrower signs the pledge of debt the bank then balances the transaction by creating with a few keystrokes on a computer a matching debt of the bank to the borrower from the borrower's point of view this becomes loan money in his or her account and because the government allows this debt of the bank to the borrower to be converted to government FEI at currency everyone has to accept it as money again the basic truth is very simple without the document the borrower signed the banker would have nothing to lend have you ever wondered how everyone governments corporations small businesses families can all be in debt at the same time and for such astronomical amounts have you ever questioned how there can be that much money out there to lend now you know there isn't Banks do not lend money they simply create it from debt and his debt is potentially unlimited so is the supply of money and as it turns out the opposite situation is also true isn't it astounding that despite the incred wealth of resources Innovation and productivity that surrounds us almost all of us from governments to companies to individuals are heavily in debt to Bankers if only people would stop and think how can that be how can it be that the people who actually produce all the real wealth in the world are in debt to those who merely lend out the money that represents the wealth even more amazing is that once we realize that money really is debt we realize that if if there was no debt there'd be no [Music] money if this is news to you you are not alone most people imagine that if all debts were paid off the state of the economy would improve it's certainly true on an individual level just as we have more money to spend when our loan payments are finished we think that if everyone were out of debt there would be more money to spend in general but the truth is the exact opposite there would be no money at all there it is we are totally dependent on continually renewed Bank credit for there to be any money in existence no loans no money which is what happened during the Great Depression the money supply crank drastically as the supply of loans dried up and that's not all banks create only the amount of the principle they don't create the money to pay the interest where is that supposed to come from the only place borrowers can go to obtain the money to pay interest is the general economy's overall money supply but almost all that overall money supply has been created exactly the same way as Bank credit that has to be paid back with more than was created so everywhere there are other borrowers in the same situation frantically trying to obtain the money they need to pay back both principal and interest from a total money pool which contains only principal it is clearly impossible for everyone to pay back the principal plus interest because the interest money doesn't exist this can even be expressed by a simple mathematical formula the big problem here is that for long-term loans such as mortgages and government debt the total interest far exceeds the principal so unless a lot of extra money is created to pay the interest it means a very high proportion of foreclosures in a nonfunctioning economy to maintain a functional Society the rate of foreclosure needs to be low and so to accomplish this more and more new debt money has to be created to satisfy today's demands for money to service the previous debt but of course this just makes the total debt bigger and that means more interest must ultimately be paid resulting in an Ever escalating and inescapable spiral of mounting indebtedness it is only the time lag between money's creation as new loans and its repayment that keeps the overall shortage of money from catching up and bankrupting the entire system however as the bank's insatiable credit monster gets bigger and bigger the need to create more and more debt money to feed it becomes increasingly urgent why are interest rates so low why do we get unsolicited credit cards in the mail why is the US government spending faster than ever could it be to Stave off collapse of the entire monetary system a rational person has to ask can this really go on forever isn't a collapse inevitable money facilitates production and trade as the money supply increases money just becomes increasingly worthless unless the volume of production and trade in the real world Grows by the same amount add to this the realization that when we hear that the economy is growing at 3% per year it sounds like a constant rate but it's not this year's 3% represents more real goods and services than last year's 3% because it's 3% of the new Total instead of a straight line is as naturally visualized from the words it is really an exponential curve getting steeper and steeper the problem of course is that Perpetual growth of the real economy requires perpetually escalating use of real world resources and energy more and more stuff has to go from natural resource to garbage every year forever just to keep this system from collapsing [Music]
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