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Banking Solution

If you want to fix banking, you can throw out all of the banking laws and replace it with three things.
1) Mandate that banks have 100% banking reserves at all times so that they cannot lend out others people money.
2) Mandate that people have ownership rights over their own deposits so that banks cannot consume and speculate with other people deposites.
3) Mandate that all banks act only as loan intermediaries for those individuals whom want to lend out their own money, which is tied directly to a loan.

Everything else will fall in place.

It is that simple.

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Have you ever pulled out a dollar bill from your pocket and ever wondered, how it came into being?  If not, you are not the only one.  But ponder this.  Currently, there is no one able to print this.  Well, not legally anyway.  And yet here it is in your hand.

Many people falsely claim that central banks print this money and give it to banks in order to be lent.  Many believe that the money that you see in your hand is not even owned by the government.  It is owned by the federal reserve who holds bonds as collateral or some such scheme as this.  These ideas are complete nonsense.

No,  in the US money is not printed out and handed to banks.  If this worked there would not be any capital markets.  Central governments would have replaced them a long time ago, which would solidify political power.  And the Soviet Union would be here today.

Physical dollars are created by the bureau of engraving, not the Federal Reserve.  It prints dollars and furnish them to banks based upon withdraw demand, not lines of credit. Basically, bank buy physical dollars with their reserves.  You can read about it here.


But where do the banking reserves come from?  They come from deposits.  Money is created through the fractional reserves system when a loan is created.


The St Louis fed came out with a publication called Money Mechanics years ago.  In it, it showed how a simple $10,000 deposit can generate up to $90,000 worth of loans assuming a 10 to 1 reserve ratio,.  Yes, that is right. Go ahead an Google it and you will see.

For the most part, money today is nothing more than digital lines of credits between banks that reside within a closed banking loop. This is why central banks exist. Central banks exist so that other banks will except checks from member bank.  And central banks exist so that all domestic money stays within the closed loop.  Otherwise, money can leave from nation to nation, like it would if gold coinage was traded as money.  This is why such things are taxed.

This idea is foreign to most people.  For most people, they have to earn their money,  They never thinking of where it came from. In order for money to enter circulation, someone must borrow it form a commercial bank.

You see money is created with loans.   The more deposits (reserves) a bank has, the more it can lend.  As a loan applicant  gets a new line of credit, a line of credit is established on the banks book entry.  Then, the consumer simply writes checks From one bank to  bank to another a book entry is adjusted at the central bank.  Existing Money simply changes ownership.

But the dirty secret is that when one with draws there money, after it has been lent, any loans made with this money is not recalled.  It is not tied directly to the loan. And this despite is redeposited in another bank, it gets lent again.  So, in essence you can have multiple loans on the same money.  This is where inflation comes from.

The actual transfer of the check is nothing more than a line of credit from one bank to another, not physical dollars.  If it were physical dollars, when one were to withdraw the cash, money would leave banking reserves and not lent until it got redeposited.  But today everything is done electronically, not cash.

Banks are encouraged to make loans  to inflate the money supply.  Inflation gives rise to an artificial boom, jobs, industries, and, most importantly,  is a source of additional tax revenue which means more government spending.  And in this way government can pay for things that normally could not be afforded, like social security, and welfare.  And is paid for by the poor who must feel the effects of inflation.

In essence new money created and lent causes a boom as the money supply expands.  But money that is lent must be paid back, which causes a bust as  money flows back into banking reserves waiting to be lent again.  As long as there are more people are borrowing more money, the boom is continued.  This is why we have the housing crises.  Houses produce a lot of new money in the economy, which is taxed.  At some point people are unable to borrow enough money to support the economy.

This is why that without consumer debt, there is no economy.

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Many people confuse money with production. They fail to understand that money is only a medium of exchange, not the reason why you have an economy.   It is nothing more that a Universal Barter Card.

Free trade is what creates economies. The more individuals are able to trade freely the more prosperity in terms of choices that they have which creates more satisfaction. The more restrictive upon free trade, fewer choices that they have which creates less satisfaction. You can clearly see this in central run economies.

Economies come from people making things that other people would like to trade their possessions for. Money only helps to facilitate that trade and helps to better make more goods and services.   However, it is innovation and creativity that create new goods and services and is how markets can overcome diminishing returns (rising cost)  and limitations of the land.

If one were to increase or decrease the money in circulation, it would only means that more people have more or less of it to buy things with.   But the things that they buy are independent.  Of course more money means more things, but inflated money also means  more ways of creating restrictions which limits production in few hands.  Unless of course, you have access to easy created in which you temperately overcome restrictions.

But restriction on trade (regulations) also restrictions innovation and creativity which diminishes production.  Historically, this is why central run governments depend on inflating the money supply.  Because they do not produce wealth but consume it,  they cannot overcome diminishing returns.  So, over time wealth is concentrated in few and fewer hands as competition is restricted.  Both Government and corporate entities face this dilemma as over time as bureaucratic layers are created which is costly and stifles innovation and creativity.

So, Banks are encouraged to inflate the money supply, creating artificial booms and lots of new revenue that is often confused with prosperity.  For example, new money interjected into the money supply means that a lot more people can afford steak dinners. But eventually it all ends the same as cost rise and those people whom could not afford it before cannot afford it now.  And all of those new people who the restaurant hired to take care of artificial demand have to be let go and equipment sold. Instead of reducing cost and causing a natural boom so more people have the money, money was inflated and in this way, bureaucrats can keep their jobs too.

The real economic driver is individual production, not production based upon loose loan standards and money created out of thin air. All that does is to create things, that otherwise would not exist, and things that cannot exist when the correction occurs leaving loss jobs, loss wages, empty building, and spiritual destruction in its wake. Again, there is always a natural limitation of money due to the limitations of the land and diminishing returns.

The current problem is wealth concentration. There are too many restrictions placed upon people whom produce and too many consumers who do not produce.   So artificial money fills in the vacuum for a while offering false hope, until the bust, the result of which creates a lot of people who do not have the skills to produce anything. What is needed is the decentralization of wealth and the ending of lots and lots of government restrictions.

However, this is what governments exist for. Government exists to concentration money, and thus production. This is why we have national currencies and borders. It keeps money and wealth from leaving nations. IF this were not the case, people could go to other places with their money leaving national coffers dry.

Domestic currency forces people and nations to spend their money domestically and allows for the government collect to levy property and collect taxes. It keeps people from competing with political friends and allies by placing various rules and restrictions. And allows for more things to come from fewer companies which is good for tax collections.

This is what mercantile economies are all about. inflate the domestic currency, restrict the domestic production, and export to another nations so that those things that people need can be imported, leaving resources in the hands of the ever-increasing size of the state.  The Egyptians population riots because they do not export to the US and gain American dollars which means that they cannot buy American food to feed their population.  Farmers only take US dollars.  And America does feed most of the world.

What is really needed is for people to determine their own from of money based upon private contracts. There should be no monopoly upon money.  And for a government that only decide what form of money it can collect, and not levy private property for taxes. How else do you hold a government in check in which it can print, borrow, and take an unlimited amount of money?  What is not needed is for the common “we” to decide what money is as if they how the power.

Today, people are buying gold not as a currency hedge but as an investment alternative. But, if governments would mandate a return to gold, it would be the end for them and almost all international distributions channels. It would also be death for a lot of people whom live in inner cities which is why they keep printing money. The world would change overnight as shelves go bare, until enough people have access to gold. But of course would just go locally for their needs assuming that there are people producing things. OF course, fiat money and the thinks that you propose only create more people that produce less and less leaving them with no alternative to violence. This is how little Somalia are created.  But even a Somalian  must steal from someone who has money, otherwise without producing,  they cannot sustain themself.

But if you really wanted to fix everything and put the country on the right path then all you need are three things.

1) 100% banking reserves so that banks cannot lend out more money than they have.
2) ownership rights over deposits so that banks cannot speculate with other people money
3) and banks that only act as intermediaries with those people who want to speculate with their own money and who money is tied directly to the loan.

Implement this and everything else will come together. Eventually you will have sound money, low if any interest, and money that buys more things, not less (inflation) over time

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Illusion of prosperity

In order to understand the financial crises, you must understand how money is created and circulated through the economy.  It is all done through consumer loans with money created out of thin air.   For the longest time, the illusion of prosperity has been brought to you by loans not buy wealth and production.  Inflate the money supply and it seems like initial prosperity until the bills come do.  Take away the creation of credit out of thin air and very few things that exist now can be sustained.   This is what is really going on.   An entire economy with lots of industries that would otherwise not exist, have been built on a house of sand.

The united states died a long time ago but with hardly a notice.  For the longest time the us has been built on property confiscation, counterfeit money, and phony IOUs.  We have actually become a socialist nation masked by  loans.  In actuality the government owns just about everything in our lives and our future all because people just want to get along for the “common good”.  Individual Liberty has been replaced by economic freedom and high paying jobs.  And wealth has been replaced by the accumulation of ever depreciating dollars.   But none of these things can be sustained as economies are driven by innovation, creation, and the pursuit of profit.

But sadly, this has all been an illusion.  Currently, the creation of money leads to the destruction of wealth for the masses and concentration for the elite few.  It has all been a big lie. Debt based on nothing leads to nothing.  Afterall, what do you collect?  It is the same as building castles in the sand.  Until recent history, money was based on tangible things because fiat currency destroys nations.  It has all happened before although not on such a grand scale.

The financial crises is really a crises of government because government refuses to shrink.  But the real fault lies with the population who decided a long time ago it was just to plunder their neighbors.  Who really cares as long as one has government benefits.  You see as more and more regulations and payroll taxes are passed, both businesses and consumers are forced to deal with higher cost.  And how do they deal with it?  WIth more loans.  But for those on fixed incomes and no access to loans, like the unskilled and elderly, eventually cannot even pay for things like food, which means more government programs.  And the government collects higher taxes revenues from those who did get the loans.  For them, it is nothing more than a revenue generating machine, concentration and growing more government.  But again, who really cares if it is for the common good, right?

But what about the government?  What about the debt? Why does one have to pay taxes if the government can just print the money?  If I were you I would ask this question to every politician, afterall what is QE?  And if printing money is so bad, why is the government and bankers allowed to do it?  It all has been a big lie.

The debt is lager than anyone can comprehend.  If the united states prints the money, it means massive inflation.  If it continues, there is not enough money to collect from taxes.   Currently, the debt is so large that even if it collected all the money in the world, it still could not pay off the debt.  So, it seems that at some point their will be strategic default.   But who will get defulted upon?  This will be the Great question. There also could be war which would, sadly, eliminate entire populations and with it obligations.  This has historically been default of choice, but who can other governments plunder to pay their debt.  It is a new ball game now.

However, what if the dollar replaces the Euro?  Afterall, without a bailout many European banks will disappear.  This is not good for the leadership and dependent populations.  Mabey then could the US print out the money and replace this currency?  This might temporally balance things out.

In ether regard in the long run, the problem will not go away.  The problem is the inflation caused by the it is the artificial creation of money.  For those that say there is not enough gold to support the economy, how much wiser is it to support an economy with debt created out of thin air?  Afterall there is a natural limit to money.

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