It became evident to goldsmiths two and a half thousand years ago that the owners of the gold they were paid to keep in their vaults very seldom even looked at it let alone came after it.
So goldsmiths became bankers in the sense that they lent money out – at interest, the money being letters of credit to the effect that the bearers of the credit notes did have that gold in the vault.
Because the owners of the gold did not physically use it, the goldsmith / bankers also learned that they could lend out more paper money than there was in gold in the vaults.
Again, at interest, created out of thin air and a piece of paper, backed by a fraction of the gold in their vaults, interest on ‘nothing’ but which returned real money and that was 100% theirs.
So very early on, the goldsmiths (now moneylenders or ‘banksters’ as we call them today) discovered this wonderful benefit rising from the neglected gold in their vaults:
They could lend out a lot more than the gold was worth and charge interest on money that did not even exist, the first ‘fiat money’ and the invention of what we call ‘Fractional Lending’ today.
BANKING WITH A PRINTING PRESS
Today, Reserve banks lend out ‘fiat’ or thin air money at about eight to one – for every pound or dollar ‘borrowed’ from the privately owned for profit Bank of England or the privately owned for profit Federal Reserve Bank, smaller banks lend out eight at whatever interest the market will bear.
Which today is zero because of those predatory lending practices, ‘bailouts’ and money hoarding we hear so much about, yet can do nothing.
So it’s easy to understand the consequences of a default – every dollar, pound or rand in default represents eight that are now unavailable for further lending.
Banks also raise ‘real’ money by selling paper, in America known as Treasury Notes, ‘dollars’ which today most nations use as the ‘official’ or reserve trading currency.
The Fed prints them and lends them to its country’s government; so the U.S. government actually owes the Federal Reserve Bank – at interest – all the ‘taxpayer’ money it borrows and spends.
Now, say you are a goldsmith and you get greedy so you announce ‘cheap money for lending’ and pour tons of paper into the economy. Everyone sees a boom and buys, even on credit.
Eventually, some of the people you lent money to are expanding and need more. Then, you just say, “sorry, but money’s a little tight now” and stop lending.
This causes a ‘reduction in the money supply’, which in turn causes a slowing down of the local economy.
Stop lending for long enough and people start going out of business at which point you, the goldsmith, buy up as much property and as many real commodities as you can (just by printing some more paper).
Including the current recession (which I call Grand Theft, Planet) this has happened in the Capitalist world exactly six times, once in each generation, since the South Sea Bubble burst in 1775.
There are only two kinds of money that work other than fiat, debt-based money. One is simply a commodity like gold or silver (or wampum if it’s accepted).
The other is ‘Sovereign’ money, like the old American Colonial Scrip, the Guernsey Island scrip, the Greenback Dollar, the Silver Certificate and the 1933 – 1945 Deuschmark and, if it happens California’s IOUs could become sovereign currency.
Sovereign money is not borrowed from a private bank at interest but issued –like an IOU – by the government and regulated by an agreement-of-use backed by commodities, work, and a redeem date on the scrip (which keeps currency speculators our ot the picture).
The point is, sovereign money has no interest attached and does not cost anything but work (the source of all wealth – Adam Smith).
If at all, some interest can be paid by the government to the bearer on the redeem date.
California is the most interesting economic experiment existing today.
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