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Money As Debt (1 of 5)

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Money As Debt Translated By Brian Kim Some of the biggest men in the United States, in the field of commerce and manufacture are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful so interlocked, so complete, so pervasive that they had better not speak above their breath when they speak in condemnation of it." Woodrow Wilson, former President of the United States. "Each and every time a bank makes a loan new bank credit is created - new deposits, brand new money." Graham F. Towers - Governador, Banco do Canada, 1934-54 "The process by which banks create money is so simple that the mind is repelled" - John Kenneth Galbraith - Economist "Permit me to issue and control the money of a nation, and I care not who makes its laws." - Mayer Anselm Rothschild - Banker Money as Debt Debt Two great mysteries dominate our lives. Love and Money What is love? Is a question that has been endlessly explored in stories, songs, books, movies and television. But the same cannot be said about the question; What is Money? It's not surprising that monetary theory hasn't inspired any blockbuster movies. But it was not even mentioned at the schools most of us attended. For most of us, the question: "Where does money come from?" brings to the mind a picture of the mint printing bills and stamping coins. Money, most of us believe is created by the government It's true! But only to a point Those metal and paper symbols of value we usually think of as money are indeed produced by an agency of the Federal Government called the "The Mint". but the vast majority of money is not created by "The Mint" It is created in huge amounts, every day, by private corporations known as BANKS. Most of us believe that banks lend out money has been in trusted to them by depositors. Easy picture, but not the truth In fact banks create the money they loan, not from the banks own earnings not from the money deposited, but directly from the borrowers promise to repay. The borrowers signature on the loan papers is an obligation to pay the bank the amount of the loan plus interest. or loose the house, the car, whatever asset is pledged as collateral That's a big commitment from the borrower. What does the same signature require of the bank? The bank gets to conjure into existence the amount of the loan and just write it into the borrower's account. sound far fetched? Surly that can't be true. But it is! To demonstrate how this miracle of modern banking came about consider this simple story: "THE GOLDSMITH'S TALE" Once upon various times pretty much anything was used as money. It just had to be portable and enough people had to have faith that it could later be exchanged for things of real value, like food, clothing and shelter. shells, cocoa beans, pretty stones, even feathers have been used as money. gold and silver were attractive, soft and easy to work with, so some cultures became experts with these metals Goldsmith made trade much easier by casting coins standardized units of these metals whose weight and purity were certified. To protect his gold the Goldsmith needed a vault and soon his fellow townsmen were knocking on his door wanting to rent space to safeguard their own coins and valuables. Before long the Goldsmith was renting every shelf on the vault and earning a small income from his vault rental business. Years went by and the Goldsmith made an astute observation. Depositors rarely came in to remove their actual physical gold; and they never all came in at once. That was because the claim checks the Goldsmith had written as receipts for the gold were being traded in the market place, as if they were the gold itself. This paper money was far more convenient than heavy coins. and amounts could simply be written instead of laboriously counted one by one for each transaction. Meanwhile the Goldsmith had another business. He lent out his gold, charging interest. Well, his convenient claim check money came into acceptance. Borrowers began asking for their loans in the form of these claim checks; instead of the actual metal. As industry expanded, more and more people asked the Goldsmith for loans. This gave the Goldsmith an even better idea. He knew that very few of his depositors ever removed their actual gold. So, the Goldsmith figured he could easily get away with lending out claim checks against his depositors gold in addition to his own. As long as the loans were re-paid, his depositors would be none the wiser and no worse off; and the Goldsmith, now more banker than artisan would make a far greater profit than he could by lending only his own gold. For years the Goldsmith secretly enjoyed a good income from the interest earned on everybody else's deposits. Now a prominent lender, he grew steadily richer than his fellow townsmen and he flaunted it. Suspicions grew that he was spending his depositor's money. His depositors got together and threatened withdrawal of their gold if the Goldsmith didn't come clean about his new found wealth. Contrary to what one might expect this did not turn out to be a disaster for the Goldsmith. Despite the duplicity inherent in his scheme, his idea did work. The depositors had not lost anything. Their gold was all safe in the Goldsmith's vault. Well, rather than taking back their gold, the depositors demanded that the Goldsmith, now their banker, cut them in, by paying them a share of the interest. That was the beginning of "Banking" The banker paid a low interest rate on deposits of other people's money that he then loaned out on a higher interest. The difference covered the bank's cost of operation and its profit. The logic of this system was simple. And it seems like a reasonable way to satisfy the demand for credit. However this is not the way banking works today. Our Goldsmith banker was not content with the income remaining after sharing the interest earnings with his depositors; and the demands for credit was growing fast as europeans spread out across the world. But his loans were limited by the amount of gold his depositors had in his vault. That's when he got an even bolder idea. Since no one, but himself, knew what was actually in his vault he could lend out claim checks on gold that wasn't even there. As long as all the claim check holders didn't come to the vault at the same time and demanded real gold. How would anyone find out? This new scheme worked very well and the banker became enormously wealthy on the interest paid on gold that did not exist. The idea that the banker would just create money out of nothing was too outrageous to believe. So for a long time the thought did not occur to people. But the power to just invent money went to the banker's head, as you can well imagine. In time, the magnitude of the banker's loans and his ostentatious wealth did trigger suspicions, once again. Some borrowers started to demand real gold, instead of paper representations. Rumors spread... Suddenly several wealthy depositors showed up to remove their gold. The game was up. The sea of claim check holders flooded the street outside the closed doors of the bank. Alas, the banker did not have enough gold and silver to redeem all the paper he had put into their hands. This is called, "a run on the bank", and it is what every banker dreads. This phenomena, of "a run on the bank", ruined individual banks, and not surprisingly damaged public confidence in all bankers. It would have been straight forward to outlaw the practice of creating money from nothing. But the large volume of credit the bankers were offering had become essential to the success of European commercial expansion. So instead, the practice was legalized and regulated. Bankers agreed to abide by limits on the amount fictional loan money that could be lent out. The limit would still be a number much larger than the actual value of gold and silver in the vault. Quite often the ratio was 9 fictional dollars to one actual dollar in gold. These regulations were enforced by surprise inspections. It was also arranged that in the event of a run, Central Banks would support local banks with emergency infusions of gold. Only if there were runs on a lot of banks simultaneously, that the banker's credit bubble burst and ....... To Be Continued... Brian Kim

Video Details

Duration: 9 minutes and 59 seconds
Country: South Korea
Language: English
Views: 210
Posted by: pound on Sep 5, 2010

To wake up the world.

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