We the People are Fuggin Suggin!

Fuggin Facebook Feed

November 5, 2010

Inflation - A Hidden Tax on You and the Rest of the World's Hard Working People

"Society today, is composed of a series of institutions. From political institutions, legal institutions, religious institutions, to institutions of social class, familiar values, and occupational specialization.

It is obvious, the profound influence these traditionalized structures have in shaping our understandings and perspectives. Yet, of all the social institutions, we are born into, directed by, and conditioned upon, there seems to be no system as taken for granted, and misunderstood, as the monetary system.

Taking on nearly religious proportions, the established monetary institution exists as one of the most unquestioned forms of faith there is. How money is created, the policies by which it is governed, and how it truly affects society, are unregistered interests of the great majority of the population.

In a world where 1% of the population owns 40% of the planets wealth.  In a world where 34.000 children die every single day from poverty and preventable diseases, and, where 50% of the world's population lives on less than 2 dollars a day, one thing is clear, something is very wrong. And, whether we are aware of it or not, the lifeblood of all of our established institutions, and thus society itself, is money.

Therefore, understanding this institution of monetary policy is critical to understanding why our lives are the way they are. Unfortunately, economics is often viewed with confusion and boredom. Endless streams of financial jargon, coupled with intimidating mathematics, quickly deters people from attempts at understanding it. However, the fact is: The complexity associated with the financial system is a mere mask. Designed to conceal one of the most socially paralyzing structures, humanity has ever endured." ~Peter Joseph, Zeitgeist Addendum

Do you have a job?  Do you have a mortgage or loans that you pay off?  If so, do you know that actions made by sectors of the U.S. Government through our country's relationship with the Federal Reserve act to decrease the value of the money you earn today?  This means that the money used to pay off existing debts or the money made from working today, is worth less than it did when you first took on that debt or when you first got that job.

Countries around the world, including China, Germany, and Brazil, are furious because the US Federal Reserve announced on Wednesday that it would spend $600 billion to buy government bonds, "in the hope that the cash injection can kickstart the country's economy."  This weakens the dollar, boosting U.S. exports (therefore hurting the export trade of other countries) while making imports more expensive.  Many Americans do not realize the implications of the production of money or how the Federal Reserve System works, as to understand the Federal Reserve, it is necessary to learn about the institutionalized practice of money creation in a fractional reserve banking system, as utilized by the FED and the web of global commercial banks it supports.  The Federal Reserve is not part of the U.S. Government or under legislative control of the U.S. government, rather it is a private credit monopoly.  Let's go through an example in lay terms of how the FED and U.S. do business (as paraphrased from Zeitgeist Addendum):

For one reason or another, the U.S. government decides it needs some more money, so it calls up the Federal Reserve and requests let's say 600 billion dollars.  The FED replies saying: "sure, we'll buy six-hundred billion in government bonds from you".  So the government takes some official-looking pieces of paper and calls them U.S. government treasury bonds. Then it puts a value on these bonds to the sum of 600 billion dollars and sends them over to the FED.  In turn the people of the FED drop a bunch of fancy pieces of papers, this time calling them 'federal reserve notes', also designating a value of six-hundred billion dollars to the set.  The FED then takes these notes and trades them for the bonds.  Once this exchange is complete, the government than takes the six-hundred billion in federal reserve notes, and deposits it into a bank account, and, upon this deposit the paper notes officially become legal tender money, adding six hundred billion to the U.S. money supply.   And there it is!  Six-hundred billion in new money has been created. Of course, this example is a generalization, for in reality, this transaction would occur electronically, with no paper used at all. In fact, only three percent of U.S. money supply exists in physical currency. The other 97 percent essentially exists in computers alone.

So, the exchange has been made, and now, 600 billion dollars sits in a commercial bank account.  Here is where it gets really interesting.  For, as based on the fractional reserve practice, that six-hundred billion dollar deposit instantly becomes part of the banks reserves just as all deposits do, and, regarding reserve requirements, "A bank must maintain legally required reserves equal to a prescribed percentage of its deposits".  It then quantifies this by stating: "Under current regulations, the reserve requirement against most transaction accounts is ten percent". This means that with a 600 billion dollar deposit, ten percent, or sixty billion, is held as the required reserve. While the other 540 billion is considered an excessive reserve, and can be used as the basis for new loans.

Now, common sense will lead one to assume that this 540 billion is literally coming out of the existing 600 billion dollar deposit. However, this is actually not the case. What really happens, is that the 540 billion is simply created out of thin air on top of the existing 600 billion dollar deposit. This is how the money supply is expanded.   In other words, the 540 billion can be created out of nothing. Simply because there is a demand for such a loan, and that there is a 600 billion dollar deposit to satisfy the reserve requirements.

Now let's assume that somebody walks into this bank and borrows the newly available 540 billion dollars. They will then most likely take that money and deposit it into their own bank account. The process then repeats. For that deposit becomes part of the banks reserves. Ten percent is isolated and in turn 90 percent of the $540 billion, or $486 billion is now available as newly created money for more loans. And, of course, that $486bn can be loaned out and redeposited creating an additional $437.4 billion to $393.7 billion... to $354.3 billion... etc...

This deposit money creation loan cycle can technically go on to infinity. The average mathematical result is that about $5.4 trillion dollars can be created on top of the original $600 billion. In other words: For every deposit that ever occurs in the banking system, about nine times that amount can be created out of thin air.

So, now that we understand how money is created by this fractional reserve banking system, a logical question might be: What is actually giving this newly created money value? No, not gold, not since 1971.  The answer: the money that already exists (YOUR MONEY, MY MONEY, ALL OUR MONEY). The new money essentially steals value from the existing money supply.  For the total pool of money is being increased irrespective to demand for goods and services.  And, as supply and demand defines equilibrium, prices rise, diminishing the purchasing power of each individual dollar. This is generally referred to as inflation, and inflation is essentially a hidden tax on the public.  So now do you understand why everything was so cheap for your great-grandparents?

Let's not even go into the interest rate system, which would further demonstrate how ass-backwards and nonsensical the current monetary system is.  If you want to see farther down the wormhole, check out the full explanation in Zeitgeist Addendum, and be sure to pass on the knowledge to your friends and family.  (Fun FED Fact:   There is also a popular theory that the FED had something to do with the assassination of President John F. Kennedy, look into it).

Rep. Ron Paul is the latest to call for an audit of the Federal Reserve and ultimately, a dismantling or overhaul of this central monetary system.  The measure to audit the FED should be supported before it is too late. 

"We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it".  ~Congressman Louis T. McFadden in 1932