Illusion of Modern Banking System


Slavery never ended,it just changed its form. The myth of modern day banking system is so simple and in your face that it is hard to belive that the entire world had been fooled for over 80 years.

There are 2 parts to the fraud of modern banking system.

First.
The creation of money.

Second.
Fractional reserve banking.

Money is literally created out of thin air,back in the days they used to have a Gold standard,where every note printed used to be backed by some amount of Gold. But as the countries exceeded their expenditure limit, they began printing more money than they could and then international bankers declared the Gold standard as obsolete. By 1930`s almost every country had left the gold standard and was creating money out of thin air. A 20 Rupee note and a 100 rupee note cost the same to the government to print,they don`t have t put in extra ink or paper to print Rs 100 or Rs 5000 notes. But the ordinary man has to work their heads off to earn something which essentially has no value at all. It is just a piece of paper,the money economy collapses or the international bankers decide to do away with this system( which is inevitable now),all of out money will cease to hold any value.

Only the privileged class benefit when banks manufacture money. With such a powerful tool, public banks could easily serve the majority who are unable to obtain credit, lacking collateral, and who find microcredit inadequate. The question is: if banks can make massive profits for themselves with fictitious money, why should borrowers be forced to provide collateral of real substance such as their cars or houses?

The state has failed to balance this huge privilege with conditions to benefit the wider citizenry. This has a direct bearing on democracy and people’s right to money and credit. Why should one class be served, and the other not at all? With gold and other precious metals no longer backing up money, its ultimate value comes from the country’s combined assets. Economic activities require use of natural resources (known as public goods) that belong collectively to the people, such as land, water, fossil fuels and other public assets.*1

The money which was created out of thin air by the Central Bank,is then loaned out to the Government(If the central bank is not state owned) or to the commercial banks. This act of loaning out the money creates a debt on the economy. Furthermore an economy has only enough money to repay the principle debt,to repay the interest further debt has to be incurred ,which is then compounded over and over again.

So money created out of thin air,becomes a debt,which keeps compounding over and over ,resulting in a financial meltdown!

The situation in Pakistan is as follows. Pakistan’s GDP in 2008 was US$160 billion, growing at an average rate of 5% for the last 60 years and its total outstanding debt, public and private, domestic and foreign was US$118 billion. The wieghted average rate of interest on Pakistan’s total debt is around 9%. In 25 years at the average GDP growth rate of 5% Pakistan’s GDP would be US$542 billion. Its total debt on the other hand would have ballooned to US$983 billion. In 50 years the situation becomes more interesting. The economy would have grown to US$1.8 trillion and the debt would have grown to about US$8.4 trillion. So between, 25-50 years from now the current monetary system would force a system wide bankruptcy. Since Rupee is not the reserve currency of the world, I doubt if the country can sustain total debt of more than 200% of GDP. At current rates that is likely to happen within 25 years. As a nation, we do need to look at least 25-50 years forward. In fact we should be looking a 100 years out. However, let make the leap from a 1 year horizon to a 25-50 years horizon first.

The crisis that US Europe and Japan are facing has been brought about by these contradictory dynamics of the monetarty system. They are at crisis point today because this system has been running in their economies for almost a hundred years now. Pakistan will reach the same crisis point in the not so far off future.

Here is a fact Pakistan’s monetary system is also the standard in almost every single country in the world. And here is the problem, the logical end point of this system is disaster.  *2

Fractional reserve banking makes the whole situation even worse! In fractional reserve banking,a bank only keeps a fraction of the total deposits and loans out the remaining (Usually 80% of the deposits) because at any given time the probability of all the people coming over and asking for their deposits is very low.

Now you are sitting in your home thinking that my money is safe in the banks,nope it has been loaned out. Ok no problem I can ask for a withdrawal right? Well if you are among the first 20% then yes,but if you are in the remaining 80% then sorry,you won`t get your deposit back. This sounds like a story?

Look back at the credit crunch America faced in early 1900`s. They sold shares to the general public,the people bought the shares on loan,after some time the big capitalists called back the face value of shares,people ran back to the banks to withdraw money to pay to the capitalists for shares. Banks said no,capitalists seized their property which was collateral.

A messed up world we are living in. This is not just true about the US economy,but about almost every economy in the world. Almost every country is printing money out of thin air and using fractional reserve banking. While ordinary people work 9-5 to earn their living, the capitalists create it literally out of thin air!

___

Sources:
1) Exerpt taken from an article by Najma Sadique, http://najmasadeque.wordpress.com/2013/11/28/without-a-fraction-of-reserve/
2) Exerpt taken from an article by Kathay Kalame, http://pakistaniat.com/2009/06/13/contradictions-in-pakistans-monetary-system/

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by Danial Ahmed
Team Operation Pakistan

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One Reply to “Illusion of Modern Banking System”

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