Posted by: graemebird | August 3, 2006

Crime And Money Creation Seperated In Time. A Three-Step Sleight Of Hand.

The Children Of An Oddly Chubby God Part II

From Catallaxy:

http://catallaxyfiles.com/?p=1867#comment-129933

Well that was the example of how money is NOT created. And nor can it be destroyed so long as those banks stick to the rules.

So now we return to the status quo ante. And there is an announcement by the King that from here on in they practice fractional reserve. He tells them that Fractional Reserve is a good thing. That all that Gold is just sitting there doing nothing. And we want the Gold “working hard for the people”.

But the system is incredibly constrained as to how much fractional reserve banking can be done. Since all the banks are small Mom and Pop operations.

If bank A were to lend out $4000 from W’s on-call cash for example. They would be at the mercy of W coming in and withdrawing more then $1000. This would send them broke. Since there is no guarantee that the next guy who gets hold of the cash is going to deposit it back in bank A. In fact the odds are stacked against it.

So what happens is the banks decide to amalgamate. And banks A B C and D get together to form the “United Goldsmiths Co-operative Peoples Bank”. Their motto is “Purchasing Power To The People” and they have an advertising campaign where they use the mantra “Co-operation in wealth creation”.

Its pretty easy to see that bank E is finished. Because soon the co-operative is going to be able to pay interest on demand deposits. Whereas in the past each bank would demand fees for the priveledge of holding the cash. So E is finished. He cannot participate in the fractional reserve game since there is VERY LITTLE CHANCE that when he makes a loan out from the on-call money…… there is almost no chance that the next guy who gets the money will deposit it back in bank E.

So right there we see an institutional tendency with fractional reserve. Once it comes in there is immediately a tendency towards cartelisation. Less competition and more cahoots. And the small guys driven to the wall.

This is not so much the case now. Because in our current system some of the upstarts can pick up cash from all sorts of sources. So for example some of these Mortgage companies will be picking up cash from Superannuation funds. And new cash is being printed all the time.

But what we are talking about here is fractional reserve metals. And its pretty easy to see that once fractional reserve comes in size really does matter. And a process will be kicked off leading to some networks exercisingg massive power. Such as the Rothschilds in the 18th and 19th centuries and J.P. Morgan in the 19th.

Whereas under 100% backing there is no advantage to size so long as you can participate in some sort of network of debit cards and cash machines.

So we can have lots of little outfits trying to match savings with the best investments.

Anyhow we will repeat the same situation as before. This time the big bank doesn’t have to hussle for term loans. Instead Individual X takes $3000 of his own money and borrows $12000 from the peoples bank.
…………………………………………………………………………………………………………………..
Right at that very second that the loan is made a hermit and religious devotee that no-one has seen in five decades shows up at the Peoples bank. “You have turned my fathers house into a den of thieves” he says. But seeing no tables to overturn he strides off smashing one of the windows with his wooden staff on the way out.
…………………………………………………………………………………………………………………..

Individual V then buys $15000 worth of capital equipment from individual Y.

Individual Y takes the $15 000. But this time he puts $10 000 into the Co-operative bank and only $5000 is added to his house-cash-stash. Because the Co-operative bank is now not charging fees. Since it wants to drive bank E out of business. Its a moral thing. Bank E are ruthless competitors who are not with the new wave of Co-Operation and serving the customer through the provision of extra purchasing power.
…………………………………………………………………………………………………………………..

At that very moment that Y is making his deposit the soldiers are about to enter onto the water for military training. And just as the teller is finishing the transaction for Y a pebble falls straight down from the sky some distance from where the soldiers are readying their tri-remes.

Plop!

And the soldiers were fortunate with the timing. And since the lake is so flat and still they notice the Plop that the pebble from the sky makes and they put down their heavy narrow boats, and they back right off.

Sure enough on comes the rather pleasing swell, and a bit of a whirling current, which by past practice would have helped the soldiers in whatever they were doing were they on the lake but now its just a bit of a circular whirl around where the pebble landed since the lake has no soldiers on it to guide the enchantment.

Now the soldeirs wait and wait. They know they cannot get into the water until the anti-wave has come and gone. But sure enough she comes quickly and violently. And the soldiers then get upon the lake and they go through their exercises not disturbed by uncalmed waters.
………………………………………………………………………………………………………………………….

The King now takes another survey.

He asks the people (The children of a muscular and righteous yet oddly chubby-looking God)

NOW HOW MUCH MONEY DO YOU HAVE ON HAND?

V sez: $2000 cash at home PLUS $5000 cash at the bank EQUALS $7,000 dollars of MONEY.

W sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

X sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

Y sez: $10 000 cash at home PLUS $15000 cash at the bank EQUALS $25,000 dollars of MONEY.

Z sez: $5000 cash at home PLUS $5000 cash at the bank EQUALS $10,000 dollars of MONEY.

So the King (who is outranked by THE GOD) concluded that the money supply for his representative set was SIXTY TWO THOUSAND DOLLARS ($62 000).

$12 000 has been created by the banking system out of thin air.

Now note that its not a one transaction deal to create the extra money out of thin air. It requires

A loan

A purchase

The depositing of the cash by the seller into another bank. And most of the time it won’t be in the same bank as the one that made the loan. The sin is created AT THE TIME THE LOAN IS MADE FROM ON-CALL MONEY. But the new money is not created out of thin air until the deposit is set up in the second bank.

The old man curses the bank as thieves WHEN THE LOAN IS MADE but the lake does not swell until the new deposit is made. That is when the new money is created.

And its this triple-step and the seperation in time between the crime committed and the new money created which has turned this into a sort of magicians sleight of hand, that has made it difficult to see that new money has been created out of thin air.

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