Saturday, November 5, 2011

Here is how the banker's game works


Here is how the banker's game works:

1)  Get the government to issue some currency (cash -- paper or reserves at the central bank -- reserves are government issued cash central bank deposits).  Government issued cash is around 5% of the currency (money) supply.  The government issued currency is put into circulation by the government simply spending it.


2)  The rest (95%) of the currency is issued by the private banks.  Each customer loan is a new bank deposit (i.e., new currency) and increases the currency (money) supply of the economy.  Note that this newly created money (currency) is put into circulation by the borrower spending it.  Most currency (about 95% America's currency supply) has been borrowed into existence and when bank customer pays the loan back that amount of currency is removed from circulation.   The banking system cannot go backwards (fewer net loans) as time moves on because fewer net loans means less currency in circulation in the economy.

Accumulation of interest charges on outstanding loans means that the currency supply must constantly increase even if it means giving out lower quality loans.  Think of it like a plane flying it must fly at some minimum speed or else the plane (the banking system) will crash (i.e., banking system collapse).


3) The bankers make dam sure that the common public does not understand how the monetary system works meaning that the private banks issue 95% of the currency. This is whole another topic how they do this.


4) The system works until real economic capacity of the economy grows and debts can be serviced and interest charges paid.  Most of the time the economy oscillates between boom (growth) and bust (recession) because bust is needed to clear debts and start a new lending cycle.


5)  Eventually, one of these cycles goes so deep that currency supply (and demand) falls so low that too many debts become un-serviceable.  The recession becomes a depression now.


6)  The bankers then have to decide how to "reset" the system.  One way to reset the system is to let the depression takes its course.  But of course this path is very chaotic because people lose jobs and may become violent.  Once most debts are cleared lending can start again and the currency supply is replenished.   Wars are a good way to get initial money (currency) into an economy after a depression to get demand going again.  This is the great depression scenario.


7) Another way to "reset" the system is to get the government to print too much money and spend and destroy the currency and blame it on the government.  This justifies issuance of a totally new currency (note that hyperinflation clears debts) and the lending cycle can start again.  For example, the Argentine economic crises with hyperinflation (1999 - 2002).

8) The banking system (as is) is setup to maximize the power and influence of the global bankers and NOT for the maximum general well being of people.  By the way this is a global game.  This is the only system around no matter what country you are in.   The global banking cartel makes sure that no competing systems are allowed to exist (so they might be copied and global bankers will lose power).


9) We need a currency system where money is spent into existence and does not need to be lent into existence so the economy is never starved of currency in circulation.

For more details on this stuff please read the following articles in order listed below:



http://seekingalpha.com/article/209386-modern-monetary-system-there-is-another-way



http://aquinums-razor.blogspot.com/2011/08/what-is-relationship-of-money-to.html



http://aquinums-razor.blogspot.com/2010/07/why-is-deflation-and-depression.html





http://seekingalpha.com/article/210346-should-newly-created-money-be-a-private-or-a-public-asset




http://seekingalpha.com/article/192375-cause-of-today-s-economic-crises-too-much-thrift




http://seekingalpha.com/article/160269-a-radical-solution-for-america-s-insolvent-financial-system




http://seekingalpha.com/article/146658-great-banking-confusion-is-there-a-better-way


Mansoor H. Khan

http://aquinums-razor.blogspot.com/

23 comments:

greg said...

This is a nice summary. The power of finance is really naked now, and it is ripe with the stink of fraud. Also, finance is overextended, and its institutions no longer able to support themselves without the fraud, and other help. Thus the necessary co-opting of the government. See:
http://anamecon.blogspot.com/2010/12/our-government-is-captive-of-wealthy.html
And:
http://anamecon.blogspot.com/2010/06/that-bloated-financial-sector.html
Will the people open their eyes, or more correctly admit to seeing what has been before them the whole time?

For a nice video exposition of the problems with the current system, see:

Money as Debt:
http://www.youtube.com/watch?v=Dc3sKwwAaCU&feature=related

Or:
http://video.google.com/videoplay?docid=-2550156453790090544

And:
Money as Debt II:
http://www.youtube.com/watch?v=rCu3fpg83TY

(Meant to publish this here the first time!)

George May said...

Excellent summary. The matrix is real. You are only a battery to them. They own the media. They put the population to sleep through media monopoly. For them, the meaning of your life is to be born and then to borrow for mortgage, borrow for consumption, borrow for business and pay them interest for a lifetime for money that they create out of nothing when you borrow. It is financial slavery! You work for them your entire life. The taxes you pay mostly goes to pay interest!

Any government that does not let them do this to their people is the enemy! Economic sanctions will be applied and when their economy fails because of isolation, they will be pointed out as a failure. If they don't crumble economically, then it is war that topples them.

Google for "How do banks create money" to understand the world wide slavery.

Entire money supply is debt. It is the principal we borrowed. But banks demand that it is paid with interest. It is not possible for every borrower to be employed at levels that enables them to earn principal + interest. Because the interest portion is not created yet. It is only created with more borrowing. The inflation created by money creation of banks punishes savers and forces more people to borrow. New money is used to pay old debt. When we run out of borrowers, it crashes.

New money that is created in a society should belong to the society. It should not belong to private bankers. Thus, if any interest is to be paid, it should be paid to the people, not to the private bankers. A solution is to require 100% fractional reserve. Let treasury print principal + interest when a loan is made. Principal is loaned out to the borrower. Interest portion is spent in place of taxes. principal + interest is available to earn. When interest is paid back, destroy it.

Current system requires perpetual debt since existing debt cannot be paid without further borrowing. Banks can at will withold loans and create a depression. Then they will make loans to their friends and withold loans from competitors. When competitors who cannot access loans go bankrupt, they are bought by the friends pennies on the dollar. This way the banking cartel gains control of the media and other industries. This is a ponzi scheme but when it goes bust, they get bailed out at tax payer expense because they have the congress and the government in their pocket.

Last but not least, if banks did not create money out of nothing when they made loans, then home prices would be lower and savers would afford them cash down. This is because when 30% of the population works in financial services, the other 70% has to work harder to feed the 30%. If financial services is reduced to 1% just like farming, then they will be employed at more productive tasks (building homes?) and the burden on the 70% will be reduced.

This usury scheme is the reason why we want democracy when a dictator goes out of line. What we have is the dictatorship of the rich. Using their media monopoly they ensure that all presidential candidates are on their boat. Without their blessing, nobody can get elected to the public office!

Those of you who are defending this system really are defending your own slavery.

No one is more of a slave than he who thinks himself free without being so. - Goethe

Google for "How do banks create money" if you don't know about money mechanics.

George May said...

Here is how banks create money:

http://www.tradingstocks.net/html/banks_create_money.html

Martin Gercsak said...

Resetting the system is not that easy and the bankers don't have that much control over it as stated. Japan is a good example how money printing and stimulus with bridges to nowhere doesn't help.

The credit system is based on a willing borrower and a willing lender. The trick is to exploit the general population while they willingly participate. But when people become pessimistic about the future and don't want to take loans this breaks down.

Hyperinflation has nothing to do with a credit bubble. In all the hyperinflation events in the past the government just printed money to pay its bills. In a credit based system it's not a solution because central banks create new money by buying IOUs and not literal printing. There is a tipping point where central banks buy too much worthless IOUs and the bond market panics. This results in everybody dumping their bonds which means very high interest rates and money supply contraction. There is no solution other than the depression running its course. Either by a crash (1933) or by a thousand cuts (Japan since 1989).

The bankers just do what seems to be their best short term interest. But they are just as clueless as the general population. Most Lehman executives lost everything they had (by taking loans against their Lehman stock holdings). Now how stupid is that from a risk management perspective?

Mansoor H. Khan said...

I left the following comment on Martin Gercsak blog in response to the above comment:

Martin,

thanks for commenting on my blog.

did you read about an alternative financial system I proposed that is NOT based on lending?

http://seekingalpha.com/article/209386-modern-monetary-system-there-is-another-way

We do not have to live this way where our currency supply is "borrowed" into existence where we must continually pay rent on it (interest charges). We can simply have our government spend currency (not lend) into the economy. We don't need to suffer deflation (reduction of circulating currency) to "reset" and have a disaster.

Banker's want us to live in this matrix where we must borrow our own currency into existence. We can and (god willing) one day we will break out of this matrix.

Mansoor Khan

Mansoor H. Khan said...

I made the following comment Rodger Malcolm Mitchell's recent very relevant blog post:

http://rodgermmitchell.wordpress.com/2011/11/16/the-idiot-patrol-is-on-the-loose-again-hide-your-wallet-pray-for-america/comment-page-1/#comment-9717

Mansoor H. Khan says:
November 16, 2011 at 3:53 pm
Rodger,
You should think of yourself as doing what Martin Luther (1483 – 1546) did to the Church (reformation). The global banking cartel is just as powerful. Prominent orthodox economists are priests on their payroll or at least too scared to speak up.
This stuff is not that hard to get. Keynesian Economics + MMT + MS are all very clear and consistent. I find it very hard to accept that prominent economists and president’s advisers are that stupid.

http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html

Mansoor H. Khan

Mansoor H. Khan said...

I made the following comment on Naked Capitalism today:

http://www.nakedcapitalism.com/2011/11/philip-pilkington-debunking-economics-%E2%80%93-an-interview-with-steve-keen-%E2%80%93-part.html#comment-529666

mansoor h. khan says:
November 16, 2011 at 6:37 pm
joebhed,

glass steagall and low quality lending is part of the game:

read how the game works:

http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html

Mansoor H. Khan

Mansoor H. Khan said...

F. Beard made the following comment and I responded to it today:

F. Beard says:

November 16, 2011 at 7:58 pm

Yes, inter-bank lending creates a banking system. So eliminating a government provided lender of last resort and government deposit insurance is essential to crushing the counterfeiting cartel. As for the need for the public to store its fiat safely that should be provided by the government itself since it creates fiat and is thus a risk-free place to store it.

Reply
mansoor h. khan says:

November 16, 2011 at 8:43 pm

F. Beard,

Bingo!

I can feel the countdown to cartel’s day of judgement.

Mansoor H. Khan


http://www.nakedcapitalism.com/2011/11/philip-pilkington-debunking-economics-%E2%80%93-an-interview-with-steve-keen-%E2%80%93-part.html#comment-529799

Additionally (I would like to add):

Ravand (the evil banking cartel which has stolen from the common man for centuries) is about to get an arrow in its heart (the arrow is modern monetary theory, MMT, knowledge spreading through the internet).

Just like the power of the church was destroyed by the Gutenberg printing press. The power of this evil global cartel will be destroyed by the internet (god willing).

Mansoor H. KHan

Mansoor H. Khan said...

On November 14 I made the following comment on the New Arthurian Blog:

http://newarthurianeconomics.blogspot.com/2011/11/total-debt-and-m1-on-2-line-graph.html?showComment=1320661978001#c2903812445396265918

Mansoor H. Khan said...
Jim,

you are correct but only partially. Fewer net loans cannot continue for too long unless the government continues to deficit spend which it will not as much if the tea party republicans get their way.

The bankers will reset the system soon since the whole idea for them is to not let the gov issue much currency so they can issue as much as they can and get interest income on it.

Mansoor

Mansoor H. Khan said...

I am trying to get the following comment accepted on Paul Krugman blog:

Your Submitted Comments
Display Name
Mansoor H. Khan
Location
Maryland
Comment
Paul K.,

What are you scared of? Please speak up!

see;

http://rodgermmitchell.wordpress.com/2011/11/16/the-idiot-patrol-is-on-the-loose-again-hide-your-wallet-pray-for-america/comment-page-1/#comment-9717


Mansoor H. Khan


The above comment applies to:

Mervyn King, Ben Bernanke, Yves Smith, Edward Harrison + Prominent Economists + President's Economic Advisors + Christina Romer

Please take of your Dunce caps off and tell the truth!

Mansoor H. Khan

Mansoor H. Khan said...

I pasted this blog entry contents on Malcolm Mitchell's blog comments section. A commentator responded with:

http://rodgermmitchell.wordpress.com/2011/11/07/why-dont-the-facts-penetrate-we-get-it-why-dont-we-want-to-get-it/comment-page-1/#comment-9275

Pete says:
November 8, 2011 at 9:09 am

Spot on Mansoor. Your #3 answers Rodger’s general question of “why?”… Through a combination of mass marketing and control of economic narratives via the corporate media and academia, all the smoke and mirrors as well as the protecive layers of the racket in our Govt. institutions keep the house of cards propped up. They certainly aren’t going to give out their rentire privileges without a struggle.

Frederick Soddy, through the application of thermodynamics, points to the global debt-based monetary system as a perpetual motion scheme. What happens when an unstoppable force runs up against an immovable object?

It should be noted that per your #6, we have been in a state of perpetual military “growth” conflict for decades now and are currently rattling the sabers for an almost certain assault on Iran.

@Scott, I agree. The movement has already indicated a shift in consciousness. They’ve opened up the dialogue and changed the conversation. Evidence across the econo-blogosphere indicates that there are quite a few smart people going down to the street level for “teach-in” educational engagement. This is a huge step forward to shedding some sunlight on the creditor class and how they pull the strings. Since ‘money’ is just a social arrangement, we can agree to change it.

Anonymous said...

Mr. Khan,

Interesting article.

"fewer currency in circulation"

should be "less currency".

Anonymous said...

Holy Quaran says it all:

Surat Al-Baqarah 275-279

Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein.

Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever.

Indeed, those who believe and do righteous deeds and establish prayer and give zakah will have their reward with their Lord, and there will be no fear concerning them, nor will they grieve.

O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.

And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.

Mansoor H. Khan said...

comment on NC:

http://www.nakedcapitalism.com/2012/03/michael-hudson-on-the-federal-reserve-system.html#comment-676050

F. Beard says:
March 29, 2012 at 11:55 am
However, because the Federal Deposit Insurance Corporation gave the same guarantee to depositors in private banks, the Postal Savings System lost its natural advantage in trust. from http://en.wikipedia.org/wiki/United_States_Postal_Savings_System

Government deposit insurance is fascist. The Federal Government should reinstitute the Postal Savings System but this time pay no interest (nor ever make loans).

Reply
Mansoor H. Khan says:
March 29, 2012 at 12:12 pm
The check clearing has to be performed by the government.

Control of the check clearing process is what allows the private bankers to play musical chairs with government created cash and leverage 20 to 50 times on it.

mansoor h. khan

JB said...

Very good summary. It is incredible how many empirical proofs exist about all those claims. Why is it that nothing has happened so far?
In case of Argentina, I think that point 7 describes it´s behavior quite well. They used the easiest way and started to print money, which in combination with fixed exchange rate to Dolar led to complete destruction of the national economy.
Your point 8 can easily refer to the situation in Canadian real estate (More Regulation in the Mortgage Market), because it is being flooded (especially in Vancouver and Toronto) by foreign capitals, which leads to overpriced housing and has direct impact on low and medium classes of citizens, who have to ask for insane mortgages to be able to get a new house.
The problem can´t be solved by the reform but by complete system change, as you suggest. But by who? They have the money and they have the power...

cstahnke said...

It's good to see people beginning to question the assumptions of the current financial system. The lure of Matrix-like thinking is wearing off among increasing numbers of people. What replaces it? I think that will emerge over time--we need to trust each other. There are so many good solutions to our collective problems--the only thing that is keeping an explosion of creativity is the heavy repressive hand of the corporate state that say nyet to any reform that touches on the profitability of the various rackets that involve every major sector in our economy. All this has nothing to do with ideology but, rather, the simple fact that we are dominated by gangsters and the MSM that they own and control.

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Im still glad that the currency is getting a higher value.

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dilbertgeg said...

According to the "heart" of MMT, fractional reserve banking is a MYTH. That's a whole crux of what Steve Keen has been arguing with Paul Krugman about, and I had this conversation with Warren Mosler.

Banks DO NOT create money by multiplying reserves. Reserves are not an issue at all, up front. Reserves are reconciled with requirements, two weeks in arrears.

That is, banks first CREATE loan agreements & deposits. Then they look back after one week and see if their reserve account meets regulatory criteria. Then they have one more week to get that money into reserves.

When it comes to how much reserves are needed, ONLY household or consumer accounts are counted. Commercial or business accounts are not tied to reserve limits. Then there's Greenspan's overnight "sweeps" which nullifies a lot more.

Anonymous said...

Good insights here on the need to break out of the matrix.

Only way possible is through a SPIRITUALLY based system that gets right down to the ROOT of the central bankers' WAR-DEBT-TAXES-USURIOUS interlocking system.

We, Humanity, are able to do this in one fell swoop here:

http://blog.thespiritualun.org/

We welcome all.

Please contact our site Mansoor.

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Mansoor H. Khan said...

A comment I made on Naked Capitalism blogpost:

http://www.nakedcapitalism.com/2013/05/systemic-malfunctioning-of-the-labor-and-financial-markets.html#comment-1255741

mansoor h khan says:
May 19, 2013 at 8:22 pm
Nobody,

I think it was Plato who wrote that civilizations processes along this path:

Chaos -> Monarchy -> Aristocracy -> Democracy -> Collapse -> Chaos

To the above model I think we should add:

Chaos leads to quest/hunger for spirituality and search for god because life is so much more difficult in chaos.

As religious beliefs consolidate with time social order and stability grows, scientific knowledge grows, cooperation grows, specialization grows and a flourishing new civilization is born–>

Then:

The once a civilization grows powerful: Faithlessness grows, selfishness increases and corruption and cheating increase leading to collapse/Chaos again!

This is similar to what Spengler wrote in Decline of the West, http://en.wikipedia.org/wiki/Oswald_Spengler.

That is why I believe spirituality will come back in full force post collapse (inshallah).

Reply
banger says:
May 19, 2013 at 10:58 pm
Yes, because in this particular time there is no other way open to the future–every other door is closed. Strictly materialist values will not enable humans to deal with climate change–only understanding how things are connected will enable us to deal with the large-scale problems we face. Wonderful to know that there are others posting who understand this.

Reply
mansoor h khan says:
May 19, 2013 at 11:11 pm
All religions think this way! They emphasize our connectedness and individuality (and not just our individuality as the western society has become, much too left brain oriented):

Left Brain:

1. Logical and Rational and Detailed Oriented
2. Helps us to deal with the material world (hunger, need for water, shelter, sex, etc.)
3. Embodies Discipline (the goods and services production process, the Judicial System, the Military)
4. Embodies physics and physical laws
5. Uses strict hierarchy
6. This is the focus of the old testament (eye for an eye!)
7. Symbolized by the Roman Empire and focus of Greek thought
8. Symbolized by the state (as opposed to the individual!)
9. Embodies submission and compliance (Opposite of freedom!)
10. Cold, strict and impersonal (opposite of warm, flexible and forgiving!)
11. Focuses on this life (as opposed to a possible after life!)
12. Has a difficult time with coming up with new models or theories or ways of solving problems
13. The left brain will take a civilization over a cliff when the civilization encounters a problem requiring adjustment to the models executing (like a computer executes code) in the left brain if not restrained by the more “flexible” right brain

Right Brain:

1. Creative and Imaginative and Artistic and is able to have higher order logic and higher order rationality (dealing with the whole picture).
2. Able to come up with fresh approaches, new models and new theories and new ways of thinking about the natural world
3. Embodies emotion (love and hate), falling in love, patriotism, empathy, motivation
4. Is able to increase the spirit, the desire to live, the desire to fight, the desire to carry on
5. Is able to conceive of infinity (in time and space) and even in power (able to conceive omnipotence)
6. Wants to procreate (one way to defeat death in a sense!)
7. This is the focus of the New Testament (mercy, love and forgiveness!)
8. Symbolized by the Persian Empire and focus of much of eastern thought
9. Focuses on the individual and freedom of the individual
10. Is in control of person’s free will
11. Is able to conceive of and focus on after life

I will go a step further and say that:

It is the right brain which guides and teaches the left brain. But left helps to keep the right nourished and healthy on the physical level.


Read more at http://www.nakedcapitalism.com/2013/05/systemic-malfunctioning-of-the-labor-and-financial-markets.html#48DOq7yfO2QgW8Ya.99

Mansoor H. Khan said...

A comment I made on a Naked Capitalism blogpost:

http://www.nakedcapitalism.com/2013/06/why-you-should-stop-worrying-about-central-bank-losses.html#comment-1290162

Jim Haygood says:
June 15, 2013 at 7:28 am
Those who rationlize institutionalized theft such as De Grauwe are social wreckers, lending a hand to bail the banksters and scourge the poor. ‘Progressive,’ ain’t it?

Reply
Gary says:
June 16, 2013 at 5:57 am
the only point De Grauwe made is that central banks can’t go broke, and that fixing banks’ balance sheets doesn’t automatically cause inflation in the real economy.

If banks were “spurred” to create another housing bubble, by lending again to consumers, then housing prices would presumably rise — asset inflation, securitized mortgage assets would re-inflate.

The problem remains of the gap between consumer income vs debt obligations.

The ethical purpose for money, recognized for a long time, including by Lysander Spooner on Mises, is mainly COMMERCE and FLOW. The austerity trip is that money should have a static value or grow in value, while the real economy deflates — but THAT is will known to cause waves of bankruptcy and foreclosure.

The history of the Populist movement in the US around bimetalism and William Jennings Bryan, this was pushing for inflation of the money supply in the false context of commodity metal “fixed” money. Farmers and small manufacturers and retailers — the 99% of that era — preferred inflation because they HAD little savings, they had LAND and other assets. But that 99% had something else — DEBTS taken out to expand farming and other commerce.

Deflation during sharp Recession — now likened by Austrians to a gradual fall in computer CPUs and memory over time — meant that producers and traders were unable to sell their product for enough money to pay their debts and investments, because of periodic collapses of credit markets — so the difference btw deflation vs inflation meant the difference between solvency vs bankruptcy and losing the farm.

Q: Classical liberals like Adam Smith and T. Jefferson, did they see primacy in Capital and Capitalists or farmers and producers?

A: The latter. Lincoln said the same thing, the source of capital is Labor.

This was apparently widely known.

Now, Neoliberalism says the SOURCE of Labor is Capital, so speculators and corporate raiders are praised for “creating jobs”.

Reply
Mansoor H. Khan says:
June 16, 2013 at 7:09 am
Gary,

Bankers and the creditor class rules the world. Their first priority is to keep the usurious system in place. Their second priority is social stability and promotion of general welfare of society.

That is why Bankers and the creditor class keeps humanity stupid about money, banking and economics.

This problem can only be solved by “enlightenment” of the general population with respect to economics (by the way of Veblen, Keynes and Clifford H. Douglas and other with similar ideas).

more at:

http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html

Mansoor H. Khan