Money has apparently been around in some form or another since conscious man. It’s the grease that lubes the wheels of society. It’s greatly desired and greatly detested. It both promotes virtue and perpetuates vice. Most people know that money is in a sense fake – only a representation of things which hold greater value than itself. Yet what most do not know is just how fake money has become in modern society. Perhaps in a bygone age one’s wealth was represented by precious stones or metals, and more recently colored paper, but more and more that is not the case. It may seem that the American economic system is currency-based, but careful consideration yields a different answer. Most everybody has more wealth in debt than in bills. Now that it’s been said, it seems pretty obvious. Americans in general are pretty heavily in debt. With the current economic crisis, something must be done more than simply treating symptoms of a nation festering with financial disease, and poorly administered federal social programs just won’t cut it. So here we’ll consider one of the economic practices of the United States and some solutions to their adverse effects.
First of all, where does money come from? According to the U.S. Constitution, it is the job of Congress to create currency. But what happens when a bank makes a loan? They’re just lending money that they have deposited in other people’s accounts, right? Actually, wrong. The idea that a bank has the same amount of money on-hand as it’s lending is absurd. Most Americans understand this concept, but let’s review. Gravity on earth follows the rule “what goes up must come down.” Banking follows a similar rule: “what goes out must come back in.” In other words, when a loan is made, it is then spent in commerce and eventually finds its way back to the bank albeit in someone else’s account. This means that a very small portion of the bank’s funds are lent out at any given time. But since banks make money on interest, it is in their interest (haha) to have as much money as possible lent out. Consider a bank which has total deposits of $1000, of which money only 10% at most is lent out at any given time for ease of calculations. This means that the bank only has to make good on $100 at any given time, yet has an extra $900 sitting idle and not making interest. The bank realizes this, and decides to grant loans all adding up to the amount of $10,000, thus only being required to make good on $1,000 at any given time, which they supposedly can do. This is called leveraging.
But what is the effect of leveraging on a nation or community? The effect is that almost all the “money” generated in that society is an imaginary IOU. It’s extremely dangerous if the bank’s speculations fail due to any number of unforeseeable variables (e.g. natural disaster, etc.) and debts are called in. In that scenario banks have two options: refuse to return deposits , suffer both legal allegations and rioting and shut down, or just avoid all that by shutting down. But what of the F.D.I.C. safety net? You tell me. When you want to withdraw all your accounts and the bank can’t fork out the cash, where does the F.D.I.C. in shining armor get it’s currency? Hot off the press baby!! This results in a highly diluted dollar. What’s the difference between having a dollar that buys 10 mangos or having 10 dollars that each buy one mango? You still get 10 mangos, except that this time all the businesses that had their debts called in have in the mean time shriveled up and died, so no mangos.
What are the solutions then? That’s where I would like your input, but here are a few at least.
1) Debtors prison. I still haven’t got anyone to agree with me on that one, but what the hey, someday they’ll see.
2) LIVE WITHIN YOUR MEANS AMERICA!! People have been saying it for years. Live modestly and within your means. Avoid debt if possible and pro-actively work to pay off all debts that you currently carry. (This is a serious solution, not like debtors prison). Remeber, don't contribute to the problem
3) Restrict banks (either directly or indirectly) from assuming the congressional power to create money. This might be accomplished by requiring that banks only lend an amount of money that they are able to confiscate in collateral if the loan should not be honored. In other words, “Want a loan? What are you going to give me if you can’t pay me back? Oh you only have some ancient “Beetles” records going for about $100. Well, I guess that’s the extent of your loan.” This would never let an economy become financially top-heavy or unstable. Growth would be slower, but consistent and safe.
Sorry about the lack of referencing ANY material. I'll get into the rythm when I've got time. Please leave your input
