Money Truths

7/31/2019 Money Truths

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90% of money in circulation is created by the profit oriented private organizations called banks

through loans with a promise to pay the interest. Even the central bank provides currency to

Government only by taking bonds from the government with a promise to pay the interest. When a

person takes loan it increase the money supply in the society. It is brand new money comes into

circulation as it is never existed in circulation before.

FACT2: Money takes its birth in banks through loans with a promise to pay the Interest

Hidden Effect of Interest

Banks are creating money only through loans. It means we have a debt basedmonetary system and we should pay back the principal amount of money to the bank with anadded interest.

Here we need to understand two things carefully.

1) Every currency note that comes into circulation only through loans.2) We are taking money (principal) from the bank as loan and promising to pay back with extrainterest (principal + interest).

When every currency note that comes in to circulation only as debt (only Principal), where isthe money in circulation to pay the extra interest. Banks only created and supplied the principalamount.They never created the interest and never put it in to circulation. Interest amount is never existed.

We only have the principal amount in circulation. We do not have any money available to pay theinterest. This is the root cause for all problems. If you understand this logic, it is very easy to

understand the reason behind the sufferings of people.

In the current monetary system, at any given point of time, there is no money available incirculation to clear all the debts. So someone should be bankrupted unless he gets some moreloans from the banks to clear the previous debt. If you understand the problem, more than 90% ofpeople should be bankrupted as money is coming into circulation as debt and there is money incirculation to cover all the debts. But it is not happening like that. To understand the magic, weneed to understand how the banks are issuing loans through fractional banking system.

FACT3: At any point in time there is no enough money in circulation to clear all the debts

Magic of Fractional Banking System

Deposits are liabilities to the banks and loans are assets to the banks and interest is the

profit to the banks as they claim. Banks issues loans only based on the deposits available from their

customers. The more deposits the bank had the more loans the bank can issue. They do it based on

the Cash Reserve Ratio (CRR).


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Cash Reserve Ratio (CRR) will decide how much the banks can issue money as loans

from their deposits. Lets for easy understanding consider the CRR as 10. This means if a bank had

deposits of 100 then bank should maintain the reserves 10 at central bank and are permitted to

issue money as loans up to 90. This is what normally we study in our educational institutions. But in

practice banks follow fractional banking system which increases the money supply in geometric

progression.

From the initial deposits of 100 banks can issue loans up to 90. Where this newly

created 90 should go..? This 90 should be deposited in same bank or in another bank account. That

means it is a new deposit and banks can issue loans up to 81 based on this newly deposited 90. And

this 81 should be deposited in another bank account and banks are permitted to issue loans up to

72.9 again. This is called the fractional banking system.

Step Deposit Permitted to Loan the amount

1 100 100*(90/100) = 90

2 90 100*(90/100)2= 81

3 81 100*(90/100)3= 72.9

..

..

..

This is nothing but creating the money in geometric progression

a(r)0+a(r)1+a(r)2+a(r)3+a(r)4+.+a(r)

Where a = Initial Deposit = 100 and

r = (100

CRR)/100 = ((100 10)/100) = 90/100CRR = Cash Reserve Ratio

Formula to calculate the Total money pumped into circulation by banks from the initial 100

through loans is

= a (1 rn)/ (1 r)

= 100(1 (90/100))/(1 (90/100)) = 100(1 0)/(1 0.9)) = 1000

From this we can see that initial 100(Which also came into circulation as debt only)

deposit, banks are able to create 1000 through fractional banking.

This method only illuminates people that money is available to clear the debt even though P

(Principal Amount) + I (Interest) > P (principal Amount) as money comes into circulation in

geometric progression.


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But again at each step as mentioned above should also pay the interest which does not exist in

circulation and increases the debt burden on people. To Cover the debt and people not to bankrupt

the money should always comes into circulation in exponential manner as debt is also increasing in

exponential manner through fractional banking system. If you understand we are covering the debt

with more debt.

The truth is the amount of debt a country had, that much money is in circulation for that

country. When we clear all the debts including the government debts, we dont have a single rupee

in circulation. The Debt will increase exponentially as the money is created exponentially through

Fractional Banking system. Just for Information, the much developed country United States of

America has the total debt of $55 trillion(http://www.usdebtclock.org/).

FACT4: The amount of debt a country had, that much money is in circulation for that

country

Reasons behind why the people become bankrupt1) This system works fine until the inflation comes into the picture. As long as inflation does

not come into picture the boom stage will continues. Production increases, jobs increases

GDP (The worst way to calculate the development of a country) raises as spending

increases. But when money increases in circulation in exponential way inflation is

inevitable and prices will go high.

2) This is where the central bank comes into picture and increases the interest rates in orderto decrease the loan issuing rate so that money supply into circulation will be reduced. This

will definitely helps in reducing the inflation as money supply into circulation reduces and it

stabilizes the prices in the market. But what happens to the people who need that

exponential money supply in order to clear their debts

3) As banks reluctant to issue the loans to people money supply decreases in circulation andthe true picture comes out of the illumination of fractional banking system which is

[Principal Amount (P) + Interest (I)] is always greater than the money existing in circulation

which is Principal Amount (P)

4) This is the stage where people go bankrupt as money is not available in circulation in orderto cover their debts and banks are happy to take the properties of people as they are the

profit oriented private organizations. This is where the boom cycle ends and the bust cycle

starts.

5) When the Banks shrink the money supply into circulation then there is no money supplyand people stop buying goods and try to save the money they have. When there is no

demand organizations will effect badly and they forced to close their plants and people start

losing their jobs. When people lose the income source it is difficult to meet the loan payment

demand and they have no option other than losing their properties. This is the bust cycle

that follows after every boom cycle.
http://www.usdebtclock.org/http://www.usdebtclock.org/http://www.usdebtclock.org/http://www.usdebtclock.org/


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6) Both Inflation and deflation are primarily because of the way the bank creates money andhow they are releasing into circulation.

7) Value of the money decreases considerably as the money circulation increasesexponentially. The lifelong savings will be useless unless you invest the money where the

prices also increase along with the inflation (Ex: Lands).

The current monetary system is not helpful to the people or governments but it is only helpful to

the banking system as they hold the power to issue the money. The hand that gives is always a

master to the hand that takes

FACT5: Inflation and depression are directly depends only on the money lending

organizationsEffects of Debt Money on Society

1) Money supply is very necessary for the so called development in the society. It is the samewith the governments as well as Individuals/Families.

2) When Government takes loans the money will be huge and it will spend mostly oninfrastructure and welfare of the people. Running a Government is not a profit oriented

business to get profits on which the government invested. Coupled with the debt banking

system it only increases the debts continuously as there is no money available in circulation

to clear the debts.

3) It leaves no choice for Governments to increase the taxes to cover the debts it has made forthe welfare of the people. This is the reason why Governments always invents new creative

methods to increase the taxes.

4)

People are ready to blame Governments for increasing the taxes but never interested to seethe origins of money creation process.

5) We have multiple political parties only to play the musical chair of blame game. It is not theGovernments we need to change but the money creation process.

6) Most people do not know that money comes into circulation only as debt. It is the ignorancethat makes people to be a part in the blame game

7) To develop any backward area first we need companies that can provide salaries to thepeople in order to increase the buying power of the people. But at the same time companies

dont invest in backward areas because it is very important for them to start business where

people have that buying power to purchase their products.

8) The wise principles in business are never start a business with your own money but alwaystake loans to start a new business. Never try to clear the principal amount always only pay

the interests. It so wise because there is no money existing in circulation to clear all the

debts as interest is never created by banks and never existed.

9) The current monetary system makes you bankrupt if you do not get the profits. The personwho outsmarts others can only get the profits. This leads to the rat race between people. As


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money is a very much necessary for people, they try to earn in wrong ways. This leads to

corruption.

10)People ready to produce Unhealthy goods for society to earn money. Moral values decreasebetween people for the sake of money

11)Life becomes burden to people and feel difficult for survival itself. People will lead amechanical life instead of a joyful one.12)Money and emotions are the primary reasons for any crimes and surely money takes its

share in crimes more than 70% at the least.

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