BANKING FOR BEGINNERS

by Dr. Lawrence Wilson

© December 2010, L.D. Wilson Consultants, Inc.

This article introduces the subject of how central banking operates in America and in most nations. It is a subject few understand. However, in the years to come it will be more important that everyone understand this important area.

WHAT IS MONEY?

Money is the medium of exchange in our society and it is a storehouse of value as well. This means that when one person wants to buy something, they exchange the medium of money for that good or service. Then the other person takes the money and uses it to buy what they desire. In this way people easily obtain what they need. The older method of doing this was called barter, or direct exchange. Money involves split barter, in which the two people making the exchange do not need to directly exchange goods for goods or goods for services. They use an intermediary that we call money.

Any item can serve as money. Over the years, many things have been used as money, from tobacco leaves to conch shells. As time went on, however, it was found that the most convenient to carry around were gold and silver coins stamped with their value. For hundreds of years, such coins were the main type of money used around the world.

However, in the 1800s paper money appeared in greater quantity. The paper, of course, has little intrinsic value. However, it is light in weight and easy to recognize and exchange. An even newer form of paper money was the invention of the check, at around the same time. This is better than cash in that it allows people to buy even large items without carrying around a wad of cash. It is also more secure than carrying paper money because forging a check is a serious crime and not that easy to do.

In the past 30 or so years, people are preferring the new electronic money, credit and debit cards. These have the advantage that one does not have to write out the check and with electronic methods, the card can be checked almost instantly to make sure the funds are available. Credit cards in particular also allow one 30 days to pay, and offer one a loan if needed as well. It is almost too good to be true for many people, which is why so many have large credit card balances that they never even intend to pay off.

MANIPULATING THE MONEY

Money is like the blood in our bodies. When it is restricted, it is just like poor circulation to a part of the body. Impaired money circulation causes social diseases, depression and decay. This is the main reason there is so much poverty in the world. Note that it is not a lack of money, but a lack of circulation of money. Billions of dollars of foreign aid have been given to poor nations. But most ends up in the pockets of the rich, so it does not circulate to the masses. This is the problem with most foreign aid. In summary, money is definitely not evil any more than one would say that blood is evil. The problem is that money can be manipulated and its value destroyed.

How Money Can Be Manipulated. There are two main ways money is manipulated. The first is by restricting its supply. This is called deflation. It occurs when too many goods and services need to be exchanged and there is not enough medium of exchange to do it. What then happens is that money becomes very valuable in and of itself. People hoard the money they have and will not part with it. The price of goods and services declines and the value of money increases.

Though this is theoretically a possible scenario, it is very unlikely for several reasons. First, the governments of the world want the opposite, as we will explain. So they tend to try to keep the money supply large. Secondly, money can be created in many ways today, especially with credit cards and even checkbook money. So it is hard to really restrict its supply. There are other reasons as well.

The second type of manipulation is what we have today. It is to dilute the value of money by putting too much in the supply. This is like diluting milk by adding water to it, or putting water in your gas tank because you don’t have enough gasoline. It tends to ruin the original item, though it may do so slowly if you don’t add too much at a time.

This type of manipulation has been done for hundreds or even thousands of years. It is a trick of governments, of banks, and many others. It has one purpose. It steals from those who have money because it lessens the value of their money.

For example, in 1900, one dollar could buy about 100 times what it can buy today. An ice cream cone in 1900 cost about five cents. A house comparable to today’s house might have cost $5000.00, and so forth. Why is this so?

The reason is that more and more paper money have been printed and released into the nation. As this occurs, the existing money is worth less and less. This is because money is a commodity or storehouse of value. It is not only a medium of exchange. This is a critical concept to understand.

Any commodity to which one adds more and more to the quantity available will go down in value. It is no different than if every farmer in the nation decided to grow potatoes. There would be so many potatoes available that their value would decline. Farmers might give them away because they could not be sold. This means their value as become 0.

When money is manipulated by enlarging the supply, the value of goods goes up and the value of money goes down. In other words, your money buys less and less goods or services. Another way to say this is that things cost more.

This is called inflation, a key concept in this article. When it occurs slowly, it slowly robs everyone of the purchasing power of their money. This means it diminishes what they can buy with their money. It is like a hidden tax that governments and bankers love because so few understand what is happening to them.

This tax, however, hurts the poor people much, much more than the rich. This occurs because people with some wealth usually own some land, a house or other so-called tangible assets. These will tend to appreciate or increase in value along with inflation. Poor people often live in apartments or rent their house, so they do not have assets that will go up in value along with inflation.

Inflation is even more devastating if it occurs fast. This will hopefully never occur again. It destroyed Germany after World War I and led to the rise of Adolph Hitler, probably the most despicable leader in modern times. It so discouraged the people that they elected him on the promise that he would stop the inflation of the money. He did so, so they elected him dictator and the rest is history, as they say.

Rapid inflation of the money supply destroys nations because the prices change every day and money starts to go down in value until it will buy almost nothing. It can happen in months, as it did in Germany. It is really a loss of faith in the money. It is a great hardship on people and hopefully the reader will never have to live through this disaster. Fortunately, central banks do what they can to stop this process, but they do not really control events as much as they believe they can.

For more information about inflation, read the article entitled Inflation, The Hidden Tax. Helping you clearly understand the causes of inflation is one goal of this article. However, let us now turn to banking, the next section of this explanation.

WHAT IS BANKING?

Banking is that set of services having to do with financial matters. It is a critical function of any complex modern society. Banks do the following:

1) Safely store and account for people’s money

2) Offer loans to those who desire them, provided they meet the necessary criteria.

3) Offer investments, such as paying interest on savings accounts, money market accounts and much more.

4) Other financial-related business and personal services such as credit cards, notary and signature guarantee and others.

WHAT IS A CENTRAL BANK?

In almost all nations, the government gives to one private bank the exclusive privilege and monopoly power to issue the nation’s money. This is called the central bank. In England, for instance, it is called The Bank of England. The name is deceptive, however, as the bank is privately controlled by a handful of banking investors.

Usually, the central bank is also given a monopoly on the deposits of the government treasury, such as tax revenues. Also, the central bank usually controls what is called the prime interest rate. This is the rate of interest that other banks pay to borrow money from the central bank, should they need it.

Other types of money are either outlawed outright or made secondary and hard to use. This is accomplished by passing legal tender laws. These laws specify which money will have legal status for the payment of government debts and taxes. For example, in America today, one must use Federal Reserve Notes for the payment of federal taxes. There are federal taxes on almost all items we purchase and on many services such as telephone and electricity service. Therefore, it is very hard to use another currency such as British pounds or other money to pay for things in America. This is how the government wants it, so they can control the supply of your money.

The central bank has other functions such as tracking counterfeiting, calculating the money supply and adjusting it, recalling worn bills and replacing them, and others too numerous to mention. This article, however, concentrates on the function of issuing the money.

WHY HAVE A CENTRAL BANK?

The correct answer is to control the banking system. Many economists argue that we must have a central authority to control all phases of banking. However, this is not true. America has fared very well in her history without a central bank, and indeed many of the founders of America realized that central banks enrich bankers and impoverish the people.

The other correct answer is that central banks provide fortunes for the banking elites at the expense of the people. Bankers have long known that to make money they must charge interest on loans. This is their livelihood. Many schemes have been worked out to charge interest, but none as lucrative and subtle as having a central bank.

CAN WE LIVE WITHOUT A CENTRAL BANK?

In reality, there is no need for a central bank. For example, from 1690 to 1764 America had its own colonial script, as it was called. Benjamin Franklin remarked concerning this system:

"In the colonies, we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power and we have no interest to pay to anyone.”

The British bankers and the king of England did not like the fact that American colonists were getting rich and they were getting nothing. They decided to destroy colonial money, which was subject to inflation, as is all money. They ordered their provincial governors to issue too much of it. Its value started to decline and, supposedly to stop the “abuse of the money”, the British government outlawed it in 1764. They forced the American colonists to use British currency. While it is a little known fact, this contributed greatly to the American Revolution. Here is another quote from Benjamin Franklin:

"The colonies would gladly have born the little tax on tea and other matters had it not been that England took away from the Colonies their money, which created unemployment and dissatisfaction.”

Thus the nation of America was, in fact, born amidst conflict over money. This is an important fact of history. Americans, in general, were wise to the bankers’ scheme and hated it.

OTHERS UNDERSTOOD BANKING AS WE NEED TO TODAY

Numerous other people, including the founders of America, have written about central banking. Here are a few very important quotes to read over and over until their meaning is clear to you. Thomas Jefferson, author of the Declaration of Independence, who also served as a president and a Secretary of State, wrote:

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks... will deprive the people of all property until their children wake up homeless on the continent their fathers (founded)”

“A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army. We must not let our rulers load us with perpetual debt.”

Another outspoken critic of the central bank was president James Madison. He wrote:

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."

Abraham Lincoln was another great man who understood banking quite well. He fought a war mainly with the bankers, believe it or not, to keep the United States in one piece. Slavery was not the main issue, as many historians now realize. In fact, machines had already been invented for processing cotton that made slavery less important.

However, when the bankers realized they could not control American banking they decided to destroy the nation by splitting it into two, weak, indebted nations. Fortunately, this ploy failed. If this sounds outrageous, read the following quotes of Otto Von Bismark very carefully. Von Bismark, the emperor of Germany, was one of the banking elites. He was unusually honest and candid in his assessment of the “American Problem” as he sometimes called it. The following was printed in The London Times shortly before the American Civil War:

“If that mischievous financial policy, which had its origin in the North American Republic, should become indurated (or established) down to a fixture, then the government will furnish its own money without cost. It will pay off its debts and without a debt, it will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and the wealth of all countries will go to North America. That Government must be destroyed or it will destroy every monarchy on the globe. They will not hesitate to plunge the whole of Christendom into wars and chaos in order that the earth should become their inheritance."

Here is another quote attributed to Otto von Bismark. It was published in La Vieille France, No. 216, March 17-24, 1921, pp. 13-16:

“The division of the United States into federations of equal force was decided long before the Civil War by the high financial powers of Europe. These bankers were afraid that the United States, if they remained in one block and as one nation, would attain economic and financial independence, which would upset their financial domination over Europe and the world. Of course, in the “inner circle” of finance, the voice of the Rothschilds prevailed. They saw an opportunity for prodigious booty if they could substitute two feeble democracies, burdened with debt to the financiers… in place of a vigorous Republic sufficient unto herself. Therefore, they sent their emissaries into the field to exploit the question of slavery and to drive a wedge between the two parts of the Union… The rupture between the North and the South became inevitable; the masters of European finance employed all their forces to bring it about and to turn it to their advantage.”

Abraham Lincoln understood the banking business all too well. In a letter dated November 21, 1864, shortly before his death, he wrote:

“The money power preys upon the nation in times of peace and conspires against it in times of adversity. It is more despotic than the monarchy, more insolent than autocracy, and more selfish than bureaucracy. I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, and an era of corruption will follow. And the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people, until the wealth (of the nation) is aggregated in a few hands, and the republic destroyed.”

HOW DO CREDIT AND DEBT MONEY SYSTEMS WORK?

Thus the battle has been between money that is created as a credit, and money created as a debt. Here is a basic explanation of how these two systems work and how they differ.

When a government needs money, it could issue credit money by just printing it and then using it to pay contractors and others for work they perform. There would be no interest due on the money they issue. This is how Colonial Script worked in the American colonies, for example. A few small British-oriented islands operate this way today.

In the case of debt money, when the government needs money, they sell bonds or notes. These have a maturity date and must be paid back with interest. Issuing debt does help keep the government from just borrowing excessively, but it has not stopped the American government and most others from overspending at times.

The main problems with debt money are:

1) Private bankers usually set up the system and get the interest on the money, and

2) More money must come out of the system than went in. The government issues a million dollars in bonds, for example, but must pay back one million plus the interest. This means the nation will always be more and more indebted - to private bankers in almost all instances.

With this introduction, now let us discuss the American central bank.

WHAT IS THE FEDERAL RESERVE SYSTEM?

This is the current American central bank. The name is quite deceptive. The Federal Reserve System is neither federal, nor is there a reserve and it is not really a system. It is a cartel or group of banks that operate together to control the American financial system.

A system is a group of independent parts that operate together. A cartel is an organization in which the dominant members of an industry get together to shut out the competition as well as they can. Other examples of cartels that operate in America include:

1) The American Federation of Teachers (AFT) and the National Education Association (NEA). These, along with a few smaller groups, control who teaches our children and what that is taught in public schools.

2) The American Medical Association (AMA), along with the Pharmaceutical Manufacturer’s Association (PMA) and the American Hospital Association (AHA). These groups, together with several smaller groups, control health care in America through licensing laws, hospital regulations, regulation of medical education, infiltration of the FDA and other tactics.

3) The Organization of Petroleum Exporting Countries (OPEC), tries to control the price and availability of oil worldwide. America is not a member of this group, but it influences our nation greatly and works closely with oil groups within America.

Along with the Federal Reserve, these cartels wield enormous power, electing presidents if they wish. They have even been known to kill anyone who opposes them.

WHY IS IT IMPORTANT TO UNDERSTAND THE BANKING CARTEL?

Banking either helps everyone be financially healthier, or, like impure or diseased blood, banking makes everyone poorer. Central banks or a cartel of banks, as we have in America, are designed to make everyone poorer. They do this be creating inflation in an ongoing and subtle way. They slowly increase the money supply, which decreases the purchasing power of people’s money. This is why understanding the system is important.

America does not need a central bank, and many people know this. They understand the evils of the bank, yet they are either afraid to speak up or do not understand it well enough. This article, hopefully, will clarify why the United States and indeed all nations would be better off with a government banking authority to issue money that is not debt-based.

UNDERSTANDING INFLATION

Inflation, which is explained more is a horrible loss of people’s money without their having much of a clue as to what happened to it. All they see is that their money buys less and less.

It is a tax on the poor, much worse for the poor people because the wealthy are protected by owning tangible assets such as houses and land that appreciate in value. These really do not appreciate, but inflation makes the money buy less, so that it takes more money to buy a house, car or other item.

The goal of this short article is to connect the dots, so to speak, so that people understand why inflation occurs. This is the only way to stop it. It is not about government policies and interest rates. These are smokescreens. It is about a banking system designed to impoverish the people who can least afford it, while enriching the government and the bankers.

Reference:

Griffin, G.E., The Creature From Jekyll Island, American Media, 1994, 1998, 1-800-595-6595 or ww.realityzone.com.

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