# Banking System



## semi-lucid (Jan 13, 2011)

Can this possibly be true? (I hope this is not too much off topic. If it is, just delete it. It relates to inflation, and therefore the price of gold.)

Hans-Hermann Hoppe was a Professor of Economics at University of Nevada, Las Vegas until he retied in 2008. If the things he says in his lectures are untrue, it seems like someone would call him on it, but there is no criticism on Wikipedia on the subject.

http://en.wikipedia.org/wiki/Hans-Hermann_Hoppe

According to Professor Hoppe, banks are required to have reserve assets equivalent to 10% of their total obligations. Therefore, if you deposit one dollar in a bank, the banks reserves are increased by one dollar, and their total obligations are then allowed to be ten dollars higher. They can then just create the extra nine dollars out of thin air and loan them out.

It seems to me it should be more like they can loan out 90% of the dollar leaving only ten cents in reserve.
If they can just create money like he says, that seems like something of a racket. Money for nothin and your chicks for free.
There is a one hour video lecture on you tube here:

http://www.youtube.com/user/Nielsio#p/u/33/-3PKHVbOet8

Anybody want to call BS on this?
John


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## Claudie (Jan 13, 2011)

I think it was a different speaker I seen but basically said the same thing. Amazing what people don't know, huh.... :|


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## goldenchild (Jan 13, 2011)

The US was built this way and continues to operate like so. Thats why everything has gone to $$$hi+


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## Oz (Jan 13, 2011)

Welcome to fractional reserve banking! 

I can't cry BS because it is true, and the 2 views you posted are the same thing. 

Let’s say you deposit $1000.00 in your savings account, that $1000.00 is the banks obligation to you. They are allowed to lend out 90% of all deposits under the assumption that no more than 10% of the depositors will demand their money back at the same time.

So if our buddy John here deposits $1000 into his bank A, the bank can lend out $900 to a guy named Bob for say 5 years to buy a car. Now here is where the real magic begins. When Bob buys his car, the car dealership will deposit his $900 into their bank B. Now this bank can lend out 90% of this $900 dollars which is $810 to Sue to buy a flat screen TV over 5 years. This retailer then deposits the $810 into their bank C. This cycle continues until $0 dollars. For simplicity’s sake I will stop here. 

We have involved 3 people and 3 banks. Let’s look at the banks liabilities that are backed by John’s $1,000.00 deposit.

$1,000 is bank A’s liability to John
$900 is bank B’s liability to the car seller 
$810 is bank C’s liability to the TV retailer
So there is now a total of $2,710 owed to depositors on demand at any moment based on only the original $1,000 of actual money deposited. Now if you follow that original $1000 deposit to the end, the banks will have generated $9,000 in loans and $10,000 in deposits. These deposits are the banks obligation to the depositors. This is how banks can create 10 times deposits out of thin air without actually having to print any bills like our government does.

It is amazing what a $1000 will get you if you’re a banker.


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## semi-lucid (Jan 13, 2011)

So with these banks that are "too big to fail", with their multi-trillion dollar portfolios, how much of that money did they just make up? 

How much longer can this scheme last?


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## eeTHr (Jan 13, 2011)

Oz---

In your example, when John deposits the original $1,000.00 cash in the bank, and the bank then loans Bob $900.00, by writing a check to him. So now John still owns his $1,000.00 which is still in his bank account, and Bob has an additional $900.00 to spend.

So now, in this story, there is $1,900.00 of money in existance.

Whereas, when John first walked into the bank to make his deposit, there was only $1,000.00 in existance.

The bank created the $900.00 out of thin air.

In all the explanations I've read about this, nobody ever says what happens when Bob pays back the $900.00 to the bank, _plus interest,_ using "real," hard earned, cash money? Who gets that "extra" $900.00 in "real" money?

John doesn't get it, because he never lost it to begin with. It was never deducted from the $1,000.00 dollars he has owned the whole time.

So, what _does_ the bank do with it?


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## jimdoc (Jan 13, 2011)

This movie explains it all;

http://www.youtube.com/watch?v=U71-KsDArFM


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## eeTHr (Jan 13, 2011)

Caution: This is a rhetorical question!


If the bank loans me _imaginary money,_ why can't I pay them back with _imaginary money?_


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## qst42know (Jan 13, 2011)

eeTHr said:


> Caution: This is a rhetorical question!
> 
> 
> If the bank loans me _imaginary money,_ why can't I pay them back with _imaginary money?_



Because you're not in the club. 

Don't feel bad I'm not either.


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## eeTHr (Jan 13, 2011)

qst42know said:


> Because you're not in the club.



Exactly.

And that's the same reason that neither you nor I can make a profit by _loaning out_ imaginary money.

So, who do we have to join, follow, or obey, in order to get to do _that?_


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## Oz (Jan 13, 2011)

eeTHr said:


> Oz---
> 
> In your example, when John deposits the original $1,000.00 cash in the bank, and the bank then loans Bob $900.00, by writing a check to him. So now John still owns his $1,000.00 which is still in his bank account, and Bob has an additional $900.00 to spend.
> 
> ...



John deposits $1000. This is now a liability of the bank’s (John has lent them his money and they owe it back to him when he demands it). The bank then lends $900 of John’s money to Bob. The loan to Bob becomes an asset of the bank’s. So out of John’s original $1000 dollars the bank still has $100, the $900 dollars they borrowed from John becomes a liability, but it is balanced by the asset they have of $900 dollars that Bob owes them. So their books are balanced as to assets vs liabilities.

Then the question comes up, what if John wants his thousand dollars back before Bob pays his $900 loan back or even defaults, giving nothing back? No problem, they just give John someone else’s money. Cash instruments are considered fungible, so it matters not that they are someone else’s bills being given to John. The trick is that the bank never has 90% of the money they are supposed to have, but they have loans as assets to counterbalance the books. This system works as long as depositors never demand more than 10% of their money at once. 

Now if you follow this all the way through, the banks are able to generate close to $10,000 in loans off of $1,000 in “actual” money deposited. Just because $9000 of it doesn’t “actually” exist, that will not stop them from charging interest on it!


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## eeTHr (Jan 13, 2011)

Oz---

I'm sure you mean well, but it seems to me that what you have been told, just doesn't add up.

Yes, I've seen that whole story of "the books balance, so it must be OK," before. There is even a YouTube video that shows the accounting columns, and they are switching from one column to the next, and back and forth, and calling it this and calling it that, and in the end, lo and behold---it balances!

I saw a math trick once, where the person was trying to prove something that was impossible. When I traced through his formula, I found that there was one instance in it where he was dividing by zero. As you know, that doesn't work!



Oz said:


> John deposits $1000. This is now a *liability* of the bank’s (John has lent them his money and they owe it back to him when he demands it).



But---


Oz said:


> the $900 dollars they borrowed from John becomes a *liability*....



That's a _double_ liability, which is impossible.


I have found that some people love to complicate things, in order to hide the truth. And it seems that politicians and bankers use this technique as their mainstay.

You know how the easiest way to solve math problems with fractions, is to find a common denominator? That simplifies things greatly, and allows the problem to be solved quickly.

So, let's simplify this fractional lending problem, as follows---

John deposits $1,000.00 in _gold._ The bank writes Bob a _check_ for $900.00, as a loan. Bob pays back the loan, _plus_ interest, in _gold._

There is now _over_ $1,900.00 _in gold _in the _bank._

The bank now has it's _interest_ which everyone _supposes_ it "earned." _Plus_ it has an _extra_ $900.00 in _gold_ sitting there.

I'm not trying to be argumentative, but it is what it is.

_Who_ gets the extra $900.00 in gold?


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## Claudie (Jan 13, 2011)

goldenchild said:


> The US was built this way and continues to operate like so. Thats why everything has gone to $$$hi+




It wasn't built this way, it just became this way in the last 100 years. :|


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## Barren Realms 007 (Jan 13, 2011)

eeTHr said:


> _Who_ gets the extra $900.00 in gold?



_*INFLATION*_


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## Oz (Jan 13, 2011)

Yes, the $900 borrowed from John is the bank’s liability, in fact the full $1,000 is their liability to John even if they are not allowed to lend out $100 of it. However Bob’s loan of $900 from the bank (that was John’s and is still owed to John by the bank) is now also a bank asset owed to the bank by Bob. Loans are assets if they are "payable" to you or a bank. Loans are only a liability if they are “owed” by you.

Keeping your common denominator theory you wrote;
John deposits $1,000.00 in gold. The bank writes Bob a check for $900.00, as a loan. Bob pays back the loan, plus interest, in gold.

To keep it all the same (all gold or all dollars) it would read; John deposits $1,000.00 in gold. The bank gives Bob $900.00 in gold, as a loan. Bob pays back the loan, plus interest, in gold.

Bob pays back the $900 in gold plus interest. John withdraws his $1000 in gold. The bank keeps Bob’s interest in gold, minus the interest in gold they paid John for the loan of his gold. 

Under the Gold Standard there were many runs on banks as well as outright failures. Usually the reason was that the banks overextended themselves. Instead of having a10:100 gold to loan ratio they would go 2-3:100 ratio. Once a few customers could not get their deposits back from a particular bank the gig was up unless another bank came to their rescue with funds (gold in this case). I am not sure when the 10% reserve requirement was put into effect as law in this country, but it has been the standard ratio that bankers have felt was safe going back before the Rothschild bankers. 

The trick is that if you take this beyond one deposit and one loan, the “same” money (no matter it being gold or dollars) gets lent multiple times by multiple banks. Each time the bank has to keep 10% of deposits as reserve, but interest is charged on the “same” money each time it is loaned out. No “actual” extra money is printed or coined, it is only carried as a ledger item that earns interest.


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## Barren Realms 007 (Jan 13, 2011)

Here is one that will rack your brain, and a true story. I have deposited money into a bank on Friday. Withdrawn cash from the bank during the following week. On Thursday the tells me not to draw anymore cash from the bank because they will not be able to make payroll payments to customers on Friday. And this is before all the termoil in the economy has hit in the last couple of years. And yes it is a solid bank. It just tells you how much cash banks actually have on hand.


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## Oz (Jan 13, 2011)

I have had that happen to me several times Barren, it happens a lot more often than most realize. Most money exists on ledgers or as electronic media instead of actual bills. A bank branch can have billions in deposits but little actual cash on hand. 

For as little as $10,000 I have been asked to come back near the end of the day to see if they have enough left, especially on Fridays. I have been told at 2 banks to please order a few days in advance anything over $5000 if I need it as cash.


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## eeTHr (Jan 13, 2011)

Oz---

Yes, I understand what you are saying about the loan multipliers and so forth. That's true. And in addition to that, where does all the interest come from? If this system creates money by creating debt, they are getting back the debt as money, but the interest is extra. So money becomes scarce, even though the banks keep creating it. They are not creating the interest to go with it. But that's another story.

Back to my gold example---

Your solution works out, but it does not represent what is actually taking place in the real world. You left out the bankers trick. And that whole trick is in the _check,_ or bank note. That's when the "money" is created from nothing.

I'm sure you know that fractional banking started with none other than---_goldsmiths._ (That's appropriate for this forum, right?)

The goldsmiths had good safes, because they had to store their stock-in-trade. So other people would store their gold in the goldsmith's nice, strong, safes, for a small fee. The goldsmiths would write them a note, what we call a check these days, to show that they owned the gold. It became convenient for people to just trade these checks instead of carrying around the heavy gold.

The goldsmiths realized that they could make loans simply by writing checks to people, and get paid back in gold.

The whole point is that the goldsmiths, and today's bankers, have operated on the basis of loaning out money that they don't have. It's imaginary money. It's a piece of paper or just numbers in an account book, and these days it's just figures in computers.

But they get paid back in _real_ money.

The goldsmiths didn't loan _gold,_ and today's bankers don't loan _money_. Today's bankers loan _imaginary_ money, and they get paid back in real, hard earned, money.

Otherwise I could just pay them back with more of their own imaginary money. If someone has $1,000.00 in gold sitting in his safe, he could pay them back with a $900.00 note, and just _keep his gold!_

In fact, take a look at a bill in your wallet. It says right on it that it's really a _note_ from the _privately owned_ Federal Reserve Bank, _Incorporated._ Only they _hide_ the fact that they are a private corporation!

Anyway, your example doesn't work, because the whole principle of lending in today's system is in writing the check as a loan---creating money out of thin air---and getting paid back in real money.


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## semi-lucid (Jan 13, 2011)

Professor Hoppe actually addressed some of these questions in the lecture, unfortunately the lecture is 54 minutes long. (with questions after) If he would speak faster, he could do it in 15 minutes.

The role of the central bank, and their ability to create money.


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## goldenchild (Jan 13, 2011)

Claudie said:


> goldenchild said:
> 
> 
> > The US was built this way and continues to operate like so. Thats why everything has gone to $$$hi+
> ...


Yes. I wasn't being literal here but just pointing out a fact that has been discussed our posts. The US likes to spend/give away money that isnt really there. Hence the trillions and trillions of dollars of debt this country owes and the hard times we've fallen on. There is by far much more "imaginary" money than real money. I've also heard stories about people wanting to take money out of their account only to be told that notice has to be given to do so. Thats just ludacrous to me.


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## wrecker45 (Jan 13, 2011)

i seen a video the other night about some countrys wanting to take the u.s. dollar off the world standard and replacing it with the euro or the yen.


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## Oz (Jan 13, 2011)

Well I was not trying to defend the current monetary system we have really. I was only explaining how our current system does work, and that yes, money deposited in a bank under a fractional reserve system does multiply itself tenfold to be used in commerce. 

You brought up an interesting point as to interest. The dollar is a debt instrument. Our money is borrowed into existence. The start of this system with the Federal Reserve was when the US Treasury put up US gold as collateral to borrow Federal Reserve notes from the Federal Reserve Bank at interest. More specifically, a $20 dollar bill you have in your pocket and use as “money” represents $20 in debt that the US Treasury owes to the Federal Reserve plus interest. Since all US dollars are brought into existence by borrowing with interest, the loans cannot be repaid as the interest is not available. 

The idea that the US has to borrow money at interest from the Federal Reserve is nuts. I believe that paper money should be backed by something, instead of just “made” money by fiat. I certainly believe that the US Treasury should start printing its “own” money again (preferably backed by a commodity) instead of giving that right to a private bank, and then having to borrow it with interest. 

If money is backed by a commodity such as gold or silver it limits the ability to freely borrow it into existence. You would need the gold or silver to back it before printing it. Every un-backed dollar bill dilutes the value of the ones already in existence. 

If you have a silver backed currency and are having trouble keeping the supply of silver up with the demand for money. Then the money out in circulation becomes more valuable due to a lack of supply. Wouldn’t that be a treat, your dollar gaining in purchasing power? According to the Federal Reserve’s own inflation calculator http://www.minneapolisfed.org/ the US Dollar has lost 95.49% of its purchasing power to inflation since the Federal Reserve System started in 1913. 

As to banks having all of your money on hand… Sure people could require that banks not be allowed to loan out deposits and only be allowed to lend their own money. But if you wish to deposit money in a bank and get paid interest, you need to allow them to lend deposits to others to earn interest. If they cannot make money off of your deposit, they would have to charge you a fee to store it for you safely. While a 10% reserve may be sufficient in most cases, I would rather see it at 20% in today’s world of high default rates on bank loans though.


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## eeTHr (Jan 13, 2011)

Oz---

I was wrong about the "extra" $900.00 in my above posts.

When the person receiving the loan check deposits it in his local bank, or when he spends it and the company receiving it in payment deposits it in their bank, the receiving bank then collects that amount of money from the originating bank---the one that made the loan.

And that's where the $900.00 that the borrower pays back goes: back into the lending bank's deposits account, because that's where it came from.

I goofed. My bad.


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## Oz (Jan 13, 2011)

eeTHr said:


> I was wrong about the "extra" $900.00 in my above posts.


No worries! 

The banking system is purposely kept complex so people do not understand it easily. I did not learn it in a day or a year, I have been interested in this for over 30 years. I am far from perfect, if someone sees me make a mistake, please say so. One never learns it all as they keep changing the rules and hiding what they can.


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## eeTHr (Jan 13, 2011)

Oz---

Another interesting point concerning the Federal Reserve beginning in 1913, is that is the same year that the Income Tax amendment was ratified.

It appears that the Income Tax collected is used to pay the _interest_ to the Federal Reserve (which is totally unnecessary).

That means we are being taxed by a private corporation. And what they do with our money, nobody knows. And being a private corporation, they don't have to tell.

You're right. That whole scheme is nuts.

It's a giant money siphoning machine, that keeps churning away, year after year, and almost nobody has any urge to stop it.

Many legistators must have gotten paid off big-time to vote-in this whole scheme in 1913. Are today's Congress people so ignorant or stupid that they don't know what's going on? Or are they riding the pay-o-la train too?


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## Harold_V (Jan 14, 2011)

eeTHr said:


> Many legistators must have gotten paid off big-time to vote-in this whole scheme in 1913. Are today's Congress people so ignorant or stupid that they don't know what's going on? Or are they riding the pay-o-la train too?


Bingo!
Rarely do these people leave office poor. Rarely is there a person that serves office for the right reason. Harry Truman was likely the last caring, giving individual we had as a public servant. 

You know, for an off topic subject, this one tends to be worthy. I hope our fellow readers from other countries will bear with us. They have a voice here, too. 

Readers-----speak up if this thread is annoying. It can be locked or deleted if necessary. 

Harold


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## semi-lucid (Jan 14, 2011)

Harold_V said:


> Bingo!
> Rarely do these people leave office poor. Rarely is there a person that serves office for the right reason. Harry Truman was likely the last caring, giving individual we had as a public servant.
> Harold



Yes. And if their not rich enough when they leave office, they get seats on corporate boards, they get astronomical speaking fee's, they get book deals, they get business deals, and they get all the right invitations.

And its not just the politicians. Look at how people move back and forth between government jobs and positions in the corporate banks.


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## nickvc (Jan 14, 2011)

Harold I can't speak for all the other non US members but I find Ozs commentary on the banking system fascinating and enlightening to say the least.
I think the gist of his posts to put it in laymens language is that it's all smoke and mirrors.
Magicians have always fooled the public into believing what they want them to and with banking, finance and government we have some of them worlds greatest magicians.
The whole system is as Oz stated covered in mystery and half truths and slight of hand is used to cover up any inconvenient lapses until the truth emerges and we have a banking crash that nearly cripples the world economy, never mind the bankers are still making money and recieving huge bonuses while the rest of us are left to pay for their mess.
The fact that the Federal Reserve is a private institution is the perfect way to hide anything inconvenient and give the government something to hide behind and blame. 
Who actually owns it? Who can you blame? What happens to the money it makes? Perfect!


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## Oz (Jan 14, 2011)

Harold_V said:


> You know, for an off topic subject, this one tends to be worthy. I hope our fellow readers from other countries will bear with us. They have a voice here, too.
> Readers-----speak up if this thread is annoying. It can be locked or deleted if necessary.
> Harold


While I feel that precious metals and money/banking are intimately tied together because of the metals we refine being money for most of recorded history (some would argue that has not changed), I completely agree that if this thread annoys any of our membership it should be locked or deleted. Our primary purpose and focus here is refining. I felt it worth discussion since most that refine have to deal with banking when they sell, and those that do not sell treat the metals we refine as money.

We do indeed have a very diverse group on the forum from all parts of the globe. To the best of my knowledge there is not a single country that has a currency that is not a fiat currency. There are examples like the Euro that is backed by a certain amount of gold as the US dollar is supposedly with gold in Fort Knox. But there is no example I am aware of that you can redeem your paper money for the commodity itself, no matter it being gold, silver, copper, or even grains of rice.

I am out of my league when discussing banking and currencies other than in the US, but I find it hard to imagine that other countries with fiat (not backed by or redeemable for something you can hold in your hand) currencies do not play the same games when they have the power to make “money” at no cost.

As Harold said, everyone has a voice here. I would greatly enjoy hearing from non-US members about their banking systems and how they operate. Perhaps to put some at ease that would hesitate to comment freely on an English speaking forum I will say it for you. There "may" have been a time when the US deserved its global currency status when gold and silver was called money the world over. The US had the largest reserves of those metals and would redeem the dollar for them in hand giving the dollar true value, but those days are long gone. In my opinion the US is now abusing that position it no longer deserves as the silver is gone and the gold we “may” have is not redeemable for the dollars we print.

In today’s trying times the world over we all must consider the effects of what our central banks are doing with fiat money devaluation. The membership here deals with metals that give them different insights, as well as problems, in sorting out what is happening with all of our banking systems than the common citizen is not aware of.


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## Oz (Jan 14, 2011)

nickvc said:


> The fact that the Federal Reserve is a private institution is the perfect way to hide anything inconvenient and give the government something to hide behind and blame.
> Who actually owns it? Who can you blame? What happens to the money it makes? Perfect!


You will love this! Other banks own it, of course.

To be clear, the Federal Reserve is a non-profit bank (Ahem). They are required to give all profit (minus salaries and other operating expenses) back to the US government (they are not audited however, just trusted as to their balance sheet). Having said that, it is not about money at “this” level, it is about control of monetary policy.

Mayer Amschel Rothschild perhaps said it best “Give me control of a nation's money supply, and I care not who makes its laws.” If you control the money supply you can control the government, its economy, and power of war. If you can control the central bank by being a part of it as a governor bank and shareholder, you can place bets in the markets “knowing” what is going to be announced. Just look at how world events are shaped and controlled by what the Federal Reserve says and you will see how valuable it is to be a controlling interest or shareholder in a non-profit central bank.

Nick, if you look at your country’s banking history you will see Rothschild’s name all over it. The Rothschild family controls much if not most of the US Federal Reserve to this day.

I should add that I think Nick is right, if the Federal Reserve’s charter is ever abolished by Congress, Congress will surely place all the blame on the Federal Reserve for all the financial ills of the country. Even though Congress was completely complicit in the whole process of starting the institution and taking the “free” money to spend as they wished for pet projects or to get reelected.


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## nickvc (Jan 14, 2011)

Back on topic, just, didn't Rothchilds exit the gold trading market some time back?
If so perhaps the reasons are becoming more apparent.....


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## Jimmi_p (Jan 26, 2011)

it seems to have all become nothing more than a system of score keeping for the super rich and their world wide video game called banking. has anyone ever thought that at this point there exists more "money" than there are things in the world you can buy with it? oh well, just another reason trust hard metals that i can hold in my hand over paper and digits on a screen they tell us we should trust.


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## goldenchild (Jan 26, 2011)

Jimmi_p said:


> has anyone ever thought that at this point there exists more "money" than there are things in the world you can buy with it?



That's one way to look at it but keep in mind that all the money is very unevenly distributed. A very small percentage have most of it.


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## Claudie (Jan 26, 2011)

There was an old Indian saying, I can't remember for sure how it went but it was something like "When the bird no longer flies in the sky and the fish no longer swim in the stream, when the last buffalo has been skinned and the last blade of grass has been paved over, only then will the white man realize he can't eat money....


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## eeTHr (Jan 26, 2011)

Oz said:


> They are required to give all profit (minus salaries and other operating expenses) back to the US government...



So, since all of our income tax goes to pay the interest to the Federal Reserve Bank, Incorporated; then _all the taxes _we pay only cover their _wages_ and _operating costs?_

If they actually _do_ have a significant amount of money left over, and give it back to the Government, then why does the government pay them _interest_ on this phoney "loan" just so they can generate a "profit" and then _pay it right back _to the government? (I call it "phoney loan" because the Federal Reserve doesn't really _have _any money in the first place, so how could they _lend_ any?)

I mean, if they really give a large portion back, then why don't we just _pay_ them to print the money, rather than saying we "owe" them because we "borrowed" it from them? Why not just have the Government Printing Office print the stuff up?

I know that their original story for existing separate from the government was that, "A private bank would prevent monetary policy from being decided by politics." But, of course that isn't working, because it's _all_ being decided by politics anyway, which was obviously their plan from the beginning.

So, my question is, how much do they give back? What percentage of their annual "profit" is that? And, as long as I'm asking, what is their total profits per year?


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## Jimmi_p (Jan 26, 2011)

yeah Claudie that is pretty much it. we have that saying on the wall at church. we have been trying to teach those very principles to our youth group kids for years now. a native friend of mine said the same thing all of the time. he lived in a shack on his property in the UP with everything he needed and didn't want anything else except for his friends. he is soaring with the Thunderbirds now no longer in need of their imaginary money. RIP Osagwin


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