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Money makes many things.

The god's greatest creation for humans, because money affects humans in many ways as almost every problem we face in our daily life directly or indirectly deals with money. Each and every person in a society deserves his share of money for his needs. But in practice large portion of money belongs to very few people and many are starving without it. Why is it so..? Is the God is not mercy enough to share it to all? Is it really the god that needs to correct things? Or Is this is the problem in our monetary system on which we need to take an action?

Rigid Mind on God and Money


The problem lies in the mind of people that it is God's mercy that will make people rich. This misconception blinds our eyes not to analyze the monetary system, because god is the limit for humans to think. We stop analyzing at this point. But the truth appears only when you think beyond the god. To understand the monetary system we need to understand how the money is created.

Origin of Money
Normal opinion is that currency generates from production of goods and it ends with consumption of goods. But in actual practice, the origin for the currency is the central bank of the country. Every currency note that comes in to circulation should have the official seal from the reserve bank. Otherwise we do not consider it for exchange of goods. In Trade or Business money will be moved from one person to another person while selling and buying the products. It does not create new money but increases and decreases the amount of money at individual level. In truth, we exchange goods only with the money available in circulation.

FACT1: Trade or business does not produce money. In truth, we exchange our products with the money that is available in circulation
Now we understood that money will be authorized and legalized by central bank. But When the Money is created? On what circumstances and parameters that new money will be issued into the circulation..? Most people think that government creates money for its people based on its requirements. In that case it should reflect in the Budget report mentioning that how much is created for the functioning of nation. But you do not find anything like that in any previous budget reports. The idea of creating money by the Government is not true. Money does not created by Governments. There is a misconception that central bank creates money based on the needs of country, but it is not the complete truth. No bank including central bank creates money for nothing. In truth

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 based monetary system and we should pay back the principal amount of money to the bank with an added 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 extra interest (principal + interest). When every currency note that comes in to circulation only as debt (only Principal), where is the money in circulation to pay the extra interest. Banks only created and supplied the principal amount. 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 the interest. 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 in circulation to clear all the debts. So someone should be bankrupted unless he gets some more loans from the banks to clear the previous debt. If you understand the problem, more than 90% of people should be bankrupted as money is coming into circulation as debt and there is money in circulation to cover all the debts. But it is not happening like that. To understand the magic, we need 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).

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 1 2 Deposit 100 90 Permitted to Loan the amount 100*(90/100) = 100*(90/100)2 = 90 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) = 90/100 CRR = 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.

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 bankrupt


1) 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 order to 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 and the 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 order to 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 supply and 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.

6) Both Inflation and deflation are primarily because of the way the bank creates money and how they are releasing into circulation. 7) Value of the money decreases considerably as the money circulation increases exponentially. 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 organizations

Effects of Debt Money on Society


1) Money supply is very necessary for the so called development in the society. It is the same with the governments as well as Individuals/Families. 2) When Government takes loans the money will be huge and it will spend mostly on infrastructure 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 for the 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 see the origins of money creation process. 5) We have multiple political parties only to play the musical chair of blame game. It is not the Governments 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 ignorance that 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 the people 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 always take 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 person who outsmarts others can only get the profits. This leads to the rat race between people. As

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 decrease between people for the sake of money 11) Life becomes burden to people and feel difficult for survival itself. People will lead a mechanical 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.