The financial system in a market economy transfers money from positive savers (depositors) to negative savers (i.e. people with a shortage of funds who need loans to buy property etc.). Non-cash payments from individuals or legal entities are also made possible by financial systems.
By law, the financial system enjoys a monopoly on services. Only banks can accept deposits, only insurance firms can provide insurance, and only a huge bank can handle mutual funds better than an individual investor.
How is money made?
The capacity to generate their own currency was once one of the reasons the ancient Greek states were so powerful. The silver Drachma was the era's reserve currency under Pericles' reign. The same might be said for Philippe's Macedonian gold coinage. A specific amount of gold might have been exchanged for each of these currencies.
Today, the Fed creates the USD and the ECB Euro, both of which are fiat money, that is, money with no intrinsic worth that has been established as real money by government regulation, and we must recognise it as such. In most nations, central banks circulate coins and paper money, but they account for only 5 percent to 15% of the money supply; the remainder is virtual money, or accounting data entry.
We are either in a crisis or experiencing economic growth, depending on the amount of money created by central banks. It should be highlighted that central banks are private corporations, not state banks. Private bankers have been allowed the ability to issue money by the countries. As a result, these private central banks provide interest-bearing loans to governments, giving them economic and, of course, political power. The paper money in circulation in a country is actually public debt, i.e., countries owe money to private central bankers, and the payment of this obligation is guaranteed through the issuance of bonds. The government's guarantee to private central bankers for debt repayment is the imposition of taxes on the general public. The greater the governmental debt, the higher the taxes, and the more the common man suffers.
Governments cannot fire the presidents of these central banks, and they do not report to them. They report to the European Central Bank (ECB), which is in charge of the EU's monetary policy. The European Parliament and the European Commission have no power over the ECB.
The state or borrower issues bonds or admits that it owes an equal amount of money to the central bank, which generates money from nothing and lends it with interest based on this acceptance. The money is lent through an accounting entry, but the interest rate does not exist as money in any form; it only exists as a liability under the loan contract. This is why global debt is greater than either real or accounting debt. As a result, people become slaves since they must work in order to earn actual money in order to pay off obligations, whether public or private. Only a few people are able to repay the debt, and the remainder goes bankrupt and lose everything.
When a country has its own currency, as the United States and other countries do, it can "oblige" its central bank to accept its state bonds and lend it money at a profit. As a result, because the central bank serves as a lender of last resort, a country's bankruptcy is avoided. The ECB is a different circumstance because it does not lend to Eurozone members. Due to the lack of a European safe bond, Eurozone countries are at the mercy of "markets," which impose exorbitant interest rates out of fear of not receiving their money back. However, despite disputes among European policymakers, European safe bonds have recently acquired traction, but the Germans remain the main reason for the bond's absence, as they do not want national commitments to be combined into a single European obligation. Another issue (perhaps the most important) is that the Euro as a currency would be devalued as a result of the bond, and Germany's borrowing interest rates would rise.
Things are different in the United States since the state borrows its own currency (USD) from the Federal Reserve, resulting in a depreciation of the local currency and, as a result, a depreciation of the state debt. When a country's currency is devalued, domestic products become cheaper without lowering wages, but imported goods become more expensive. A country with a strong primary (agricultural) and secondary (industrial) sector that has its own currency can become more competitive if it has its own energy sources, i.e. it is energy self-sufficient. A reserve requirement of 3% applies to banks with deposits of $16 million to $122.3 million, while a reserve requirement of 10% applies to banks with deposits of more than $122.3 million. As a result, if all depositors decide to withdraw their money from the banks at the same time, the banks will be unable to provide it, resulting in a bank run. It's worth noting at this point that the banking system manufactures and lends 10 dollars, euros, and other currencies for everyone deposited in a bank. Banks produce money every time they make a loan, and the money they create is virtual money that appears on a computer screen rather than real money deposited in the bank's treasury. The bank, on the other hand, lends virtual money to the borrower in exchange for real money plus interest.
No one can avoid paying interest rates, as Professor Mark Joob noted. When someone borrows money from a bank, he or she must pay interest on the loan, but everyone who pays taxes and purchases goods and services pays the initial borrower's interest rate since taxes must be collected to pay the interest rates on the public debt. All businesses and individuals selling goods and services are required to incorporate the cost of loans in their prices, and as a result, the entire society subsidises banks, though a portion of this subsidy is passed on to depositors in the form of interest rates. Professor Mark Joob continues by claiming that the interest rate paid to banks is a subsidy to them since the fiat/accounting money they issue is deemed legal tender. This is why bankers earn such big incomes and why the financial sector is so large; banks are subsidised by society. When it comes to interest rates, impoverished individuals have more loans than savings, whereas rich people have more savings than loans. Money is moved from the poor to the rich when interest rates are paid, hence interest rates are favourable for wealth accumulation. Commercial banks profit from investments as well as the interest rate differential between deposits and loans. When interest is added to an initial investment on a regular basis, it generates more interest since compound interest raises starting capital exponentially. Since this interest rate is not derived from production, real money does not increase on its own. Only human labour can generate increasing interest rates, yet there is downward pressure on salary costs while productivity rises at the same time. This occurs as a result of human labour being required to meet the demands of exponentially increased compound interest.
The borrower must work in order to obtain real money; in other words, banks lend virtual money in exchange for actual money. Banks should produce new money in the form of loans and credits since lent money is greater than real money. When they raise the quantity of money, there is growth (although debt is also increased in this case with the specific banking and monetary system), but when they wish to cause a crisis, they stop giving loans, and many individuals go bankrupt as a result of the lack of money.
This is a "shrewd manoeuvre" devised by bankers who realised that they could lend more money than they had since depositors would not withdraw their funds from the banks all at once. Fractional reserve banking is the term for this. Quickonomics gives the following definition for fractional reserve banking: "Fractional reserve banking refers to a banking system in which banks hold just a portion of the money that their clients deposit as reserves. This allows them to use the remaining funds to make loans, thus creating fresh money. This gives commercial banks the ability to influence the money supply directly. Despite the idea that central banks are in charge of controlling the money supply, private banks create the majority of money in modern countries through fractional reserve banking ".
Are your savings safe?
We've heard politicians (who are essentially paid workers of the bankers) say that they want to safeguard people's savings in the case of Italian debt, just as we've heard them say that they want to protect people's savings in the situation of Greek debt. Are these savings, however, safe in the current monetary and financial system? The response is a categorical NO. As previously stated, banks have minimal cash reserves. This is why they require the faith of their customers. In the event of a bank run, they would have liquidity issues and go insolvent. There are deposit guarantee plans that refund depositors' savings by insuring deposits of up to €100,000 under EU standards, however in the event of a chain reaction, commercial banks must be saved by governments, and central banks serve as lenders of last resort.
So, what's next?
The current economic system, as created by bank power, is unsustainable and does not promote human ideals such as liberty, justice, or democracy. It is unreasonable and must be altered soon if mankind is to survive.
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