In the "Good Olde Dayes", banks accepted money for safekeeping and that money was available to be redeemed at any time by the depositors. Money was backed by something universally valuable, such as gold. Then somebody figured out a way of conning the people into accepting money that had nothing backing it except hollow promises. So then governments could print money at will, convincing people that this paper stuff was actually worth something.
The people accepting this worthless money would become debtors to the financial system and governments would print more and more money and create more and more debt, thus operating a gigantic Ponzi scam. If any private person did this, he would land in jail for decades, as did US financier Bernie Madoff, but governments do exactly the same as Madoff, but legally because governments make the rules. So this is how the Fractional Reserve Banking Ponzi scheme works.
John Demetriou had left Cyprus in the early 1970s at the height of its war with Turkey, taking his wife and young children to safety in Australia. He built a life from nothing and gradually accumulated a substantial nest egg. He retired to Cyprus in 2007 with about $1 million, his life savings.
Demetriou planned to spend it on his grandchildren, some of whom live in Cyprus, putting them through university and setting them up. There would be medical bills, as he suffered from a heart condition. The interest was paying for a comfortable retirement and trips back to Australia. He also toyed with the idea of buying a boat. He wanted to leave any big purchases a few years, to be sure that this was where he would spend his retirement. There was no hurry. But his savings vanished in the Cyprus financial collapse.
"If I made the decision to stay, I was going to build a house," Demetriou said. "Unfortunately I didn't make the decision yet. I went to sleep Friday as a rich man. I woke up a poor man."
His money was all in the Laiki "Popular" Bank, which was the main casualty of Cyprus's bailout package set by the European Union. Laiki Bank was dismantled. Savings of less than Ä100,000 were moved to the Bank of Cyprus. Any more than this amount was wiped out as the bank was wound down, its remaining assets taken by the bank's creditors.
This is a good example of the great banking scam. When a person deposits money in a bank for safekeeping, he expects to be able to withdraw every cent of it at call. He is not investing in the bank and has no intention of treating his deposits as bank shares. However, in the case of Demetriou and all the other depositors with Laiki Bank, their savings were treated as an investment in Laiki Bank and were distributed to the bank's creditors, not returned to the depositors. Their money was stolen from them by the banksters in collusion with the Cypriot government.
The lesson to be learned from the experience of Demetriou and other depositors of Laiki Bank is that when they deposit their funds into a bank, there is no guarantee that they will be able to withdraw them. Because of the Fractional Reserve Banking Ponzi scam, banks simply do not have the funds on hand that they are supposed to be safeguarding for their depositors. So when things go wrong, such as a financial collapse and there is a run on those banks by depositors wishing to withdraw their money, the banks cannot return it. Only then do depositors find out that their savings have been treated as investments or shares in those banks and would be paid to the bank's creditors, not back to them.
The safest way to deal with banks is to only deposit nominal amounts for day-to-day operations and small business transactions. Any substantial sums of money should never ever be deposited with banks, as they can be hijacked by the banksters in collusion with governments at any time. In fact any funds over which governments can exert control, such as superannuation funds and large bank deposits, are at risk. The Cyprus bankster scam was just one of many such bank collapses in history and the victims were always innocent depositors, not the banksters or the politicians.
To sum it up right from the start, the banking system that is used in most nations these days, Fractional Reserve Banking, is a colossal pyramid scam - a Ponzi scam of gargantuan proportions. If businesses other than central banks and their subservient private banks operated in the same way, they would find themselves closed down and the owners thrown in jail. In most nations, pyramid schemes and Ponzi scams are highly illegal, but not for central banks and private banks.
Let's say that a person has $1000 and he wants to deposit it into a bank for safekeeping. Under a 100% reserve banking system, this would be the end of the story. In the act of making the deposit, that person's currency holdings would fall by $1000, while his bank balance would rise by $1000. Putting the money in the bank would not affect the total amount of money in the economy. A central bank would not be involved at all and in fact would be completely unnecessary.
Under such a system, governments could not create money out of thin air, because each dollar would have to have something tangible and universally accepted to back it. This is how things worked many years ago when for instance, the USA had gold reserves backing every US dollar and each dollar could be redeemed for 1/35th of a troy ounce of gold.
But in the 1970s, the USA discovered that it had printed more paper money than the gold reserves to cover that money and when France demanded gold to redeem its US dollar holdings, the USA could not repay France. Thus the USA reneged on its debt and struck a deal with Saudi Arabia to only denominate oil in US dollars, thus giving the US dollar (petrodollar) artificial value by forcing oil-buying nations to purchase otherwise worthless US dollars so that they could buy oil.
Fractional Reserve Banking is the banking system where banks lend more money than they really have. They actually create money by creating debt. In fact, banks just have a small fraction of what they lend out. Fractional Reserve Banking is followed by every modern economy in the world and it works pretty well because it is being run by the people who print money - Monopoly money, called Fiat Currency, money that is not backed by any tangible assets, but money and treasury bonds that just roll off the printing presses whenever government scammers and banksters decide to inflate the money supply.
At the heart of Fractional Reserve Banking is the fact or idea that every bank depositor will not ask for his money back at the same time. Fractional Reserve Banking assumes that only a small percentage of people will ever demand their money back at the same time and the rest of the money is free to be utilised productively. This works until the Ponzi scam eventually collapses.
Let's say that the operational percentage that has to be deposited as security with a central bank is 10% and there are two banks in an economy - Bank A and Bank B. Here is an example of how it works.
Fred has $1000 in hard cash and goes and deposits it with Bank A.
Since Bank A is required to keep just 10% as reserves, it loans out $900 of Fred's money to Mary, who wants to start a business.
So Mary goes and opens an account with Bank B and deposits her $900 there. Now the situation looks like this:
Notice that with the initial $1000, now there are deposits worth $1900 in the economy and what is more, there is still plenty to go around.
Since Bank B has got deposits worth $900 and they just need to have a reserve of $90, they can loan out the remaining $810 of Mary's money, which is really part of Fred's money to Bill, who wants to start an accountancy business. Bill then promptly goes out and deposits his $810 with Bank A. So now the score stands at:
Notice now that the initial $1000 that Fred deposited with Bank A has grown to $2710 in the system. But, this is not the end of it, as now Bank A has an additional $810 which it didnít have before and can lend out 90% of that - $729 - to James, who needs a loan to start his motor repair workshop.
James takes the $729 that he borrowed from Bank A and deposits it in Bank B. The score now stands at:
So now the initial $1000 that Fred deposited in Bank A has grown to $3439.
This cycle could go on and on until $10000 is created in the economy with the initial $1000.But apart from the initial $1000 in hard cash that Fred originally deposited with Bank A, none of this money actually exists, except as entries on a few bank computers. But the debt certainly exists because the people who borrowed this non-existent money have to pay it back in real money earned from the fruits of their labour - with interest.
Let's say that you want to borrow $100 from your bank. Under Fractional Reserve Banking requirements, the bank only has to hold $10 on hand. If the bank charges you 5% interest, it is making:
And so on up to the full $100 dollars. So while it seems that the bank is only making 5%, in reality when you add up all the imaginary blocks, the bank is making 5% x 10 or 50% on that original $10, plus the $90 in imaginary principal. The banksters don't want you to know this, but now you will understand why they are always so nice.
All modern economies use the Fractional Reserve Banking system and it works by putting control in the hands of the central bank that can manipulate the money supply and keep a check on excessive liquidity or overheating of an economy.
The disadvantage of using such a system is that a financial crisis can spread elsewhere and panic and rumours can become true in a self-fulfilling prophecy, causing bank runs. These can occur and a financial system can be destroyed just by the loss of trust alone.
For example, if one day Mary and Bill decide that Bank A is not to be trusted and it is better for them to bank with Bank B, that would be the end of Bank A if Mary and Bill decide to withdraw their deposited funds. Since Bank A loaned out more than it actually had, just the crisis of confidence can cause a systemic crash.
In the above example, Fred gave Bank A his money for safekeeping. But instead of keeping Fred's money safe, the bank used it. Where the bank was entrusted to protect Fred's money, they abused it.
When you give your children to the babysitter to watch over and protect them while you go out for a quiet dinner, you donít expect the babysitter to rape and abuse your children. This is what bank fraudsters do. They financially rape and abuse you and your money. This is the way in which Fractional Reserve Banking is really a crime. It is a fraudulent abuse - a massive Ponzi scam that would never be tolerated for one second in any other line of business.
In the above example, when the bank loans that $900 to Anne, that money has never - does not - and will never exist. It is a fiction. Complete fantasy. Hereís how that works.
There is a time gap between when Fred deposits his money and the time he withdraws his money. This is called the float time. It is during this period that the bank must loan out $900 of Fred's money and receive back that $900 from the borrower. So the bank is circulating money that it does not have and does not own. In actual fact, this money does not even exist - it is merely an entry in the bank's computer.
But what happens if the bank lends out that money and not enough borrowers repay the money and the depositors come along and demand to withdraw it? The bank hasn't got the money. So it asks the central bank to create some more money and inject it into the system and that is called inflation.
In more extreme cases, when a bank is faced with a run on its funds and the central bank refuses, or is unable to prop it up, the bank goes bankrupt - a truer sense of the definition really does not exist. Then the depositors who entrusted their funds to the bank for safekeeping lose their savings, exactly as they would do if they had entrusted their money to a pyramid or Ponzi scam operator.
In 1933, President Franklin D Roosevelt banned gold ownership for US citizens. The order criminalised the possession of monetary gold by any individual, partnership, association or corporation. Millions of gold coins were confiscated and melted down. The ban lasted for 42 years, with the right to own gold finally restored in 1975 by President Gerald Ford. But why was this done? The explanation is obvious when observed in relation to Fractional Reserve Banking.
The alleged reason for the US ban on gold ownership by Roosevelt was that hard times had caused hoarding of gold, stalling economic growth and making the depression worse. The real reason was that after the US Great Depression, people simply did not trust the Ponzi banking system operating under the auspices of the US Federal Reserve, which was not - and is still not - a government entity. The US Federal Reserve, operating as a central bank and issuing treasury bonds and printing money, is actually a private company owned by private shareholders.
There was nothing wrong with people preferring to keep their savings in the form of gold, but of course this was making the US government and US Federal Reserve banking Ponzi scam unworkable and unsustainable. If people had their savings in the form of gold, they were literally opting out of the banking Ponzi scam, so this law was used to force people back into it by making it illegal to possess gold.
One would have thought that after the repeal of Roosevelt's Executive Order 6102 by Gerald Ford, the right to possess any amount of gold by people would be maintained. And why not? Should the people not have the right to possess something as innocuous as gold bullion if they have bought and paid for it? Of course they should have every right to buy, hold and trade bullion with whoever wishes to accept it as payment for something. But governments don't like people who opt out of their Ponzi scams.
So in an amazing turnaround, again forcing US citizens back to the US Federal Reserve Ponzi scam, on 15 July 2011, President Barack Obama again made it illegal for US residents to trade gold and silver over the counter.
"Wealthy Americans are bailing out on the economy by taking their money out of circulation and hoarding gold," Obama said as he signed an executive order reminiscent of Roosevelt's ban on the possession of gold. "The wealthy are violating their trust and abusing their position by investing in gold,"
Obama was just spouting a load of utter crap. The wealthy are not violating their trust and abusing their position because they choose to take their wealth out of circulation. People are not obliged to circulate their money. If they choose not to spend it, that is entirely their right. And if people choose to keep their wealth in in gold, that should be their right too. People should have the freedom to invest in anything they choose.
A lot of middle and lower class people invest in gold, simply because they don't trust the banking Ponzi scam, but obviously Obama needed a scapegoat to blame for the financial crisis in which the USA found itself and the wealthy always are a convenient target. But what is wrong in putting one's savings into gold? Nothing at all, but it just stymies the Fractional Reserve Banking Ponzi scam and the government can't afford to allow this to happen.
Obama said. "My order will put an immediate end to this practice, which threatens to hijack the good efforts of Congress and my administration, which needs at least 3 trillion dollars of additional stimulus money to maintain an acceptable rate of growth of the federal government."
White House Spokeswoman Mary Chris Moss said that all citizens must surrender their gold to federal authorities by 25 December 2011 or face a fine of $335,400 and 20 years in prison. She stated that Roosevelt imposed a $10,000 fine and a jail term of 10 years on Americans who refused to give up their gold in 1933, but that wasn't enough to keep most wealthy Americans from transferring their gold overseas. She stated that the fine had been doubled, adjusting for inflation, as well as the jail term being doubled. Obama's order also immediately prohibited American citizens from transferring gold to any other country, corporation, individual or governmental entity before 25 December 2011.
Obama's so-called reasoning is complete and utter crap. The real reason for imposing this Draconian ban on gold possession is that after the Global Financial Crisis of 2007, just as after the US Great Depression, people realised that they were being taken for a ride by the central bank Ponzi scam and decided to put their savings into more secure areas, rather than be forced to use Monopoly money. But Obama propped up the US Federal Reserve scammers and banksters by preventing people from determining how they can save their money.
So much for the Land Of The Free, which is becoming more like a totalitarian Marxist state, with ever-diminishing legal rights, violations of privacy by the US government, Homeland Security and other agencies having Stalinist-like powers and now the possession of gold and silver being made illegal.
Apart from maintaining the Ponzi scam, the truth behind Obama's order was revealed by Phillip D Bagg, newly appointed director of the Treasury Department's Gold Reimbursement Fund. He stated that Americans should be overjoyed to learn that the government expects to eliminate a large portion of federal debt through what he called President Obama's brilliant redistributive gambit.
Bagg said that his economists have estimated that at least 700 million troy ounces of gold are held by hoarders across the nation. He said the government will offer the gold as collateral valued at $1,225 per ounce as it applies for loans to fund the burgeoning federal government.
"I am calculating that if we can get even 500 million troy ounces of gold, we'll be able to borrow enough from China to pay for the entire federal debt by 2012," Bagg said. "This should allow us to turn the corner on the economy before the next presidential election, which should ensure that our great leader remains in office. Even if we default on the loans from China, we will have paid only pennies on the dollar for the collateral we will transfer to Asia, so it's a great deal any way you look at it."
So the idea behind this scheme was nothing more than a way to get China to lend the already bankrupt USA more money. The problem in recent times is that China, the USA's biggest creditor, has been increasingly reluctant to accept US debt, so this the forced seizing of gold held by people will not only try and convince China to continue bailing out the USA, but will force people back to the US Federal Reserve Ponzi scam.
One of the shocks to the banking system came in 2012, when Greece faced an economic meltdown, due to the simple fact that this nation was spending more than it was receiving in income. Banks in Cyprus had been lending money to Greece at a very high level and when the crunch inevitably came, bondholders in Greece had to give up substantial sums owed to them by the Greek government under the terms of a bailout package.
Cypriot banks suddenly found themselves with a gaping hole in their finances as a result of their exposure in Greece, so the Cypriot government asked Eurozone members for a bailout. In March 2012, the first bailout package with Cyprus was agreed and this shook the system. Cyprus would benefit from a Ä10 billion bailout, on condition that the Government raised an additional Ä5.8 billion. The Government, under pressure from Eurozone members, opted to introduce a levy on bank deposits to raise the money.
All savers lost 6% of their deposits, with the levy going up to 10% for deposits over Ä100,000. The government of Cyprus literally stole the savings of bank depositors to prop up the banks and the crooked banksters that had put those banks into their untenable positions. This so-called levy on bank deposits certainly was government-operated theft on a grand scale. The scam relied on forcing bank depositors into becoming shareholders in those failed banks, in other words, forcibly converting the savings of people into shares in failed companies.
Under a proper and ethical system, when people deposit their savings into banks, they expect the banks to safeguard these funds and the interest that banks earn from lending some of those funds earn the operating profits for those banks. But under the banking Ponzi scam, banks use those deposits of real money to create debt out of thin air and inflate the currency to the point where eventually it will collapse, due to the lack of liquidity. No banks operating under this Ponzi scam can pay out all the money that depositors have placed in their care and this is outright theft.
To prove how corrupt the banking system is, in November 2013, the vice-president of the European Commission stated that taxpayer-funded bank bailouts remained a possibility if Europe's biggest banks reveals significant capital shortfalls, or if the debt crisis were to really flare up again. Joaquin Almunia stated that the governments' preferred method remains to force investors such as shareholders, bondholders and ultimately depositors, to pay first. A bank restructuring could involve imposing losses on senior creditors, including depositors.
This bailout proposal is a monstrous con, simply because bank depositors are not shareholders in banks, but are merely using banking services. And why should taxpayers be forced to prop up failing private businesses such as banks? What Almunia proposed and what actually happened in Cyprus is akin to a failing store demanding money from customers who once shopped at that store, in order to prop it up and allow it to keep operating. It is ludicrous, but this is the nature of the great Central Bank Ponzi Scam, which forces taxpayers and bank depositors to forfeit their hard-earned money to keep the crooked banksters in business.
The first thing to understand is that the currencies of most nations is Fiat Currency - completely worthless bits of Monopoly money. However, for day to day transactions, there has to be something convenient to use when buying and selling something, so this Monopoly money is fine. However, large sums of money invested for safekeeping in banks is always at risk, because those banks do not have sufficient liquidity to redeem that money to depositors if they all show up demanding it.
There are a few good ways to avoid this problem. The obvious first thing is to not store your savings in Monopoly money, but in something that has global universal value and that something is gold, silver and other precious metals. Providing that this is legal, unlike the US prohibition on possessing precious metals, you can physically possess gold, silver, diamonds, valuable artwork and other items of high value trade them for anything. Those portable goods are not subject to the whims and scams of central banks, private banks or anybody else. Apart from brokerage fees, purchasing precious metals and other portable goods is the safest form of storing value.
There are other tangible assets in the same position as precious metals, but not quite as liquid. Rare artworks generally appreciate with time, remain in the control of the owners, are relatively easy to store and are not subject to the banking system. Gemstones such as diamonds are nice and portable, but their value can be destroyed by the cartels that control the global diamond trade.
The problem is when governments such as the US regime decides to forcibly confiscate precious metals from the people. The question arises - is it worthwhile to ignore such confiscation orders and retain precious metals holdings, or should people roll over, relinquish them and put their savings into the Ponzi scam of the Fractional Reserve Banking system? The logical answer is to completely resist giving up one's precious metals holdings, because they are not deadly weapons that can kill or injure anybody. But precious metals can kill the banking system's Ponzi scam and governments and the banksters and government fraudsters are petrified of people waking up to this.
The American people still don't realise how they are being scammed by the US Federal Reserve, the banking system and the US government led by Barack Obama. The same goes for Europeans, who are being ripped off by the European Central Bank. But the people of Australia should always resist any move to restrict the ownership of gold and other portable precious metals, because being forced into the Fractional Reserve Banking system will inevitably lead to collapse, like any pyramid or Ponzi scam.