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Money “Magic”, the Air in the Vault

“Why not give out more receipts than I have gold?” he thought. “Who’s to know?” They like my receipts more than gold, I get a little more interest, and as long as everybody can change it for gold whenever they want, who am I hurting?”

At the time, not even he realized the world wide “hurting” caused by that idea.

Little by little his greed grew and in no time he was lending out 10 times as much, giving out 10 times as many receipts, and getting 10 times as many mortgages and 10 times as much interest as he had gold.

And the townspeople didn’t complain. They had 10 times as much prosperity as they could have with only gold as money, ’cause gold is scarce.

He could count, and so can you. If the gold never went down more than 10%, he could divide 100% by 10% and get 1000% or 10 times the amount of receipts (He is emitting 10 times the money than he had backing in gold.) Since the gold never went down more than 10% he still had enough gold to cover everyone who came in for it and avoid getting caught.


Where’s My Gold?

He had to make sure of the 10%, because if that fraction was wrong, and just a few more people came in to ask for their gold than he had, he would be in deep shit. I mean deep, like in the room in hell where people were up to their neck in it eating coffee and donuts before the devil said “Coffee break is over, everybody sit down.”

All it would take is just a few people to ask “Where’s my gold?” before the whole community would be at his door with hot tar, loose feathers and an 8 foot rail. They didn’t know they didn’t need the gold. That’s why, even with insurance and all the other “safeguards”, the thing bankers fear most is a “run on the bank.” So, he had to make sure that his “reserve” was based on the right fraction. The original gold, his “monetary base” became his “fractional reserve” from which he created money backed by the air in his vault.

I’m using 10% because it is easier to calculate, but it could have 8%, 12%, even more or even less. Calculating how much he could lend and still have 10% in the vault was easy. All he had to do was look at the total (100%) of the gold that he was given to store and lend (his monetary base), and divide that by the fraction in his fractional reserve, which, to make it easy, is 10%.


Math Review

Don’t freak. It’s just a little and all the math you need to know to learn how the banker created riches and power. It’s just a little, but learn it well. If you need to be sure, take out your calculator. It’s ok, nobody’s watching.

First, 10% of 100 is 10, right. On the calculator, put in 100 then times .1 (10%) = 10, right? Got it? OK.

Second, 100 divided by 10% = 1000, right. On the calculator, put in 100 then / .1 (10%) = 1000, right? Got it?

OK, maybe not. We use it daily but hardly ever explain it. The idea of a reciprocal is to go in the other direction. The reciprocal of forward is back. The reciprocal of multiply is divide. Today I have 100. That’s half of what I had yesterday. How much did I have yesterday? 200, right? So, going forward I multiplied by 1/2. Going back I divide by 1/2.

Let’s work it out. Today I have 100. That’s 1/2 what I had yesterday or 50%. So, 100, what I have today is yesterday times 1/2 which gives me 100, but 100 divided by .5 is the 200 I had yesterday.

So with bigger numbers, if today I had 1/10 of what I had yesterday, then yesterday I had 10/1 times what I have today. So, if 100 is 1/10 of what I had yesterday, then yesterday I had the reciprocal — 10/1 of what I have today.

So, if I’m “going forward” and trying to get 10% of what I have, I MULTIPLY by 10% or .1 or 1/10, but if I’m “going backwards” to find out what I had originally I DIVIDE by 10% or .1 or 1/10. (Or I multiply by the reciprocal of 1/10, which is 10/1.)

So getting back to where we started, 100 divided by 10% = 1000, right. On the calculator, put in 100 then / .1 (10%) = 1000, right? Got it? OK, I really hope so. It’s important that you understand it, very well. It’s the only math the banker needed and used to gain all his wealth and power.


In Interest Alone

So, even if the maximum, 10%, of the gold was withdrawn, he would have it. “Hmm”, he hummed. “If I lend 10 times the value of the gold they gave me to lend, and I pay them 5% as agreed on their gold, I would get 5% from the gold they deposited and 9 times 10%, or 90% on the money I created.

So I’d get 95% as much as all the gold they had accumulated all their life in interest alone in just one year. And all the loans I make are backed up by mortgages on 100% of the value as if I had the whole 10,000,000 in gold. Sweet.”

So, the banker thought “If they give me 1,000,000 of gold to lend, and I pay them 5%, they get 50,000 (On the calculator 1,000,000 x .05 (5%) = 50,000). Now if I get the difference between 5 and 10% on the gold they gave me, it would be 1,000,000 x .10 – 1,000,000 x .05 = 50,000.

So, I earn 50,000, right.

No, wrong. 50,000 is what I get for my monetary base — their deposits. But I lend out 10 times as much, so I get 50,000 for my original and 900,000 for the money I created from thin air. I get 950,000 a year.”


Yup. There’s the secret of the fractional reserve. The monetary base is 1,000,000 then you divide that by the fraction in the fractional reserve which is 10% or .1 and you get 10,000,000 that you lend out like if it’s real gold. You get interest on it like if it’s real gold and you get more than 10,000,000 in real value from liens on houses and land, just like if it’s real gold.

But it isn’t.

It’s air, backed up by a whim and a prayer. The whim is to get something for nothing and the prayer is that nobody finds out his secret. He created 9,000,000 out of thin air from the “magic” of lending 10 times the gold that he had and giving 10 times the receipts for that gold.

He created 9,000,000 with the words “fractional reserve” and “monetary base”. And those two concepts let him turn 1,000,000 into 10,000,000 in mortgages and 900,000 + 50,000 = 950,000 per year in interest. And all of this was backed up by our confidence in him. In other words, backed up by the thin air in his vault.


They’ll Kill Me

The banker thought “Not bad for renting a vault, is it? How thrifty! How intelligent! But if they really find out how I did it, they’ll kill me.

I don’t have to worry about the honest ones. They aren’t very bright. The brighter ones are greedy, but they’re pikers. I’ll be able to buy them with a little money and power. If they push me to the wall, I’ll tell them that I’m giving out a little more receipts than I have in gold, so I’ll ‘cut them in’ by doubling their interest rate. (That makes them partners in crime, implicates them and they won’t rat me out.)

That’ll bring even more people to let me lend their unused gold. But I’ll do whatever I have to to keep them from knowing that I’m actually lending out 10 times their deposits, or they’ll hang me for sure. But I have the money to buy whatever I need to convince them, newspapers, books, gossip, whatever. ”

This “secret” gives me incredible riches, and with those riches I can buy the tools to manipulate the minds to keep my secret. But, I have to be clever, I have to guard the secret in the open, in the light of day, with words, backed up by money to appeal to the greed of those who would rat me out. When I tell the truth, nobody should believe me, but when I lie, everybody should. And, if the snoops get too close, I’ll tell my laundry clients that my problem is their problem, and they will make my problem go away.”


Keeping the Secret

It was easier than he thought. The fraud was soooo big that they couldn’t get their heads around it. He paid a little more interest and as he suspected, nobody asked questions. “Sure, there’s something fishy,” thought the gold owner “but I’m getting my cut, so live and let live, give a little, take a little.” Obviously the banker knew how to corrupt the ethics and morals with money. And, he observed, the corrupt were a whole lot less greedy or imaginative than he was.

So everybody heard, but nobody believed that fraction of his “fractional reserve” was how much money was backed up, nor that his “monetary base” was how much gold he really had. Nobody believed that 90% of his money was backed up by thin air. And, by dividing his “monetary base” by the fraction of his fractional reserve, and then subtracting the money created from the original gold backing, he could calculate exactly how much money he created out of thin air.

Of course, the words had to “grow and improve” until they became a “field of study” we call “economics”. And that “field” was filled with so much math (and bullshit) that not even economists could tell what they were doing when they increased or decreased the fractional reserves.

Even Adam Smith of the Wealth of Nations, Ludwig Von Mises of the Austrian School of Economics and Ayn Rand of Atlas Shrugged and Objectivism bought into the bankers bullshit. They even claimed that the only sound money was gold.

Yes, bullshit. Of course it’s bullshit, nobody eats, drinks or houses in gold. Eats, drinks, houses are values, and it’s money that buys them, not gold. The total quantity of gold is so small, the total quantity is so hard to increase, that international price is very easy to manipulate and control, if you have enough gold and bullshit. They have more than enough of both — gold and bullshit.

There is ideology here. The producer’s ideology is capitalism. They risk to produce in the hope of gain. It depends on them believing in themselves, in other words, their ego, and the ego of others to compete, win, lose and protect what they have.

This is a different ideology. The banker’s ideology is socialism. It depends on the avarice of some to covet and steal what others have and to do it without effort, without competition, and without risk. If they try to welch on their deal or not hand over their titles, they can use legal or illegal force to get what they want.


iPatriot Contributers


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