I took the time to summarize what the videos cover for those who don't have the time, or inclination to watch them. I think that the central issue that they raise is: Our monetary system is dependent on perpetual exponential growth which conflicts completely with the reality of life within a system of finite resources. When you understand this, you realize that the current money and banking system inevitably MUST be overhauled to function in the future. Below is the synopsis:
The theoretical limit to the amount of money in the system is only restricted by the amount of debt that can be created.
In the past banks could only lend out a certain amount relative to the amount of gold they held in their vaults. Maybe 10 units of credit for every unit of gold that they held in the vault. And then, the credit that they created was bank credit from their particular branch and it could be refused just as someone can refuse a personal check from you today.
Soon however, because of issues with so many different banks issuing their own banknotes, a single federal currency note was created. Now when banks created credit, they actually issued as a federal currency note, and no longer just a private bank note. This federal currency note had to be accepted for all debts. Banks were suddenly given the power to create government money.
Of course, the money was still backed by gold and silver and redeemable for such. But, because they were only holding a fraction of the gold necessary to satisfy their depositors, if there were a run on a particular individual bank, a central bank would have to infuse the member bank with gold to quell the run. This only created a public illusion however that people’s money was truly redeemable for gold or silver, because in reality there was not enough gold or silver to back every dollar in existence.
Soon the old idea of backing dollars with fractional amounts of gold and silver was seen as old fashioned, and it placed limitations on the demand for credit. The governments at that point moved to a fiat money system where paper money was no longer redeemable for gold or silver. A dollar for example was only redeemable for another dollar. This lifted restrictions on how much money could be created. Governments and banks no longer had to limit the amount of money they could conjure into existence by the amount of gold and silver they could find in the ground as they did in the past. In other words money no longer had a value related to a desired commodity.
In the present, new money is created as debt. Whenever someone takes a loan from the bank new money is created. In theory, today the total amount of money that can be created only has one real limit, the total level of debt.
Money = debt
Governments place statutory limits on the creation of new money by enforcing arbitrary rules called fractional reserve requirements. These reserve requirements vary from country to country and from time to time. In the past , banks could generally create 10 dollars of loan money for every dollar of gold in reserve. Today this no longer applies, and the creation of new debt money is limited only by the amount of existing debt money on deposit.
Then: New Money = 10/gold
Now: New Money = 10…20…30 / existing money (debt)
Today a banks reserves consist of two things:
1. The amount of government issued cash that the bank has deposited with the central bank.
2. The amount of already existing debt money that the bank has on deposit
So to show how this works, lets pretend that a new bank starts up today. They don’t have any customers yet but the banks investors have made a deposit of 1111.12 cents of existing cash money at the central bank. The required reserve ration is 9 to 1.
Step 1. The first customer comes into the bank and wants a 10,000 dollar loan to purchase a car. The reserve requirement that the bank is subject to allows it to conjure into existence 9 times the amount it has on reserve deposit at the central bank also known as “high powered money”? 9 x 1111.12 = 10,000 dollars) on the basis of the borrowers pledge of debt.
This 10,000 dollars of money is not taken from anywhere. It is simply typed into the banks computer as 10,000 dollars of bank credit. The borrower then writes a check based on that 10,000 dollars of credit to buy a used car.
Step 2: The seller of the car then deposits the check she just received for the car at her bank. Unlike the high powered money deposited at the central reserve bank, this money cannot be multiplied by the reserve ratio of 9:1. Instead it is divided by the reserve ratio.
So on the basis of a reserve requirement of 9:1, this bank can create a new loan of 9000 dollars based on the deposit of 10,000 dollars.
Step 3: If that 9000 dollars is deposited by a third party at the same bank that created it or any other one, it becomes the legal basis for the creation of more bank credit, this time in the amount of 8,100 dollars. And so, like the Russian babushka dolls, where each doll contains a slightly smaller one, in the bank each deposit creates the potential for a slightly smaller loan. If the money at a certain point in the process isn’t deposited in the bank, the loan creation process stops. But more likely, that money will be deposited and the loan money creation process will continue until nearly 100,000 dollars of newly created money has been created within the banking system.
All of this money, more than 100,000 dollars has been created as debt. And the whole process has been legally authorized by the initial deposit of 1111.12 cents at the central bank.
Under this system, the banks must however show that it has 10% more on deposit than it does on loan, which gives the bank a very real incentive to seek deposits in order to make loans.
100 deposits : 90 loans
This gives the misleading public perception that loans come out of deposits. Unless all of the successive loans are made at the same bank, it cannot be said that any one bank got to multiply its initial “high powered money”? reserve by almost 90 times by issuing bank credit out of nothing. However, the banking system is a closed loop. Bank credit created at one bank becomes a deposit at another, and so the system wide effect is the same as if the process all took place in one bank.
So the banks initial 1111.12 central bank reserve ultimately allows the banks to collect interest on up to 100,000 dollars the bank never had.
In recent years, as a result of lobbying by the banks, requirements of deposits at the central bank are not required in some countries and reserve requirements can be much higher than 9:1.
Even more recently, by using loan fees to raise the required reserve from the borrower, banks have found a way to circumvent reserve requirement limitations entirely.
In sum, banks can create as much money as we can borrow. Government created money typically accounts for less than 5% of the money in existence. 95% of all money in existence today is created by someone signing a pledge of indebtedness to a bank. Bank credit is being created and destroyed every day as new loans are made and others are repaid.
Banks can only practice this money system with the active cooperation of government.
#1 Governments pass legal tender laws to make us use the national fiat currency.
#2 Governments allow private bank credit to be paid out in this currency.
#3 Government courts enforce debts.
#4 Governments pass regulations to protect the money systems functionality and credibility with the public.
The truth is that when we sign on the dotted line for a loan or mortgage, our signed pledge of payment (backed by the assets we pledge to forfeit should we fail to pay) is the only thing of real value involved in the transaction.
To anyone who believes we will honor our pledge, that loan agreement is now a portable , exchangeable, and saleable piece of paper. It’s an IOU. It represents value and is therefore a form of money. This “money”? is what the borrower exchanges for the banks so called “loan”?.
A loan in the real world means that the lender must have something to lend. If I want a hammer, someone’s loaning you a promise to provide a hammer I don’t have won’t do you any good. But in the artificial world of money, a banks promise to pay money it doesn’t have is allowed to be passed of as money, and we accept it as such.
Once the borrower signs the pledge of debt, the bank then balances the transaction with a few keystrokes creates a matching debt of the bank to the borrower. From the borrowers point of view, this becomes loan money in his or her account. And because the government allows this debt of the bank to the borrower to become converted to government fiat currency, everyone has to accept it as money.
So the basic truth from this is that without the piece of paper that the borrower signed, the bank would have nothing to lend.
Have you ever wondered how everyone (families, corporations, governments) can all be in debt at the same time and for such astronomical amounts? Have you ever questioned how there can be that much money out there to lend? Now you know. There isn’t. Banks do not lend money, they simple create it from debt. And since the potential amount of debt is unlimited, so is the supply of money. And the opposite is true. No debt = no money.
Despite the incredible wealth of resources, innovation, and productivity that surround us, almost all of us from governments, to companies to individuals are heavily in debt to bankers. How can that be? How can it be that all of us that create and produce everything, are all in debt to the people who merely lend out the money that merely represents the wealth? Even more amazing, is that once we realize that money really is debt, that if there was no debt there would be no money.
Most people simply believe that if all debts were paid off the state of the economy would improve. It is certainly true on an individual level. Just as we have more money to spend when our loan payments are finished, we think that if everyone were out of debt, there would be more money to spend in general. But the truth is the exact opposite. There would be NO money at all. All debts paid off leave society with NO money.
We are dependent on continually renewed bank credit for there to be any money in existence. No loans, no money. Which is what happened during the great depression. The money supply shrank drastically as the supply of loans dried up.
That’s not all. Banks create only the amount of the principal, they don’t create the money to pay the interest. Where is that supposed to come from? The only place that borrowers can go to obtain the money to pay interest is the general economies overall money supply. But almost all of that overall money supply has been created in the same way…with bank credit that has to be paid back with more than was created. So everywhere there are other borrowers in the same system frantically trying to pay back the principal and interest from a total money pool where only the principal has been created. It is clearly impossible for everyone to pay back the principal and the interest because the interest money doesn’t exist.
The big problem here is that for long term loans, the amount of total interest far exceeds the principal, so unless a lot of new money is created to pay the interest, it will mean a high rate of foreclosures and a non functional economy. To maintain a functional society, the foreclosure and default rate has to be low, and so to accomplish this more and more new debt money has to be created to serve as money to service the previous debt. But this of course just makes the debt bigger and means that ultimately more and more interest must be paid. This results in an ever increasing spiral of indebtedness.
It is only the time lag between moneys creation as new loans, and its repayment with interest, that keeps the overall shortage of money from catching up and bankrupting the entire system. However, as the banks insatiable credit monster gets bigger and bigger, the need to create more and more debt money to feed it becomes increasingly urgent.
Why are interest rates so low? Why do we get unsolicted credit card offers in the mail. Why is the US government spending faster than ever? Could it be to stave off a collapse of the entire monetary system? A rational person has to ask, “can this really go on forever?”? Isn’t a collapse inevitable?
In a fractional reserve banking system, just like in a game of musical chairs, as long as the music is playing there are no losers.
Money facilitates production and trade. As the money supply increases, money just becomes increasingly worthless unless the volume of production of trade in the real world grows by the same amount. Add to this the realization that when we hear that the economy is growing at 3% per year it sounds like a constant rate. In fact it is exponential growth. This years 3% represents more goods and services than last years 3%. Instead of growth representing a straight line, it is really an exponential curve growing steeper. The problem is that perpetual exponential growth of the real economy of goods and services, requires perpetual growth in the use of natural resources and energy. More and more stuff has to go from natural resource to garbage forever just to keep this system from collapsing.
What can we do about this scary sistuation? For one thing we need a new concept of money.
It is time people asked themselves and their governments 4 simple questions. Around the world governments borrow money at interest from private banks. Government debt is a major component of total debt, and servicing that debt takes a big chunk of our taxes. We know that banks simply create the money that they lend, and that governments have given them the permission to do this.
1. Why do governments choose to borrow money at interest from private banks when governments could simply create all interest free money that they needs itself?
2. Why create money as debt at all? Why not create money that circulates perpetually and does not have to be perpetually reborrowed with interest to exist?
3. How can a money system that can only function with perpetually accelerating growth can be used to create a sustainable economy? Isn’t true that perpetual growth and sustainability are incompatible?
4. What is it about our current system that makes it dependent on perpetual growth? What needs to be changed to allow the creation of a sustainable economy?
It used to be that charging interest on money was illegal. All major religions called this usury and it was punishable by death. Most of the arguments were moral. It was held that moneys only legitimate purpose was to facilitate the exchange of real goods and services. Any form of making money by simply having money was regarded as the act of a parasite.
However as the credit needs of commerce increased, the moral arguments eventually gave way to the argument that lending money involves risk and loss of opportunity to the lender, and therefore attempting to make a profit from lending is justified. Today these notions seem quaint. Today the idea of making money from money is an ideal to strive for. Why work when you can get your money to work for you? However when trying to envision a sustainable future, it is very clear that the charging of interest is a moral and practical problem.
Imagine a sustainable society and economy that instead of plundering its capital stores of energy it simply restricts itself to present day income. No more wood is harvested than grows in the same period. All energy is renewable. This society lives within the limits of its non renewable resources by reusing and recycling everything and the population simply replaces itself. This type of society could not function with a money system that depends of perpetual increasing growth.
This video explains one possible way on how to do that:
http://www.youtube.com/watch?v=3qicabStQkc