The Hidden Secrets Of Money Part 4: The Biggest Scam In The History Of Mankind (In 7 Easy Steps)

Tyler Durden's picture

From the seven stages of empire to the dollar crisis (and golden opportunity) Mike Maloney moves on to expose the system that is ultimately responsible for most of the inequality in the world today. As Mike explains, most people can feel deep down that something isn't quite right with the world economy, but few know what it is. Gone are the days where a family can survive on just one paycheck...every day it seems that things are more and more out of control, yet only one in a million understand why.

The powers that be DO NOT want you to know about this, as this system is what has kept them at the top of the financial food-chain for the last 100 years...

Learning this will change your life, because it will change the choices that you make. If enough people learn it, it will change the world...because it will change the system . For this is the biggest Hidden Secret Of Money. Never in human history have so many been plundered by so few, and it's all accomplished through this...The Biggest Scam In The History Of Mankind.

 

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threeputting's picture

By far the best episode of the series.

Anusocracy's picture

Government is the biggest con in history.

It has always existed by stealing and killing.

Cult_of_Reason's picture

The video is a bit inaccurate.

Banks do not lend 90% of deposited money, but they create and lend 900% using the deposited money as the required reserve.

$100 deposit becomes the required 10% reserve and allows the bank to create and lend $900 (or 900% of initial $100 deposit).

The system is even more corrupt than Mike realizes, 10X more corrupt.

 

NotApplicable's picture

Not only that, but reserve requirements have been marched down to nearly zero for most deposits.

economics9698's picture

T = $20 billion * (1/0.2 - 1) = $80 billion.

flacon's picture

This is the most important video on youtube. Bar none! 

Oracle 911's picture

Actually he said in one bonus video he can't put everything into the original presentation because after that the avarage folks wouldn't get it after a 2 hour presentation.

 

And another thing, 10% reserve was used as example.

Fish Gone Bad's picture

The only way to win is not to play.  Hopefully people will be able to figure this out for themselves.  For those who don't there is always natural selection.

fockewulf190's picture

Since 2008, a lot of people have already refused to play anymore in the rigged casinos. I am one of them, and don't reget it at all. Continuing Phyzz accumulation, slapping 10kw worth of solar panels on the roof, as well as paying the house off, leaves me with nothing but hard assets...and that is just the way I like it.

Professorlocknload's picture

Besides, what's a "Reserve Requirement" in comparison to a $Trillion a year in QE....that we know about?

Australian Economist's picture

Yes, and everytime I'm reminded of this 'system' I get angry.

 

What to do?

Australian Economist's picture

That's always an option, it's not as if the punch bowl will be taken away.

 

 

Mobius Poop's picture

Dont forget your Percoset on top of that.

Go back to sleeeeeeeep.....

Fish Gone Bad's picture

As long as one knows how to make alcohol one can make a fair living.

For all those who did not take biology in school:

Sugar + water + yeast = alcohol

There is a little bit more to what I have written.  I will leave that as a homework problem for any new entrepreneur who might be reading this.

Like the fish?  Google: cursing fish cafepress

fockewulf190's picture

What to do? Get your hands on as much phyzz as you can buy. Silver and gold. Don't worry about the price, just buy and bunker it in a secure place. You will sleep easier knowing you have some hard assets. Then Identify what your dependant on, and work on ways to reduce or eliminate that dependance. Power, food, security, water, heat, medical, and so on.

When the Great Reset happens, you'll have assets to fall back on to help you get through the chaos. The way things look, the world economic system could implode at any time, so get moving.

Cult_of_Reason's picture

Re: What to do?

There is absolutely nothing you can do. You're a slave. We're all slaves.

A Roman Slave Market

Teddy Tenpole's picture

 

 

At the risk of sounding like an asshole -- borrow cheap money and plow it into the stock market?

you doomer douche bags truly are funny people

 

 

fockewulf190's picture

Hopefully you have hedged your risk.

SWRichmond's picture

+1.  If I was on the "Friends and family plan" and knew when to get out, I would do just exactly that.  But alas, I am not.

orez65's picture

The currency created is, approximately, the inverse of the reserve requirement times the initial currency deposit.

For example, if there is a 1% reserve requirement and $100 is deposited:

1 / 0.01 X $100 = $10,000

For 5% reserve:

1 / 0.05 X $100 = $5,000

For 10% reserve:

1 / 0.1 X $100 = $1,000

If no reserve is required, as in the case of "investment" banks, you can create infinite amounts of currency:

1 / 0.00 X $100 = Infinity 

threeputting's picture

Can someone confirm that we have to run deficits (to create more money) forever because there's more interest owed than money in existence?

 

I've heard this claim a few times but I've never been able to wrap my head around it.

Cult_of_Reason's picture

"We have to run deficits" because "we" are broke and "we" are spending more than what "we" are earning (collecting via taxes).

It has nothing to do with "money in existence".

threeputting's picture

Well, that's not the argument made in the video -- this video says that we need government deficits because they spend the money into existence -- and because of how fractional reserve banking works, there is interest owed on every single dollar in existence, but not enough money in existence to pay all the interest.

SWCroaker's picture

As much as it may boggle the mind, it is correct.  Mike's example of sticking to just a single dollar shows the physics of the problem.   The distractions of currencies from other countries, numbers in the trillions, 14 types of various forms of money etc all just serve to distract from the facts:

  1. *You* are expected to pay back every dollar ever borrowed, PLUS SOME INTEREST.
  2. *You* had zip to say in the original loan; the gov and lender just did it, and both agreed *you* would pay the bill.
  3. What sane moral rational exists for charging interest on money that was whipped up out of thin air?   If we were borrowing someone else's *savings*, then it might make sense.   But how can anyone justify the need to pay interest to the magician Fed and their miracle computer that spews money into existence?

When you look at the design of the system, it eventually becomes apparent that the Fed/Gov don't actually *care* about the interest; after all, they both have access to a money spewing computer.  What the interest *does* do is provide a vehicle of *obligation* and leverage of power.  Both the government and the Fed exploit those levers.   They retain the reins of power because we are indebted, and therefore we need managers at the top to collect taxes and decided who get government spending.     There is no rational for why our government can't just get a computer of their own and create money, debt free, at will.  The "interest" due on our Fed issued money doesn't' legitimize the process *if* you understand what is really going on in the first place.

 

Physics has concepts of conservation of mass, energy, momentum, flow.  They all work the same way:  Draw a containing line around an area or object.  What comes out of that object over time, *must* be balanced by what enters it, plus what is created (or minus destroyed) within it.    Closed system.   If you think of the Earth as the closed system, there *is* no money leaving or entering it; that leaves creation and destruction.   Money is created as an obligation when new Treasuries are issued.   And money is destroyed when Treasuries (and the interest due on them) is paid back and the Treasury IOU is retired.    The cost of retiring each and every single bill is *always* more than the money that was created when the IOU bill was first issued.       The *only* way to stay ahead of terminal collapse in the system is to borrow even larger amounts of debt to pay off yesteryear's IOUs, but that will of course necessitate borrowing at some point in the future to cover the cost of today's borrowing....    Rinse repeat, and over time the debt grows to astronomical levels, and the value of a unit of currency buys less and less.  This expected outcome is exactly what we are seeing first hand.

hootowl's picture

What could be more simple than for the federal government to simply create/print money into existence and spend it into circulation...........unfortunately rather than central banksters destroying the process with usury on top of fractional reserve fraud, we would be dealing with political demons, despots, and Demoncraps (probably redundant) who would debase the currency to buy themselves eternal careers.

One term per lifetime for all humans at all levels of government.

SWCroaker's picture

Absolutely.  While I felt compelled to point out the gov *could* just issue money as needed (debt free), *that* power in *those* hands is ... almost certainly doomed to be abused.  Much better to have a currency that nature controls the quantity of, not some fallible man.

threeputting's picture

Thanks, this finally makes sense!

Ghordius's picture

perhaps this looks like it makes sense, but there is one little thing left out: defaults

so the initial assumption: "there must be deficits, there must be growth, there must be printing" is missing the little addendum: "otherwise we'll have some defaults, from time to time"

lo and behold: the TooWhateverToFail paradigm

---------

further, all this "bank" credit is always supposed to be based on privately held collateral. subject to valuation. at the end, it's not the bank creating credit, it's the customer

and this might be the bitterest pill to swallow

USGrant's picture

There is actually a rationale for the government to create debt rather than just print. The debt provides both a hysteresis and a possible partition between base money and circulating currency. The hysteresis arises from the difference between currency which is a zero time duration debt and a bond which has a finite time duration. The partition is the wall between bank reserves held at the FED and circulating currency. That the partition is effective in delaying price inflation is easily seen by the ratio of M2/M0 for instance which has now fallen to about 3 which is the lowest value since M2, M0 values have been available. The partition can be made permeable at the discretion of the FED/TBTF (tautology). As a side note, this observation also seriously calls into question the concept and the calculation for "money velocity". Certainly during a hyperinflation, currency is spent as rapidly as possible but before that velocity is ill defined.

The analogy of economics and physics is well made. In thermo one must define one's "universe" carefully. Likewise the two economic universes on respective sides of the partition can behave quite differently with vast differences in the price of goods behavior. The price of art and stocks can skyrocket while the kitsch for the masses plummets in price.

 

socalbeach's picture

As a practical matter it could be true. But as stated,

"we have to run deficits (to create more money) forever because there's more interest owed than money in existence"

it's not correct.  For example, a bank could spend their interest income as fast they receive it.  That interest money could then be used again to pay future interest.

G Edward Griffin makes a similar point in his book, The Creature From Jekyll Island.

LongBallsShortBrains's picture

That's a tough point to get into people's head.
You are correct. There will be enough money to pay the interest. It is the interest collected previously, traded into the real economy for real goods. But only once the banks spend it all.

In other words, monetary expansion must bring bankers profits higher or the system is starved of money to repay interest.
It makes circular logic arguments redundant.

robobbob's picture

problem. the interest payments to the banks are drawn from the same debt encumbered currency pool. the banks could clear their debts, by shifting the obligation unto some one else. every dollar pulled out of the pool to pay one loan, is still interest encumbered to some other loan. it is impossible to pay 110% of a pie.

that is the end game. when the debt system collapses, the banks will call all of their loans or systematically phase them out. with the printing presses shut off, the currency pool will dry up, leaving the debtors unable to pay, and the banks will take possesion of all of the collateral. it will happen haphazard and unevenly. some will escape, some will make out, most will lose everything, and the bankers will own the world. its musical chairs with debt slaves running around looking for a seat. the bankers are the ones standing safety off to the side controlling the music......protected by the ever growing police state.

CuriousPasserby's picture

That doesn't make any sense. Please explain how they loan more money than they have. 

They take in $100,000 in deposits and with a 10% reserve they loan out $90,000, but they can't loan out money they don't have. They can't create money. Only the fed can do that.

Whoever think a bank can loan out more than the deposits they have PLEASE explain!

Cult_of_Reason's picture

Re: Please explain how they loan more money than they have.

Banks create money out of thin air by creating credit, but there is a limit on how much they can create (due to reserve requirement).

Your $100,000 deposit allows the bank to create and lend $900,000 (9 times of your deposit, if the reserve requirement is 10%).

 

Attitude_Check's picture

Only the Fed can PRINT Federal Reserve Notes.  Banks can loan credit.  If you get a signature loan rarely di you get bills but a check that you use to pay a bill, or credit deposited in your bank account.  No Fed involvement required.

CuriousPasserby's picture

I can see how Lowes or Sears can create credit by issuing a credit card and letting me buy something like a washer, so there is now $500 money in the economy since I could buy something for $500, having no money.

But if I use my bank credit card to buy the washer, then my bank has to give Lowes the $500. They can't create the $500 out of the air, they have to take another customer's deposit, pay him 1% interest and charge me $18%. But I don't see how banks can create money out of the air???

ToucanSam's picture

Don't confuse loans with revolving credit like a credit card.  Loans are backed by deposits through fractional lending.  Debit cards are backed by your bank account.  I have no idea how a credit card issuer backs their card member debts, except maybe insurance.  But because it's revolving credit, there's no collateral, and thus higher interest.  But the credit card issuer gets a processing and transaction fee so perhaps that covers any default liability?

In any case, revolving credit is money out of thin air because it's only based on your credit worthiness and not collateral.

Urban Redneck's picture

Unbelievably wrong.

If Shamu motors her whale tail off to Wally World and pays with her Capital One card instead of her EBT, then when she swipes her credit card at the register- Capital One's account at the Fed is debited and WalMart's Bank (the Bank, not Walmart, has the account with the FED) receives the offsetting credit- then it is up to the two banks to sort out the correct allotment of the Bank's digital digits amongst their customers- the KEY point being there are TWO BANKS involved, and the BANKS are the lawful owners of the digital money supply (Capital One's reports to Fed on how THEY would like their "share" of the private money supply divided is what determines how much money a customer actually has- ask Jon Corzine for additional clarification if you missed my point). Strictly speaking no money is actually created until Capital One reconciles with the local Federal Reserve and in the several hour interim Capital One's excess cash at the local Fed takes a ding, but that's a minor detail.

If you look at Capital One's 2012 10-K they have 312 billion in assets (money people owe them e.g. outstanding credit card debt) and on the other side of the ledger it is broken down into 212 billion in "DEPOSITS" 50 billion in "borrowings" and 40 billion shareholder equity with a tier 1 capital ratio of 11% and a net interest margin of 6.5%.

See my lengthy post below for a more complete definition of "DEPOSIT"- because it's NOT Shamu and her brethren who have deposited 212 billion in greenbacks or even EBT benefits at Capital One earning 0%, it's wholesale instead of retail banking (with a helping of shadow banking on the side). However, Capital One is a BANK and subject to the same regulations and capital requirements as Angelo Mozilo was while he was printing dollars out of NINJA loans.

Issued Bank credit, regardless of whether it is revolving or not is most certainly collateralized.

BTW - to all those people who think they understand what a 10% reserve requirement is- what is Capital One's maximum direct money creation against 212 billion in deposits, and if it is what you think it is, and bankers are actually greedy as hell (which I certainly agree with), then how do you explain that Capital One has only 312 billion in loans against 212 in deposits when they could be so much richer collecting 20% on their increased loans?

Cast Iron Skillet's picture

Peter Schiff in his book "How an Economy Grows and Why it Crashes" provides a basic explanation of how money gets created, if you're looking for an easy to understand introduction.

socalbeach's picture

With a 10% reserve requirement, an individual bank can loan out 90% of its deposits.

But if that loan is redeposited, 90% of that 90%, or 81%, can be loaned again.

Repeating the process and starting with $1,000, you get:

$1,000 + 0.9 * $1,000 + 0.9 * 0.9 * $1,000 + ...

which equals $10,000 if you go on forever.

So you're right, an individual bank can only loan out 90% of its deposits, but the system as a whole could loan out 9 times that amt.

 

Cult_of_Reason's picture

Re: So you're right, an individual bank can only loan out 90% of its deposits, but the system as a whole could loan out 9 times that amt.

 

NO

 

The bank can loan 9 times. The system can theoretically loan infinity (in reality it is never infinity because the system collapses; boom and bust cycles).

 

socalbeach's picture

With a 10% reserve ratio (RR), a bank can only loan 90% of its deposits in the general case (if there's more than one bank). To make it more realistic I'd have to include equity but I'm simplifying. Example:

 

(1) cash = $100; deposits = $100.  RR = 1

(2) cash = $100, note = $90; deposits = $190. RR = 0.53

Now let's say the person who takes the loan buys something and it gets deposited in another bank...

(3) cash = $10, note = $90; deposits = $100.  RR= 0.1

If this bank loans out anymore, the reserve ratio would be less than 0.1  For example, same step (1) as above:

 

(2) cash = $100, note = $95; deposits = $195.  RR = 0.52

Same as before, person who takes out the loan buys something and it gets deposited in another bank...

(3) cash = $5, note = $95; deposits = $100.  RR = 0.05 < 0.1

 

Your statement that the system can theoretically loan to infinity isn't correct.  Again with a 10% reserve ratio, the initial deposit plus the loans added up would be:

$1,000 + 0.9*1,000 + 0.92*$1,000 + ... + 0.9n*$1,000 = $1,000 * (1 - 0.9n+1) / (1 - 0.9) = $10,000 as n approaches infinity.

Cult_of_Reason's picture

Watch the video again (I don't have time explaining it). The system can theoretically loan to infinity.

 

P.S. Sigh... Rothschild was a genius. So many intelligent people cannot fully understand the system he invented.

socalbeach's picture

The system with a reserve requirement of say 10%, can not loan an infinite amt of money.  I just wrote the equation for you in my previous post.

Cult_of_Reason's picture

Your equation does not reflect reality.

THERE IS NO RESERVE REQUIREMENT FOR THE SYSTEM, ONLY FOR THE BANKS.

Why do you think we had 2008 crises?

Tall Tom's picture

Well there is a little problem with your thesis. One cannot sustain Exponential Growth in an environment with limits. Thus you are not a member of the 2% whom can think in terms of exponents.

 

Exponential Growth leads to Exponential Collapse. Actually "Ponzi Schemes" are a misnomer. Thehy needed to be called Rothschild Schemes.

 

By the way Rothschild was not a genius. He was a FRAUDULENT CRIMINAL. Criminals are not Geniuses as they are destructive rather than creative. Creativity is the true mark of Genius.

falak pema's picture

so you think he is as good as Einstein and relativity theory?

Not very wrong as fractional reserve makes infinite money creation feel like the velocity of light; the ultimate barrier, when matter just disappears! 

Gone with the wind !