Tuesday, February 14, 2012

An allegory on paper money

Another excellent piece by Pat Healey; explaining in easily understood terms why our banking system is "systematically" bankrupting us.


Let’s suppose that I am the only bank on Earth.

Now, let’s imagine that there are only two dollars in the entire economy.

Furthermore, let’s imagine that the entire economy consists of only one farmer and one manufacturer.

This is simple. You can easily explain this to anyone using 8 quarters. Go grab 8 quarters, and follow along….

Let’s suppose that the farmer comes to borrow money to buy equipment he needs to plant crops. At the same time the manufacturer comes to borrow money to make equipment to sell to the farmer.

I loan each of them one dollar at 50% interest for one year. This means that at the end of the year, each of them owes me $1.00 plus $.50 interest - or twelve quarters total.

[I'm using an exaggerated 50% interest rate here to quickly and clearly illustrate how the scam works. In truth, ANY AMOUNT of interest will inevitably end in the same result].

Place two stacks of 4 quarters on the table - each one representing the loans to the farmer and the manufacturer.

The farmer and manufacturer work hard all year — but all I have to do is wait. At the end of the year, when the loan is due, I'm scheduled to collect $3.00 on the original $2.00 I loaned out.

But, there were only two dollars in existence. Where did the other dollar come from?

The third dollar doesn't exist. It’s a trick.

The third dollar can exist only if extra money is added to the economy. We’ll assume no extra money has been added to the economy.

The money I loaned to the farmer and manufacturer circulates between them. The farmer bought equipment. The manufacturer sold equipment.

At the end of the year, when the loan is due, the manufacturer has made money from the farmer and is able to pay back the entire $1.50. Now, take 2 quarters from the “farmers” stack and place them on the “manufacturers” stack. Then give these to the “bank” to repay the manufacturer's loan.

Now there are only 2 quarters left.

Of the original $2.00 in our mini economy, the "bank" now has $1.50 and only $.50 is left in circulation.

Unfortunately, no matter how hard the farmer worked and no matter how good his crop, there's only $.50 in the economy for him to earn. The most he can possibly pay me now is $.50 - yet he "owes" $1.50.

And that was my plan all along.

When the farmer can’t pay — I take his farm.

Why did this happen?

Because you cannot pay with something that doesn't exist.

Now you know why America is going broke.

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