"The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest." -Abraham Lincoln Bartering, money, and gold. In the beginning there was the barter system. People would trade goods and services for those of equal value. As the old saying goes, you would never pay two apples for one orange. However, there was always a problem with this barter system. How many apples equal a candle, or how many oranges for a bag of wheat? A precise unit of measurement representing value was needed. This is where money came into the marketplace. Money was created out of the concept of being able to store your wealth and save it for a later day. The second purpose of money is to easily transfer goods and services from businesses to customers. Today, money does not function this way. At first money consisted of precious stones, shiny rocks, and other rare items that came from the earth. This evolved into using gold as the universal standard for money. Gold has always been a rare and in demand commodity. The first problem occurred out of this simple idea to store wealth in the form of gold when people accumulated so much wealth, or gold, that they needed a safe place to store it. This created demand for a "gold vault keeper." Who better to provide this service than the goldsmiths? The goldsmiths would keep the gold of others safe in their own personal vault, backed with armed security, for a nominal fee. The goldsmith would then give the depositor a paper "receipt" showing how much gold was given to the goldsmith. At anytime anyone with a paper receipt could trade it in for its equivalent value to gold. These paper receipts soon made their way into the marketplace, representing paper backed by gold. Instead of having to carry around heavy gold, people could now carry around their money in the compact and lightweight form of paper. The first problem had been solved. No longer would the public have to worry about thieves stealing their gold. It could now be kept confined and safe in the goldkeepers vault, and their deposits could be withdrawn at any time. The gold system turns into a fractional reserve system. As the goldsmith became obsessed with his wealth from his gold vault keeping business, he came up with a new idea. Why not loan his own profits from his business, with interest, to other individuals or businesses? Soon, the goldsmith became even wealthier. The goldsmith was running a gold vault keeping business, as well as a loan service. The goldsmith soon realized that he could make a lot more money by loaning out his depositors gold to individuals and businesses, at interest, without the depositors knowledge. Since the entire town was now using paper as money instead of gold, the banker could easily lend out his depositors gold in the form of paper without his depositors ever knowing it was being loaned out! The goldsmith soon ran out of his depositors gold that he was using to back his paper loans. This led to an even more sinister idea. "Some even believe we (Rockefeller family) are part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure---one world, if you will. If that's the charge, I stand guilty, and I am proud of it." - David Rockefeller The birth of fiat currency, fractional reserve banking, and the hidden tax known as inflation. The goldsmith decided he would continue to print out paper receipts without any gold backing them! It would be known as a fiat currency - money backed by nothing. The goldsmith knew he could get away with it as long as his depositors never withdrew all their gold at one time. If this were to happen, there would be a "run" on the bank, and eventually cause a depression. This is exactly what would eventually happen. At first depositors would deposit their gold for paper. Just to keep things simple, lets say one piece of paper equals one ounce of gold. 100,000 ounces of gold in the goldsmiths vault is represented by 100,000 pieces of paper money within the towns money supply. The goldsmith would then keep illegally printing paper money which was not backed by any gold. So, lets say after 5 years there is now 200,000 pieces of paper in the money supply, and to keep things simple, there is still exactly 100,000 ounces of gold in the vault. What happened next is the local marketplace would see an increase in the money supply and the businesses would raise their prices on everything! Because the goldsmith defrauded the town by printing more money than is backed by gold the town would experience inflation on goods and services, which is the same thing as saying that the town has experienced devaluation of their paper money. Look at the example below: 100,000 paper money notes / 100,000 ounces of gold = Each paper money note is worth 100% of it's value. 200,000 paper money notes / 100,000 ounces of gold = Each paper money note is now worth half it's value. 400,000 paper money notes / 100,000 ounces of gold = Each paper money note is now worth a quarter if it's value. Inflation of the value of goods and services equals deflation of the value of money. The citizens of the community eventually saw that the goldsmith was making more money than feasibly possible. The citizens soon become suspicious due to the deflation of their money, and soon later they began redeeming their paper money for their tangible gold. Because the goldsmith had created more paper receipts than there is gold coins, he obviously did not have enough gold to redeem all the paper receipts his depositors wanted to trade in. This led to something called a "run on the bank." The first few depositors to trade in their paper for gold got their gold back. The others, they lost all their savings. Remember, 400,000 paper money notes backed by 100,000 ounces of gold equals one quarter an ounce of gold backing each paper note. The goldsmith was robbing his people. As long as only a fraction of his depositors redeem their paper for their gold, no one notices the fraud. If everyone redeems their paper for gold, only the first 100,000 pieces of paper can be redeemed for it's promised equivalent value of one ounce of gold per one paper note. The other 300,000 paper notes owned by the remaining citizens become worthless and the people go broke. This became the birth of fractional reserve banking. The "gold vault keeper" had finally evolved into a "banker." The reason why fractional reserve banking was not outlawed during the gold standard is because there was huge demand for credit, and there was not enough gold to back all this credit. That is not to say the same for today. Since we do not use gold anymore, we do not have the same problem that gold created, and therefore we can easily remove the fractional reserve part of our monetary system without any huge increases in inflation or deflation. This is explained in the following pages. Today in 2008 the dollar is worth approximately $0.04 of what is was worth in 1789. From 1789 to 2008 the total cumulative inflation rose 2,320.6%. In today's dollars $24.21 equals what $1 was worth in 1789, or a one $1 bill from today would equal $0.04 pennies in 1789 value. As of today, if the dollar was to revert back to the gold standard, the American dollar would be backed by only $0.04 cents. "I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson The fractional reserve gold standard evolves into the fractional reserve debt money standard of today. Since August 15, 1971, we have been living in a system where our paper money is not backed by gold, but rather by debt. No debt equals no money in the system. 95% of all the money in our system is debt money. Debt is known as a loan which is also known as credit. What does this mean? The system will work fine as long as credit is being issued. However, no debt equals no money. The Fed creates money by simply purchasing bonds on the open market. For instance, let's say you have a bond now worth $10,000 that your grand parents gave you as a baby. When you cash that out, or sell it back to the Fed, the $10,000 check you receive in the mail is money created out of nothing. The Fed does not take this money from anywhere, it just creates it by typing it into a computer. The $10,000 check is now deposited into a local bank. The reserve requirements of a local bank allow it to legally hold 10% of every deposit and loan the other 90%, or $9,000 at interest. Once this $9,000 is spent into the economy and deposited into another local bank it is once again split 1 to 9 and reloaned out once again. This process will repeat itself until the original $10,000 deposit equals $90,000 in new money. As you can see, the Fed creates 10% of our debt money, or $10,000 in this example, and the local banks create the other 90%, or $90,000, resulting in $100,000 in new money created out of nothing. In the example above there is now $100,000 total in the money supply, but there is interest to be paid on the $90,000. Let's say the interest is 10%, or $9,000. That means there is now $109,000 in total debt, but only $100,000 available in the money supply. How does the debt get paid back? Unfortunately there is only one way to pay it back - by creating more money! Once the issuance of credit is slowed down the economy leads into a recession and the transfer of wealth goes from the people to the corporate banks. This occurs because the banks only create the principal on the loan, minus the interest, thus creating an eternal demand for credit. In other words, there is more money out in the form of loans than there is in the entire money supply! How can people pay back their loans if there simply isn't enough money in the system to pay back all the debt? There simply isn't enough money out there for everyone. This monetary system of ours is one of the main reasons we have poverty in the so called richest nation on the earth. And guess who has the legal right to issue the credit of our nation? No, not the people, but rather a privately owned central bank known as the Federal Reserve System. By controlling the speed of the issuance of credit, or loans, the Fed creates something known as "business cycles." This is simply accomplished by the Fed increasing or decreasing the interest rate on loans. Higher interest rates equal less demand for loans taken out by the public, thus less deposits are made, meaning less new money is being created, and the greater the credit crunch becomes. As the interest rate lowers, more loans are demanded by the public and once deposited the money making process is increased. So, by simply raising the interest rate on loans the Fed can effectively lower the supply of new money being created, resulting in the banks confiscating houses, cars, or whatever was purchased with the loan that was created out of nothing. Now the banks have the real tangible wealth, your property! This system eventually leads to fascism, for this system of credit controlled in private hands could never exist without the cooperation of the government. Pages: Making money intro | Banking - then and now | The petrodollar recycling system | Energy non-crisis | Manipulation of the gold market | The solution | Conclusion