It a whole lot more complex, in terms of detail surrounding the banking system, than this venue can handle, or for that matter than I can explain.

But money isn’t anything real. Money is something based on our mutual CONFIDENCE in it, that we use as a medium of exchange.

It can be gold, or it can be paper. Hell it can be anything that we agree to accept.

But the “specie” we actually have is created in our system by debt.

Not by goverment printing presses, not based on anything tangible.

It is based on PROMISES to pay in the future that millions of us, banks included, bond issuers included, goverments included AGREE to pay.

When our confidence is shaken in people’s abilities to pay, as for example we are currently experiencing with the mortgage crises, then EVERYONE is effected…even those with NO DEBT.

What I am trying to tell those of you who are libertarians and who app[arently imagine that what happens to you neighbors doesn’t affect you is that is simply applying 12th century thinking in the 21st century.

EVERYONE is hurts when many people are hurt (like for example when you ship everyone’s jobs to China and they can’t pay their mortgages) because we are all tied into a single economic SYSTEM based on their HOPES of their brighter futures.

We must have an expanding economy which CAN PAY BACK the debts issued in the past, or anyone holding those debts (and that is ALL our banks) is poorer.

Interesting. The Fed is what, again?

A bank, right? A privately owned bank, BTW. One owned wholly by other privately owned banks.

So when I say the banks, I mean THE banking system. The fractional banking system…all of it including the “Fed” overseeing the interaction between banks though the system overnight loans.

Now what does the Fed “create” that money that the banks loan out to you from?

There is no “money” in the Federal reserve. The Fed is a regualatory body overseeing the banks which own it.

They invent specie just like their member banks do.. using their member banks promises to pay their loans back at an interest rate set by the FED.

No money is printed up. These events exist as notations in a digital ledger

In other words, you bank’s money, MOST of its assets are again what? debt instuments — promises that someone else made to pay money they borrowed in the past at some FUTURE date and at some agree upon interest.

But BASED on those debt created “assets” your bank can loan out some FACTOR of the money they have.

For example, if they count their assets as 1000, they can, according to the fractional banking system we have, loan out some MULTPLE of their assets.

Let’s say for purposes of demonstration tens times their book value “assets”.

They can now lend out 1000 x 10.

And when they lend out that 10,000 it typically ends up where?

Eventually onto to some or many bank’s ledgers.

Which increases THOSE banks assets by 10,000.

Meaning what? That those banks can NOW loan out how much? 100,000.

And then they bundle up those many loans and sell those loans as bonds.

To whom?

Ironically, often to other banks, which hold them as assets giving those banks the opportunity to lend out based on those “assets” at ten times the rate they claim to have as cash, again.

Can you loan out TEN TIMES the amount of money in YOUR POCKET?

No, you cannot.

You want to know why you can’t?

Because you are not a bank with the offical license to do so.

Hey, this isn’t me trying to beat up banking or bankers. When the system works it works wonderfully AS LONG AS THE ECONOMY IS GROWING.

But it is me trying to explain why debt, which so many people understand on a personal level is a bad thing, in OUR system of fractional banking is the CREATOR of all specie in our system.

We are about to see what happens when people pay off their debts.

When we do, even though the PEOPLE who pay them off might be better off, the total amount of money ciculating in the economy is going to be much much smaller.

Leaving those who suffer during the economic downturn unable to pay off their debts.

Meaning, as we are seeing in the case of the mortgage crises, that the banks themsevles are caught with their fractional banking pants down.

Meaning their shares arew worth less.

Meaning people do not have the wealth they THOUGHT they had.

You see the vicious cicle here?

Debt, on a personal level is a bad thing…but DEBT is what makes our economy run.

Our whole economic system is BASED on DEBT.

While I quite agree that people are in a lot of trouble because of their debts, let’s bear in mind that if enough people do not borrow enough money today, our economic system, which is based on fiat money created by the indebtening process, quite simply shuts down for a lack of capital.

I offer no solution to this state of affiars, because it has become the system of modern capitalism for about the last 500 years. It started with the national banking system around 1550 and was further exacerbating when the world went off the gold standard at brent Woods in the 1930s.

By leaving the gold standard behind we freed our money supply to grow and grow as long as people signed on the dotted line. More money in ciculation meant that the prices of things went up over time and so everyone (especially banking system) feels richer, spends more, borrows more and the real wealth made with that fiat money produces the goods that we all want and buy.

What IS debt? Where does the money we borrow come from?

The money we borrow does NOT come from someone else’s savings. That’s a myth told to children to encourage savings and so people don’t eventually lynch bankers.

Let me prove it, okay?

Collectively, how much money did Americans borrow last year?

Trillion$, folks, especially when you include what our goverment is borrowing in our names.

Now, how much did the American people collectively save last year?

ZERO, nada, zilch.

You or I might have saved some money, but collectively our society has been spending more than we’ve made.

So where did the money that was borrowed actually come from?

The banks quite literally make it up based on your promise to pay it back (with interest) in the future.

No, some of you probably imagine that we borrowed it from other nations of savers, right? Places like China?

Well, that is partially true, of course, but that’s an accounting fiction as much as an explaination.

When we borrow money, for example, to buy a house, we are granting the bank the right to create that money based on our ability to pay in the future.

Those motgage debts get bundled up and sold as investments to places like China.

That EXACTLY why the looming cofidence crises in mortgage debts is so threatening to the world economy.

When there’s a loss of confidence in borrowers’ ability to repay those loans, the finacnial insturments that were sold based on those debts lose value.

It’s called the “Fractional banking system”, folks.

Creating new money in amounts multiple times as much as the banks have money on their books.

And once the system is in place, as it is now in spades, if people do not borrow, there is not enough money in circulation for those who borrowed earlier to pay back their debts with interest.

And if people cannot repay those debts, the value of their debt, which is wrapped up on bonds ceases to exist.

The money quite literally vanishes as “bad debts”

If you think this system is crazy because it is something like a ponzi scheme, you are absolutely right.

But like every ponzi scheme it works UNTIL people lose faith in it.

I am NOT a gold bug.

The gold standard makes even less sense (for a modern industrial society) than what we have right now, but the one thing that it did was prevent banks from going wild and lending beyond society’s ability to repay using fiat money.