Letters and Editorials 3374 Views by Derek Skinner

How will you pay your $20,000 debt to the banks?

There is a growing awareness throughout the world that the money credit system we are using, is creating an unfair advantage to those who control the supply.

You'd better believe it.

Thousands of years ago it used to be that kings or religious authorities would issue coins as cash for general use. Some merchants collected their own stash which they could deposit with a goldsmith for safe keeping.

The goldsmiths could make loans in the form of Notes based on the bullion in their storeroom and charge interest. They soon learned that they could issue more Notes than they had cash or valuables in store and charge interest on them all. And so the "fractional reserve" process was created. High interest charges, and multiple returns from multiple "notes" soon made the moneylenders rich.

It was good for the expansion of trade, and it was not illegal.

Moneylenders who went bankrupt or cheated severely, were hanged, or, otherwise punished.

Fast forward now to the present day. Credit has mushroomed all over the world as the money lenders, now called banks and financial institutions, have established themselves through Statutes as the only source of credit.

Governments issue up to 5% of the money in circulation as coins and banknotes (it is called M0 in bankspeak and also known as the "money base"). Banks and near banks create the other 95% or more as credit which circulates as numbers in accounts.

The definition of "reserve" has varied over time, and is now ordained in the Basel Accords issued by the Bank for International Settlements in Switzerland as follows:

"Any bank or nearbank must have as reserve (the banks capitalisation) not less than 8% of it's risk-weighted Assets (otherwise known as its Loanbook)." This sets the multiplier factor at 12.5. Not bad for a legislated boondoggle.

But there is one very large fly in the ointment. It has two parts.

The first part relates to the interest being paid by the tax payers on the Total National Debt (including provinces and municipalities) and the annual Deficits. This is because the government insists on buying money at interest from private sources instead of using virtually interest free money (M0) issued by the Bank of Canada.

The interest numbers are staggering.

The Total National Debt for all levels of government is currently in the order of $650billion on which we pay about $60billion a year in interest.

The Annual deficit for the Federal government alone is in the order of $30billion on which we pay $1.5 billion p.a. assuming a very modest 5% rate of interest on today's bond values.

Just think what we could do with that interest money if the government applied it to social services.

The second part relates to inflation which can be broadly defined as due to excess money/credit available without being directly related to a specific good or service.

When the government issues M0, some of it ends up in bank hands where it is included as a risk free Asset and can be used to issue up to 12.5 times its value as credit.

Much of the credit circulating in the economy is being used by the FINANCIAL section of the economy to make more money instead of being used in the REAL economy.

This is why the government is so reluctant to issue M0 to cover any deficit or reduce the National Debt in case it just increases the money supply 12.5 times the extra value of M0.

The solution is so simple.

The Office of the Superintendent of Financial Institutions (OSFI) has to amend its Rules for the application of Basel ll and the forthcoming Basel lll (2013) to keep M0 out of the summation of bank Assets.

The banks will then have to create credit, based on their own capital, without any of the money base.

This is all explained in more detail along with the control that money policy has over government, corporate and social affairs in a to-be published book called A Girl called Money.

Contact editorial@agoracosmopolitan.com for any pre-ordering/publishing enquiries.


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