Central Banks, Creation of Money and the Financial System.


Central Banks, Creation of Money and the Financial System.

In the market economy, the financial system gives money from positive savers (that is, depositors) to negative savers (that is, people with a shortage of funds who need loans to buy property, etc.). Additionally, financial systems facilitate non-cash payments. of natural or legal persons.


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The financial system has by law the monopoly of services. Only banks can accept deposits, only insurance companies can provide insurance services, and mutual fund management can be done better by a large bank than by an individual investor.


How money is created?

In the past, one of the reasons ancient Greek states were strong was the ability to create their own currency. In the time of Pericles, the silver drachma was the reserve currency of that time. The same applies to the gold coin of Philip of Macedonia. Each of these coins could have been exchanged for a certain amount of gold.

 

Today, the Fed creates USD and ECB Euro, which are fiat money, that is money with no intrinsic value that has been established as real money by government regulation and therefore we have to accept it as real money. Central banks circulate coins and paper money in most countries, which are only 5% to 15% of the money supply, the rest is virtual money, an entry of accounting data.

 

Depending on the amount of money that central banks create, we live in crisis or we have economic development. It ought to be noticed that national banks are not state banks yet privately owned businesses. Countries have granted the right to issue money to private bankers. In turn, these private central banks lend to states with interest and therefore have economic and, of course, political power. The paper cash that flows in a nation is really open obligation, that is, nations owe cash to private national brokers and the installment of this obligation is ensured by issuing bonds. The guarantee given by the government to the private central bankers for the payment of the debt is the taxes levied on the people. The higher the public debt, the higher the taxes, the more common people suffer.

 

The presidents of these central banks cannot be fired by governments and they do not report to governments. In Europe, they report to the ECB which sets the monetary policy of the EU. The ECB isn't constrained by the European Parliament or the European Commission.

 

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The State or borrower issues bonds, that is, they accept that they have the same amount of debt with the central bank that, based on this acceptance, creates money from scratch and lends it with interest. This money is borrowed through an accounting entry, however the interest rate does not exist as money in any form, it is only in the obligations of the loan contract. This is the reason why global debt is larger than actual or accounting debt. Therefore, people become slaves as they have to work to obtain real money to pay off public or individual debts. Very few manage to pay off the loan, but the rest go bankrupt and lose everything.

 

When a country has its own currency such as the United States and other countries, it can "force" the central bank to accept its government bonds and lend to the state with interest. Thus, bankruptcy of a country is avoided as the central bank acts as a lender of last resort. The ECB is another case, as it does not lend to euro zone member states. The absence of a secure European bond leaves the Euro zone countries at the mercy of the "markets" that for fear of not recovering their money impose high interest rates. However, recently European safe bonds have gained ground despite differences in European politicians, while Germans are the main cause for not having this bond, as they do not want national bonds to be unique European. There is also another reason (probably the most serious) which is that by having this bond, the euro as a currency would devalue and interest rates on loans from Germany would rise.

 

In the US, things are different as the state borrows its own currency (USD) from the Fed, so the local currency is devalued and therefore the state debt is devalued. When a currency is devalued, a country's products become cheaper without reducing wages, but imported products become more expensive. A country that has a strong primary (agriculture) and secondary (industry) sector can become more competitive by having its own currency, as long as it has its own energy sources, that is, it should be enough energy. Banks with between $ 16 million and $ 122.3 million in deposits have a 3% reserve requirement, and banks with more than $ 122.3 million in deposits have a 10% reserve requirement. Therefore, if all depositors decide to take their money from the banks at the same time, the banks cannot give it to them and bank run is created. At this point, it should be mentioned that for every US dollar, euro, etc. stored in a bank, the financial framework makes and loans ten. Banks create money every time they make loans, and the money they create is money that appears on the computer screen, not real money deposited in the treasury of the lending bank. However, the bank lends virtual money but receives real money plus interest from the borrower.

As Professor Mark Joob said, no one can escape paying interest rates. When someone borrows money from the bank, they have to pay interest rates on the loan, but everyone who pays taxes and purchases goods and services pays the initial borrower's interest rate, since taxes must be collected to pay the interest rates of the public debt. All companies and individuals that sell goods and services must include the cost of loans in their prices and in this way the entire society subsidizes the banks, although part of this subsidy is delivered as an interest rate to depositors. Professor Mark Joob goes on and writes that the interest rate paid to banks is a subsidy to them, as the fiat / accounting money they create is considered legal money. That is why the bankers have these high salaries and why the banking sector is so large, it is because society subsidizes the banks. When it comes to interest rates, the poor tend to have more loans than savings, while the rich have more savings than loans. When interest rates are paid, money is transferred from the poor to the rich, therefore, interest rates are favorable for the accumulation of wealth. Commercial banks benefit from investments and the difference between interest rates on deposits and interest rates on loans. When the interest rate is added regularly to the initial investment, it generates more interest since there is compound interest that increases the initial capital exponentially. Real money alone does not increase since this interest rate is not derived from production. Only human labor can create a rising value interest rate, but there is downward pressure on the cost of wages and, at the same time, increased productivity. This happens because human labor needs to meet the demands of an exponentially increased compound interest.

 

The borrower has to work to get the real money, that is, the banks lend virtual money and get real money in return. Since the borrowed money is more than the real money, banks should create new money in the form of loans and credits. When they increase the amount of money there is growth (however, even in this case with the specific banking and monetary system the debt also increases) but when they want to create a crisis, they stop giving loans and due to lack of money a lot of people go bankrupt and depression begins.

 

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This is a "smart trick" created by bankers who have found that they can lend more money than they have, since depositors do not take their money, together and at the same time, from the banks. This is called fractional reserve banking. The definition given by Quickonomics for fractional reserve banking is as follows: "Fractional reserve banking is a banking system in which banks only retain a fraction of the money that their clients deposit as reserves. This allows them to use the rest to make loans and therefore essentially create new money. This enables business banks to legitimately influence the cash gracefully. In fact, although central banks are in charge of controlling the money supply, most of the money in Modern economies is created by commercial banks through fractional reserve banking. "

 

Are savings protected?

In the case of Italian debt, as in the case of Greek debt, we have heard from politicians (actually employees paid by bankers) who want to protect people's savings. Notwithstanding, are these reserve funds ensured in this financial and banking framework? The answer is a simple NO. As mentioned, banks have low cash reserves. This is why they need the trust of their customers. In the event of bankruptcy, they would face liquidity problems and declare bankruptcy. There are deposit guarantee schemes that reimburse, according to EU rules, that protect depositors' savings by guaranteeing deposits of up to 100,000 euros, but in case of chain reactions, commercial banks must be saved by governments and banks Centrals act as state-of-the-art lenders. resource.

 

What’s next?

The economic system, as shaped by the power of the banks, is not viable and does not serve human values such as freedom, justice and democracy. It is irrational and should be changed immediately if we want humanity to survive.

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