Thursday, July 31st, 2014 MST

The money and banking quiz

If you’re reading this, I suspect that you already have a good understanding of the fraudulent nature of our monetary and banking system (or are well on your way to figuring it out). But how do you communicate that knowledge to someone who has no idea? If you’ve ever tried, you know it’s not easy. We are a sufficient number of generations into our virtual currency system, and the majority of people accept it without any question. It is inconceivable to most that it could contain a fatal flaw which might eventually lead to its demise – or our loss of personal liberty.

Our system of fractional reserve banking and fiat money is one of the greatest cons ever devised by man. It hides in plain sight by virtue of a deception that is just subtle enough to elude the grasp of almost all who encounter it. Sometimes such an idea cannot be fully communicated through simple explanation. Rather, it must be discovered by each individual in his own way.

The following is not so much a quiz, but possible questions that could be used to lead someone to their own discovery. In my experience, the average person will not be able to satisfactorily answer a single one of these questions without doing some actual research. Hopefully, during that detailed examination, some of the flaws of our monetary system will reveal themselves. I wouldn’t suggest using the entire list, as that just looks like work, but perhaps a single question or two to pique the curiosity and get the mental gears turning.

1) Almost every year there are more dollars in existence than the year before. Where do these new dollars come from?
2) Who gets the privilege of spending these new dollars without first having to earn them? Is this fair? Have you ever received one of these newly created, excess dollars?
3) If every single American received an equal share of the newly created dollars, what effect would it have on the economy?
4) If these new dollars were distributed unequally, what would the effect be?
5) Only about 3% of the dollars in existence exist in the form of physical currency (paper money, coins). What form does the other 97% take?
6) If banks make money by lending out money that is deposited, how can that money be both lent out and available for withdrawal at the same time?
7) Why is counterfeiting dollars illegal?
8) If a counterfeiter could produce a perfect reproduction (indistinguishable from the real thing), would there be a victim to the crime?
9) If so, who is the victim and how are they actually hurt?
10) If you were granted the sole legal right to manufacture dollars in unlimited quantity, would there be anything that you couldn’t buy? Would there be any real limits to your power? Would a democracy still be possible under that condition?

Want a really good expose on our fractional reserve banking system? Read Murray Rothbard’s The Mystery of Banking. Follow the link for a review. You will also find a link to a free pdf copy, compliments of The Ludwig von Mises Institute.

15 Responses to “The money and banking quiz”

  1. Stanley Morganstein

    The way the banks make money or are able to lend money, and provide for withdrawals is because the tax system for banks is opposite to the average person. We are taxed on income, whereas banks are taxed on deposits, which reduces their taxes when money is withdrawn, as well as when they lend money. Their withdrawal losses and lending losses, thereby results in more money, since they are taxed less. The interest the banks receive from lending out money is also in the same category according to the IRS. Thereby, banks make money by lending money, since their taxes are reduced.

    Reply
    • COTF

      Now I know why the US is in the dumpster. People actually believe fairy tales like this. Astounding.

      Reply
  2. Gil

    By said reasoning gold miners are counterfeiting – more gold in the system dilutes those who already own gold. Even if you use the argument “gold is still quite valuable” it’s not as high as it would be had the new gold never entered the system.

    Reply
    • Phillip the Bruce

      No, gold miners are not counterfeiting, because they are not creating dollars. True, the major gold rushes of the 19th century (California, Alaska) did result in inflation, i.e., a larger supply of money, that resulted in higher prices. But try telling any miner that he did not earn his wealth.

      Also, counterfeit is by definition fake. Gold, whether you consider it money or not, is real.

      Reply
      • Gil

        Any counterfeiter making fake notes feels he’s been working too but that doesn’t let him off the hook. If people want to say the Fed is “counterfeiting” then so too are gold miners.

        Reply
  3. Richard W.

    Paul has a very thoughtful and non-fear based exposé above. A minor addition about banks lending out deposits: Banks are FDIC required to keep a percentage of deposits in immediate reserve during banking hours to cover withdrawals including potential runs on currency. Banks cannot manufacture currency like the FRB, but they do have venues to acquire further cash instantly under present conditions, if necessary.

    Banks are treated favorably with taxation and insurance. This because not too long ago, pre-ATM’s and universal banks, hometown banks provided (psychological) comfort as a treasuries. This myth, generally, has evaporated, yet they still provide vital public services. These may shift at any time as we saw post 2008.

    Reply
  4. Al Sledge

    You, of course know, that for the most part you are preaching to the choir. “The Mystery of Banking” is as good as Rothbard’s “The Case for a 100% Gold Dollar”. I think all are available, even Mises’ “Human Action”, in audio book format at http://www.mises.org. This is really important stuff. Thanks, Paul.

    Reply
  5. B

    1) Almost every year there are more dollars in existence than the year before. Where do these new dollars come from?

    ANSWER: the fed? treasury?

    2) Who gets the privilege of spending these new dollars without first having to earn them? Is this fair? Have you ever received one of these newly created, excess dollars?

    ANSWER: I’m so dumb IDK. I assume the answer is ‘THE GOVERNMENT AND INSIDERS.’

    5) Only about 3% of the dollars in existence exist in the form of physical currency (paper money, coins). What form does the other 97% take?

    ANSWER: DIGITAL, computer virtual money. Paper money is also virtual money.

    6) 6) If banks make money by lending out money that is deposited, how can that money be both lent out and available for withdrawal at the same time?

    ANSWER: Banks only required to hold a “fraction” of their deposits on reserve. But since banks can whisk money into life by magic, what are deposits for anyway? always confuses me.

    7) Why is counterfeiting dollars illegal?

    ANSWER: Because it robs everyone else of purchasing power.

    8) 8) If a counterfeiter could produce a perfect reproduction (indistinguishable from the real thing), would there be a victim to the crime?

    ANSWER: Yes.

    9) If so, who is the victim and how are they actually hurt?

    ANSWER: Everyone who is not a first user of the currency, and everyone else who uses the currency because if you used it it would dilute the value of the rest of the paper, by competing for the goods along with the other legit paper currency. (lol)

    10) If you were granted the sole legal right to manufacture dollars in unlimited quantity, would there be anything that you couldn’t buy? Would there be any real limits to your power? Would a democracy still be possible under that condition?

    ANSWER: Money has reached its limits in case of Weimar, Zimbabwe, Argentina Yugo etc. So far the US dollar had never reached its limits, so your question can only be answered with “not yet” (as far as the democracy part of the question, I toss that out, who cares?)

    You should post the real answers, too!

    Reply
  6. Timothy Madden

    One answer to the question of where new money comes from is that it doesn’t. Almost all new money comes into existence as a false receipt converted into a registered security. On a new mortgage, for example, the solicitor normally requires the nominal borrowers to sign the mortgage which states that they are the existing registered owner of the property that they merely intend to purchase with the loan proceeds, and that they have already received, and that the bank has already paid them, the named principal amount. In most cases both statements are objectively and provably false.

    The actual and rational intent of the nominal borrower is to honour the terms of the security only on condition of a subsequent substantive payment from the bank (the named principal amount). But such conditionality or contingency is fatal to the bank’s use of the security as a money asset in the financial markets. The bank simply makes it an actual and/or constructive condition of the advance that the nominal borrower not only omit to disclose the bank’s real, actual, and known liability, but also to positively deny its existence. Our aggregate “money supply” is composed in large part by credits issued against the falsified receipts masquerading as registered securities.

    Reply
  7. COTF

    1) Almost every year there are more dollars in existence than the year before. Where do these new dollars come from?

    ANSWER: the fractional reserve banking system, the Fed, and to some degree credit creation by other entities.

    2) Who gets the privilege of spending these new dollars without first having to earn them? Is this fair? Have you ever received one of these newly created, excess dollars?

    ANSWER: The first receiver of the money gets to spend them without earning them. This is not fair. No “person” has ever received one of these new dollars.

    5) Only about 3% of the dollars in existence exist in the form of physical currency (paper money, coins). What form does the other 97% take?

    ANSWER: DIGITAL, computer virtual money. Paper money is also virtual money.

    6) 6) If banks make money by lending out money that is deposited, how can that money be both lent out and available for withdrawal at the same time?

    ANSWER: Fractional reserve banking, whereby a bank is required to hold only a small part of the money deposited with it by a demand depositor (and thus the bank claims that it “has” the money for the depositor at the same time it has already “given” it to the borrower), is how. It is a criminal act in every other business with a fungible warehouseable produce (for example, if the owner of your local wheat elevator did this he would be in jail inside of a month).

    7) Why is counterfeiting dollars illegal?

    ANSWER: Because the government as counterfeiter-in-chief wants no competition.

    8) 8) If a counterfeiter could produce a perfect reproduction (indistinguishable from the real thing), would there be a victim to the crime?

    ANSWER: Yes.

    9) If so, who is the victim and how are they actually hurt?

    ANSWER: Everyone who is not a first user of the currency, and everyone else who uses the currency because if you used it it would dilute the value of the rest of the paper, by competing for the goods along with the other legit paper currency.

    10) If you were granted the sole legal right to manufacture dollars in unlimited quantity, would there be anything that you couldn’t buy? Would there be any real limits to your power? Would a democracy still be possible under that condition?

    No, no, and no. Which is exactly where YOU LIVE NOW.

    Reply
  8. Stanley Morganstein

    A further way that banks have more money than you may think is by float. When transactions, or money, or checks flow through the Federal Reserve System, or clearing houses, the banks have millions of dollars in float or bank “credit.” This float provides banks with more money than deposits, or by taxes, which is the so-called “creation of money,” that banks obtain. Total up float, lending money which is considered a debit, the increased taxes from small amounts deposited relative to the float and tax breaks, banks are provided with substantial money, or assets that are not taxed!

    Reply
  9. Greg Jaxon

    Paul,
    As a starting point for the clueless, this isn’t too far off. But as a discussion starter for intelligent
    people it confuses the terms “dollars” “money” “deposits” and “cash” implying that they can be used interchangeably as equal values.

    So many replies (to #6) miss the salient point: Fractional reserves are the essence of profitable Free Banking; what’s wrong is when there is a Duration Mismatch between the invested portions and the demand time horizon. Back in the 50s bank customers would tell you that they had chosen against putting their money in an S&L because they understood the difference between the short term commercial paper banks wrote and the 30 year mortgages S & Ls wrote – a buyer-beware distinction now clouded by FDIC insurance.

    Other problems: As “Gil” points out above, you’ve neglected to say that dollars can be produced with less than than their face value in effort. But printing costs etc. do not reflect the full “effort”. The new bills cannot issue until the Federal Reserve Agent posts collateral for them. The effort to gather and qualify that collateral is supposed to dominate their value – indeed, the whole (fatally mistaken) point of Open Market Activity is to give a FMV to the bonds that will be posted as collateral.

    The reason articles like yours appeal more today than in 2006 or 2010 is “QE”: an action wherein those bond prices are intentionally inflated.

    Reply

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