Here’s an interesting quote from Henry Ford: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Do you know what he is referring to? I would guess that less than one in a thousand do.
Most believe that money is simply dollar denominated pieces of paper, printed and issued by the government. But how is it that the the number of dollars in the money supply is many multiples of that which exists as physical currency? Similarly,the popular view of banking is that money is taken in from depositors, who are paid interest, then lent back out at a higher interest. But how can money be both lent out and available for withdrawal at the same time?
Even fewer people understand the true nature of a central bank. The Federal Reserve now has a balance sheet more than $3.5 trillion. Where did this come from? Was is funded by taxpayers? The Federal Reserve is a privately held corporation. Did they earn it by selling incredibly popular goods and services? Apple computer, one of the largest and most profitable companies in the US, has cash reserves of $137 billion — a mere 4% of the Feds balance sheet. We are all familiar with Apple’s products but what do you own that was produced by the Federal Reserve?
The following video, Money As Debt, answers these questions. It does so with a sufficiently engaging presentation that the average person might actually watch it. I recommend it as an introduction to the nature of money and the fractional reserve banking system. The video is not without faults. It does promote the fallacy that money issued as debt with interest cannot be repaid without expanding the money supply. I also find many of the solutions offered toward the end to be equally problematic, but the first half or so offers some interesting insight to our current monetary system.