No Reserve Banking

What is money and where does it come from? Sounds like a fairly stupid question to ask, with my audience being well informed and for a great part also active "cryptoneers"; we know that fiat money is in fact the world's biggest Ponzi scheme and that banks are able to inflate the money supply through a system of fractional reserve banking.

What I'm not so sure of though, is whether we make a big enough effort to educate our "normie" friends and relatives about this humongous scheme. Which is why I take this opportunity to briefly explain the basics and to get us all updated on the latest state of affairs surrounding the mechanics that determine the size of the money-supply.

Money is the stuff we use to make trades; that's the simplest way to describe it. We used to barter with goods and services directly, but we soon discovered that there wasn't always a demand for the particular good or service we had on offer, so all societies found one good that was always in demand, and made that the general standard unit of trade. This could be literally anything, as long as it was in general demand in that particular society; we've had societies that traded shells, salt (that's where the saying "worth his salt" comes from) and carved wooden sticks. I'll briefly come back to those sticks in a moment. Soon however we collectively came to the agreement that precious metals, bronze, silver and gold, were particularly useful as money; we could mint different size coins with different value and the metals lasted a long time, with gold being the most valuable.

Historically each and every society had their own money that was issued by their own government. You see, for a society to remain a society there always has to exist several binding and uniting factors; language is one of those, as are culture, art and something as trivial as the nation's borders. I've personally always been amazed at the fact that people speak one language on one side of the border, and speak a completely different language on the other side a few kilometres across that border. Think about that for a moment. From my home in The Netherlands I can drive a few hundred kilometres in some directions and end up in countries where people speak Dutch, French, German or Danish, or end up in the sea in some other directions. That, to me, is amazing and makes me wonder about the centuries of specific groups of people uniting around nothing more than symbols, flags and the leaderships that provide them with those symbols and flags.

Back to the issue at hand: traditionally it were the governments that issued the nation's money. Sure, there were periods in which other kinds of money were used, but the government issued money was the only money that was official, because it was the only money that could be used to pay your taxes. Because taxes, my libertarian and other individualism-fundamentalist friends, are yet another binding factor for a society to remain a society. Through the system of progressive taxation, in which the rich pay more taxes than the poor, some sense of egalitarianism is preserved and extreme gaps between rich and poor are prevented, next to the nation's ability to maintain an infrastructure that benefits all its inhabitants. We've ruined that sense of solidarity and belonging in many western countries, America being the prime example, by letting go of that system, by continuously cutting taxes for the rich and corporations. Americans are more divided and fragmented than aver before because of this, and now seek unity through adulation of the flag, condemning anyone who exercises their first amendment to burn that flag or to kneel during the national anthem...

The wooden sticks I mentioned earlier are so called "split tally sticks". They were used to denote the existence of a debt: on a piece of wood notches were carved to indicate the amount owed, and was then cut into two parts that could reconnect as pieces of a very simple puzzle. The creditor's half was called the "stock" and the debtor held on to the "stub". This was a contract used in times of illiteracy and shortage of precious metal coins, and was one of the earliest forms of money as debt, as these sticks were also used to trade with. My crypto brothers and sisters know where this is headed, because right now our entire monetary system is based on debt and money that doesn't really exist...

A nation's official money, the coins that could be used to pay taxes, usually had the face of the nation's ruler, the king, queen, emperor or whatever, printed on one side, and its value printed on the other. And initially the worth of those coins was equal to the worth of the bronze, silver or gold used to make them. But that lasted only for a very short time; people think that the idea behind a fractional reserve, which I'll explain in a moment, is fairly new, but it isn't. Even in ancient Rome the issuer of the money quickly realized that it's very easy to mix a little bit of worthless metals with the gold, silver or bronze, without the general public losing their trust in the value of those coins. And now we're coming at the heart of the whole money discussion; in the end money is based on nothing else than trust. When you own a coin, a bill or a tally stick, you trust that you can exchange it for an equal amount of goods and services. The last crisis was a "credit crisis", and the very word "credit" means "to believe" or "to trust" in Latin; it was a crisis of trust in the monetary and financial systems. At the heart of that 2008 crisis, as well as the one from 1929, were the banks, the governments, investment banks, the Federal Reserve and other Central Banks, the issuers of money. They lost our trust due to their criminal shenanigans that crashed the economy. And the shenanigan of all shenanigans is the system of fractional reserve banking.

You see, for more than a century money isn't issued by the government anymore. The title "Federal Reserve" is misleading because it makes people believe it's still the federal government who's managing America's money-supply. It isn't. The Federal Reserve as well as all other Central Banks are simply a nation's and international commercial banks. And they're not the only banks that determine the total money-supply because all banks operate with a fractional reserve. When you bring your money to the bank, it doesn't stay there; banks are allowed to use 90 to 97 percent of your money as they see fit, and they usually use it to lend it out to other customers, most of which are other banks. Banks only need to keep anything from 3 to 10 percent of all the money they receive in liquid reserves. And this is a cascading system as well; when a bank lends 97 percent of your money to another bank, that bank can lend out 97 percent of that money as well, and so on. Banks, in other words, haven't nearly enough money in liquid assets to pay out all of their customers, which is why their greatest fear is a so called "run on the banks"; that's when nobody trusts them anymore, rightfully so, and everybody rushes to the bank to withdraw all their money. We've seen this run on the banks everywhere on Earth in every crisis, and we've seen regular law abiding citizens lose all their live's savings in every single one of them.

The title of this post isn't fractional reserve banking; it's no reserve banking. That's because banks now don't have to maintain any liquid reserves at all... This decision has been made at the start of the covid-19 induced crisis, as a temporary measure to finance the various aid and relief programs, to not let the economy come to a screeching halt. For an economy to stay healthy, the velocity of money is an important factor among other things. This is is a measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period. This measure has been on a steady decline since the mid 1990s as a result of the economy becoming ever more beneficial for the rich and corporations. This is easy to understand: give 100 dollar to a poor person and they will use it to buy food, pay the rent, send their kids to school, whereas if you give that money to a rich person who already has everything... You get the picture: it'll go to a savings account, the stock market or something other completely useless for the real economy or real lives. No reserve banking will be here to stay: governments are notorious to issue temporary measures, only to see them remain indefinitely. Banks can now lend out, that is create as much money as they want; almost 20 percent of all the money ever created by banks has been created over a period of 10 months last year... Think about that...

All of this is a hard case for making governments responsible for managing the money-supply. Money is trust. It's an IOU for future goods or services, nothing more. That's why it can be shells, sticks or paper bills just as well as gold. It's a means for trading trust and doesn't have to be backed by anything else. When we're talking about a store of value, that's a completely different thing, and that's where gold and bitcoin are both perfectly good examples. And yes, a store of value can also be traded, but it doesn't have to be money. This is why the future of both the storing of value and means of exchange is blockchain technology. Bitcoin is perfect for storing value due to its fixed total supply, and programmable smart contracts are perfect for storing and exchanging all kinds of goods and services. No one controls the bitcoin-supply and the supply of tokens on which smart contracts are based is managed by the code of the tokens and contracts. This is why transactions on the blockchain are "trustless", which is not to mean that hey can't be trusted, but that trust isn't a consideration at all. And the best thing is that not only do we eliminate the banks from the whole trust-issuance issue, but the government as well. Maybe we can then slowly but surely evolve towards a society in which we're willing to pay taxes, because we trust each other to want to live in a society that's good for all of us.

Now more than ever have w been made aware that bitcoin and blockchain technology must become mainstream sooner rather than later. Of course you know about the Wall Street VS Reddit affair, unless you've been living under a rock or haven't followed my blog lately. This whole GameStop ordeal is a stark reminder of how rigged against us our monetary and financial systems are. You now know that a "stock" was originally the creditor half of a split tally stick, and that the whole stock trading business is based on thin air, and that the world's richest stock traders and hedge funds make all their money in this thin air where only bets are made and nothing of value is produced. The whole idea of using money to make money is ridiculous and should ideally have no place in any real economy that's ultimately driven by real people and real products.

It may sound crazy to your regular "normie", but digital money, blockchain based money and blockchain based gold 2.0 is the best real money available to us, where trust in the banking elite is replaced with trust in code. Open source code even, that can be reviewed by anyone. Fiat money is the world's greatest Ponzi scheme, which is why it's so damn aggravating when bitcoin's detractors call it a Ponzi scheme; that's what this video is about, so please watch it, and I hope this post and video will convince you to stay in or enter the crypto-sphere. Share it, explain to your normie friends ad relatives why it's of vital importance to get rid of our current status quo that's rigged to benefit the ruling elites alone.

Thanks so much for visiting my blog and reading my posts dear reader, I appreciate that a lot :-) If you like my content, please consider leaving a comment, upvote or resteem. I'll be back here tomorrow and sincerely hope you'll join me. Until then, keep safe, keep healthy!