The credit crunch explained in full

The Credit Crunch Explained in full

This is how banking works
-The bank has £0, you have £100 paper notes
-You deposit £100 in paper cash, you now have a bank statement of £100
-Someone asks for a loan of £100 and gets a £100 credit to their account
-They withdraw your £100 of paper cash-your bank statement still remains at £100
-You can electronically spend that £100 to anyone else if you want to buy something on debit card for example.
-So you have £100 on your debit card which you can spend, and the other person has £100 in cash to spend...the money is doubled!!! If the money available to spend is doubled but your £100 stays the same your buying power halves.
-If you choose not to spend on your debit card but try to withdraw cash, this is a run on the bank and the bank will ask for a tax payer bail out.

Since very few people do ask for cash, banks are permitted by law to do this nine times. The banks of course know from experience that only 1/9th of demands will be in the form of hard cash so they always make up and lend a digital 9 times the original paper or coin. Every time you deposit £1 in the bank and the bank creates 9 more, if those nine are withdrawn and deposited in a new bank they can create a new £9 each, your buying power is reduced by substantially more than the interest it would earn. This is why real inflation, including house prices, shares, commercial vehicles or any asset with a Net Present Value is much more than savings interest rates. This fact is obscured from view because houses, shares etc or NPV assets are not in the Retail Price Index shopping basket which is the governments’ inaccurate measure of inflation. Inflation is the ratio of money in existence to goods and services available, when the bank creates nine times what is deposited you are driving inflation up faster than your savings accumulate.

Keeping your money in a bank makes you poorer; the only person that gains is the banker.

You probably already knew this but have never really thought about it before. The technical term for the way banks create multiples of the reserves they hold is “Fractional Reserve Banking.”

(This stems back to a time when, gold bars were real money and gold certificates were the digital money. Goldsmiths would forge 9 extra gold certificates for every bar of gold they had in their vaults. As long as people were happy with the gold certificates and didn’t want the actual gold things would be fine.)

Now the real problem! If there was £100 to start with and £900 was lent at interest of 12% even if the borrowers took all the money of that of that depositors £100 that originally existed and added it to their loans they will still be short of the total repayments: £900 at 12% interest is £1008. Where can that £8 come from? Nowhere, someone has to give up something they owned before they borrowed. (The process can take place slower if the interest rate charged is lower than 12% but compound interest on debts that will always end the same way. It only takes 3 years at 5% interest for that total repayments to be £1042, £42 more than in existence.) As you can see around you now in the credit crunch, the £8 is missing, people are selling their houses and shares, real assets with value, to try and make the repayment.

The Government back in 17th Century wanted to spend more than it had raised in tax revenue, instead of minting new money as it had no gold to mint into coins it borrowed from the newly formed Bank of England (a private bank owned by Robert Patterson for him to make a profit) with the intention of repaying the loan + the interest on the loan from increased tax the next year. The government issued bonds secured against the productivity of the British nation. Since the then Private Bank of England also wrangled a legal monopoly on gold certificate production the debt could only be repaid in BOE gold certificates or gold. As there was only the amount of BOE gold certificates originally issued available, so the government would have to use gold to make up the interest. However the government was both afraid to raise taxes and take the peoples gold as they would lose popularity and face dissent, plus they were fighting an expensive war with soldiers who needed paying in gold or BOE gold certificates. So when the loan repayment fell due the govt. didn't have the gold for the interest, so the loan rolled over and the interest compounded. This has continued since that time.

(Patterson and the original investors pooled their gold for the original deposits and of course issued 9, or more, it was never audited, times as many gold certificates as they had in gold. Remember: As long as people were happy with the gold certificates and didn’t want the gold things would be fine!)

National Debt (the amount the government has borrowed with the intention of repaying it through taxes) exceeded Gross Domestic Profit (the amount of wealth the country creates on which tax can be levied) even before the bailout. The gap between what the government has borrowed and what the country can produce has dramatically widened since the recent torrent of government borrowing.

According to the institute of policy research the countries national debt has exceeded its Gross Domestic Product. This was before the latest huge round of borrowing.

There is no way we can pay off the debt in the style of Andrew Jackson (US president that paid of the national debt, closed the central bank and refused to allow the government to borrow).

The value created in this country through the work of the people is now considerably less than the principal of its borrowing even before the new interest is added. Even if every person and company in this country gave 100% of their income or profits to the government we would still not be able to repay the national debt.

Nothing in this country has actually been paid for as the original money was borrowed so it has outstanding debt attached accruing compound interest at rates which the government will not disclose. So although we think of ourselves as a developed nation, we are no more “rich” than someone living the highlife on a credit card, when the bill comes and can’t be paid the repo men will come for the Porsche, the Rolex and the penthouse.

So for every years work we do, all of the profits of production PLUS a portion of the means of production needs repaid to the banks to meet the repayment demands. As the means of production is decreased with each repayment how can we produce the next repayment? If we fall short of the repayments, the compound interest widens the gap. We are in the equivalent position of a landlord who’s rents don’t cover their mortgage, to meet the repayment he has to sell a room, with 1 room less to rent this month how will the next repayment ever be met?

You can see the effects of this in action as house prices and share prices fall. Remember the price of these assets is a reflection of their Net Present Value, the sum of the future discounted cash flows. Houses will no longer be able to be rented for as much and rents will fall, companies will shrink and profits will fall therefore the NPV, or amount people are prepared to pay for them today is falling. In the future companies and people will have to give up more of their wealth in tax to try and meet the governments borrowing repayments so there are less profits for everyone.

We now owe the banks the government borrowed from for everything in this country, plus everything that it will ever be able to create. For every hours work you do you owe 70 mins work and growing.

These loans have been taken out without your consent and the government will have to try and repay them through increased taxation.

Notice there was no income tax in the US or UK until the government borrowed (as recently as 1913 in the USA!). Income tax was meant to be temporary (it is still renewed yearly) to repay the loans. If you think about it where does income Tax go?? It existed long BEFORE the NHS, state education, public police force and the welfare state etc etc. Council Tax, Road Tax etc. are designed to pay for the services they provide. Income tax is not apportioned to anything. Think about why every year a growing population of people pays more taxes or charges (your drivers license must be renewed every 10 years for a fee!) yet public services are falling into a worse and worse state. Just think back half a century, most women didn’t even work so paid no income tax, so the countries tax revenue has nearly doubled, but people die in our hospitals in increasing numbers waiting for operations or denied drugs that are too expensive.

With the government borrowing more now the government is the equivalent of being stuck in a boat that is taking on water faster than it can be bailed, so cutting new holes in the boat to make more buckets.

Be prepared, with the banks now given a ton of new cash which they can use as deposits they can lend many multiples of this money, and likewise that will be multiplied by other banks if loans are re deposited. Get set for hefty inflation.

If we don’t take action expect the following consequences:

Britain, Iceland and possibly more of the "developed" EU countries are bust, they have now borrowed more than they can ever repay. The poor countries in the EU, eastern Europe etc, whilst they have a lower quality of life, it is (more) paid for, we are living the highlife on the credit card and the bill is coming in. Check the statistics, the 4 BRIC (Brazil, Russia, India, China) own 40% of the currency reserves of the world, the G7 countries, (Britain, America, France, Germany, Japan, Italy, Canada) only own 20% between all seven of them. Who is really “richer”?

Ever wondered why the developed countries want more and more "poor" countries in the EU? The EU is not about sharing wealth it’s about sharing debt!!!!!!! Poland has a constitutional debt limit, (left over from the communist era) once it is on the Euro any other Euro based country (look ahead to UK and Iceland) can run up debts which Poland will get to end up sharing!

So UK and Iceland will move onto the Euro so that the “poor” companies can use there profits to support us for now. Things will get a bit rough but I think we will come through it, we will be poorer despite working harder but it won't be the cataclysm.

It is little surprise to see Europhile and former European Commissioner Peter Mandelson back in the cabinet as minister for business. With the banks now nationalized only business interests stand between the UK and the Euro. On a side note Mandelson had to resign twice in the past to avoid allegations of corruption being investigated. The Sunday Times has reported that he attended a reception on a 238ft yacht, Queen K, in Corfu this summer hosted by the Russian billionaire Oleg Deripaska, who is a major importer of aluminium into the EU. Mandelson's presence on the yacht was questioned because he reduced tariffs on aluminium imports into the EU from 6% to 3%. Not only that but Mandelson also met with Alcoa (worlds biggest aluminium company) COO and president Klaus Kleinfeld at this years secretive Bilderberg meeting in the summer along with shadow chancellor George Osborne and a number of other influential businessmen, bankers and politicians from around the world. With Mandleson a Lord now he will remain if/when the Conservatives win the next election.

The US is in the same position within the Americas; expect to see a similar scenario there.

In Asia, Japan may or may not be bust, but will probably unionize to defend the trading power of the EU and America blocks.

Russia an there sphere of influence probably similar to Asia pacific.

Africa is already in plenty of debt it will probably unionize too for the same reasons as Asia and Russia.

Now we will have 5 big unions all with governments that borrow money at interest from fractional reserve banking systems. All the debts of the countries joining these unions will also be centralized in each of their unions.

Of course the only conclusion to government borrowing and fractional reserve is the mess we are in now, except that it will be on the large scale of 5 unions rather than individual countries.

Then we will move to the one world currency as the next “solution”. It is already being discussed in the media.

There will then be a few men who own the World Bank to which every man woman and child in existence will be born into debt to and will never own anything more than a days food despite working every waking hour.

Chances are the World bank will just allow the debts to grow, or allow the people to default on the debts so that the people have just enough to think they are free. If they go to work that day they earn a days food. Anything less than this and the people will have to revolt or die.

Of course the whole thing is already creeping in slowly. 50 years ago 1 parent was the main earner, normally on a 9-5 job, and families had to live within their means. Today it takes 2 good salaries, with people working crazy hours, just to get a mortgage that will allow you to own your own house 25 years later, cars take ten years to be paid off....yet no one really seems annoyed!

Possible solution 1:

The bank of England was nationalized in 1946 and the shares are held by the treasury.

Today, operating as it does as the bankers' bank, it is to the commercial banks (ie the High Street banks) what the commercial banks are to the public.

Just as we may deposit money with commercial banks, so commercial banks in turn keep deposits with the Bank of England. The amount of cash that a commercial bank can buy up from the Bank of England to meet its customers' cash withdrawals is limited to the amount of deposits it has in its account at the Bank of England and/or what it can borrow from the Bank of England or from other banks.

Commercial banks borrow from the Bank of England in exactly the same way that individuals and businesses borrow from commercial banks. In theory the BOE could then use commercial bank deposit and fractional reserve 9 times this amount, and lend it out to the other commercial banks. It could do that today and solve the liquidity crisis. It could also then collect interest on those loans and make a profit which could then pay off the national debt and be spent by the government on public sector operations. Ask yourself why it isn't doing this.

Since nationalization the BOE is no longer a major player in the lending/money creation market. Its annual accounts reveal that its loans and profits are only a fraction of those of a major commercial bank such as Barclays, and it only holds a very small amount of government stocks, so it is no longer really lending to government either -- that function has largely passed to the merchant banks. Again ask yourself why this is the case.

Even the minting process is outsourced to another private bank owned company belonging to one of the directors from when it was private, that takes the majority of the profits from this operation. Again ask yourself why this is.

The answer:
Although owned by the state, the bank is largely controlled and run by those from the world of commercial banking and conventional economics. The members of the Court of Directors, who set policy and oversee its functions, are drawn almost entirely from the world of banks, insurance, economists and big business.

There is however a downside to a fully operational nationalized bank.

What you have here is a very close to communism. The state bank will be the biggest and most secure bank in town. It could very quickly and easily squeeze out the commercial banks, especially if it was open to business and personal savings deposits.

With one government controlled bank into which all money comes and goes, ultimately every freedom you have will be at the will of the government. Your pay packet will go into your government bank account, if you wish to withdraw that money it will be at the banks discretion. If the government is fair and just, then every one wins. But as we know from history, power corrupts and absolute power corrupts absolutely. Look across the world throughout history and look at the many examples of tyrants who gain power. If one such person should gain power with a nationalized bank monopoly the consequences could be as bad as any political travesty ever before if not worse.

The same problems also apply to the nationalization of Northern Rock, HBOS, RBS etc which are essentially now just different branch offices of the same owner; the state. This superbank owned by the state technically makes us pretty much a communist country. How long before this bank squeezes out the others and we are left with just the one state owned bank.

With the government now in charge of these banks it will be interesting to see if they do use them to make a profit which pays off the national debt or if they use this position of power to move to the Euro.

Solution 2:

At the moment the government is borrowing more money to put into the banks to ease liquidity.

We the people of this country are no more responsible the debts taken out without our permission than a tenant whose landlord can’t pay his mortgage. In the same way the bank can’t claim of the tenant for the landlords liabilities the bankers can’t claim off us.

These loans must be defaulted and the country can never be allowed to borrow again.

Those bankers who lent money will lose, but the money they lent they charged interest on. The interest was supposedly charged as the reward for the risk of lending the money, they have collected a lot so far, but now their greed has become too much, the risks were too great and their luck has run out. No one forced them to make the loans.

This is no more your responsibility than if you were a gambler winning a high stakes bet and bankrupting the casino. The casino knew the risk and willingly took it.

Domestically: Rather than borrowing for this bailout, why doesn’t the mint print more money and spend it on public services into the economy BUT at the same time raise the fractional reserve requirements of banks in proportion to the new printing to soak up any inflation. As the banks reduce there ratios to 1 2 1 with the new money the system stabilizes and we won't be able to reach this position again.

Private banking continues but governments are not allowed to borrow money in any way shape or form.

If you deposit money in a bank when it is lent your balance goes down. A bit like when you deposit a cheque and your balance goes up, but your "balance available" doesn't go up until the cheque has cleared.

So you have your "available balance" and your "on loan" amount, the “on loan” money isn’t available to you until the loan is actually repaid. This is the same as you lending a £5 note to a friend, you can’t use that £5er until it is repaid, but you trust that it will be returned to you later (plus interest if you charge your mates).

There is no fractional reserve.

As a depositor you can choose how much is lent and how much is kept as your available balance.

Interest is charged to borrowers at a higher rate than it is paid to savers, banks take the difference to cover their costs and make their profits.

The government can print money and use it to pay for public sector work. This is the only way new money can be produced. This will tie money in circulation to the goods and services of the nation. To prevent the public sector giving itself annual pay rises which it can spend first thus beating its inflatory effects public sector pay & expenses is pegged at the previous year’s national average for the equivalent role in the private sector. To balance the fact that pay is a year behind inflation, they are given a week longer paid holiday per year than the equivalent role in the public sector.

Public accounts are audited and published yearly and by randomly selected qualified accountants from the public sector, the accountant equivalent of Jury Duty. The pay statistics are submitted by a statistically sound sample of appointed persons within the required companies too comprehensive to corrupt completely and published publically.

Down sides of this are that economic growth will grind to a halt by today’s method of measure. The countries growth will be limited to what it can resource and produce, as natural resources become scarce methods of recycling will be the only way to create new products. It should produce a sustainable economy.

The other concern of defaulting on debts is that many are held by either foreign governments, Russian and Chinese or powerful banks groups within these nations. If we default on our loans to them will they try and seize our assets by force. Britain just seized Icelandic assets under anti terror laws; this behaviour is already a reality.

If you can think of a better solution and get it implemented I’m sure there is a Nobel Peace prize in it for you. Please replicate this information and distribute it as widely as possible I can only afford to print a limited no of originals, photocopy, scan, email, post if on the internet etc etc. This information is free to own and free to all.