financial education

Somethings come as a surprise because at 1st they seem so unfamiliar it is hard to get my mind to understand them. With time and the open filtering process I begin to recognize the truth. Then I have a choice to make. How will I now chose based on this new knowledge.

There is one that I recently learned about regarding banks and lending.

“Banks do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.”
- 1960s Chicago Federal Reserve Bank booklet entitled “Modern Money Mechanics”

“Banks create money. That is what they are for. . . . The manufacturing process to make money consists of making an entry in a book. That is all. . . . Each and every time a Bank makes a loan . . . new Bank credit is created — brand new money“
- Graham Towers, Governor of the Bank of Canada from 1935 to 1955

Conventional wisdom regarding the money multiplier is wrong. Australian economist Steve Keen notes that in a debt based society, expansion of credit comes first and reserves come later.

Indeed, some critics of the current banking system – like Ellen Brown – claim that the entire credit-creation system is an accounting sleight-of-hand, and that banks simply enter into loan agreements, and then obtain the reserves later from the Fed or in the open market. In other words, they claim that banks extend money first, and then increase their reserves on their books later to cover the loans.

If true, this would certainly turn our entire understanding of the banking and credit-creation system on its head.

Okay, now this is great information to know.  Interesting that it is never taught in the public education system.   With this knowledge I now know why the 1st house that my parent bought only cost $8,000 dollars in 1956 and the 1st house I bought cost $150,000 in 1985 and the house I just sold cost the new owners $530,000 in August 2009.  Now that is what I call money expansion.  The wages have sort of kept up, otherwise people could not have continued to qualify for the mortgages.  Not really though……..

I used to think that I would be in debt to the Bank forever, or at least until the end of my life.   I also have worried how will my children ever be able to own a home and then I concluded they would not be able to either unless they inherited money from me or other family members.   The purpose of the expansion is to create debt through credit cards and loans.  The more people are in debt the more they can be enslaved.   Have you ever spent time figuring out what the true costs are to borrow money?  How many times you pay for your house over and over and over again with only the interest rates?  I did and concluded it is less expensive to rent.

When I buy another home it will be when the prices have become affordable again and I will be paying cash.    I will not be enslaved by the banks interest rates and their game of money expansion.   The home my children will buy will be paid for with cash too because I am now aware that the real money is called precious metals, gold, silver, copper etc.   I am  now more educated on how it works and thus am creating wealth through passive income as well as earned income.

Nobel Prize winners Kydland and Prescott in a 1990 paper Real Facts and a Monetary Myth.

Looking at the timing of economic variables, they found that credit money was created about 4 periods before government money. However, the “money multiplier” model argues that government money is created first to bolster bank reserves, and then credit money is created afterwards by the process of banks lending out their increased reserves.

Kydland and Prescott observed at the end of their paper that:

Introducing money and credit into growth theory in a way that accounts for the cyclical behaviour of monetary as well as real aggregates is an important open problem in economics.

In other words, if the conventional view that excess reserves (stemming either from customer deposits or government infusions of money) lead to increased lending were correct, then Kydland and Prescott would have found that credit is extended by the banks (i.e. loaned out to customers) after the banks received infusions of money from the government.

Instead, they found that the extension of credit preceded the receipt of government monies.
You too have a choice to make.  Stay ignorant is going to hurt you, your family and the society as a whole.

I encourage you to learn more.  Contact me, read the other information I have shared on this blog, buy the books in the recommended reading. Just do something by taking action that is about your learning.