My Loans Consolidated

For many people in the whole world the financial crisis today does not make sense. Probably the vast majority of Americans are confused how this financial meltdown actually started and became this ugly. Moreover, it will even get so bad that forecasts say that America is about to collapse very soon.

The beginning of all this that we are facing today is that at some point in the past bankers turned money into debt. For most people, this statement is confusing. How can money be turned into debt? To understand that statement above, you have to look at the world of money from a bankers point of view. This point of view is something that bankers hate for you to understand.

On your balance sheet, your savings in the bank is asset. It is something that generates you money – the savings interest. However, in the bankers point of view, your savings is a liability. This is because for all the money that you save with them, they will have to pay you interest every month.

In order to be able to afford to pay people interest for their savings at -say- 5% annually, bankers at some point in the past had to come up with a game plan to generate profit from somewhere. So that is how they invented the “loan” game.

So what happens next is simple. In order for the bank to make money, they have to use your savings, and then loan it to somebody else who would pay it back with a higher interest than what the bank owes you.

If your interest on your savings is for example 5% annually, the bank needs to find somebody who would want to borrow money from them with the interest rate at 10% or maybe even more. If nobody wants to borrow, it will cost the bank their own money to pay you your savings interest.

However, what eventually makes this whole “harmless” game deadly for a nation (as it is now happening to the US) is the deadly system which is called the fractional reserve system. This kind of system is nothing but a legal way for banks to rob you off your money. Unlike robbers like Jesse James or others who rob banks from the outside, these kind of robbers do it from the inside and… legally too. Robbers like these are for example the Federal Reserve.

Here is how the fractional reserve system works:

The Federal Reserve decides on the fractional reserve number which would then multiplied by the amount of savings people deposited into the banks. If for example the fractional reserve is 10 and your savings in the bank is $1,000, then the amount of money that the bank will use to loan it at a higher interest than the saving interest will be $1,000 x 10 which is $10,000. So if somebody is willing to borrow, they are able to borrow more than what the bank actually has.

The problem is, the bank does not have $10,000. It has only $1,000 which was deposited by you. This is where the inflation comes in. What they do to come up with the $10,000 is just print more money. They can legally do it not backed by gold because in 1971, President Nixon took the US dollar off the gold standard. So what the banks are doing is just printing money out of thin air. They need $10,000, fine, let’s print and make up $10,000.

This way the bank actually robs you of your wealth because your $100 no longer has the same value as before there was this $10,000 new money. Your $100 savings has lost its purchasing power. If now your $100 bill can buy you (for example) nice designer clothes, because of the fractional reserve system, it takes 10 more bills like that to buy the same clothes. This is what this system is doing to you and your money – inflation.

So let’s get back to the question. Why do banks not want America to save money?

As we have discussed above, it is because American’s savings is a liability to the bank. If they can not find any borrower wwho would  pay interest higher than they pay you, they will eventually go bankrupt as they will have to pay you your interest out of their own pocket.

Imagine 300 million Americans saving all their money and none of them borrow anything from the bank. They will have to pay all that interest every month.

Back in 1973 after the Arab world stopped their oil supply to the world, oil price rose from $2.82 per barrel to $10.10 per barrel in 1974. The US should have slowed down on buying oil at the time but they were already in the mindset of printing money out of thin air and that was what they did. All of the sudden, the Arab world was overwhelmed with all that money and were unable to handle them. So they saved the money in US banks outside the country, mainly in Europe and America.

Now the American banks are overwhelmed because lots of savings means lots of interest to pay and that is how easy credit started.

All of the sudden, Latin America and even the American people themselves find it so easy to get credit and borrow money. The government even encouraged them to borrow money and get into “good debt” such as student loans. (This good debt now of course turned out to be toxic debt and not good debt at all.) Hot money was flowing into the economy.

American banks didn’t want Americans to save money adding to all that Arab money sitting in them. What they wanted (and still do) are big debtors. When the real estate boom started, so many Americans are gullible enough to get caught in this bankers game of money. This was what the banks didn’t want Americans to know. Ironically, the education system, either deliberately or not, kept the people in the dark by not teaching anybody about the money game that banks and the government with the Federal Reserve were playing.

Now the credit crunch has left Americans miserable with their debt.

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