Banking 201 - How to Make Money by Going Broke

In a previous post entitled “Banking 101" (link below) I explained that the U.S. banking industry engages in fractional banking. This means that only a small amount of the money “deposited” in a bank is required to be kept in the bank’s vault. Most of the money is loaned to other customers.

When a customer obtains a loan - let’s say for $1,000 - the bank records the amount of that loan as an asset because the bank will collect interest on the loan. The amount of the loan - $1,000 -is also recorded as a liability by the bank because the money is now in “circulation.” The banks “books” are in “balance” (pay-out of $1,000 equals the loan asset of $1,000).

If the borrower is unable to make payments on the loan it ceases to be a bank “asset” and the $1,000 loan asset disappears from the bank’s books. The $1,000 liability remains, however, because the money is circulating through the economy.

Eventually someone will demand payment of that $1,000 from the bank. The bank can use $1,000 from the profits made with other loans to pay that liability. If that is not possible the $1,000 must then be paid by the banks owners - the shareholders.

At this point it is important to remember that we aren’t really talking about loans for $1,000. We are talking about loans for hundreds of billions of dollars. It is also important to remember that it isn’t people that the banking industry is concerned about. It is organizations - corporations and governments - which the industry is concerned about.

The financiers and the bankers want these organizations to be paid. They and the organizations are intertwined. They serve on each other’s boards of directors, and own each other’s stocks and bonds. It is they who profit from building the infrastructure of these nations. In effect, it is the financiers and the bankers who are demanding to be paid.

The financiers and the bankers want the debts paid just as they wanted the governments to build infrastructure with the money which they loaned to them. Both activities generate profits for them. They just don’t want to pay themselves with their own money. That would not be profitable for them.

The banking industry created the Federal Reserve, the FDIC and the other monetary agencies for just this purpose. The “government” representatives of the financiers and the bankers now step forward to ensure that the financiers and the bankers continue to make profits. How? By paying them with YOUR money.

Their representatives in government will say that it’s the government’s money but it is YOU who will guarantee that the financiers and the bankers make their profits. It is YOU who will pay the costs imposed by inflation. Prices do not get higher. Your money becomes more worthless.

The financiers and the bankers simply increase their profits. They can continue to buy whatever they want. Can YOU?

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