Money Masters Transcripts Part 4


"Sorrow is knowledge; they who know he most, must mourn the deepest o'er the fatal truth, the Tree of Knowledge is not that of Life."- Byron

The Chinese were the first to use paper money, known as "Flying Money," (a kind of banker's draft) in 618-907 A.D. About 1000 A.D. private Chinese merchants in Sichuan province issued paper money known as Jiao Zi. Due to fraud, the right to issue paper money was taken over by the Song dynasty in 1024, which then issued the first government paper money.

About that same time, Money Changers - those who exchange, create and manipulate the quantity of money - were active in medieval England. In fact, they were so active that acting together, they could manipulate the English economy. These were not bankers, per se. The Money Changers generally were he goldsmiths.

They were the first bankers because they started keeping other people's gold for safekeeping in their safe rooms, or vaults.

The first paper money in Western Europe was merely receipts for gold left at the goldsmiths, made from rag paper as the ditty goes:

"Rags make paper; paper makes money; money makes banks; banks make loans; loans make beggars; beggars make rags."

Paper money caught on because it was more convenient and safer to carry than a lot of heavy gold and silver coins. As a convenience, to avoid an unnecessary trip to the goldsmiths, depositors began endorsing these gold deposit receipts to others, by their signature.

Over time, to simplify the process the receipts were made out "to the bearer", rather than to the individual depositor, making them readily transferable without the need for a signature. This, however, broke the tie to any identifiable deposit of gold.

Eventually goldsmiths noticed that only a small fraction of the depositors or bearers ever came in and demanded their gold at any one time. Goldsmiths started cheating on the system.

They began by secretly lending out some of the gold that had been entrusted to them for safekeeping, and keeping the interest earned on this lending.

Then the goldsmiths discovered that they could print more money (i.e. paper gold deposit certificates) than they had gold and usually no one would be the wiser. Then, they could loan out this extra paper money and collect interest on it. This was the birth of fractional reserve lending - that is, loaning out more money than you have reserves on deposit. Obviously, it was fraud, often specifically outlawed, once understood.

The goldsmiths began with relatively modest cheating, loaning out only two or three times in gold deposit certificates the amount of gold they actually had in their safe rooms. But they soon grew more confident, and greedier, loaning out four, five, even ten times more gold certificates than they had gold on deposit.

So, for example, if $1,000 in gold were deposited with them, they could loan out about $10,000 in paper money and charge interest on it, and no one would discover the deception. By this means, goldsmiths gradually accumulated more and more wealth and used this wealth to accumulate more and more gold.

It was this abuse of trust, a fraud, which, after being accepted as standard practice, evolved into modern deposit banking. It is still a fraud and an unjust and unreasonable delegation of a sovereign government function - money creation - to private banks.

Today, this practice of loaning out more money than there are reserves is known as fractional reserve banking. In other words, banks have only a small fraction of the reserves on hand needed to honor their obligations. Should all their account holders come in and demand cash, the banks would run out before even three percent have been paid. That is why banks always live in dread fear of "bank runs". To banks, fractional reserve loans,

"… are a bright joy as brittle as glass accompanied by the haunting fear of a sudden break."

This is the fundamental cause of the inherent instability in banking, stock markets and national economies.

The banks in the United States are allowed to loan out at least ten times more money they actually have. That's why they do so on charging let's say 8% interest. It's not really 8% per year which is their interest income on money the government issues. It's 80%. That's why bank buildings are always the largest in town. Every bank is, de facto, a private mint (over 10,000 in the U.S.), issuing money as loans, for nothing, at no cost to them, except whatever interest they pay depositors.

Rather than issue more gold certificates than they have gold, modern bankers simply make more loans than they have currency (cash). They do this by making book entries creating loans to borrowers out of thin air (or rather, ink).

To give a modern example: A $10,000 bond purchase by the Fed on the open market results in a $10,000 deposit to the bond seller's bank account. Under a 10% (i.e. fractional) reserve requirement, the bank need keep only $1,000 in reserve, and may lend out $9,000. This $9,000 is ordinarily deposited by the borrower in either the same bank or in other banks, which then must keep 10% ($900) reserve, and may lend out the other $8,100. This $8,100 is in turn deposited in banks, which must keep 10% ($810) in reserve, and then may lend out $7,290, and so on.

Carried to the theoretical limits, the initial $10,000 created by the Fed, is deposited in numerous banks in the banking system, which gives rise (in roughly 20 repeated stages) to expansion of $90,000 in new loans, in addition to the $10,000 in reserves.

In other words, the banking system, collectively, multiplies the $10,000 created by the Fed by a factor of 10. However, less than 1% of the banks create over 75% of this money. In other words, a handful of the largest Wall Street banks create money, as loans, literally by the hundred billion, charging interest on these loans, leaving crumbs for the rest of the banks to create. But because those crumbs represent billions too, the lesser bankers rarely grumble. Rather, they too support this corrupt system, with rare exceptions.

In actual practice, due to numerous exceptions to the 10% reserve requirement, the banking system multiplies the Fed's money creation by several magnitudes over 10 times (e.g. the Fed requires only 3% reserves on deposits under c. $50 million, and no reserves on Eurodollars and nonpersonal time deposits).

Thus the U.S. currency and bank reserve total of roughly $600 billion, supports a total debt structure in the U.S. of over $20 trillion in debt - roughly $80,000 in debt for every American, man, woman and child, which includes the national debt, bank debt, credit card debt, home mortgages, etc.

The Fed created only roughly 3% of this total, private banks created roughly 97% (including intra-government debt). All of this could and should have been created by the U.S. government, without the parallel creation of an equivalent quantity of interest-bearing debt, over the years and used to pay for government expenditures, thus reducing taxes accordingly.


But does all of this mean that all interest or all banking should be illegal? No. In the Middle Ages, Canon law, the law of the Catholic Church, forbade charging interest on loans. This concept followed the teachings of Aristotle as well as of Saint Thomas Aquinas.

They taught that the purpose of money was to serve the members of society as a medium of exchange to facilitate the exchange of goods needed to lead a virtuous life. Interest, in their belief, hindered this purpose by putting an unnecessary and inequitable burden on the use of money. In other words, interest was contrary to reason and justice.

Reflecting Church Law in the Middle Ages, all European nations forbade charging interest, except on productive loans (i.e. on loans generating a profit to be shared with the lenders as their "interest", as a partner, or "silent investor at risk", as we would say today), and made it a crime called usury.

As commerce grew and therefore opportunities for investment arose in the late Middle Ages, it came to be that to loan money had a cost to the lender in lost gain given up, and in risks. So such "extrinsic" charges were allowed, as was profit-sharing on productive investments, but not interest per se as pure (or "intrinsic") gain from a loan.

But all moralists, no matter what religion or what their position on usury, condemn fraud, oppression of the poor and injustice as dearly immoral. As we will see, fractional reserve lending is rooted in a fraud, results in widespread poverty, oppression of the poor, and reduces the value of everyone else's money. Ignorance of this technique has largely silenced moral condemnation of it.

Unfortunately, a few schools of some religions, limit their condemnation of fraud, oppression and injustice to that conducted

{p. 12} against their own people, only. This deplorable limitation, which arises out of an exclusiveness in justice and charity, is one of the causes of this banking problem. Other peoples inevitably come to be regarded as inferior or even subhuman.

This inevitably results in a weltanschauung or world view, according to which "peace" means the predominance of the "superior" peoples and the "superior" race - a gross form of crude materialism which is merely a concealed nationalism, even though it condemns the defensive nationalism it arouses in others. But the principal determinants of nationalism, in its last analysis, are merely psychological and variable, not any inherent "superiority".

Men forget that the human species is one great human race with a common origin, a common end, and equality of rational nature, in which there are no special "higher races", as linguistics, genetics, anthropology and other sciences increasingly affirm.

Even if there were superior races, surely they should be measured by excellence in virtue, not in cunning and deceit. But as it is, the differences in peoples should serve to enrich and embellish the human race by the sharing of their own peculiar gifts and by the reciprocal interchange of goods.

To return to the goldsmiths: they also discovered that extra profits could be made by "rowing" the economy between easy money and tight money. When they made money easier to borrow, then the amount of money in circulation expanded. Money was plentiful. People took out more loans to expand their businesses. But then the goldsmiths would tighten the money supply. They would mal loans more difficult to get.

What would happen? Just what happens today. A certain percentage of people could not repay their previous loans, and could not take out new loans to repay the old on. Therefore they went bankrupt, and had to sell their assets to the goldsmiths or at auction for pennies on the dollar.

The same thing is still going on today, or today we call this rowing of the economy, up and down, the "Business Cycle," or more recently in the stock markets, "corrections".

Acknowledgement and credits

The Money Masters: How International Bankers Gained Control of America

Video Script
Produced by Patrick S. J. Carmack
Directed by Bill Still
Royalty Production Company 1998

Ref: []

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License