Punchinello’s Chronicles

April 14, 2009

Credit Cards and Consumer Fractional Reserve Banking

There’s a story today about how the Fed (Federal Reserve Bank) is buying US bonds on the open market. First of all, the US owes trillions of dollars to someone. A lot to China, then lots to Japan and Europe, and a boatload to the Federal Reserve. People say that’s okay because we just owe ourselves the money. No! The Federal Reserve is a private bank, owned by super high-end bankers.

Anyway; the Chinese don’t want to buy our bonds anymore because we’re going broke. A “bond” is actually an I.O.U. from the US government. It says that if you give the government $100 and let them hold it for 10 years (or whatever length until maturity), they’ll pay you a dividend…interest. Since it’s from the US government, a bond is as good as the word of the United States government. That’s good, right?

So when foreign investors and private citizens don’t want to buy the I.O.U.s, who buys them? The Fed. And where does the money come from to buy the bonds? Nowhere. But!…the interest being paid to the Fed by the US Government, that’s real.

We owe so much money, the interest payments alone are in the hundreds of billions of dollars. That means every month there’s a bond auction. And lately, it’s the Fed who’s buying a lot of those I.O.U.s. With empty paper money they create out of thin air. And all of it goes to service the increasing debt.

Where did we get the trillions of dollars for the recent two bailouts? The Federal Reserve lent it to us. And where did they get it? They printed it on toilet paper. How come nobody’s questioning this? Because nobody was taught a damn thing about money in school. Pure and simple ignorance, not only on yours and my part, but on the part of almost all politicians. Including the presidents we elect!

It’s the same as a credit card, where you earn $1200/month and you have $40,000 in credit-card debt. You only pay the minimum payment, which pays only the interest. You’ll NEVER pay off the cards unless you pay the main amount. That’s the principal.

Throughout modern history, going all the way back 2,000 years to the money-changers of the Temples in Israel, loans have been paid back with real money. That money is maybe gold or silver, but it also is corn and wheat, fish and sheep, cloth and leather, and whatever real people make. Real products and real services have always backed the creation of money.

The concept of a Central Banking system allows money-lenders to make money out of paper. They also make rules that say a bank doesn’t really have to keep any money (meaningless paper) in a vault, even for public relations. Under all that lending (and interest earning), ALL bankers have ALWAYS understood that ultimately, it’s the citizens of a nation who will make the money good.

Never before, in all of history has a nation allowed its own citizens to ALSO practice fractional reserve banking! Until the development of the consumer credit card!

Suppose you earn $100 a week. You can only spend the money you have. So you either save up for expensive items or you don’t buy them. You can’t afford them.

The money you have in “reserve” is your weekly paycheck. And whatever else you have in a savings or checking account, or possibly an investment or some land.

Now you get a credit card with a $1,000 limit. Do you have new money?

What you actually have is the same thing as the Federal Reserve. You now have a 10% reserve of actual cash. That’s your $100 weekly paycheck. But!…you also have $900 in phony money. It’s a potential loan that you may be able to pay back in some fashion. It isn’t really money!

When you decide to spend $900 on your credit card, you’ve actually loaned yourself the money. But you’ve really taken a loan from the credit-card company, and you have to pay it back. WITH interest!

American consumers have been using credit cards for decades! Most people have forgotten how to pay cash for everything they buy. Most people are also limiting out all their cards. It was the greed of the bankers that introduced the heroin addiction of simple credit lending in this form. And exactly like politicians, all of us consumers have become addicted to spending and borrowing against credit cards.

However! For the first time in history, the promise to pay back credit-card loans is no longer backed by real goods, real services. It’s not backed by real ANYthing other than a promise that we’ll pay the money back. Exactly like the US government.

No banker ever foresaw a massive collapse of the economy. No banker ever imagined that the citizens of the nation would have the capability to mimic the federal government. Nobody has ever seen a situation where not only is the government printing meaningless money, but the citizens are doing the same thing!

And that’s why the bankers around the world are having a total shit-fit! They’ve never thought of a scenario where the entire American population would declare bankruptcy!

Credit cards are no different than fractional reserve banking. And yet we’re being told we’re the problem because we’re not doing what we’re supposed to do. And that’s to work our asses off to send in everything we have to a government that spends and spends and spends. Politicians borrow meaningless, fiat money and expect our work and effort to pay the interest. We’re not spending enough! We’re saving too much money! More cars! More microwaves, color TVs! More Christmas presents!

Just so, we’ve all borrowed on credit cards and barely pay the minimum payments. Why do you suppose all the banks suddenly doubled the minimum monthly payment? Why did they suddenly drop all the card limits, then demand penalty money when those balances weren’t paid off in a month?

The world banks are in total disarray. Nobody can find any real money anymore. That’s why gold is hitting at around $900/ounce, and likely will skyrocket beyond that. Real estate “used to be” worth solid money. It was a core part of the Gross Domestic Product (GDP). Not anymore!

Good. At last, we the people have the same financial rules as the federal government. We can spend ourselves into oblivion and face no consequences. Well…okay, a few consequences. Actually…we’re about to lose the entire economy of the United States, but what the hell. It was worth it, right? We’ve at least got some really cool toys and gadgets for all that borrowing on credit cards.

What’s really sickening is that nobody cares. The Fed is printing money like crazy. The politicians are spending even more. The banks aren’t lending because they don’t have any money. That’s actually not true. They get all the fake money printed by the Fed. They have plenty of money! It’s just that nobody wants to lend it out. They’re too busy covering their “vault cash,” worrying that there might be a run on the bank!

Values and properties have gone down, and everyone is spending more and more on new government programs. More bailouts. More credit. “If only” the American consumer would get back to borrowing money on credit, then everything would be fixed.



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