Money, we all use it, have it, or a lack of it and would ideally like more of it. But what is it really and where does it come from? How is it created and who controls that creation?
It may come as a surprise to you but banks are given the power by government to generate money literally from nothing. The reason for the word 'generate' is that money is seldom printed anymore. Only 2% of money is printed the remainder is electronic and therefore generated electronically by banks.
Why is this a problem?
When your core business is to make money from loaning it out - receiving interest payments from debtors - then you are in a very powerful position when you have sole control of the money supply. In other words, generating more money means receiving more money.
Fractional Reserve Banking
There is no law to prevent banks from creating electronic money. There are only 'recommendations' from the Basel Committee on Banking Supervision (BCBS) in Switzerland. These recommendations allow the banks to create and then lend money while only holding a reserve of approximately 10% 'actual money' and sometimes even less depending on the type of loan. This is called 'fractional reserve banking'. The name says it all, a fraction of the money is held as a reserve the rest is created from nothing.
All the large banks practise fractional reserve banking.
With the majority of money issued as debt - 98% to be exact - this means that for someone to live debt free, someone else must have to be in debt. Therefore we are all struggling against one another to live debt free. The problem, however, is that the overall public becoming debt free can never happen, because banks create the money and the money is debt. So for the money supply to remain constant someone is sinking deeper into the quicksand of debt.
This is why we have 'booms' and 'busts' in the economy, because banks can control where they inject this money, just like they did previous to the 2008 housing bubble collapse by pumping it into easy to obtain mortgages. Hence, why the supply of money needs to be controlled by an independent body separate from government and corporate influence and control. Crypto currency answers this problem, especially a crypto tied to value or generating its own value. Steem and Ether are the best examples.
Inflation and Precious Metals
Another issue with the banks pumping money/debt into circulation via numbers in your bank account is, where does the value of the new money come from? If money is created out of thin air how can it possibly have existing value? Good question, the answer is it essentially steals the value from the existing money in circulation. A good analogy of this is to imagine a glass filled with water and blue die mix. What happens when you add more water to the glass? The new water becomes blue but overall the colour has diluted compared to before.
This is the same as with the banks unregulated creation of money into circulation. When they add money to circulation the new money steals it's value from the existing and inflation occurs. This is why a loaf of bread 20 years ago is not the same price as it is now. It's not because bread is worth more than 20 years ago but because the money purchasing the bread is worth less.
If however money was backed by a commodity such as silver or gold inflation would be far more stable. What we have in the current finacial system is a fiat currency. This is a currency that is legal tender only because the government authorises it to be and has no real value. It is not backed by gold or silver. In fact many Governments such as New Zealand have NO gold reserves whatsoever.
Mike Maloney an expert on silver and gold explains a common misnomer about money vs currency. So far we have referred to the topic of this article as 'money' when in fact it is called currency and 'real' money is something which must hold value over time, which of course we know fiat currency does not do due to inflation.