Monday, April 07, 2008

It really, really is a swindle

I am grateful to James Higham for directing me to this article by a very distinguished economist, explaining the scam of fractional reserve banking. Even when you understand how it works, you find it difficult to believe; it's a bit like finding out how babies are made, looking at your parents, and... naaaaah!

Where are the police?


I've been directed (see comments) to this video, "Money as debt", by Canadian Paul Grignon:

Here are the artist's own comments; here's the dedicated website; here's his professional artist's website; and here's a link to the Idaho Observer, with a little extra detail on the making of the film - cut off the last part of the address to see more of the Observer's output.

Whether it's right or wrong, simplistic or not, I'm heartened to see practical idealism like this.


Karl Denninger explains why the money-lenders won't permit inflation to run away and destroy the basis of their wealth. And why this means the economy will hit the buffers.


yoyomo said...

For a really fun and informative explanation of fractional reserve banking and how interest on debt can never be repaid in full for the system as a whole check out this video (47 min) at

It's a bit long but very entertaining and accessable to kids as young as 14 or 15 if they're fairly attentive.


Thanks Yoyomo, will have a look.

Schadenfreude said...

The really shocking thing is that the system is set up to break, but when it does break the rich just get richer when measured by real wealth. It is a mechanism by which the super-rich can ensure that most of the real wealth continually gets transported into their hands.

I used to think that it was a conspiracy, but now I think it exists this way because it has done so since year dot and nobody with power and influence has any incentive to change it. Not socialists, not communists, and certainly not capitalists. It is such a fantastic mechanism for transpoorting the real wealth back to the rich or the state, as appropriate.

However, to break this system you don't need to start a revolution. Just spread awareness. Stop taking out debt. Tell you family and friends to stop taking out debt. If you are forced to take out debt, insure it and make the risk of non-payment someone else's problem.

If you built a Barratt sized home it would cost you £50,000 excluding land. If you take out a mortgage to pay for it, it will cost you £400,000. The availability of cheap debt and a willing market for debt forces up the price you see. Simply stop playing the game and the prices will fall - permanently.


Hi Schadenfreude - (RS as was, I take it, but there already is an RS blog as you'll doubtless have discovered): love your idea of a borrower's strike, a similar thought had occurred to me - now for the campaign!

Semaj Mahgih said...

I really do like Paul Grignon's work.

Schadenfreude said...

A borrowers strike? Yes, I suppose that is exactly what it is! Thing is it only requires a relatively small proportion of people to decide they aren't going to play this debt game anymore to cause the whole thing to unwind. And since it is very logical NOT to play the game of debt anymore it really should be a piece of cake to evangelise for a new approach to personal finance that will bring these high street con-artists to their knees.

Mind you, there is a lot of money at stake. Maybe they will have us shot first!

[PS, Yes, I am RS, and as you have seen I have given in to your demands re. blog creation!]

matt said...

Good luck trying to organize a borrower's strike. I've been trying to organize one for the last several months, and I can't even convince a single one of my friends that they are only making the banks rich.

Imagine what would happen to asset prices if everyone stopped borrowing? Gasp! House prices might actually become affordable - normalize to incomes. Gasp! That's a terrible idea.

People seem to only cooperate when it leads to a mutual dead end.


Hi Matt: what did you try?

Schadenfreude said...

Keep trying Matt. It only takes a small %age of us to stop playing this game to change the supply and demand inequality to our favour so the system falls apart.