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Debt Consolidation Facts

1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair Isaac).

2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% - 30%!

3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.

The History of Money

gold coinsMoney originated as a convenient way to conduct trade without the need for barter. At first, monetary systems required that the currency be backed up by something of intrinsic value such as gold or silver. In order to facilitate economic expansion, a means of obtaining credit was established by goldsmiths who possessed significant quantities of gold.

The first banks originated with goldsmiths who had vaults that could be used to store gold owned by other people. In exchange, these people were given claim checks that represented the value of the gold they had deposited. These claim checks represented legal tender that could be sold and traded in the marketplace as a means of transferring ownership of the underlying gold assets.

As the demand for credit grew, the goldsmiths issued claim checks for gold that exceeded their reserves, under the assumption that not all the owners would claim their gold at the same time. They made money by charging interest on these loans, even though they did not possess sufficient gold to back them up. They created money by lending to borrowers with a promise for them to repay.

When claim check holders determined what was happening, they demanded their gold in exchange for their claims. When there wasn’t sufficient gold to satisfy their demands, confidence in the system plummeted and credit dried up. At this point the fledgling banks agreed to a limit on how much money they could lend that was not actually backed up by gold, which effectively regulated their ability to leverage. If there was a run on any one bank, the central banks would infuse gold into the system to cover the shortfall.

Video: Money As Debt - Part I

The Present Monetary System

Banks can essentially create as much money as we all can borrow. So, the total amount of money that can be created is equal to the total level of debt. When we sign for a loan and pledge repayment, that is the only thing of real value and that value can be sold and traded to anyone that believes that we will make payment. Privately created bank credit is convertible to national currencies like the U.S. dollar. Citizens must accept this money in payment for any legal debts.

In the artificial world of money, a bank’s promise to loan money it doesn’t have is accepted and it can only practice this monetary system with active government participation and cooperation. In order to facilitate this process, the government:

  1. Passes legal tender laws to make us use the national currency.
  2. Allows private bank credit to be paid out in this currency.
  3. Enables courts to enforce debts.
  4. Passes regulations to protect the money system’s functionality and credibility, without telling the public where the money really comes from.

There is a statutory limit for fractional reserve requirements, which is the amount of money required in reserve in relation to the amount available for new debt. Today’s reserves equal the amount of government-issued cash or equivalent that the bank has deposited with the central bank, and the amount of already existing debt money the bank has on deposit. Bank credit money is being created and destroyed every day as new loans are made and old ones are paid off.

Video: Money As Debt - Part II

How can we all be in debt?

How can there be enough money out there to account for the astronomical levels of indebtedness? The answer is that there isn’t; it’s created through borrowing. As loans are granted banks create money. The problem is that banks only create the principal amount of money, not the interest, so the money pool only contains the principal. Since the interest on a mortgage is far greater than the principal, more and more debt money must be created to pay down the interest.

This phenomenon puts us in a never-ending spiral, requiring more and more money creation. It’s only the time lag between money’s creation as new loans, and its repayment, that keeps the overall shortage of money from catching up and bankrupting the entire system. The supply of money can grow as long as the volume of production and trade is growing at the same rate, or the money will become worthless. It has to keep feeding on itself or it would collapse.

Different concept of money

Many believe that the system must be replaced, and that new ways to create money through debt must be found without creating interest. Some have called for a return to the gold or silver standard. In this light, these questions are raised:

  1. Why do governments choose to borrow money from private banks at interest when government can create all the interest-free money it wants?
  2. Why create money as debt; why not create money that circulates permanently without relying on more debt?
  3. How can a money system that relies on perpetually accelerating growth be used to build a sustainable economy?
  4. What is it about our system that makes it totally dependent on perpetual growth?

Money is essentially created as the value of what was created with that money. If trade and production increase proportionally with the money supply, no inflation will result. Since inflation is equivalent to a flat tax on money, a reasonable level of inflation could be allowed in place of taxation. Or, in order to counter the effects of inflation, tax collection receipts represent money that is taken out of use, keeping the relative value of money the same. Conversely, to control deflation, we would spend more money into existence.

Governments rise and fall on their ability to preserve the value of their currency, but they are now victims of perpetual servitude to the banks. If no interest were paid to private bankers, tax revenues would go much farther and there would be no national debt if government created only the money it needed. We now possess a perpetually growing debt that can never be paid off. Is this an accident or a conspiracy?