The global economy is based on Fractional Reserve Banking (...

The global economy is based on Fractional Reserve Banking ( F.R.B). Prior to the Iraq war there were 6 nations on earth left without a central bank, Iraq being the 6th. These nations are the so called terrorist nations, Libya, Sudan, Iran, North Korea and Cuba.

The Central Banks own this world and their iron grip is that of Fractional Reserve Banking (F.R.B). For those of you who do not understand F.R.B it is the process of lending considerably more money than you actually possess.

History of F.R.B

In times of old gold was used as currency to facilitate the trade of goods and services. In time the people began to store their gold with the goldsmiths as it proved to be cumbersome and inconvenient to carry around gold in large sums. These goldsmiths became the original bankers. The goldsmiths would issue a receipt in exchange for the safe keeping of gold. These receipts were traded for goods and services as they were a paper representation of gold.
Eventually the goldsmiths realized that only a fraction of customers would cash in their receipts at any given time. They began lending out considerably more receipts than they had gold and would charge interest to cover their risk and thus the Fractional Reserve Banking System was born.

Here is a working model.

Joe deposits $100 in a Bank. The Bank issues Joe with a statement saying that Joe has $100 “Credit” with the bank. The Bank then takes Joe’s $100 and multiplies it by a factor of 10. The Bank now has $1000 “credit” to loan providing Joe does not withdraw his deposit. The Bank loans out this $1000 to various parties at 10% interest p.a. In 1 year, The Bank will have recouped enough capital to cover Joe’s deposit provided that he does not make a withdrawal prior to the expiry of 1 year.

How is money created now?

Money is created via a fundamental need for governments to service their debt. To do this the government borrows money from a private entity known as a central bank. The government issues bonds which is essentially an IOU + interest in return for Federal Reserve Notes. The government then takes those Federal Reserve notes and spends them into the system either directly or by depositing them into a bank. What is important to note is that while this money is created out of thin air its value comes from all existing money in circulation.

Hypothetically speaking...

Let’s say that Joe owns a house worth $10,000. For the sake of simplicity let us also presume that the TOTAL amount of LEVERAGED money in circulation is also $10,000 and that Joe is its owner and that it is deposited in his Bank account.

The Government decides for whatever reason that it needs an additional $10,000 of capital. It offers up 10,000 bonds in exchange for 10,000 Reserve Notes. The government decides it will purchase Joe’s house for $10,000. The moment it spends that money into the system the price of the house jumps from $10,000 to $20,000. It essentially bought Joe’s house for free by stealing 50% of the purchasing power of Joe’s cash holdings kept within the bank. Worse still, Joe now has to service the bond debt through Taxation.

Joe, unaware of his plight deposits the additional $10,000 with his bank and the bank issues Joe with a credit statement detailing that he now has $20,000 held within the Bank.

The Bank then uses Fractional Reserve Banking to leverage up the additional $10,000 of Joe’s money to $100,000 and then loans it out. The TOTAL amount of LEVERAGED money in circulation is now $110,000. Joe unknowingly has been robbed of over 90% of his purchasing power through fancy parlour tricks.

How does this affect gold?

Gold is a representation of purchasing power. It has maintained its purchasing power for over 2000 years. The reason it has held up so well is because it cannot be created out of thin air.

The global economy is being rapidly deleveraged. A comparative analogy would be the removal of blood from an animal. The animal becomes weak and lethargic. If the animal loses too much blood it dies. Fiat money is no different. The monetary system must contract when there is insufficient money in the system to service debts. Unfortunately that means people lose their homes, cars, jobs, businesses and port folio’s. The lack of money in the system causes its purchasing power to increase. This means that the price of gold relative to fiat currencies must decrease.

To add insult to injury gold has always been seen as an inflationary indicator. Since 1973 there has been a concerted effort by the reserve banks and various governments to suppress the price of gold. You only need to look at the above examples between Joe, Central bank, Government and Banking institutions to understand why. This scam could never have worked if the public shifted its wealth into the safe haven offered by owning gold. For those of you who are still sceptical simply google “J.P Morgan gold short contracts”, “Gold swaps” or “gold leasing” and you will see just how big an elephant is sitting on the price of gold.

Just for giggles you might also want to research “Morgan Stanley short Oil contracts” as a similar game is being played within the oil markets.

Over the past year you all have watched the Reserve banks pump Trillions of dollars into the global economy in an effort to stabilize it. This money is being used to fill the massive void left in the wake of a deleveraging economy. The recipients of these trillions are the very same banks that caused the deleveraging. One has to ask the question, “How much will the money supply inflate when the banks decide to start leveraging again and how will it affect the price of gold?” This is the impending holocaust that those of the inflationary camp are referring too. All I can say is that I would hate to be Joe.

If you are planning on purchasing gold be sure to purchase physical gold! If you don't hold it you don't own it!