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Frackin’ Reserve – The Mechanics of Fractional ReserveBanking (1/6)

The issue which has swept down the centuries and which will have to be f ought sooner or later is thepeople versus the banks. — Lord Acton

I published Frackin’ Reserve, a f ractional reserve banking simulator (desktop version here, web versionhere), with the promise to f ollow-up with another article explaining it. Af ter hitt ing 5,000 words, I realizedthat I needed to do a series.

Part 1 explains the basic mechanics of f ractional reserve banking in very simple terms with examples. Part 2answers "What is Money?" f or the purposes of the discussion. Part 3 illustrates how and why f ractionalreserve banking is f raudulent. Part 4 shows how the system can f all apart, and 2 attacks that the banksterscan use to steal wealth f rom people. Part 5 examines usury and compound interest as f orms of invisibleslavery. Part 6 is a quick summary with links to other resources. Each part builds on the previous, so it isstrongly recommended to read through in order. Even if you have a solid understanding of f ractionalreserve banking, there are a f ew new twists that I add to the tradit ional understanding of it that could bemissed.

The 3 Factors in Fractional Reserve Banking

While f ractional reserve banking mechanics are surprisingly simple, the implications of the system are not.Mechanically, f ractional reserve banking depends on 3 f actors:

Init ial deposit: The amount of the init ial deposit

Reserve requirement: The f ractional reserve requirement (also called "reserve requirement", "cashreserve requirement", or "reserve ratio") is a number between 0 and 1

Iterations: The number of t imes that money is deposited or cycled through the system

The init ial deposit into the f ractional reserve banking system comes f rom the government when they issuebonds and deliver them to the bank. These bonds are I.O.U.s f rom the government as a promise to pay theamount of the bond back with interest.

The reserve requirement is a number between 0 and 1, and sets the ratio of the amount of money that theybank can "print" to loan out. For example, if the reserve requirement is 0.1 (10%), and the bank receives$100 in government bonds, then the bank can loan out $100 × (1 − 0.1) = $100 × 0.9 = $90.

So the basic mathematics of the system are extremely simple. Stated in general:

Loan = Deposit × ( 1 − Reserve Requirement )e.g. $90 = $100 × ( 1 − 0.1 )

Or, in terms of what the bank must keep in reserves, i.e. the amount of money that it cannot loan out:

Reserve = Deposit × Reserve Requiremente.g. $10 = $100 × 0.1

But it doesn’t stop there. Once a loan is made, the person that receives the loaned money goes out andspends it to obtain some f orm of wealth in the real world. That could be a house, a car, a guitar, groceries,a meal at a restaurant, or anything that can be purchased. The seller of the product or service then takesthat money, goes back to the bank, and deposits it. That deposit is then subject to the same reserverequirement with the remainder being made available f or the bank to loan out again.

The Fractional Reserve Banking Cycle

Breaking the whole thing down into a simple ordered list, f ractional reserve banking f ollows this pattern:

1. The government issues bonds to the bank.

2. The bank loans out 90% of the money.

3. The borrower spends the money.

4. The seller deposits the money into the bank.

5. Go to 2 where the bank then lends out the money again.

Step 1 kick-starts the system the same way that you would kick-start a motorcycle. The government canalways inject more money into the system, but everytime it does, it starts this f ractional reserve bankingprocess over again with that money.

Step 2 is where the "magic" of f ractional reserve banking happens. The legal requirement to keep only asmall portion of a deposit gives the bank the "right" to print money out of nothing. This is explained in detailin Part 3.

Step 5 is nothing more than running through steps 2~4 again f or the entire cycle to start over again. This isthe second "magic" of f ractional reserve banking because it creates a an iterative f eedback loop f or moneyto multiply itself . Aristotle called the process of money multiplying itself "the most unnatural".

For money was intended to be used in exchange, but not to increase at interest. And this terminterest, which means the birth of money from money, is applied to the breeding of moneybecause the offspring resembles the parent. Wherefore of all modes of getting wealth this is themost unnatural. — Aristotle

While he was speaking of interest, and not f ractional reserve banking, the principle "the birth of moneyf rom money" is still the same.

If you view the bank’s keeping a reserve as an independent step in the process, then the cycle looks likethis:

The people spend and deposit, while the bank loans out the money, less the reserve requirement.

The f ollowing graphic illustrates the process of f ractional reserve banking as described above. (Click tozoom.)

Putting that into a table so that you can visualize it dif f erently:

Iteration # Deposited = Reserves + Available to LendBank

Lends to

1. Adam 1,000.00 = 100.00 + 900.00 Anne

2. Brian 900.00 = 90.00 + 810.00 Brenda

3. Chris 810.00 = 81.00 + 729.00 Cathy

4. David 729.00 = 72.90 + 656.10 Dale

And the cycle continues…

Fractional Reserve Banking Limits

As the cycle continues, the amount of money that the bank has loaned out approaches a limit:

Loans = ( Init ial Deposit ÷ Reserve Requirement ) − Init ial Deposit$9,000 = ( $1,000÷ 0.1 ) − $1,000 = $10,000 − $1,000

Also, the total amount of money that people have deposited into the bank approaches a limit (this isf ormally called the "money multiplier"):

Deposits = ( Init ial Deposit ÷ Reserve Requirment )$10,000 =( $1,000÷ 0.1 )

And, the amount of money that the bank holds in reserve approaches a limit:

Reserves = Init ial Deposit$1,000 = $1,000

The f ollowing table illustrates how this happens over many iterations in the f ractional reserve bankingsystem:

Iteration # DepositedHeld

in Reserve Loan from Deposit Loans Reserves Deposits

1 1,000.00 100.00 900.00 0.00 100.00 1,000.00

2 900.00 90.00 810.00 900.00 190.00 1,900.00

3 810.00 81.00 729.00 1,710.00 271.00 2,710.00

4 729.00 72.90 656.10 2,439.00 343.90 3,439.00

And a litt le while later (87% there)…

19 150.09 15.01 135.09 7,649.15 864.91 8,649.15

20 135.09 13.51 121.58 7,784.23 878.42 8,784.23

Closer towards those limits (97.5% there)…

34 30.90 3.09 27.81 8,721.87 972.19 9,721.87

35 27.81 2.78 25.03 8,749.68 974.97 9,749.68

36 25.03 2.50 22.53 8,774.72 977.47 9,774.72

And closer towards those limits…

115 0.01 0.00 0.01 8,999.95 999.99 9,999.95

116 0.01 0.00 0.00 8,999.95 1,000.00 9,999.95

And we hit those limits!

137 0.00 0.00 0.00 8,999.99 1,000.00 9,999.99

138 0.00 0.00 0.00 9,000.00 1,000.00 10,000.00

2 decimal places displayed — accurate to 28 decimal places

The examples above all use a 0.1 (10%) reserve requirement, but dif f erent countries can have dif f erentreserve requirements.

Looking at some of the equations above again:

Loans = ( Init ial Deposit ÷ Reserve Requirment ) − Init ial DepositDeposits = ( Init ial Deposit ÷ Reserve Requirment )

The second equation there is f ormally called the "money multiplier". As the reserve requirement approacheszero, "Deposits" approaches inf inity. Here’s a graph that shows reserve requirements f rom 0.1 up to 1:

Notice that as the reserve requirement becomes lower, the amount of money that a deposit can generatebecomes higher and higher.

And remembering back to what the "Reserve Requirement" is:

A number between 0 and 1.

What happens when the reserve requirement is zero? Any idiot can tell you that you cannot divide by zero.Dividing by zero results in an inf inity, which is absurd (f or mathematical purposes like this). You just cannotdo it.

Those who can make you believe absurdit ies, can make you commit atrocit ies. — Voltaire

You cannot divide by zero… Unless you live in Canada, Australia, New Zealand, or Sweden where thereserve requirements are all ZERO! Apparently the Canucks, Ozzies, Kiwis, and Swedes have all f orgottenabout this lit t le thing we call sanity. (Hmmm… Perhaps that explains me…)

Frackin’ Reserve only allows very low values f or reserve requirements because no computer can process "1÷ 0".

The Speed of Fractional Reserve Banking

The last thing to mention about f ractional reserve banking mechanics is that it only happens when money isdeposited into a bank. That is if I buy a guitar pedal f rom Adam f or $100, and he uses that money to buy$100 of marijuana f rom Brian, who buys $100 of raw milk f rom Chris, the f ractional reserve system nevercomes into play, and the banks cannot f abricate any money out of thin air.

HOWEVER… If all money is made digital, and all transactions are electronic, such as through NFC (NearField Communications) (read my article on "How You Are Being Indoctrinated f or NFC" here), then ALL moneyf or ALL transactions goes through the banks and thus through the f ractional reserve banking system. Thisaccelerates the pace of f ractional reserve banking f ar above the state that it is in now. It is a massivepower transf er to the banks. Is it any wonder the bankster criminals, corrupt polit icians, and corporatistsare urging us towards electronic money? (The objection to this is that a money transf er also transf ersreserve requirements. However, this is quite beside the point when it comes to the digital velocity ofmoney.)

So that is the mechanics of f ractional reserve banking in a nutshell.

Money is the most important subject intellectual persons can investigate and ref lect upon. It is so importantthat our present civilization may collapse unless it is widely understood and its def ects remedied very soon.— Robert H. Hemphill, Federal Reserve Bank of Atlanta

Read Part 2 – What is money?

Part 1 – The Mechanics of Fractional Reserve BankingPart 3 – “How” Fractional Reserve Banking Creates Money and “Why” it is FraudulentPart 4 – Run on the Banks? Or Run on the People? Part 5 – Compound Interest as Invisible Slavery Part 6 – Summary & Additional Resources

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Frackin’ Reserve – What is Money? (2/6)

We have a system called, "money", which is based on money that has never, does not, and will neverexist… We have become so divorced f rom the world that we live in, that most people never ask the simplequestion, "What is money?" — David Icke

For the purpose of discussing f ractional reserve banking, the f ollowing is roughly how we need to answerthe question, "what is money?" There are plenty of perspectives f or a more general answer, but f orf ractional reserve, we need to choose an appropriate way to view money. The reasons f or this view willbecome clear in parts 3, 4 and 5.

Money vs. Wealth

Money is an artif icial thing. It doesn’t really exist in reality. You can’t go out and f ind "money" anywhere inthe physical, non-artif icial world. That is to say, money doesn’t grow on trees. It comes out of the mind andis a purely artif icial concept. It ’s only legit imate purpose is to f acilitate trade and commerce, or in the wordsof Aristotle, "

Money was intended to be used in exchange."

Wealth on the other hand dif f ers in that you can f ind "wealth" in the natural world. Wealth is something thatyou can touch. It has existence on its own with no reliance on the existence of humanity or any "ideas".

Wealth has utility in and of itself , and is not reliant on any external acceptance of it f or it to have utility.

The Free Dictionary def ines money as (source):

1. A medium that can be exchanged f or goods and services and is used as a measure of their values on themarket, including among its f orms a commodity such as gold, an of f icially issued coin or note, or a depositin a checking account or other readily liquef iable account.2. The of f icial currency, coins, and negotiable paper notes issued by a government.

It def ines wealth as (source):

1. a. An abundance of valuable material possessions or resources; riches. / b. The state of being rich;af f luence.2. All goods and resources having value in terms of exchange or use.

(I loathe resorting to dictionary def init ions, and only point it out as it they are trivial, and trivial inf ormationof ten goes unnoticed.)

Note that money is def ined up f ront as a "medium", while wealth is def ined as "material". Money is no morethan an abstract representation of wealth.

The Entire Value of Planet Earth

You can imagine how this is true (that money is an abstract representation of wealth) by writ ing down on apiece of paper, "The Entire Value of Planet Earth". And there you have all the wealth in the world, well, asyou imagined it to be.

Now, write "The Entire Value of Planet Earth" down on a second piece of paper. You now have twice thevalue. Heck, do it again, but write, "10x The Entire Value of Planet Earth". With that third piece of paper, younow have 12x the value of the entire planet. This is clearly ridiculous. Even if you could redeem that, youcould only redeem the f irst one. You would then have to redeem the others f rom yourself , but how can youget f rom yourself that which you already own? This illustrates just how silly money can become when it is"imagined into existence" the way the money f rom f ractional reserve banking "manuf actures" or "breeds"money. It does not manuf acture wealth. It is only an "idea" that can either be accepted or rejected. My bet isthat if you try to cash that on the rest of the world, it will be rejected.

Money Behaves Like a Voucher

Money is only a conceptual/abstract representation of real wealth. We "use" money by "redeeming" it f orwealth, much in the same way you would redeem a voucher f or a product or service at a store. Merchantsissue vouchers that are only good when used at their shops. You cannot use a voucher f rom Merchant A toredeem the same product f rom Merchant B. What does this tell us? Money is only as good as the level ofits acceptance. If nobody accepted money f or their labor, products, or services anymore, all money wouldbe worthless. Well, except perhaps f or use as toilet paper…

Hopef ully that clears up the dif f erence between the "idea" of money and physical "wealth".

Paper money eventually returns to its intrinsic value – zero. — Voltaire

Read Part 3 – "How" Fractional Reserve Banking Creates Money and "Why" it is Fraudulent

Part 1 – The Mechanics of Fractional Reserve BankingPart 2 – What is Money?Part 4 – Run on the Banks? Or Run on the People? Part 5 – Compound Interest as Invisible Slavery Part 6 – Summary & Additional Resources

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Frackin’ Reserve – “How” Fractional Reserve Banking CreatesMoney and “Why” it is Fraudulent (3/6)

When plunder becomes a way of lif e f or a group of men living together in society, they create f orthemselves in the course of t ime a legal system that authorizes it and a moral code that glorif ies it. —Frederic Bastiat

In Part 1 we looked at the mechanics of f ractional reserve banking and the mathematics behind it. We alsosaw how absurd it could be when trying to divide by zero. Then in part 2 we looked at one perspective of"what is money" and def ined it in terms of its relationship to wealth.

It is now time to turn out attention to discovering "how" f ractional reserve banking creates money. Once weunderstand the "how", we can answer the question, "Why is f ractional reserve banking f raudulent?"

If you recall the basic f ractional reserve banking cycle, it went like this:

Putting that in a table, we can see that the total amount of money that people have very quickly grows f roman init ial deposit of $1,000 to much, much more.

Depositor Deposited Loans Deposits Borrower

1. Adam 1,000.00 0.00 1,000.00 Anne

2. Brian 900.00 900.00 1,900.00 Brenda

3. Chris 810.00 1,710.00 2,710.00 Cathy

4. David 729.00 2,439.00 3,439.00 Dale

5. Earl 656.10 3,095.10 4,095.10 Edna

6. Frank 590.49 3,685.59 4,685.59 Francine

7. George 531.44 4,217.03 5,217.03 Gwen

8. Harry 478.30 4,695.33 5,695.33 Helen

9. Ian 430.47 5,125.80 6,125.80 Iona

10. Jef f 387.42 5,513.22 6,513.22 Jennif er

By the 35th iteration, the system has reached about 97% of its limit. But where does it come f rom? Weunderstand the mathematics, but the mathematics are merely a model f or what’s actually going on.

To understand where the money appears, we need to walk through the cycle again. The most importantthing to be aware of is the TIMELINE of events.

Adam deposits $1,000. Now, the bank OWES Adam $1,000. And the bank, by law, can give out $900 ofAdam’s money to Anne. And that is it right there. That is how f ractional reserve banking manuf acturesmoney in the f orm of debt. That is, it creates money as debt .

When you or I write a check there must be suf f icient f unds in our account to cover that check, but when theFederal Reserve writes a check, it is creating money. — Boston Federal Reserve Bank

Fraudulent Abuse of Money

Looking at this f rom a slightly dif f erent angle, Adam gave the bank his money f or saf e keeping. But, insteadof keeping Adam’s money saf e, the bank used it. Where the bank was entrusted to protect the money, theyabused it. When you give your children to the baby-sitter to watch over and protect while you go out f or aquiet dinner, you don’t expect the baby-sitter to rape and abuse your children. This is what banksters do.They rape your money.

This is the f irst way in which f ractional reserve banking is a crime. It is a f raudulent abuse.

The Mainspring Metaphor

So we’ve seen how as iterations are added in thef ractional reserve cycle, the money supply expands asdebt .

The behaviour here is very much like a mainspring, thatwith each twist becomes tighter and tighter, gainingenergy. Hold the spring in your hand and release it, andyou’ll likely hurt yourself as it very quickly expends itsstored energy. In f ractional reserve banking, the cycle of adeposit and loan adds to the energy in the system.

They key concepts to understand here are the energy, and most importantly, the t ime involved. A slowlyunwinding spring won’t rip open your hand. The spring needs to whip open, lightning f ast to make youscream in pain as you run f or a bandage and drip blood all over the f loor. Similarly, when the f ractionalreserve process quickly "unwinds", pain f ollows. Without understanding how time af f ects f ractional reservebanking is to miss a great deal of what it is and what it implies.

Float Time

When the bank loans that $900 to Anne, that money "has never, does not, and will never exist". It is af iction. Complete f antasy. Imaginary. Here’s how that works…

There is a t ime gap between when Adam deposits his money, and the time Adam withdraws his money. Thisis called the "f loat t ime". Here’s what it looks like on a timeline:

It is during this period that the bank must loan out $900 of Adam’s money, and receive back that $900 f romthe borrower. Here’s what happens when Anne comes along to borrow that $900:

Since Anne has borrowed money, she must repay it bef ore Adam can get his money back.

But, Anne buys a guitar f or $900 f rom Brian, who deposits his new $900. Here’s what that looks like:

The process continues on and on, with the amounts of money becoming smaller as def ined by the reserverequirement. However…

Notice how the f loat t ime keeps getting smaller. If we represent the f loat t imes f rom many iterations, thosef loat t imes would look like this:

Can we say, "pyramid scheme"?

Fractional Reserve Banking is a Pyramid Scheme

Yes. Fractional reserve banking is a temporal pyramid scheme. (The same basic structure as a Ponzischeme.) Temporally, it is f raud. It is f raudulent because the banks are lending out money that does notbelong to them. When you deposit your money in a bank, you f ully expect to be able to withdraw the f ullamount at any time. You do not expect to wait.

However, this is exactly what happens when there is a "run on the banks". En masse, people withdraw theirmoney, but the bank doesn’t have it because they have given that money away to someone else in the f ormof a loan. Banks then shut their doors and ref use to return people’s money to them.

A run on the bank is exactly the same thing that happens in a pyramid scheme when the bottom f alls out.The entire system collapses. They are not dif f erent in any signif icant way. Pyramid schemes collapsebecause there aren’t enough people lef t to buy into the con, and f ractional reserve banking collapsesthrough a run on the banks because there isn’t enough time to manage the con.

This is the second way in which f ractional reserve banking is criminal f raud.

Fractional Reserve Banking vs. Check Kiting

When money is created as debt, the process of f ractional reserve banking very closely resembles checkkit ing, where the "f loat t ime" in check kit ing is analogous to the time between a customer depositing andwithdrawing money. Indeed, all f ractionally reserve created debt money can be viewed as "f loat" money.Floated money is simply money that is duplicated in the system between the t ime it takes for it tobe deducted from one account and deposited in another account.

In the f irst iteration in the Frackin’ Reserve examples above, the time between Adam depositing andwithdrawing his init ial $1,000 is the "f loat t ime". During the f loat t ime, the bank takes advantage and loansout $900 of Adam’s money. This is not signif icantly dif f erent than the way in which a check kiter writes acheck to take advantage of the f loat t ime. The kiter ’s check is exactly equivalent to a bank loan, i.e. it is"debt".

In both situations, the bank and kiter are taking advantage of the f loat t ime in order to "create"money. This is "how" fractional reserve banking fraudulently counterfeits money.

Commercial banks create checkbook money whenever they grant a loan, simply by adding new depositdollars in accounts on their books in exchange f or a borrower’s IOU. — Federal Reserve Bank of New York

Part 4 – Run on the Banks? Or Run on the People?

Part 1 – The Mechanics of Fractional Reserve BankingPart 2 – What is Money?Part 3 – “How” Fractional Reserve Banking Creates Money and “Why” it is FraudulentPart 5 – Compound Interest as Invisible Slavery Part 6 – Summary & Additional Resources

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Frackin’ Reserve – Run on the Banks? Or Run on the People?(4/6)

Thus, our national circulating medium is now at the mercy of loan transactions of banks, which lend, notmoney, but promises to supply money they do not possess. — Irving Fisher

In the last part we saw how f loat t ime was f radulently used in f ractional reserve banking by banksters thesame way that check kiters used to use f loat t ime, and we also looked at how f loat t ime builds a temporalpyramid structure analogous to a tradit ional pyramid scheme. If you haven’t already, make certain to readthe previous sections as they are built upon here.

Part 4 examines how a run on the bank works, and how banks "run on the people" to cause recessions anddepressions.

Remember back to the pyramid in f loat t ime and the mainspring metaphor. In the mainspring metaphor,f ractional reserve banking gains energy through interations the same way that a mainspring gains energywhen wound. Conversely, the unwinding of a mainspring releases that energy, and the same holds f orf ractional reserve banking; when f ractional reserve works in "reverse", it loses energy. That can bevisualized on our temporal pyramid:

In normal operation, the speed at which depositing and lending happens keeps the system more or lessbalanced. However, energy can be drawn of f of the system in a f ew dif f erent ways, and if the rate that theenergy builds is less than the released energy, the result is chaos, pandemonium, bedlam, dogs sleepingwith cats, etc., etc.

A Run on the Banks

A run on the bank happens when depositors show up en masse to withdraw their deposits. That is to say,when the people demand their money f rom the bank. From the Frackin’ Reserve simulator, we seesomething like this:

Iteration # Loans Reserves Deposits

1 0.00 100.00 1,000.00

2 900.00 190.00 1,900.00

3 1,710.00 271.00 2,710.00

4 2,439.00 343.90 3,439.00

5 3,095.10 409.51 4,095.10

6 3,685.59 468.56 4,685.59

7 4,217.03 521.70 5,217.03

8 4,695.33 569.53 5,695.33

9 5,125.80 612.58 6,125.80

10 5,513.22 651.32 6,513.22

The amount of money that the bank has available at any given time is its "Reserves". The amount that itowes to depositors is "Deposits", and the amount of loans that it has given out is "Loans". Remember thatthis is a cycle, so Reserves + Deposits = Loans in the next row. Addition does not work across rows there.

So at iteration 10, if enough people come to the bank to ask f or more than $651.32, then there is a run onthe bank. But at that stage, people have deposited $6,513.22, which is f ar more than the meager reservesthat the bank has. The system relies on people keeping 90%+ of their money in the bank. If people decideto withdraw more than 10% of their deposits, we have a run on the bank. That number is the same as thereserve requirement. i.e. 10% = 0.1 in this example.

Keep in mind that a number of European banks were just urged to raise their reserves to 8%.

Going back to the pyramid illustration, the double-ended f loat t ime arrows alternately represent depositorsand borrowers. The run on the bank happens when the borrowers withdraw their money, so highlighting thearrow-heads in red where money is withdrawn f rom the system looks like this:

When a run on the bank happens, typically the bank closes its doors, tells people to piss of f , then goeswhining like a litt le bitch to the government that they have already bought and paid f or. The government inturn starts wailing about the woes of the economy, blames some BS cause, and turns around and bails outthe banks with billions or trillions of dollars.

Those billions/trillions of dollars come f rom the people through government issued bonds that are to berepaid through taxes, tarrif f s, duties, and other instruments of government thef t of people’s wealth, laborand property.

A Run on the People

But that’s not the only way that the banksters steal f rom people. They can also induce a "run on thepeople". That is to say, when the banks demand/entice money f rom the people. This is a two-prongedattack by the banks where they accept deposits without loaning them out, and start to call in loans. Theresult is a contracted money supply. This results in recessions and depressions, unemployment,f oreclosures on homes, chaos, pandemonium, bedlam, and dogs sleeping with cats.

Ref erring back to the pyramid illustration, this is where the banksters’ attack happens:

The red arrow tips show where the bank accepts deposits with no new loans, and the hot pink arrow tipsshow where the bank begins calling in loans. Keep in mind that this is just a simple illustration, and while thereality is somewhat more complex, this is suf f icient to illustrate the basic concept.

With a shortage of money, people are f orced to sell of f assests (real wealth) f or less than the normalmarket value because the demand f or money is high, while the relative supply of real wealth is high, i.e. aglut of wealth on the market, and a scarcity of money (see part 2 f or "Money vs. Wealth"). The banks, whojust so happen to have money, then buy up real assets f or pennies on the dollar.

A typical example is the $500,000 home selling f or $350,000. In Detroit, homes sell f or less than $200 (twohundred dollars). That wasn’t a typo. With a completely random search on "detroit real estate", my f irstresult turns up a 4 bedroom, 2,000 sqf t home selling f or $8,000.

Sorting by price gives results like this (source):

While the problems in Detroit have been caused by more than justthe f ractional reserve banking system, the point should be clearenough. A house like the f irst one in other parts of the world, e.g.Melbourne, Australia, can cost between $1~2 million, while Sydney,Vancouver, and Hong Kong are all still yet more expensive.

Those are 2 ways that the banksters can launch an attack on thepeople, but they are also f ar f rom being the complete sum total ofattacks. The banksters have many other ways as well, not the leastof which is usury or interest.

So f ar in this series of articles we have not looked at interest orthe role it plays in banking, other than a quick quote f rom Aristotleabout how unnatural it is. Part 5 looks at usury and compoundinterest.

In the current context of f orcing a "run on the people", banks canraise interest rates. This encourages savings and discouragesloans. Where the attack above describes banks ref using to loanout money, the raising of interest rates causes people tovoluntarily not borrow money. With a higher rate of savings, andless money being created as debt and put into circulation, themoney supply, as available, again contracts.

Endless money f orms the sinews of war. — Marcus Tullius Cicero

Read Part 5 – Compound Interest as Invisible Slavery

Part 1 – The Mechanics of Fractional Reserve BankingPart 2 – What is Money?Part 3 – “How” Fractional Reserve Banking Creates Money and “Why” it is FraudulentPart 4 – Run on the Banks? Or Run on the People? Part 6 – Summary & Additional Resources

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Frackin’ Reserve – Compound Interest as Invisible Slavery(5/6)

But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then letbankers continue to create money and control credit. — Josiah Stamp

In Part 1 we looked at the mechanics of f ractional reserve banking. In Part 2, we looked at money vs. wealth.Part 3 looked at how and why f ractional reserve banking is f raudulent, and illustrated how it is structuredlike a pyramid scheme. Part 4 looked at 2 basic ways in which the system f alls apart, either through a run onthe banks, or the banks f orcing depressions on the people and then stealing their wealth. Here in Part 5, welook at compound interest and how it is an invisible f orm of slavery.

Compound Interest Mechanics

In addition to simulating f ractional reserve banking, the Frackin’ Reserve program also illustrates simple andcompound interest. Simple interest is calculated by setting the interest periods to 1, and the compoundedmethod to "Annually". Setting "Compounded" to any other option shows compounded interest, the f ormulaf or which is:

Where:

Amount = the f inal amount to calculatePrincipal = the init ial, borrowed principal

Rate = the interest rate as a decimal (not a percentage)Periods = the number of t imes to calculate the compounded interest in f or the term (e.g. 12 f or a term of 1year when compounding monthly, or 365 if compounding daily)Term = the total length of t ime f or the loan in years

Interest is an Invention of Satan — Thomas Edison

While Thomas Edison may have pioneered douchebaggery, he was at least smart enough to know just howsinister interest was. And this is another predatory hallmark of f ractional reserve banking.

While a state may issue its own currency at zero interest, banks do not. Rather, they artif icially inf late themoney supply through f ractional reserve banking as illustrated in part 1 and through the Frackin’ Reserveprograms. The key point to understand here is that states have no reason to operate a f ractional reservebanking system because they can legit imately print money whenever they wish to (which leads tohyperinf lation if too much money is printed, e.g. Z imbabwe). Fractional reserve banking is exclusivelyfor private banks.

In that process, they charge interest on other people’s money, not their own money. That is, when youdeposit money, the bank makes money with it by lending out your money to other people. (And don’t f orgetthe f ees… you pay the bank to take your money, but that’s just one more way f or the banksters to prey onpeople.)

The f ollowing table illustrates how the banks charge interest on money that they do not own:

Iteration # Deposited Loans Deposits

Interest: 10 years @ 5.0%

CAN NEVER BE REPAID! Bank Lends to

1. Adam 1,000.00 0.00 1,000.00 0.00 Anne

2. Brian 900.00 900.00 1,900.00 582.31 Brenda

3. Chris 810.00 1,710.00 2,710.00 1,106.39 Cathy

4. David 729.00 2,439.00 3,439.00 1,578.06 Dale

5. Earl 656.10 3,095.10 4,095.10 2,002.56 Edna

6. Frank 590.49 3,685.59 4,685.59 2,384.61 Francine

7. George 531.44 4,217.03 5,217.03 2,728.46 Gwen

8. Harry 478.30 4,695.33 5,695.33 3,037.92 Helen

9. Ian 430.47 5,125.80 6,125.80 3,316.44 Iona

10. Jef f 387.42 5,513.22 6,513.22 3,567.10 Jennif er

If you live in Canada, Australia, New Zealand, or Sweden where there is no reserve requirement at all(apparently it is possible to divide by zero there), then that table looks like this:

Iteration # Deposited Loans Deposits

Interest:10 years @ 5.0%

CAN NEVER BE REPAID! Bank Lends to

1. Adam 1,000.00 0.00 1,000.00 0.00 Anne

2. Brian 1,000.00 1,000.00 2,000.00 647.01 Brenda

3. Chris 1,000.00 2,000.00 3,000.00 1,294.02 Cathy

4. David 1,000.00 3,000.00 4,000.00 1,941.03 Dale

5. Earl 1,000.00 4,000.00 5,000.00 2,588.04 Edna

6. Frank 1,000.00 5,000.00 6,000.00 3,235.05 Francine

7. George 1,000.00 6,000.00 7,000.00 3,882.06 Gwen

8. Harry 1,000.00 7,000.00 8,000.00 4,529.07 Helen

9. Ian 1,000.00 8,000.00 9,000.00 5,176.08 Iona

10. Jef f 1,000.00 9,000.00 10,000.00 5,823.09 Jennif er

Without interest, the f ractional reserve banking can be "rewound" or undone, and eventually everyone canget their money, as long as it is done in reverse sequence and with enough time f or people to properlycomply. Theoretically that is. In practice, it ’s virtually impossible to unwind as you can borrow money anddeposit money in a matter of seconds, but loans can take many years to repay. (Remember back to thepyramid structure and "f loat t ime" f rom part 3.) So while the f irst 10 iterations in the 2 tables above couldhappen in less than a week, the repayment of the loans could take years or decades. Remember, the coreproblem with a "run on the banks" or a "run on the people" is the time involved, which is a determining f actorf or interest.

However, with interest, that money cannot be paid back. Ever. Interest ef f ectively prevents "unwinding" thef ractional reserve banking. The interest is purely imaginary and has no basis in the real world. For it to begiven "reality", real wealth in the real world must be surrendered.

If you take the def ault values in Frackin’ Reserve, then change the "Interest periods (in years)" value to 15or 16, you will see that the interest is then greater than the value of all deposits ("What customers thinkthey have"). A higher iteration value only exacerbates the problem. Going back to the def ault values andentering an interest rate of 0.08 (8%) similarly eats up all the deposits, with more iterations of thef ractional reserve system again making the situation worse f or people. Is it any wonder than that bankslove to of f er 30 year mortgages?

Play around with the values in Frackin’ Reserve, and you will quickly see how compounded interest veryquickly eclipses the value of all deposits in the system. This is f unctionally equivalent to the bank gainingcontrol of all assets or wealth.

Interest then acts as a vampire, draining wealth f rom the people as a vampire sucks the blood f rom itsvictim. It f orces people to labor to produce wealth f or its repayment. Interest is invisible slavery.

The rich rule over the poor, and the borrower is the slave of the lender. — Proverbs 22:7

For money was intended to be used in exchange, but not to increase at interest. And this term interest,which means the birth of money f rom money, is applied to the breeding of money because the of f springresembles the parent. Wheref ore of all modes of getting wealth this is the most unnatural. — Aristotle

‘The most powerf ul f orce in the universe is compound interest.’ — Attributed to Albert Einstein

The true insidious nature of interest lies in the f act that it is compounded. If interest were simple in nature,i.e. at 5% on $100, the total interest being $5, then it would be less insidous, and it would be possible toreduce debt much more reasonably. However, as interest compounds, it grows ever larger at an everincreasing rate.

For example:

The interest at 5% interest on $1,000 af ter 1 year of simple interest is $50

The interest at 5% interest on $1,000 af ter 1 year of compound interest is $51.16

The interest at 5% interest on $1,000 af ter 10 years of simple interest is $500

The interest at 5% interest on $1,000 af ter 10 years of compound interest is $647.01

$647.01 is certainly much more than 10×$51.16. It ’s $135.41 more. The compounding and exponentialnature of interest virtually guarantees that the interest alone will eventually engulf and consume the entireworld.

This same exponentially increasing rate of growth isn’t realistically possible f or the growth of real wealthas real wealth relies on human labor f or its production. i.e. If you are a waitress, you can hardly expect thatyour wages and tips will grow exponentially over t ime as compounded interest does. The same goes f oralmost any occupation – wages (or productivity) do not increase exponentially. Well, except f or bankstersthat is…

The question then is whether or not the production of new wealth by people is greater or less than the rateat which interest accrues, and whether or not at any point in the f uture it is possible f or the rate at whichinterest accrues to outstrip the pace of the production of new wealth.

Now, it is possible for productivity to accelerate, however, this acceleration of productivityinvariably leads to price reductions, which implies that no increase in production can ever meetthe exponential growth of interest.

In other words, the law of supply and demand f or real wealth in the marketplace dictates that as the supplyincreases, prices drop. The key f actor in increasing supply is productivity. Productivity has skyrocketedsince the advent of the industrial revolution, and has only accelerated in many areas. The consequence isthat prices f or "wealth" drop.

While this does not hold true f or everything, e.g. precious metals and real estate, it holds true f or virtuallyall consumer products, e.g. computers and cars. While previous cars were available, Henry Ford rolled theModel T of f his assembly production lines at the low-low price of $825 at a t ime when the averagehousehold pulled in about $574 (source), or 144% of the average household annual income. Today a newcar that outperf orms the Model T in every way imaginable can be easily purchased f or under $10,000, withthe Tata Nano costing around $2,000 to $3,000 at a t ime when the average household income in the US isaround $50,000 per year. There are countless numbers of similar examples where market, workf orce, andtechnological productivity have skyrocketed over the last century, and even when looking at just the lastdecade. e.g. Compare storage prices per GB or TB in hard drives and f lash NAND memory.

In other words, while people’s productivity may increase linearly, exponentially, or even geometrically, theprices of the products of their labor do not increase at that rate, and in f act, tend to decrease.

This does not happen in banking. The compounding nature of compound interest guarantees that the priceof money will always accelerate upwards. This stand in stark contrast to virtually all other products andservices in the market where the price comes down.

A Touch of Modern Cynicism…

Where all virtually all industries, except f or f inancial industries such as banking and insurance, makeincredible advances in productivity and generate new wealth virtually beyond imagination, the f inanceindustries create nothing and add no value. They are purely administrative in nature. They are overhead.Nothing more.

Rather than actually create any kind of wealth, produce anything of value, or of f er a genuine service, theyopt to simply manipulate the instruments of trade, i.e. money. Through the manipulation of money, andprimarily through compound interest, they ef f ectively swindle the rest of the world into surrenderingeverything they have, including their labor, and the promise of f uture labor.

What is the job of the insurance industry? To get money f rom people, and then f igure out ways not to payit out.

What is the job of f und managers? To gamble with other people’s money, and pay them back a smallportion of the prof its if they win. And tough luck if the f und managers lose their money. i.e. Let me gamblewith your money and assume no risk, and you pay me f or gambling, and I take a portion of any prof its.Wow! What a deal! Where do I sign up?

What is the job of f inance in general? To manipulate money in order to swindle people out of their wealth.

It is reasonable to assume that compounding interest will always outstrip the production of new wealth, andwill eventually engulf and consume the entire wealth of the world. Indeed, this is a mathematical certainty.

One need only look at the growth of the f inancial sector to see that it is slowly engulf ing more and more ofthe economy. In 2010, the US f inancial sector was responsible f or a third of all prof it among UScorporations (source, source).

Money is a new f orm of slavery, and distinguishable f rom the old simply by the f act that it is impersonal –that there is no human relation between master and slave. — Leo Nikolaevich Tolstoy

Read Part 6 – Summary & Additional Resources

Part 1 – The Mechanics of Fractional Reserve BankingPart 2 – What is Money?Part 3 – “How” Fractional Reserve Banking Creates Money and “Why” it is FraudulentPart 4 – Run on the Banks? Or Run on the People? Part 5 – Compound Interest as Invisible Slavery

cynic.me http://cynic.me/2012/05/28/frackin-reserve-summary-and-additional-resources-6-6/

Frackin’ Reserve – Summary & Additional Resources (6/6)

This series of articles on f ractional reserve banking started with an introduction to the mechanics off ractional reserve banking. The important points were:

The simple nature of the mathematics and the f actors involved

The iterative nature of the process as a continuing cycle

The process has mathematical limits, except in Canada, Australia, New Zealand, and Sweden

The limits are drastically af f ected by the reserve requirement

We then looked at one perspective on the dif f erence between money and wealth, and def ined money as aninstrument to f acilitate trade and commerce.

Part 3 accelerated by explaining the exact mechanism by which f ractional reserve banking works, andexposed it f or the f raud that it is. It illustrated that by taking advantage of f loat t ime, in the same way ascheck kit ing, fractional reserve banking is a temporal pyramid scheme .

Part 4 examined ways in which the pyramidal structure of f ractional reserve banking collapses. It explainedhow a "run on the banks" collapses the temporal pyramid, and how the banks can use a two-pronged attackto cause depressions, unemployment, chaos, pandemonium, bedlam, dogs sleeping with cats, andultimately use that to steal real wealth f rom people, e.g. home f oreclosures.

Up until Part 5, interest was never addressed. Af ter a brief introduction to the exponential nature ofcompounded interest, we looked at the ef f ects of compounded interest, and illustrated that the nature ofits exponential growth necessarily dictates that it must eventually overcome all other considerations in themarketplace, and deliver all wealth in the world to its controllers.

My Contribution to the Topic

Over the course of these articles, much of what I have explained has been said bef ore, and much of it inthe same way. For that I can take no credit.

However, I have tried to explain things f rom a dif f erent perspective as much as possible, and in a dif f erentway in the hopes that it might help clarif y what people may not have f ully understood f rom otherexplanations. (We all understand things f rom our own perspective, and many of us learn easier withdif f erent teaching techniques.) I have provided a f ew very simple sof tware tools, some metaphor, and somebasic diagrams to help people visualize what happens inside of the f ractional reserve banking cycle.

However, I have introduced a couple new concepts f or understanding f ractional reserve banking, as f ar as Iam aware (I have not heard them anywhere else, and I have done extensive research on the topic).

1. That f ractional reserve banking abuses f loat t ime

2. That f ractional reserve banking is a temporal pyramid scheme similar to a Ponzi scheme

I used these to explain how a run on the bank works, and how banksters use the temporal nature of theirpyramid scheme to rape the economy and steal wealth f rom people.

It is my sincere hope that I have contributed back to humanity and the resistance against the tyranny of thebanksters, and helped build some greater awareness and understanding of the f undamental issuesinvolved with f ractional reserve banking.

I have countless sources to thank f or helping to educate me on what is going on. As such, I can onlymention a f ew here. I won’t say that I agree with everything in every source, but that’s OK because we can’talways agree on everything. Without f urther adieu, may I humbly recommend some f urther resources f oryour f urther investigation, eduation, and growth.

Additional Resources for Fractional Reserve Information

The f ollowing are all f antastic resources f or f urther education on the topic, with most exploring the biggerpicture behind f ractional reserve banking.

The Money Masters

URL: http://www.themoneymasters.com/

Rating: — Must watch

Video: http://vimeo.com/8757743 or http://www.youtube.com/watch?v=JXt1cayx0hs

Description: Filmed in 1996, this is still a brilliant explanation that is well worth watching. It f ollows a greatdeal of history and through that explains the roots of f ractional reserve banking as well as many otherrelated issues. Not only does this f ilm put f ractional reserve banking in perspective, it also shows howmuch of history has been def ined by it. Af ter watching this documentary, you will hate your high schoolhistory teachers f or their negligence in not telling you about this part of history.

The Secret of Oz

URL: http://www.secretof oz.com/

Rating: — Must watch

Video: http://vimeo.com/14924997 or http://www.youtube.com/watch?v=swkq2E8mswI

Description: This f ilm can in many ways be viewed as an update to The Money Masters, and while of f eringmuch of the same history and exegesis, it adds in an updated perspective and metaphors f rom "TheWonderf ul Wizard of Oz". I would recommend watching The Money Masters f irst, though it really doesn’tmake much of a dif f erence. But f or heaven’s sake, watch it!

Money as Debt

URL: http://www.moneyasdebt.net/

Rating: — Must watch

Video: http://vimeo.com/2244372 of http://www.youtube.com/watch?v=KyDU4X8GSmE(part 1)

Description: A f antastic animated documentary that is well worth watching. In particular, watch f or "TheGoldsmiths’ Tale". There are 2 sequels to this documentary.

The American Dream

URL: http://theamericandreamf ilm.com/

Rating: — Must watch

Video: http://vimeo.com/18568828 or http://www.youtube.com/watch?v=ZPWH5TlbloU

Description: A very entertaining and educational animated f ilm by The Provocateur Network.

Thrive

URL: http://www.thrivemovement.com/

Rating: — Must watch

Video: http://vimeo.com/channels/thrivemovie or http://www.youtube.com/watch?v=lEV5AFFcZ-s

Description: A brilliantly done documentary that has every single f act backed up with ref erences availableat its web site. I would recommend watching this while simultaneously checking the f acts at the web site ifyou are somewhat skeptical. Everything is meticulously ref erenced. If you were a skeptic bef ore watchingthis documentary, you won’t be af ter.

Lecture by G. Edward Grif f in

URL: http://www.gedwardgrif f in.com/

Rating:

Video: http://www.youtube.com/watch?v=lu_VqX6J93k

Description: This is an excellent lecture that I highly recommend. While it was f ilmed in 1994, none of thebasic f acts have changed. G. Edward Grif f in argues in this video that the US Federal Reserve should beabolished f or 7 reasons:

1. It is incapable of accomplishing its stated objectives.

2. It is a Cartel operating against the public interest.

3. It is the supreme intrument of usury.

4. It generates our most unf air tax.

5. It encourages war.

6. It destabilized the economy.

7. It is an instrument of totalitarianism.

I would f urther recommend searching f or more videos with G. Edward Grif f in in them, or simply keeping youreye out f or him in other videos. He’s one of the smartest people around on the topic.

Money – A Brief History of the American Dollar

URL: http://www.youtube.com/user/JohnFromChicago

Rating:

Video: http://vimeo.com/31413624

Description: While not strictly about f ractional reserve, it is still worth watching f or a quick history lesson.This video advocates gold & silver as money.

Web of Debt Lecture

URL: http://www.webof debt.com/

Rating:

Video: http://www.youtube.com/watch?v=QU0XiklHPMc (part 1 of 5)

Description: While this isn’t a video version of the book ("Web of Debt"), the author, Ellen Brown, lectureson the topic with graphs and charts. This is an excellent presentation, and highly recommended.

Zeitgeist Addendum

URL: http://www.zeitgeistmovie.com/

Rating:

Video: http://www.youtube.com/watch?v=W3hLKpKv3ME (segment)

Description: This documentary goes into many other areas, but includes a section on f ractional reservebanking. Much of "Zeitgeist" advocates a resource based economy, and sounds rather socialist in nature.Judge f or yourself . The treatment on f ractional reserve banking is very good.

Your Choice Here!

URL: Go search!

Rating: Unknown

Video: This you need to f ind!

Description: I encourage you to f ind more on the topic. There are many excellent documentaries, websites, articles, and tutorials on f ractional reserve banking. The ones above are simply a f ew that I f elt wereworth sharing. There are many more that I could list, but at some point I need to stop.

Thank you to everyone who has taken the time to read through this rather long series of articles onf ractional reserve banking. Please pass this on, and let others know about how the money in their walletsand purses is being used to enslave them.

The "Frackin’ Reserve" articles are f ree to share and distribute. They are licensed f or f reedom under theGNU Free Documentation License or the Creative Commons Attribution-ShareAlike 3.0 Unported License.The aim is to give you maximum f reedom to help spread the word of f reedom.

Cheers, and be f ree,

Ryan

Permit me to issue and control the money of a nation, and I care not who makes its laws. — Mayer AmschelRothschild

Part 1 – The Mechanics of Fractional Reserve BankingPart 2 – What is Money?Part 3 – “How” Fractional Reserve Banking Creates Money and “Why” it is FraudulentPart 4 – Run on the Banks? Or Run on the People? Part 5 – Compound Interest as Invisible Slavery Part 6 – Summary & Additional Resources