News Review - 19 Jan 2018

Fractional Reserve Banking… Leverage… Financial Crises… A world in debt… Credit Card Debt… National debt… Late-cycle liquidity… Bubbles… Negative yields… Usury…
Are we living in the age of


“Children in a local school here in the UK are being taught the value of money. They have their own bank, their own currency and their own shop. They are being taught that they need to work to earn money, and then they are rewarded. They have a student ‘bank manager’, Lily, who explains what her job entails. ‘ I need to look after everyone’s money to make sure that nothing goes wrong with it’!” (

If only it were true – that the banks are there to look after our money. As we look into how the banks operate, a different reality emerges. In his autobiography, Mr Herbert Armstrong quoted the then well-known statistician Roger Babson:

If I want to know what the temperature is, now, in this room, I go to the wall and look at the thermometer… But if I want to know what the temperature in this room is going to be, an hour from now, I go to the source which determines future temperatures – I go down to the boiler-room and see what is happening down there.( The Autobiography - Chapter 12)

So let’s go down to “the boiler room”, to see how our financial system operates.

The Magic Of Banking

What we find down in the “boiler room” is very interesting. The system of banking which we have today was apparently started by the goldsmiths and the money changers, as the following article points out:

‘The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented… The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again… If you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.’
Sir Josiah Stamp, Director of the Bank of England, 1928-41

“…the fact that the institutions involved, though they may have started as nefarious enterprises, have acquired great size and with it respectability. While the top executives of an investment bank may deceive and cheat on a global scale and exert silent power on elected governments, the line managers and rank and file have no awareness of this, and present to the public a face of helpfulness and integrity.

To understand what [Sir Josiah] is saying, one must first have a minimum knowledge of how banks function in creating money out of nothing.

Modern banking began almost accidentally, when goldsmiths realised that the receipts they had given for goods in their safekeeping were circulating commercially as money. Before this, there was no banking profession as such, for money changers would exchange money and goldsmiths would make things out of gold, and both would make loans on an individual basis, as a profitable sideline.

Once the money changers caught on to the fact that a goldsmith’s receipt was accepted as proof of ownership, whether or not there was gold in their strong room to back it, banking took off.

The essential magic of banking is unknown to the public, most of whom think that banks merely lend on to borrowers money that has been deposited in the bank by savers, but at a slightly higher rate of interest. The reality, and the very essence of banking, is the goldsmiths’ original deception of issuing money against assets that do not exist. As John Kenneth Galbraith put it, ‘The process by which banks create money is so simple the mind is repelled.’

On the basis of having a small amount of assets and a government licence, the bank effectively issues a phoney note, like the goldsmiths of old, although today, it is only a book entry, which is converted into a bank cheque which the borrower is able to exchange for anything he or she wishes.

If by some imagined stroke, all the loan money in circulation were paid back to the banks overnight, there would be virtually no money in circulation, and trade and business would dry up. That is the black magic side of banking, which is today sending the economic world into spasm .” (

Fractional Reserve Banking

“Fractional reserve banking, as it was taught to many of us in school, is a system whereby a bank can lend out a portion of the money it has on deposit, keeping only a fraction of it as a reserve, hence the term ‘fractional reserve banking.’ The reserve is intended to cover the occasions when people with deposits want to take the money back out of the bank.

To demonstrate fractional reserve money, we’ll look at a simple theoretical example. We’ll lump all banks into one and just work with ‘the bank’.

We start from zero and suppose that Alice comes into the bank and deposits $100,000 in currency. The bank now has $100,000 on deposit of which it can lend out 90% or $90,000.

The bank lends $90,000 to Pete. Pete pays the $90,000 to Joe for a boat, and Joe, rather than carrying $90,000 around in a brief case or putting it under his mattress, deposits it in the bank.

Here’s where it gets interesting.

At this point the bank has $190,000 in deposits, and it considers the new deposit brand new money. Therefore it’s free to lend out 90% of this new deposit. It now lends $81,000 to Fred, which Fred pays to Lois for design and decorating services for his business office. Lois, of course, deposits the $81,000 in the bank. Once again, the bank considers it has brand new, fresh, debt-free money on deposit. Now we have:

  • Alice: $100,000
  • Joe: $90,000
  • Lois: $81,000
  • Total: $271,000

By these three steps, the money supply has gone from $100,000 to $271,000.

Note that Alice, Joe, and Lois all consider the money they have on account is their own money with no strings or debts attached. Pete and Fred may be making or not making monthly payments on their debts, but with regard to Joe’s and Lois’s deposits, that’s no concern of the bank and no concern of the account holders. As far as they’re concerned, that money is real money, free and clear.

If you continue this process until the re-deposited amount gets down to near zero, eventually $100,000 currency turns into about $1,000,000. The process creates $900,000 of debt money out of $100,000 currency. Thus we get a money supply that is 90% debt-based and 10% currency.

There are a few major problems with this method of creating money. The most obvious is that it requires that people be in debt in order for the economy to have any money. What if people get tired of being in debt and start paying it off?” (


Not only do the banks lend out money which they create out of thin air, they then charge interest on it! So if they charge 5% interest on $900,000 over one year, they make $45,000 profit! Up the figures to the kind of volumes which banks work with, if they create $90 million, then the profit is $4.5 million. Add to this fees for overdrafts and charges for exceeding your limit and banking is a very lucrative business!

Usury - Contrary To The Law Of God

Mr Armstrong explains:

“Then we have developed a human system of economy. Now the economy is in trouble all over the world right now; and man has nothing but problems and troubles with the economic system he’s developed, because it is false.

It’s man-devised and Satan-influenced.

God’s way denies interest or usury on loaning money; but the whole world’s system is based on usury and interest.” ( Sermon - October 17, 1981)

Lethal Link: Leverage

“Borrowing and lending are as ancient as commerce, and leverage today is a key component of the toolkit for business. Leverage enables a corporation to make investments or incur expenses it would not otherwise have been able to undertake based on its owners’ resources.

Whenever a financial crisis erupts around the world, the fingerprints of leverage are always to be found. Society and its political and business leaders would do well to understand that crisis and leverage are closely linked, as history has shown us time and again, and that this link can be lethal if limits to leverage are not urgently evaluated and implemented.” (

Tracking Leverage

“In the day to day operations of a bank, transactions are happening all the time. Money is coming in and money is going out. People make deposits and withdrawals, and the bank makes loans. How then is the bank supposed to keep track of how much money they’re allowed to lend?

In reality they don’t exactly bother keeping track of it. The loan officers don’t sit watching a computer screen waiting for vault cash to reach a certain level before making a loan. They just lend money according to whatever plan or promotional offer they have going at the time.

At the end of the day or end of the week, the bank tallies up to see if they have reserves equalling the required percentage of their deposits. If they don’t have the required reserve amount to balance against the money they already ‘loaned’ that wasn’t there, what they do to fix that is they borrow it. They borrow it from another bank that has excess reserves or they borrow it from the Federal Reserve Bank. So really for all practical purposes, the banks are creating new deposits out of nothing and then making the numbers meet the rules.(

Leverage Lunacy 2007–2009

“Consumers in the United States and many other developed countries had high levels of debt relative to their wages, and relative to the value of collateral assets. When home prices fell, and debt interest rates reset higher, and business laid off employees, borrowers could no longer afford debt payments, and lenders could not recover their principal by selling collateral.

Financial institutions were highly levered. Lehman Brothers, for example, in its last annual financial statements, showed accounting leverage of 31.4 times ($691 billion in assets divided by $22 billion in stockholders’ equity). Bankruptcy examiner Anton R Valukas determined that the true accounting leverage was higher: it had been understated due to dubious accounting…” (

Germans Prefer Cash – Why?

“In 2013, only 18% of payments in Germany were made via cards, compared to 59% in the UK - and this is why. With endless payment options from contactless to instant payments available in the western world, why is it that Germans insist on managing all their transactions in cash?

Compared to Australia, the US, France and Holland, wallets in Germany and Austria hold nearly twice as much cash - on average $123 more - and roughly 80% of all transactions in Germany are conducted in cash.

But what’s the obsession with cash all about?

Managing in cash helps protect you from debt - if you don’t have it, you can’t spend it - and unsurprisingly, statistics show that levels of consumer debt in Germany are remarkably low, compared to that of Europe. Just 33% of Germans said they had a credit card back in 2011 - the majority of which were left untouched.

But an aversion to debt is not necessarily positive. The German population’s risk adverse attitude towards mortgage debt is part of the reason why the country has some of the lowest home ownership rates in the developed world.

But is there a deeper explanation? Other explanations attribute the cash phenomena towards a greater value of privacy, however take a look into the financial history of Germany - and other factors come into play.

Hyperinflation over the Weimar-era saw prices in Germany rise roughly a trillion-fold, to the extent that a loaf of bread cost 428 billion marks and a kilo of butter 6 trillion.

Circulation of money rocketed, and banknotes were being overprinted to a thousand times their nominal value and every town produced its own promissory notes; many banks and industrial firms did the same.

It’s not hard to understand why people in countries that have suffered a banking crisis quite sensibly prefer to save in cash - rather than put money in the bank.

For much of the last century, Germany has been either on the brink of, in the midst of, or struggling to recover from disaster - and such trauma could understandably lead to such an attitude towards money.” (

The Real Bubble – The Global Financial System

“This leviathan now stands at around $233 trillion, or 318 percent of global GDP. Even more troubling, an estimated $11 trillion of government debt now trades at negative yields. This means whoever is buying this paper is doing so despite the fact they are guaranteed to lose money on the ‘investment.’

Much of this buying has been propelled by central banks which can print their own currency and buy debt indiscriminately. This is not characteristic of a healthy financial system (particularly so many years into a global recovery), but rather a zombie one that’s been artificially propped up since the financial crisis.” (

Who Scores?

Total world debt is a staggering $233 trillion. At 5% interest, that’s around $11.65 trillion in interest. And that goes mainly to the banks!

We ARE living in the age of financial insanity…

And there is a price to pay!

Insanity is a legal term pertaining to a defendant’s ability to determine right from wrong when a crime is committed. It is referred to as: “…a mental illness of such a severe nature that a person cannot distinguish fantasy from reality”. (

The banking industry seems to have a hard time sorting out right from wrong, fantasy from reality. This world’s financial system appears to be a mammoth criminal cartel. To create money out of thin air is a crime – it’s theft – plain and simple. To then lend that money out and charge interest, or usury, compounds the crime.

The money you have in the bank is simply a number. If we all go to the bank to claim our cash back – the bank will be bankrupt!

Modern banking might present to the public a face of “helpfulness and integrity”, but it is possibly the biggest criminal cartel – ever!

God warns modern day Israel through the prophet Ezekiel…

“You have despised My holy things and profaned My Sabbaths …you take usury and increase; you have made profit from your neighbors by extortion, and have forgotten Me, says the Lord God … I will scatter you among the nations, disperse you throughout the countries, and remove your filthiness completely from you” (Ezekiel 22:8,12,15 New King James Version).