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Monetary Reform!

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« on: April 20, 2011, 03:18:10 pm »

The 8th Wonder of the World!

Often we are told of the wonderful power of compound interest (earning interest on both principal and previous interest). We are told how compound interest can make a modest investment grow into a great amount.

For example: If you invested  $10,000 at 7% compound interest for 30 years; you’d expect your investment to grow to $76,122.52.

Sounds Great! 

Compound Interest must truly make money grow!

For a moment, let’s step out of the dream world hype of banking, financial planning and Wall Street. Just HOW DOES MONEY GROW?

Where does the interest money come from?

When you put money into an interest-bearing account, does it turn into something like rabbits that mate and quickly reproduce? What happens? The increase of money in your account had to come from someplace. To understand financial planning, economics, growing public and private debts, ever increasing taxes and prices, etc. we must learn and always remember what it is we now use for money and how ALL new money is created and put into circulation.

When the economy grows and more money is needed, always remember:  “...the actual creation of money always involves the extension of credit by private commercial banks.” -- US Treasury

If the private sector doesn’t borrow it, the government must or the money cannot exist. If you invest $10,000 and 30 years later get $76,122.56; somewhere, someone in the private sector or the government had to borrow $66,122.56 before it could get into your account! Now, you have the money. They have the debt which can never be paid because there is no way to create the interest money when money is created through the lending process. Therefore, the debt must constantly grow.

Many people claim that the interest money comes from increased production (worker productivity). But, when was the last time your personal production (goods and services) turned into money? Did you ever wave a magic wand over a shoe, shirt, bushel of corn, a new car or an hour of labor etc. and see it turn into money?

There are only 2 ways to get money from what we produce.

ONE: We can use our produce as collateral for a bank loan which creates the new money.

TWO: We can sell our production to someone in exchange for money that was created as a loan.

Production NEVER turns into money.

You can create money by using a credit card by signing the forms sent to you by the credit card company and promising to pay the credit (money) back in the future with interest. The bank turns that promise to pay into collateral to create the money as a loan the minute you use your credit card to buy something.

Let me explain another way.

The Shoe Factory

Imagine that we have $10,000 total money in circulation. We invest all of it in a compound interest-bearing account. Let’s say that the money is invested in a shoe factory.

The factory spends the $10,000 for raw resources and labor to produce shoes. It sells the shoes and gathers back the total money supply and returns it to the investor. Remember, if the total money supply is only $10,000, that is all the shoe factory could return to the investor.

If the factory is going to return the original $10,000 investment PLUS compound interest, the money supply would have to be increased by at least $66,122.52 or even more if the shoe factory is going to have a profit. To increase the money supply, under the present system, it must be borrowed by someone from a bank. By borrowing the $66,122.52 needed to pay the investor 7% compound interest, the total debt drawing interest at some bank would be $76,122.52. It’s easy to understand how we have $50+ Trillion of debt drawing interest in 2006.

These facts are not clearly seen because there are vast numbers of loans being made and extinguished daily. Banks spend a large part of the interest back into circulation. However, this ‘interest-spending’ does not increase the money supply. It simply keeps money in circulation. In addition, the total amount of interest and debts that are not repaid are repudiated through business losses, repossessions and bankruptcies.


For more commentary by author and monetary reformer, Byron Dale, visit:
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"For the first years of [Ludwig von] Mises’s life in the United States...he was almost totally dependent on annual research grants from the Rockefeller Foundation.” -- Richard M. Ebeling

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