FOR BANKS, MONEY DOES GROW ON TREES

Another way banks ‘make’ money is through the fractional reserve. This is a percentage set by the Fed which determines how much of a deposit banks must hold in ‘reserve.’ Right now the reserve is 10 %. This means that if you deposit $100 in your account, the bank must hold on to $10. It can do what it wants with the remaining $90, like bet it on the stock market, or lend it to someone else at interest.

             Through the factional reserve, money is multiplied. It works like this. Say you deposit $100 in your account and your bank decides to lend $90 to Ann. When she deposits the $90 in her bank, that bank must keep $9, and can lend $81 to Mary.  Now, Mary has $81, Ann has $90, and you have $100. In this manner, your initial deposit can be multiplied ten-fold ($100+$91+72.90 … = $1000).  This is how money is created out of thin air and how banks have become so profitable. 

WHAT WENT WRONG

In 1910, a handful of bankers, a U.S. Senator, and the Treasury Secretary devised a plan to wrest control of the money supply from Congress and give it to the banks. Three years later, on December 23, 1913, with many elected officials home for the Christmas holidays, the Federal Reserve Board (Fed) was created. The legislation took from Congress and gave to the new central bank the power to print money. Hailed as a means to take politics out of financial policy and stabilize the economy, in reality, the aim of the central bank was to make a profit. It was no coincidence that the same year the Federal Reserve was created, Federal Income Tax was imposed. The tax was needed to pay interest on the money that the government could no longer mint itself, but now had to borrow from the Fed. We pay tax, in part, to pay interest on free money the Fed creates out of thin air. (For an excellent history of the Fed see: The Creature from Jekyll Island, by G. Edward Griffin.)