Hello from my new residence on Moorpark in Toluca Lake!
I’ve been thinking a lot lately about the economic situation, what caused its impending meltdown, and what might fix it. I am neither secure in my opinion nor in a position of power to really do anything about it, but I figure that as a human being it’s probably my responsibility to at least try to know what the heck is going on.
Maybe you’ve noticed, like I have, that our money doesn’t seem to buy what it used to. Of course, we’ve all been taught that a single word — “INFLATION” — explains why that’s the case. But it doesn’t explain why I didn’t pay more attention in my Economics class, and it doesn’t explain what actually causes inflation.
Of course, nothing in the world of economics/politics/business is completely simple, but with a little time and some good teachers I think we can make sense of it eventually. I’ll share more with you, the more I learn.
If you know anything about banks, you know that they are private institutions (not government entities!) who take our money and then use it to make themselves a varitable sh*tload of money. Which, of course, pisses us off, unless we happen to be Mr. Wells Fargo.
These thoughts formed a question in my head the other day… why couldn’t I just start my own bank? I only really need a bank for the convenience factor — it’s almost impossible to get paid or pay bills without a bank account these days. So I looked into it, and it’s not as simple, or cheap, as I hoped (but if you have a couple million bucks laying around, I think we should talk). But in my searching I did come across some interesting and clarifying info, to help us understand more of what banks “do.” It comes from an extract from the British humour magazine PUNCH, dated April 1957 — “What Are Banks For?”
Q: What are banks for?
A: To make money.
Q: For the customers?
A: For the banks.
Q: Why doesn’t bank advertising mention this?
A: It would not be in good taste. But it is mentioned by implication in references to reserves of $249,000,000 or thereabouts. That is the money that they have made.
Q: Out of customers?
A: I suppose so.
Q: They also mention Assets of $500,000,000 or thereabouts. Have they made that too?
A: Not exactly. That is the money they use to make money.
Q: I see. And they keep it in a safe somewhere?
A: Not at all. They lend it to customers.
Q: Then they haven’t got it?
A: No.
Q: Then how is it Assets?
A: They maintain that it would be if they got it back.
Q: But they must have some money in a safe somewhere?
A: Yes, usually $500,000 or thereabouts. This is called Liabilities.
Q: But if they’ve got it, how can they be liable for it?
A: Because it isn’t theirs.
Q: Then why do they have it?
A: It has been lent to them by customers.
Q: You mean customers lend banks money?
A: In effect. They put money into their accounts, so it is really lent to the banks.
Q: And what do the banks do with it?
A: Lend it to other customers.
Q: But you said that money they lent to other people was Assets?
A: Yes.
Q: Then Assets and Liabilities must be the same thing?
A: You can’t really say that.
Q: But you’ve just said it. If I put $100.00 into my account the bank is liable to have to pay it back, so it’s Liabilities. But they go and lend it to someone else, and he is liable to have to pay it back, so it’s Assets. It’s the same $100.00, isn’t it?
A: Yes, But…
Q: Then it cancels out. It means, doesn’t it, that banks haven’t really any money at all?
A: Theoretically…
Q: Never mind theoretically. And if they haven’t any money, where do they get their Reserves of $249,000,000 or thereabouts?
A: I told you. That is the money they have made.
Q: How?
A: Well, when they lend your $100.00 to someone they charge him interest.
Q: How much?
A: It depends on the Bank Rate. Say five and a-half per cent. That’s their profit.
Q: Why isn’t it my profit? Isn’t it my money?
A: It’s the theory of banking practice that…
Q: When I lend them my $100.00 why don’t I charge them interest?
A: You do.
Q: You don’t say. How much?
A: It depends on the Bank Rate. Say half a per cent.
Q: Grasping of me, rather?
A: But that’s only if you’re not going to draw the money out again.
Q: But of course, I’m going to draw it out again. If I hadn’t wanted to draw it out again I could have buried it in the garden, couldn’t I?
A: They wouldn’t like you to draw it out again.
Q: Why not? If I keep it there you say it’s a Liability. Wouldn’t they be glad if I reduced their Liabilities by removing it?
A: No. Because if you remove it they can’t lend it to anyone else.
Q: But if I wanted to remove it they’d have to let me?
A: Certainly.
Q: But suppose they’ve already lent it to another customer?
A: Then they’ll let you have someone else’s money.
Q: But suppose he wants his too… and they’ve let me have it?
A: You’re being purposely obtuse.
Q: I think I’m being acute. What if everyone wanted their money at once?
A: It’s the theory of banking practice that they never would.
Q: So what banks bank on is not having to meet their commitments?
A: I wouldn’t say that.
Q: Naturally. Well, if there’s nothing else you think you can tell me…?
A: Quite so. Now you can go off and open a banking account.
Q: Just one last question.
A: Of course.
Q: Wouldn’t I do better to go off and open up a bank?
Hmm… yes, I think you would. (And perhaps someday we should.)
But back to the recession. I think this is a pretty key thing; at least it has been to my understanding. I think we often put too much trust in banks. We think they’re there to help us, like some kind of charity or government service. But they’re not. Banks are just another example of a for-profit business in our capitalistic society (which sure helps explain those $27 overdraft fees).
OK, so we can’t trust banks to look out for our best interest. (Ha! Interest!) Can we trust the government? I’m afraid not. The explanation to this part is much more complicated, if you can imagine anything government-related being complicated, but I came across a really brilliant and relatively easy to understand explanation as to why the value of our money is going down the toilet Check it out here:
The Declining Dollar and What It Means For You by Barbara Minton
Of course all of this money talk is intimately connected with our blessed government, since politics and economics are so intertwined.
So the pieces are starting to come together. Although it’s looking like a messier and messier picture all the time.
I think that’s almost enough for today, but let me leave you with one more quote that seems rather timely. This is helps further explain why I believe we must start asking questions about how our government fits into the equation:
“Beware the leader who bangs the drums of war in order to whip the citizenry into a patriotic fervor, for patriotism is indeed a double-edged sword. It both emboldens the blood, just it narrows the mind.
And when the drums of war have reached a fever pitch and the blood boils with hate and the mind has closed, the leader will have no need in seizing the rights of the citizenry. Rather, the citizenry, infused with fear and blinded by patriotism, will offer up all of their rights unto the leader and gladly so. How do I know? For this is what I have done.
And I am Caesar.”
-Julius Caesar
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