Friday, August 19, 2011


While the United States has one of the highest tax rates for investments in machinery financed with equity, it offers a generous deduction for investments in machinery funded by debt.

Raw Story

What more do you need to know?

The Creature from Jekyll Island:
A Second Look at the Federal Reserve
(2002 – G. Edward Griffin)

Regular type indicates text directly quoted from the book. Where the words are my own, type will be italicized.

Installment 8
Chapter 8 – Fractional money

In addition to the goldsmiths who stored coins, there was another class of merchants, called “scriveners,” who loaned coins. The goldsmiths reasoned that they, too, could act as scriveners, but do so with other people’s money. They said it was a pity for all that coin to just sit idle in their vaults. Why not lend it out and earn a profit which then could be split between themselves and their depositors? … And so the warehousemen began to act as loan brokers on behalf of their depositors, and the concept of banking, as we know it today, was born.

[However] sharing the interest income with the owners of the deposits was not part of the original concept. (Are you not surprised?) That only became general practice many years later after the depositors became outraged and needed to be reassured that these loans were in their interest as well. In the beginning, they didn’t even know that their coins were being loaned out.

And here’s the other thing: the depositors were holding paper in lieu of their coins. This paper was worth the amount of coin they had in the vault. It is only by an agreement to believe in paper and a gamble that the depositor won’t come to redeem the paper that the lender can loan those coins. We have to pretend then that the paper is worth something even when the coins are not in the vault. In point of fact, if there is no coin in the vault, then that paper is only paper. So how do we float an entire global economy on these principles? It’s magic. You only have to believe.

Loaning paper money beyond the amount of coin you have to back it up, which is the result of this type of magic, is apparently called “fractional-reserve banking,” because no banker wants to call it “this paper I’m giving you is really only worth a fraction of what it purports to be, should everyone come back and want their coins.”

Depositors were never encouraged to question how the banks could lend out their money and still have it on hand to pay back on an instant’s notice.

When banks issued paper receipts for coins, they converted commodity money into receipt money. If [depositors] used coin, the receipt was never issued. If they used the receipt, the coin remained in the vault and did not circulate.

When the banks abandoned this practice and began to issue receipts to borrowers [not depositors], they became magicians. They created money out of debt.

....but hey, do what you will anyway.

No comments:

Post a Comment

Comments are moderated. There may be some delay before your comment is published. It all depends on how much time M has in the day. But please comment!