Monday, December 28, 2015

End of Fractional Reserve Commercial Banking? | Switzerland to Vote on Banning Banks From Creating Money

The creation of money in our age of fractional reserve banking takes place when loans or promises to pay are made. When an individual opens a line of credit or even simply uses a credit card, the funds produced did not exist before hand. The act of receiving credit generated money.

This has essentially given banks the power to create money out of 'thin air' which many in these paradigm shifting times are realizing is unsustainable.

To be clear, all money is an enterprise of fiat, or exists by decree. In the past, individuals created credit by issuing promissory notes, which did not require interest to pay back. Today, whether it be Federal Reserve notes or gold bullion, it is an agreement between two parties that imparts value onto financial instruments. The key point being, when money is created as debt, it eventually enslaves the people and destroys the economy.

Many are clamouring for asset-backed money, such as gold or silver, as an attempt to stabilize debt-ravaged economies, but historically speaking, these events have always shifted wealth out of the hands of the people and into the hands of those holding the most physical assets. No, the real power of money is in trust, and in order to have trust, there must be full disclosure, honest dealings and competency.

Related How and Why "The Money Masters" Took Control (Full Documentary)

In the absence of trust, and the ability to make sound decisions, we are left with the blind faith that economic policy is sustainable and beneficial. But clearly the creation of money via debt is an unsustainable enterprise with only one certain outcome, enslavement for the people to those who create money: the bankers.

This is one reason why the banking industry is coming under so much scrutiny of late. Commercial banks have the ability to generate money via lines of credit, even if there is only a fraction of funds in reserve. In other words, a bank can have only $1000 in deposits, and still lend out $10,000 in new loans, which of course are collected plus interest. But where did the money come from to pay back the loan and interest? It comes from labour and the creative energy of the people, who generate real things of value to pay the debt.

This is a perfect storm situation, as new loans must be generated in greater numbers to pay back interest on the debt. Eventually, there simply isn't enough money being generated to service the debt and the economy begins its long downward spiral into insolvency.

Switzerland is a direct democracy, much like Iceland, and is poised to address the longstanding issues with the issuance of bank credit. Their solution is to end the practice of fractional reserve banking within the commercial banking sector, relegating it solely to the central bank. This would prevent a bank from lending money it doesn't have.

In my view, this will probably help slow down the creation of more debt, but the central bank will still continue to generate money using fractional reserve methods. In other words, the creation of money will still be tied to debt that cannot be paid back in the long term.

Perhaps this will be the first step in a more progressive approach that will eventually end debt-money in it's entirety. Until that day comes, we will continue to labor under a financial system designed to enslave the masses and siphon creative energy out of a people and into the hands of bankers that generate nothing but debt, dependency and financial strife.

- Justin

Source - Telegraph

Switzerland will hold a referendum to decide whether to ban commercial banks from creating money.

The Swiss federal government confirmed on Thursday that it would hold the plebiscite, after more than 110,000 people signed a petition calling for the central bank to be given sole power to create money in the financial system.

The campaign - led by the Swiss Sovereign Money movement and known as the Vollgeld initiative - is designed to limit financial speculation by requiring private banks to hold 100pc reserves against their deposits.

"Banks won’t be able to create money for themselves any more, they’ll only be able to lend money that they have from savers or other banks," said the campaign group.

The Swiss National Bank was established with money creating powers in 1891 Photo: AP

Under Switzerland's direct democracy, a referendum can be held if a motion gains 100,000 signatures within 18 months of launching.

If successful, the sovereign money bill would give the Swiss National Bank a monopoly on physical and electronic money creation, "while the decision concerning how new money is introduced into the economy would reside with the government," says Vollgeld.

The idea of limiting all money creation to central banks was first touted in the 1930s and supported by renowned US economist Irving Fischer as a way of preventing asset bubbles and curbing reckless lending.

In modern market economies, central banks control the creation of banknotes and coins but not the creation of all money, which occurs when a commercial bank offers a line of credit. Central banks aim to influence the money supply with monetary policy and regulatory tools.

The SNB was established in 1891, with exclusive power to mint coins and issue Swiss banknotes.

But over 90pc of money in circulation in Switzerland now exists in the form "electronic" cash created by private banks, rather than the central bank.

Members of the initiative committee for Monetary Reform (Vollgeld-Initiative) hand over boxes with more than 120.000 signatures at the Federal Chancellery in Bern, Switzerland

"Due to the emergence of electronic payment transactions, banks have regained the opportunity to create their own money," said the Swiss Sovereign Money campaign.

"The decision taken by the people in 1891 has fallen into oblivion."

Referenda on monetary matters are not new in Switzerland. Last year, the country voted by more than 78pc to reject a law calling for the central bank to increase its gold reserves from 7pc to 20pc.

Unlike the gold vote - which was seen as a precursor to re-introducing the Gold Standard in Switzerland - economists have been more supportive of the idea of "sovereign money" as a way to stabilise the economy and prevent excess credit growth.

Iceland - which saw its bloated banking system collapse in spectacular fashion in 2008 - has also touted an abolition of private money creation and an end to fractional reserve banking.

A date for the Swiss referendum has not been set.
Geneva is home to some of the world's biggest investment banks  Photo: ALAMY


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