Monday, 30 December 2013

Banking : The World's Best CON System


What names comes to your mind if I ask you to list the richest 5 countries in the world ?
You will probably say United States, United Kingdom, Germany, France, Japan right ?
at least most of us will put the above countries in top 10 richest countries in the world.

Here's a small addition to your knowledge base, According to the latest IMF report, those are the top 5 indebted countries in the world, in that order.

US heads the list with more than $17 trillion in debt, which would be more than $22 trillion in the next 4 years.

If you check the list of debt as a percentage of GDP, these countries wont fair well there too. All these countries feature in the top 30 list.

So what does it mean? why are the countries we think as the richest and prosperous are the ones which are in serious debt ?

The reason is because, the banks create money as DEBT.

If you are thinking that your government creates money, you are 100% wrong.
And if you are thinking that your central bank creates money, you are around 3% correct, because 97% of the money circulating in our economy is created by the banks out of thin air as debt,
only around 3% is created by our central banks, which are in the form of notes and coins.

All the money created by banks is just some numbers on your computer screen, numbers in your credit card.

For those who are unaware how banks create money with the stroke of keyboard, here's a quick gyan.

Imagine that there are only two banks in the world, with a central bank mandating fractional reserve ration of 10%.


Assume you ask the banker for a $100 loan, banker will provide you the loan by crediting your account with $100.
Bank now will have $100 as loan asset, $100 as deposit liability and $0 in reserve.
Bank needs to have $10 as reserve, which they can borrow from the central bank or from the second bank.

Reserves at the central bank is created by the asset of the central bank including the amount of physical money and the government deposits in the bank.

Lets say, you gave the $100 you took from the bank to me in exchange for some goods, I'll put it in the second bank. Now the second bank has $100 in deposit, which it can turn into reserve and lend $1000 to you again.

As you can see, within the banking system, the reserve never comes down unless we are going to take everything from banks as physical notes and keep them in our home, of course which is not going to happen.

With the central bank having reserve of $10 physical note as it's asset, more than $1000 entered the system as debt created by the banks using some keystrokes in their computer in just two transactions.
Observe, it's the loan which created the deposit, not the other way around.

It's a classic text book theory that, banks save fraction of their deposits and lend the rest as loan.
For example, if you deposit $100 to bank, the bank keeps $10 as the reserve requirement and lends the remaining $90 as loan.

But this is exactly how the way banks don't work.

"Banks do not, as too many textbooks still suggest, take deposits of existing money from savers and lend it out to borrowers: they create credit and money ex nihilo – extending a loan to the borrower and simultaneously crediting the borrower’s money account."

source :  Credit Money Leverage.

 Lord Adair Turner (was the Chairman of the Financial Services Authority until its abolition in March this year).

          - The Chicago Plan Revisited; by Jaromir Benes and Michael - IMF

"Banks lend by simultaneously creating a loan asset and a deposit liability on their balance sheet.
That is why it is called credit "creation"--credit is created literally out of thin air (or with the stroke of a keyboard).
The loan is not created out of reserves. And the loan is not created out of deposits: Loans create deposits, not the other way around.
Then the deposits need a certain amount of reserves to be held against them, and the central bank supplies them."

  Paul Sheard, Chief Global Economist and Head of Global Economics and Research Standard & Poor’s Ratings Services.
Source : Paper - Repeat After Me.

         Whatever may be the process but the real problem is that you have to pay back the bank $1100 with interest, which never exists. of course when you pay back the loan, it will be destroyed with another key stroke, but Literally you'll never be able to pay the non existent interest on the loan you took without you taking one more loan or someone taking loan from the loan and giving it to you.

This is the problem with banks creating money as debt. It can never be paid back.
When economy booms, just more unpayable debt enters the system or vice versa.
When no one takes loan from the banks or in other words, if everyone starts to save, no new money gets created and the system simply comes to an halt. Depression.

So to keep this system running, people and government has to get into the debt and pay back the bankers with interest which was never created.

This forces the government to cut it's spending on the social work and welfare and increase the taxes, just to satisfy the debt created by the banks and the imaginary interest which is not even exist.

This sounds even more absurd as banks doesn't lend to anyone who desperately need the money. They always run behind those who already have plenty.


 - Bob Hope

Indirectly banks create the inequality around the world by forcing 99% of the world population to work all their life paying interest and taxes just to hand over everything to the wealthiest 1% .

For instance, Credit Suisse Global wealth database 2013 shows that the top 0.7% owns more than 40% of the global wealth. And the top 10% owns more than 80%.

Figures are almost same if we consider the inequality at the level of individual countries.
For example, 40% of US national wealth is held by top 1% of it's population.

The number of millionaires has increased by 2 million this year compared to last year and the report predicts significant increase in the number of millionaires and the billionaires in the world in the coming years.

When all the money entering the system in debt and rich gets richer, clearly it's the bottom of the pyramid which pays back all the debt and interest created by the banks.

According to latest UNICEF report , more than 20,000 children (under the age of 5) die everyday due to poverty not because there's a shortage of food in the world, but because there's a shortage of common sense.

In fact The Food and Agriculture Organisation (FAO) of the United Nations has estimated that each year, one third of all food produced for human consumption is lost or wasted: around 1.3 billion tons
America's food waste alone is enough to feed every hungry person in Africa.

Around 8000 people die everyday because of AIDS, not because our scientists haven't found any medicine to cure HIV, but because these people don't have enough magic numbers
the bankers create. What kind of system have we created around ourselves where money decides who should live and who should die ?

What else can be done in the poor countries, if the so called richest country in the world had to shutdown, fighting with it's budget plan to bring health care reform.

The process of sending the nations to debt works even so swiftly and it's so simple.

First, the credit rating agencies like S&P, Moody comes and says, your country is not credit worthy, you have too much of debt so we are downgrading you to the junk status.

As a side note, these credit rating agencies are private, for profit organizations who gives ratings for whoever pays them.

In April 2007, one S&P analyst told another,
How credit worthy are these credit rating agencies ?
Well many lawsuits have been filed against these agencies and prosecutions are going on, specially about giving AAA rating to high risk CDO's even after knowing that they were going to fail.

Look at the defence of these agencies
This is the part of email found during the prosecution,


And then the world bank comes into the picture and says, we'll help your country in coming out of existing debt by sending you more into the debt. But because your rating is low, you have to give higher interest!!

You just have to implement Austerity measures - increase the taxes, cut the jobs, reduce public salaries, scrap social welfare spending.

Don't care if your people starve, don't worry if your people come to street protesting, demanding for job. Allow our multinationals to setup factories and companies signing nonsense pacts to loot your country.

This is called national debt restructuring. This is how world bank helps countries come out of debt problem.
Moreover, if banks go belly up by bankers playing with derivatives, you have to pay your tax money to bail them out.

Greece: People protesting during credit crisis.

"I don't think anyone sets out to malign poor people but certainly that's what we do through organizations such as the World Trade Organization, the World Bank and the International Monetary Fund."
 - Bob Geldof

This is the absurd system we are having where factories will be there , machines will be there, people are ready to work but are not allowed.
Enough food is there in the world, but more than 800 million people don't have access to it.

          - Henry Ford

This is the reason why people getting into the street around the world, protesting against the inequality, through the Occupy Movement.

"If you have a Gun You could rob a Bank But if you have a bank you could rob everyone"
- Bill Maher

There's a different movement altogether called, The Zeitgeist Movement to completely move from money based system to the recourse based system.

These kind of movements have had their fare share of appreciation as well as the criticism; they also have raised some interesting points and proposed an imaginary system which they feel would solve all the problems of poverty and inequality.

If you have not seen the movie yet, take a look at it, ZEITGEIST: MOVING FORWARD.

Idea seems bit over the top, but sure is an interesting watch, which makes you think, if you watch till the end.

So the point is, money is not the problem, the problem is the way it is getting created.
And the question is not whether this rubbish system is going to end or not, the system itself is so flawed that it itself will collapse in the near future, but the question is whether we are going to wait for it to end or we going to end it.

Why does the government has to borrow money from the banks and pays it back with the interest ?
Can't it print all the money it wants for itself ?

First thing that comes to everyone's mind is inflation/hyperinflation.
How do you stop the amount of money entering the system ?
With politicians having their hand on the printing machine, they definitely will be reluctant to press the pause button.

We have seen in the past how insane printing of money led to lot of pain and suffering of the nations.
But inflation occurs if there's more money in the system. That doesn't occur if we replace bank money by debt free public money. Everything would be same except, this money can be evenly distributed for the welfare of the citizens without having to get into the debt.

Inflation starts if the government starts to print more money than the actual production of the country. of course this has to be taken care of.

For instance there would be strict budgets every year and the government can use the allocated money for spending, if there are any signs of inflation, it can raise the taxes as a first step of reducing the amount of money in the circulation.

This makes the government to concentrate it's energy in increasing the productivity of the country by creating more jobs and creating better social welfare programmes
to better help the people rather than worrying about financing the projects by borrowing from banks and foreign investors.

Good news is, the system of governments creating it's own money for spending is not a new one.
It has already been tried with success and has ended under unusual suspicious circumstances.

Debtless Money in the past.

The US Greenbacks.

Abraham Lincoln was finding it difficult to finance the Civil War, reportedly money lenders offered loans at 24% to 36%.

So in 1862, the Lincoln government came up with it's own money, popularly knows as the Greenbacks. Just because they were printed with green ink on the back to distinguish from the other notes in circulation.

Nearly $450 million worth Greenbacks were put into the circulation in less than three years.
It was debt free money created by the Lincoln government, so they didn't had to pay any interest on this money to any bankers.

This is what Lincoln wrote, after issuing greenbacks,
As you can guess, the move of Lincoln obviously was cheered by the public but not by the bankers, mostly Europeans spearheaded by the Rothschild at that time.
Bankers were all over the London times expressing their anguish and concern.
Towards the end of the war, the money chargers were successful in seeing the "National Bank Act" passed by the congress, which made banks as the only creators of money in US, taking power off the federal government.

But Lincoln was considering this short successful experiment of greenbacks seriously and was eager bring back the power of creating money to the hands of federal government, but soon after he re elected, he was assassinated.

Greenbacks were gradually taken out of circulation. 1994 marked the official end of greenbacks.
With contracted money supply, US went to depression, people started to protest for the reissue of greenbacks in 1877.

It was at this time, The American Bankers Association secretary James Buel wrote a letter to it's members saying,


All these things with contents of the actual letters written by the bankers and Lincoln are documented in detail in DR.R.E.Search's famous book,
"Lincoln Money Martyred". You can download the free ebook here, if you are interested.

The next president of US who had strong views against bank creating money as unpayable debt was president James Garfield.

After becoming the 20th president of US in 1881, he was eager to make some changes and was not shy to express his views like the one below.

And guess what, within weeks of making this statement, he was also assassinated.

But it was president John F. Kennedy who realised the potential of governments issuing money and started to bring US treasury dollars debt and interest free to the circulation using Executive Order 11110.

Leaving little to guess this time, within months, Kennedy was assassinated and the day after assassination, all the money which Kennedy had issued were called out of circulation.

So time and time again, those presidents who dared to bring debt free and interest free money to the system were assassinated and their dollars were called out of circulation.

If you are wondering, whether it was only in US where government tried to bring the debt free money, you are wrong. Even Hitler came up with debt free public money called "German Labor Certificates".

German Labor Certificates.

During the great depression of early 1930's, sick of bankers creating problem and money contraction, Hitler came up with new money, and started spending it on public works like flood control, repair of public buildings and private residences, and construction of new roads, bridges, canals, and port facilities.

It created amazing results, within a couple of years Germany's unemployment problem was solved. When Hitler became Chancellor there were as many as 6 million unemployed however by 1935 there were only 2 million, and by 1939 there was a shortage of labour. While on the other side, US and most of the European countries under the control of the international bankers were struggling to recover.

Within five years, Germany was the richest country in Europe, thanks to the guts of Hitler challenging the banking system.


- Thomas Jefferson

Central banks are created by the lobbying of the banks and their is little transparency on how they work.

Watch this 5mins video till the end.

So, for a change the world would be a better place, if we give our politicians, or to rephrase better, the representatives we elect, the power to create money than the bankers, who mere work to show improved numbers of their bank every three months.

Finally, this is what Lincoln said,


Friday, 2 August 2013













But are these claims valid ? What is the ground reality ?










What's the share of Gujarat in India's FDI ?


















                           Source : Planning Commission state wise growth rate report.  









                                           source: Planning Commission report on state wise GSDP.







Is it true ? You bet it's not.



In contrast Labour unrest in the country declined by 81%.


This is a quote from Modi's website,


As recorded in official tourism website of Gujarat,










Lets see how much TN is spending yearly,



Surely, a thing to get noticed.


Gujarat model of governance - Clean and corruption free.


















Anna Hazare's comments are not baseless, lets see why.

In Gujarat, the process of appointing Lokayukta was as follows,









What follows is interesting,

Seriously Mr Modi ?


Of course the real reason is the second one.

Associated with NGOs and Social Activist Groups ?







Look what opposition leader wrote to Modi,












In between he did the most intelligent work,

1. Choose the Lokayukta of his own choice.












Surely MODIfication of poor into poorest is working like charm.
                       source : Planning Commission report on state wise average tariff per unit




Education Sector :







Read DnaIndia's report extracting the major contents of the survey here.



On a lighter note, let us see one last point.







Saturday, 29 June 2013

Printing Money, HyperInflation and Currency Failure

Asia's third largest economy's currency, Indian Rupee (INR) tumbled to its lowest ever level of 60.76 per Dollar on 26th of this month.

Indian Rupee like most of the emerging markets currencies including South African Rand, Brazilian Real  has been under the hammer from the time Federal Reserve chairman Bernanke hinted a slow down in the printing press or Quantitative Easing (QE) which is flooding insane $85 Billion per month in purchasing bonds and mortgages.

This money is indirectly entering the emerging markets like India. Unwinding of QE will definitely result in huge sell off of these already beaten down currencies, pushing them down even further.

                              Three Months USD/INR currency chart (Source: Yahoo Finance)

Rupee has got a temporary respite from
  • RBI's data that Current Deficit (CAD) of India for the first quarter of 2013 narrowed down to 3.6% of GDP as against 6.7% in its preceding quarter. 
  • The USA's GDP expanded at 1.8% from January to March, down from a previous estimate of growth of 2.4%.
 Three months back, around Rs.55 would have bought us a dollar, today one has to pay around Rs.60  to get the same dollar. Lets just imagine for a second that rupee continues to fall breaching Rs.100 per dollar, Rs.500, Rs.1000, Rs.1 Million , Rs.1 Billion, Rs.1 Trillion, Rs.1 Quadrillion, Rs.1 Quintillion, Rs.1 Sextillion per Dollar, ok lets stop our imagination here, I'm running out of names of these large numbers!!

What will happen then ?
        If you are too smart and over intelligent, you would probably be thinking that this is a great situation, All is well !!

How ?
        Hmm, if one dollar is worth lets say, one trillion rupees, if I export one dollar worth of goods, for instance a mango, I'll get trillion rupees!!
Whoa I become a trillionaire just by selling a mango!! This is ridiculous , ok, let me buy a dozen of mangos this time, what will it cost ? Rs.50 ? Uh who cares? I'll give a tip of Rs.1000 and export them to get 12 trillion rupees. This is wonderful, I need not go to work next morning !!

Well you are right and congrats for becoming an overnight trillionaire and joining the league of Ambani's. Don't even bother to resign your job, let them fire you. You can anyways go in your free time and buyout that company itself !!

Things are great, but there is a small problem.

Next morning, when you open your door to pickup the news paper, you'll not see it.
why ? Newspaper boy made Quadrillions by selling Apples !! why would he bother to do this job now ?

On the flip side, you'll have to pay a trillion rupees to an imported item which costs just one dollar.

Try going to hotel, a cool drink which used to cost Rs.10 will now cost Rs.10 trillion.
Your maid who used to work for Rs.5000/month will now charge Rs.5000 trillion. Don't worry your salary will also get increased in your company.

This is the problem if everyone becomes millionaires !!
On a side note, If somebody tells you that a country will become prosperous if ever citizen in that country becomes rich, then it's a crap. You now know why.
Remember, there will be no value for a good looking and charming girl, if every girl around is as good looking and charming !!

Soon everyone will realise that nothing much has changed.
If we look at it, we have done nothing more than, just replacing numbers right ?
We have replaced Rs.1 by Rs.1 trillion. That's it. Everything else is functioning the way it was.
So, again all is well right ?


We have not yet discussed the real problem.

We have started to live in Hyperinflation and our currency is just one step away from getting devalued, Redenominated and completely thrown to the dustbins garbage very soon.

What ? We have just replace Rs.1 by Rs.1 trillion, tomorrow we will replace it by Rs.100 trillion, our income is also increasing by that standard, why should this create an hyperinflation and currency devaluation ?

This is an hyperinflation because,
  • our savings have eroded. Rs.5 Million one must have had in his bank account was more than enough to buy a nice flat and a car, which is now almost worthless.
  • Our income will not increase with the pace of our falling currency.
Our Currency will devalue because,
Demand for our currency in foreign exchanges comes down, as those who held our currency previously have made huge losses, no new buyer will come forward.
So we can't import any products from outside, as we need to exchange our currency to buy foreign currency.
It will difficult for government to raise funds by issuing instruments like bonds, it will have to pay huge interest on these bonds. Which again compels to print more money and further devaluation of it.

Finally everyone stops recognising our currency and it will be worth nothing more than toilet papers!!

 Well if you are laughing, thinking what kind of crap story is this guy telling, and these things have never happened or will never happen, then read on, this article is written exactly for you.

Fiat economy in which we are living has its problems. Currency failures are more frequent than one could imagine. To name some, Germany, Argentina, Peru, Hungary, Chile, Angola, Belarus have all had their currencies declared useless. See the full list here.

The most recent being the fall of Zimbabwe dollar on 12th April 2009. So, lets just go back few years and see what really happened.


You have to believe, when Zimbabwe dollar came to circulation in 1980, it was valued higher than USD. Just one man Robert Mugabe single headedly eroded its value with the able support of the Central Bank Governor Dr. Gono. These two have shown the world, how not to run a country and how not to run a central bank.

The man Robert Mugabe, who is famously or infamously called as democratically elected Dictator, was the Prime Minister from 1980-87 and is the controversial president from 1987 till date.

Dr.Gideon Gono, who had crashed Zim Dollor in his five year term from 2003-08, was controversially reappointed in 2008 by Mugabe to complete the unfinished job.

Till 1998, Inflation was hovering around 20%. This was high but still was under control.

While some positive inflation is healthy but when it starts to cross a certain level (RBI likes to keep it below 5%) things become uncomfortable.

This is where central banks come into the picture and start to check the flow of money into the system. It raises the interest rates, increases the minimum Credit Reserve Ratio etc.
Governments on the other hand, starts to cut down on the expenditure, increase taxes etc.

When these things don't work inflation keeps rising creating hyperinflation, this in turn increases the foreign exchange rates and decreases the value of the currency.

It then gets difficult for the government to borrow external money without paying higher interest rate. This is when things start to turn ugly.

There are only two ways to come out of this situation.
  1. Austerity - Where government cuts down spending, increases taxes, stalls hiring, reduces salary of its employees etc. As you can see this is not the popular one. Obviously politicians don't like this.
  2. Running printing press - This is more popular amongst the politicians. You want more money for government spending ? Just ask central bank to print more money for you. This is the most easiest and the most dangerous option.
No prices for guessing, what Mugabe asked his Central Banker to do.
Yeah right.
Just print more money.
This is exactly what he said in Feb 2006: "I will print money today so that people can survive."
And this is what happened, the inflation breached all possible levels.

In 2006, realising that the Zimbabwe Dollar(ZW$) was becoming worthless, they started to print new denominated currencies by chopping off three zeros.
In 2007, ZW$500,000 notes were issued. Salary hike of 900% was given to soldiers

In 2008, they came up with new currencies by chopping off ten zeros from the existing notes, as computers and ATMs failed to handle basic transactions in billions and trillions of dollars. Inflation was 231 million percent a year.

In 2009, ZW$100 trillion was issued. Inflation was just 6.5 quindecillion novemdecillion percent a year (65 followed by 107 zeros)!!. Prices doubled everyday.

The country was full of millionaires and billionaires. Kids were playing with millions of Zimbabwean dollars.                                                                                                                                                       
 Fruits and vegetables were costing no less than billions of dollars.

Shops were forced to slash prices, which took them out of business. Leading to the long queue of starved people outside empty shops.                                                                                                 

 Finally the German company, which was assigned the job of printing money stopped to print any more currencies as government couldn't provide them foreign currency to buy ink and special paper required. And people were forced to trade in Gold, Silver, USD, South African Rand, Botswana Pula, Pound Sterling.

Zimbabwean dollar was thrown to garbage and used as wall papers and toilet papers.

 Many who didn't had the access to accepted currencies, were forced to trade only in gold.

The country was headed no where. People were starved, there was no water, no electricity, no public transport. Country was on its knees.                                                                                          
Till Date they don't have their own official currency after suspending Zimbabwean dollar, they use USD for all official government transactions.
Old Zimbabwean dollars are nothing more than collection items these days. You can get them here if you want.

Positive thing to note is, things have improved in Zimbabwe in the last four years and future is expected to be much brighter.
As I said earlier, Zimbabwe is just one amongst many countries whose currency disappeared taking millions of families to misery.

Check this presentation video of Timothy D.Terrell for information on other currency collapses.                                                                                                                     

On a conclusive note, Emerging markets like India have to reduce their dependency on cheap      foreign money to fund their deficit. Once money enters the system, it will go out one day or the other, eventually selling home currency. There is no respite till the time countries offset their import cost by the export earnings.                                                                                                                                
Although Bernanke's move to slowdown printing press is causing some temporary hiccups in emerging markets. It's good for everyone in the long run that we are not going to see the below currency note in the future.