MONEY, BANKS AND A BIG SECRET
We select our preferences, the website or mobile app shows us the products matching our choice.
It always shows the products which are in its inventory, which already exist.
Otherwise it shows OUT OF STOCK.
Logical, isn't it !! We get showed what's available.
But why don't we use the same logic and question the banks.
Whenever anyone applies for a loan, how many times the banks have said -
" Sorry, today we are out of stock "
If we have all the available documents and bank is satisfied, the bank will give us a loan.
Has any bank ever denied a loan to anyone saying that we are out of stock !!
Never..
Logically, the amount of loan a bank can lend should always be equal to the money deposited in the bank.
But it's not true.
Imagine, I go to a bank and apply for a loan of say, Rs. 1 lakh and after reviewing my documents the bank agrees to grant me a loan.
Suppose suddenly one of its depositors withdraws Rs. 5 lakhs from the bank. This withdrawal brings down the banks reserves.
Will the bank then refuse my loan saying that we have suddenly gone short on cash.
No, nothing like that ever happens.
Which means banks can lend more than their deposits.
WHAT ????
Yes, banks can loan 10 times more than their deposits.
This is known as FRACTIONAL RESERVE BANKING.
To payback loan we pay monthly interest which again adds to banks deposits making it more capable to increase it's loan paying capacity.
Therefore banks never go out of stock.
Roughly saying, suppose a bank has deposits of Rs. 50 Lakhs, it can loan up to Rs. 5 Crore.
But from where is it getting that extra Rs. 4.5 Crore ??
(Rs.5 Crore - Rs.50 Lakh = Rs. 4.5 Crore)
Answer is - From thin air.
Money does grow on trees and these trees are banks.
But who gave them this right to create money ??
The well organized legal financial system gave them this right.
Though it's legal but does it also follow the laws of nature ?
Lets see...
The objective of money is to be able to trade physical objects only.
Like we need food, clothes, car, mobile, laptop etc. These all are physical objects. Therefore to buy any of these products we need to give money to the seller.
So our money reaches the seller and sellers product reaches us. Both transactions get squared off.
This suggests that the total money which is available in the whole world should be equal to the total tradable assets in the world.
In simple terms I mean, money exists because there exists a product which this money can buy.
If there is no asset but there is money, that money is useless. Because what will it get used for, if there is nothing to sell or buy.
But when these banks create more free money they do not create a corresponding product for it.
This disturbs the natural equilibrium.
Here is how ?
The total assets in this world are fixed, they grow at a very slow rate.
For example, when banks create free money, more money come in hands of people which increases the demand for products.
Lets say that product is wooden furniture.
The increase in demand for wooden furniture increases the need for more production of trees. But trees grow at their own pace.
So if the money is growing or created very fast by banks it does not mean that trees will also grow fast.
Therefore, the total money available in the world, created by the banks, is always more than the assets available.
But then if there is more money and less products, should not that money be useless.
Yes that would be useless, but then the money controllers played a trick and we all got caught up in that.
The trick was that the quantity of products is fixed but the value of product is not fixed.
What do I mean by this, let me explain with the help of an example.....
Suppose, I have a tea cup at home which costed me Rs. 10/-.
One day I decided to sell it as a second hand good.
Whats the best price I can get for it ?
Not more that Rs. 4/- or may be less or may be even nothing.
But suppose one day some celebrity visits me and has tea in that cup.
Now if I sell my tea cup saying that this celebrity has had tea in it, the value of cup will increase.
We all see celebrities auctioning their used products for fund raising some times. The same concept will apply here.
This may even enable me to sell my used tea cup at may be Rs. 10,000/-
The cup which had costed Rs. 10/- could get sold at Rs. 10,000/- .
This means that the quantity of asset did not change but its value increased.
Therefore when the value of an product is increased, that bank-created free money gets utilized in covering up for this increase in value.
They increase the value of an asset, by increasing its perception among people.
Diamond is very expensive, isn't it but what practical utility it has in our daily lives. Almost nothing.
Coal is chemically similar to diamond, both are made up of carbon.
The only difference between coal and diamond is the structural arrangement of carbon.
We can even say that diamond is that coal which went to a gym and developed 6 packs.
Coal is very important in our lives, it helps in generating electricity.
But coal is priced nothing as compared to diamonds.
Diamonds are called women's best friends, but why ?
--If husband forgets the anniversary or wives birthday, gift diamond to her and everything will be OK--
Really !!
This is how they increase the perception of an asset. Which eventually leads to increase in its value.
Let me share that on planet Uranus it rains diamonds. So on Uranus diamonds are nothing but rain drops.
The factory which manufacturers jeans for Levis can also manufacture for some local brand. But the cost of a branded product will be 10 times more than the local one even though everything is similar.
Television run these ad's whole days just to enhance the perception of a product so that its value increases. We call it brand building.
A road side seller may also sell a neatly made hygienic burger at Rs. 5/- which may be even tastier than McDonald burger.
Moreover, any fast food is junk. Our body does not need it but we are told that KFC is 'finger-licking good'
Our minds everyday are getting conditioned with perception building, so that we buy thing or assets which are artificially hyped to adjust that magically created free money.
This is just one part of the conspiracy, dealing with how banks create money from thin air.
SECOND conspiracy of money is about its valuation to an asset.
How is the money worth of a product ascertained.
Suppose I have a land which costs me Rs. 20 lakhs. How did it cost 20 lakhs in first place.
Some government formula or calculations may be. Lets leave that for the moment.
If one day I decide to sell this land and I quote 25 Lakhs.
I am here selling it at a profit of 5 Lakhs.
Where is this extra 5 lakhs coming from. The land did not grow, it did not produce off-springs. It is as it always was.
Just the perception of this land changed. Like, it has all the essential facilities nearby, its sea facing or a corner plot etc. etc.
This increased perception raised the price by 5 lakhs but this 5 Lakhs again was not existing in nature because no new asset got created, just a perception which is imaginary.
Suppose there is a rumor that my land has a graveyard underneath, what will happen now. May be no one even buys it for 5 Lakhs now, leave aside the profit.
Which means when the perception changes the value of an asset could even go below its actual worth. Which again is unnatural.
Why is all this happening, why is everything so volatile.
All this is happening because of a 3rd conspiracy.
The THIRD conspiracy is that money is being treated as an asset whereas it in itself is just a perception.
Let me explain here.
When a product is traded with a product it is known as BARTER SYSTEM.
In this concept the value of asset is not perception based, its need based.
I make some product which I sell to someone who needs that product and in return I buy his product which I need.
Because here the trading is need based so value of the assets won't drop by perception or may have marginal impact.
But this barter system is logistically cumbersome so it got abolished.
It got replaced by money or currency.
Each asset got valued by some authority.
If that authority thinks coal is not that important it will value it less and if they think diamond is very important it will value it more.
So 1 Kg of coal got, for example, valued at Rs. 10/- and 1 kg of diamond got valued, at say, Rs. 1 Lakh.
Where as in barter system no one would have traded even stones with diamond as it could not have fulfilled any need.
What this valuation did, it made some people rich and some poor.
Whereas in nature coal or diamond or anything is equally valuable. But now some got more valued than other.
This story does not end here.
When the physical things got valuated to an imaginary perception based money the physical products also became volatile.
For example say the coal was valued at Rs. 10/Kg but due to bumper availability its supply increased and hence its perception changed leading to change in its value. Now its price dropped to Rs. 5/Kg.
The coal trader could now do nothing.
He will suffer losses.
This happened because when any asset gets valued with cash it's at the mercy of that cash and hence get treated based on perception.
How many of us know that the cash currency we use is actually a promissory note.
It is clearly written on any currency that 'I promise to pay...'
Which means it does not actually pay, it just promises to pay.
If I am a very reputed person I can also carry on living by just promising that I will pay. Isn't it funny.
If the government holds on to it's promise the currency note has value, otherwise no value.
Notebandhi only means that the old notes now will not have any power to promise anyone.
So the chain of events is like this-
- First the product to product trading stopped.
- Then product valuation started, which is perception based, and each product got some money value attached to it.
- Then later on this money, which intrinsically was not an asset, got treated like an asset by banks and financial institutions.
- Then the banks created more money from this money.
- And the world got filled with lot of money.
As this money is perception based therefore every now and then there is
- An economic slow down or a boom,
- Sudden stock market rise or fall,
- Frequent inflation variations,
- Almost daily foreign exchange & petrol price variations, etc.
Still don't believe me, let me share a case-
Suppose there is a rumor that some XYZ bank is going to be bankrupt. Immediately due to panic all the depositors of the bank will rush to bank to take out their cash (this phenomenon is known as bank rush)
But where is the cash ?? Bank is already in deficit.
Suppose the bank had Rs 100/- of deposit. Out of these Rs. 100/- they keep Rs. 20/- for daily operations. Rest Rs. 80/- they used up in creating a loan worth Rs. 800/- (1:10 logic).
This loaned amount of Rs. 800/-, is not going to come back immediately. It will come to bank in due course of time. But the depositors will need their money immediately.
Therefore when all the panicked depositors rush to take out cash, the bank could run out of its minimum cash (Rs. 20/-) it had kept for its daily operations.
This cash shortage could lead to bank getting closed down or go bankrupt.
Even if the rumor was initially wrong it will eventually come true.
A rumor in case of a bank can become a self fulfilling prophesy.
Do you know, as per the present laws, that in case a bank is going to be bankrupt the depositor can only claim up to Rs. 5 lakhs out of his total deposits.
I.e., even if someones bank deposit is Rs. 5 crore he would only get up to Rs. 5 Lakhs in case his bank goes bankrupt.
This Rs. 5 Lakh is known as Bank deposit insurance.
Bank rush could bring down the whole countries economy crashing down.
Therefore it is always important for the banks to maintain good reputation (perception) so that this situation does not arise.
Now imagine the financial world we live in-
Suppose I sell my land for Rs. one crore. That money I deposit in a bank. But that bank goes bankrupt due to a rumor. Then I will be returned only Rs. 5 Lakhs.
Where did the rest of my money go ????
Wooossshhhhh.... it got lost in thin air from where it had come.
Now I neither have the land nor the one crore, but just a consolation prize of Rs. 5 Lakhs.
Though it does not happen that easily but this is how the financial world looks from within.
The financial pundits deliberately use tough language and Jargon in finance so that common man fails to understand this complex game. And remains financial slaves to authorities.
SO whats the way out-
Do we need some revolution ??
I don't know but that was not my objective of sharing this information.
We may not need a revolution to bring down this system, neither is it that easy. Eventually, one day, it will automatically collapse.
All we need is to use this system in our favor just like all the rich and successful people do.
What they do ??
They make their perception change to the world so that their value increases.
How the world perceives us, sets our value.
There is a lot of free money circulating in the market which needs a right value to get attached to.
Those who have that value, attract that money.
Isn't it.
That's all from me for today.
Hope you liked this article. Take care.
Comments
Post a Comment