Page 126 - Fruits from a Poisonous Tree

110 Fruit from a Poisonous Tree

A silly story, you say; no one would do that. Don’t be so sure; our
monetary system works the same way! Another example: Suppose you deposit
$1,000 into a bank at 10% compound annual interest, which means that
each year you will make interest on the interest. In 145 years you will have
over $1 billion – an exponential growth of 1,000,000 times. The moral: A
small amount, held as a perpetual debt, quickly compounds to astronomical
amounts.
Our money supply was loaned into existence, and you don’t pay back a
money supply. Compound interest payments will cause this debt to rise to
astronomical amounts (it already has). Furthermore, just like my ball bearing
example, there is always more debt than there is money to pay it back, so it
can never be paid back. The best we can do is refinance it.
Explained another way:

How the Federal Reserve creates money out of thin air.

Centuries ago in the city of Babylon, a goldsmith named Jebidiah had
the only safe in the entire city and was proud to show it off to all of his
friends. The friends were so impressed with Jebidiah’s safe, they asked him if
he would take their gold for safekeeping, as crime was on the rise and they
feared its loss by burglars.
Jebidiah was glad to share his resource with his friends, and issued them
receipts in the form of shares.
One pound of gold on deposit would equal one hundred shares in the
form of receipts. As more customers took advantage of the safe, the receipts
were passed out among the townspeople for payment of services, and the
need to withdraw the gold was nearly eliminated. Jebidiah noticed that there
was never more than 10% of the gold ever withdrawn; 90% remained safe
in the vault. So, in discussion with his wife, Jebidiah began issuing to many
people receipts for gold, ten times the quantity of actual gold in the vault,
while charging interest for the receipts. Needless to say, Jebidiah prospered.
This was one of the first experiments with fractional reserve banking.
Unfortunately for Jebidiah the king signed, with his neighbor to the
south, a trade treaty which removed all trade tariffs. The result was that all
of the businesses in Babylon moved south to the neighboring country. There
the labor rate was one tenth that of Babylon, and with no trade barriers the
businessmen could send their products back across the border and make
huge profits from the reduced labor costs and no tariffs. (Sounds a great
deal like the NAFTA and GATT agreements, doesn’t it?) The businessmen,