2. Long time ago, people traded using barter which later evolve to many kind of method, until finally come the age, where the gold were used in trading activity.
3. The right to issue the gold lies in the hand of monarchy ie the King. The King will instruct the goldsmith to mint gold into a form of coin. This coin will be used in daily economic activity in the country.
4. The goldsmith is appointed as the King gold keeper and producer. Everytime the King need gold, he will request from the goldsmith.
5. The use of gold in all economic transaction, later made as the King doctrin of law. Everyone wishes to do business in the country is require to use the gold.
6. The function of the goldsmith is basically to produce the gold and also as the store keeper of the gold for King's behalf. The goldsmith has to ensure that gold is safe and the supply of gold is sufficient at anytime should the need arise for the King and country.
7. When the country economic activity became more advance and complicated due to prosperous economic development, the function of Goldsmith is also expanded to not only keeping the King gold but also keeping ordinary people gold as well. People started to trust the goldsmith because it is proven the gold is safe under the care of the goldsmith. For this service goldsmith will take the service charge from the gold depositors.
8. The goldsmith has become the gold keeper for the people to keep and withdraw their gold whenever neccessary. This is the role of the present bank, today, the same role of goldsmith is played by the bank in the present economic system.
9. When economic activity become more complex, the need for larger transaction arise, thus the used of gold in more complex and bigger transaction appears difficult to handle, because the gold is too heavy to be carried around and not safe.
10. To avoid this problem, the goldkeeper come up with a brilliant solution idea instead of using gold they issued the paper receipt to represent the gold to execute transactions. This paper receipt will act as the medium of exchange. This paper receipt stored value according to the gold price it represent in the goldsmith safe. Who ever keep the paper receipts is entitled to claim the ownership of the gold at equivalent value at any time.
11. Everyone happy with this solution, including the King. Eventhough, the new introduced paper receipt is not well accepted by public at that time, but later were forcely accepted by the public when the King buy the idea (under the advice by the goldsmith), and issued a new doctrin as the new law for the country.
12. It is indeed the best solution for the heavier gold. People start accepting the paper money, which later on consensusly called money in the financial term. In America and most part of the world, this money is called a legal tender.
13. By this time, the goldsmith is now known as the 'bank'. Through the experience, the bank notice that at any one time, only certain volume of gold is withdraw by the depositors from the bank through the exchange of the money (paper receipt). The rest of the gold is sitting pretty in the bank doing nothing.
14. The bank feel this lazy gold (assets) should be utilised for the bank to produce more profit and wealth. To unlock the value of these lazy asset, the bank introduced the first fractional reserve system (FRS) in the economy.
15. How the FRS work is very simple, the first keyword is FRACTIONAL and the second is RESERVE.
RESERVE SYSTEM
16. The RESERVE mean, the bank is require to maintain certain level of deposit money at any one time. The require minimum level shall be determine by the Central Bank according to the average withdrawal activity.
17. The bank will maintain certain level of deposit amount and the rest is allowed to be loan out to the borrowers (personal or corporate borrower). When this money is loan out, the borrowers is require to repay back the principal together with the interest charges. Through this way, the bank will be able to unlock the value of the lazy assets.
18. Based on the current example, the bank minimum reserve requirement is ranging from 4% up to 15%. This reserve requirement is mainly to ensure the depositors withdrawal activity is fulfil. The 4% to 15% is basically the average withdrawal transaction activity in the bank at any one time.
18. Say if Bank A reserve requirement is 4%, for the total deposits of $100mil, only 4mil remain in the bank, the rest $96mil is loan out to the borrowers. This is why, in the case of Northern Rock in the UK, the bank collapse simply because it was unable to return the depositors money simultaneously, because the bank only keep at the minimum reserve level. The Bank of England has to save the bank, by pumping in more money in order to return depositors money.
FRACTIONAL SYSTEM
19. The fractional system gives right to the bank to create money. The money is basically an electronic money or accounting system money. The money which does not exist physically but virtually on the computer system.
20. Say, for reserve requirement of 4% and total deposit money of $100mil, the new money can be created is $2.5billion. From $100mil, the bank suddenly has $2.5billion of money.
21. This newly created money is meant for borrowing and loan purposes. Should the $2.5b money is loan out with an interest charges of 7%, imagine that the bank will make $182mil of interest charges gain from the borrowers on top of $25b principal loan that need to be repay by the borrow. All this is create out of nothing but the gain to the bank is real hard money. The one who suffer most is the borrowers like us.
22. This cruel FRS works in our system intelligently without us even notice. Our financial system is design to collapse from day one. So it is not suprising that today financial system is about to collapse in the scale that we waiting to see. When the electronic money become too huge in the system overpass the real physical money circulated in the system, it is like an overturn pyramid design teetering to collapse.
23. Our today financial system is controlled by the people inside the Federal Reserve. The intelligent mastermind who control the world. Ever heard of BASEL I and II, this are their legislated law, who protected them forever. All countries in the world in a way were forced to signed the agreement, any country who resist become their enemy.
24. No one in this world is spare by this evil, we are working for them, we are slave to them.
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