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The god's greatest creation for humans, because money affects humans in many ways as almost every problem we face in our daily life directly or indirectly deals with money. Each and every person in a society deserves his share of money for his needs. But in practice large portion of money belongs to very few people and many are starving without it. Why is it so..? Is the God is not mercy enough to share it to all? Is it really the god that needs to correct things? Or Is this is the problem in our monetary system on which we need to take an action?
Origin of Money
Normal opinion is that currency generates from production of goods and it ends with consumption of goods. But in actual practice, the origin for the currency is the central bank of the country. Every currency note that comes in to circulation should have the official seal from the reserve bank. Otherwise we do not consider it for exchange of goods. In Trade or Business money will be moved from one person to another person while selling and buying the products. It does not create new money but increases and decreases the amount of money at individual level. In truth, we exchange goods only with the money available in circulation.
FACT1: Trade or business does not produce money. In truth, we exchange our products with the money that is available in circulation
Now we understood that money will be authorized and legalized by central bank. But When the Money is created? On what circumstances and parameters that new money will be issued into the circulation..? Most people think that government creates money for its people based on its requirements. In that case it should reflect in the Budget report mentioning that how much is created for the functioning of nation. But you do not find anything like that in any previous budget reports. The idea of creating money by the Government is not true. Money does not created by Governments. There is a misconception that central bank creates money based on the needs of country, but it is not the complete truth. No bank including central bank creates money for nothing. In truth
90% of money in circulation is created by the profit oriented private organizations called banks through loans with a promise to pay the interest. Even the central bank provides currency to Government only by taking bonds from the government with a promise to pay the interest. When a person takes loan it increase the money supply in the society. It is brand new money comes into circulation as it is never existed in circulation before.
FACT2: Money takes its birth in banks through loans with a promise to pay the Interest
FACT3: At any point in time there is no enough money in circulation to clear all the debts
Cash Reserve Ratio (CRR) will decide how much the banks can issue money as loans from their deposits. Lets for easy understanding consider the CRR as 10. This means if a bank had deposits of 100 then bank should maintain the reserves 10 at central bank and are permitted to issue money as loans up to 90. This is what normally we study in our educational institutions. But in practice banks follow fractional banking system which increases the money supply in geometric progression. From the initial deposits of 100 banks can issue loans up to 90. Where this newly created 90 should go..? This 90 should be deposited in same bank or in another bank account. That means it is a new deposit and banks can issue loans up to 81 based on this newly deposited 90. And this 81 should be deposited in another bank account and banks are permitted to issue loans up to 72.9 again. This is called the fractional banking system. Step 1 2 Deposit 100 90 Permitted to Loan the amount 100*(90/100) = 100*(90/100)2 = 90 81
3 81 100*(90/100)3 = 72.9 .. .. .. This is nothing but creating the money in geometric progression
a(r)0+a(r)1+a(r)2+a(r)3+a(r)4+.+a(r)
Where a = Initial Deposit = 100 and r = (100 CRR)/100 = ((100 10)/100) = 90/100 CRR = Cash Reserve Ratio
Formula to calculate the Total money pumped into circulation by banks from the initial 100 through loans is = a (1 rn)/ (1 r)
From this we can see that initial 100(Which also came into circulation as debt only) deposit, banks are able to create 1000 through fractional banking. This method only illuminates people that money is available to clear the debt even though P (Principal Amount) + I (Interest) > P (principal Amount) as money comes into circulation in geometric progression.
But again at each step as mentioned above should also pay the interest which does not exist in circulation and increases the debt burden on people. To Cover the debt and people not to bankrupt the money should always comes into circulation in exponential manner as debt is also increasing in exponential manner through fractional banking system. If you understand we are covering the debt with more debt.
The truth is the amount of debt a country had, that much money is in circulation for that country. When we clear all the debts including the government debts, we dont have a single rupee in circulation. The Debt will increase exponentially as the money is created exponentially through Fractional Banking system. Just for Information, the much developed country United States of America has the total debt of $55 trillion (http://www.usdebtclock.org/).
FACT4: The amount of debt a country had, that much money is in circulation for that country
6) Both Inflation and deflation are primarily because of the way the bank creates money and how they are releasing into circulation. 7) Value of the money decreases considerably as the money circulation increases exponentially. The lifelong savings will be useless unless you invest the money where the prices also increase along with the inflation (Ex: Lands). The current monetary system is not helpful to the people or governments but it is only helpful to the banking system as they hold the power to issue the money. The hand that gives is always a master to the hand that takes
FACT5: Inflation and depression are directly depends only on the money lending organizations
money is a very much necessary for people, they try to earn in wrong ways. This leads to corruption. 10) People ready to produce Unhealthy goods for society to earn money. Moral values decrease between people for the sake of money 11) Life becomes burden to people and feel difficult for survival itself. People will lead a mechanical life instead of a joyful one. 12) Money and emotions are the primary reasons for any crimes and surely money takes its share in crimes more than 70% at the least.