Banks are known for decades as one of the safest place to safeguard our hard earned money. Surprisingly, they are one of the key hidden sources of inflation in our system about which, a very few knows.
Account holders money is used to create new money and is infused into the system. This holds true for every bank which you have heard of and all of them works the same way.
You must be wondering now, how your money is being used to create new money into our system without your involvement. The answer lies in this term called Cash Reserve Ratio.
Cash reserve ratio as defined by Investopedia –
The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest. This is a requirement determined by the country’s central bank, which in the United States is the Federal Reserve. It is also known as the cash reserve ratio.
Though the definition says United states, every country will have a central bank which maintains CRR of it’s country.
Let’s take a bank some random banking corporation SRBC. They have 100 million USD as depositor’s money. The CRR maintained in the country is 10%. That means 90 million USD can be loaned out.
This means that out of 100 USD that you have deposited in SRBC, they can loan out 90USD to another customer. At the same instant you will have 100 USD in your bank account and the borrower will also have 90 USD in their account. Both of you will have 190 USD available in the system ready to be spent. Bank will maintain a ledger for this loan and it says -90 USD in their ledger book. Now this borrower buys something and this 90USD gets transferred to another bank account (could be SBRC or any other bank) and will be used again to loan someone else. Using the CRR as 10%, 81 USD of this 90 USD could be loaned. This is a continuous process and the money gets multiplied itself.
100 = 100 + 90 + 81 + 72 + 64 …..
This results in double spending, triple spending and multi spending of same amount and it rises inflation.
Observe the below chart for further understanding
Initial deposit = 100 USD
Total ledger balance = -364 USD
Total deposited = 100 + 364 = 464
Total Sum = 100.
An initial deposit of 100 USD could be multiplied by more than 5 times over a period of time. You may think that the whenever a loan is issued, ledger is also updated with a negative balance, and when you sum everything it would be same as your initial deposit, (similar to the calculation shown above) so what’s the issue …?
Loans are created at a pace faster than they are cleared. It usually take few weeks to create a loan and at-least few years to clear the same loan.
This is a big credit pile up and it is growing exponentially. This is a credit balloon and the every balloon which increases in size have to burst one day. Is this limited to one county or one bank? — No. it’s a global problem and it’s a chain effect.
Result of this burst.
– Every asset which you can name of will be crashed. Whether it is real estate, stock market or what ever. This is going to happen inevitably. You must be thinking that I might be crazy to be assertive on such a statement or this may seem like a joke. Well the, let the numbers speaks for themselves.
An evidence of this can be found in a country named Venezuela.
There are some great videos which will help you better understand the problem.
Hidden secrets of money — Mike Maloney
How to safeguard your money
The answer is Gold. There might be a day where we will be using Gold for our day to day transactions. Cryptocurrencies such as Bitcoin and Etherium might also be a solution for this.
Gold is limited. so are Bitcoin and Etherium. They can not be created. They are not similar to any fiat currency which could be manipulated by central banks and governments.
Are banks and governments not aware of this situation?. When a layman like me knows what’s happening in our existing banking system, how could the people in power be not knowing this… This is the reason why many central banks are aggressively buying gold and accumulating in their reserves.
Central Banks shifting from Dollar to Gold
And El Salvador buying Bitcoin
If all this is confusing to you, kindly go through the article as many times as possible till you understand and share it to your loved ones, so that they can save themselves from upcoming financial disaster.
— “Financial education is more valuable than money” —
