This is a story of money and why the Federal Reserve Note is not one backed by gold or silver more. You will learn unforgettable about money, debt and where banks get the money to finance their credit card or loan.

A History of Money and Trade

To begin with a history of money and debt, we must go back many years ago when people use to market their products for the things they wanted and needed.

Instead of money or Federal Reserve Notes, you can trade a well made pistol for a cow, you can eat or trade a remainder of other items like clothing.

It did not take long for people to realize that it was necessary to be a more efficient trade. If you were a farmer, it was too difficult to carry baskets of sweet corn around to trade for a new horse. And the person selling the horse may not want corn at all.

A history of money and gold

Thus, people who use the gold for cash, there was always a stable value for trade items they wanted and needed. In this way, the horse dealer could always trade the gold received by farmers for the clothes that I really wanted instead of having to take the corn.

In a story of money and gold, this only poses a problem. The gold is very heavy to carry and difficult to conceal. At the beginning of our history of what people do is that banks leave their gold with a goldsmith. The goldsmith

then give them a note, or paper money, which declared the amount of gold they had deposited in the goldsmith (bank).

farmer could take note of this paper money, for example a value of $ 50 for the dealer and buy a horse riding with him. The horse dealer could spend this $ 50 paper note or return to the goldsmith to pick up the $ 50 gold just acquired through the sale of the horse to the farmer.

Well, why the horse dealer want to trade in the cash for the note in heavy gold, when he only wanted to trade in clothing and food anyway. Therefore, the note will continue to trade hands and very few people ever go redeem it for gold which was backed by.

It did not take long for the goldsmith to understand this reality. Therefore, here is the storage of all the gold to other people. We will give a value to the following principle clear.

Let’s say gold is the storage is worth $ 1000, and $ 1000 in real cash money notes backed by gold is being circulated.

A History of Money and Loan

When many people wanted a loan for a total of $ 1000, it was decided they would not account which would be very easy for someone to give more gold, and really a fun note was a promise that money to pay the ransom of gold in the note. And he only charged 10% interest.

In a story of money and loans, this caused another problem. If everyone came to redeem their notes, would not have enough gold to pay all, because I only had $ 1,000 in real cash money notes backed by gold.

hat does not matter to him, why not lend to anyone who seems to be paying? And in that year gave a total of $ 10,000 worth of new building or you could say counterfeit, funny money notes. Well, says who cares gold, no one comes to get their gold anyway.

Therefore, now is $ 1000 in real cash money notes backed by gold, and $ 10,000 in funny money loans, therefore, $ 11,000 in the total notes in circulation. The goldsmith is charging the 10% or $ 1000 per year of interest and do not forget every penny of counterfeiting is to keep its director. For simplicity, lets say that now credit!

A history of money and inflation

Let’s see what this does. Now there are ten times as much money floating notes and then it is real gold to back it up. This makes the value of the original $ 1000 to lose 90% of its value. Therefore, buying a horse, now, would cost $ 500. Therefore, a history of money and inflation.

Everybody has a lot more money now then they did the year before, they feel rich. There is still the same amount of goods and services sold, only much closer to the supply of dollars for them, so most prices are going up. This is called a boom.

Now the next step leading to is that $ 1000 of interest and any portion paid to the principal of these loans go directly into the pockets of the goldsmith. Let’s say that during the first years, borrowers repayment of $ 1,000 from $ 1,000 in principal and interest.

This means that there is still $ 1000 for real money real money notes backed by gold. $ 9000 in funny money loans outstanding, $ 9000 in total notes circulating and the goldsmith has pocketed $ 2000.

Therefore, gold is now $ 2000 from nothing, and now there is $ 9000 in banknotes in circulation needs to pay $ 9000 due. And the cost of everything has increased tenfold. Now let’s move forward another year.

Let’s say that during the second year, borrowers repayment worth $ 1100 in principal and $ 900 in interest. There are still only $ 1000 in notes backed by REAL gold. $ 7900 in outstanding loans, $ 7,000 in total notes circulating and the goldsmith has pocketed another $ 2000, a total of $ 4000 so far.

Let’s say that during the third year, borrowers repayment of $ 1,200 principal and $ 800 in interest. There are still only $ 1000 in notes backed by REAL gold. $ 6700 in outstanding loans, $ 5000 in total notes circulating and the goldsmith has pocketed another $ 2000, a total of $ 6000 so far.

A history of money and the recession

People tighten their spending without apparent reason, but only because there are fewer tickets in circulation. Therefore, prices begin to fall. Businesses can not survive on low incomes, and therefore against the laity, giving people even less money to spend. And now we have the beginning of a history of money and the recession. Year

four borrowers repayment of $ 1300 worth of principal and $ 700 in interest. There are still only $ 1000 in notes backed by REAL gold. $ 5400 in outstanding loans, $ 3000 in total notes circulating and the goldsmith has pocketed another $ 2000, a total of $ 8000 so far.

Year for five years, borrowers a refund of $ 1,400 of principal and $ 600 in interest. There are still only $ 1000 in gold. $ 4000 in outstanding loans, $ 1,000 in total notes circulating and the goldsmith has pocketed another $ 2000, totaling $ 10,000 to date, but $ 4000 is still owed.

With only $ 1000 in total notes circulating, people obviously can not continue to pay, so there is one thing that is left and the confiscation of their assets and the remaining $ 1,000 in total notes in circulation. Can you say bankruptcy. (which is now almost impossible)

A history of money and the FED

Oh, I know you said the goldsmith, I just have to maintain this false money loans backed by nothing to hard for me to work for free, as each asset on this planet for free. Therefore, the jeweler begins to lend money again and will be a $ 10,000 the first year, which in turn causes the AUGE. And, on and go.

The only difference today is that there is no limit to the loan, so it is continually creating money that forces us to fight each other to get our hands on it, pay our share of the debt, while the price of everything skyrockets endlessly.

And the goldsmith now called the Federal Reserve System and the funny money counterfeit notes are called Federal Reserve Notes. In the 1930s it had about $ 16 billion in gold in Fort Knox, and now we owe $ 8,339,711,774,335.

As a child I remember sitting around in a long history of debate in my class of first graders. My teacher at the time was very friendly and competent woman was telling a story, and essentially predict the future. My teacher does not have a PhD in economics, or even a bachelor’s degree in any major business, but she told my class a story and I could relate to the current collapse of the banking system in the United States.

My teacher told a tale of two squirrels. A squirrel saved all their acorns, working hard. This squirrel was very responsible and realized that once winter comes will all the acorns that might be gathered. The other squirrel, is the short, risk-taking that squirrel was, decided he just bank on the fact that if something happened he could borrow only acorns for squirrels. When the story concludes the irresponsible squirrel is not hard acorns during the winter and is compelled to ask whether those responsible squirrel can borrow some of its acorns. Out of the goodness of the heart is responsible for the squirrel squirrel irresponsible some of its acorns, and all is well.

The difference between this beautiful story of children and our economy is in real life from the banks and people are not matters that are generous with their acorns. Washington Mutual is one of the squirrels irresponsible. On Thursday, September 24 Th 2008 from the collapse of Washington Mutual became the largest U.S. bank failure in history. Unfortunately it falls could be avoided by learning the principles in one simple children’s story that he was told to first grade. Washington Mutual took great risks in lending to borrowers who had less than capable of taking on debt incurred. Many of these borrowers lacked the knowledge to interpret their mortgages and were locked into contracts they could not honor especially adjustable-rate mortgages. This theme stricken U.S. financial institution as a whole.

People who do not pay your debt is something that every lender has to take into account. What type of borrowers do not pay the lenders can not always be predicted, however, a strong balance sheet with solid amounts of cash and working capital can cushion the blow, and perhaps even be used to bail the lenders of a bad situation. Like squirrels acorns irresponsible not saving enough for a harsh winter, Washington Mutual had no working capital, strong enough to withstand the difficult times. So who pays for the irresponsibility of the squirrels’ s errors, or in this case of Washington Mutual? Once again, the squirrel is responsible for the short end of the stick, having to pick up the slack. In the case of Washington Mutual $ 1.9 million of its assets were sold to JP Morgan in the short term. In the long term, the net effect of the failure of the largest U.S. bank and others as the result would be approximately $ 700 million to bail …. This large amount of acorns. These acorns will not be offered even to be proposed by the legislature, or in other words, taken from taxpayers.

So how does this history and current status of the U.S. economy relate to the average U.S. citizen? First and foremost the clear conclusion could be drawn is that taxes will likely increase. But that is not much to be learned here. To me there is much more basic lessons to be learned. As

borrower should not incur debt that can not be reasonably expected to bear fruit. From mortgages to credit cards the average U.S. citizen has a large amount of debt. It s easy to think you can pay your debt when things go well, or a period of expansion. But you also have to account for what could happen when things get bad during a recession or a depression worse.

The other key is understanding what the borrower is receiving in themselves. Too many people can not even interpret the wording of their contracts. If you can not understand the contract to hire someone to interpret for you. If you can not pay someone else to interpret it, learn to interpret itself.

lenders also must understand that their borrowing and to be responsible in their decisions. If we are going to lend you must make sure that if you do not get back, you can pay for late payment. risky loans at high risk is a high yield.

In short, we do not take excessive risks, the plan for the future, and always have enough money for bail if you get hard times.