How money works in the UK
Ever wonder how the UK government continually spends more money than it can tax us each year? The solution is quite simple, what they do is that the Treasury prints government bonds in exchange for money from commercial banks, investment institutions and (when they cannot sell them on the open market) the Bank of England. Banks obviously do not have hundreds of billions of pounds to lend to the government, nor do they need them. All they do is create an accounting entry and write a check to the UK government in exchange for the government bonds. The Government deposits the check with the Bank of England and we, the taxpayers of this country, are sucked into the national debt trap, so we have to work to pay this debt.
But the story does not end there. The government now spends this newly created money in the economy by paying its employees: the courts, the schools, the police, the military, and the civil service. In turn, they deposit their paychecks at commercial banks. Through fractional reserve banking, commercial banks can now lend up to 33 times more new money, from which they can extract interest. This means that when the bank charges an average of around 17% on the credit card, it is actually receiving a massive 561% interest for every pound deposited. It’s no wonder that the largest buildings in any major city are banks.
“Fractional reserve banking” is like a magic wand that allows commercial banks to print as much money as the nation can borrow. Unfortunately, it doesn’t make anything go away, it just increases our debt. When you sign a loan or credit card application and submit it, (let’s say you get approved for £ 10,000.00), the commercial bank stamps the back of the application, like a check, with the words: £ 10,000.00 ‘which transforms your application into a promissory note or ‘cash equivalent’. They then deposit the promissory note with the bank into a demand deposit transaction account in your name (the same as a checking account). They then deposit these £ 10,000.00 of newly created funds into this account and then issue you a credit, debit or paper check card. You may have noticed, it’s all just accounting entries, because this money is backed only by your own signature, no bank funds were actually used.
Your asset, the original promissory note, not only finances your own alleged loan, it also becomes an asset on the bank’s books, so you, along with all other lenders, are creating the bank’s value. This is because the bank has no liability associated with the loan, only one asset – your promissory note. This means that for the bank this is a totally winning situation, the money of the bank’s depositors is not used. In reality, you financed your own loan and they will benefit from your asset, the promissory note, along with the interest on it.
Don’t forget that when you spend your newly created money / loan, it ends up in someone else’s account and your bank can add it to your balance sheet as a bank asset, but this time with an equivalent liability, the depositor’s right to recover the money. That means they can’t lend that money, but they don’t need it, they can create new money when they need it, which in turn slows down for someone else. This accounting merry-go-round is how fractional reserve banking works.
Because all the money in the economy is created from debt, be it personal, commercial or national, the money supply must continually grow to cover the interest charged to it. This is the cause of inflation. The value of money is decreasing day by day due to the purchasing power lost due to inflation.
The big problem is that the growth rate of the money supply is not enough to meet the interest payment requirement. This means that a percentage of all debts must go unpaid, because there is not enough money to pay them. These unpaid debts are represented by people losing their homes, businesses failing, and people laid off. It is a perpetual trap created by a debt-based monetary system.
The nation as a whole is falling deeper into the debt trap, dragging innocent people like you and me into a quagmire. This is the ugly truth about money.
The problem is that most people do not understand that if they are in debt, they could be next in line to have everything they own taken away if circumstances suddenly change. It’s happening to thousands of people every day in the UK, and you never know when the unthinkable might happen to you. So become money wise, get out of debt, and build a prosperous future, now, before it’s too late.
