Loren Howe: The Real Story of Money from Financial Sense University

21 Jun


by Loren Howe
February 19, 2007

�It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.� – Henry Ford

�our citizens, their property and their labor, (are) passive victims
to the swindling tricks of bankers and mountebankers.”
-Thomas Jefferson

You may have heard these quotes before, but have you truly considered what is being claimed? Were Henry Ford and Thomas Jefferson paranoid crackpots? Or perhaps, were they simply more aware than the average citizen? It�s an important question, not only from an historical perspective, but in direct relation to your personal wealth and freedom.

Few people understand the true nature of money and finance, and for that very reason, few people are able to gain or maintain wealth today. Instead, the average American lives in a state of servitude to a mortgage, taxes, and a job. At any moment, everything can be taken away if a constant cash flow is not paid. The middle class� current situation is not very different from historical serfs or indentured servants. How did this happen and who is the beneficiary?

Look at the tallest buildings in any city or town throughout history. They always belong to the ruling class.  Today, the skyline of most large cities is dominated by banks. Incredibly, all of this wealth was basically created out of nothing. That�s right, our enormous financial industry, which rules the country economically, has arguably never made a single product of value. Just remember, when nothing is created there must be a loser for every winner. The loser in this case has been the average American.  Without even knowing it, the middle class has had its prosperity and freedom siphoned away to support the financial establishment.

I�ll try to give as simple an overview as possible for this purposefully complex system of wealth transference.

Today we refer to America�s Central Bank as the �Federal Reserve� because the name Central Bank had a bad connotation from experiences in Europe. The Central Bank is basically a quasi-government agency which takes its direction from consensus within both the Federal Government and the financial industry which it was created to serve. Regardless of who controls the Central Bank, its purpose is fairly straightforward once you cut through the opaque language and theory with which it disguises itself. The Federal Reserve/Central Bank�s overriding purpose is to create ever greater quantities of currency and inflation.

The creation of controlled inflation has proven immeasurably valuable to the banking industry and Federal Government at the expense of the American people.

First, how does the Central Bank create currency? Basically it just prints (or types into a computer) as much new currency as it wants. This currency is then �lent� out to the banking industry and the Federal Government.  When these loans are repaid to the Central Bank, the money is just lent out again along with even more newly created currency.

A simplified example can help illustrate this purposefully complex process.  One day the Central Bank may create $1,000,000,000 out of thin air. This $1,000,000,000 is then lent to a commercial bank (let�s call it Local Bank), at the Central Bank�s loan rate of say 5% annual interest on a one year loan.  In turn, Local Bank loans the $1,000,000,000 to area businesses at a rate of 8% interest on one year loans. Ideally, at the end of the year, the business loans are repaid to Local Bank at a value of $1,800,000,000. Local Bank must now repay its loan from the Central Bank, which is $1,050,000,000 including interest. That leaves Local Bank a profit of about $20,000,000. Not bad for having produced nothing.

As you can see, this system insures profit for Local Bank regardless of inflation. Imagine an individual trying to lend money in competition with Local Bank. The wealthy person would lend his $1,000,000,000 at 8% interest and get a profit of around $80,000,000. Next the wealthy person, just like Local Bank, would subtract out taxes for a final profit rate of maybe 5%. So far so good right? The problem is, if inflation is greater than 5% then the wealthy person is losing money. If inflation gets extremely high at some point, then the wealthy person will be wiped out and quit the loan business. Local Bank, on the other hand, doesn�t have to worry about inflation.  Local Bank is not using its own money. It is just playing with, and then repaying, the Central Bank�s money which was created out of nothing. After a while under this system, banks which are granted access to Central Bank funds are left as the only viable lenders. These banks are insured a virtual monopoly on the money loaning industry.

But that�s only half of the story. Part of the genius of the Central Bank system was that it also aided big government and the politically connected.  This assured that big government would become dependent on the system and unable to change it

First, the government takes �loans� directly from the Federal Reserve Central Bank but with one critical difference. The Central Bank gives back the interest �paid� on the loan. This is a convoluted way for the government to obtain perpetual zero interest loans � more correctly called free money. As if that were not enough, the US Treasury is also given the Federal Reserve�s interest charged to commercial banks on the money created out of thin air. This practice of giving the Central Bank�s interest to the government basically insures that all inflation on all money in existence is split as profit between both the government and the commercial banks. These benefits alone transfer a vast and well-hidden source of income to the government.

A simpler way for the government to achieve exactly the same result would be for the Treasury Department to print itself free money every year. However, this method would be more straightforward and citizens would intuitively realize that the resultant inflation robbed them of their savings and earning power. Secondly, this method of printing free government income would not allow commercial banks to also skim their percentage of the inflating money supply.

The government�s free benefits don�t end there, however. Next, as the currency inflates, the government�s zero interest debt obligation is gradually erased. This debt is continually rolled over and eventually inflates away to nothing.

Lastly, the government gains enormously in one more hidden way. Taxes on the public’s savings are based on the imaginary �gain� from inflation. If a person owned a home or gold under a stable currency, the value would remain relatively constant. Under an inflating currency, however, the government is able to tax the �gain� on savings as their cost in dollars rises every year. Basically this amounts to a well-hidden tax on only those Americans who save money. The more you save, the more you are taxed. Is it any wonder our savings rate is now negative and the general population looks to the government rather than savings in difficult times?

Individuals under a Central Banking system have less money available for large purchases and must take out loans for nearly everything. The net result is an ever growing number of people who need loans in place of savings, and a banking industry with a virtual monopoly in issuing these loans. This system has fueled the financial industry�s immense profits without production.

The system of currency inflation being created, skimmed, and kept by banks and government may seem subtle. Some people don�t realize the damage done. Try to view the most simplified form. This process is the same as a counterfeiter printing money and earning a free living without producing anything. Imagine the simplified economy of a small town with it�s own currency. Imagine the town has all the normal industries plus a counterfeiter who can print as much free money as he likes. Guess what? First the value of the townspeople�s savings will be eaten up by inflated counterfeit currency. Next the counterfeiter will buy up all the valuable goods from the town�s producers. The working townspeople will have to work even harder to try to buy what�s left. But the harder they work and the more they produce, the more the counterfeiter can buy.  Ultimately, the counterfeiter will be left as the only person in town with wealth. He will then have ultimate control over the town newspaper and government. It will become difficult to educate anyone or pass a law against counterfeiting. Unless the townspeople learn a method of personal or collective escape, they will be left in a state of servitude to the counterfeiter.

So there you have it. After less than a century under the present incarnation of this Central Banking system, we now have a middle class deeply in debt, a negative savings rate, an enormous but often unproductive government, and a wholly unproductive financial industry. What’s more, our government has been in increasing stages of financial default for the last two generations and can no longer honor its previous pledges to redeem currency in gold or anything of value. Most amazingly, the entire structure of wealth transference was so well hidden and self-fulfilling, that few individuals grasp what is occurring or the negative impacts to society.

Before you get too depressed or angry about the situation however, it is important to remember one thing.  Once you understand the system you can become wealthy.

Escape from theft will only hasten any parasitic system�s collapse. Communism, for example, wasn’t defeated by a popular rebellion but by countless individuals gradually freeing themselves from economic exploitation until that system went broke. Once you understand how the Central Banking establishment operates, you can benefit immensely. There is not even a need to rally others towards a reform movement. You can simply watch your wealth and freedom grow while setting an example for others to follow.

The first questions I ask any investment (or other) advisor are about their success rate, training, and experience � so here is mine. I was fortunate, perhaps, to have no formal training in economics, and instead studied engineering. Everything I learned about money was self-taught and based on logic rather than economic theory. Over the last five years of investing I�ve averaged an annual rate of return over 20% and now have a net worth of around $2,000,000. What�s more, I�ve done this without a single day of debt and its associated anxiety.

In brief, to become wealthy you must first understand how the Central Bank robs your savings. Once you understand the multiple venues through which wealth is transferred to the banking establishment, you can cut off every one of them.

The next step is understanding and shielding yourself from conditioning by the press. Always remember, most �news� stories about investment are little more than paid advertisements initiated by press agents.  Meaningless statements are repeated so often that they are taken as truth. For example, no one questions claims like, �the value of all stocks on the NYSE has increased 10,000% over the last 50 years� or, �the value of the Dow Jones Industrial Average has increased 5,000% over the last 50 years.� Yet, these are meaningless statements akin to saying, �the value of all houses in America has increased 10,000% in 50 years� or, �the value of the 30 biggest houses in America is now 5,000% greater than the value of the 30 biggest houses in 1950.� These misleading statements disregard the fact that houses are constantly being demolished and new ones built. If you had purchased a particular house 100 years ago it would likely be worthless rubble today, despite the fact that the average home is worth much more in inflated dollars. Looking past the financial industry’s hype, stock analysis is an extremely complex field with an enormous number of variables. Let’s try to simplify it. The fact is, nearly all corporations eventually go broke. If corporations didn’t go broke the stock exchanges would be dominated by names like the British East India or Hudson Bay Company.

Popular investment �advice� generally leads people to take a gambler�s perspective. Experts herd investors into one sector or company this year and another next year – all the while stirring up commissions and giving the impression that investing is a fast paced and unpredictable field. Once you learn the basics of value investing and long term cycles, however, investing becomes much more of a science while retaining the potential for spectacular profit.

The final step in escaping financial exploitation is to understand the multiple ways in which brokers earn a living off of your savings. You gain little or nothing in return for paying a broker commission, so it is necessary to learn to minimize commissions and even outright broker theft whenever possible. After understanding and minimizing this last drag on wealth, you have achieved the basics of financial freedom.

In summary, most of us are born into an economic system stacked against us in ways which will never be advertised by the financial establishment. To gain real wealth, it is vital to understand the system. Knowledge and action can eventually give you an unimagined prosperity once your efforts are no longer subtly siphoned away by others. Hopefully this information will assist you in beginning or continuing to learn about a misunderstood topic – and eventually improving your life to enjoy the happy and fulfilling wealth and freedom which should be the birthright of everyone.

� 2007
Loren Howe
Editorial Archive

This article is condensed from, The Real Story of Money, Health, and Religion, by Loren Howe available in paperback or $1.25 download at

Loren Howe
Los Angeles, CA USA


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