Fractional Reserve Banking

This method of exploitation is virtually as old as money. In the past it was called coin debasement. Very simple, you just decreased amount of specie in coins while keeping the nominal value intact. Modern version is euphemistically called fractional reserve banking. When coupled with government money monopoly, then the sky is the limit.

FRB basically means that banks can create new money up to the limit of their deposits (minus small reserve requirement, usually a few percent, eg in Eurozone it's just 1%). When you deposit say, 100 euro, your bank can create 99 euro out of thin air and lend it to someone else. Total supply of money has just increased by 99% in that very simple operation, from 100 to 199 euro. Inflation tax is also precisely 99 euro. Cool, huh? It's very effective exploitation compared to traditional coin debasement, as you can't really debase coin by half that easy.

In the past the prime beneficiaries of coin debasement were ceasars and kings. Nowadays with FRB it's mostly private bankers and financial sector, but also debtors, including private corporations and ordinary mortgage borrowers. Financial sector benefits most as they are the first to get ahold of the new money. That's why historically average profits in financial sector are considerably higher than in all the other parts of economy. Next come various debtors. In corporate world it's called leverage, or debt-to-equity ratio. All other things being equal, the bigger the company, the higher leverage it can obtain on the financial market. Same for individuals, the higher net worth, the more cheap money can be obtained via various debt instruments.

On the other hand, the exploited are mostly the poorest whose losses in cash and current account holdings, where inflation tax basically hits as prices go up, are not being offset by gains in cheap money debts (large mortgages), real estate (whose values go up together with inflation) or savings deposits (whose interest are higher than inflation). These are all upper or middle class privileges, ie corporations and individuals with high solvency.

As you can see, the rich and the middle class exploit the poorest workers, very nice and easy. The main idea behind this deceit is cheap money that is supposed to "heat up the economy" as companies and individuals borrow and spend more, which in turn benefits all. That's just as retarded as magical Keynesian multiplier or broken window fallacy. If that were true, ordinary stealing would also "heat up the economy". But don't worry, while coin debasement is easy to understand, no one really understands FRB, euphemisms and obscurity do work. Also, even if the well educated rich and the middle class might in theory understand the insidious exploitation that FRB stands for, it benefits them most, so they'll keep their mouths shut.

After all, who is reading this blog if not middle class who want their nice mortgages cheap? We're safe ;)

Exploit the poor!