“The Biggest Scam In The History Of Mankind”

 A reader forwarded this video  on to me.  Apparently it’s gaining quite a bit of traction online.  The  video is called “The Biggest Scam in the History of the World – Hidden  Secrets of Money”.  Provocative, huh?  As you can likely guess, the  video is about Federal Reserve conspiracy theories, the evils of fiat  money and of course, how you can buy gold from the person who made the  video.  The video is extremely well done, very convincing, provides lots  of historical data and believable claims, but right off the bat I  started to see some rather serious errors in the narrator’s claims.   Here are just a few from the first few minutes of the video.In the first two minutes the narrator says:

“The modern banking system creates currency far faster than trees can grow”

I’m  being a real stickler for details here, but technically the banking  system doesn’t actually create the currency.  Banks create loans which  create deposits.  The deposits can be drawn down to access paper  currency, but that paper currency is actually created by the US Treasury  who processes orders for it from the Fed system so they can supply it  to the US banking system when bank customers need it.  You can read  about the specifics of this process here.Moments later he says:

“Treasury bonds are our national debt”

Right.   But the national debt is also part of the private sector’s savings.   If your grandmother owns a T-bond then the government has a liability  and your grandmother has an asset.  When discussing a credit based  monetary system it’s best to understand both sides of  the ledger.  Otherwise, you’re missing half the picture.  A credit based  monetary system can be extremely unstable at times, but just looking at  debt levels won’t tell you much about that.  There’s much more to the  accounting here.Seconds later, he describes deficit spending as such:

“[deficit spending] Steals prosperity out of the future so it can spend it today”

The  US government has run budget deficits for the majority of its history.   Just to put this in perspective, can you imagine what someone like this  narrator would have said back in 1945 when the deficit was over 25% of  GDP?  Do you remember how the government “stole” all of our prosperity  back in the 1940’s?  Or did the USA undergo a massive economic boom over  the 70 year period since then during which it became, by far, the most  prosperous and wealthy nation mankind has EVER seen?  A little common  sense should make you question the claim that government spending (which  has happened for hundreds of years during an extraordinary American  wealth boom) necessarily steals future prosperity.  Yes, government  spending can have negative ramifications and isn’t necessarily always  good, but there’s a bit too much hyperbole in the claim that deficit  spending “steals” future prosperity.  That’s just not true in all cases.   The extremely high deficit from 1945 should make that abundantly  clear

 Next, he’s explaining QE and states:

“This process is where all paper currency comes from”

As  I described above, this is wrong.  Paper currency doesn’t come from QE.   Paper currency is supplied to the US banking system when bank  customers have demand for it.  This comes from the US Treasury and the  Federal Reserve, but really has nothing to do with QE.  QE does result  in more bank reserves in the system, but bank reserves and paper  currency aren’t precisely the same thing.  For more on QE please see my primer.Moments  later he defines money in a very peculiar way so that it doesn’t  include anything that doesn’t serve as a store of value.  According to  his definition money is a store of value, medium of exchange, unit of  account, portable, durable, divisible and fungible.  He then claims that  gold fits this definition.  But gold doesn’t fit this definition!   First off, you can hardly use gold to buy anything in the real economy.   Try going into Wal-Mart with a bar of gold.  They’ll tell you to piss  off.  Better yet, try transporting all your gold around with you where  ever you go.  Gold doesn’t even fit his own definition.  In fact, it  fails almost completely in money’s most important function – as a medium  of exchange.Of course, most of our  dollars don’t serve as a good store of value.  In fact, holding paper  currency or even bank deposits is a pretty dreadful way to try to  maintain your purchasing power.  Does that mean bank deposits and paper  currency are not money?  Of course not.The video then goes into a  money multiplier explanation claiming that banks lend out deposits and  reserves.  Anyone who actually understands banking knows this is wrong.   Heck, even Fed employees have written about this in recent years as the crisis and QE has clearly proven that the money multiplier concept is totally false.By  this point you should see what’s going on here.  I didn’t watch the  rest of the video because it only took 5 minutes to see a whole  multitude of errors.  In essence, the video is just a sales pitch for  gold and an anti government agenda.  If you’re into that kind of thing  then fine, but you’re being misled so be careful listening to people  with such an obvious political agenda….NB – It’s  also interesting to note that the creators of this video are ultimately  selling you a product.  They’re selling you gold and silver as seen here on their website.   And they’re using fear to drive you into that product.  But look what  they want from you.  After countless hours of video trashing fiat money  they’re asking that you pay THEM with…US DOLLARS.  If this whole thing  doesn’t set off a great big red flag for you then I don’t know what to  say.  Good luck?