Real Estate Investor Magazine South Africa May 2013 | Page 15

UPFRONT
affecting millions of families and hundreds of
thousands of companies, large and small, across
the globe. As one commentator noted: “This
dwarfs by orders of magnitude any financial
scam in the history of the markets.”
In addition, the information age has brought
to the man in the street the knowledge that
“money” is no longer backed by gold reserves,
but fabricated through the fractional reserve
banking system.
Given how pervasive the financial system
is – affecting every aspect of our lives – it has
become critical that we move out of our comfort
zone where ignorance was bliss. We need
to become far more proactive and involved,
understanding thoroughly how the system
works. This is the only way in which we can shift
from being victims of a system we have helped
to create through ignorance, complacency and
greed, to becoming empowered consumers
and users of these systems, understanding the
rules so we can play the game or step outside the
game for our own collective best interests, and
the interests of generations to come.

Understanding the rules
We cannot play on an equal footing in the
global financial system if we don’t understand
the rules. While learning the rules requires
time, effort and dedication, it is absolutely
necessary if we are to become empowered
players, instead of victims.
It is not possible to explain the intricacies
of the entire global financial system in one
article, but there are a few concepts that,
once understood, will help us to understand
the basic tenets of the system, notably the
f ract iona l reser ve ba n k ing sy stem a nd
securitisation.

The fractional reserve system
In previous articles in REIM, we revealed that
banks do not actually lend out money they
already possess, but rather “create” the money
loaned to borrowers, using the “promise to
pay” signed by the borrower. In other words,
“money” is created through debt.
This is called a ‘fractional reserve’ banking
system, and it is used by governments, central
banks and f inancial institutions across the
globe. On a national scale, central banks print
money that has no intrinsic value, based on
www.reimag.co.za

a “promise to pay” issued by a government.
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