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It’s a Fraud. A Pyramid scheme. A Ponzi scheme. And a Lie.
Dr. Mehboob Makhdoomi

Many of us do think that something isn’t quite right with the world economy. One in a million actually understands, where does it go wrong? Powers that be, do not want you to know about it as it’s your ignorance which keeps them at the top of the financial food chain. I don’t know of any other example in history where so many were looted by so few.

Modern banking system creates money faster than our hearts beat. However, they make it so complex & unintelligible that none but they alone, understand it. All economies work pretty much the same way but since most of the global transactions use US dollar, making it the majority of the world’s currency, I will exemplify the US system. 

It all starts when one politician, running for the Senate or the Presidency, promises that he will give you more facilities than his opponent will, but there is no such thing as a free lunch. So, to fulfill those promises, politicians spend more than the national income. This is called Deficit spending. Treasury borrows currency by issuing a bond. A bond is a piece of paper, a glorified IOU. It means ‘Loan us trillion dollars today and we shall return it in 10 years with interest’. This amount is the national debt, which is to be paid by people. Treasury holds a bond auction, world’s largest banks show up and compete to buy this national debt and make a profit. Through an open market operation, the banks sell these bonds to the Federal Reserve (a central bank) for profit. The Fed then writes bad, bogus cheques which should bounce because they have a zero balance in their account.

Boston Fed Reserve explains it saying: “When you & I write a cheque, there must be sufficient amount in our account to cover that, but when Fed writes a check, it creates money’’. When these cheques are given to the banks, the currency springs into existence, out of thin air. The banks, then go back to the treasury auction and buy more bonds. In this way, the Fed reserve and the Treasury swap IOUs using banks as middle men to create currency. This results in the build up of IOUs at fed reserve and of currency at the Treasury.

C. Ponzi

Earlier you could walk into any bank & redeem your $50 bill for a 50 dollar gold piece, which is not possible now as this system is nothing but just the supply of numbers. Once this money reaches Government, politicians are happy. They spend it on public work, infrastructure and war. All the employees deposit their savings into banks, technically loaning it to them, who can do almost anything with it, be that gambling or loaning it at profit. If you deposit $100, banks usually have to keep around 10% as vault cash for customer to withdraw some and they lend your $90 to some other borrower. This is called Fractional Reserve Lending. The Banks leave IOU for your $90, which is why it still shows $100 in you’re account. Now, there are $190 in existence. The borrower of your $90 gives it to the seller of a car or a house, whichever was the reason for him to borrow. The seller goes and deposits it in his account, from which the bank relends $81 to some other borrower. Now, your $100 has become $271. This process of re-depositing & relending repeats itself over & over again, reaching up to $1000, all backed up by a vault cash of $100. These commercial banks create check book money simply by creating numbers. In some cases, the Fractional reserve ratio is only 3% and for some others, even 0%. 92% to 96% of currency is created here in banking system, only 4% to 8% by the Government. The Prices act as a sponge. Increase in currency results in inflation, which is an impalpable tax.

This currency represents just the numbers, some printed but most of it just typed. True wealth is our time, labor, sweat, ideas, talent which gives it value. We work hard and pay tax to the Government agency called the IRS (Internal Revenue System). This is where the fraud lies. Much of our tax money does not go for schools, hospitals & other such public works but IRS pays it to the Federal reserve, for those bogus checks which it had written to create currency. Before the establishment of Fed, there was no need of personal IT. It was started in 1913, same year when the Fed was established. This can’t be a coincidence.

Anyways, this takes us to another concept called Debt ceiling. It’s a Paradox. There is an interest on each bond & on every dollar in existence. If you borrow a dollar and it’s the only dollar in existence, you promise to pay it back with interest, you can not pay it unless you borrow again at interest to pay back this debt. There is never enough currency to pay the debt. It’s an impossible system. If we stop borrowing no new currency is created. Currency and debt are matter and anti matter, they meet and annihilate each other. The most important point is that the Federal reserve is not federal. It has stock-holders, who are its owners. Fed is a private corporation. As its website says, there is a 6% dividend to stock holders. No one can trace who owns stock in Fed reserve, but most probably they are the primary dealers- the banks. We pay taxes so that Fed reserve can pay those 6% to stockholders. This proves that this system has owners, which is why there is a huge disparity between the rich and the poor.

This system is evil, a form of enslavement. It’s a promise to make us pay tax in future. Nobody asked me if I promise to work hard so that my grand parents could enjoy. I wasn’t even there. No one is asking our children if they agree to work for the comforts which I enjoy, today. It steals prosperity out of future, so that it can spend it today. It’s a Pyramid scheme, a ponzi scheme, a legalized theft & a fraud, as says Mike Maloney. This system is falling and as I have always been saying that Islamic economics is inevitable & sure to come. Let’s get ready for it, as soon as we can.





Mehboob Makhdoomi is an MBA from Pennsylvania University (IUP) United States with a research degree from Cardiff University, United Kingdom. ) [email protected] 


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