“Happy Christmas, Christmas!”

(click here for part 1)

by David Chu (12-22-08)

Editor of Chu Report (chureport.com)

Author of NO Foreclosures! (noforeclosures.info)

[Taken from the Chapter 4 of the ebook, NO Foreclosures!]

The Monkey Jar Tale

There is an old monkey tale from Africa that is very pertinent to Americans saddled with debts and facing foreclosures. The Author gleaned this story from the Free Press of Pagosa Springs, Colorado while he was vacationing there in April of 2008.

The tale tells of how the native hunters there use a special jar to catch wild monkeys. When a monkey sees a hunter approaching, she instinctively climbs up the nearest tree. The hunter then places an earthen jar at the base of the tree, along with a handful of rice inside the jar. Then he walks away and hides nearby. Eventually, the monkey climbs down from the tree and curiosity takes over. She smells the rice inside the jar and instinctively shoves her hand inside to grab a handful of rice.

The hunter who is watching this scene immediately walks towards his captive. The monkey sees the hunter coming, but she discovers that she cannot pull her hand out from the heavy jar while her fist is holding the handful of rice. She cannot put these two facts together. As the hunter gets closer and closer, the monkey struggles frantically trying to escape but in vain. She cannot. Because she won’t let go of her handful of rice.

In the end, the result is quite predictable: all is lost. The monkey is caught. Along with the original handful of rice in the jar.

Credit/Debt System

For American families struggling with living from paycheck to paycheck, that handful of rice is the “credit” or “money” that is loaned to them by the banks and credit card companies, and that earthen jar is the “credit/debt system” (a system which uses FICO or credit scores to reward or punish borrowers).[3]

This system was specifically designed by the banks and financial institutions to enslave 99 percent of Americans with perpetual debt.

Now, before you dismiss this simple yet profound and even revolutionary idea that the credit/debt system was designed to keep you in perpetual debt slavery, you need to understand what is money, what is inflation, what is credit and debt, and what is interest.

If you can understand what these five cardinal concepts—money, inflation, credit, debt, and interest—really are and not what you assume them to be or what the corporate mainstream media tells you, you will be taking the first steps towards your financial freedom, and you will be stepping out of the invisible prison matrix that financially enslaves 99 percent of Americans.

If you watch a 47-minute Google video called “Money as Debt” in its entirety (maybe the most important 47 minutes of education on money), you will gain real knowledge about what money truly is and why the credit/debt system was designed to keep you in perpetual debt slavery.

Now, please stop reading this book and go watch “Money as Debt” video on Google video or in the video section of noforeclosures.info.[4]

What is “Money”?

Assuming that you have watched this video in its entirety, you should now begin to understand that money is debt.

Money is nothing but debt!

Modern U.S. money (approximately 95 percent of the total U.S. money supply) is created through the banking system only when debt is created or when bank loans are made, or is created by the Fed in a similar manner (the Fed just does it without any loans being involved). That is where the expression “money created out of thin air” comes from. Money is literally created out of thin air, or in cyberspace as electronic ones and zeros in the computers of the banks and the Fed.

Of the remaining 5 percent of the U.S. money supply, it is minted and printed by the U.S. Treasury as coins and paper money, respectively. However, there is a catch.

The Federal Reserve Notes ($1, $5, $10, $20, $50 and $100 bills), though printed by the U.S. Treasury, are issued by the Federal Reserve which exchanges them for interest-paying U.S. government bonds. The U.S. government gives government bonds to the Federal Reserve and pays them interest on all Federal Reserve Notes that the private Federal Reserve creates out of thin air just like the banks!

When you get a mortgage from the bank, say $100,000, the bank doesn’t set aside $100,000 of cash deposits from its depositors and lend you that amount (i.e., taking money from Peter to pay Paul). The bank creates an electronic ledger entry in its bookkeeping system and Voilà! $100,000 is created out of thin air! You get a check for $100,000 and, in exchange, the bank gets your home as collateral for your loan.

This money creation scheme magically performed by the banks is totally legitimate and legal, and it is due to what is called the “fractional reserve banking system.” There is not enough space in this short book to cover this very important topic and you are encourage to read G. Edward Griffin’s excellent layman’s explanation on this subject.[5]

Same scenario goes with your credit cards. Let’s say you have a credit card limit of $10,000 on that Citibank Visa card. Does this mean that Citibank sets aside $10,000 of money in its vaults to pay your creditors when you buy something? No, not at all. The credit money you spend by using your credit card is paid electronically by Citibank, using the same money creation scheme as for your mortgage. Payment is simply created electronically in cyberspace under the “fractional reserve banking system.”

Money is really just a means to facilitate the exchange of goods and services. It can be gold, silver, paper or even seashells—so long as everyone agrees that it is money.

The fact that almost everyone in the world agrees that the U.S. “Federal Reserve Note” or U.S. dollar is money makes it so—at least for now. But what is a “Note”? It is just an IOU (“I Owe U or You”) issued by the Federal Reserve that has no financial backing whatsoever.

None.

This was not always the case in the financial history of the United States as the following picture shows:

See example of a U.S. $100 dollar bill or gold certificate from the late 1920's.

The U.S. $100 dollar used to say on the bill “One Hundred Dollars In Gold Coin Payable To The Bearer On Demand” meaning that the bearer, that would be you, has the right to  redeem or exchange the paper money for real gold at any time. This paper money was backed by gold.

Today’s U.S. $100 dollar only states, “This Note Is Legal Tender For All Debts, Public And Private.” In other words, it is money backed by nothing but by the fiat or edict of the U.S. government. There is nothing that backs this paper money. It is money only because the U.S. government says it is so!

See example of a current U.S. $1 dollar bill or “Federal Reserve Note.”

This type of money is called fiat money, that is money created by the fiat of government.

The historical trajectory of all fiat or paper money is zero or somewhere close to zero!

This is because all governments will eventually print more and more money until their paper currency is worth next to nothing. It is much easier to print money than it is to tax the citizens for all the profligate government spending that their citizens eventually want and demand.

Since the introduction of the Federal Reserve System in 1913, the Federal Reserve Notes or U.S. dollars have lost over 95 percent of their purchasing power. An item that costs $1 in 1913 would cost more than $20 today. Or to put it another way, the value of a $1 Federal Reserve Note from 1913 has shrunk to less than 5 cents today!

Nothing speaks more loudly or clearly than the next graph showing the worth of one $1 USD from 1913 to 2005.

See value of $1.00 Federal Reserve Note from 1913 through 2005.

Thomas Jefferson, president of the United States from 1801 to 1809, knew that this debasement of paper money could happen when he warned his fellow citizens: “If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”

In fact, the primary cause for the American Revolution War or the War of Independence was monetary, specifically who would control the issuance of money.[6] That is an entirely different but important story which will not be covered here.

What is “Inflation”?

According to Dictionary.com, “inflation” is defined as follows:

1. Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation).

There is a distinction that needs to be made about “inflation”: There is “money inflation” and there is “price inflation.” The two are not the same thing.

“Price inflation” is really just the appearance of price increases, mainly due to the devaluation or debasement of the paper currency and money system, which is mainly caused by “money inflation”—that is the “printing” of too much money, either “real” or electronic.

In actuality, “things” such as goods and services simply do not increase in price just because. Prices increase (“price inflation”) when there is too much money (“money inflation”) chasing after a limited or static number of things or services. There is usually a time delay between when “money inflation” first appears (when the Fed or the banks create money from “thin air” and inject it into the economy) and when “price inflation” results in the market place (when the prices of goods and services increase). Sometimes, “money inflation” may not even result in a “price inflation”—if the production of goods and services increase proportionally to the increase of the money supply.

Take the example of houses. A house does not produce anything tangible of worth. A typical American house consists of a concrete foundation, a wood frame structure made of beams, studs and joists, and a roof made of more lumber and covered with wood shingles, ceramic tiles, or corrugated metal. There is nothing inherent in a house that makes it increase in value 10 percent every year, or at any other rate of increase (appreciation).

U.S. housing prices adjusted for inflation over the past 116 years have only increased at an average rate of 0.7 percent per year (seven-tenths of 1 percent).[7] In Europe, over a 345 year period, houses along one of the oldest canals in Amsterdam called the Herengracht increased at an even smaller percentage—only 0.2 percent per year![8] What this means is that essentially houses do not appreciate in price, at least not at any significant rate, above what is the general price inflation rate.

In another words, the appearance of housing price increases for the past 100 years in the U.S., even including the past 7-8 years, is entirely due to general price inflation.

To make this point about inflation even more clearer, let’s suppose that there are only two buyers in Small Town, U.S.A. each wanting to purchase a house there. Sam Smith has $100,000 available to him and Sarah Wong has $120,000. The house that they are both interested in buying is appraised at $90,000. In this simple tale, both buyers are able to pay the appraised value. In all likelihood, if both really wanted this house, it would probably sell at a purchase price of around $100,000 (the maximum that Sam can afford) and probably Sarah would be the lucky buyer because she can afford to pay more than Sam.

Now, let’s throw a wrinkle into this simple story. There is a third person in this tale by the name of “Helicopter Ben” whose sole job is to sprinkle Small Town, U.S.A. with money from his “Federal Reserve Helicopter.” Lots and lots of money! Well, during this particular run, he dumps only $70,000 on Small Town. When it’s all said and done, Sam now has $150,000 ($50,000 more) and Sarah has $140,000 ($20,000 more). Sam is very fast picking up all those $100 bills that “Helicopter Ben” leaves behind. Now, at what price do you think this house will be sold? Probably around $140,000 (the maximum that Sarah has) and this time Sam would be the lucky buyer.

Why did the house increase in “sale price”? Did it appreciate in price and value [“price” is what you pay and “value” is what you get. Sometimes they are the same, but most times they are not] because the local economy of Small Town, U.S.A. suddenly improved? Was it because there is no more land to build upon there? Or, was it because this house is located in the exclusive community of “Malibu, the Gated Paradise”? No! No! No!

It only increased in sale price (“price inflation”) because there was more money available to both Sam and Sarah to spend (“money inflation”)!

This is the precise reason and real cause behind the housing bubble for the past few years. The Federal Reserve increased the money supply by billions and billions of dollars by lowering the cost (interest rates) to borrow money (easy credit) which the Fed indirectly affected by lowering its key interest rate, the Fed Funds Rate. By flooding the real estate market with easy money (via easy credit) starting in 2000, housing prices soon ballooned and the housing bubble was created as the Fed had intended.

Again, “price inflation” in layman’s terms is the appearance of increasing prices for goods or services due to too much money or easy credit (both are “money inflation”) in the market place chasing a limited supply of goods or services.

If the rate of money supply increases at the same speed as the rate of increase in goods or services produced, then the prices of those goods or services would generally not increase.

That is exactly the point Benjamin Franklin was trying to make to the directors of the Bank of England in 1763 when he said “We issue [our Colonial Scrip money] in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers.” (Emphasis added.)

The official consumer inflation rate or Consumer Price Index (CPI) as issued by the U.S. Bureau of Labor Statistics is significantly lower than what the real price inflation rate is on Mainstreet, U.S.A, as experienced by the average American family in terms of daily necessities such as food and fuel costs. The main reason for this discrepancy is because of government statistical manipulation that started in the 1980s.

See chart of government’s CPI vs. SGS’ Alternative inflation.

The previous chart shows the growing discrepancies between the official CPI (red line) and an alternate calculation of what the real inflation rate should be (blue line) if the government didn’t manipulate how the CPI is calculated. The latter is calculated by economist John Williams of ShadowStats.com. As you can see, the two lines started to depart from one another starting around 1983. The government’s CPI is much lower.

The only reason why the United States has not yet experienced the hyperinflation crisis of Weimar Germany is because the U.S. exports its U.S. dollars (“money inflation”) to the rest of the world (in exchange for real goods and services), which then experiences huge inflation in their countries. This clever game has been going on since the 1970s.

But this game, clever or not, of the U.S. exporting its “monopoly money” for real goods and services from the rest of the world is coming to an end soon—very soon.

What is “Credit” and “Debt”?

Well, they are essentially the same thing—two sides of the same coin.

Credit is simply “money that is available for someone qualified to borrow.” How that “available money” is created was covered previously: it is mainly created from thin air by the banks and credit card companies.

Debt is money or “something that is owed or that one is bound to pay to or perform to another.” The “another” is usually the banks and credit card companies. The “something” are the myriad debt instruments from bank loans to mortgages to bonds to exotic and toxic things called “derivatives.”

For example, you receive credit from Bank of America in the form of a mortgage or credit cards. Once you spend your credit money to buy a house (or that new 102” flat screen TV), then you owe Bank of America an equal amount of the credit money spent plus interest, not to mention that the bank now owns your house as collateral (the TV is a non-secured debt which means that they cannot take it away if you default on the credit card loan). They lend you their “monopoly money,” force you to pay them interest, and get in return your house as collateral—what a great deal for the banks!

What is “Interest”?

Interest is more money that you have to pay to the banks and credit card companies for the privilege of borrowing their “monopoly money.”

It’s what the banks and money lenders charge you for the privilege of borrowing their money. It’s their “opportunity cost” and “risk of lending” you their money. It’s a very profitable and abstract invention of the money-changers of old.

In the old days, any interest rate greater than zero was considered usury and illegal. The penalty for attempting to charge any interests on borrowed money was usually death! But now days, 30 percent annual interest rate (APR) for credit cards is par for the financial course. It’s amazing what bank lobbyists and money-changers can do over time!

Modern Day Monkey Tale

There is something called the “Rule of 72” that the bankers and money lenders all know about and use to their full advantage. The “Rule of 72” simply states that your money when deposited at your local bank or elsewhere will double every so many years—all your money including the interest you earn, not just your initial principal deposit. The “every so many years” is easily determined by dividing the number “72” by the annual interest rate that you get from the bank. Hence, the name of this rule.

For example, if you deposit $10,000 at Wells Fargo Bank and they give you an interest rate of 7.2 percent per year (good luck!), 72 divided by 7.2 is 10. So, your initial $10,000 will double in 10 years. $10,000 will become $20,000 in 10 years, then the $20,000 will double to $40,000 in 20 years, then the $40,000 will double to $80,000 in 30 years, and so forth and so on. This is what is called the “compounding of money.” The greatest force in the universe, well at least according to Einstein.

You can use this “Rule of 72” to your advantage. But each time you borrow the “monopoly money” from the banks and money lenders, they use this rule against you.

That is what exactly they do—on top of creating money from thin air and charging you ridiculous bank fees and other concocted fees!

Thirty percent (30 percent) interest rate on your credit cards means the doubling of your debt every 2.4 years! (72 divided by 30 is 2.4) This assumes, of course, that you are not making any payments (which decrease your debt to them) and that you do not buy any more things with your credit card (which increases your debt to them). But in reality you do make minimum monthly payments, and you do make more new purchases with your credit cards, so the principle of the “Rule of 72” does not apply exactly 100 percent here, but you get the general idea.

If you had a $10,000 of credit card debt with JPMorgan Chase and your credit card has a 20 percent per year interest rate, it would take you more than 50 years to pay off the entire balance. This assumes that you pay the minimum payment every month, and that no further credit card debt is added, i.e., you stopped using your credit card for new purchases. The total amount of interest that you will pay for the next 50 years is almost $20,000—twice the principal amount of what you borrowed initially!

No wonder you cannot get off the financial treadmill!

Where do you get the money to pay the interest if the banks only conjure up the principal money to lend you? Remember, more than 95 percent of the money supply is created only when a loan is made. The money to pay the interest simply does not exist!

That is why once you are on the treadmill of the credit/debt system, you will never get off the merry-go-round of financial debt slavery.

Now you can understand why the banks and credit card companies love to get your college and university kids hooked on their credit cards (“financial crack”) while they are still in the colleges or universities. Once they are hooked on the credit/debt slavery system, their chances of getting free financially during their lifetime is almost nil.

“Money is a new form of slavery,” the great Russian writer Leo Tolstoy once warned, “and distinguishable from the old simply by the fact that it is impersonal—there is no human relation between master and slave.”

So what does all this mean?

Back to the Monkey Jar Tale.

This means that if you cannot or will not let go of that handful of “financial rice”—the credit money or mortgages or car loans from the banks and money lenders, you will never get free of the “financial jar” that was specifically design to hold you in perpetual credit/debt slavery.

The first step towards delaying or possibly stopping foreclosure is to come to the financial resolution that you have to give up something—that something may appear very dear to you at first as that jarful of rice was to the monkey—and that something is your credit in the “financial jar” of the credit/debt slave system.

The sooner you get out of the credit/debt slave system entirely, the sooner you will achieve your financial freedom. And financial freedom is not about becoming a millionaire. It is about being happy or content with the simple and good things in life, and with the really important people in your life like your loved ones and kindred friends.

If you can come to this very important resolution of letting go of your attachment to your creditworthiness and credit scores, then a lot more options may be available to you and your family in the fight to delay or stop the foreclosure process.

For one, the actions you take during the foreclosure process can now become the guerilla business tactics: same cold-calculating, legal business decisions that the banks and corporations make, you can now employ. It is just business. Why should you feel bad if you have to do a Chapter 7 or Chapter 13 bankruptcy? Do you think that the CEOs of K-Mart or Delta Air Lines felt bad or any remorse when they placed their companies in bankruptcy? No, not at all. It’s just a business decision to them.

So the actions you take to save your family from foreclosure and other financial problems should be taken as business decisions—no more and no less. If the banks ruin your credit and creditworthiness as the business cost to save your home or your family’s financial future, then you need to make a serious business decision and move on.

________

[3] FICO or credit scores are used by the banks to determine your creditworthiness or how likely it is that you will pay or not pay your debts, and your ability to borrow money from them. FICO was developed by the Fair Isaac Corporation and similar credit scores have been developed by its competitors such as Equifax (ScorePower), Experian (PLUS score) and TransUnion (Credit score). One of the biggest problems with the credit score system is that it is proprietary and non-transparent, i.e., hidden from public scrutiny. No one except industry insiders really know how the FICO and other credit scores are calculated. Borrowers, who are most affected by their credit scores, can only guess as to how they are manipulated and calculated.

[4] See following online video called “Money as Debt”:

http://video.google.com/videoplay?docid=-9050474362583451279&q=money+as+debt&ei=mv49SNH8EZqi4AL60cjvAw&hl=en

[5] http://www.financialsense.com/transcriptions/2006/1018griffin.html

[6] In 1763, Benjamin Franklin told the directors of the Bank of England the real reasons why the pre-Revolutionary Colonies were so prosperous: “In the Colonies we issue our own money. It is called ‘Colonial Scrip.’ We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one.” What he didn’t say but was implied is that England and King George III didn’t control the money supply of the Colonies and weren’t able to make money from lending money to the Colonies. The directors of the Bank of England and King George III fully understood this. And 12 years later, America’s War of Independence would be fought over who would control the financial and economic destiny of the United States.

“The inability of the Colonists to get power to issue their own money permanently out of the hands of George III and the international banks was the prime reason for the revolutionary war.”—Benjamin Franklin

[7] Read the following book on the historical price increases on U.S. housing:

http://www.amazon.com/gp/product/0767923634?ie=UTF8&tag=nofor-20&link_code=

as3&camp=211189&creative=373489&creativeASIN=0767923634 

www.chureport.com/happy_christmas_christmas_p

[8] Read the following book on the most comprehensive real estate study in known history:

http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00711?journalCode=reec