Governance, money creation and fractional reserve banking: built to tempt the greed of the few who know of it, paid for by everyone who doesn’t, through blood or sweat
Prometheus BoundPeter Paul Rubens, c. 1611–18Prometheus stole fire from the gods and gave it to humanity: the spark of knowledge. For sharing it, Zeus chained him to a rock, and every day an eagle came to tear out his liver. Every night it grew back.
Kid: Dad, how did it all come to this?
Dad: It's not a secret, my boy. They just won't teach you this in school.
Since 1970, how many times more it costs
An ounce of gold×187
A house×68
An ounce of silver×57
A week's pay×25
Everyday prices×15
$1 from 1970 buys about 7cof stuff today.
Chart: yearly since 1970, then live. Sources: BIS (house prices, exchange rates), MeasuringWorth (pay), World Bank (gold, silver), ABS (prices, income sent overseas, bank profits), OECD (tax), World Inequality Database (shares of income).
Adam and EveRubens, after Titian, 1628–29They ate from the tree of the knowledge of good and evil, and their eyes were opened. For knowing, they were cast out of paradise.
World debt (US$)
Souls lost too soon to war & collapse
Passive funds (US$)
How we got here
Ancient times–1600s · Why there will always be money
Before money
People bartered, then settled on things everyone would accept: shells, grain, cattle, silver. Money is a shared agreement about what things are worth.
600 BC
Lydia, in today's Turkey, strikes the first coins, from electrum, a natural mix of gold and silver. The money itself is worth something.
1024–1600s
Paper money begins as an IOU. China prints the first notes in 1024; in 1600s London, goldsmiths hand out receipts for gold left in their vaults, and people trade the receipts instead. Every note is a promise: bring it back and get real metal.
Cowrie-shell money from Shang China, over 3,000 years ago (photo: Gary Todd, public domain)Lydian electrum coins, among the first ever made (photo: brewbooks, CC BY-SA 2.0, via Wikimedia Commons)A print of Song dynasty paper money, 11th century (public domain)
Dad: Something everyone agrees to swap for anything else, so as long as people trade, there'll be money. First shells and grain, then coins of gold and silver.
Kid: What about paper money?
Dad: Paper started as an IOU: a receipt you could take back to the bank and swap for real gold or silver.
Kid: So money isn't bad?
Dad: Money is just a tool. The trouble starts when money turns into currency. Then suddenly that tool is a weapon of truly insidious destruction.
1694 · Money becomes a promise to pay
1694
England's government needs money for its war with France. A group of lenders forms the Bank of England and lends it £1.2 million. In return the new bank may issue paper notes: promises to pay, backed by the government's debt.
"Sealing of the Bank of England Charter, 1694", drawn by Lady Jane Lindsay, 1905 (public domain)One of the oldest Bank of England notes, 1699: a handwritten promise to pay £555 (public domain, The Strand Magazine, 1894)
1700s
Every war adds to Britain's national debt, and the interest on it is paid out of taxes. Borrowed money, owed with interest, becomes the way nations are run.
Dad: Since the dawn of time, a privileged few have held something the masses were never lucky enough to have been gifted: Knowledge.
Kid: What do they do with it?
Dad: Some use that knowledge for good: to build, to share, to set people free. Others use it for evil: to deceive, to enslave, to rule.
Kid: If knowledge can be a tool or a weapon, then what's their favourite one?
Dad: For the malevolent among us, no tool has been more deceptive than the corruption of money itself.
Kid: And they've been fighting ever since?
Dad: Every empire and every crown has been a battleground between them. And the field we stand on today was laid out in London, in 1694.
Kid: What happened in 1694?
Dad: The government needed money for a war, so a group of lenders set up the Bank of England and lent it £1.2 million.
Kid: What did the bank get in return?
Dad: The right to issue paper notes: promises to pay, backed by that loan. Money and debt have been chained together ever since.
1711–1788 · Debt drives an empire
1711
The South Sea Company is set up to take over part of the government's debt, in exchange for a monopoly on trade with South America. In 1720 its shares collapse in the South Sea Bubble, ruining thousands.
"The South Sea Scheme", 1721 engraving by William Hogarth (public domain, National Gallery of Art)
1756–63
The Seven Years' War, fought across Europe, America and India, nearly doubles Britain's national debt.
1757–65
The East India Company, a private company with its own army, takes control of Bengal and wins the right to collect its taxes. India's wealth flows to London.
1764–73
To help pay for the war, Parliament taxes the American colonies: the Sugar Act, the Stamp Act, then the Tea Act. The stamp tax has to be paid in British coin, not colonial paper money. "No taxation without representation" becomes the colonists' cry.
1776–83
The colonies declare independence and win the war. Britain loses America, and the place it had been sending its convicts.
1788
The First Fleet lands at Sydney Cove with its convicts and the marines guarding them, to build a penal colony from scratch. Fresh from losing America, Britain has a new colony to grow into a taxpayer, and this time it means to keep it.
"The Founding of Australia", 1937 oil sketch by Algernon Talmage (public domain, State Library of NSW)
Kid: Why did Britain and other nations go all over the world and take over?
Dad: Debt was a big part of it. Every war left Britain, and rivals like France, Spain and the Dutch, owing more, and the interest had to come from somewhere.
Kid: Where did it come from?
Dad: Trade monopolies, India's taxes and the American colonies. The debt spiral drove much of the destruction that followed.
Kid: What happened in America?
Dad: Britain taxed the Americans to pay its war debts, and it wanted to be paid in gold and silver, not paper.
Kid: Why not paper?
Dad: Because the colonists could print more paper themselves. Gold and silver they couldn't print, and they barely had any. That helped spark their revolution.
Kid: Is that how Australia started?
Dad: In a way. Britain lost America, and the place it sent its convicts. So in 1788 the First Fleet landed at Sydney Cove.
Kid: What did they do when they got here?
Dad: The indebted British Crown put the convicts, and their guards, to work building a new productive, taxable colony from scratch.
Kid: Could we ever break free like the Americans did?
Dad: We already have. Britain gave us the power to make our own laws: our own parliament at Federation in 1901, and the last legal ties cut in 1986.
Kid: So politically, we're free like America?
Dad: Not quite. Britain's King is still our head of state, and Britain enjoys holding our gold reserves: about 99.9% of them sit in the Bank of England's vaults.
Kid: Why keep it over there?
Dad: Coincidentally, it keeps our gold close to the potential buyers of our nation's wealth!
1764–1862 · America fights over its own money
1764
Britain's Currency Act stops the American colonies issuing their own paper money as legal tender: one of the grievances in the years before the Revolution.
1791
Alexander Hamilton's First Bank of the United States is chartered for 20 years, over Thomas Jefferson's objections. Congress lets it lapse in 1811.
1816
A Second Bank of the United States is chartered, again for 20 years.
1832
President Andrew Jackson vetoes its renewal, warning that the rich and powerful bend government to their own ends. In 1833 he pulls the government's money out of it.
"General Jackson Slaying the Many Headed Monster", 1836 lithograph (public domain, Library of Congress)"The Downfall of Mother Bank", 1833 lithograph by Edward W. Clay (public domain, Library of Congress)
1835
For the only time in its history, the United States pays off its entire national debt.
1862
To fund the Civil War, Abraham Lincoln's government prints "greenbacks": money issued by the Treasury itself instead of borrowed from banks.
Dad: No, they fought over it for a hundred years. Jefferson wrote that banking establishments were more dangerous than standing armies.
Kid: Who won?
Dad: For a while, the people. Andrew Jackson killed the Second Bank in the 1830s, and by 1835 America owed nothing at all.
Kid: So America didn't have a central bank, and it was free?
Dad: For almost 80 years. It wasn't perfect: private banks printed their own notes and some went bust. But no central bank was creating the nation's money as debt.
Kid: So how did Lincoln pay for the Civil War?
Dad: Mostly with war bonds sold to ordinary people, plus America's first income tax.
Kid: Nothing from the banks?
Dad: Partly he skipped them: greenbacks were money the government printed itself, instead of borrowing it from the banks at interest.
1910–1913 · Jekyll Island and the Federal Reserve
1910
Senator Nelson Aldrich and a handful of America's most powerful bankers meet in secret at the Jekyll Island Club in Georgia, using first names only, to draft a plan for a central bank.
Senator Nelson Aldrich, who called the secret Jekyll Island meeting (public domain, Library of Congress)
1913
Congress passes the Federal Reserve Act and President Woodrow Wilson signs it on 23 December. The shares of its twelve regional Reserve Banks are held by the private banks in each district.
US newspaper front page, 24 December 1913, the day after Wilson signed the Federal Reserve Act (public domain)
1913
The same year, the 16th Amendment lets Washington tax incomes.
Since
The US dollar has lost about 97% of its buying power: what cost $1 in 1913 costs over $30 today.
Dad: Bankers, mostly. In 1910 a senator and a few of America's most powerful bankers met in secret on Jekyll Island to write the plan.
Kid: What happened next?
Dad: Three years later it was law. Since then the dollar has lost about 97% of its value.
Kid: Is our Reserve Bank like that?
Dad: Ours is owned by the government, not the banks. But it works the same way: it sets the price of money, and the banks create most of it.
1933–1934 · The government takes the gold
1933
On 5 April, President Franklin D. Roosevelt's Executive Order 6102 orders Americans to hand in their gold coins, gold bullion and gold certificates by 1 May, at $20.67 an ounce. Keeping it risks a $10,000 fine or ten years in jail.
The Executive Order 6102 poster, 1933: hand in your gold or face a $10,000 fine or 10 years in jail (public domain, US Government Printing Office)
1934
With the gold in hand, the government revalues it to $35 an ounce. Everyone who handed theirs in got about 41% less than it was now worth, and the gain went to the Treasury.
Roosevelt signs the Gold Reserve Act, 30 January 1934, and gold goes from $20.67 to $35 (public domain, FDR Presidential Library)
1974
Americans are allowed to own gold again, more than 40 years later.
Kid: There's no way people would let the government take your gold?! Especially Americans: that's against everything they're supposed to believe in!
Dad: They did. People were scared, in the depths of the Great Depression. In 1933 Roosevelt ordered Americans to hand in their gold at $20.67 an ounce, or face ten years in jail.
Kid: Did they get a fair price?
Dad: No. Months later the government revalued it to $35, so people who did as they were told lost 41%.
Kid: Could they buy it back?
Dad: Not legally. Owning gold stayed against the law for over 40 years: plenty of time to make the masses forget this injustice.
1944–1971 · Bretton Woods: as good as gold, until it wasn't
1944
At Bretton Woods, the Allies peg their currencies to the US dollar, and America promises foreign governments it will swap dollars for gold at $35 an ounce. The dollar becomes the world's money.
Treasury Secretary Henry Morgenthau opens the Bretton Woods conference, July 1944 (public domain, US National Archives)
1960s
America issues far more dollars than it has gold to back them, paying for the Vietnam War and big spending at home. France and others start swapping their dollars for gold.
1971
On 15 August, President Nixon "temporarily" stops swapping dollars for gold. It never restarts. Since then no major currency has been backed by anything but the government's word.
Nixon tells Congress about his new economic policy, 9 September 1971, weeks after closing the gold window (public domain, UPI)
Dad: America got the world to hold dollars as if they were as good as gold.
Kid: What went wrong?
Dad: It printed far more dollars than it had gold. When too many countries asked for their gold, Nixon shut the window in 1971.
Kid: And then?
Dad: The rest of the world was left holding paper, and it still is.
1910–today · Australia's money, and where our gold is
1910
Australia issues its own currency for the first time: the Australian pound.
1966
On 14 February, decimal currency arrives and the Australian dollar replaces the pound.
1983
In December the dollar is floated: its value is set by the markets, tied to neither gold nor any other currency.
1997
The Reserve Bank, under Governor Ian Macfarlane, sells two-thirds of Australia's gold, 167 tonnes, with the price near its lowest in more than a decade.
Its reason to convince the masses: “a country in Australia's position, with large gold reserves in the ground and high annual production, derives negligible diversification benefits from holding a significant proportion of its international reserves in the form of gold.”
Extracting 167 tonnes of gold takes roughly 12,500 to 21,500 full-time workers for a whole year, even in a modern, mechanised mining industry like Australia's. That's our nation's mining output, taken for granted for the profit of a few.
Treasurer Peter Costello approves the bank keeping the money, under Prime Minister John Howard.
It fetches about $2.4 billion; at today's gold price that gold would be worth about $32 billion.
Today
About 80 tonnes are left, and the Reserve Bank has said about 99.9% of it sits in the Bank of England's vaults in London. The rest, roughly 80 kg, is in Sydney: that's all the gold the nation keeps on Australian soil.
Dad: Not in Australia. The Reserve Bank has about 80 tonnes left, and about 99.9% of it sits in London.
Kid: Where in London?
Dad: In the Bank of England's vaults: the same bank where all this started in 1694.
Kid: Why don't we have more?
Dad: In 1997 the Reserve Bank sold two-thirds of it, 167 tonnes, when gold was cheap.
Kid: Was that a lot?
Dad: At today's price that gold would be worth about $32 billion.
Kid: Why would they sell it?
Dad: Their official reason, word for word: "a country in Australia's position, with large gold reserves in the ground and high annual production, derives negligible diversification benefits from holding a significant proportion of its international reserves in the form of gold."
Kid: What does that even mean?
Dad: It means that because we dig gold out of the ground, we don't need to keep any. It's the kind of reason that's so stupid it works on the masses.
Kid: No way this wasn't straight corruption! Who did they sell it to?
Dad: Nobody knows. It was sold quietly through the London gold market, and the buyers were never named. And a gold-mining boss, Hugh Morgan of Western Mining, sat on the Reserve Bank board that made the call. The Governor himself cleared him.
Kid: So it was corruption?
Dad: Gold sold in London changes hands through the big bullion banks, like JPMorgan, Goldman Sachs, UBS and Deutsche Bank, and central banks around the world... Let's not go down that rabbit hole yet, son...
Dad: Mostly from banks. When a bank makes a loan, it types brand-new money into the borrower's account.
Kid: Says who?
Dad: The Reserve Bank, the Bank of England and the US Federal Reserve, which issues the world's reserve currency. They all say that's how most money is made.
Kid: Then why doesn't everyone know?
Dad: It's not confidential. It's just hidden in plain sight, in papers hardly anyone reads. And the masses are kept distracted.
Kid: So all this money is someone's debt?
Dad: Most of it. Notes and coins are only a few per cent. The rest exists because somebody borrowed it, and somebody is paying interest on it.
Kid: Then where does the money for the interest come from?
Dad: That's the catch. The loan was created, but the interest never was. So the whole system leans on new borrowing to keep money flowing.
Kid: Is that why there's so much debt?
Dad: Yes. Debt keeps outgrowing incomes: Australia now owes about twice what the whole economy makes in a year.
Kid: Isn't that a Ponzi scheme?
Dad: A famous American economist, Hyman Minsky, called borrowing that can only pay its interest by borrowing more "Ponzi finance".
Kid: So is Australia doing that?
Dad: Minsky warned that Ponzi finance only works while new lending keeps coming... So yes, it's obviously not sustainable. Every generation now carries the biggest debt burden in history, until it breaks us. I'm afraid this collapse will happen in your lifetime.
Dad: No. A deposit is money the bank owes you, not money it's holding for you.
Kid: So how much does it actually keep?
Dad: Only a sliver, as cash and reserves. Australia hasn't had any minimum reserve ratio since 1988.
Kid: What if everyone wanted their money back at once?
Dad: They couldn't all get it. There's only around $100 billion of notes and coins in the country, against more than $3 trillion owed in bank accounts.
Kid: So what stops a panic?
Dad: The government guarantees deposits up to $250,000 each, so nobody starts a run.
Kid: Where does the government keep the money for that?
Dad: It doesn't. There's no fund and no vault. Parliament has pre-approved up to $20 billion, and it's only paid out after a bank fails.
Kid: Is $20 billion enough?
Dad: Not for a big bank. Households alone keep about $480 billion at CommBank. $20 billion wouldn't come close to covering one of the big four.
Kid: So who pays it back?
Dad: First they sell off what the failed bank owns. If that's not enough, the other banks get charged a levy. For anything bigger, Parliament would have to find more money, and that means more borrowing.
Kid: But it's still my money, right?
Dad: Legally, no. The moment you deposit it, the money belongs to the bank. You're just someone it owes. The courts settled that in 1848, in a case called Foley v Hill.
Kid: So can the bank stop me getting it?
Dad: Yes. Under the Anti-Money Laundering Act, a bank can freeze your account or block a payment if it's not satisfied about you or where the money came from.
Kid: Do they have to tell you why?
Dad: No. If they've reported you to AUSTRAC, the money-laundering watchdog, it's a crime for them to tell you.
Kid: Can anyone else take it?
Dad: The tax office can order your bank to hand over money from your account for a tax debt, without going to court. Police can get a court order to freeze it.
Kid: And if I just leave it there?
Dad: Leave an account untouched for seven years and the bank hands it to the government as unclaimed money. You can claim it back, if you know to look.
Kid: So the bank lends money it doesn't have?
Dad: It creates the money when it lends and charges you interest on it. If the loans go bad, taxpayers stand behind the deposits. Heads the bank wins, tails we lose.
3. Interest on money that didn't exist
CommBank, since July
Westpac, since October
NAB, since October
ANZ, since October
Kid: If the bank made the money up, why do we pay interest on it?
Dad: That's the deal when you borrow. The bank charges more on loans than it pays on savings, and the gap is its income. The more it lends, the more it makes.
Kid: How much do they make?
Dad: The big four together earn about $80 billion a year in interest after paying their savers. These boxes count it up since each bank's year began. Watch them tick.
4. A debt that can't be paid off
Gross debt (all it owes)
Net debt (less what it owns)
Interest this year (on gross)
Gross debt per Australian
Kid: Can the government ever pay it back?
Dad: No. Gross debt can never really be paid back without destroying money itself.
Kid: Why not?
Dad: Every bond is someone's savings: super funds, banks and investors here and overseas. Paying them all off means taxing about a trillion dollars more than the government spends.
Kid: What's wrong with that?
Dad: Every tax dollar you pay is wiped out of your bank account. Pull that much money out and the economy starves, so people borrow even more from the banks just to keep going.
Kid: So what do they do instead?
Dad: When a bond is due, they borrow again to repay it.
Kid: What's the difference between gross debt and net debt?
Dad: Gross debt is everything the government has borrowed. Net debt takes off what it owns, like cash, student loans and the Future Fund.
Kid: Can you make it simpler?
Dad: Owe $500,000 on your house with $100,000 in savings: gross $500,000, net $400,000. But the interest is paid on the whole gross amount.
Kid: So the things it owns cancel some of it out?
Dad: Only on paper. Almost everything it owns is someone else's debt: cash is a bank's debt, bonds are other governments' and companies' debts, student loans are students' debts.
Kid: So nobody's really debt-free?
Dad: Not in a world of fiat money. If our debt can only be offset by holding everyone else's, we're all trapped in this mess together.
Kid: Has it ever been paid off?
Dad: Net debt hit zero in 2006, after almost a decade of surpluses plus selling the Commonwealth Bank, Qantas, the airports and Telstra.
Kid: And gross debt?
Dad: Never. The government kept $54 billion of bonds on issue on purpose, because banks and super funds can't run without them. Today's is many times bigger.
5. Shipped offshore
Income sent overseas
Govt interest sent overseas
Govt debt held overseas
Company profits sent overseas
Where Aussie bonds are held, by country
Kid: Where does all the interest go?
Dad: A lot of it leaves the country. About half the government's bonds are held overseas, and foreign owners of our mines, banks and companies take their profits home.
Kid: How much a year?
Dad: Over $200 billion a year in interest, dividends and profits, paid to foreigners. Click a box to see where it goes, country by country.
Dad: In gold, way more. In 1976 a week's average pay bought 1.27 ounces of gold. In 2025 it bought 0.35.
Kid: Did gold get more expensive?
Dad: The gold didn't change. The dollar did.
Kid: Well, I don't really care about owning gold. I want my own house and a family, like you, Dad!
Dad: I'm sorry, son. Here's the hard truth: houses have gone up even faster than gold.
Kid: How much faster?
Dad: In the early '80s the middle home cost about $48,000: 138 ounces of gold, or three and a half years of average pay. Now it's about $885,000: 151 ounces, or 11 years of pay.
Kid: And what about pay?
Dad: Since then gold has gone up 17 times, houses 18 times, and pay only 6.
7. The house
Median home
Debt to income
Household debt per Aussie
All the homes
Homes repossessed this year (est.)
Mortgages 90+ days behind
“Stop making my Father's house a marketplace!”
John 2:16
Kid: Why are houses so expensive?
Dad: Banks will lend huge amounts against them. Every bigger loan is brand-new money chasing the same houses, and the bank earns interest on every dollar of it, for 30 years.
Kid: So who really owns our house?
Dad: Until the loan's paid off, the bank has first claim on it.
Kid: Why doesn't the government stop prices going up?
Dad: Because it suits them. Negative gearing, the 50% capital gains discount and first-home grants all pour more money into houses.
Kid: Why would they want that?
Dad: Rising prices make the nation's wealth look bigger and fill the states' coffers with stamp duty. On paper Australia looks richer, while young people get priced out.
Kid: Is that the worst of it?
Dad: Worst of all is globalisation. Our homes and land, our resources and assets, now compete with money from all over the world: banks borrow overseas to fund mortgages, and foreign investors buy in.
Kid: And all the new people coming?
Dad: That too. Net migration added nearly 300,000 people last year, and every one of them needs somewhere to live.
Kid: Why do so many come?
Dad: Because of systemic monetary inequality around the world, debt-fuelled wars and corruption. So immigration will continue, while our own birth rate keeps falling.
Kid: Oh my, I'm living in the greatest scam in human history, and it will all be revealed in my lifetime!
