In the beginning there was Money. Well, not exactly. There was barter. There was a high degree of vertical integration, which is a fancy way of saying if you wanted something back then, it was pretty much up to you to grow it or make it yourself. What trade existed was largely between members of the tribe or village or group. If some guy made a pretty cool hunting knife, and his wife was nagging him for a deer to butcher and eat, a trade of the knife for the deer (or parts of it) might take place. Trading was simple, uncomplicated, and very very slow. Life was brutal and short. At the end of the day, when you had run out of you, you had also run out of future. You aged quickly and died young. When groups of nomads found a place to their liking, they sometimes stayed, settled in, and became agrarian. Society became more complex, and slightly greater specialization of labor became possible. One family could grow things from the soil; another could domesticate animals as a source of meat. There was still no Money.
Trading in this primitive context was still taking place among the so-called Indians on this North American continent when the first Europeans arrived. The native Americans were fascinated with some of the baubles brought over by the Europeans and willingly traded furs for them. Eventually some commodities became so commonplace and essential to daily life in primitive societies that they took on new importance as a means of facilitating trade. Salt, because it was needed by everyone for daily purposes, came to assume more importance as a form of “money” than it formerly had as just salt. Since everyone had salt, and used salt, goods and services were traded using salt as the store of value and medium of exchange between trading partners. The same was true of other things of universal value, including furs. Because of their prized ornamental value and scarcity, gold and silver became universally accepted as Money.
The term store of value is very important. Without some universally accepted warehouse of value that had been produced, all exchange was limited to what could be immediately produced and immediately consumed. No long term planning was possible, and without long term planning, the Industrial Revolution with its complex machines and processes was impossible. Modern society was impossible. The invention of Money was a prerequisite to all the amenities of life as we know it. Without the invention of Money, we would all still be primitives. In spite of Rousseau’s idealization of the Noble Savage, the Garden of Eden it was not. Man was the victim of ignorance, superstition, disease, and unmitigated natural disaster the likes of which are only occasionally experienced today in the poorest parts of the world.
In primitive society, wealth was limited to whatever a person could produce in a day, or a month, or a year of his own individual effort. All other wealth was acquired by confiscating the values produced by others at the point of a spear, or in time, at the end of a gun. All great monuments of history were made possible by the confiscation, not only of others wealth, including their grain, their herds, their tools, but also the confiscation of the people themselves, physically. People became property, to be used and exploited by their conquerors. When Rome was starving because of crop failure, their solution was to conquer Egypt with their legions, make that part of North Africa a vassal state and require them to ship their grain to Rome at prices Rome dictated. You might say that Rome “nationalized” Egypt; Cleopatra, in name at least, still “owned” the means of production, but the prices were dictated by Rome, her Master. For a while, she was able to continue her pretense of being in charge of her country, of being Queen. Then one day Caesar extended an invitation she could not refuse: to come to Rome to visit, as his “guest”. The dress code for the event was a little intimidating–naked, in shackles, to be paraded as the spoils of war through the crowds of Roman rabble and oglers, the nobility and the great unwashed. Cleopatra committed suicide.
If you were successively victorious, you celebrated by building temples to the gods who had blessed you, or you worshipped the gods among you Of course you also built monuments and palaces to your leaders and warriors, as totems to their greatness. And if your civilization succumbed to a rival some time later, your enemy sat on your thrones and lived in your palaces that they acquired the same way you did–by force. You supplicated your gods and you placated your gods, and you worshipped and obeyed your kings and princes as gods themselves, or the sons of the gods, or the direct representatives of the gods. And sometimes the Great Leaders and Warriors had to share the power in an uneasy alliance with the Priests and Shamans who controlled and manipulated the fears and superstitions of the human herd, who provided opaque and inscrutable explanations for why things sometimes went wrong, who demanded sacrifices for the gods of both this world and the next. It reminds us somewhat of the chief economists and central bankers ’divining the liver’ of the economy, reading the stars, making their prognostications and gobbledygook commentary about what it all means, and who also require sacrifices so that the gods may be propitiated.
There were two ways to acquire wealth; the tedious, slow way of trading successfully with others, or the riskier but faster way–to seize what others already had. You could do this as a petty murderer; or as a tribal leader, a mass murderer if the occasion demanded it. You could enslave others, or you could be enslaved by others. The spoils went to the winner. For those who chose the route of peaceful and voluntary trade with others, the advent of Money was an organic process that developed naturally as a more efficient way to trade. It expanded the possibilities of what could be traded, as Money was a way to store value. Money was a symbol of value that had been created and was warehoused somewhere else. If on the other hand, you were a Ruler, Money facilitated the confiscation of the wealth of your subjects. As a Ruler, you saw Money as nothing more than an extension of your right to plunder your subjects; if you insisted that your subjects pay their taxes to you in salt, or grain, or gold, you didn’t care what medium of exchange they used among themselves, as long as you controlled the form in which they paid you. This became your Treasury.
As the Ruler, what did you need a Treasury for? Well, your subjects didn’t always have the products or skills to do what you wanted. So you had to bring people and products in from other places, and to do this you had to trade with them. You could force your own subjects to engage in slave labor, but you could not do so with others outside your domain, for most likely they belonged to another Ruler, another Tyrant. They were his property, not yours. If the other people were accustomed to gold as a means of exchange, as you were, trading was simple. If they did not use gold, trade quickly got more complicated. Now there were two forms of money, your gold and whatever they were using. A rate of exchange had to be negotiated. If they were using salt, then you had to establish how much salt was equal to an ounce of gold. Your joint answer to this question would become your exchange rate between two kinds of money.
You also need a Treasury to finance your wars. You may have had your own troops, but many, if not most wars were fought with soldiers-for-hire, mercenaries. Either way, they had to be paid. If soldiers didn’t get paid, they and their families didn’t eat, and when people don’t eat, they get deeply unhappy. Unpaid soldiers have a nasty habit of slipping away in the night and disappearing. So they had to be paid, with Money that would be recognized and accepted by others with whom the soldiers would want to trade. In ancient societies, soldiers were paid in coin. When the Treasury of the Ruler was low, he would order his minions to shave slivers of metal off the coins, then melt the shavings down to forge new coins. The coins of the realm tended to get smaller and smaller and people would notice and feel they were being defrauded. And of course, they were. By the Ruler, who was trying to expand his Money supply the only way he knew how. When Rulers figured out alloys, they would instruct their keepers of the Treasury to mix base metals with the precious metal, again in an effort to take the existing amount of gold or silver and make it go farther by cheapening it. When people felt they were being cheated, they demanded additional coins in payment to make up for the parts shaved off, or the new alloy coins. They started making etched ridges along the circumference of the coins, so that if any shaving of the edges was attempted, they would know it because the ridges would be missing. All through history people everywhere showed a basic desire to keep what was theirs, and all through history they tended to distrust their Rulers intentions with their money. And with good reason. The Rulers treatment of their Money was the equivalent of a cheating pair of scales.
Over the millenia, nothing has really changed very much. With the advent of the printing press, it became a lot easier to steal from one’s subjects. Until shortly after World War I, the currencies of the world’s governments continued to be pegged to gold as a means to facilitate trade between nations on an objective standard. Because the rest of the modern world had been decimated by the ravages of what had come to be known as The Great War, the American dollar had become the currency of the world; in other words everyone was willing to be paid in American greenbacks because it was agreed that those dollars could be redeemed in gold on request from the American Federal Reserve, our central bank. Because there was a steady loss of gold over the years from the American Treasury, President Nixon unilaterally decided to take the American dollar off the gold standard in 1971. Confidence in the American dollar was waning, and foreigners wanted the gold instead. Well, no more. The Law of Unintended Consequences prevailed, as always. In today’s world, when foreign governments acquire larger quantities of another nation’s currency than they are comfortable with, they sell the undesired currency on world markets. You see, paper money, like gold, oil, cotton, grain, or cattle, can be sold in markets created specially for the purpose. Currency is bought and sold on what is called a Foreign Exchange market, or FOREX for short. Well, after Nixon took us off the gold standard, foreign governments rushed to get rid of their dollars by dumping them on the world market, exchanging dollars for other currencies then considered more valuable. When there are more sellers than there are buyers, the price of a commodity goes down. The dollar is a commodity, and the price of the dollar went down. Now let’s make this next connection in a flying intuitive leap: A paper dollar unattached to an objective gold standard has no value in and of itself. It represents only the faith of the people who use it. When it is obvious that governments are trying to unload a lot of dollars, it quickly erodes people’s confidence in that dollar. When the confidence in the value of the dollar goes down, what the dollar is able to purchase goes down also. When it takes more dollars to purchase the same item than it used to, you have inflation. The same thing has happened as when an ancient Ruler mixed other metals with gold in order to create more of it. The purchasing power of the unit of currency goes down when people don’t trust it; so they want more of it in payment than they used to. Prices go up. If you have the same quantity of a currency as you had before, but the purchasing power of that currency has done down, you have just become poorer, as surely as if someone had robbed you during the night.
When Rulers, or governments, for whatever reason, add to their Money supply, you have more money chasing the same goods, which means the purchasing power of the unit of currency goes down, which is just another way of saying the price went up. The price is nothing more than how many units of currency are required to purchase an item, any item.
The American consumer nation became an empire of debt in order to pay for all the goodies it imported from foreign nations. America paid those nations in dollars, and by 2001 almost 80% of all dollars in existence were held by foreigners according to Bonner and Wiggin in Financial Reckoning Day Fallout. Under normal circumstances foreigners can get rid of dollars by buying American goods in return, and this keeps foreign currencies in balance. That didn’t work because we were importing way more than we were exporting, so the imbalance grew. Foreigners could have once again dumped their excess dollars on the foreign exchange market, which would have driven the value of the dollar down, which would have made foreign goods more expensive, and our exports cheaper. That would have reduced demand for foreign goods, and reduced their sales to us. They wanted to keep their factories going at full production, and that meant continuing to sell to America at maximum levels. So instead, what did the foreigners holding excess dollars decide to do? They decided to get rid of those dollars by buying up American assets, including businesses, real estate, and financial investments.
But the plot thickens. At about the turn of the millenium, America was in the throes of a recession. The Federal Reserve, determined to make this go away, decided to make credit cheaper by lowering interest rates to unheard of levels. They wanted Americans to buy, and they figured the best way to do this was to make money cheap. Cheap credit, combined with government incentives to lenders to make residential mortgages available to people unlikely to pay those mortgages, resulted in a lot of toxic mortgages out there. Because money was cheap and easy, demand for residential real estate went through the roof, and that of course, caused the prices for that real estate to go through the roof as well. So prices of real estate are spiraling up, money continues to be cheap and easy, there are a flood of unworthy mortgages. Now for the rest of the story. The flip side of cheap money is that lenders, who make their profits off of interest they charge, now have sharply reduced profit margins because their product, money, is too cheap! They are practically giving it away! What to do? Simple: slice and dice these toxic mortgages that everyone knows are going to result in default by the borrowers, repackage them, take them off the lenders hands, and sell them to ???? Why the foreigners who are holding more dollars than they know what to do with, and let them buy them at outrageous premiums! And why would they do so? Why, because the prices of real estate have been spiraling upward like the forced steam of a 19th century locomotive.
Now to put this in perspective, if you got a twenty-dollar bill from an ATM machine, and then went to the grocery store to make a purchase only to find your twenty-dollar bill is counterfeit, what would or could you do? The bank won’t take it back, and the grocery store won’t accept it as payment. The one last holding the counterfeit bill takes the hit. That would be you. You are out $20. Unless of course you go up the street to McDonalds or Starbucks and use the same bill to make a purchase, and get change in non-counterfeit denominations. You have successfully handed off your risk of loss to someone else. This is what the lenders and Wall Street did with the toxic mortgages. They pawned them off, at exorbitant profit to the first suckers they could find–the foreigners looking for a place to put their excess holdings of American dollars. Foreigners such as foreign central banks, for example.
The rest, as they say, is history. The bubble price level of real estate popped, the mortgages were much higher than the value of the properties that collateralized them, the foreign holders of these toxic repackages had a fit, American lenders who didn’t leave the party early enough got stuck with a lot of non-performing loans, which meant that they no longer had sufficient reserves on hand to cover their exposure to those bad loans (which meant they were insolvent and a prime target for a run on them by their depositors.) Then there were the insurors of these toxic assets who were extremely overleveraged and ready to go under, starting with AIG. The American government came to the rescue, and bailed out the banks, the insurors, the foreign central banks. How did they pay for all this? At the heart of it all is a defective product–the toxic mortgages and the packages they became a part of. There is no market for mortgages worth 30% less than the homes that are the collateral. And to make matters worse, the prices continue to drop, and no one really knows how to determine what these properties are worth, other than to put them out to sale in a market where no one is buying. So the Federal Reserve decides to buy the toxic financial instruments at prices that are made up, pure fiction. And the Fed buys these mortgages with more fiction, pretend money. Money created by making book entries in digital ledgers. The banks receive the digital money, their reserves are stabilized, and they are removed from the Endangered Species list.
There is only one problem. The Fed, when they came to save the day, expanded the money supply of the world’s largest debtor nation to a degree unprecedented in history. The whole world’s financial system continues on life support, and the machine is making disturbing noises. You see, there is one minor detail everyone seems to be forgetting. There are only two ways to acquire wealth: produce value, or steal the value produced by someone else. This nation’s value comes from its manufacturing plants, research and development departments, its science labs and production facilities. There are no current economic indicators that reliably tell us these numbers are improving. So can we print our way to recovery and prosperity? Ben Bernanke says we can. Tim Geithner says we can. The President says we can. In time, all that wildly inflated Money supply is going to work its way out into the economy, which means the purchasing power of the dollar is going to drop. When ordinary people sense in their gut that the value of their dollar is dropping, they will rush to get rid of their dollars, just like foreign governments did in the last ten years. But who will take them? As the floor drops out of the dollar, we will rush to spend them in the morning, because they will be worth less by the evening.
Will the government’s debts be honored? Of course. Everyone who is owed will be paid. With currency devalued to a fraction of its face value when it was borrowed. But who can argue? Everyone can see the numbers printed on the paper. We will all be poorer, except those favored few who are in on the insider trading, who get rid of their money first.
The remainder of the burden will be borne by the taxpayer. Isn’t it amazing how much better we can feel, knowing we are taxpayers and not slaves? Would we ever agree to becoming slaves? Of course not. At exactly what point does a taxpayer subjected to Washington’s gang warfare become a servant of the State? 10%? 25%? 50%? 75%? Are we perhaps like Cleopatra, passively accepting our vassal state, as long as we are allowed to pretend we are still a free people? Do you think Cleopatra felt better knowing that her country’s production of grain was being confiscated for the ”good of society”, society as defined by her captors? Roman society? Like every other tyrant cum Benefactor in history, Cleopatra eventually got what she deserved, for she also was one of them. She too had been one of the Gods.
The claim of governments to control over money has no basis in nature or any rule of law recognizing individual rights and private property. Statists all believe in the moral superiority of the collective; for them the sovereignty of the State trumps the sovereignty of the individual the State supposedly serves. It is not hard to figure out which philosophy prevails in our culture. The well funded collectives who contributed heavily to the campaigns of our politicians have been generously rewarded. And what of the well-heeled financiers, bankers, stockholders and managers of the insurance companies, the foreign central bankers, and our own professional bureaucrats who created this problem? They are the very ones selected to be bailed out or worse, chosen to correct it!
We, the individuals, the smallest and most unprotected “group” in the nation, will foot the bill. Between inflation and taxation, dear Reader, it is our wealth that will be confiscated or destroyed.
Perhaps, like Cleopatra, we too have been given an invitation we cannot refuse.
The gods are still among us.
The BIG BANKS, that is. The Big Banks always win. And Big Money. R-e-a-l-l-y BIG Money always wins. Money so big it moves around the globe swiftly and silently and at the speed of light, and you can’t even attach a name to its owners. We’re not talking about the neighbor down the street with the new Mercedes that he is so proud of. We are talking about money so big it can bring down governments, and prop up governments, dictate terms to governments. We are not talking about the millionaire next door. Nor am I talking about your lovely neighborhood bank, or even the biggest bank in your state. I am talking about the people who decide which banks fail and which ones don’t. I am talking about the people who allow some banks to fail so that THEY can buy up the failed bank’s assets with pennies on the dollar—oh, and that’s pennies on YOUR (tax) dollar, not THEIR dollar. The politicians are their pawns, who are rewarded and punished according to their compliance and cooperation. The only thing these people fear is, well, YOU. You are part of the herd, and they fear the herd. These people don’t like democracy, they don’t like the light, and they only pretend at transparency.
Empires have always been about the control of the many by the few. It was said that the sun never set on the British Empire, and the most amazing feat of the British Empire is that it controlled so much of the earth’s surface with the tiniest of military garrisons and outposts scattered around the globe. In most of those places, if the local populace had risen up against them, the tiny British garrisons would easily have been overrun and sent packing. They had the greatest navy in the history of the world, but no navy could have kept them safe everywhere, and especially inland. The secret of their superiority was the quality of their information. They knew the value of information; they knew that information was power. The maintenance of power required keeping the masses in ignorance. And as long as the masses could be fed, amused, and kept poor, nothing would ever change. It was important to keep the masses poor, because that kept them too busy and too tired to interest themselves in anything other than the tyranny of survival. And the purpose of empire was to extract wealth from far flung lands and bring it home to a privileged few.
In this country the same applied to the black slaves. It was a case of the many controlled by the few. It was illegal in most areas of the south for a slave to be allowed to learn to read. Education was the enemy. Why? Because information is power. Control the information, and you control the herd.
Now ask yourself who has been controlling the information in your life. How much of it have you been carefully spoon fed by the power brokers who benefit by your compliance? And how much of your own ignorance is of your choosing, because you either think you know more than you do, or you think what you don’t know doesn’t really matter anyway? Do you have any idea of the awesome consequences of ignorance in this Information Age, when what you know is almost obsolete by the time you have digested it? Believe me, dear Reader, I am NOT being condescending in asking these questions, but if you are not yet alarmed, you need to be. You are living through the greatest crisis of the new millennium, and quite possibly the most critical tipping point in the history of mankind. Our attitude has got to be that we can’t ever know enough, and we can’t stop learning, and we cannot possibly limit ourselves ideologically anymore. This is no longer a liberal-conservative, Democrat-Republican, us-them issue. This is about survival. This is about information, and the control of information.
What do you really know about the world you live in? And how much of what you have taken on faith is true? Folks, we are IN the herd; we are part and parcel of the masses, and we have no chance of making informed decisions that will affect the rest of our lives, for ourselves and our families, if we go on assuming we are being taught what we need to know. When have the Power Brokers of the Universe ever indulgently, and out of the goodness of their hearts committed themselves to real education of the masses and full transparency? The higher you go in any power structure, the greater and thicker the walls of obfuscation and misinformation. Power always works to perpetuate itself. The few over the many. And if you gain any temporary respite, any imagined breathing room, however brief, as you momentarily congratulate yourself that your group, your tribe, your ideology, rides triumphant, remember that the great lesson of history is that it will not last; that it is easier to get to the top than to stay there. Once in front of the herd, you spend the rest of your existence trying not to be overrun by it.
Let’s take for example, what you think you know about the Federal Reserve. It is NOT federal, it is NOT a bank, and it has NO reserves. It is NOT American. The Federal Reserve Banks are not banks. And not all of the owners are American. But they ARE some of the wealthiest people in the world. So who are they, and who are they looking out for? Not YOU. You, dear Reader, only matter as a miniscule member of the herd. The HERD matters. The herd makes very rich people much richer. Control the flow of the information to the herd, and the herd obeys. You hear this, and you say, well, even if this is all true, this has no relevance to my life. Therefore, So what??!!
Now let’s take another example. AIG is an insurance company that insured swaps, which means that there was no money behind the insurance, which there would have to be by federal law if you called the transaction by its proper term: insurance. But call it a swap, and there is no cash behind the protection. When the cards fold at the end of the hand, AIG has no money to honor the insurance that wasn’t really called insurance, and the very powerful creditors had to be paid. Some of them were foreign banks. About one year ago almost exactly, AIG posted a quarterly loss of over $60 billion. You hear these numbers and they mean nothing to you, because they appear to have no relevance to life as you live it. You say, So what??!!
You watch enraptured as the national debate on government healthcare rages on. You hear statistics bandied about, but you also know that statistics serve their Masters, and you don’t always know who or what to believe. The rant is deafening! The conflicting ideologies are overwhelming. All you want to do is stay alive and stay healthy. Yes, you know everyone wants the same, but the chances are if someone is living next door to you without health insurance, you have probably not volunteered to pay his monthly premium for him, have you? So at a micro-economic level you behave one way. But in a macro-economic way, you have no problem with someone else paying his premium, do you?
But let’s get beyond the personal for a moment, and put on our educated hat for a moment. We all understand about supply and demand, right? At least if you’ve been reading this blog, you do. We all know that the government subsidizes healthcare, and we all know that the existing subsidies, Medicare and Medicaid, as well as Social Security, are unfunded liabilities to the tune of $67 trillion dollars. That means in the red, folks. The mortgage is due and Momma has no money. Okay, when something is free or almost free (subsidized), Demand grows and lines form. If Supply was equal to Demand, prices might remain stable. But unfortunately Supply is limited, largely due to mind-boggling regulation, which strangles the delivery system. Same old story as starvation in the world; there is plenty of food to go around, but the delivery system organized by governments is routinely compromised.
The paper work becomes more important than the healthcare itself. A year ago I had a personal experience with this phenomenon. Shortly after major surgery, I accidentally fell out of my hospital bed. I was on a morphine feed for pain, and I was hanging over the side of the bed with my head almost touching the floor, and my one arm was tangled up in the tubing connected to my arm. Somehow through the post-operative fog I found and pushed the red Assistance Button and asked for help, and I was informed by the Shift Supervisor that they would get to me when they finished their reports. Which they did—25 minutes later!
Back to the principle: Big jump in demand, restricted Supply = Prices Rise! When prices rise, lines form, and service is rationed. My point is, does a knowledge of economic principles help you to cut through all the ideological rhetoric and see things for what they are? You still have to make a decision for yourself, but you can make a more informed decision.
Now we have been told that the government is not going to replace the insurance companies, but is going to compete with them. Okay, let’s think about that. Your family owns a small pizza shop on your street. The government is going to open up a pizza shop across the street. If you don’t make any money in your pizza shop, you can’t pay your bills and you have to close and go clean toilets for a living. If the government pizza shop doesn’t make a profit, they go in the back and print money to pay the bills. At the end of the day, you tell me who’s going to win and who’s going to lose. But wait, it’s not that simple. The government won’t lose. Of course not. But the insurance companies won’t lose either. Why not? Because they pay their politicians well, and they will be taken care of. Who knows how, but they will. So who loses? You do, TWICE; you lose as a patient, and you lose as a taxpayer. The government now controls your healthcare, and it controls your healthcare choices. You have been dumbed down one further notch. Congratulations. To listen to the idiots in the media, we don’t really care, as long as we are all dumbed down equally. After all, we are only members of the herd. Do you think for a minute that our politicians and the money people behind them are going to be limited by the choices imposed on the rest of us?? Do you still say So what??
The relevance of economic issues is that over a period of time, you are becoming poor, and you will never know how it happened or who did it to you. You will never see the face of the enemy. Or if you do, it will be the face of a pseudo-enemy created especially for you. Life will get harder and harder; you will work harder and harder for less and less. You may still think of yourself as middle class, but you will live more and more of your life as the working poor.
This article is about why the Big Banks Always Win. I digressed to give a number of examples of how all through history the many were controlled by the few, and this was accomplished by the control of information to the herd. My examples ranged from the hegemony of the British Empire, to the subjugation of Muslims by their own kind, to control of black slaves in America, to our own ignorance about the Fed, the bailout to AIG, to how our lack of understanding of economic principles in the current debate on healthcare in this country can come back to haunt us in the form of a lowered standard of living. The first act of all Power Brokers is to control and manipulate the flow of information and disinformation.
Only if you can understand the link between raw power seeking and the control of information, can you understand how Central Banks have been engaging in the greatest cash heists of all time, and yet it never gets mentioned in the history books. As Adolf Hitler once said, history is written by the victors. Or the Golden Rule, if you prefer: He who has the gold, rules.
So why do the Big Banks always win?
- Money came into existence organically, as a natural desire of humans to trade goods and services with each other. The most tradable commodities began doing double duty as money. Gold and silver came to be the global currency, because it was universally recognizable, divisible, portable, had high value to weight and volume, with continuity of value over time largely due to a relatively fixed supply.
- Governments of every description immediately moved to expropriate control of money as the most efficient way to extract wealth from their societies. Each society developed their own coinage.
- Governments usually needed more money than they had, usually to finance their endless wars with each other. They expanded their money supply by minting coins of the same size, weight, and appearance as the originals, but they debased their currency by adding “filler” base metals to make the gold and silver content go farther.
- Governments eventually linked their currencies to gold as a means to develop sensible exchange rates between their currencies and their trading partners.
- About 500 years ago fractional reserve banking came into existence, created by goldsmiths who learned they could charge interest on more gold than they actually had by expanding the money supply through warehouse receipts. The more receipts accepted as the equivalent of gold, the greater the money supply. The more receipts in circulation, the more interest accrued for the banks. This accelerated trade, but it also became a license to steal for the banks. Because under this system the bankers were earning interest on money that didn’t exist, they feared their depositors more than they feared bank robbers. Banks borrowed from their depositors (repayable on demand) and then loaned this same money out by contract on long terms (months or years). The banks borrowed short and loaned long.
- In 1913 The Federal Reserve was created, and the name adopted for it was an intentional misnomer designed to deceive people into thinking it was part of the government. It was not; it was a cartel of banks patched together to pool the risk of runs on a bank. Reserve requirements were set. The big banks now had control of the nation’s money supply. Since a nation’s entire economy is a function of Supply, Demand, and the Money Supply, the big banks now had their finger on the trigger of the Money Supply of the nation. The government granted them this authority in exchange for an agreement that the new Fed would buy Treasury debt!! Now the banks could create money at will, and move it into the economy through loans to borrowers, and they could earn interest on every dollar of that new money. The government could print money at will also, by creating Treasury Bills and selling them to the Fed. The Fed had a license to steal, and the Treasury had a license to spend. A marriage made in heaven. Without central banks, the modern welfare state would have been impossible.
- The Federal Reserve System is composed of 12 regional “banks” that are owned and controlled by other banks in each respective region; a co-op arrangement of sorts. The only one of these regional “banks” with any power is the Federal Reserve Bank of New York. The Federal Reserve System has a Board of Governors appointed by the President of the United States. The great irony is that the Fed is an agency of banks, for banks, but when instituted was deliberately misrepresented as an institution subject to government authority to protect the public from Congress and those ‘rapacious commercial bankers’. The voting public was duped, entirely. Perhaps now you understand why I went to such great length in the introduction to this material to demonstrate that Power Brokers always begin with the control and manipulation of information and disinformation. The creation of the Fed was a giant step away from a market economy and in the direction toward centralized, bureaucratic planning and control of the economy. It was a giant step away from capitalism and towards a mixed economy (and only another half-step to socialism).
- In 1919 the United States decided against joining the League of Nations. There was a global power vacuum, and Benjamin Strong, then President of the Federal Reserve Bank of New York joined forces with Montagu Norman, head of the central Bank of England, to create money at the Fed, some of which was loaned to European nations, especially Britain. We sent our dollars over through these loans, and then the recipient nations used these dollars to buy American goods from us, thus improving our exports. At the time virtually all of these nations owed huge amounts of money to the U.S. The European nations exported their goods to us, and we purchased their goods with dollars, and this gave them dollars with which to repay their debts to us. It was a round-robin of moving dollars around the table, and it helped maintain the pretense that those nations were in fact going to repay us. This situation had considerable similarities, IN REVERSE, to our relationship with China less than a hundred years later.
- In 1944 at Bretton Woods, Maine, the U.S. dollar became the reserve currency of the world. This means that the dollar became the currency for all transactions and trade globally. This also meant that the United States could borrow money anywhere in the world, in its own currency, which of course was an invitation to irresponsible borrowing, which we were quick to do during the sixties, when we borrowed to wage the Vietnam War and pay for Lyndon Johnson’s Great Society welfare programs simultaneously. Our profligate increasing of the money supply plunged the world into inflation, and the system collapsed in 1971.
- In 1971 we went off the gold standard, and through the IMF and the World Bank, we pretty much took the rest of the world off the gold standard with us. Since then the world has been on “floating” exchange rates between currencies, mostly controlled and manipulated by individual governments. The dollar remained the reserve currency of the world, and our presses went into overtime, and have ever since.
- The United States has borrowed so much money in its own currency from creditor nations, that its ability to repay is being quietly challenged. Behind the scenes, nations are looking for ways to move beyond the dollar as the world’s reserve currency. It continues to inflate its money supply by staggering amounts, now borrowing from itself, by the Federal Reserve serving as the U.S. government’s lender of last resort. The Fed is not the government; it is a cartel of the nation’s largest bankers. At some point the question has to be asked, what happens when the Fed no longer is willing to loan to the U.S. government? What happens when we have to print money to pay the interest on the money we just printed? At the end of the day, the very super rich are ultranationals and they will preserve their own wealth before they will sacrifice it to this nations politicians. At the moment it serves their purposes to create money and loan it, because they earn interest on every dollar loaned. When they change their mind, we are looking at the end of the welfare system and the disintegration of our social fabric as we know it.
So why, dear patient Reader, are we not now experiencing hyperinflation, considering the massive inflating of our money supply? The short, short answer is the effect of countervailing deflationary forces, all of which are holding our economy in the most precarious, nerve-wracking balance. We are walking on a razors edge. If we fall to one side, we will have a Depression that will eclipse the one in the 1930s and 40s. If we fall to the other side, we will experience hyperinflation, probably Zimbabwe style. Everyone, so far, is hanging together, because the global leaders know that if we go down, we take the world down with us. No one wants that. No one is foolish enough to even predict what that would look like. All we know is that we don’t want to go there. And in the meantime the rich nations of the earth are violating every common sense principle of economics in the hopes that if they do enough of the wrong thing, it will work this time. Even though it has never worked before.
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