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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Mayer Amschel Rothschild, the godfather of modern banking, purportedly said “Give me control of a nations money supply and I care not who makes the laws.” What did he mean by that? Is it true? Since the Federal Reserve Bank controls the money supply of the United States as the world’s largest and most influential Central Bank, does this mean that this institution is more powerful than Congress, more powerful than the Executive Branch of the government, that it operates above and beyond the control of the Republicans or Democrats? Is the Federal Reserve above the law? Was Rothschild right? What exactly is the money supply, anyway?
Let’s begin at the beginning. What is banking? Before modern banking, virtually all trade was in the form of barter. Barter only works when there is a double coincidence of wants, which means you have hot dogs for sale at the same time that I have lemonade for sale, and you happen to want my lemonade at exactly the same time that I have a craving for a hot dog. We both want whatever commodity the other is selling at the same time. Obviously, this kind of trade quickly becomes very cumbersome, slow, and difficult. Eventually people found that certain commodities became so common, and so universally in demand, that they became more useful as a means of exchange than for their original value. This is, for example, how salt came to be used as money. Originally it was universally desired for its ability to season and preserve food. People started using salt as a means of trading all other commodities, because they all knew that if they received payment in the form of salt, they could in turn use that same salt to trade with others. Salt became more valuable as money than it was as just salt.
In time two precious metals replaced salt: gold and silver. They were used as money because they were universally in short supply, universally desired, they were portable, and they had high value for their volume and weight. Gold and silver had to be mined from the ground, and there was no way any speculator was going to be able to mess with the “money supply” of the day by pumping large amounts of new gold or new silver into existing circulation. These metals were too hard to find, too hard to dig out of the ground, too expensive and too labor intensive to extract from the soil for the money supply to expand unexpectedly or significantly. The money supply in the form of all the gold and silver in circulation was stable and therefore not prone to change. The purchasing power of an ounce of gold did not change much.
Because these metals were heavy, in time individuals became gold brokers: that is, they stored the gold for others. They would receive the gold, and write out a receipt to the owner of the gold. The owner of the gold would then use that paper receipt in the same way he would have used the actual gold: as money. These gold brokers, also called goldsmiths, quickly learned that mostly the gold just sat in their warehouse collecting dust, and they decided they would write more receipts than they had gold. In theory, each receipt they wrote could be redeemed at face value for real gold, and that was 100% true when they only wrote receipts at a 1 to 1 ratio for the gold. When they wrote twice as many receipts as they had gold, they were counting on the high unlikelihood that the holders of both sets of receipts would attempt to redeem them at the same time on the same day. Eventually they wrote more and more receipts for the same stockpile of gold. Why would they do this? Because they charged interest for the use of these receipts. Now for a moment, just stop and think of the profit potential of this racket. You own no gold. You agree to warehouse someone else’s gold, and you give him a receipt. Then nine more people come to you for a loan of x amount of gold, but you don’t give them gold, you give each of them another receipt. All ten of those receipts now in circulation are acting as the same amount of money as the gold on deposit—multiplied by ten!! You as the goldsmith have increased the money supply out of thin air!! There are ten receipts floating around out there, each of them supposedly redeemable by the same brick of gold in your warehouse. And the goldsmith is charging interest on all those pieces of paper, and he is counting on only one of the borrowers asking to redeem his receipt at a time. And thus is born the fractional reserve system of banking. At heart the system is based on fraud: the banker (or goldsmith) is pretending that he has the full value of the paper he gives you available for redemption should you ask for it, when he knowingly has only a fraction of that amount available. He is playing the odds at the margin, betting the future of his business on the odds that you will not ask for it all back at one time, or even at the same time as his other customers.
The money supply is the total number of receipts he has in circulation out there at any given time. Now let’s fast forward to the current 21st century. You’ve already figured out that receipts have morphed into money, or currency. Now all of a sudden, it becomes much easier to mess with the money supply, i.e. all the currency in circulation at any given moment. How? Well, since currency is no longer redeemable for precious metals, it is in effect anchored to nothing more than the willingness of the public to use it and accept it. So if you want to increase the money supply, all you have to do is print more paper currency and slip it into circulation. But in the digital age even that isn’t necessary. Printing of currency is done to replace worn out currency, and other than that, printing is used only metaphorically to mean digits transmitted electronically; journal entries into a national bookkeeping system.
Central Banks are created to facilitate the manipulation of the money supply in a nation. The Central Bank is a consortium of the largest banks in a nation that acts like a cartel, like OPEC does for oil producing nations, and it acts as the lender of last resort for all the other banks in that nation. It pools the national money supply, and makes funds available to its member banks as the need arises. It is determined what the amount of reserves should be required for each dollar the member banks loan out. Now let’s do some simple math. If it helps, get out a piece of paper and a small calculator and follow me along here for a minute. Suppose the Federal Reserve loans $1,000,000 to a member bank, Bank A, at its inter-bank interest rate (lower than the public rate). Suppose also that Bank A is required to keep 10% of all deposits in reserve. So it keeps $100,000, or 10% in reserve. Bank A then loans out the balance of the $1,000,000, or $900,000 to a customer of the bank. The customer takes the face amount of his new loan, or $900,000 and uses it to buy something from a supplier. The supplier deposits the $900,000 in his bank, Bank B. Bank B keeps 10% of that $900,000, or $90,000 on reserve, and loans out the balance of $810,000 to another of its customers. Just keep doing this for fifteen consecutive transactions, and you will discover that the original $1,000,000 that the Federal Reserve loaned to Bank A has already become almost $8,000,000 in circulation, with over $200,000 of the original $1,000,000 available in the fifteenth bank! Almost as if by magic, in just fifteen transactions, $1,000,000 has been multiplied to $8,000,000 in the money supply.
So why would anyone want to expand the money supply? Politicians do, in order to create inflation. Inflation is increasing the money supply in order to reduce the purchasing power of the currency, in our illustration, the dollar. This is called intentionally debasing the currency. When you have more money chasing the same amount of goods and services available for exchange, the price of the goods and services goes up. Which is another way of saying it now takes more of the currency to purchase the same thing. This is good for debtors, and bad for creditors. Why? The debts the debtor owes are being paid back with dollars that have less purchasing power. The creditor gets the face amount of his principal back, but those dollars now have less purchasing power than when he loaned them out. Suppose that creditor loaned out those funds at 5% interest, but they are repaid to him with 7% less purchasing power. That lender will soon be out of business. He has lost money.
Now, who is the biggest debtor you can think of? Come on now, try hard, it will come to you. Yes! The U.S. government. As the theory went, it never mattered how much money the government borrowed, as long as it borrowed from its own citizens. But if that government paid its own citizens back with intentionally devalued currency, it actually committed an act of fraud against its own citizens, did it not? It picked their pockets without a vote. If a political party raised taxes by an equivalent amount, it would be summarily voted out of office. But when the Federal Reserve Bank does the dirty work for them, through the back door, financially illiterate people just shrug their shoulders; what can anyone do about inflation? It’s probably those greedy businessmen raising prices to improve their profits!
But wait a minute, you say! Stop! The government hasn’t been just borrowing from its own citizens. It’s been borrowing from foreign nations and global investment funds. In fact it has borrowed so much from these foreigners that many of them have doubts about the ability of the U.S. government to ever repay them, even with devalued currency. They have stopped buying U.S. government debt. So let’s see, now. The citizens of the country aren’t buying much of the government debt; the foreign governments have stopped buying U.S. government debt; our government is running out of potential lenders. Who can it borrow from next? Ah, they found a creative answer: the U.S. government will go to their lender of last resort, and borrow from them. Who is that? You guessed it: the Federal Reserve Bank. How does the U.S. government borrow from the Fed? The U.S. government borrows money by selling Treasury Bonds, which are nothing more than a government-issued I.O.U. A Treasury bond, also called a T-bill, is a debt instrument, a promise to repay at some future time. When no one else wants to buy them, the government sells them to the Fed. In buying the bonds, the Fed gives the Treasury money to spend, which puts it into the money supply of the nation. And when you increase the money supply by $1,000,000, in the fractional reserve banking system, after only fifteen transactions, with a 10% reserve requirement, that money has been multiplied by a factor of 8, with money still working in the system. What happens when you inflate the money supply by hundreds of billions, or trillions, as has been happening in the last 24 months?
So the Fed creates money out of thin air, gives it to the government, which puts it into circulation into the economy in an effort to jump start the economy. So where’s the inflation that should be there? Prices are holding their own or even going down slightly. What’s going on?
I’m going to address this and other questions in my next article, but in conclusion of this one, I want to paint a mental image for you. The U.S. government isn’t the only nation in this poker game. All of them are on board. As one of our original patriots said in a totally different context, “We’ll all hang together, or we’ll each hang separately.” No one wants to be left out of this poker game. All of the currencies of the world are tied to the dollar, and have been for over forty years. Most of the rich countries and many of the emerging nations have invested heavily in U.S. debt; so much so that if the U.S. decides to default, it can take the global financial system down with it. So as the U.S. goes, so goes the world.
Now picture a large room with many tables and poker players, all engrossed in the Global Poker Playoffs. Every player acts civilly, but every player ultimately seeks to trump all the others. About a dozen or so of the players have nuclear weapons strapped to their belts, and the weapons are hot. Nerves are raw. Every player in the room knows that he is playing with the entire wealth of his family and tribe back home, and he knows he dare not come home empty handed. His life might depend on it, and certainly his stature in his community, his personal economic future. His family would share in his economic loss and disgrace. In the center of the room is the largest table, with the biggest players. The playing is intense, and the bidding escalates. No one calls, no one dares to call, and the chips pile up in huge piles on the table. Everyone is starting to question what resources lie behind those chips, and everyone knows what the risks are if a player isn’t good for his bets. Everyone knows everyone else is bluffing, but no one dares to call, because everyone has overplayed his hand. Suddenly the unthinkable happens. Someone bumps the table; piles of chips fall over, spilling into each other, rolling towards the edge of the table. Players start grabbing for the most valuable chips at the margins, upsetting the entire table. Nervous hands move quickly towards their belts, chaos breaks out in the room, some run for the exits . . .