Understanding Global-Finance is not as daunting a task as it once was. So much information is at our disposal; from conspiracy related content, to actual facts and figures, an enormous amount of data is freely available – thanks to the internet. Still, very few of us will ever attempt to understand because we’ve been told that economics is not for laymen.
I’m here to tell people that following economic trends, and reviewing the details of transactions does not have to be a line-by-line venture. Our views have been shaped by those who seek to confuse us – for sake of profit, by means of complicated algorithms as well as plain old tomfoolery. But, there are some very basic fundamentals to economics (and finance in general) that we should all know.
The number one misconception about U.S. monetary policy is that a government body is in charge of setting the policy itself. This is not true. The Federal Reserve Bank ACT of 1913 was written by the largest private-banking families of the time. The bill passed the House and Senate and was signed into law on December 23, 1913 by former President Woodrow Wilson. It is the FED who is in charge of setting monetary policy and banking requirements in the U.S.
The act itself – “Provided for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.” (http://www.newyorkfed.org/aboutthefed/history_article.html)
That doesn’t sound so bad, right? Except that this bill stripped Congress of the power to regulate the national currency, and transferred that privilege to the hands of a few very large private banks. The United States has had a love-hate relationship with bankers throughout its existence. The page linked above gives a small amount of insight into what the FED is, where they came from and adds some historical context to its relationship with our government. And it clearly shows that throughout our history, the same banking families have been at the center of all nearly all our nations economic controversy. Central banking is not a new concept, and in theory the idea of a centralized non-political source for currency regulation is not “bad.” But, in practice – people are corrupted by power, and the power one yields as part of the largest Reserve Bank in the world, which regulates the currency of the largest economy in the world, is almost too impossible to fathom.
Now that we have a (very) simplistic explanation of what the FED is, we have to look at their operating practices. Conspiracy theorists make the claim that the Federal Reserve is directly responsible for the ups and downs found within the free-market economy. But, the “research” being used does not always add up. Most of the time we see a person, like an Alex Jones type, using the fear-mongering tactic of telling an audience that the FED is trying to bankrupt the nation in order to institute a global currency, as part of an globalist agenda created hundreds of years ago in England. But, the only evidence they provide is that the FED is a private bank, and that the IRS is in place to collect interest on the debt created by the FED’s loans that expand the currency and grow the economy. I’m sorry, but even if Congress took back the authority to create and print our currency, taxes would still be an integral part of our society. Government has to fill their coffers in order to operate as well.
-To be clear, I’m not opposed to the idea of the theory being a possibility, I’ve just yet to see any factual evidence to substantiate the remarks.
As I made note of in another, unrelated, post – not every topic has two sides. This happens to be one of those topics. The facts clearly speak for themselves should we take a moment to look at them. For decades now, we’ve been conditioned to believe that free-market-economics under the Milton Friedman model would solve all growth related problems. The theory is that growth will best occur if private businesses are allowed to regulate themselves, for better or worse. But, what we’ve seen since the early 1980’s is that this theory has only served to propagate the boom & bust economies over the last 30 years. Prior to this “swap” to more Friedmanesque practices the U.S. had the longest continual state of economic growth, and created the largest economy the world has ever known. (1939-1975) This was done by regulating large banks and corporations to offer goods and services at fair market value, by incentivizing innovations in technology and by ensuring a middle class developed through “fair” labor laws. That’s not even mentioning FDR’s “New Deal,” which further explains how our economic growth was directly tied to our collective standard of living statistics.
Still though, I don’t hate the Federal Reserve for following Milton Friedman’s philosophy; I think they’ve done what they can with what they’ve allowed and helped to create. But, I don’t think there is some giant conspiracy to rule the world. That’s just my 2 cents on the matter, and I could be completely wrong. As I said, I’m open to the idea of it being possible – I just haven’t seen any real evidence to support the claims. Although – I do feel – we have, once again, reached a pivotal moment in history where we must change how financing and economics work in America, if we want to avoid financial ruin across the board.
So what do we go with – if not a Central Banking System – should the FED decide to not act appropriate? Well, how about an idea like that of Herman Daly: A 100% reserve economy. Where banks cannot lend out beyond their reserves and currency is regulated by the commodities price index. Congress would revoke the charter of the Federal Reserve, and re take the authority of money regulation/implementation. This is a solid proposal that hasn’t received much attention, recently. If banks are forced to remain within stringent reserve guidelines, then over-leveraging would eventually cease. It is a constrictive approach to tackling a tough economic problem, but it doesn’t have to be a permanent solution. Upon stopping the “bleeding” and regaining stability within the public and private economies we can always make a swap back to Darwinian business cycles that are more growth oriented. As Herman Daly puts it (and I’m paraphrasing here) – There is a point in which financial growth becomes uneconomic growth. Where loans are made based off the debt obligations – not the collateral – of a company, but allowed to be used to meet reserve requirements of monetary policy regulators (The Federal Reserve).
If that sounds confusing, think of it this way…
As a private citizen, you are unable to leverage your debt in order to create more money for yourself. For example: A person who owes $250k on their home mortgage cannot claim this as personal capital when applying for a new loan, it can only be considered a debt.
Banks, on the other hand, are doing exactly that. They take in deposits and other sources of revenue, which counts toward their “reserve.” Under Modern Money Mechanics – the FED’s monetary policy workbook – these conglomerates are then able to loan out at up to 10x of the amount of their reserves.
-This is how money is expanded and lent out into the economy under a traditional fractured reserve banking system.
Now, consider these same banks and corporations decide to claim that the loans they’ve made at 10x reserve are not really debt, but are actually profit (even though they have yet to be repaid). This means they can re-loan the balance of these loans back out, again, at 10x reserves. The cycle continues over and over again and the end result is unsustainable.
This is why we continually hear bankers and politicians saying why we need to grow into emerging markets or open new markets. They aren’t trying to prop up a foreign economy; they’re simply trying to expand their leverage up to 20, 30 or 50x reserve buying power. Deposits and purchases that were once a healthy part of our economy are now unable to meet these company’s’ own debt obligations, so they must expand to keep the house of cards from falling.
This is the simplest definition of a Ponzi scheme I can think of: Take money from new investors in order to pay those who invested prior – Does anything I mentioned above sound familiar to Ponzi scheme logic? If you answered yes, you are correct!
But, that’s our current economic system in a – halved-ass – nutshell.
These aren’t the actions of people trying to rule the world through finance. These are the actions of people given incentive to create profit over sustainability. It is my opinion – if the private banking cartel wanted to rule the world, the pieces have been in place for them to do it for a very long time. It is my estimation that these bankers just got greedy, and are now willing to ask the tax payers to pay for the mistakes they made after they devastated the personal economies of so many Americans. And it is my assertion that following the Enron debacle, the Energy Crisis, and the Housing Crash of 2008 our government has failed to force action by the banks to ensure more stability.
Instead, all we hear about is how we need to “grow” our way out of the mess. We cannot continue this path of “growth” when that “growth” is initially derived from debt. A few Washington Heroes have emerged in this conversation, Bernie Sanders, Ron Paul, and Tom Colburn to name a few. But they’re all fairly insistent on a return to the Gold Standard of our currency. Paul and Sanders, have gone further and advocated for the dissolution of the FED, but have failed to realize that a single commodity is far too unstable to base a currency on in modern markets. This is where Herman Daly surges ahead, in my opinion. His idea behind using the price index for ALL commodities means that inflation as well as deflation would be directed by the needs of the end consumer.
Basing the dollar off the commodities index is constrictive. And since most major name economists want to force growth down the main stream point of view, it’s a difficult task to explain how this type of monetary system could ever become a reality. But like I said in my opening remarks; understanding economics today is not as daunting of a task as it once was. If we all want our nation to continue, we have to make some sacrifices. I consider my social stance to be extremely liberal. I support gay rights/marriage and all forms of equality, I believe a safety net for our less fortunate citizens should exist. But, I also believe we can cut certain programs and become more self-reliant. And if that happened, if we really became self-reliant, then business would be in good shape as well. We just wouldn’t be seeing the million dollar bonuses on Wall Street for taking the path of greed.