Bank Money: ‘The Root of All Evil’
Waste and corruption are the result of banks' privilege to create money out of nothing
June 14, 2017 Updated: January 10, 2019
The one force that causes the most harm in our economy also happens to be the least well-known and understood.
While the left blames greedy corporations and individuals, and the right blames the government, it is in fact the collusion between the government and private banks that leads to problems like environmental degradation, unemployment, income inequality, and many more.
In the United States and most other countries, the government grants private banks the right to create money out of nothing and forces individuals to accept said money as legal tender and to use it to pay their taxes.
The Coinage Act of 1965 states, “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.”
Today, the “notes” are mostly electronic credits in the form of bank deposits, but the same law applies. So much for legal tender—what about creating money out of nothing? Don’t banks take savers’ deposits and then loan them out to borrowers?
The short answer is no. Instead of taking in savings from companies and individuals, then waiting for a suitable borrower, banks use a simple accounting trick to create new money whenever someone applies for a loan.
Let’s assume you apply for a mortgage of $450,000. Once it’s approved, the bank simply credits your account with $450,000 in the form of a deposit, which you can then use to spend on your house. This is the bank’s liability. On the bank’s asset side, it credits itself with a loan of $450,000 to you, which you will pay back over the course of 30 or so years, plus interest.
For this process, no savings are necessary. The only thing the bank has to do from a regulatory perspective is keep a very low fraction of its assets in cash or balances at the Federal Reserve (Fed), so it can pay out some cash on demand if needed. This is often not more than 1 percent of its assets, hence the term “fractional reserve” banking.
The Root
The popular saying has it that money is the root of all evil. However, the original quote from the Bible would be more accurately applied to the process described above, wherein banks are allowed to create money out of nothing and charge you interest for the trouble: “for the love of money is the root of all evil.”
Money itself, of course, cannot be evil. It merely measures the value of goods and services produced and the value of capital saved. However, under the bank money monopoly, the new money created doesn’t measure production and savings, but actually changes them.
The creation of “money,” in the form of the loan and deposit, required nothing to be produced and nothing to be saved. The production only begins later, when the contractors start building the house—although even that is not guaranteed, given that many mortgages or other loans are used to buy up existing assets, which drives up prices.
Even loans that finance new construction alter the economy in unnatural ways: bankers’ prejudice directs production instead of consumer demand from their own savings. And the bank, which can repossess the collateral unless the loan is repaid, gets something for nothing.
The principle at work here is pure love of money—nothing more. The bank does not need to expend any effort but can “earn” the interest on the loan, which is the same as a private tax on the money supply. It is the equivalent of a few designated individuals being allowed to keep a money press at home, which they could then use to print cash, make loans, and charge interest against. Meanwhile, everyone else is forced to use those printed loans to make investments. Clearly, this is not fair.
The Problem
The ease with which banks can create money explains the recurring colossal blunders in risk management and loan creation, of which the subprime crisis is only the most recent manifestation. Because money is free, it makes sense for banks to loan out as much as possible. After all, they don’t have to do anything to source the funds, but get to reap the interest payments as the loans are repaid.
If the market for money were not completely cartelized by the government for the banks, even this perverse mechanism would have its limit, and would ultimately lead to the demise of the participating banks—just as what played out in the 2008 crisis.
However, because banks, regarded as too big to fail, collude with the government and sponsor politicians with campaign contributions, they can always rely on the government to bail them out when the house of cards collapses. This is not a problem of too little regulation, but instead of the wrong kind of regulations, perpetrating a systematic theft of public resources.
Banks can always rely on the government to bail them out when the house of cards collapses.
Even this is just the tip of the iceberg. Because the capital allocation process in this system is so flawed, the private sector is encouraged to spend funds on inefficient and unnecessary vanity projects—real estate is the most obvious, along with massive industrial overcapacity.
Because big corporations have better access to big banks, they have better access to this artificial “capital,” and they can therefore crowd out smaller players that may be able to service their communities better. Too much real estate development and industrial overcapacity also put the most strain on environmental resources.
The process leads to the centralization and bureaucratization of everything, not just the government. Big corporations, paying lower interest charges than their smaller competitors, end up providing the majority of goods and services. This is why we see the same brands and chains everywhere.
Because the money supply “tax” needs to be paid to private banks, corporations are constantly looking for ways to cut costs, which often means firing people and replacing them with robots.
Workers and ordinary consumers, on the other hand, get trapped. They have no choice but to meet high interest payments on credit card loans and mortgages, while the prices of goods, and anything they might invest in, shoot through the roof.
The Solution
Of course, it doesn’t have to be this way. If banks did not have the privilege of creating money out of nothing, and instead had to source their loans from real savings, their incentives would change immediately. It would also help if there were no government bailouts.
In that case, investment would equal real savings and would by definition be limited, because savings require a reduction in consumption. This is harder to achieve than simply printing money. Resources would, therefore, be economized. Opportunities for accumulating extravagant wealth, while still present, would also be reduced, and there would be a natural tendency toward a more even wealth distribution—not one engineered by a centralized bureaucracy.
Honest banking and honest money have existed before in history.
If banks and borrowers had skin in the game, capital allocation decisions would be examined not according to the “love for money” principle, but rather according to how productive the investment would be.
More productivity means producing more with less, thus saving natural resources. Less capital investment would mean more room for humans to participate in the economic process. Prices for capital and goods would be more stable.
This is not a dream, nor a vision of Utopia. Honest banking and honest money have existed before in history. The first step to solving this problem is to become aware of the problem.
This article is part of a special Epoch Times series on the Federal Reserve. Click here to see all articles.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
AMERICA'S
CRIMINAL BANKSTERS LOOTED MORE THAN A TRILLION DOLLARS OF AMERICA'S REAL ESTATE
WITH THEIR TOXIC MORTGAGES AND WERE REWARDED WITH NO-STRINGS BAILOUTS AND NO
(REAL) REGULATION.... THEY'RE STILL LOOTING AMERICA!
"It would inevitably be met with massive and
overwhelming
opposition on the part of the financial oligarchy,
which
controls all levers of the state power, and has at
its disposal
not only the courts and politicians, but, even
more decisively,
the police and the army."
Socialism and the problem of the
super-rich
28 December 2017
Nearly one hundred and fifty years ago,
Karl Marx, citing the early 19th century French economist Jean Charles LĂ©onard
de Sismondi, observed that “the Roman proletariat lived at the expense of
society, while modern society lives at the expense of the proletariat.”
Never has this been so true as today, as
day after day, week after week, reports are published showing the massive
social wealth piled up by the financial oligarchy at the expense of the working
class.
The latest of these is the Bloomberg
Billionaires
Index published on Friday, which showed
that the
fortunes of the world’s wealthiest 500
billionaires
rose 23 percent over the past year,
making them $1
trillion richer than at the end of 2016.
The combined
wealth of this group reached $5.3
trillion. The gain
of $1 trillion was four times last
year’s increase.
Bloomberg found that the world’s richest
500 people as a group added an average of $2.7 billion to their fortunes every
day in 2017. This
means that, on average, each of these individuals added $5,400,000 every day,
or $225,000 every hour—roughly equivalent to the combined income of five
working-class households in the US over the course of a year.
The rapid expansion of the wealth of the
financial oligarchy accompanies growing indicators of social misery at the
other pole of society, exemplified in the report this month by the Centers for
Disease Control that life expectancy in the US fell for the second year in a
row.
Wealth concentration on the scale
reflected in these reports has immense social implications. It is impossible to
seriously address a single social issue without confronting the problem of
economic inequality. The colossal diversion of resources into private wealth
accumulation by the financial oligarchy effectively starves society of the
resources it needs to deal with the most basic problems.
The United Nations estimates that it
would cost $30 billion a year to eradicate world hunger, a small fraction of
the wealth monopolized by the world’s billionaires. Amazon founder Jeff Bezos
alone added $34.2 billion to his fortune in 2017.
America’s 159 billionaires added $315
billion to their fortunes last year, giving them a collective net worth of $2
trillion. This is double the $1 trillion spent by the US government in 2015 on
health care ($980 billion), education ($70 billion) and housing ($63 billion)
combined.
The funneling of these vast sums into the
bank accounts of the super-rich, combined with the nearly $1 trillion set aside
every year to fund the military machine that protects the oligarchy’s financial
interests around the world, leaves virtually nothing to address the crumbling
social and physical infrastructure (roads, bridges, rail, mass transit) of the
United States.
The tax bill just passed by the Trump
administration will fuel a further growth of social inequality in the US and
around the world beyond what are already the highest levels since the Gilded
Age at the turn of the 20th century.
The economic life of the planet is
determined by the drive of the ruling elite for ever greater self-enrichment.
The policies of all capitalist governments and parties, whether right-wing or
nominally “left,” are driven by this requirement. The unprecedented rise in the
stock market has been engineered by the world’s central banks, led by the US
Federal Reserve, to enable the capitalist class to recoup its losses and
increase its share of wealth and income in the aftermath of the 2008 financial
crisis. The Fed, first
under Bush and then under Obama, led the way in organizing bank bailouts and
the infusion of trillions into the financial markets by means of ultra-low
interest rates and “quantitative easing” money-printing operations.
To provide a certain context, the total of
$5.3 trillion in assets controlled by the richest 500 people is greater than
the combined GDPs of the UK and France. The $2 trillion owned by US
billionaires is almost twice the GDP of Mexico, a country of 128 million
people. It is also more than double the combined GDPs of Argentina, Chile and
Peru.
Bezos’ gain for the year is itself only
slightly less than the combined GDPs of Jamaica ($14 billion), Niger ($7.5
billion) and Zimbabwe ($16 billion), with a combined population of 40 million.
The financial elite has definite social
interests, which it enforces through the wholesale buying of political parties
and politicians, making democracy under capitalism nothing but a hollow shell.
What would happen in response to any
serious effort to reform this state of affairs, to pursue a modest reallocation
of social resources, within the framework of the capitalist system, to ensure
that all people received the basic rudiments of nutrition, health care, and
education?
It would inevitably be met with massive
and overwhelming opposition on the part of the financial oligarchy, which
controls all levers of the state power, and has at its disposal not only the
courts and politicians, but, even more decisively, the police and the army.
When social reform is impossible, social
revolution becomes inevitable. There is no way to avoid the conclusion that it
is necessary to expropriate the wealth of the financial oligarchy.
These resources are derived from the
social labor of the working class, which produces all the wealth of society.
The working class is the only social force that can and must carry out this
historic task. The only answer to the growth of poverty and immiseration for
the masses alongside ever more obscene levels of wealth for a tiny minority is
socialism, based on common ownership and democratic control of the productive
forces and the rational, planned international coordination of economic life.
“Attorney
General Eric Holder's tenure was a low point even within the disgraceful
scandal-ridden Obama years.” DANIEL GREENFIELD / FRONTPAGE MAG
Why the swamp has little to fear
The midterm elections will either
halt or hasten the current soft coup whose aim is to overthrow a legally
elected President now being conducted by the swamp. And if the
history of Washington, D.C. corruption is any indication of what will happen
after the midterms, the swamp will survive regardless of its coup's success or
failure. But the efforts to expose the treasonous plot will fade
away into the dustbin of political history after being seen as just another
waste of time and taxpayer money. The seemingly endless parade of
corruption scandals and mind-numbing criminal activity will go on unabated and
continue to escalate to unimaginable heights because of an inescapable fact of
human nature.
In a Forbes 2015
article entitled "The Big Bank Bailout," author Mike Collins mentions
several ways to prevent another housing bubble crisis from destroying the world
economy when he writes, "But perhaps the best solution is to make the CEOs
and top managers of the banks criminally liable for breaking these rules so
that they fear going to jail. These people are not afraid to do it
again so if you can’t put some real fear in their heads, they will do it
again."
What Collins has honed
in on is accountability and punishment, the very things lacking in today's
dealings with the swamp. Just as the major banking institutions will
soon, if not already, re-enter into risky, corrupt, and illegal lending
practices because there was not a "smidgen" of accountability for the
trillions of dollars they lost in the housing bubble catastrophe, so too will
the past and presently unknown criminals within the IRS, FBI, and DOJ continue
to thumb their noses at the law.
What the American people have been
subjected to over the past 18 months since President Trump took office is a
series of crimes that have been painstakingly unearthed but little
else. "Earth-shattering," "bombshell," and "constitutional
crisis" are just some of the words and phrases used by media outlets to
describe the newest update regarding the many ongoing
investigations. These words are meant to shock the audience but no
longer have the impact they once did because of their overuse and because of
the likely lack of any substantive outcome. What Americans have seen
are trials without consequences, clear proof of guilt with no
punishment. Draining the swamp without
any repercussions to the swamp creatures inside is like going on a diet but
eating the same foods.
Americans witnessed no accountability
regarding exhaustive investigations into the deadly circumstances surrounding
the swamp's gun-walking campaign named Fast and Furious, a program where U.S.
Border Patrol agent Brian Terry and hundreds of innocent Mexican citizens were
killed with guns the government sold to criminals. The swamp
continued on its power mission and attempted the deceitful confiscation of
America's health care with Obamacare, whose real aim was a redistribution of
the nation's wealth. After little pushback and the passage of
Obamacare, Americans witnessed Benghazi in 2012, and when nothing
was accomplished over the investigations of that tragedy, the swamp trampled on
the rights of conservatives in what became known as the IRS scandal of
2013. Nothing was done about that. And on and on, with
the swamp committing one bigger and bolder crime after the next with
impunity.
So we have arrived at the doorstep of
the Russian collusion investigation
farce by first traveling through the
swamp
of unsolved crimes perpetrated
inside the Obama administration. With
the passage of time, swamp-dwellers
like Eric Holder and Lois Lerner,
knee-deep in the mud with
congressional contempt charges,
continue to be
financially enriched and
will slowly be forgotten, while more
recognizable
swamp royalty like
Hillary Clinton get to run for president.
Until Americans see
guilty members within the United States government wearing orange jumpsuits and
serving time, the investigations and congressional hearings are mere sideshow
spectacles to appease the masses.
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