Washington’s Blog has this important post on how our current banking and money system is a “debt-creation system.” Whereas long, long ago when money was something of value, or our currency represented something of actual vale, now money = debt. Washington’s Blog provides a link to a video that demonstrates how the process of money-value to money-debt has occurred over the past several centuries. Washington provides many quotes from several economists and past historians, businessmen and statesmen, and notes how the banks have become so big and have bought the politicians and regulators, and how such a system of debt and corruption has caused nations to lose their sovereignty. And there is a problem when “private banks” are permitted to create credit out of thin air, which is the same kind of moral hazard as a central bank such as the Federal reserve creating money out of thin air.
Real wealth and credit are created by the producers, inventors and entrepreneurs of a society. But the “credit” that banks create out of thin air and the “money” that the Fed creates out of thin air are not real, not genuine. Those kinds of credit and “wealth” are fraudulent, counterfeit. That is why our entire system of made-up money and adding zeros to the numbers in the books is destined for collapse and ruin.
Washington states that, “If private banks have the power to create debt, then the biggest banks will always eventually win out over the sovereign nations, especially when the amount of credit which can be created (i.e. the size of the monetary base) is not limited by real assets, but is simply based on a system of fiat currency.” And Washington notes,
The ability for America and the 50 states to create its own credit has largely been lost to private bankers. The lion’s share of new credit creation is done by private banks, so – instead of being able to itself create money without owing interest – the government owes unfathomable trillions in interest to private banks.
America may have won the Revolutionary War, but it has since lost one of the main things it fought for: the freedom to create its own credit instead of having to beg for credit from private banks at a usurious cost.
The problem is, as with just about every other aspect of daily life, the influence of the State and its intrusions into private economic activity. The real moral hazard of society has been allowing an institution — the State — to have any power of compulsion over others, to seize and usurp authority over the people’s private matters of trade and commerce, including their media of exchange, and their savings, credit and investments. The State has no moral right to get itself involved into the affairs of the people’s means of trade amongst themselves.
So many people come from the frame of reference in which having State control over the people’s media of exchange and having a central bank authority is assumed to be an inherent part of a government, or of a federal government. Such an assumption seems to include that, for a society’s economic growth and prosperity to occur, there must be a top-down central planning money and banking authority to direct such growth and prosperity. This very long-ingrained widely-held assumption is why so many otherwise reasonable and intelligent people react so negatively to Ron Paul’s wanting to get rid of the Federal Reserve, repeal legal tender laws, and allow for competing currencies with sound money that would be backed by something of actual value. And privatize banking, not in the current sense of “private banks” as referred to in Washington’s Blog, but hold banks — big and small — accountable for their decisions and actions with their assets, investments and loans. No bailouts for anyone, especially when such bailouts are involuntary, that is, when the banks use the guns of government against their fellow citizens (taxpayers, producers, laborers, etc.) to get bailed out, like in 2008.
When people refer to “private banks,” and their controlling and accumulating (and corrupting) so much of the nation’s wealth, such “private banks” are not really private in the sense of being private businesses without connections to the State, and the special privileges and hand-outs that these banks receive from the State that other businesses don’t have. Many people just don’t seem to realize that these very State connections and privileges — and State-granted authority to act recklessly by taking extreme risks without any accountability — are what have enabled these “private banks” to have so much control over the nation’s wealth.
If we get rid of the central planning authority, the Federal Reserve, and get rid of all the State-granted privileges given to these Big Banks, and make them genuinely private, they would be treated like any other business and made to take responsibility for the consequences of their reckless risk-taking, irresponsible lending practices and engaging in fraudulent “fractional reserve banking.” If that means going bankrupt, so be it. This would require the bankers to act responsibly, and the more responsible the bank, the greater the reputation and the more customers it would attract. The failed ones who lost their customers’ savings would be treated harshly by going bankrupt, or its bankers thrown in jail for committing fraud. The citizens cannot have a 100% guaranteed system (i.e. “FDIC”, etc.) because savers, investors, businesspeople and consumers need to take responsibility for their own decisions as well, and need to be encouraged to do business with the banks (and any other businesses) with the best reputation and trust of the community that has been honestly earned.
I just don’t understand this need of so many people to have a single federal central bank with top-down dictatorial authority. Unfortunately, despite the history of the Fed’s distortions of prices, its devaluing of the currency, and its causing so much unemployment, people still seem to be blind to the extreme moral hazard of this kind of central planning, with such an authority controlling interest rates (rather than the free market controlling interest rates), combined with the Fed’s counterfeiting money-printing privilege and the legal tender laws that force all Americans to use the single government-issued currency.
Besides the inherent inability of central bankers to control inflation and positively affect the employment in a country of 300 million people, like any other government institution — and yes, the Fed is a government institution — the federal government central bank just can’t be trusted with that kind of power and authority. Like the “insider trading” that Congressmen get away with, the current and former government employees of the nation’s central bank have also enriched themselves from their share of “insider trading.” Central banks are inherently corrupt.
There is an inherent moral hazard involved when the State has control over the people’s wealth, money and property. The State itself is an institution of monopoly and compulsion, in which agents of the State have the artificial authority to be above the law, that is, when its agents are given any kind of monopolistic authority that non-State agents are not allowed to have, are permitted to act aggressively against others, to take property by force, or to compel individuals to do certain things that they otherwise would not do were they not compelled to do so.
For example, where is the State’s moral authority to compel all Americans to use only the one government-issued currency? As part of the people’s inalienable rights to life, liberty and pursuit of happiness, they inherently have a right to use whatever they want as a medium of exchange in their daily trades and commerce. And who are a government and its agents to seize the people’s valuable assets away from them, such as when FDR stole the gold away from the people, and when Nixon “closed the gold window“? (No, we are NOT all Keynesians, now, you imbecile, Nixon!) Besides being incredibly corrupt, like most politicians, Nixon was also incredibly incompetent and ignorant — like most politicians.)
One final note: Among all the various quotes that Washington’s Blog provided in that post was one by Thomas Jefferson, except that Washington uses the word “Government” when the word in that quote is “people.” Washington Blog’s incorrect quoting of Jefferson:
I believe that banking institutions are more dangerous to our liberties than standing armies…The issuing power should be taken from the banks and restored to the Government, to whom it properly belongs.
Whereas, the actual quote is:
I believe that banking institutions are more dangerous to our liberties than standing armies…The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
I hope Washington corrects that. It’s a huge difference.