Central Banks – Financial Eco Cancer, Pt. 1
Central Banking is something very commonplace in today’s society. In fact, if you’re only transacting and paying taxes you might not even give a thought to what the involvement of a Central Bank means for you or your hard-earned money. To get at the root of what Central Banks impose on We The People, let’s first address what money is, what a fiat currency is, and what fractional reserve lending is. These are roots of the Central Bank tree.
Money is a tool that serves as a medium of exchange in transactions. It is what most people trade time, energy and intellectual thought for. Money is meant to act as a unit of account, a store of value, and a medium of exchange. The first two are nonessential properties that follow from the third. In fact, other goods are often better than money at being intertemporal stores of value, since most monies degrade in value over time through inflation or the overthrow of governments.
In this five-part series, we intend to cover from the bottom to top what Central Banks are and how they work. We’ll address the highlights and end the series with a solid set of references for you to dig deeper on your own. When we cover the highlights, please realize that there is much more to this topic. Men and women all across the world have written volumes and dedicated their lives to the subject matter at hand. This should get you started in the right direction and at least lend a 30,000 foot view of the big picture.
Central Banking is a conundrum. It is intertwined throughout humanity’s history as it has been lived, told, repeated, taught, forgotten and revisited.
A Central Bank is a national bank that provides financial and banking services for its own national government and commercial banking system. The CB, as we’ll abbreviate, also implements monetary policy and serves to issue currency. For all educational intents and purposes, it is easy to reference the Federal Reserve, the Central Bank of the United States. This entity, riddled with folly, is an excellent case study in the difference between sovereignty and central power. The Federal Reserve is anything but federal. It is a private bank, and intended to remain independent of political interference. Because all politics is money, this is an actuality that is difficult to achieve.
The Constitution specifically grants the power to create and coin money and to regulate its value. Referencing Section 10, states do not reserve the right to coin or print their own money. The framers of the Constitution intended to create a national monetary system based on coin (originally gold-backed upon inception), as well as for the power to print residing with federal government. The delegates to the Constitutional Convention rejected granting Congress the power and authority to issue paper (fiat) money. They also denied the paper money printing to the federal government. As times changed, the case of McCulloch vs Maryland in 1819 ruled that the Second Bank of the United States and its bank notes issued on behalf of the federal government were, in fact, constitutional. This trickled down over time to the state level, exposing how easy it had become to issue “good faith” notes far in excess of deposits. Does that sound eerily familiar?
The Central Bank of the US has its roots openly exposed in a most profound and fundamental literary work by G. Edward Griffin entitled The Creature from Jekyll Island. Crypto educator Jimmy Song reviewed the book in January, 2019 and summed it up well by stating, “That is how mafia works”.1 Highest recommendations should propel you, dear reader, to pick up this book. It will open your eyes!
But WHO is in charge of Central Banks?
When money lent or printed exceeds deposits (it is astonishing how much of this goes on in all central banks worldwide), customers eventually want to redeem the notes or digits in a bank account for actual currency; purchase power if you will. This is what is referred to as fractional reserve lending. A bank only keeps a fraction of cash assets on hand versus what they might lend out. If that fraction becomes too spall (specie/banknote ratio) then even a small unexpected draw on cash reserves can create a run on the bank. This ultimately leaves the remaining depositors empty-handed when they try to withdraw their own share. Does it make perfect since, then, why we have almost gone fully to digital and online banking? Populating digits is much faster than awaiting the printing press. The general public suffers for the pitfalls of fractional reserve lending by devaluation. Dollar devaluation can mimic inflation at some level, but it is much more dangerous and more of a runaway problem.
This brings up an interesting point as it pertains to the New Money System and the Digital industrial Revolution. If we fail to ensure proper control and decentralization of cryptocurrency, we could easily revisit the era of Central Bank creation, fractional reserve lending, consolidation of wealth and centralization of control over interest, yield and supply. If we are to create a free banking system without a single pinnacle currency to peg all other crypto assets to (enter Bitcoin), a means by which to create price discovery and valuation, the digital currency market would be overtly difficult to regulate and incite a much greater risk to consumers and merchants. Moreover, without sloughing off the old way of doing things, we would see the same takeover of a New Money system just as in eons past.
Our Founding Fathers did warn us!
Thomas Sowell believes that the Federal Reserve (CB) is a cancer. He says “For most of the history of the country there was no central bank. The Creature from Jekyll Island was created in 1913, long after early settlement and the Declaration of Independence in 1776. In his words, he would ‘dismantle the central banks – banks which were supposed to prevent huge fluctuations in the money supply.’
The Mises Institute reminds us that JP Morgan locked central bankers in a room and those who emerged were in disbelief at the power of centralization, the ability of one man to dictate monetary policy. That was in an era in which inflation was actually perpetrated by the FED. [They] bought up bonds created by the treasury. This alone caused deflation and large swings in the money supply. It is also the very reason that today, in 2019, we have the greatest dissolution of the Middle Class in our history as a Nation. Who is to blame? Paul Volker? Janet Yellen? Jerome Powell? Perhaps the above image of Central Banks and their Helm Masters is a handy reference.
According to Ron Paul and FreedomWorks, the Central Bank is now fully out of control. [They] have been unchecked for far too long on money printing, originally intended even in the early 1900s to be a contingency of last resort in the event of a war. The Federal Reserve has far too much power after 116 years to control the national economy. The engine of every economy is money-driven. Now, the Fed is permitted to print endless currency out of nothing with no restrictions. This is noticeable in the extension of credit now for nearly everyone. Due to the law of supply and demand, this endless printing has completely devalued the Dollar.
Because of endless printing, the poor and middle class suffer most. The rich get richer. The Central Banks increase the supply of credit and money infinitely and this is falsely masked as the rise in the price of goods and services. Average home prices across the board are at record highs, basic necessities are obviously inflated, but what this truly represents is the abject devaluation of the dollar. This is a very direct consequence and correlation. Why do the poor suffer greatest? Their simple lack of disposable income. Lower incomes are at greater risk of becoming irrelevant at a much faster pace than mid-range or high incomes.
An astounding fact is that not a single member of the Federal Reserve Board of Governors is duly elected. They do not in any way represent the interest of the American people, but rather, their Central Bank bosses. Currently, these folks in office are shown with their political affiliation in tow. Seems odd, doesn’t it?2
Jerome Powell, Chairman of the Federal Reserve
Richard Clarida, Vice Chairman
Randal Quarles, Vice Chairman for Supervision
Nominee by POTUS Trump, not seated, Marvin Goodfriend
Nominee by POTUS Trump, not seated, Nellie Liang
Since they are not representative of the People, the Federal Reserve is unaccountable. To boot, they have resulted in an unstable economy. We have never seen the stock market at soaring heights as we do today. Instead of healthy and relatively predictable Austrian ebb and flow of the markets, we now experience endless Keynesian boom and bust cycles. The booms consist of a barrage of low interest rates that harm savers and devalue purchase power of spenders by cranking up the printing presses. The lower interest rate is supposed to aid in creating an endless supply of money to inject into the economy. But as previously addressed, this simply sends misleading economic signals and triggers poorer individuals to spend without realizing any gains, without commensurate wage increase or improved valuation of their assets.
Low cost of credit also encourages CEOs to expand production and hiring rather than eliminating debts. The expansion, like a beach ball, cannot remain hidden. It eventually explodes above a sustainable level, busts the cycle and we experience massive wastes in capitol which then actually do effectively raise the cost of living since consumers must have those realized losses passed on to them. This cycle perpetuates with credit shrinkage and less stimulus while folks and business have enjoyed expanding debt but must focus on repayment of that debt. Spending stagnates, then diminishes, layoffs ensue and the conundrum begins again. Evidently, this serves those at the absolute top of the financial food chain in that they are the only benefactors and are able to continually acquire much of the holdings and assets or properties of all the middle and lower class individuals. This yo-yo bubble economic theory does nobody any good.
The Central Banks of the world are very secretive with only inklings of events leaking from the IMF and a few top Central Bankers. They know too well that loose lips sink ships. Currently, they are steering the Titanic and Lusitania, metaphorically speaking. The Federal Reserve is actually unconstitutional, but this is a point of contention among many. While Congress does have the authority to issue money, they do not have the power to create a Central Bank. This is not an explicitly granted power. Constitutional scholars agree, disagree and often manage to do both.
Behind the scenes, the Federal Reserve bails out Central Banks. But to firmly grasp that, please go read The Creature from Jekyll Island! JP Morgan was an original perpetrator of this system. In fact, the bailouts do not always even wind up in domestic hands. After the 2008 Financial Crisis, the banks receiving greatest settlements and write-offs were HSBC, Brussels Dexia SA, Depfa Bank of Dublin, the PBOC (Peoples’ Central Bank of China) and Arab Bank Corp.
You will never find that out just glancing at the 2011 GAO loose audit of the Federal Reserve.
We are now witnessing something unfathomable in the United States and globally due to the interconnectedness of central banks. It is as if the economies of the world are drunk with credit. They have no hiccups, but keep printing, ordering more, lowering rates, eyeing negative interest rates, discouraging saving, hammering wealth into the upper echelon and starving out the middle class while the poor have only been crippled by destitution. There is an explosion in homelessness, a demand for higher wages, shortening of work days, reduction of hours and benefits. Student loan, subprime housing, subprime auto loans and an overwhelmingly drastic uptick in extension of credit lines to anyone with a pulse are just some of the schematics. It seems the party will never stop. Stay tuned to this blog for part 2, however. We’ll be exploring much more aggressively what is happening to purchase power, debt, and what happens if the party ever does come to screeching halt. The inevitability is a New Money System, but we must be very careful and very diligent, not just actively involved and engaged!