After so many years of looking at this, there is a picture that is finally emerging in my mind that ties together some of the things I struggled to understand.
The history of humanity is punctuated by well defined turning points that have implications that last through the years. Martin Luther’s Ninety-five Theses, Magna Carta, The Battle of Marathon or The Declaration of Independence come to mind.
The establishment of the Federal Reserve in 1913, is one such event.
Even apologists of the concept of a central bank agree that the role of the Federal Reserve was quickly subverted by politics. The excuse was WWI.
Thus the concept of elastic money in the hands of an entity that was created, specifically, as an independent, legitimate economic tool, designed to backstop and provide liquidity exclusively to banks during crisis, quickly became a political tool by acts of congress and was re-directed to buy government bonds.
Apologists of the concept claim that the Federal Reserve was powerless to resist congress and is therefore not their fault that they were redirected to become a political tool. From where I am standing however, as the ultimate providers of finance, the creators of the Federal Reserve did not need much convincing to bankroll government. The benefits are evident and appetizing.
That was no gun-to-the-head situation.
(Somewhat tangentially, I seem to be unable to find who were the first banks to become members of the Federal Reserve. Ordinarily, I would have thought this to be an inconsequential matter. The fact that the names of the first members is not readily available in the public domain however, gives me pause. What we do know is that the structure of the Federal Reserve was planned at a meeting that was held in 1910, in secret, by the great and the good of finance, on Jakyll Island, to hash out the structure of what eventually became the Federal Reserve)
Private money financing politics at federal level was the genesis of the modern debt based monetary system. The arithmetical reality of debt based money manifested very quickly however. By 1929 the USA fell victim to yet another banking crisis that this time engulfed the entire world. The fallout persisted for many years wreaking havoc on many globally whilst, simultaneously, concentrating wealth in the hands of a few. You will not be surprised to find out that by appealing to their patriotism, many were divested of their wealth by government mandate. This was the confiscation of gold of 1933. No prizes for guessing where this gold went.
Due to a sequence of world events that may have been fortuitous, over the following half century the then nascent Western hegemon gradually subsumed the monetary systems of other countries.
Debt based money is the ultimate pyramid scheme. Very lucrative for a few, devastating for the many, especially for those that get in last.
Zimbabwe’s Mugabe too attempted to create his own debt based currency. He quickly found out.
Successful pyramid schemes are predicated on expanding the base of contributors by enticing new victims with promises of riches. Although there is no arithmetical difference between Mugabe’s monetary system and the monetary system instituted by the Federal Reserve, what helped the US monetary system to survive was the size of the base. Mugabe could not get neighboring countries to adopt his currency and so the pyramid collapsed quickly and repeatedly. In contrast, after the first implosion in 1929 and despite a number of other crisis that are inevitable when handling debt, the monetary system instituted by the Federal Reserve gradually subsumed the economies and monetary systems of other countries thereby pushing back in time the inevitable implosion.
Proponents of the central bank construct will point out the recurrent failure of banks that prior to the creation of the Federal Reserve resulted in many individuals losing money.
In contrast, my point of view is that we substituted the occasional failure of banks where some individuals lost money, for a construct that divests all, systematically, over a longer period of time by inducing society to become dependent on bankrupt governments.
One of the clearest examples of this reality is the pension boondoggle that we looked at in a previous post. In terms of expanding the base of the pyramid, the pension fraud was a doozy.
By 1971, throughout the West, we found ourselves under the rule of “liberal” democracies and mandated by law to make use of a specific currency.
In contrast to the people living under Soviet rule, Westerners had freedom of movement, freedom of association and the freedom to live their lives as they saw fit.
All theses freedoms however, were subject to making use of the currency sanctioned by the state.
Few took the time to understand the implications of what had been put in place for the people of the free West. The imposition of a debt based monetary system happened without debate or consultation.
European governments had been struggling for money since forever. By the end of WWII, Europe was still largely an agrarian society. The game of politics profited little to the politicians. The Marshal Plan radically changed the fortunes of both, politicians and the security apparatus. It was the first inkling of the riches that could be had by individuals in position of influence that would toe the line dictated by shady people who ostensibly act on behalf of a government but, really, are agents of private finance.
How’d you like them apples!
The abrogation of Bretton Woods in 1971 signalled the all clear for private finance to become the driving force in the democratic West. From that point onwards government social policy is merely the vehicle that enables the expansion of the base of the pyramid. Social security, pensions, affordable housing schemes, the artificial manipulation of interest rates, health care… all unsustainable boondoggles designed to lure in punters in a race to the bottom whilst enabling the concentration of wealth thus the rise of individuals peddling rather personal agendas.
So, a debt based economic system divests the many of their wealth and their ability to make a living whilst, at the same time, government’s social policy makes them dependent on a bankrupt government and ensures that more contributors are brought in to expand the base of the pyramid.
Along the way, the stratagems to keep the system in place must arithmetically become ever more authoritarian thus more aggressive and hence more blatant, divisive and destructive.
Which brings into focus a number of other things I have struggled to understand over the years.
SAUDI ARABIA
to be continued….