In a fiat monetary system, the unit of exchange (currency or money) is debt owed to the creator of the currency.
In the case of the United States of America, once printed and delivered to the Treasury, a US$ bill represents a debt owed to the Federal Reserve by the Treasury. Ergo, each coin and each Dollar bill represent a debt owed by the people to the central bank.
In the fiat monetary construct, the Treasury then avails itself of banks called “Primary Dealers” to inject this money into the economy. By the way, do note in this regard that the Federal Reserve board is staffed by the directors of all the primary dealers.
Therefore in this construct, each unit of currency that leaves the premises of the Federal Reserve on its way to the Treasury is instantly devalued by the prevailing rate of interest.
It follows that every time a unit of currency moves from the Federal Reserve, to the Treasury, to the Primary Dealers and then onwards towards smaller and smaller banks, each unit of currency is instantly devalued at every step in the chain that eventually brings that coin into your pocket.
Thus, by the time a coin or a Dollar bill reaches you, it has been devalued several times during its voyage.
Hence the reason that in a fiat monetary system, the entities that are closest to the creator of the currency are the entities that gain the most from its use because they are the first users of the currency.
Thus the Primary Dealers are the entities that not only have the most to gain from the use of fiat money but they have a vested interest in pushing for excessive quantities of fiat money too.
And please try to remember that the Primary Dealers are directly involved in shaping and executing Federal Reserve policy.
The above being so, it follows that as economic crisis develops and profits disappear from the wider economy, profits concentrate in the finance sector and, as the crisis intensify, profits progressively concentrate towards the major banks ergo the Primary Dealers.
“Focus hard on this shocking Wall Street reality: The top six bank holding companies earned an aggregate of $51 billion in pretax income in 2009. We’re talking about JPMorgan Chase, Goldman Sachs, Bank of America, Morgan Stanley, Citigroup and Wells Fargo.
All of this pretax income can be attributed to their trading revenues of $59.7 billion. The proprietary trading operations of an oligopoly of banks, saved from disaster by Uncle Sam’s largesse and subsidized with cheap money from the central bank, was the single driving force behind the restoration of their fortunes and the renewed surge in their stock prices.”
No surprise here.