Most people don’t really understand the truth behind our banking system because it is not taught in our schools, not even to financial professionals. Interestingly, the inconvenient story is omitted from all educational curricula. I got a bachelor’s degree in finance and there was one thing I was never taught about the origins of our banking system that I think is key to the state of our banking system and our economy today. It is the fact that it was created under the protection of legislation that was supposed to protect the economy and stabilize it. That is the primary mission of the Federal Reserve Bank. However, the real motivation was to protect bank owners from competition and create a cartel.
I was also created to start a franchise that could print fiat currency. A fiat currency is one that has no basis of value except for the good faith of the government to pay its debts. It means that if more money is needed in the economy, the bank just creates it. This central bank could also take control of all the reserves of all banks to protect the most sagging and least banks from runs at the expense of the conservatives, and gain access to taxpayers’ money when the bank is in trouble. Meanwhile, the Federal Reserve Act of 1913 was sold as a law that would protect the public. In terms of stabilizing the economy, the Federal Reserve Bank has failed miserably. In terms of reaching your true and hidden goals, you have been extremely successful.
People believe that the financial crisis is a mystery. But all of the financial crises we’ve had since the Federal Reserve Banking System came into being have been debt-related. Under the current system, debt is used to create new money or to reduce the money supply (by paying off debt) to try to control the economy and supposedly stabilize it. In reality, since the loans were made with money created from scratch, the bank loses very little money. It’s money you never had in the first place. Technically, a retail bank with too many bad loans becomes insolvent, so the game is to roll over bad loans to larger ones and create more money and give borrowers more money to keep paying interest. There is also insurance that backs the loans, so the government will pay off bad loans with taxpayers’ money. The Federal Reserve Bank has convinced the government that allowing the big banks to fail would create great difficulties in the economy, however it is the massive creation of debt that fuels this system that causes the great difficulties when the final cost of the bailouts goes to the government. in the form of inflation due to an excess supply of money created by excessive borrowing to cover bad loans.
There is a rich history of how the bank bailout system has spread around the world and led us to larger and larger central banks, like the Federal Reserve Bank. Every bankrupt central bank must be bailed out when it goes bankrupt due to overuse of debt to manage the currency. It is destined to succeed the Federal Reserve Bank if something is not done to correct our current course. When our central bank fails, individuals do their best to protect themselves by owning hard assets that rise in price with inflation so that the purchasing power of that wealth can be preserved. This is important to keep in mind as we watch the “2008 credit crisis” turn into the eventual cyclical recovery. Will our currency survive for another cycle? If so, we may be just one more step away from a new currency to start the inflation cycle again. Will the Federal Reserve Bank Survive? Will it expand or be absorbed by another central bank?
