Most people don’t really understand the truth behind our banking system because it’s not taught in our schools, not even to financial professionals. Interestingly, the inconvenient story is omitted from all educational curricula. I got a business administration 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 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 the bank owners from competition and to 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 the banks to protect the most bankrupt banks from runs at the expense of the Conservatives, and have 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 his true and hidden goals, he has been extremely successful.
People believe that the financial crisis is something of a mystery. But every financial crisis we’ve had since the Federal Reserve Banking System was established has been related to debt. Under the current system, debt is used to create new money or reduce the money supply (paying off debt) in an attempt to control the economy and supposedly stabilize it. In reality, since the loans were made with money created out of thin air, 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 turn bad loans into bigger ones and create more money and give borrowers more money to continue paying interest. There is also insurance backing the loans, so the government will pay for 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 feeds this system that causes the great difficulties when the final cost of the Bailouts are passed on to the public in the form of inflation due to an excess supply of money created by excessive lending to cover bad loans.
There is a rich history of how the bank bailout system has spread around the world and led to ever bigger central banks like the Federal Reserve Bank. Every failed central bank must be rescued when it fails due to excessive use of debt to manage the currency. It is bound to happen to the Federal Reserve Bank if something is not done to correct our current course. When our central bank fails, the best thing people can do is 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 “credit crunch of 2008” play out into the eventual cyclical recovery. Will our currency survive another cycle? If so, we may only be one more step away from a new currency to start the cycle of inflation all over again. Will the Federal Reserve Bank survive? Will it expand or be absorbed by another central bank?