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A rock and a hard place -- Our money system in crisis: The Greece and Cyprus credit crises as prototypes

By       Message Paul Krumm     Permalink
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The problem

The current tug of war between Greece and the German (and more generally between European and American) bankers is a symptom of a structural problem in our money system that we must be aware of and take action on, preferably before a major breakdown that effects us here in the US as well.

It is as if we are on a road that is undermined by potential sink holes. All seems fine until all of sudden there are collapses here or there, because the foundations under the road system are full of holes. Spain, Ireland, Cyprus and Greece have been some of the recent sink holes.

Lets review these foundations. For those who have studied the structure of our money system, bear with me for a bit. For those who haven't studied our money system structure, the following is important to know.

Since 1973 when President Nixon floated the dollar from the price of gold, our money system has been nothing more than an accounting system. Our money is not, nor does it represent, 'stuff' in the usual sense. While a small amount of it is represented by paper dollars and coins, they are just place holders for numbers in the accounting system. The great majority of transactions are now electronic, with nothing physical changing hands.

What backs these numbers? The US code, Title 12 Banks and banking, chapter 16 FDIC (the Federal Deposit Insurance Corporation) Section 12 1825 (d) reads in part, "The full faith and credit of the United States is pledged to the payment of any obligation issued after August 9, 1989 by the Corporation (the FDIC)".

What exactly does this mean? A quote from William Seidman, former FDIC chairman, explains it in the following:

"My friends there is good news and bad news. The good news is that the full faith and credit of the FDIC and the US Government stands behind your money in the bank. But the bad news is that you, my fellow taxpayers, stand behind the US Government."

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In other words, if anything goes wrong, we the taxpayers take the hit, not whoever caused the problem.

So we had better be paying attention to those possible sink holes and do something about the foundations of the money system before it bites us in the back.

So how does this money accounting system work? How is our money created? It is created by borrowing. And who is it borrowed from? It is created out of nothing and then loaned out by the private banking system owned by the bankers, who create it by entering numbers in their computers. But our banking system is controlled by the Federal Reserve Bank, a part of the Federal Government, right? There is no Federal Reserve Bank. There is a Federal Reserve Board, and a group of regional Federal Reserve Banks.

While the Federal Reserve Board's seven members are appointed by the President, with consent of the Senate, it consists of economists and bankers who are a part of the social network of Economists and the revolving door between the big private banks and the government. So it is not the center of power in the Federal Reserve System. The power lies with the 12 regional Federal Reserve Banks, and their member banks.

The Regional Federal Reserve Banks are private institutions, a fact that has been affirmed in court. These Regional Banks are in turn owned by their member banks, the commercial banks, stock ownership being determined by the value of the capitalization of the member bank. This Federal Reserve Banking System controls the amount of money in circulation, as well as what it is created for, through its power to approve or not approve loans. (Remember, money is created through loans.)

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The Gorillas among the members of the regional Federal Reserve Banks are the Too Big to Fail New York banks that dominate the Federal Reserve Bank of New York. Among other things, these banks are the source of loans to the Federal Government (they are actually called bonds, but that is another name for a loan.)

Our banking/money system operates like a casino. In our banking casino, the Too Big to Fail New York banks are the House, our local banks are contract table operators, and ATMs are one armed bandits. All of us, whether we like it or not have to be customers of this casino in order to pay our taxes, and to earn money and buy things in the market. All of this is written into law via the charter of the Federal Reserve System, passed in 1913, which gives the private banking system a monopoly on creating money and managing our money supply.

The Federal Reserve Board authorizes the regional Federal Reserve Banks to create "high powered chips" better known as dollars (out of nothing) which local commercial banks have to buy and reinvest in their Regional Federal Reserve Bank. Local banks are allowed to create more chips (dollars) to loan to their customers, based on a multiplier which varies some according to the fiscal policies of the member bank, but is at least nine times the amount of reserves invested in their regional Federal Reserve Bank.

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I am a semi-retired self employed business owner who designs and builds instruments and machines. Obtained a BS in Sociology (with minors in Physics and Math) in the 1960's and became interested in studying the structural violence built into (more...)
 

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