“It is not too much to say that governments are now superseded by financial institutions... the efforts of those in control of financial policy are, primarily, if not entirely, concerned with making the world safe for bankers, rather than making the world safe.... the world cannot be made safe without removing the banker, painlessly or otherwise, form the commanding position which he now occupies.”
C.H. Douglas, The Monopoly Of Credit, 1932
One overlooked reason for today’s bailout mess and economic-financial crisis stems from the private control of credit and money creation, as well as the more recent creation of unregulated, unbacked, quasi-money instruments called derivatives and credit swaps - also created for profit by the big bank owners of the Federal Reserve.
A private “Federal” Reserve and its big bank owners are the main culprits and the root cause in the creation of inflation and depression - via expansion and contraction of money supplies. The business cycle, and its magnified boom-bust periods, is then largely a creature of monetary policies geared to private interests, with little or no public interest imput. Who lends, to whom, for what purpose, at what cost, and who has a say in the process?
Private banks are in the business of creating debt-money and interest and fee income. There is no public interest per se in this process. In any case, for years before securitization emerged loans were more local and held by community-based lending institutions. As a consequence, more oversight and concern for these loans and their security were in play.
With the advent of securitization of bank loans, and their sale to pension funds and foreign investors, a process was created whereby the banks could continually exceed their traditional capital and fractional reserve requirements by selling loans to Wall Street. For this reason, banks became less concerned with the quality of loans given that they could be packaged and sold – often with bogus and bought credit ratings provided by Wall Street.
In this way lending expanded beyond reason and the quality of loans and their security continued to drop. This applied in spades to the home loan market, where securitization and implicit taxpayer guarantees made it possible for banks to get loans off their books and continue to make loans, fees, and interest beyond reasonable limits. Add to this all the utterly parasitic loans made to speculators, hedge funds, and vulture capitalists busy wreaking havoc in the economy.
What else could we expect in a thoroughly privatized process in an era of deregulation?
Also, the very process of debt-money involves the “magic” creation of loan money “out of thin air” via credits to customer accounts. At the same time, the total sum of interest which will become due is not created.
For this reason, private debt-money creation and interest-rate setting powers mean that, eventually, our assets flow to the big bank owners of the Fed as the economy cannot then generate enough profit to pay the interest costs. Debt then piles up and is either refinanced and loans extended (in perpetuity as with our goverment debt) or defaults begin to multiply and assets go back to the banks – in particular, those money center big banks who not only own the federal reserve but access its money at will.
Whither the public?
The absence of public interests in private money creation powers means, in this profit-seeking system, that lending and debt money creation continue until no more loans can be sold and banks retrench and a collapse follows. Exactly this dismal boom-bust depression dynamic, serving to exacerbate normal business cycles, is then built-in to the system as we know it. We can safely say, its the structure, stupid!
“This boom-bust economic cycle is totally unnecessary and is the fundamental cause of the inherent instability in our economy. It is due to too-rapid increases in the money supply due to deficit spending and then the multiplier effect of fractional reserve banking (described above) and to lenders greedy to take advantage of such a system that rewards lending with more and more interest revenue; followed by a too-rapid contraction of the money supply (such as we are experiencing now), necessary to combat the inflationary effects of the former phase, both the direct result of the Federal Reserve Act of 1913. We urgently need to reform this system that rewards greed and results in ever-increasing swings from boom-to-bust - destroying ordinary businesses and farms in the process. We need to repeal or fundamentally reform the Federal Reserve Act of 1913, and to replace it with a system that eliminates the ability of private banks to "create" and multiply money as loans.”
Patrick Carmack, The Money Masters
The real question is when, amidst these awful episodes in which the public is badly fleeced and made destitute, does the power of monetary policy shift to the public. When will the people regain the ownership of their central bank and monetary policy – if for nothing else then that being the price of today’s taxpayer bailout?