As the President and Congress express interest in avoiding the Fiscal Cliff I am struck by the narrow field of options being considered; the predictable barrier between what would otherwise be thought of inspired or ingenious and the irreconcilable desire to preserve the structured chaos of a political and economic policy spectrum that is as stale as it is seriously and supremely biased toward imbalance.
There are many areas of our political and economic system that require restructuring but none more important than the national financial system; more specifically the Banking System. To understand the role of Banking in its present form is to position oneself within the very mechanism(s) which make the Central Banking System mathematically unsustainable and a theoretical dead-end and.
There is much to discuss on the subject of banking and for a greater more in-depth discussion I recommend reading one of my books, Value Given, Value Received; for now I will simply confine the subject to a single component/solution which focuses on the effects of interest costs and the role this single factor plays in matters of economic and fiscal disciplines. To that end and as an integral component of this discussion we will need to draw a clear distinction between Public and Private Banking; the function of Public Banking relates to national fiscal and economic concerns specifically as it relates to the creation and maintenance of currency, bullion stores, public debt and public sponsored development, government fiscal policy (budget/spending) and regulatory policy of Private Banking concerns; Private Banking refers specifically to the functions, practices and economy of Finance which serves private interests and must always be subordinate to Public Banking Policy.
The Pirate Subsidy:
At the heart of the current Banking System is the parasitic feature of interest; every financial function bears the effects of yield, rates of return and/or margins (yield-spreads); each of these, and the myriad of financial instruments the memorialize the process, revolve around the charge of interest costs or accumulation and their parasitic effect.
The U.S. has long battled with this distinction of Public vs. Private Banking and though the Founders specifically addressed the issue of currency within the Constitution and affirmed the creation of the Treasury they stopped short of actually defining the absolute parameters within which the National (Public) Banking System would operate the result of which created a perpetual contest with Private Banking Concerns vying for control of the National Banking System. The entire affair was, unfortunately, resolved with the passage of the Federal Reserve Act of 1913 which created the privately owned Central Banking System we have today.
In short, the Federal Reserve System (FRS) creates currency (liquidity) by acquiring various Debt Instruments the most common of which are U.S. Treasuries; oddly enough the funds the FRS pays/distributes for these Instruments it simply prints, literally. Likewise all of the U.S. Financial System currency demands originate from the FRS in much the same way. From this one should conclude that the FRS exists to feed the Financial System with liquidity so that it can maintain profitability and be a ready source for providing funding the purchase of Government (Federal, State & Municipalities) debt; all of which is attached with the implicit Pirate Subsidy of interest. The entire charade, on its own, creates a factor of irreconcilability that single handedly is the cause of the great economic calamities that many falsely assert as a by-product of Capitalism; the boom and bust economic cycles.
To illustrate the point let me offer a few examples:
- A Home Mortgage: Over the life of a 30 year fixed-rate mortgage, applying a rate of interest of 5%, for every $100,000 borrowed you will pay an additional $93,000 in interest.
- Consumer Costs: From property, sales, income and use/excise taxes to the price of an iPad or an automobile the costs associated with interest paid for government bonds/debt on down to the purchase of raw material(s) it is estimated (Federal Reserve-New York) that “…between 35-40% of a Consumers annual costs are in some way attributed to varies interest costs.” This represents quite a sizable chunk of the U.S. GDP going to benefit the Banks & Financiers.
- Federal Debt: In 2011 the Federal Government paid $454 Billion in interest charges relating to the Federal Debt while, in the same year, receiving $1.15 Trillion in Personal Income Tax revenues. 40% of your tax dollars in debt-service!
- State Debt: By the end of 2010 the State of California reported $158 Billion in total Revenue and General Obligation Bonds (the States Total Debt, excluding Unfunded Mandates of $958 Billion, is $358 Billion); $70 Billion, or 44%, is owed/attributed to interest costs.
- Interest-Rates Swaps: A type of derivative contract claimed to hedge interest rate volatility when in fact these simply create profitable margins (yield-spreads) for Banks and represent a purely synthetic financial instruments (they are backed by nothing) represent 82% of the total derivative market. The top-4 U.S. Banks (JPM, Citi, BOA and Goldman Sachs) control 96% of the global derivative market which, in notional value, represents a massive $342 Trillion Interest-Rate Swap exposure. In 2011, JP Morgan reported $1.Billion in trading of Interest-Rate Swaps.
Think of the mass-consumption of wealth occurring from interest costs alone!
Piracy of Wealth:
From these few examples it is quite easy to understand why wealth-transference occurs as it does. Yes, the rich do get richer while the rest of us get poorer but not for the reasons you might have initially thought; one has only to latch on to the Private Banking System and stick out a net or as Jeffrey Immelt (CEO of GE) managed; have a friend in the White House orders the coffers of the FRS open to your wholly owned financial institution, GE Capital. Piracy of Wealth has nothing to do with capitalism as a stand-alone process of productive capacity or output; as you can see from this presentation productive capacity or output has nothing to do with it as, quite literally, thievery is an implicit component of our National Banking/Financial System which why I refer to it as the Pirate Subsidy.
“Many have come to view the boom & bust economic cycle as a function of free-market excess; it is not. Other will comment that ‘deregulation’ of the financial services industry is partly to blame; it would be true were it not the case that what many think of as ‘deregulation’ is actually systemic licensing through the legislative process and ‘regulation’ has only served to consolidate the Financial System’s ability to self-regulate; the recent Dodd-Frank Bill is a classic example.”
C. Greco-Value Given, Value Received
Take it Public:
The answer to all of this is quite simple; take it Public. We should want to structure the National Fiscal/Monetary Policy around a very basic principle: promoting a highest and best function of Public Funding for both the Public Functions/Uses and the Private Economy. The approach doesn’t mean, necessarily, the end of interest as a component of the financial economy instead what aims to accomplish is to remove the parasitic effects imbedded in the current system. A few of the strength and advantage of this approach appears in several key advantages:
1. By developing a Universal Bank Model (UBM), a sort of plug’n play Bank Structure (think of it as a franchise), the Fed & State governments would retain their revenues in their own UBM in lieu of drafting their funds to private banks.
2. By acting as an autonomous UBM funding demands would avoid the predatory financial system were huge fees are charged for the issuance, rating and funding of Bond sales.
3. The UBM avoids the manipulation of interest rates under the banner of market risk or absorption limitations. This advantage alone will save billions of dollars in market premiums which often accompany financial institutions role in the capacity of an underwriter or market-maker.
4. On the Federal level: By taking control of the Fiscal/Monetary Policy function the present bias, which favors the massive Banks and Financial Services concerns, will be removed and tender these private enterprises to the torsional economic forces of the private market-based economy where the want of profitability will require discipline and risk-adverse features voiding the temptation toward speculative high-risk ventures and there destructive burdens.
5. The UBM affords the ability of the Government (Fed or State) to be instrumental in stimulating the economy by freeing wealth that would otherwise be consumed by excessive interest costs. An example of this would be a UBM sponsored Home Loan Program that integrates a homeowners personal savings program into an interest bearing account one which when combine with restructuring the mortgage interest accrual method would nearly neutralize the mortgage cost component of home ownership.
6. Perhaps the greatest benefit of all is that the profits of the UBM will be retained by the individual entity and be used to offset the uncontrolled growth of tax revenues which, as we know, have been integral to the destruction of the private wealth-creating economy. In essence what the UBM accomplishes is to convert what is presently a systemic cost into a Public Benefit.
Think of it; nearly $2.3 Trillion in annual public and consumer debt-costs potentially redirected to Public use with potentially 35% of it completely eliminated. An idea whose time has come?
Clearly reformulating the Nation’s Banking System is a need whose time has long been in the hunt for a solution and this is a remarkably simple, easily duplicated and efficient approach however it one that will require a significant force of will to affect a change. I assure you that any promise of preventing or curing the inevitable Fiscal Cliff that excludes addressing the key flaw in the present Pirate Subsidy system will only insure that the Cliff will appear again and again and each time that it does 80-plus percent of American Household’s Wealth will be wiped out.
Obviously it should come as no surprise that this idea is an option that is not being considered at any level and for one very good reason; Politicians feed off of the money the current system promises and the current system requires willing Politicians who are eager to preserve their ability to continue the current process; one which has been licensed to accumulate, on the shoulders of the American People, massive amounts of wealth for doing and producing absolutely nothing.
It will take you and your influence to end the current and corrupt regime of thought that continues to wage war against your personal wealth creating abilities and your freedom to engage in its processes. Whatever the outcome, never let it be said that alternatives to the regime of failure do not exist; they do.
Curtis C. Greco, Founder