TIMF E-Op No: 5 – Banking’s Hidden Cost

The industry of Banking has been around, in one form or another, since mankind took a liking to the merchant trade. Merchants, in ancient times, quickly realized that they could enhance their economic standing by generating additional income from their stored (banked) profits by making loans to farmers or traders whose business was to bring goods from distant lands. The critical point to remember, as we move forward, is that these early Merchant Bankers used their own profits to make loans. 

Now to be fare this exercise is a most elementary approach to the subject of Banking and by no means an exhaustive inquiry; I will refer you to one of my books for that; Value Given, Value Received for a much broader perspective. 

As time went by City-States and Nations began to take shape while the elements we now associate with contemporary Banking developed and evolved along with them. Gold had long been a form of portable and exchangeable wealth however as Europe developed gold, as a more common medium of exchanging portable stored-value, became more prevalent and the function of the goldsmith took on an entirely new meaning.
(The use of gold, in the form of a coin, can be traced back to around 600 BC in Lydia; now present day Turkey.)

With the advent of Gold as a medium of exchange (Specie) its origins were limited only by development of trade routes; travelers from the broad terrain of the Middle and Far East, Spain, Portugal and so on all of which made it quite easy for merchants to accumulate vast stores of gold while, conversely, Monarchs (of any given Nation) were limited to either the coinage they were able to “mint” from their own stores accumulated from their own conquests. From the likes of the Medici and centuries later the Rothschild Family, the former whose wealth was created from the textile trade and the latter being goldsmiths, the business of Banking began to take on a much more politically influential feature as their stores of wealth were made available to a very influential and always hungry customer: Governments; a very dangerous combination where gold is exchanged for influence. It is interesting to note that as the Private Banking Interests and wealth increased they also discovered the ability manipulate the value of exchange by controlling the exchange-value of currencies (or their value by weight) and the interest charged for loans they provided; an early form of derivative trading, commodity and currency speculation. 

Influence = Profit; Profit = More Influence: 

The battle for control of government, by way of various Banking models, was not limited to Europe; from the dawn of America’s quest for independence the bifurcation of Monetary Policy followed right with it. From the early days of the emancipated 13 Colonies, thru the War of 1812 – financed by both the Bank of England (at that time privately owned by the “Crown”) and both French and German Banks – and the Civil War it wasn’t until December of 1913 and the passage of the Federal Reserve Act that the battle for control of the U.S. Treasury was ultimately decided. This Act not only transferred control of monetary policy to a privately held bank it also collateralized the entire economic capacity of the U.S., including its sovereign gold and silver reserves, in favor of the  Federal Reserve Bank. By 1933 the Federal Reserve removed all Gold Certificates from circulation; Silver Certificates were removed in 1964 and with it the age of Fiat Currency-based Monetary Policy was now the new norm however Foreign Settlements in gold-bullion did continue until 1971 when Richard Nixon suspended the practice and with it any hope for structured fiscal discipline.  

Fiat Currency: 

Fiat Currency’s value is based simply on the presumption of stored valued and this presumed value is exhibited by the Notes notional value (the amount printed on its face) and so long a substantive value, some quantifiable commodity as an underlying support of the Note presumed value, persists there is no structural flaw in the model. An example of the most appropriate form of substantive value would be the durable output of an economy however the output must be tradable and ideally fungible (a physical commodity); an economy built on government spending funded either by debt-funded spending and/or taxation, financial transactions and consumer spending capacity is not a measurable component of substantive value; in reality these defeat the process. Gold, on practical terms, is actually not a particularly good medium; its weight makes it less than portable particularly for large transactions, its increased use as a raw material in electronics and a host of other applications makes controlling its unit value difficult at best and think of what would happen if gold was used as a coin; think of the trade that would develop around the melting-down of a Country’s currency. More on the discussion of currency-support some other time. 

Summary of U.S. Fiat Monetary Policy: 

The Global Banking Policy, since World War II, has been to duplicate the Fiat Monetary System across the planet and tie the entire regime into a master financial management system administered by the Bank of International Settlement (BIS) located in Basel, Switzerland; it is the Bank of Central Banks and this includes the Federal Reserve. The BIS is privately owned and though its ownership has been a closely guarded secret it is important to note that at the close of WW II President Truman had ordered it shuttered however the influence of key New York and British Financial Interests changed his mind. From this simple prelude it is easy to identify its ownership and to accept that the march to global economic predation has been a calculated process for quite some time. What should be made clear to all Americans is that the Global Banking Regime operates completely without regard to boarders and national deference; this is one of the truths behind the “too big to fail” notion after all when your influence includes 435 members of Congress and 1600 Pennsylvania Avenue, the Banking System clearly has no robust objection to its rule. 

Here are a few problems that have developed as a result of the Central Bank Theology: 

  • Government access to ready funding (by the FED) has contributed to exploding budgets under the false belief that “we are simply lending to ourselves.”  If that were the case then why call it debt?
  • The Banking System/Financial Markets ready access to the FED funding source has now made investing in productive capacity (domestic) incongruent with the speculative routines that define contemporary Banking and Global Financial Markets.
  • An extension of the former comment is equally relevant: Banks no longer have to be fiscally sustainable in the function of disciplined financial stewardship for one very simple reason: the Federal Reserve, in effect, guarantees their profitability by leveraging the Government’s power to tax and legislate as durable collateral.
  • The Fiat Monetary Policy, i.e., the ability of the FED to, quite literally, create money by simply executing an electronic transfer has made it extremely profitable for Banks to fund speculative development around the globe.  Remember; the Global Banking Routine has no national boundaries or national allegiance.
  • With the wholesale liquidation of the U.S. Economic Capacity the Federal Government has attempted to replace the economic output by ever greater spending and by attempting to administer economic activity the result of which has been to hyper-accelerate both the further loss of economic capacity and increase the financial burden to the U.S. Taxpayer thru its unchecked debt-funded spending routines.  And lastly, for now,
  • Imbedded in the system, as it has become, is the mathematical impossibility of Fiat Monetary Policy out of control: (1) The growth of Debt is unstoppable and this is due to the accrual of interest which causes the overall debt-load to increases at an exponential rate. (2) Because of this exponential growth factor the Government must continuously increase its borrowing and increase tax collections on American Households; due to Trade Agreements the Government is not able to touch Multi-National Corporate America. (3) To meet the growth of Government demands for borrowing and debt-servicing demands the FED must print more money which serves to obligate the Government to even more debt. (4) To keep Banks profitable (remember, their “too big to fail”) the FED must continue to fund the liquidity demands of the Banks and Financial Markets; the Fed, here to, achieves this by simply executing an electronic transfer.  And, (5) The effects of all this perpetual paper-hanging is to reduce the purchasing power of your money which you experience as higher prices at the grocery story, at your local department store and in your energy costs; also known as hyper-inflation.  

Now then if you had your own printing-press and could force upon others the use of your own currency you clearly wouldn’t care; since you don’t, you should. 

From the perspective of the Global Banking Regime none of this is a problem because so long as Nations submit to the Central Bank Theology they will always be at the top of the food chain; always. Prices rise, prices fall; debt’s accumulated, debt’s written off but what remains despite the ever present boom & bust cycle is the purest form of wealth; the power to simultaneously print money and control monetary policy. 

The Solution: 

Monetary Policy is to an Economy as Oxygen is to the Human Body and for this reason the solution is not as simple as, say, returning to the Gold Standard.  The truth of the matter is the solution is quite simple however it will require a top-down-bottom-up abandonment of numerous structural defects that have become systemic starting with: 

  1. The Government’s ability to borrow,
  2. Containing the function of Banking to the specifics of its organic discipline, and
  3. The unchecked influence of Global Banking and its effect on domestic policy.

Government (Federal & State) borrowing (including debt-service), in one form or another, make up for nearly 21% of the U.S. GDP. The Federal Reserve’s support of the U.S. Banking and Financial System, since 2008, has exposed the Federal Government (and you the Taxpayer) to additional financial risk nearing $13.7 Trillion and this is on top of the stated Federal and State Debt.  Further, and not included in the previous numbers, is the Federal Reserve and the U.S. Governments tolerance for blatant speculation to such a degree that the top five U.S. Banks alone are now exposed to $291 Trillion (that we know of) in derivatives contracts with no hope of redemption. From our own calculations from 2000 to 2009 one can attribute, on average, no less than a 5.72% rate of inflation directly attributed to the speculative abuses of the U.S. Banking and Financial System and this number is calculated by the annual growth in money supply in excess of actual GDP real output; if I were to work the numbers with a far more deliberate intent it is likely that this rate is higher by perhaps as much as  26%.   

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.  

So you see, Entitlement Spending is not just limited to Food Stamp Recipients, Social Security, Medicaid and Medicare Benefits; the greatest single Entitlement Beneficiary of all is the U.S. Congress, the Office of the President and above these two is the most pervasive scourge of all: the U.S. Banking and Financial Services System.  

A solution must include the following items: 

  • Prohibit Government (Federal & State) Debt-Funded Spending.
  • Restore the disciplined function of Banking and increase reserve requirements.
  • Remove the ability of the Federal Reserve to Act as an Agent of the U.S. Government.
  • Remove the Federal Reserves “collateral” mandates against the Federal Government.
  • Remove the ability of the Federal Reserve to self-appoint access to its funding mechanisms.
  • Prohibit the Federal Reserve’s taking of “positions” in Foreign Debt.
  • Consolidate the Federal Reserve with the U.S. Treasury and eliminate Private Ownership of the U.S. Monetary System.
  • Attach Money Supply Metrics to the Productive Capacity of the U.S. Economy.
  • Reclaim all Gold & Silver Bullion rights and standardize a yearly Bullion Acquisition Strategy for both equal to the annual growth in the U.S. Economy’s Productive Output and Money Supply.  

It is, without question, a supreme form of systematic lunacy to have expected the U.S. Economy to survive these abuses; moreover, for every President and Congress since 1913, to have allowed these abuses to survive should be considered an impeachable offense. 

Yes of course this is a tall-task but did you really expect that 90 years-worth of abuses would not serve-up a no less equal price? Until the cause is cured, the punishment will continue; indefinitely.  

Curtis Greco, Founder

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