Central Banks Lead a Monetary Cartel
Posted by Orrin Woodward on May 13, 2014
My studies for my new book And Justice for All (to be released by LIFE Leadership) have led me to an interesting conclusion – the central banking led bank cartel has captured Western Civilization’s productive capacity. It all centers around the mysterious Fraction Reserve Banking (FRB) process. The (FRB) process could not abuse society to the extent it does without the State approved cartel that backs the Too Big Too Fail (TBTF) entities. Indeed, the cartel permits banks to carry minimum reserve requirements and loan out money it technically does not have.
For instance, imagine a FRB system with a reserve requirement of 5%. This allows the FRB system to turn $1,000,000 into $20,000,000 (1 million/.05 = 20 million). The $1 million has been turned into 20 million, creating $19 million extra dollars out of FRB thin air). Even with just a 5% interest rate, this is approximately $1 million in interest income on an original investment of $1 million! This is an astronomical ROI of 100% before expenses because of the wonders of the FRB process. This cartel-protected profit is drawn from the productive elements of society who are paying interest on money that only exist on a ledger sheet or computer screen. If any other business were to attempt to sell 20 times as much product as he actually had on hand, he would be convicted of fraud. Not so with our State protected FRB cartel system.
Even worse, the FRB increases in the money supply leads to inflation and the subsequent boom/bust cycle. Basically, the fractional loans expand the money supply by further FRB loans until the people are buried in debt and can no longer service it. At this point, the debtors are bankrupted and the house, car, or business assets associated with the loans are returned to the bank. However, during a bust cycle, many debtors in society default at the same time sending the defaulted upon assets back to the banks at a sliver of their former prices. For just as the boom cycle inflated the money supply and prices through the FRB process initiating new loans, the numerous defaults deflate the money supply and prices when the loans are canceled.
In America, the 2008 financial debacle was caused by the boom/bust cycle activated by excessive FRB loans to non-qualified borrowers. When the original manageable interest-only payments reset to the higher interest and principal payments, the house owners defaulted en masse (many bankrupting themselves in the process). The meteoric rise in prices during the housing boom can be traced back to FRB system bubbling up the money supply through approving practically all mortgages. Of course, the central bank is designed as a lender of last resort if banks suffer too many defaults at any given time. But 2008 bust was bigger than the centrally planned cartel-managers could manage. In fact, the losses were so great that the big banks could not borrow enough money from the Fed Reserve to avoid bankrupting themselves (like they had so many consumers); therefore, the central banks and its crony cartel banks ran to the USA Treasury. Shamefully, rather than pay the piper for the FRB misdeeds, they instead sought State bailouts claiming they were TBTF. In essence, society suffered doubly from the evils inherent within the FRB cartel – it loses copious amounts of wealth during the bust period and then is forced to pick up the tab to “save” the banking systems profits. Is this really And Justice For All?
Ron Paul explains his thoughts on the banking cartel (which corroborates my research) in his book End the Fed:
American presidents actually worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had nowhere they could turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.
In the jargon of the day, the system lacked “elasticity.” That’s another way of saying that banks couldn’t expand money and credit as much as they wanted. They couldn’t inflate without limit and count on a centralized institution to bail them out…
The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history towards the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit…
Consider the Soviet case: to my knowledge, no business ever went under with the Soviet system but society in general grew ever poorer. Think of that Soviet system applied to the banking industry and you have the Fed.