How a Liberal Decided that Big Government Couldn't Work

Makalakumu

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How a Liberal decided that Big Government Couldnt Work

I grew up in the farm country of rural Minnesota. We have strong Democratic traditions and a strong work ethic that leads most of us to live our lives working as hard as we can. Yet, we know that we all have a social bond that brings us all together and demand that we show that responsibility through our collective sacrificetaxes. Education, health care, social security and infrastructure are very important to the utilitarian people that I grew up around. We tend to see these issues through the lens of personal and social responsibility. Everyone has the responsibility to take care of themselves and those around, but no body is a man unto themselves. We are all in this together.

At the core, I still believe this about my country. I still believe that this is a good way to shape our society, but I no longer think that it is possible. As time has gone on, Ive learned several things regarding history of banking, monetary policy, the consolidation of wealth into the hands of the few, and corruption that have changed my view. This essay will examine the history of banking, monetary policy, the consolidation of wealth into the hands of the few and how this has led to massive corruption in our government and society.

We are quickly reaching a point in this country where the lifestyle of the common person will change forever. The standard of living that most Americans enjoy is being systematically destroyed. In the near future, there will come a generation that knows nothing but debt and poverty and will never ever own a thing in their entire lives. Every aspect of this generations future will be determined by a number that will reflect the individuals ability to procure loans. In essence, all individuals will become slaves to the rules of a bank and the state will rigorously enforce these rules at the expense of our civil liberties.

History of Money

What is money? Where does it come from? How did it get to be this way? All of these questions are the most important questions in our society. The history of a civilizations rise and fall depends on the answers to these questions. In the United States, money is directly and indirectly created by the Federal Reserve.

The Federal Reserve can create money directly by government fiat. This money is then lent to the government in order to fund deficit spending. Receipts for this debt can be purchased by other parties which may include other central banks, international government entities, or foreign national governments. Only a small fraction of money is created in this fashion.

The bulk of the money in the US is created indirectly. The Federal Reserve can create money by lending money to other banks. This money starts its life with a stroke of a pen as numbers on a ledger. Other banks can then take this money and lend it out for ten times its worth. When another bank receives this debt/money, they are allowed to lend that money out for 90% of what it is worth. And so it goes, the creation of money begins at the central bank and by government fiat, every networking bank that touches a single dollar of this money is allowed to create an exponentially decreasing amount of brand new debt money.

Through these two methods, the Federal Reserve can control the supply of US dollars for the entire world. The system isnt without flaws. Indirect money creation needs to be very closely monitored. A bank needs to be aware of where all of its deposits come from in order to make sure that it doesnt lend out more debt money then it is legally allowed to do so. Thankfully, banks can share your private loan information with other banks in order to make this process easier.

Another problem arises with the existence of actual paper money. Banks can track large amounts of paper money with relative ease because they keep track of large deposits of cash. Problems arise when small amounts of cash are slowly accumulated into large amounts of cash. Its virtually impossible to trace where this money comes from so its gets tossed into the pot of new debt money and is lent out at the maximum rate allowed. This is why the Federal Reserve board is gradually moving toward a cashless society, so that they can have complete control over all of the money in circulation.

We are almost there. Only a tiny fraction of all the money that exists is actually represented by an actual physical form of currency.

By now it should be obvious that the Federal Reserve is an immensely important institution for our society. Since they can control the money supply, they can influence every action where an exchange of money is required. Unfortunately, the democratic traditions that provide the citizens of the US with a voice in how their society should be shaped are almost entirely absent from this institution.

The Federal Reserve is owned small group of shareholders. The list of people who own the Federal Reserve is secret. The shareholders decide who will be on the Federal Reserve board and the Federal Reserve board will present a list of potential candidates for Chairman to the President of the United States, who then appoints one candidate to serve as long as the shareholders approve.

The Chairman of the Federal Reserve board makes the decision to create money in the form of a loan to the government or to create money in the form of a loan to other banks. Both of these powers are determined by the key interest rate that is set by the vote of the board. The lower the interest rate, the more money is borrowed by both the government and other banks, hence the more money is actually exists in circulation. The higher the rate, the less money is borrowed, and the less money actually exists in circulation.

By now, Im assuming that the astute reader is picking their jaws up off of the floor. How can the most powerful organization in the United States and arguably the world, be completely owned by a few secret shareholders and have only a token of democratic control? The answer to this question seems like something out of a mystery novel. In 1913, seven men who controlled more then a quarter of the worlds wealth, met on a secret island and wrote what would become known as the Federal Reserve Act. These men became the first shareholders in the Federal Reserve and determined who would be on the board and who would be the first Chairman.

Monetary Policy

As mentioned above, monetary policy is set by the Federal Reserved Board, by their manipulation of the key interest rate. This interest rate determines how quickly and how much money is lent out to the government and other banks and, through that process, ultimately determines how much money is in circulation. Thus, the rate of inflation is directly controlled by the setting of the key interest rate.

Before proceeding, I would like the reader to consider who receives payment on both the principal and the interest of the money created by the Federal Reserve. Legally, this newly created money can be lent out by the Federal Reserve to its branch banks and to the government. Thus, the Federal Reserve itself receives payment for both principle and interest on all the loans it issues, exactly like a private bank. Since the Federal Reserve is privately owned, the profit from this exchange are earned by the shareholders in the form of dividends. Our tax money is used to pay the loans that the Federal Reserve issues to the government. Our entire national debt plus the interest on those loans must eventually be paid back in full to whoever purchased the guarantor rights for these loans.

The Federal Reserve Board can and will sell guarantor rights of the loans it issues to other banks and to the government. This is done in order to protect the shareholders from risky loans and to make large profits in a short amount of time in the form of dividends for the shareholders.

As of this moment, the bulk of our national debt is actually owned by China. They could perform what is called a Margin Call on these loans and collect the total amount of principle if they chose. To do so, would bankrupt the government, effectively ending the payments they receive on the principle and interest for these loans. It is much more profitable to continue to collect taxpayer money as payment and loan it back to us in the form of a trade deficit.

For the average American, the monetary policy of the country indirectly influences almost everything that we do. When the prices of goods inflate or deflate, every unit of power that we put in our wallet finds an increase or decrease value. In times of inflation, we see an increase in the amount of dollars available, an increase in prices, and perhaps a paltry increase in wages if there is a wage increase at all.

The end result of all this is that the inflation caused by the Federal Reserve acts like a hidden tax on the economy. If the government wants to spend more money then it receives in taxes or if the Federal Reserve wants to lend new debt money to banks that are in trouble, then we an expect to pay taxes on this in the form of the devaluation of our currency.

Ben Bernanke, the current head of the Federal Reserve has been lampooned as Helicoptor Ben for his willingness to use the printing presses to bail out Wall Street. Meanwhile, Americans pay more for food, health care, education, roads, etc

As the price of goods rise and wages remain stagnant, taxes will be forced to rise in order to pay inflationary prices for all government programs. Many people have argued that inflation is a good thing for governments in debt because the value of that debt goes down. The truth is that inflation causes government to never get out of debt. They still have to pay for things and there is no way that taxes can keep up with inflationary prices when wages do not keep up with prices

The government is forced to make up the difference in revenue with an ever increasing amount of debt...which causes more inflation because the Federal Reserve creates the money for the debtwhich causes the government to deeper into debt because of gaps in revenueits a cycle that never ends.

Consolidation of Wealth

Why does this happen? The government lies about inflation. The voters expect their candidates to do something about inflation, to do something about the economy, but neither the President nor the Congress has as much of an effect on the economy as the ability to create money out of nothing rests in the hands of a private cartel. The government touts its ability to keep down inflation, but they cherry pick the data they want to consider inflation because the reality is that they cant control it. Things like health care, education, housing, and fuel prices are completely ignored by the formula that the government uses to calculate the inflation figure.

The only thing the government considers, and this is via the Federal Reserves mandate, is the price of common household goods. These are things that most people pay cash for, so its not something that the banking system really can keep hard numbers on. Health care, education, housing, etc, those are things in which people have to take large loans out for and those are the things that are explicitly left out of any formal calculation of inflation.

One has to wonder why both the Republican and Democratic candidates for president have no plan to fix any of this. The answer seems simple, abolish the Federal Reserve, end Fractional Reserve Banking and have the elected Federal Government directly control the creation of money. This would make it the governments job to control inflation and the people could get rid of governments that failed to do so via their votes.

The answer to why this doesnt happen, lies within another set of question, how much money actually exists? Who has this money?

As of 2008, there were 829 billion in paper US dollars in circulation around the world. Most of the paper money, two thirds, is exchanged overseas. This is the amount the Federal Reserve will tell you if you ask them how much money exists. However, as we learned before, the amount of paper money is nowhere near the total amount of money in existence. Since most money exists as numbers on a ledger, the real amount of dollars that actually exists is closer to 70 trillion dollars. To get an idea of how much money this is, if someone were to forcibly redistribute all of this wealth to every US citizen, every man, woman and child in the United States would receive a check for about $200,000 dollars.

This is a lot of money, but even that is a fraction of the total amount of money in the world. To get an idea of this amount imagine that there is a standard unit of wealth that you can convert every unit of currency in the world. This is an impossible task since there is no standard unit, but this number is important when you consider how wealth is consolidated in the global community.

In the US, the top 1% of households have 40% of the financial wealth. This number is calculated in US dollars and does not take into account the accumulation of international currencies. As far as the world is concerned, 2% of the worlds population has 50% of the worlds wealth. For the individuals for whom these statistics collide, we are looking at total accumulations of wealth that absolutely stagger the imagination. There is no real way to calculate this number as no world standard of wealth exists.

There is one thing that we know for certain. All of this wealth translates into political power. Individuals who accumulate vast pots of international wealth have inordinate amount of influence in the political spheres they operate. They are more able to bend the political reality of a country around their interests.

Corruption

To sit down and document the ways in which the wealthy dominate the political sphere would be an effort that would culminate in a tome so large that it would rival the Oxford English Dictionary. The reality is that whenever politics and vast sums of money connect, corruption always ensues. If money equals power, then vast sums of money equals a massive amount of power.

What can be done, within the span of a few paragraphs, is that the reader get idea as to the scale of the corruption of our government. Well start at Jeckyl Island with the creation of the Federal Reserve. As mentioned above, seven men who represented more then a quarter of the worlds total wealth, met in secret to write what would become known as the Federal Reserve Act.

These men designed a system that creates money and puts everyone in debt in order to get money. Every single dollar created after 1913 is a debt to these men. It must be paid back with interest. Think about that a moment. How much wealth would you accumulate with scheme like that? How much power would that wealth give you?

You could buy every government program. You could control every institution. You could control every political party. You could shape society however you saw fit. The numbers of books that have been written about examples of this are legion. There is no way within the scope of this essay that I could recount the details of everything. However, I think that if one considers the scope of the scam that was created by the men at Jeckyl Island, you will be faced the reality of the scale of corruption this nation faces.

I often wonder, at what point does a person have so much money that it becomes meaningless? What do you do with your life when you can get anything that you want? What do you do with your life if you can create enough money to buy the entire world? What could possibly be important after all that?

Power?

Conclusion

Its tempting to pretend like none of this exists. Its tempting to seek solace in many of the illusions that have been crafted around us by those seeking power. Its also equally tempting to think that there is nothing you can do, nothing that anyone can do, to fix the problems all of this causes.

At the very least, I think that everyone can see that something needs to be done. The system doesnt work for us and that has to change.

In my honest opinion, I think we need to think differently about politics and money and I realize that this may cause me to eschew many of the cherished beliefs I was raised with. Things like universal health care, free education, and social safety nets are all coming with the strings of the elite attached. When someone seeks to have power over you, they need to reduce the amount of freedom that you have. They need to be able to tell you what to do and make you think that they know what is best for you. This is the tune in which all social programs are marching.

In a time of corruption you have to limit the power of the government in order to limit the influence of that corruption on your life. This means limiting the size of government. We cant afford the cost of big government in the form of taxes and we cant afford it at the expense of our freedom.

At the same time, I think we need to reform our financial system. The system was designed to put everyone in debt. It was designed to gather wealth at the highest levels and keep it there. It was designed to limit competition and keep everyone in their places.

We need a new kind of money. The Federal Reserve needs to be abolished. Fractional Reserve Banking needs to end. The people of this country need to control how much money exists not shareholders in a private bank.

I cant tell you how all of this is going to happen. I cant tell you if its even possible to change this course. The cards are stacked against it, yet I think that its something that has to happen if any of us are going to have any kind of freedom or prosperity in the future. Maybe when some of these problems are dealt with, our society can begin to think about some kind of social contract, but until then, I think its only going to make the real problems worse.
 
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Makalakumu

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Looks like the government is poised to take over Fannie May and Freddie Mac. These are the two largest mortgage banks in the country, they hold 3/4ths of the loans on American homes.

2.7 % of their loans are in default and they are ready to go down the tubes. This should give people an idea as to just how much money these institutions actually have on hand.

Collectively, both banks have 5,000,000,000,000 dollars in assets. About 3% of that money that actually exists, the rest of that money was created out of nothing when the borrower signed the mortgage papers.

This bailout will cost the taxpayers tens of billions of dollars. The government doesn't have the money to pay for it because its budget is in the red. Thus, the Fed will issue a loan to the government, creating more money out of thin air.

The end result of this is even more inflation. Even more devaluation of our currency. An overall reduction of our standard of living. The average person is getting screwed by both of these banks and the government by the inflation they caused.

Meanwhile, there is even less incentive for these giant banks to reform their lending practices. If the government can be depended on to bailout the banks when they get into trouble, why shouldn't they lend out (create) as much money as they want?

The owners of these banks are getting filthy stinking rich while the average Joe is wondering why his wages are putting less and less food on the table each day.

And the government is doing nothing but greasing the wheels to make this happen faster.

It can't go on forever. People need to wake up before everyone ends up in the poorhouse!
 

Sukerkin

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Excellent summation, sir.

I've remembered for (counts on fingers) twenty-seven years the shock I felt when it was explained to me how the banking sytems of the world functioned. I thought my lecturer was pulling our collective legs at first.

Instead, of course, it's the people at the root of the money tree that are doing the pulling. What can be done about it at this stage is problematic; it's been allowed to grow too long and become too powerful.

America actually resisted for a long time, only caving in in the last century. See what they did to a country that potentially powerful in such a short time? What can we as individuals do against that?

Even one as aware of the 'game' as myself still has to have some debt (my mortgage) as no honest man ever got rich enough by working for a living to pay such ludicrous amounts for housing as we have had to in the past couple of decades (for reference of how quickly these institutions can manipulate a market, my dad paid cash for his house after saving up for a few years).

The much maligned 'commune' of the Hippy says of the sixities is about the only way I can think of to get free from this. Really it's a case of re-inventing the medieval village, with people of the requisite skills living close enough to each other to provide an exchange of services. Whether more than a few individuals would be able to evade the fiscal 'web' is a matter for conjecture.
 
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Makalakumu

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Excellent summation, sir.

I've remembered for (counts on fingers) twenty-seven years the shock I felt when it was explained to me how the banking sytems of the world functioned. I thought my lecturer was pulling our collective legs at first.

Instead, of course, it's the people at the root of the money tree that are doing the pulling. What can be done about it at this stage is problematic; it's been allowed to grow too long and become too powerful.

America actually resisted for a long time, only caving in in the last century. See what they did to a country that potentially powerful in such a short time? What can we as individuals do against that?

Even one as aware of the 'game' as myself still has to have some debt (my mortgage) as no honest man ever got rich enough by working for a living to pay such ludicrous amounts for housing as we have had to in the past couple of decades (for reference of how quickly these institutions can manipulate a market, my dad paid cash for his house after saving up for a few years).

The much maligned 'commune' of the Hippy says of the sixities is about the only way I can think of to get free from this. Really it's a case of re-inventing the medieval village, with people of the requisite skills living close enough to each other to provide an exchange of services. Whether more than a few individuals would be able to evade the fiscal 'web' is a matter for conjecture.

Maybe I'm naive, but I think that a little education would go a long way. If more people actually knew how this system worked, it wouldn't last. If more people actually understood why they seemed to be getting poorer and poorer, this system wouldn't last.

I don't know about the UK, but at least in the US we have had at least one presidential candidate talking about these issues. Congressmen Ron Paul has been the one bringing up the overall insolvency of our financial system at every chance that he can. He wasn't picked to run for the Republicans, but at least he was getting the word out.

As far as solutions go, no fix of the system is going to be painless. We need to completely revamp the way that our governments spend money, how money is created, and how it is loaned out. The people that will be hurt the worst by this will be the bankers. Their net worth and their ability to earn a living will be severely curtailed.

OTOH, I don't feel to badly about that. When you take into account how much money was robbed from us by the inflation they caused, it doesn't build much of a case for pity. My grandfather had a word that he used to describe people who earned money by sitting around and doing nothing...parasites.

Maybe that's harsh, but it certainly feels that way.

In any case, parasites may not be all that accurate, because the people who are bleeding money via taxes and inflation are doing so at such an incredible rate that I'm astonished that the whole system hasn't collapsed yet.

The bottom line is that I think that if we don't change, the end result for the financial system will be terminal.
 

Sukerkin

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I wouldn't say you were naive, my friend, just missing or not seeing a nasty piece of the puzzle.

The fiscal mechanisms that are entrenched can be thought of as the vascular system of a country. The people in charge of those systems are quite capable of giving the country a 'heart attack' if they so choose.

Politicians bend quite readily to the threat of the destruction of the underpinings of their power-base and some might also be non-venal enough not to want to see what happens to a country when the 'reserve banks' withhold the money supply.

Sadly, America left 'sound money' behind eighty years or so ago when it went for fiduciary issued currency (i.e. not backed by gold). Returning to it would cripple the hold the banking system has over the economy and it is something that would not be allowed, one way or another.

At the extreme, conspiracy-tinged, edge of possibility, there is always the threat of outside action to force a country into line. The other countries that hold the debt are not going to be pleased to have, America, say, default on what is 'owed' and there are physical ways-and-means of seizing wealth that have been well practised for millenia.

Putting aside that, I think you are quite correct in that the end result of the money-supply inflationary bubble is going to be dire. The system is not stable and is founded on nothing (literally). It will collapse, either in parts or as a whole. The latter would be best as it would provide a window in which a government would get the chance to instigate change but the social price would be extreme.
 
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Makalakumu

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I wouldn't say you were naive, my friend, just missing or not seeing a nasty piece of the puzzle.

The fiscal mechanisms that are entrenched can be thought of as the vascular system of a country. The people in charge of those systems are quite capable of giving the country a 'heart attack' if they so choose.

Politicians bend quite readily to the threat of the destruction of the underpinings of their power-base and some might also be non-venal enough not to want to see what happens to a country when the 'reserve banks' withhold the money supply.

Sadly, America left 'sound money' behind eighty years or so ago when it went for fiduciary issued currency (i.e. not backed by gold). Returning to it would cripple the hold the banking system has over the economy and it is something that would not be allowed, one way or another.

At the extreme, conspiracy-tinged, edge of possibility, there is always the threat of outside action to force a country into line. The other countries that hold the debt are not going to be pleased to have, America, say, default on what is 'owed' and there are physical ways-and-means of seizing wealth that have been well practised for millenia.

Ee Gads, that's bleak. I didn't think about that last part. Any chance that all of us in the world can just tell the bankers to "bugger off" together?
 

Sukerkin

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Oh if only :).

Sadly. we're all kept too busy and fragmented to even see eye-to-eye when it comes to choosing the political figure-heads fronting the charade in one country.

Getting the co-operation needed to tell the banks to sling their collective hooks is beyond my ability to imagine.
 
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Makalakumu

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Oh if only :).

Sadly. we're all kept too busy and fragmented to even see eye-to-eye when it comes to choosing the political figure-heads fronting the charade in one country.

Getting the co-operation needed to tell the banks to sling their collective hooks is beyond my ability to imagine.

That pretty much sums up my thoughts.

So, while I have the freedom and prosperity to do so, I'm going to point out the irony of this situation. My ancestors moved to this country to get away from this very thing...and now it has followed us here.

Perhaps a new way of living can be crafted when we move off the planet. Maybe in five hundred years some forward thinking individual will look back on the writings of the time and say, well we're not going to do that...again.

Until then, maybe we're just stuck, barring some financial catastrophe, which isn't totally out of the question. Sooner or later, the mess will get so big that no amount of government intervention will be able to fix it. The credit market will collapse and people will be looking for ways to fix it.

Hmm, another argument for letting more people know about this stuff...
 
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Makalakumu

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Of course, maybe we could crash the credit markets on purpose. Let's take President Bush's message to "go shopping" to heart and collectively run up a bill so high that it could never be paid back. Oh, wait a minute, that's already happening...
 

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