It is almost laughable to see “the powers that be” fumbling around, and bending everything they touch out of shape, as they try to maintain some semblance of life in the deeply flawed zombie system of money, banking and finance. Laughable, that is, if it were not so tragic.
This financial “Titanic” has not been ripped open by a sudden encounter with some unexpected and random “iceberg.” It was doomed from its very beginning because of its flawed design, construction, and operation, which I have repeatedly described over the past thirty plus years.[1] It has been taking on water and shaking itself apart for a very long time, but it is just within the past few years that its inevitable demise has become obvious, and is now imminent.
The Great Revelation of 2008
The picture came into sharp focus with the financial crisis of 2008, when in order to stave off the complete collapse of the global financial system, the major central banks of the world were forced to take extraordinary measures.[2] They began buying, under the euphemistic rubric of “quantitative easing (QE),” large amounts of government debts and other securities. This massive market interference was intended to take “bad” private sector debts off the hands of the banks and shift their burden onto central governments and the citizens they are supposed to represent. This move also had the effect of keeping interest rates low and preventing government budget deficits from becoming even more astronomical than they already were.
By bailing out the banks rather than the unfortunate home buyers who had been lured into taking on mortgages that they could not afford, the new money that QE created went to boost asset prices instead of consumer prices. The expansion of Fed holdings from the $850 billion it held just prior to the crisis, to the $4.5 trillion it held toward the end of 2017 was a desperate and unprecedented move. Then, when the Fed tried to reverse course by embarking upon a policy of “quantitative tightening” and nudging interest rates upward, they quickly learned that they are on a one-way street.
Just as Keynesian economists discovered decades ago, there is no going backward. According to Keynes, governments were supposed to “deficit spend” when the economy was down, then offset those deficits with budget surpluses later when things got better. But, as we’ve seen over the past 85 years, “later” never seems come. Government budget surpluses have been few, small, and far between. Every time politicians “get religion” and try to rein in their profligate spending, the economy goes into a slump. Why is that?
It is because of the way our global money system is structured and the way money is created.[3] Few economists or politicians are willing to acknowledge that continual expansion of debt is an utter necessity under the interest-based, debt-money regime. When the private sector cannot take on additional indebtedness, governments must step in as the “borrower of last resort” to keep the money supply pumped up. And when the consequent government budget deficits suck up too much of the available private savings, the central banks buy up the bonds with new money they create out of nothing to keep the interest burden from exploding. Of course, this debasement of the money ultimately causes runaway inflation of consumer prices or economic collapse, or both.
Keeping Zombie Corps Alive
Even without the outbreak of the Covid-19 pandemic in 2020 and the shutting down of large segments of the economy, the system was already on life support, but the pandemic and official responses to it have obviated its need for even more “intensive care.” The latest move has been the creation of something called the Secondary Market Credit Facility, which was given to the Federal Reserve as part of the corona virus stimulus bill passed by Congress earlier this year (2020). Under this measure, the Fed is authorized to purchase as much as 750 billion dollars of corporate credit. As former Congressman Ron Paul in his weekly column (June 22) points out, “the Fed’s purchase of individual corporate bonds enables select corporations to pursue projects for which they could not otherwise have obtained funding. This distorts signals sent by the market, making these companies seem like better investments than they actually are and thus allowing these companies to attract more private investment.”
All of these “investments” are at the discretion of the bankers who run the Fed, which is not required to reveal its purchases. It is not difficult to see where this is taking us. It has often been said that “the power to tax is the power to destroy,” but it must also be recognized that the power to create money is the power to lift up or knock down, to enable those who comply with the demands of government and to disable those who wish to be free. The federal governments and the central banks together have taken a giant leap forward in their long and persistent march toward despotism. By their usurpation of the money power they are able to dispense rewards and punishments. This is in addition to their longstanding bludgeon of collecting taxes at the national level then dispensing the revenues downward as “aid” to states and municipalities. These are both the opposite of what democratic government requires.
Congressman Paul concludes his letter, saying, “The only way Congress can avoid the Fed causing another great depression is to begin transitioning to a free-market monetary system by auditing, then ending, the Fed.” I can endorse that proposal, but there is virtually no chance that a Congress that has long been captive of the elite financial and political interests will do any such thing. The prospect then is for a double whammy of, not only another great depression, but for even more massive inflation of the money supply which has been ongoing since the creation of the Federal Reserve. Globalization and dollar dominance have kept inflation of consumer prices somewhat in check but both of those are coming to an end.[4]
I have long admired Ron Paul and supported his attempts to reform the system of money and banking, but the political approach has long since been solidly blocked, and Congressman Paul does not have any adequate solution. For guidance on what a “free-market monetary system” might look like, I’ve taken guidance, not from Ron Paul, nor from other gold standard advocates, nor from anyone who believes that government has authority to create money and force everyone to use it. My own work has been inspired by E. C. Riegel and others who have argued for “competition in currency” and the “separation of money and state,” and shown that only producers are qualified to issue money based on the real value they produce and bring to market.
As farfetched as that might seem to all of us who have been steeped in the myth of government sanctioned money and become inured to its ubiquitous prevalence over the past few centuries, alternatives to it are conceptually quite simple. Free and independent people need not let any political fiat money come between them and their needs, their desires, and the value they create and offer for sale to one another. Private currencies and moneyless exchange mechanisms have been, and are being used at significant scale. They have proven their effectiveness and need only be further optimized, replicated, and brought together into a worldwide web of exchange.
Riegel insightfully observed almost 80 years ago that “The state now undertakes to finance the economy, and, since a free economy is manifestly impossible where the state assumes the responsibility of supplying the money circulation, the politician is compelled to choose between fascism and communism. Under either choice liberty is abolished and the people are enslaved.”[5]
Are “we the people” willing to accept such a fate, or will we assert our inherent power and do the necessary things to organize new democratic instruments and networks of exchange and finance? The time to choose is now, for that window of opportunity is about to slam shut!
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[1] See The End of Money and the Future of Civilization, and my podcast at https://beyondmoney.libsyn.com/01-thomas-greco.
[2] Watch the movie, The Big Short. You will be both entertained and enlightened.
[3] https://reinventingmoney.files.wordpress.com/2013/07/modernmoneymechanics.pdf
[4] In any case, real inflation rates are much greater than government figures indicate. See the Chapwood index, and Shadow Stats.
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