It seems the world of money has finally started to unravel in earnest. The current worldwide system of banking is based on ‘Fractional Reserve Banking’ (FRB). This fraudulent enterprise, which has been running the world roughshod for over half a millennium, is visibly floundering. The proliferation of phony money created out of thin air by FRB facilitated the ascendance of financialization, which in turn led to the prevailing dominant form of capitalism, namely, ‘crony capitalism.’ The gross inequality and polarization that is afflicting the world is one visible outcome of FRB! The other exogenous factor accelerating FRB’s demise is modern informatics!
Thanks to modern informatics, those who have had enough of this unjust system of money are meticulously developing new systems of exchange that will not rely on FRB! Even the most beneficial element of the current banking system, that of being an intermediary, will (most likely) be superseded by the new technology of ‘Cryptocurrencies and ‘Blockchain’! We will revisit these topics in the coming editorials. Today we will only examine the fraudulent foundations of FRB and the existing global banking edifice that rests on FRB. We will try to give the rationale for the complete dismantling of this unfair and dishonest system. Since the ‘empty suits’, aka, neighborhood bankers, are hardly aware of the subtle underlying principles of their industry, we believe they might also benefit from exposes of this sort. Being a dutiful and loyal functionary (a ‘useful idiots’, a la Lenin) will not be helpful going forward!
It all began when ancient goldsmiths started the ‘business of safekeeping’ for people with gold (mostly the wealthy) in their heavily fortified vaults, for a fee. The goldsmiths issued receipts to gold depositors ascertaining the exact quantity and date of deposition. The well-established goldsmiths (just like the big banks of today) became more reliable and started to attract a whole lot of gold deposition. Gradually the goldsmiths’ receipts became medium of exchanges and were used (in the market) for the selling and buying of goods/services. People assumed all receipts (equivalent to present day bank notes) in circulation were backed by gold in the various vaults. Soon the goldsmiths (present day bankers) became greedy and started to issue receipts without gold deposition and charging interests on these fraudulent receipts. The goldsmiths became rich without lifting a finger, save the effort of writing the phony receipts!
In those days crisis (both natural and man-made) were frequent occurrences. During these times people tended to rush to their respective goldsmiths, with their receipts on hand, to collect their gold. Obviously there were more receipts in circulation than actual gold in the vaults. In those days justice was swift and the crooked goldsmiths were dealt with promptly and appropriately. Today’s equivalent of such an incident is called a ‘bank run’ (when a particular bank faces massive request for withdrawal of deposits, which of course it doesn’t have.) Today when such a scenario obtains, instead of banks and bankers facing justice, they are promptly bailed out by their respective central banks, read taxpayers (by availing ‘unlimited’ amount of liquidity/money which they again create out of thin air, with adverse consequences to the sheeple’s livelihood. The interstate world system dictates that each and every nation should have a central bank, mostly to avoid bank runs. In those days, imprudent banks would have been wiped out if found engaged in fraudulent activities, but today they might not even get a slap on the wrists, so to speak. The moral of it all is, our world system condones the conning business of banking and has legalized and legitimized its blatant frauds! What are the consequences of fractional reserve banking?
Inequality is one major consequence! How is this inequality created? If a business/individual is positioned closer to the money spigot, then riches are made, not always from productive activities that crate wealth, but via phony instruments concocted to dispense unearned money via credits/loans under the pretexts of viable projects. A well-connected entity will submit a project (on paper) to financial institutions, which are always eager to extend loans (without creating debts banks cannot survive a day), irrespective of the real risks involved. If the borrower is lucky and the project prospers on the account of the loans extended to it, then there is no problem. On the other hand, if the project fails, then the problems are transferred to tax payers. The possibility of non-payment or non-performance according to agreed upon conditions doesn’t really bother the bank so much, as it can always print more money (out of thin air) to fulfill its obligations. If such tricks become too much and things gets very difficult to handle, there is always the state (again read tax payers) to bail them (banks) out. Subprime loans to house buyers or auto buyers were examples of known un-payable loans systemically transferred to tax payers. Such phenomenon take place all over the world and is not only restricted to the wealthy countries of the West. From Estonia to Ethiopia, from Ukraine to Uruguay the game remains the same.
Global institutions that back such ludicrous scheme include institutions like WB/IMF, WTO, etc. Fractional Reserve Banking is a cartel operation, a protected business. If a country employing FRB becomes very indebted because of excessive bank malfeasance, the IMF and other creditors will come in and will literally take over the country’s assets, via all sorts of disguise, (austerity, privatization, etc.) We are currently witnessing this in Greece. In this game of inequity, those working stiff on fixed salary as well as operating in the informal sector (low income) lose their purchasing power on a continuous basis. The inflation created by the bank’s non-stop ‘printing of money’ dilutes the hard earned money of labor. In this category we can also include small business operators/entrepreneurs who try to create wealth without resorting to the gimmick of phony money, characteristic of the connected! As these types of economic agents are not openly welcomed by the institutionalized cartel of banks, they have started to use other forms of medium of exchanges/currencies; like precious metals, coupons, crypto currencies, etc. FRB also damages nature by availing phony money for unnecessary, useless and unsustainable projects; don’t forget, in order for the banks to survive, they have to continuously create debt. Concrete jungles enveloped by smog detrimental to health pass for livable environments. Habitat destruction by way of construction!