WHERE FRACTIONAL RESERVE GOUGING COMES FROM. From Physiocrats, To The Usual Suspects…
“I did not run for office to be helping out a bunch of fat cat bankers on Wall Street,” Mr. Obama said.
But still, as Sherry Jarrell points out (Dec 27, 2009): "Now, the Federal Reserve is paying banks to hold excess reserves. They are paying banks to not lend, while President Obama scolds them for not lending! Either he doesn’t know about the Fed’s new policy, doesn’t care, or doesn’t understand. I frankly don’t know which is worst."
Sherry, a finance professor, usually loves profits, for her profits define the economy, she sings on every hilltop, and profits banks are making, thanks to various devices that have nothing to do with the real economy. So why so upset?
Why should the private banks lend to private individuals, indeed? As I pointed many times before, getting money at 0% from the Fed and then putting it back with the Fed to earn 3.5% beats anything: zero work, zero risk, potentially enormous profit if the Fed send trillions. As it seems it did. But we don’t know all the details.
Secrecy and discretion are of the essence among the mighty. Ever since the central bank of central banks, the Bank Of International Settlements (BIS), founded in 1930 by the plan Young, did very dirty business with the Nazis, it is safe and traditional to not ask too many questions to central banks.
Nazi Architecture (picture by Richard Janssen). BIS building, Basel.
The BIS building above (one of two in Basel) is complete with hospital and nuclear bomb shelter. Initially the BIS had been funded to reorganize Germany financially, in May 1930. Hence its weird name. In January 1933, Adolf Hitler was made Chancellor. It is the BIS that has organized the archipelago of tax heavens for the world plutocracy, so precious to the rich, famous and arrogant.
The BIS was not audited in 1945. That would have been interesting. All top financiers know this, and thus know that really big banks are not just too big to fail, they are too big to fault. Top financiers are great wizards, they can get away with holocausts. Thus, today’s top financiers act accordingly.
That is why it would be a democratic progress to audit the central banks. It is even a democratic necessity. If central banks and their associated private banks could get away with financing Hitler, and this is never even questioned, we have a serious problem with our democratic facade.
As it is, with a reserve requirement of 10%, the private banks can expand the monetary supply from the monetary base (what the central bank gave) through the multiplier, ten times over. That money they are supposed to lend to the real economy. Such is their fiduciary duty, because, really, private banks operate at the behest of the government, through the central banks.
Except that, apparently US private banks have decided now that they are the government, with the help of, um, the government, as described above.
Another "socially useless" way banks use the money they are allowed to create, is by investing in derivatives. (The expression “socially useless” was used by the British finance minister, December 2009.)
This derivation of the money supply through derivatives is not a small problem. The private bank JP Morgan, let by Jamie Dimon, that Obama called "his friend" has a 80 trillion dollars derivative portfolio. World GDP is about 50 billions, namely, less.
All together the derivative market is at least 16 times world GDP. That is as much money supply that will not make it to the average entrepreneur, worker, retired person, or sick, uninsured patient, or renewable industry, high speed train networks, universities, and other activities to provide good handsomely paying jobs in developed countries rather than China.
An even more ominous possibility is that the derivative trading is rigged, as the government, and its pet, the Fed, could easily telegraph the correct trades to their friends (see the use of the concept of friend, above.) Another reason to audit the activities of the central banks. Obviously since many at the White House, or in Congress, have been, and will be feeding at the trough of private banks, their motivation for violating the sacred trust of the People is obvious.
It was risky of government to engage in fractional reserve banking. The theory was actually started in France, in the eighteenth century, by the physiocrats (the teachers of Adam Smith). It is high time for the French to denounce their own baby. (Ironically, Great Britain used private bankers and the multiplier , through the house of Rothschild, to finance its wars against France, winning the first and third, but losing the second, the one that gave birth to the USA.)
Profits do not just an economy make. Profits are just rewards for what an economy does not really need. To make an economy requires heart, mind, and wisdom. If profits have devoured those, you can kiss your civilization goodbye.
Annex: Incriminating order: Release Date: October 6, 2008, 8:15 a.m. EDT:
The Federal Reserve Board on Monday announced that it will begin to pay interest on depository institutions’ required and excess reserve balances. The payment of interest on excess reserve balances will give the Federal Reserve greater scope to use its lending programs to address conditions in credit markets while also maintaining the federal funds rate close to the target established by the Federal Open Market Committee.