Posts Tagged ‘Fractional Reserve’

Bitcoin: Naïve, Evil & Demented

March 1, 2014

But Some Related Hope Nevertheless Lays Down Deep Inside, Thanks To ABSOLUTE WORTH ENERGY (AWE).

Shall I start with the evil part, or the demented part? Bitcoin is not just a bit con. Bitcoin is obviously a Ponzi scheme. It’s always a pleasure to infuriate geeks and tiny crabs. “Harriet” from Oakland (a Silicon Valley suburb) contradicted me, with typical techie arrogance: “Please learn what a Ponzi scheme is. Wikipedia will help you.”

Wikipedia is to geeks what the bible is to pedophile priests. A Ponzi, or pyramid, scheme is a financial scheme where early investors make money from later investors. That’s surely the case of Bitcoin. In 2011 the value of one Bitcoin rapidly rose from about $0.30 to $32, before falling back down to $2. Those who bought $30,000 of Bitcoins at $30 soon found their so called “investment”, or “saving”, to be worth $2,000. Now in Japan, a Bitcoin bank disappeared. Real money was exchanged for sheer bamboozling.

The Truth About The Public-Private Fractional Reserve System

The Truth About The Public-Private Fractional Reserve System

Geeks tend to be extremely mentally undeveloped outside, while being very smug about their small pathetic idiosyncratic view of the world (in particular all that they do not understand, they turn into a two cent joke; that’s also a characteristic of mathematicians; being one of them, I know the syndrome well).

Geeks believe that there are no empires, and they believe that, if there were some empires, they would be evil, thus irrelevant. They also believe, that they, the Geeks, are not evil, that Wikipedia (in English) is never wrong, and that links are all the truth you need.

Why to step in that mental swamp? Because Bitcoin is a delicious counterexample to the naïve concept of currency.

What’s a currency? It’s a space where an empire allows rewards and promises to be exchanged, backed-up by the empire military might. Fundamentally, a currency is the token system the empire’s soldiers are paid with. Emperor Septimus Severus pointed out to his sons, while dying in Britannia in 211 CE, that was the basis of all.

This is the hard version. This is reality.

To feed the state, the population needs to works, partly, for the state. That’s why taxation was invented. When there is not enough taxation, the state collapses. The best example of that collapse is the Late Roman empire, when there was not enough taxation of the rich to pay for defense (thus the cheap trick to use the Franks to insure defense).

Compare with the only back-up of bitcoin: not an army of soldiers, but an army of con men on Wall Street and other well organized crime. (Organized crime used Bitcoin for money laundering.)

Here is a related example: why is betting so popular in Asia? Because those who bet actually win. Why? So that they will be encouraged to bet some more, throw more money in the system. For which purpose? Because Organized Crime needs to launder money, and betting is how it does it. Losing 20% or so, is the cost of the laundering service to Organized Crime (such as Drug Trafficking).

Is a currency always created by an empire? At first sight two objections come to mind: the Thaler, and the Euro. For both it looks as if no empire was connected to them. However, that’s an illusion. (As anti-European fanatics are finding out, to their horror.)

The Thaler (or Taler or Czech Tolar… hence Dollar) was a silver coin used throughout Europe by many states for four hundred years. ( Etymologically, “Thaler” comes from German for “valley”, same as Neanderthal.) The Thaler was backed by states with serious armies: Austria, the Holy Roman German empire, Prussia, the Netherlands, etc.

A loose coalition of states can just be articulated around the army of just one state. That’s what happened with Prussia, which totally dominated the German speaking world from 1815 (partial dismemberment of Revolutionary France) until 1945 (eradication and annihilation of Prussia).

Similarly, the Euro is (mostly) backed by Franco-German might at this point. (Franco-Germania plus its immediate satellites makes a super-power, albeit one different in nature from the territory-rich USA.)

The naïve fundamental idea of Bitcoin was to create a currency without guns to back it up. Bitcoin one of the most famous Ponzi schemes in history? Some naive “techies” furiously object.

They are the same ones who firmly believe that Yahoo, Google, Facebook, are not, repeat: not, government spies agencies. (Hey, did not their chiefs “protest” to the “commander in chief”?)

If you think the usual suspects, the pirate speculators  of the Wall Street type have nothing to do with Bitcoin, please learn about Wall Street. But Wikipedia won’t help you (Wall Street guys have enough money to make sure Wikipedia says exactly what they want it to say).

On 19 November 2013, the value of Bitcoin on the Japan-based Mt.Gox exchange soared to a peak of US$900 following a United States Senate committee hearing, at which the committee was informed, by the FBI, no less, that virtual currencies were a legitimate financial service. On the same day, bitcoins traded for over RMB¥6780 (US$1100) in China.

How could the FBI be that corrupt? Some will whine. Well, what’s the FBI? An instrument of the state, just like the Dollar. It’s all about a tribe, or its leaders, exerting power.

Now visualize this: the true leaders of the USA are the plutocrats. They devised a tax code so that they don’t pay enough taxes to prevent them to become ever richer (why would they? They are in power, and the rabble does not know it!).

How did the plutocrats acquire so much power in century? Mostly by doing exactly what president Jackson was afraid the Rothschild would do to the USA (and what the Rothschilds claimed they were doing in Europe… not that their fellow big time bankers were not doing it too). In the present fractional reserve system, the state has farmed out the making of money to some private, unelected individuals, the bankers.  The Bitcoinists thought they had found a scheme to do the same. That was naïve. They drunk Ronald Reagan’s idiotic propaganda, and come to believe that We The People could do without a state.

For more than 2,000 years in the West, the government created money (with a face value often much higher than its real value), but tax collecting was farmed out to private enterprises. Now it’s the other way around: tax collecting is public, money creation, private. That’s a big mistake. We have, unsurprisingly, a system in which the money creators, the bankers, create money, that is, power, at will. That abundance of money has allowed them to buy the “democratically elected” representatives.

Thus now, as Rotschild said, the bankers control the government. Plutocracy found that money creation to be its best trick in a long time.

Can we enjoy a loftier perspective? Sure. Money is power, and power is measured by energy. Not all energy is good: blowing up the Earth won’t be good. A way to do that? One could set fire to 20 trillion tons of coal underground, and get plenty of energy, until the biosphere is destroyed. (Some plan to do that.)

So energy expenditure has to be controlled by long term ethics. This is what I call AWE (Absolute Worth Energy). With the enormous computing power we now have, it’s practical. AWE, accounting in useful energy units, is unavoidable, as it’s the only accounting system that will save civilization. AWE would make a perfect Bitcoin (AWEC: Absolute Worth Energy Coin). But of course it would need the support of the government, and that only if We The People pass laws to force it to do so.

Patrice Aymé

Note 1: A big deal  is made by Bitcoin crooks that computers are computing the scheme. In the geeks’ minds, computers are superior souls, above the fray. However, it doesn’t matter that  computers compute in the background of Bitcoin. Pyramid schemes are always about guys making computations in the background.

Note 2: Those who believe in bitcoin don’t believe in history, or sovereignty. That the wealthiest use a parallel currency with artworks, reinforces my point: only the sovereign, wealth, can create a currency durably! The wealthiest can use artwork as a currency in all impunity, precisely because they rule the world (and only the wealthiest are wealthy enough to use that currency). Average bitcoin users don’t rule the world (although governments let organized crime use bitcoin for quite a bit…)… thus their currency will not rule the world, either…

INFLATION GOOD, STAGNATION BAD

December 5, 2013

INFLATION FEEDS SELF EXAMINATION, EMPLOYMENT, FUTURISM.

Moderate Inflation Optimizes Consumption, Self Examination, A Questioning Attitude, Full Employment, New Economy, Technology & Science, Enough Money For What’s Needed.

Why?

1) Inflation advantages the implementation of more advanced technology, because inflation forces people to a continual reevaluation of their old habits.

2) Inflation stirs the economic soup and advantages workers relatively to rentiers. (A rentier, by definition works from a rent; rentiers’ existence is less active than that of workers, they have to do less. Advantaging them is advantaging laziness. Activity ought to be more encouraged by a better income than the one received by doing nothing; it’s harder to negotiate the augmentation of a rent than that of a salary.)

3) Inflation insures that those who want to work, in particular with the future, have enough money to do so.

Inflation creates, de facto, negative interest rates. With inflation turned on, the very rich and corporations could not sit on the money, or lend it to each other through “dark pools“. The money would have to be invested profitably in the real economy.

Putting inflation back in gear is ONLY PART of the return to the winning recipe of the 1950s. But a master piece. It fights economic stagnation.

Conventional economic theory has it that people look for the cheapest products, or for better products, or a mix of these characteristics. Right. That fantasy is called the “market”. As in a real market, people are supposed to go down the alleys, and pick up what they deem to be the best.

In the imagination of vulgar economists, the “market” is supposed to solve everything (including health care in Obama’s Financial Times addicted mind). Let’s leave aside for now the problem that what they call a market is rather a jungle.

Before comparing products, people have to want to bother to look at them. Comparing is tiring, risky, and involves training (be it of a slightly new taste). Be it to buy sushi, a car, a new TV, or a vacation. In a steady state economy, with always the same prices, why would people want to look?

And what about, not just comparing old products, but looking at completely new products? Say you always bought apples and never looked at oranges? Why would people want to look at those? Curiosity? What about adding necessity to curiosity? Inflation insures the latter, because inflation introduces an element of discomfort with one’s old world. 

Inflation forces people to look and make comparisons, not just between the products that are offered, but between the habits they themselves hold (and that, left unchanged, would lead them to yesterday’s products). Continually rising sticker shocks spur a more demanding demand that questions one’s old demands.

Socrates said that the unexamined life was not worth living. Inflation says that one cannot afford the unexamined life.

Verily, conventional economic theory had forgotten that detail: if consumers don’t need to bother, they will not bother. MENTAL INERTIA RULES, and turns into generalized economic inertia. Inflation is a spur that forces economic participants to reconsider their relationship with the economy, and all values, and makes actually the entire public into savvy , even philosophical, economic participants, lest they drown in rising prices, and an unaffordable past.

Having more demanding consumers (that nominal price inflation creates), in turn incites would be suppliers to offer new products, as they know consumers are continually examining not just the products offered, but examining if the habits they have make life as worthy as possible.

Indeed, old habits depend upon old values, and old consumption patterns. When inflation permeates the economy, all prices rise, and force a dynamic ecology, by changing continually the environment, forcing speciation of new technology, that serve new habits.

It is similar to what happens when speciation in biology is forced by environmental changes.

Increasing prices force people to continually look afresh at whether their old habits are WORTH IT. People see the costs and prices of what they used to like, go up, and they ask themselves: why not to try something better?

Inflation continually swirls the economy, for higher performance. It creates an ever changing world, never boring, always valuing work

It’s no coincidence that the period of the 30 years of gloriously expanding economy after World War Two was characterized with significant inflation. Nor is it a coincidence that a depression is characterized by years of deflation.

As one can see today, or one has seen in Japan, deflation is hard to fight. Work programs in infrastructure financed by the government in Japan, over two decades, resulted with a government debt to GDP basically the highest in the world (more than 200%). And still Japan is stuck. Maybe what’s lacking in Japan, are animal spirits.

How is inflation controlled? By not expanding the money supply too much. What does that mean? Those who have the money keep it, others can wait for the grave. In other words no inflation profits first the established order.

Some will say: oh no, you don’t understand, with 4% inflation, the rich will get richer. Question: how come did the rich not become richer during the post war forceful expansion? High margin tax rates (93% under that well known Marxist, President Eisenhower). Just reinstitute those and redistribute to the indigent (including victims of inflation).

The “market” has been the paradigm of economics, and it’s made possible by the fractional reserve private-public money creating banking system. The latter has been ignored by most thinkers (except for president FDR and his men, who regulated it cleanly… and which the Clinton and his weasels destroyed). 

Of course the FDR reforms ought to be reestablished (this is what the inchoating “Banking Union” is about in Europe, and the various fines given to EU & USA banks in recent weeks… although jail sentences would have been better).

But more generally, the very image of the free economy as a “free market” is meek.  And irrelevant.

There is no “free market”. Most of the impulsion for new technologies was given by governments (even cans and microwaves were initially military programs; actually the question ought to be inverted: which new technologies were started as non-governmental programs, or not governmentally supported? Good luck to find any!) 

Through the (mostly private) bankers, the (plutocracy captured) government regulates the money supply, and has opted to restrict the new flow to old money.

A better picture of reality than the “free market” is the jungle. The genus Homo evolved through war, in the jungle. It’s hypocrisy and obfuscation to pretend that it’s otherwise in today’s economy. Once one has admitted this, and only then, can one mitigate this efficiently. Let’s bring some light to that obscure and tragic reality.

And let’s bring fresh money, enough money to employ youth well and irrigate the future. That is, allow enough inflation to insure this.

Could that create problems? Sure. And it did, in the roaring post-WWII expansion. However, corrective mechanisms were then applied: help to first time home buyers, construction programs, free universal health care and education, anti-plutocratic taxation.

One ought to argue that inflation is progressive, as it forced the implementation of these progressive measures (otherwise society would have exploded in rage; whereas now its put to sleep in the torpor of stagnating plutocratization).

Last, but not least: in the unprecedented confrontation between human technology and the biosphere, stagnation is not an option. Missing out on inflation, and the reality of the jungle it makes obvious, and the progressive answers it requires, maybe missing out on the animal spirits we need to survive.

***

Patrice Ayme

Real Economics

August 30, 2013

Real macroeconomics ought to set its field of study correctly. It’s not nation-states anymore. We are living on a small Earth. Condensing Mercury vapor from burning Chinese coal poisons our food. Facts cognizable by all, such as Assad dropping napalm on a school in Alep (BBC, 8/26/13) devour moral systems, making anti-war weaklings into accomplices of crimes against humanity.

The house in eco (oikos) -nomy is now the entire planet, the full arena of human activity. Such is the macro stage. Nothing smaller will do.

Now that the stage is determined, what’s the “nomy” in eco-nomy about? Nemein is “manage“, related to “mane” (hand). Manage what? People, their work, the entire planet, recently on fire:

Yosemite Rim Fire: Bad Economics At Work

Yosemite Rim Fire: Bad Economics At Work

[Energy Unleashed, Men Overwhelmed; 95% of California Visible Above; On Day 5 Of Rim Fire, only 2,000 firemen were fighting it, because another 6,000 professional firemen were employed on other Californian wildfires! Some can be seen above. San Francisco Bay is the gaping grey crocodile jaw full west (left!) of the Rim Fire]

The number one object of economy ought to be energy: what we need, how much of it, to do what, and at which ecological cost. So economics has to be refounded around the idea of energy.

Once one has refounded economy theory around energy, one gets a bonus. One has to remember that well channeled energy does work. So work, that is employment, is a natural attachment to energy focused economics.

Monetary considerations are tied to the fractional reserve system at this point. That’s what conventional economists do. They might as well do the economics of angels on a pinhead.

It’s not that money is purely imaginary, but it’s a convention. If all loans were recalled in all banks, one will find that there has been 30 times more money lent that there was to be lent from what the banks really owned (that’s what 3% reserve in USA banks mean).

Money, as it presently exist, is an artificial construct that exists only thanks to its government back-up. That is, money is backed-up by the established order, its “justice system”, taxmen, police, army. But that order is flimsy when the entire biosphere is wobbling, the forests are burning, and acidifying seas are rising, thanks to human activity.

To just worry about monetary policy is like worrying about a weltering bush because the giant, multimillennial sequoia across the clearing, just caught fire. As has been happening in Yosemite National Park for two weeks.

Think about the Yosemite Rim Fire, burning trees that existed before Rome: if that kind of disaster, a direct consequence of human activity, is not incorporated in economics, the very concept of economics, as used today, is a contradiction with what it was meant to be.

Economics then just becomes a way to employ thousands of sophists singing together about the beauty of the established order. But there is no beauty when the planet is on fire.

***

Patrice Ayme

***

Notes: 1) The objection above is analogous to the one Socrates made against education and politics in Athens. I propose a remedy, Socrates did not. The remedy to Socrates’ complaint was the rise of democratic meritocratic institutions within the state (Rome started this).

2) The present fractional reserve system (“frac”) is artificial, and rests on the state. This is nothing new. Most of the currency used under Rome had an official value, imposed by the state, much superior to that of the precious metals the coins contained. The Tang dynasty in China, in the seventh century used paper money, with a value also imposed by the state (in both cases the cause was the dearth of precious metals).

I propose to use Absolute Worth Energy as a (much less arbitrary) currency. Anyway,

3) Economics was invented as a concept by Xenophon, a hyper intellectual, part of Socrates’ school. Scholars are getting the notion that much of macroeconomics’ foundations are too uncertain to be anything but a matter of philosophical debate.

See in the New York Times What Is Economics Good For? The authors are philosophy professors, one of them chairperson at Duke university. Extracts:

“A student who graduates with a degree in economics leaves college with a bachelor of‘science’, but possesses nothing so firm as the student of the real world processes of chemistry or even agriculture.

… Over time, the question of why economics has not (yet) qualified as a science has become an obsession among theorists, including philosophers of science like us.

It’s easy to understand why economics might be mistaken for science. It uses quantitative expression in mathematics and the succinct statement of its theories in axioms and derived “theorems,” so economics looks a lot like the models of science we are familiar with from physics. Its approach to economic outcomes — determined from the choices of a large number of “atomic” individuals — recalls the way atomic theory explains chemical reactions. Economics employs partial differential equations like those in a Black-Scholes account of derivatives markets, equations that look remarkably like ones familiar from physics. The trouble with economics is that it lacks the most important of science’s characteristics — a record of improvement in predictive range and accuracy.

Moreover, many economists don’t seem troubled when they make predictions that go wrong. Readers of Paul Krugman and other like-minded commentators are familiar with their repeated complaints about the refusal of economists to revise their theories in the face of recalcitrant facts…What is economics up to if it isn’t interested enough in predictive success to adjust its theories the way a science does when its predictions go wrong?

Unlike the physical world, the domain of economics includes a wide range of social “constructions” — institutions like markets and objects like currency and stock shares — that even when idealized don’t behave uniformly. They are made up of unrecognized but artificial conventions that people persistently change and even destroy in ways that no social scientist can really anticipate. We can exploit gravity, but we can’t change it or destroy it. No one can say the same for the socially constructed causes and effects of our choices that economics deals with.

…no one can predict the direction of scientific discovery and its technological application. That was Popper’s key insight… scientific paradigm shifts seem to come almost out of nowhere. As the rate of acceleration of innovation increases, the prospects of an economic theory that tames the economy’s most powerful forces must diminish…”

This brings us back to Yosemite’s Rim Fire (I run there all the time, loving the giant trees). Why did that happen? Well, the Forest Service took days to bring the big planes dumping ninety tons of fire retardant at each pass.

Why? Sequestration. Another bright ‘economic’ idea from Obama’s bankster friendly cabinet. Ignorant little greedsters hide behind ‘economic’ theories that advance banksterism, thus their future personal earnings, sequoias be damned.

Sequestration caused huge cuts in many parts of the Federal Budget of the USA. Including fire fighting (the Forest service was literally running out of money to fight fires, before the Rim Fire, explaining its slow reaction; it had $50 million left for the year, for the whole USA; the Rim Fire will cost several times that!).

And, of course, the most significant victim of sequestration is deep science, the very engine of humanity.

Although the location and nature of revolutionary thinking is hard to predict, it’s easy to predict that, by financing enough students of revolutionary thinking, one will get breakthroughs.

***

Some facts on Yosemite Rim Fire after 14 days: aerial tankers flight time: 14,500 hours. 15,000 tons of liquids dropped by aircraft on fire, most of it red fire retardant laden with chemicals. Uncontrolled fire edge: 100 miles (160 kilometers), controlled edge: 66 miles (90 kilometers), bulldozer lines: 106 miles (170 kilometers).

RADICAL BANKING FIX

April 9, 2012

BANKS ARE PUBLIC, MAKE THEM TRANSPARENT!

Why Are Banks Dealt With As If They Were Private? When They Are Not?

An Obvious Corruption Of The Constitution?

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Abstract: I track the genesis of Fractional Reserve Banking, all the way down to imperial Rome (a full 14 centuries before Wikipedia has it, nota bene). Rome developed a serious money problem, a Fractional Reserve System, properly done, would have solved it. Instead Rome invented other useful institutions: central planing, feudalism, and a notional currency (a few centuries later the Song dynasty used another notional currency, paper money; Rome could afford the luxury of diluting more precious metals in copper coins).

A slight problem that our contemporary plutocrats have succeeded to hide, is that the power and advantage of Fractional Reserve Banking lays in the fact that it is state controlled. The state can change the money supply, as needed. Up or down. What the Roman Principate could not do. Rome had run out of money, unlike the Fed, or now, the ECB.

In this enormous power, notional currency, that is, fractional reserve, great opportunity, but also the risk of enormous corruption. China, which did not have enough silver and gold, used copper and paper currency. That led, after centuries, to a terrible inflation that destroyed the value of money (contributing to the fall of the Yuan dynasty). China soon became dependent upon Spanish provided South American silver.  

Thus it is no wonder that Big Banking has turned into organized crime, thanks to Fractional Reserve banking. Corrupting the state through money fabrication gifted to friends, is a not a new crime, as cybercrime is. But its extent is new (by the way, early American presidents feared this, and took strong measures against it; president Jackson, not a shrinking violet, called it its “proudest achievement“, on his deathbed).

Nor is that crime unlawful as two of my smart interlocutors have pointed out. When a plutocratically minded Principate rises, it is careful to change the laws to suit its evil ends. A principate we have. Each time American media celebrates the “first lady” and “first family”, they celebrate the first man in Rome, the Princeps (as one says in Latin). Then Obama sends the first daughter to Mexico with a private army. At this point he implicitly tells the banksters: “I am one of yours! We are first! We own the world! welcome me in your arms! I need money!” It may not be conscious, but it is deliberate, at the subconscious level. Otherwise, why the outrage, when Angela Merkel herself flies not just in a common airline, but a low cost one?

However, differently from old Rome, and West County Men friendly England, France and the USA have WRITTEN constitutions. The first words in those Constitutions are the most important. There are six. Three in the USA, three in France. Those are clearly violated. (Could Obama understand that?)

The politicians, who have been in cahoots with the financiers, have been unwilling to turn against their accomplices (politicians get instantaneously punished, at least in financing: Obama, having raised his voice a bit against the financial conspiracy is running at 25% of the funding he got at the same point in 2008, when the banks thought he was in their pocket).

So, what to do? Very simple, having exposed the problem, one can actually roll out a solution. Democracy has to be transparent. Taxes are transparent, at least to the state. There is a reason to hide taxes from the public eye: income is a private matter, and so is spending… As long as they involve only private money.

However, if they involve credit, it is another matter entirely. Credit is the extension to private entities of public money. I will indeed argue that credit, when it involves banks enjoying the Fractional Reserve System, is actually PEOPLE money.

To keep CREDIT FROM THE PEOPLE clean and ethical, make that spending of PEOPLE money, public and transparent.

If not, it’s civilization itself, that will keep on going down the drain.

***

BANKING AND INTEREST:

They are different notions. The Islamist civilization evolved a very complex financial system, with most of the characteristics of Western banking… But without charging interest.

What’s a bank? Originally, it was an organization B that pooled otherwise unused capital, and then gave said capital to some other entity C that could make use of it. The capital was lent, and that means, that it was reimbursed slowly, according to the creditor C’s capability.

One may wonder why bank B would lend money.

For doing so, interest was invented. However, after a few generations of free interest rates, the Roman republic observed that interest made the rich richer. Interest was restricted to 10%, then 5%, and finally outlawed interest in 342 BCE (that’s not long after the writing of the Bible’s Old Testament, although at the time Rome knew nothing of the Jews). By contrast, the European Union has allowed recently money changers charge states of the Union interest over 30%.

Otherwise said, today’s Europeans are like the Romans of 26 centuries ago, before the Roman revolution, rather than as enlightened as those of 23 centuries ago… 

Abrahamist faith declared that banks would lend to co-religionists out of the goodness of their heart. Lending money to heathens and miscreants could be done against interest, a supplementary payment or tax, well in line with scripture.

Scripture mercifully envisioned the survival of miscreants, as long as they paid interest. Thus banks, complete with lending against interest, could exist. They were obviously private enterprises.

So far, so good. Then something happened that even the perverse writers of the Bible and Qur’an had not anticipated, even though, their delirium, they generally get all the angles covered.  

The Fractional Reserve System was created. The preceding link, to Wikipedia, does not go in the mathematical details. I have already explained in Fractional Reserve Gouging, and many other essays, that Fractional Reserve Banking (FRB) is intrinsically unjust, and an engine for constructing neo-feudalism.

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The FULL HISTORY OF FRACTIONAL RESERVE BANKING STARTS WITH ROME:

American Wikipedia, as a faithful servant of New York finance, starts the history of Fractional Reserve Banking, FRB, with the Dutch: New York started as New Amsterdam, and the Netherlands, having been created by… France (to a great extent), then conquered England (!), inventing the highly leverage finance tied into the state that we observe now in the USA.

Immediately after inventing astronomical leverage, the hyperactive Netherlands turned against its creator, mightily arrogant France, the greatest land power… That is why highly leveraged finance had been invented, to start with: to give the Dutch armies power much beyond the tiny size of the Netherlands. That financial power went into an enormous Navy, soon duplicated in England, and the Bank Of England was created to finance it!

In truth it did not dawn on Wikipedia that FBR was a solution to a problem that was in full evidence in imperial Rome. Naturally enough, the solution was found in the Italian republics, a millennium after Rome only partly solved its financial quandary.   

To fully understand FRB, one has to go back to the Third Century of imperial Rome, the Third century of the Principate, which started with the Libyan Septimus Severus, imperator of the Illyricum armies (“Balkans”),  sending back the Praetorian Guard to its barracks, and becoming Princeps in its stead.

So it started well, but it ended with catastrophe: constant coups, “barrack emperors”, a massive plague killing much of the population… And a collapse of the financial system. There was basically not enough currency for the empire’s growing economy.

That was caused by a lack of precious metals. Rome used a three tiered system; copper, silver, gold (China had mostly only copper, making the currency impossible). Rome ran out of silver and gold. Five centuries later, the Franks got the precious metals, lots of silver, in newly conquered Eastern Europe, to feed their free market.

The Roman government reacted in two ways:

1) by creating a notional currency with a fictional relationship to the gold currency they kept on using (the latter was to stay in use in the Imperium Francorum/Romanum through the Middle Ages until 1,000 CE).

2) by setting up a government regulated barter system. That was a further step in the instauration of feudalism. By the way, such a system is basically in force between the West and the feudal lords of the Middle East, as many an enraged Muslim fundamentalist will tell you, while foaming at the mouth).

While doing this, the organization of the empire switched from the Principate to the Dominate (although I give references to Wikipedia, that does not mean I agree with all what’s there; it’s just a rough, and raw idea of the referred notion. In particular that article evoked that the “Western empire formally collapsed in 476 CE” is simply, and formally, false).

The switch to the Dominate corresponded, to some extend to the switch towards a command and control economy (paradoxically, there is no contradiction between the growth of command and control and the growth of plutocracy; plutocracy crowded out the free market, as did the dwindling technological options, due to the faltering of timely technological progress).

After 1,000 CE, as Western Europe, propelled by beans and other scientifico-technological advances, became richer than the Roman world had ever been, more determined efforts were made to reconstitute the Roman republic. The Franks had protected the reconstituted republics, such as Venice (after all the Imperium Francorum was supposed to be a republic, with elected heads of states). So:

3) Banking appeared fully, in an addition to the Roman system (1) money backed by the armed force of the government and 2) mandated state enterprises, above). The Italian republic created government bonds (to pay the armies), and Fractional Reserve Banking.

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FRACTIONAL RESERVE BANKING AROSE WHEN…

Paper notes representing the precious minerals in the vaults of banks, were themselves traded. It was soon realized that this was identical to the main Roman monetary system of notional currency, and, that, just as in Rome more of these notes could be traded than the precious minerals they represented.  

So, instead of using fake precious coins as Rome did, the Middle Ages switched to promissory notes, paper money, and the like. Before soon, the governments, whose armies protected the bank vaults, came to use those notes as currency.

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MAKING FRACTIONAL RESERVE BANKING CONSTITUTIONAL:

From the preceding, it is hopefully clear that banks, even private banks are actually STATE enterprises. All they have that is private is who manage and exploit them. But they are on a mandate from the state to create credit, that is, money.

Some will scream as they read this, and tell me that I understand nought. Yet, I do, and they don’t. There is total lack of understanding, true, but it’s on their part.  The only way to have really private banks is with no leverage, whatsover, and no back-up from the state. I would say that, when a big bank uses 97% leverage, it’s at least 97% people owned. (It’s more than 97% because of the back-up of the bank from the state.)

In 2008, the “Fed” would lend 50 billion dollar to Lehman Brothers in the morning. Every morning. The three top guys at Lehman walked away with 5 billion dollars between them, or so. The money was never recovered, nor do the fat cats want us to think of it this way. Your money is their money, end of the story.

Thus I believe that, as banks are actually public enterprises, they ought to be people controlled, instead of being milked by a few individuals who golf with the political chiefs. Instead of having bankers buy politicians, we should have the people, checking them both, under scrupulous laws.

How to do this? Make all and any bank transaction public, and pass laws to insure that any extension of credit from any bank is economically justified. Moreover use the Internet to publish the whole thing, so that everybody can have a look, check, and report to the government, if they spot any deviation between the official reasoning to support some investment, and the reality of what is going on.

***

BECAUSE BANKS ARE PEOPLE OWNED, THEY SHOULD BE PEOPLE CONTROLLED. That does not mean they should people managed. Air Traffic control, or the Army are people controlled, but they are not people managed (that was the point that eluded Plato and Socrates!)

The preamble of the Constitution of the USA is very clear. It starts with three words:

“We The PEOPLE”

(yes, in capital letters). It does not start with: we the politicians, we the bankers, we the plutocrats, we the conspirators of the United States of America, we the republicans, we the fat cats of America, we the free marketers (not to be confused with the three musketeers).

The French Constitution starts with “LIBERTY EQUALITY FRATERNITY”, not “Slavery Inequality Inequity”. Actually the Article Two of the French Constitution says the French government is “par le Peuple, pour le Peuple“. It is not a government by the bankers, for the bankers.

The bankers reply that they are somehow uniquely qualified, but their only apparent qualification is the greatest misallocation of capital, ever. And the fact they stayed out of jail or the scaffolds, while doing so, is also unique in history.

All other constitutions are a mix of the French or American ones, that is why fixing France and the USA is key. (Britannia does not know how to write, apparently, so it is hard to know what it is about, and that is why nations around the globe have inspired themselves from the French and American idea, from 1789, to sit down, and write a constitution).

***

NO DEMOCRACY, SAYS WALL STREET:

After I wrote a shorter version of the preceding paragraph in the Wall Street Journal’s comments, in an article which exposed president Obama’s love for a fat cat, Mr. Wolf, the head of UBS. Somebody working in the finance industry, John Crocker, replied scathingly that we you do not understand anything … certainly not banking. If you’d like to think you do … well, what color is the sky in the universe where you live? Banks should be “people controlled”? …  we do not live in a “Democracy” .. we live in a representative republic. And also one that happens to be based on free market principles… In many ways, the US Government is now more of a “criminal enterprise” than any bank has ever been. Only because the government itself decides what is “legal” or not, they will never be arrested. Yeah … bankers cultivate and form relationships with federal politicians … Why? They have to.”

I think the response is pretty telling. Fat cats on Wall Street see, in the preamble of the constitution of the USA: “We The Free market of America Have A Republic Where We Are Represented” Old Geezer Pilot on this site concurred:

It is not organized crime.

It is not even disorganized crime.

Because during the past 30 years, those banking operations and financial transactions have been made PERFECTLY LEGAL by our Congress. The best politicians money can buy.”

***

IGNORE THE CONSTITUTION, GET CIVIL WAR & NAZISM:

From above, one can see that Congress has strayed from the Constitution. The Constitution is about a “PEOPLE” regime. Unfortunately, when the Constitution of the USA was written, it was not thought to create a Constitutional Court. France has one, so now does Germany. Both courts have come out with interesting decisions the Supreme Court of the USA (SCOTUS) could never have come up with. SCOTUS has traditionally adopted a small role of pseudo Constitutional Court, but was unable to stop the multi-generational march to the American Civil War. That war was absolutely devastating. Scholars have revisited the number of dead. Upwards.

In New Estimate Raises Civil War Death Toll, the New York Times

For 110 years, the numbers stood as gospel: 618,222 men died in the Civil War, 360,222 from the North and 258,000 from the South — by far the greatest toll of any war in American history.

But new research shows that the numbers were far too low. By combing through newly digitized census data from the 19th century, J. David Hacker, a demographic historian from Binghamton University in New York, has recalculated the death toll and increased it by more than 20 percent — to 750,000.

The new figure is already winning acceptance from scholars… A pre-eminent authority on the era, Eric Foner, a historian at Columbia University, said:

“It even further elevates the significance of the Civil War and makes a dramatic statement about how the war is a central moment in American history. It helps you understand, particularly in the South with a much smaller population, what a devastating experience this was.”

Well, it ought to have been a devastating lesson. What was the lesson? That, when one let festers an unconstitutional situation, an infection of civilization by infamy, gangrene sets in.  

However, the leaders of the USA, did not learn their lesson. When American plutocrats ran away with Hitler, Stalin and company, even president Franklin D. Roosevelt did not pay attention to the problem that “We The PEOPLE” was threatened with.

FDR may have talked loudly against Hitler, but he let American banks finance him, Wall Street organize its largest companies. And when it came to stopping Hitler, FDR never stopped encouraging the few fascist French collaborating with Hitler. (As the southern front was opened from Africa, and turned into a disaster for Hitler by Spring 1942, this was of great military import, as Churchill kept on pointing out.)

Companies such as IBM or Ford were allowed to collaborate with the Nazis throughout the war. That means they did not just kill European Jews, French, and the like, but also American GIs, and bomber crews. IBM had the monopoly of computing all over the Reich. That meant that the backbone of any serious organization in Hitlerland, from trains to directing fighters towards Allied aircraft, was Made In America.

What we are confronting now is exactly the same syndrome: banking is grossly violating the spirit of the Constitution, and the political leadership is out there, golfing with the miscreants.

Banking needs to be completely changed. Banking needs to made democratic. It was done with the military, it can be done for the money changers.

Better a look within the machine that fabricates money, rather than letting the crooks have it. Better a look than a crook.

***

NOT ONLY WILD BANKING DEVOURS DEMOCRACY, BUT CIVILIZATION ITSELF:

Yes, banking is devouring civilization. The capability of finding Earth like planets exists. Now. It is just a matter of placing in space a football sized telescope, and making a spectral analysis of small planets. Seeing a lot of methane would be an indicator of life. Seeing oxygen would prove photosynthesis is going on.

NASA and ESA had two such space telescopes, ready to go. NASA had its Terrestrial Planet Finder. Europe had its Darwin telescope. But the money was cut off. Why? Bankers. Not only they steal us, and they make us stupid, but they are making us blind. And they want us NOT to think of the grander poetry of another Earth. If we are too elevated, we may find them too base.

One has also to understand we have only one chance at advanced civilization. This is it. The technological tricks we have been using have depended on accessible oil, gas, and coal, for energy, and accessible metals, thanks to all that accessible energy.

When Rome could not access metals anymore, because they were too deep, and Rome did not have enough energy to get to them, it was a disaster. Roman armies could not build the weapons they needed, from lack of metals. Ultimately, around 660 CE, the Roman emperor decided to strip the metal from all the roofs of Rome, to get the metal needed to fight the Muslims. He went to Rome to oversee the operation.

Our situation would be worse: Rome depended on burning wood. we came to depend upon burning fossils. If the fossils are too deep, or hard to get to, or have been exhausted, we cannot wait for them to regrow. Forests can regrow, not fossils.

We have to use that opportunity we have now, to access higher magic (advanced forms of solar and nuclear energy, including fusion; maybe unanticipated forms such as vacuum energy, plus designing materials atom by atom).

If we do not, the world economy will hit dwindling resources. That could be as early as 2016.

The solution that will then impose itself will be war, and unimaginable forms of exploitation. Think Genghis Khan, with the caveat that Genghis was acting out of a mix of indignation, vengeance, opportunity, and the necessity to keep the 200,000 men Mongol army on a mission. Genghis Khan was not acting out of despair, because he was a cornered rat. Still, he caused terrible wars.

Now we have states, such as Israel, that reason like cornered rats, and fidget with their nuclear weapons, while mumbling about annihilation. Not a good symptom (as Gunter Grass rudely remarked).

In a way, we are threatened to all turn into cornered rats. If we let the bankers eat all the cheese, we sure will.

***

Patrice Ayme

GREATER DEPRESSION

July 23, 2011

THE 1930s WERE JUST A WARM-UP. THIS IS THE REAL THING.

*** [July 23, 2011.]

In a few words: There were no good reasons to have a depression in the 1930s, whereas now, there are plenty. We have global, entangled crises in trade, finance, democracy, demographics, resources, pollution, ecology, energy. Let alone unbalanced climate and oceans. So, although avoiding a repetition of the mistakes of the 1930s is a must, it will not be enough to avoid disaster. Meanwhile the Obama presidency has turned into more of the Clinton-Bush madness, with a few new crazy twists, but none of the courageous decisions needed.

Abstract: I advocated long ago that we were engaged in “Great Depression III“, the mother of all depressions. The word “depression”, is starting to  appear, here and there, even among Serious People, as Obamania goes from cool to cold, and dissembling to disassembling. Obama. duplicating Bush, thought it was smart to lower taxes on the hyper wealthy. That helped to explode the deficit. Now, sadly, the president’s erstwhile allies, the bipartisan republicans, have apparently informed him that he is past his expiration date.

Indeed the situation is depressing: never, ever, have many things looked so grim; Obama’s dawn has transmogrified into a sun sinking into red ink. The Federal government spends 24% and takes in 16% of GDP. And has little to show for it… Besides saving the auto industry. Mr. Obama, where is your Hoover dam?

Mr. Obama, why did you not rise taxes on plutocrats, and hedge fund managers when you controlled Congress and you had a super majority, filibuster free, majority in the Senate? (And as I asked insistently, BTW.)

But the drama is much bigger than Obama’s friendliness to those who caused the crisis. A horrendous confluence of disastrous factors is building up.

Even the Late Roman empire’s situation was balmy, comparatively to the torrid events building up ahead.

Only the Mayas faced such a bad entanglement of evils, when a multi century drought struck, and their bickering, plutocracy riddled society, imploded in strife, wars, flames, mayhem. The means of maintaining alive 90% of the population were destroyed. The multi-millennial Mayan civilization imploded, and was still a vaporous shadow of its former self, when the Castillans showed up, six centuries later.

The governments of the West are not reacting appropriately to the present crisis. What we are truly engaged in is a war against the worst elements. All of them; but for tribal racial fascism… so far.

So what we need is a tremendous effort, all together now, and just going on with the plutocracy, while depressing economic activity by cutting spending and evoking “competitiveness”, as the USA and the EU insist of doing, is the exact recipe for disaster. Indeed what we want to avoid is the war of all against all (as happened in the 1930s).

Cutting which spending, and what does that mean? Ultimately, money is a signal of activity. What we need right now is more, not less, activity. And activity has to be well thought out. The free market has proven unable to manage even its own speculation, so it should be put out of its misery, by making it much less free.

The strong hand of careful wisdom should now steer the free market, just as it should steer civilization. Start by noticing that “competitiveness”, all too often, means just war against the People.

Nobody is “competitive” against, no competition helps against, a rising acid sea, or competitive against ever more expensive energy.

So the notion of competitiveness, drummed up by the stupid leadership in the USA and the EU is besides the point. Beating other people will not help. The genus Homo is made to fight adverse elements. But recent civilization, which created those adverse elements, is made to foster them, not to defeat them.

Why? Mostly because, just as in finance, the major decisions are taken by a few self serving idiots in the shadows, using levers (such as the fractional reserve system), which are not on the radar of befuddled masses’ cognitive powers.

The leaders of the “representative democracy” we have today would be acting idiotically, even if they were smart, because they do not use the major advantage of democracy, which is serious public debate.

(Obama just fakes it, as he showed in furthering the mayhem in Afghanistan, or with health care, or with financial reform, or with his non stimulating stimulus, etc.; each time those big decisions were taken in secret, without public debate.

The EU does not even bother to fake public debate, at least under Sarkozy and Merkel.

It is no happenstance that finance is the paradigm of anti-democracy. As one of the Rothschilds, a family of bankers, noticed two centuries ago, he was the real power behind the throne, because he created money, and directed it to go wherever he wanted to. In other words he directed the (economic) activity of men for all to see. So he was a slave master, without whips and chains, having seized the muscles of the multitude. (President Jackson of the USA was aware of these facts, and hated the Rothschilds,  and big bankers in general.)

In the present world, it’s much worse, because the likes of Murdoch not just tell the multitudes what to think and what to feel, but, even, what to worry about (celebrity, not profundity). When some plutocrats, the Koch brothers, decided to create a fake protest party, the Tea Party, supporting the plutocratic cause, it was easy. It was even easier to make a campaign against the significance of a quickly raising CO2 level.

The beggar in chief proclaims he will put a billion in his can, for greasing the wheels of his next election, and experience shows that he will only listen to the biggest contributors. The latter, being obsessed by greed, are a selection of the dimmest.

Yes, a selection of the dimmest, because the money of the plutocrats is often inherited (Murdoch, Kochs, etc.). And, when it’s not, the passion to dominate other men is often the main driver of these plutocrats. So by accepting plutocracy, we accept to be led by the hand of fate (inheritance), and, or, by those devoured by the lowest instincts, and keen to devour us in turn.

Plutocrats direct the very hearts of the minds of the multitudes, to satisfy their masters’ lust.

Europe  has already known such a crisis: after the year 1000 CE, plutocracy grew irresistibly until inequality and inequity, distracted by religious fanaticism, led to the centuries of strife, that characterized the late Middle Ages and the so called Renaissance.

***  

***

SEMANTIC  SWITCH FROM RECESSION TO DEPRESSION, Following Yours Truly:

Paul Krugman is embarking on the depression bandwagon, in “The Lesser Depression“. He used to call the unfolding disaster the “Great Recession“. I have proudly brandished the notion that we are in a Greater Depression, years ago, for reasons I will make manifest, once again,  before this essay is over.

I mention this is not because I want to crow about my intrinsic glory, but because the unfolding catastrophe was foreseeable, long ago. My basic insight is that the “Great Depression” of the 1930s was a conjunction of several accidents, like a few waves coming together, whereas what we are facing now is several towering tsunamis, barring the horizon, the result of enormous, inhuman forces unleashed. The mental dwarves who lead us understand this not, and are not up to the challenge.

What we have now is more of the fundaments of what happened in the 1930s, but we cannot say it’s accidental, this time. The way to prevent said financial accidents was deliberately removed by people acting according to an ANTI-PUBLIC IDEOLOGY. How can one have a republic when the leaders have an anti-public ideology? This is an old quandary, already blatant in Rome, 22 centuries ago.

We  also have new structural disasters in the making, such as using more ecology and energy than we have at our disposal with present technology, poisoning the biosphere with greenhouse gases of several types, some of them with extravagant names and industrially manufactured. So the seas are rising and acidifying, droughts are wrecking the planet, and the poles melting, while the Earth’s climate is switching to the hot mode which brought saurians to Greenland and dinosaurs to Antarctica, 100 million years ago.

***

DROWNING IN CONTRADICTIONS:

Everybody knows about Mr. Obama: when he could, and should, have removed the tax loopholes of the hyper wealthy, he did not. Instead he went on a crusade, killing Afghans and Pakistanis, in violation of the laws of war, in the later case. Now he has killed lots of Afghans and Pakistanis, it cost a lot of treasure, lives, and limbs, and he has nothing to show for it, because he was engaged in one side of an Islamist civil war, which ought to be none of the business of the secular West.

If not a great humanist, Mr. Obama is, at least, a great humorist. For two years, he could have augmented the margin tax rate of the hyper rich to 99%. But, instead, he made taxes on the hyper rich lower than they ever were. So now he has a deficit, and he points at the newly elected republicans. He calls politicians “irresponsible”. But who was responsible of the USA, in the last 30 months? Mr. Obama could have taken thousands of decisions in the first few months. Instead he claimed that he was going to change Washington with cool love, and waited for the republicans to love him, and approve of all he might perhaps want to do, first, before he would try to do it. 

Now that Obama cannot ask the hyper wealthy to pay as much tax as the middle class, guess what? He claims that he wants to do so, to reduce the deficit. Or so he says. Darn, he forgot to do it when he could. Is he just phenomenally stupid, as some commenters in the New York Times are now finally suggesting? Or is he greedy like Clinton, and faking his supporters out, while conducting an effective policy on the right of the Tea Party? Or is it both?

Now Obama makes noises about hitting the brakes, the middle class, Social Security, Medicare. He says that’s because, a government is like a family, and has to watch its money. I guess the adults like him and his friends the financiers and plutocrats, get to spend as much as they want, while the children, the rest of us, are on a tight budget.

Obviously, Obama does not even know that he does not how money is created in a country. Otherwise he would not claim that a government is like a country, with him as the father of the nation. Government delegates authority to private banks to create most of the money. The government itself starts the process, namely the government itself creates money. Families don’t create money out of thin air, Mr. Obama, governments do.

In truth, as Krugman says: “Even if Washington and Brussels succeed in avoiding immediate financial catastrophe, the deals being made will surely make the broader economic slump worse.”

OK, the Europeans don’t have the excuse that Obama has, to be officially financed by Wall Street. The development of the month is that the French, also known as the “Europeans” came out with another half baked (thus indigestible) plan to rescue “Greece”, that is, themselves. States will lend 108 billion Euros to Greece so Greece can pay what it borrowed before, and, this time, finally, the banks are taking a cut of 50 billion euros or so. (The latter point thanks to Merkel, who seems to be waking up).

In other words, this plan crosses a psychological Rubicon: It is a PARTIAL DEFAULT OF A COUNTRY, Greece. It’s like the first rock coming down, symptomatic of an avalanche. By the way, the private bankers were also at the EU meeting. That’s more honest. But who elected them bankers? Just in the case of France, the French national debt will augment by 15 billion euros (~ 22 billion dollars), just to rescue Greece, a little country with 11 million inhabitants.  

Bankers ought to be in jail, or out of business, and their property redistributed to those they stole. Instead, they are at the table, feeding at the trough, talking big with the representatives of the People.

Somehow, what’s called “Greece” is a bunch of banks many of them in France (so France wanted a special “solidarity” tax on banks), or in Germany (and Germany found less painful for exposed banks to take a little cut). There is a French habit to have “taxes on solidarity”. The Germans fear the French imperial approach of making a super-state of the style Napoleon and his imitators visited on them in the last two centuries.

Then there is the real Greece of taxpayers, and small incomes, suffering while the super rich plutocrats, including the Orthodox Church, do not. The least the Greeks could do is to pay taxes, as they are in deep sh.., IMF director Strauss-Kahn pointed out, a few days before he himself got in deep sh…

To enhance my considerable popularity, I would propose a tax on Mount Athos, a vast private peninsula where the female gender is forbidden by the monks. Hey, please, one never knows, especially when a long deprived monk comes across one of these tempting sows, the help of the Lord could not be enough, and he could turn into a real Strauss-Kahn, grabbing whatever can be grabbed on a sow… Mount Athos is adorned with some extravagant new monasteries financed by those immensely wealthy and honestly hard working Russians…

So the Europeans came up with a Statement By The Heads Of State Or Government Of The Euro Area And EU Institutions (pdf). The fun part is, more of the old stuff, the famous 3%:

“All euro area Member States will adhere strictly to the agreed fiscal targets, IMPROVE COMPETITIVENESS and address macro-economic imbalances. Public deficits in all countries EXCEPT those under a programme will be brought below 3% by 2013 at the latest.”

Greece, is under a “programme”. The Greeks had insisted to convert the Drachma, dramatically, into the Euro, at too high a rate. That made Greeks instantaneously rich, but long term uncompetitive.

Speaking of competitiveness, Obama and the EU leaders views “competitiveness” as a panacea. Everybody will outcompete, beat up everybody else! Beating others up, is the wrong obsession. We saw what that one leads to, in 1914. If one improves competitiveness too much, worldwide, we will be at each others’ competitive throats. The improvements to be made ought to be phrased differently, from the EU to Washington.

It will be interesting to see how many European countries end down under a “programme”. The will expressed by the two big dogs, France and Germany, to reduce deficits under 3% is to be taken seriously: that is what they did in the 1990s, and Germany squeezed very hard its working class to become more competitive. It did it harder than France, and came out better.

So now we have a two speed Euro group: the big dogs pulling ahead, the colonies in tow. Nothing wrong with colonies, in my book. Better a big empire, than a big mess. (That does not mean that empires which cause messes are welcome, quite the opposite!)

***

SELF FEEDING FINANCE IS AN EXPONENTIAL TO PLUTOCRACY:

There are more than analogies between the crises in Europe and the USA. There is a common fundamental cause to most of the troubles of Western politics: the PRIVATE-PUBLIC MONEY CREATION SYSTEM THROUGH GOVERNMENT INSURED FRACTIONAL RESERVE LEVERAGED PRIVATE LENDING (thereafter to be called, as financiers do, “fractional reserve banking”). OK, it is more than a mouthful: it is a brainful, if you will forgive me this neologism.  A brainful which made us all sufficiently stupid, so that this exploitative system can perdure.

The very fact that fractional reserve banking is a brainful explains why we are stuck with it: nobody who is enraged enough to want to destroy it, understands it, and most of those who understand it will not complain about it, because they profit from it. “Fractional reserve”  is basically a banking system which makes the rich who are in finance richer, without much effort, if they are allowed to use it for their own profit without retinue, in connivance with the elected officials.

Fractional reserve leverage lending allows private individuals, unelected, unsupervised, to create money. Out of thin air. Differently from families. For some reason, those individuals, the bankers, also create politicians. That’s bad enough, but it gets worse: all the money they create is invested, not in the real world, but in a parallel universe they themselves defined, which allows them to claim unearthly profits.

Banks ought to NOT be allowed to speculate in finance, just in the real economy. Even Sarkozy said that at Davos, to the obvious rage of his audience of plutocrats (not that Sarko himself is not plutocratically connected: he is, very well, in several ways; just he was seduced by the truth for a moment).

When banks are allowed to speculate in finance, they create a self feeding loop, familiar to musicians using amplified music, when the sound of loudspeakers feeds back into a microphone. One cannot say this enough: the public has to understand it, to force their leaders to do something about it, to block the plutocracy’s conspiracy to capture civilization (whether this conspiracy is conscious or not, whether some are really plotting or not, is irrelevant: they have to be stopped).

***

EURO CRISIS, OR CONVENTIONAL BANKING GONE POLITICAL:

Critiques may point out that, indeed, non linear self feeding is the problem with American banking, but preventing it would have not saved French and German banks from slip shot investing in “Greece”, “PIIGS”, and the like. Correct. But the bankers invested in the European equivalent of American subprime mortgages, in connivance with the elected officials, knowing full well that bankers could do whatever, and they would be rescued by the friends they made sure got elected, by using the new serfs, the taxpayers. It was a win-win combination: the worse it got, the worse off the serfs would be, augmenting the bankers’ glory.

Because, at best, glory is most of what the plutocrats are about. Glory allows to forget the rest, the frailty of the human condition.

The self feeding financial speculation loop was the fundamental problem which led to the crash of 1929. Since then, every country has dealt with that situation differently, just as the meaning of “Central Bank” has differed in different countries. For example the safeguards in France prevented French banks to be caught in the 2008 meltdown. However, many French banks are getting caught in Southern Europe, more than banks of any other country, because of standard lending.

As the Germans went through a purgatory in the 1990s, accepting lower salaries, and lower profits, to build the future, they could to do it again. But watch France, because, if the economy cracks there, the People will rise in revolt. Also do not forget that there are large stimulus programs on, privately financed, government steered, at least in France. Thus the situation of France and Germany is not the same as that of the USA. As long as the center, Franco-Germania, holds, nothing much will happen in Europe, in the way of revolt.

***

WHY GREATER DEPRESSION? LET’S REPEAT SLOWLY:

Let’s revisit again, in a bit more detail, the causes of this Greater Depression.

The present state of affairs is afflicted with most of the causes of the Great Depression of the 1930s, but it is also adorned, with new ones.

An example is oil: it was becoming the new energy source in the 1930s. Right now, we have NO NEW ENERGY SOURCES. Oil will start running out badly in 2016, as both new and old fields prove very onerous.

What about renewable energy? Well, most of that is hydraulic. Solar could be a game changer in the South West USA, but has not received the support required from government to develop it massively.

Why is it that we have new massive energy source? Because we are led by irresponsible plutocrats, and, just as many Roman emperors, they fear really new technology (not all Roman emperors were so: Hadrian, for example, was an amateur architect, who had more than an hand in the construction of the Pantheon, the world’s most advanced building; but other emperors paid engineers to not reveal their inventions, on the ground that they would be socially disruptive!).

The reasons for depression found in the 1930s that we do not have presently are the collapse of international trade, the bankruptcy of thousands of American banks, and the rise of fascism in Europe and Asia. Those were accidental circumstances and consequences, which transformed a severe recession into a sharp calamity. Right now, we have the obverse: an irresistible catastrophe, not to be saved by any accident.

True, some of the old errors have been avoided, this time. But worse errors are being committed.

Leaving in place the financial crooks , idiots, and scams who caused the crisis is exhibit number one. In the 1930s, many crooks and their thought systems were promptly evacuated. By 1935, all countries were expanding strongly. Some (USA, Germany) started in 1933, thanks to revolutionary means. Yes, FDR was a revolutionary (for the better). Hitler was also a revolutionary, for the worse (but some of the methods were the same, namely going over the money economy, directly into the activity economy, by government fiat; Hitler did the freeways in the 1930s, Eisenhower did them, in the 1950s; now China is doing high speed trains, all over, all too fast).

Under the guidance of the self interested, crooked bankers, everybody in the West has turned into Barack Hoover Obama, father of the overspending family. Activity is cut back, just when it should be spurred. As long as the White House is not set on fire, that sounds smart.

Another new error, is a rise of fascist and plutocratic propaganda within the Western democracies themselves. In the 1930s, in Britain, France and the USA, the fascists tried to seize power (in France and the USA through insurrection, in Great Britain, by having the pro-Nazis discreetly steer the British state). They were rejected with lethal force in France and the USA, and Britain came to its senses, threw out the pro-Nazis, and aligned herself with France by 1938. It is true, as I always say, that much of the western plutocracy was allied to Hitler. But that was subterraneous. American GIs  were left unaware of the help American plutocracy gave to those who were trying to kill them.

Right now we have this strange situation that forms of fascism have gained traction in the  USA, ever since 1979, when the White House attacked the Democratic Republic of Afghanistan.  A succession of “wars of choice“, in other words, wars of aggression, where engaged in, starting with the Afghan war (I know the propagandist in chief says the opposite: he says what he was told to say). All these wars are susceptible to earn hanging to their authors, according to the precedent of Nuremberg.

The most famous propaganda feat was the attack against Iraq, which concluded a ten year siege, supported by the massive propaganda from Rupert Murderoch, CCC, and many other loud speakers of the plutocracy.

Propaganda, in the West, and especially the USA, was made against human rights, the Geneva Conventions, and for torture, injustice, and war crimes (such as strikes against civilians without due process, using robots in foreign, sovereign countries). This enormous reversal against the tradition of the Enlightenment is working: polls show that young people have been seduced by it. As Hitler put it (paraphrasing him):”I don’t care about you, your children already belong to us!

Some will say that I mix everything. No. They would say that because they have a small, handicapped, mutilated definition of plutocracy. Plutocrats are not just about wealth. They know they cannot enjoy wealth forever, because they basically STOLE it. They can only enjoy it, and their descendants, if and only if they demolish human rights. That is why they support wars of aggression, fight human rights, and support the tabloid mind. Plutocrats have never met an instinct they found base enough, for their evil purposes.  They even support the Greater Depression, because, with a bit of luck, it will bring the best fascism ever imagined.

The Patriot Act, Guantanamo, etc. threw large parts of the Constitution and tradition of the USA below the plutocratic, imperial bus. Moreover, whereas the bankers were left free to jump from windows in the 1930s, this time they are getting all the money they want from their political pals…. So that they can stay on top, and feed their pals again. Another self feeding loop.

So, although the exact same fundamental causes as in the 1920s are lined up now, differently from the 1930s, those causes have been left unpunished, at least in the leading countries of the West. In the 1930s, the bad bank managers were removed by bankruptcy, leaving banking cleaner and smarter thereafter. Nowadays the vultures are fed, and revered:”My friends!” say the president when he evokes them. (Whereas Teddy Roosevelt and his cousin FDR, were independently wealthy, and their minds had not been captured, or made, by the plutocracy; Teddy Roosevelt became president from the assassination of McKinley, by an anarchist; so Teddy was fully aware that things had to change, after a 20 years depression at the end of the 19C).

Another cause not found in the 1930s: the West is struck by globalization, which has become a weapon the plutocracy manipulates with gusto (in the 1930s, American plutocrats only manipulated Germany with gusto).

Globalization is turning into reverse colonization. Indeed Western serfs are left increasingly with no job, but pauperization.

In the 1930s, the world’s greatest industrial and technical power was the USA, the self, but accurately described “arsenal of democracy“. Thus the “Great Depression” was just a slow-down, a momentary adjustment to a more socialist system, from unsustainable plutocracy. Right now, the USA is losing its supremacy in nearly all ways. Not just this, but it is riddled with plutocratic disease. The USA looks more like the head of the rotting fish.

That is why the present economic malaise it is a Greater Depression. It is not just economic and financial, it is moral and mental, and even cognitive. How many people are aware of the outrage of fractional reserve banking? (It’s no accident that Switzerland put the toughest conditions on its fractional reserve banking, by rising the reserve of tiers one capital to 20%; Switzerland is more of a direct democracy, that’s why it does not want to have to come to the rescue of its banks!)

Delusion and self deception only makes the Greater Depression worse. In the 1930s, president Franklin Delano Roosevelt pointed out that “we have only one thing to fear, it is fear itself“. Now the ecology is giving way, the energy is getting unsustainably expensive, the water is getting scarce, and the industrial, educational and motivation systems are failing, at least in the West. We have much to fear. And, first of all, we have to fear stupidity itself, against which, the Gods themselves contend in vain.

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Patrice Ayme

How Big Bankers Became Outlaws.

April 28, 2010

[A much larger post will develop the full picture in a civilizational perspective].

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1) We are living in a state of law. Supposedly.

2) That state is democracy, the rule of the demos, the people. It is not the rule of the bankers. Supposedly.

3) Political leaders have recently given PRIVATE unelected individuals, the bankers, the means, and the right to create money, the money everybody uses, through debt, ex nihilo, starting from PUBLIC funds. (This is called, somewhat misleadingly, the fractional reserve banking system.)

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3) Contradicts the union of 1) and 2). Because money is power, and power is supposed to be exerted by the people. But big bankers create money at will, with the complicity of the political leadership. So they create power at will.

Thus, the present system incite, big, MONEY CREATING BANKERS TO BECOME GANGSTERS, and OUTLAWS. Indeed the huge  power bankers are allowed to gather overwhelms the power of the people.

It is as simple as that. Thus one needs to get rid of the private fractional reserve PUBLICLY funded money creating system.

The situation has been rendered worse in the last decade by the blossoming of synthetic derivatives which are out of this world bets which could not possibly be paid back.

Synthetic derivatives transformed a 300 billion dollars loss in real mortgages into a potential exposure of 24,000 billion dollars, thanks to the leverage of the derivatives squared.

Then political leaders, accomplices with the bankers, offered to pay the 24,000 billion dollars, on behalf of taxpayers, leaving the economy in tatters.

Not all is lost: Goldman Sachs got its entire 2008 profit, 13 billion dollars, from taxpayers, through AIG, thanks to US politicians, and the USA loves a winner. Love and dove, there are still many a feather to  pluck.

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PA

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Technical P/S:

1) The numbers above pertain to the USA, alone. European banks use the same derivatives, and some had losses so great that they survived only from the injection of public funds. But, differently from the USA, this was not a complete gift: some of the biggest banks became property of the public (starting with the British “Northern Rock”).

2) Synthetic derivatives are, mathematically and philosophically, a generalization of the licentious money creation, at will and from thin air, or no air at all, of the privately managed, publicly funded, fractional reserve system, thus proving further, if need be, how erroneous the latter can be.

3) The fractional reserve system ought to be kept, to provide the capital needed, simply it ought not to be anymore the province of a small private oligarchy gaming it.

4) The huge  power bankers are allowed to gather overwhelms the power of the people. Proof? Look where the job of the people are (overseas) and where capital and investments have gone (overseas, from Grand Caiman to China). This empowering of a small elite, while weakening the rest of us, violates the spirit of our law, all the more since it is due to a mechanism, not to any sort of merit. Moreover, it is a financial mechanism, and thus that oligarchy is actually a plutocracy. Plutocracy is to civilization what cancer is to animals. Terminal.

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