Way back in the mists of time, the World Economic Forum (WEF) gifted us a short video which informed us of what we could expect from life in 2030. You may remember the tagline - “you'll own nothing and you'll be happy.” There were, in fact, eight separate predictions; our prospective asset free existence was merely one of them. Of the eight, two were of the slightly wacky, science fiction variety, the modern day equivalent of the flying cars so beloved of earlier crystal ball gazers. Apparently, some of us will be on our way to Mars to seek out alien life and others will be the beneficiaries of donor organs from a 3D printer.
However, it's the other six that should interest us. After all, it's not an over the horizon date and the conditions that exist then will not have landed, fully formed, in the year 2030 AD. There will necessarily be a process that plays out in the intervening years. So, what are these forecasts?
We'll own nothing and yet we'll be happy.
The United States won't be the world's leading superpower. Instead, a handful of nations will dominate.
We'll eat much less red meat than we do now; it will be an occasional treat, rather than a staple of our diet. This will be for the good of the environment and for our health.
A billion people will be displaced by climate change, so we'll have to get better at welcoming and integrating refugees.
Polluters will have to pay to emit carbon dioxide, in the form of a global tax. Fossil fuels will be history.
Western values will be tested and the checks and balances that underpin democracy will need to be remembered.
But why should anyone care what an outfit called the WEF says? After all, anyone with the foresight to annex a suitably named web domain and the funds to produce a simple video could be behind it. But we should pay attention. This is not some fringe outfit, peopled by extremists. This is an organisation that counts heads of state and titans of industry among its members, whose slogan 'Build Back Better' is the current rallying call of the Western political establishment and whose founder, Klaus Schwab, is the leading advocate for the Great Reset. If the likes of Schwab are trying to soften us up with video content, we can be confident that it is well supported and indicative of current elite thinking.
It is tempting to view Western governmental action of the past two years as an aberration and to excoriate them for their serial incompetence. This would be a serious mistake. Whilst it is possible to see the English speaking world and Western Europe as succumbing to Leftist zealotry and to dismiss this tendency as simply a plague that has been seen before and which will be dealt with severely at the ballot box in due course, that would be to miss some notable contra-indicators. For instance, the UK is under a nominally conservative government, unlike the majority of others in the West, and yet they have been marching in lock-step with the socialists, which tends to point to a degree of behind the scenes co-ordination to which we have not been privy. And lock-downs, mandates and the suppression of early treatment options are all actions that are actively harmful, not simply misguided, and steps that have never been taken before.
Is it instead possible that the policies adopted (especially by the US since January 2021) are intentionally destructive? Are they in furtherance of an end state that matches the WEF vision of our future? The video didn't mention the pandemic (it was made in 2016), but it does lean heavily on the second of the twin pillars being used to justify the shape of things to come. Climate change alarmism is the trigger for much of the proposed alterations to our current lifestyle.
Some non intellectual, cod psychology might be illuminating. The world seems to be broadly divided into two types of people; the rule followers and the naturally skeptical. Neither group understands the thought processes of the other. Perhaps it's always been that way and it is only now that these differences are cast into sharp relief. The rule followers believe that those who reign over us have our best interests at heart and should, therefore, be unquestioningly believed and obeyed. They believe what the 'experts' tell them and what the media decides is their dish of the day and view those that don't feel inclined to join them in these convictions as troublemakers and conspiracy theorists. They cannot understand why anyone would doubt government intent – people should always be given the benefit of the doubt. The skeptics, on the other hand, believe that trust is earned. They prefer to do their own research.
I could murmur the usual platitudes by way of an assessment of these two groups; six of one, half a dozen of the other...they both have a point...both attitudes may have value, given circumstances and so forth. However, this is not so. Rule followers would make good cannon fodder in times of war, but nothing else about their mindset is beneficial, especially in the modern day, where government and big business have been repeatedly exposed as liars and manipulators. Indeed, the intellectual bankruptcy of the rule followers' position and their gullibility can be exposed with ease; if the government can always be trusted, how did Nazi Germany come to pass laws that contributed directly to the Holocaust? And, unfortunately, rather than simply designating these trusting souls as harmless sheople, the truth is harsher; they are collaborators and facilitators of a coming totalitarianism and that has always been their role when something similarly tyrannical has been attempted previously.
It's also worth examining the climate change debate from a new angle. And, in truth, the nature of the global warming bandwagon isn't hard to divine if you are a sceptic. If we allow that government has explicitly linked the pandemic and climate change and shown considerable enthusiasm for exploiting both to further their own ends, it should be incumbent upon us to immediately cast a jaundiced eye at their claims and investigate accordingly. If you are a rule follower, on the other hand, you will almost certainly have fallen for the party line and believe some version of the contention that both phenomena are the result of man encroaching on nature and we must, therefore, revert to some mythical Garden of Eden existence, sans fossil fuels. However, it seems much more sensible to believe that if a government has lied about one of these circumstances whilst demonstrating the same level of devotion to the other circumstance, we should adopt the skeptical approach.
So, just for the sake of variety (and in the hope that a different approach may reveal hidden truths), let's adopt a working hypothesis that challenges preconceived notions. Then let's test the hypothesis against the statements and policies that today's elites are foisting upon us and see if it holds water. And the hypothesis is that we assume that the actual truth of any relevant matter is diametrically opposed to the view that we have told is credible and that, as must logically follow, the government and their handmaidens in the legacy media are trying to lead us down the garden path. This is not as willfully random as it may appear. Neither is it uninformed.
We have been bombarded with 'information' and guidance during the past eighteen months or so. A large proportion has been propaganda, often the opposite of the easily discoverable truth. Lock-downs don't work (see Sweden), masks have never worked, there is no such thing as asymptomatic spread, the vaccines are not safe and effective (see all cause mortality). In fact, identifying truthful statements from the government is more challenging than exposing the willful untruths with which they are still assaulting us. And, having invested considerable time and effort in researching the pandemic and writing a book about it, I do not believe that there is a single aspect of the government position that is not, at the very least, wreathed in doubt. There is, however, an overwhelming cache of information that is blatantly untrue.
I don't propose to give chapter and verse on the claims and counterclaims of the global warming scare story either, but rather to apply my hypothesis to the policy claims made by the elites and, through that mechanism, demonstrate what the actual end game is instead. To this end, the first assumption that we must turn 180 degrees is the claim that the elites are concerned about the dangers of global warming and that they genuinely think that we have until 2030 to save the planet. They don't believe either of those things. The climate panic is merely a cover, a way of achieving their ends while keeping the rule followers in line.
Believing this reversal of the conventional wisdom shouldn't actually be a challenging ask. After all, the scare has been with us since the late eighties (just after the coming Ice Age alarmism of the mid seventies) and carbon emissions have been steadily increasing ever since. Despite what you may believe, there has been no actual urgency as to practical matters, but there has been plenty of posturing, hot air and nonsensical regulation that has achieved nothing except complicate everyday life and enrich certain favored groups. If the politicians really believed that we were on the cusp of irreversible human induced climate change, they wouldn't all be flying to Glasgow for the latest climate bonanza (COP 26), would they? There wouldn't be 400 private jets sitting on the tarmac at the airport, either.(1) They'd be conducting business by Zoom calls, as they did during the 'pandemic' when the optics were deemed favorable.
So, sticking with our hypothesis, the issue of energy is being used to advance a political agenda instead and CO2 is the cause celebre that has been selected. Three of the six predictions made by the WEF reference climate change explicitly. And, as will become apparent, the other three will be arrived at by invoking similar, straw man solutions.
As previously noted, 2030 is not a distant destination. And these predictions will have happened between now and then; perhaps singly, or maybe all in a rush. Certainly, the phasing out of red meat and its replacement by some other source of nourishment doesn't feel like something that is in progress. It feels like a journey that has barely begun, although that impression isn't entirely accurate, as we shall see in due course. Likewise, the contention that the US will no longer be the dominant superpower. One might reasonably ask why it is that an organisation which predicts the emasculation of a country is still patronized by the President of said country, especially as there is no sense that the prediction is a warning, but rather a welcome development. Why wouldn't Biden be taking issue with the WEF? And how would this demotion come about, anyway? Because, make no mistake, it's a demotion that is being spoken of, not an expectation that a bunch of other countries will suddenly leapfrog the US due to the sum of their own efforts.
This series of essays examines how it is that the WEF vision is slated to become a reality. It will do so by demonstrating that, if we apply our hypothesis to current policy, proposed legislation and the professed ambitions of our political class, we will be far nearer the truth of it than if we were to take their agenda at face value. Stated intentions are hogwash and this administration's true objective is to bring about the humbling of America. In that endeavor, the state is being aided by many other players, some of whom have been manoeuvring behind the scenes for decades. It is necessary to delve into history if we are to understand how it is that America has arrived at this juncture and also to demonstrate how much damage has already been done. At that point, we will test the hypothesis against current events and examine what is really in prospect.
The United States is widely viewed as the pre-eminent Western democracy, the exemplar of that form of governance. But it isn't structured like any other Western democracy, nor was it intended to be. The US is an experiment; a republic, designed in a way intended to make it as immune as possible to the diseases that afflict other democracies. The separation of church and state, the recognition of natural rights (not rights granted by the state), the complicated machinery of the three branches of government, the division of state versus federal power and the right to bear arms were the key innovations that underscored the attempt. And it was under internal attack from the very beginning, an assault that has been sustained to the present day.
Latterly, there are three particular elements that have had the greatest impact on the long term financial health of the ordinary American. Two of them have already come home to roost and the third looms like the sword of Damocles and influences policy more than any other factor, not that its importance is widely known and is only rarely acknowledged. Two elements have functioned in such a way as to incrementally sap middle America of its strength without being too obvious about it, while the third is poised to deliver the coup de grace, if allowed.
Although the true origins of today's disaster date back to the time of President Lincoln and centre on the eventual creation of a central bank and the subversion of the constitutional invocation against federal income taxes, there were several subsequent step changes in the gradual corruption of America, not least in FDR's New Deal era. Nonetheless, it can be seen (in retrospect) that the greatest time to be an ordinary American (in economic terms, at least) was between 1945 and 1975. Since then, despite the propaganda, middle class and working class Americans have been progressively impoverished by the elites.
We imagine, as we have never known it to be otherwise, that the United States was always a superpower. It wasn't. Prior to the Second World War, European empires held sway, albeit less and less convincingly. It was the economic transformation of America between 1941 and 1945 that established her as the powerhouse that we are familiar with today. But even that progress is not the straightforward story of legend. It is almost certainly impossible to arrive at an accurate appraisal of how economically successful the US would have been in the post war era, were it to have continued on its trajectory without outside assistance. Almost certainly it would have still been a powerhouse. At it happened, however, from 1944 onwards, the US benefited from a global financial system that protected the US dollar and cemented the country as the leading global superpower.
The Bretton Woods arrangement was straightforward. Forty three allied countries agreed to peg their currencies to the dollar, which in turned was pegged to gold at a fixed rate. By this mechanism, currencies were stable and all dollars owned were convertible to gold at a known rate, as required, or in a circumstance where a country harbored some doubts as to the virility of the dollar. Because the dollar was backed by gold, there was strong demand for the currency. This, in turn, meant that there was a need for a larger supply of dollars. A larger supply of dollars means that US asset prices increase, because there is more money around to pay for them.
While the arrangement was to prove to be the key element that cemented America's pre-eminent role in the world, it was not an entirely self serving mechanism. There was a pressing need for stability in the aftermath of World War II and Bretton Woods was a way of ensuring that state of affairs.
Between 1945 and 1974, real incomes in the US rose in line with the country's Gross Domestic Product (GDP). In the light of what was to come, that was a commendable outcome, notwithstanding the fact that inequality undoubtedly coloured some sectors of society. Indeed, even as late as 1985, the average American was better off than today by several orders of magnitude. The Cost of Thriving Index, the amount of money needed to pay for the basic costs of housing, healthcare, transportation and education for a family took thirty weeks to earn. By 2018, it was 53 weeks.
“But the counterfactual reveals an even starker picture: In 2018, the combined income of married households with two full-time workers was barely more than what the income of a single-earner household would have earned had inequality held constant. Two-income families are now working twice the hours to maintain a shrinking share of the pie, while struggling to pay housing, healthcare, education, childcare, and transportations costs that have grown at two to three times the rate of inflation.”(2)
In 1975, a standard nuclear family of parents and 2.2 kids could comfortably exist on the wage of one middle class adult. If there ever was an American Dream, it was most likely to be attained in this post war period. There are many other examples with which to illustrate the the stark division between what was and what is. For instance, GDP has risen 118% since 1975 and yet the median real income for a college educated worker has only increased to $72,000 (from $55,000), rather than to $120,000. And, of course, while wage inflation has foundered, other inflation hasn't and has additionally decimated the purchasing power of even that underwhelming wage.
So, where has all the money gone? There is a clue in the much abused example of rich tax payers, the statistic that conservatives love to trot out when they want to make socialists look particularly stupid. The bald facts are that the top 1% tax payers pay 22% of income tax. The less acknowledged statistic is the one which shows that, in 1975, the top 1% paid 9% of total income tax. Over the same period, the bottom 90% of tax payers have seen their share of tax paid fall to 50%, from 67%; from which we may further deduce that the top 10% of earners currently pay 50% of income tax. So, rather than making a virtue out of the increase in tax paid by the wealthy, one could instead acknowledge that the statistic points to an obvious growing inequality in the proportion of income enjoyed by the rich as opposed to that enjoyed by everyone else. If they are paying more tax, they are earning more income.
How has this come about?
“We chose to cut taxes on billionaires and to deregulate the financial industry. We chose to allow CEOs to manipulate share prices through stock buybacks, and to lavishly reward themselves with the proceeds. We chose to permit giant corporations, through mergers and acquisitions, to accumulate the vast monopoly power necessary to dictate both prices charged and wages paid. We chose to erode the minimum wage and the overtime threshold and the bargaining power of labor. For four decades, we chose to elect political leaders who put the material interests of the rich and powerful above those of the American people.”(3)
There is undoubtedly much truth in this and the estimate is that $50 trillion has made its way from the 90% to the less than 10% in this way. And the last sentence of the quote gives much needed context to who the 'we' actually are. After all, it's hardly the case that the people chose the party of capitalism for the entire period – five terms (or twenty years) were served by Democrat presidents. Nor is the case that the voters knowingly gave away vast chunks of future income knowingly. There are other reasons, which the likes of Time magazine (the source of the previous two quotes) would be less willing to recognize, focusing as they do on political leaders who also put the material interests of the welfare state ahead of ordinary Americans and who pursued foreign wars, but who were nonetheless darlings of the liberal movement and, as such, beyond reproach.
President Johnson, in particular, was responsible for a vast expansion in federal deficit spending to finance both the Vietnam War and the Great Society; the creation of Medicare and Medicaid stem from this period. Spending money that it didn't have became a temptation too difficult for government to resist. After all, the dollar was the anchor of the world financial system, so liberties could be taken with little risk; or so it was believed. Other countries came to feel rather differently. Economies such as Japan, Germany and France were dependent on the US dollar to maintain the economic growth that they were enjoying and the reckless deficit spending and large trade deficits which were becoming a permanent feature of the American policy landscape did not inspire confidence.
The element causing the most disquiet was the foundational commitment to peg the dollar to gold at $35 an ounce. America had accumulated vast new debt, did not have the money to pay for it and was haemorrhaging its gold reserves as nation after nation redeemed its dollars for gold. As 1971 progressed, it became apparent that the Bretton Woods agreement was in its death throes. Becoming the global gold repository, in order to satisfy foreigners who doubted the strength of the dollar, had never been part of the US plan; the idea was that the gold backstop engendered trust in the dollar, trust which had now been compromised.(4)
There were solutions to hand, two in particular, but both shared one unattractive attribute. They required fiscal responsibility. The US could have got its economic house in order, ameliorated deficit spending and reduced its trade deficit or it could have renegotiated the rate of dollar to gold conversion and similarly exercised monetary restraint in the aftermath. It chose to do neither, but to instead untether the dollar from gold and abandon any further pretense. This is what is now known as The Nixon Shock.
From that point onwards, the US dollar has been a purely fiat currency. This means that the currency is not guaranteed by anything of any intrinsic or agreed upon value. It stands or falls by the perception of its value. It is, inevitably, less stable and less desirable. However, there is one massive bonus if you happen to be a politician. You are now able to have money printed at will, with no need for restraint. Although nothing lasts for ever, least of all that.
The US currency thus became a floating currency. The other currencies that had been pegged to the dollar also became, perforce, floating currencies. Overnight, the world financial system thus became less stable and more prone to manipulation. And America had to come to terms with two unfamiliar anxieties. Now that the US dollar was not guaranteed by gold, would foreign entities still hold it? And, given the continued profligacy of US governments, would they continue to hold (and purchase) US debt, or would their new found lack of confidence result in wholesale redemptions?
The US was still four years away from concluding its business in Vietnam and President Nixon did not deem a policy of belt tightening to be a political winner. Internationally, governments were disenchanted. The dollar's status as the world's reserve currency had been abused by successive American administrations, thus endangering other economies as well as their own. However, far from exhibiting contrition, the American focus was instead on uncovering some other mechanism, by which they might regain their recently surrendered hegemony. Any such scheme would necessarily have to replicate the demand for the dollar which had previously sustained the US economy for thirty years.
The requirement that the dollar be in demand on the global stage needs to be explained. It is far more important than it may appear. Once the Bretton Woods agreement had bitten the dust, the risk was that overseas demand for dollars would decline. This would have created a massive problem domestically, as the dollar would have reverted to its true (much lower) value, which would then have had a huge impact on the ability of government to spend. Bretton Woods had created a massive artificial demand for US dollars, thus propping up its value at levels it would not otherwise sustain.
An artificially high value allows the US to run huge deficits in domestic budgets and in trade. This is because it allows the government to pay lower interest rates than it would have to otherwise as it doesn't have to try overly hard to attract investment in the dollar. Because of this mechanism, the money that might have been spent paying interest to investors in government bonds is now available to spend on warfare and welfare. It also props up the standard of living as loans for vehicles, houses and goods are available at low rates.
If foreign countries need to obtain dollars for any reason, they do so by one of two methods. Either they sell goods cheaply to the US and run a trade surplus with them, in order to retain some of the dollars they are paid. Or they buy dollars in the foreign exchange markets, thus increasing the value of the dollar (because they have increased the demand for it) and decreasing the value of their own currency in return. It's easy to see why Bretton Woods was such a boon and equally easy to spot why another similar mechanism was vital if the US was to retain its place in the global pecking order.
Fortunately, such an arrangement was at hand, although it took four years to reach fruition. We know it as petrodollars, which are US dollars that are received by oil producers in payment for oil and which are then deposited in Western banks. This system, arrived at via a 1974 agreement with the Saudi Arabians, was introduced by virtue of the Saudis insisting that every nation that wished to purchase oil from them paid for it in US dollars. Surplus Saudi oil receipts were to be invested in US debt securities. In return, the US pledged to defend Saudi militarily (if needed) and to supply materiel at preferential rates. By 1975, all of the oil producing countries of OPEC (The Organisation of Petroleum Exporting Countries) had decided to take advantage of a similar offer. Et voila. A long term guaranteed demand, not just for US dollars, but for the purchase of government debt as well.
So, as before, the currency is maintained at artificially high levels. This time though, there is an explicit agreement to purchase US government bonds (rather than a hope predicated upon their desirability) and the ever increasing energy needs of expanding economies ensured that there were always plenty of excess dollars sloshing around in the Gulf States, to be diverted into what are, effectively, loans to America.
And it's not just an economic boon. It's also a geo-political one, as it forces any country that needs access to oil that it cannot itself produce to acquire dollars. Option one, the markets, are expensive as a long term commitment. Option two, on the other hand, only requires that a country sell products at attractive prices to the United States. As well as the obvious consumer bonus for US buyers, the country producing the imports needs to keep costs down, thus depressing their own standard of living. US competition is kept in check.
Inevitably, given that the petrodollar system replicated the Bretton Woods arrangement (on steroids), the same stressors and mechanisms were in play.
One, in particular, is noteworthy. With more demand for dollars, comes an obvious need to produce more dollars. And with more and more American dollars circulating globally, American asset prices rose; which is another way of saying that inflation was an inevitable consequence. The second arm of the original agreement is also impactful; excess profits being invested in US debt security. This represents what is, effectively, a guaranteed overdraft that continually expands. And the third benefit is that America, in contrast to all other nations, can buy its oil in a currency that it can print at will.
There are other obvious effects. Other countries have to behave with more circumspection. They have to operate in the world without a safety net. This hampers competition and gives the US an advantage that is effectively insurmountable as long as the system remains in place. It is especially compromising to countries who are obliged to trade for oil. Their consequent need for dollars must induce a certain wariness in any potentially contentious dealings with America and leave them vulnerable to bullying.
Further, like a gambler with an inexhaustible line of credit, government has no incentive to exercise economic good judgement as, in purely monetary terms, there will always be funds available; gross errors go unpunished and the bipartisan political orthodoxy is absent any pressure to balance the books.
All the United States has to do is demonstrate that it is willing and able to enforce its will in the Middle east, as per its obligations. It's not even primarily about having access to oil for its own purposes, not that this is a minor consideration. It's just that it's dwarfed by the need to keep the petrodollar system up and running. And it's not as though a rising oil price will do much damage to American government; after all, the extra profit enjoyed by the oil producing nations will just be used to finance more US debt, although rising energy costs will heavily impact ordinary Americans. More on that soon.
In summary, the petrodollar system sustains the US economy. It creates an artificial demand for dollars, from which flow massive benefits; low interest rates, cheap imports, the ability to simply print money with gay abandon and jury rig an economy that would be unrecognizable without it. It follows, therefore, that if the petrodollar system were to be compromised, serious (catastrophic) consequences would ensue. For starters, there would suddenly be a vast amount of dollars circulating internationally which would be no longer required and which would come home to roost. This is the classic definition of hyper-inflation and it would, almost inevitably, devastate the US economy as there would be a need to vastly reduce the overall supply of US dollars, thus also crashing the value of assets held in dollars. It's clear that US citizens are at risk of vast financial hardship. So, maintaining the petrodollar system should be priority number one.
The third major element, responsible for exacerbating the longer term effects of government policy in transferring vast wealth from the ordinary American to the elites, is the Federal Reserve Bank (in cahoots with Wall Street and the government itself) and the role it plays in ensuring a rollercoaster ride of booms and, more importantly, busts in a flagrant dereliction of its number one founding role; to manage the economy effectively and to control inflation.
“The Federal Reserve is responsible for the boom - bust cycles. It’s responsible for price inflation, recession, depression, and excessive debt. Although the central bank can get away with mismanagement of the economy for long periods of time, its policies are always destructive. Unchecked, the policies of a central bank lead to financial chaos...”(5)
The Federal Reserve is not federal; nor is it a reserve. Contrary to popular belief, the Fed is not even part of government; that's the Treasury. It doesn't, therefore, hold any government reserves. The Federal Reserve is a private bank, with individual investors. But that does not necessarily make it wholly independent of government or the Wall Street banks. Indeed, the shareholders in the Fed are the Wall Street banks. And government has always acted in ways that benefit the Federal Reserve, both with regards to legislation and regulation; perhaps an inevitable consequence of relying upon it for funds. In any event, it's useful to think of the three entities as one. It's just that the banks get a licence to print money, the government gets unlimited access to funds to indulge its every whim and the people get to pick up the tab.
It's worth emphasizing, at the outset, how illogical the concept of central banking is, from the perspective of the people, at least. Not just in the US – there are over sixty of them worldwide. However, none of the others create currency in dollars; therefore, none of them have to deal with the double temptation of not only being able to create money from nothing but being able to do so while benefiting from the safety net of the petrodollar system.
“The country sells bonds to the bank in return for money it cannot raise in taxes. The bonds are paid for by money produced from thin air. The government pays interest on the money it borrowed by borrowing more money in the same way. There is no way this debt can ever be paid, it has and will continue to increase.”(6)
It's bad enough if the Treasury is creating bonds which other countries buy in dollars. It means that, even if the debt is being bought by foreign entities, there are a lot of dollars out there, indicative of a potential problem if things go sideways; as previously observed. But it's considerably worse if the domestic need for dollars outstrips the demand for US government bonds and, instead of already existing currency being used, it's Wall Street banks that are picking up the tab with money provided by the Fed. Money that the Fed has created. It is inconceivable that this process will end well.
As previously noted, America was not always pre-eminent and hasn't always levied a federal income tax so, in times of strife, it had been obliged to borrow in order to achieve its policy aims, especially its military ones. And bankers, being forever mindful of the bottom line and of the customer's current and future credit status, had demonstrated a tendency to finance both sides of a dispute in order to safeguard their investment. A trait that had not gone unnoticed by Napoleon, for one:
"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."(7)
Bankers also favored secured debt over unsecured, or a tax on the people that guaranteed them a return. These occasional, temporary arrangements became formalized in the late 18th and early 19th centuries with the creation of the forerunners of the Fed, but both banks had a time limited charter, renewal of which was successfully stymied. Neither had been funded by a federal income tax, as the sums involved were not overly large and the interest payments had been made using funds from trade tariffs, a tax that was explicitly endorsed under the Constitution; a federal tax on income, on the other hand, was expressly forbidden. Given the lucrative nature of the central banking arrangement (for the bankers), there has been considerable speculation as to how many of the fledgeling Republic's costly misadventures had been fabricated by the bankers themselves, by proxy.
The concept of being able to access a federal overdraft in times of emergency is not, in itself, a bad thing. If the loan is from actual funds. But the general idea is that, in normal times, the federal government funds its activities from the taxes that it collects and it is, therefore, limited in scope; especially so, given the lack of said federal tax. This was the way the Founders wanted it; this was part of the delicate balance between federal and state power. Without a federal income tax, the states had more independence. The Constitution was clear on this issue; unless federal power was specified (enumerated), the states held sway.
Ordinarily, of course, a country able to spend recklessly by creating money that it can't otherwise generate in tax revenue, will necessarily make its currency weaker, because inflating the supply of said currency reduces its value. In order to attract investment in government debt, the country in question will need to raise the interest rate paid to investors. This system is inherently self policing – at a certain point, the amount of interest that is required in order for the government to raise loans will be prohibitive and, if national bankruptcy is to avoided, something else has to give – such as government spending.
Of course, if a government created its own money, rather than having to borrow it from a private bank, it would have one less cost to worry about. But, inflation of the money supply would still effect its dealings with other countries in terms of trade and would inevitably have a political effect, domestically. In other words, there would still be safeguards. But then bankers would not earn fees. Neither would they be in command of the money supply. This is where it gets especially interesting.
From the mid nineteenth century onwards, Wall Street was hankering for a change. It was unhappy that there was no lender of last resort, no backstop, which meant that the banks would have to stand or fall on the merits of their performance. Successive government's adherence to the gold standard, a direct descendant of Bretton Woods (minus the international dimension) meant that the US constrained its federal spending, keeping it within the limits of the value of its gold reserves. Clearly, if a bank has to take proper account of the risk/reward equation, responsible decisions are likely to be the outcome.
However, banks didn't seem to believe that the practice of properly balancing benefit and downside, which governed the business practices of every other sector of industry, should apply to them. They felt that the monetary system lacked 'elasticity', code for a way of expanding the supply of credit without the unfortunate problems that tend to accompany an inherently riskier strategy such as this. Their preferred solution, therefore, was elasticity complete with a safety net; the aforementioned lender of last resort.
“What the largest banks desire is...privatized profits and socialized losses. To cover losses requires a supply of money that stretches to meet bankers demands....the banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses.”(8)
The story of the Federal Reserve Bank's eventual establishment in 1913 and the subsequent imposition of the federal income tax (with which to repay the interest on the loans that the bank made to the government) has been told elsewhere and it is not the purpose of this essay to delve into that unfortunate episode. It is, however, noteworthy that the President who enthusiastically championed its creation in 1913, was harbouring huge doubts just six years later:
“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by its system of credit. We are no longer a government of free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”(9)
If a bank was to loan government its own money, which was the ostensible arrangement with the first two incarnations of a central bank, that would be one thing. It still wouldn't be acceptable, given the fact that it is unnecessary, but at least there would be partial justification. But, instead, the Fed is allowed to create the money that it lends the government out of thin air. Think about that for a moment. The government has granted the authority to create money out of nothing to a private bank. It then allows that bank to lend it to itself (the government) and pays the private bank for the privilege.
Banks should provide two separate functions. One is, effectively, a safe place to warehouse your money. The bank allows access (obviously, it's your money) and provides services such as ATM access. The second is for the bank itself to loan money, upon which it receives a return commensurate with the risk attached. However, fractional reserve banking mixes the two functions. Banks lend depositors money out to another entity, who then deposits that loan into a bank account. The same process is repeated, with perhaps 90% of each deposit being available to fund another loan. In this way, $1,000 in deposits is transformed into $10,000 in loans.
The attraction to the bank is obvious. They may pay the single depositor a rate of interest (or not, if the money is in a current account), whereas they can charge ten loanees interest. It's not even a simple question of paying the depositor less than the rate of interest on the loan; there is a huge margin for safety if you can make profit from ten, separate transactions. Of course, the odds are not quite so favorable if no fiscal parachute is available, if the loans go bad and profit disappears. Well, with the Federal Reserve in existence, that problem is solved – if you're a big bank, that is. It's a licence to print money.
Banks are required to hold a cash reserve, a fraction of the money that has been loaned out. This serves two functions. Along with the deposits that the Fed can make into the reserve accounts of said banks, it acts as a control mechanism for the amount of real money plus phony money in circulation. The central banks can set the reserve percentage at whatever level it chooses. It's the difference between, for instance, $10 reserve plus $90 in funny money loans and $20 reserve plus $200 in funny money loans. It also provides the illusion of probity, that there are at least some controls in place, that the banking system isn't a modern day Wild West.
Of course, if the Fed is always available to step in and replenish the reserves with yet more funny money, what the reserve system is actually signalling is a different picture. Instead of the obligatory reserve being a guarantor of sensible decision making (however underpowered a 10% reserve appears), it stands as a reminder that the system can only ever be inflated, because if that reserve disappears due to business failures, it will be replenished.
So, more loans equate to more profit for the banks. If you're a banker, this is an atmosphere that needs to be encouraged. The question is what conditions would prompt more people to take on loans? With the absolute need for depositors to provide liquidity removed, interest rates can be kept low. There is no overriding necessity to attract them. This diminishes the incentive to save, while enhancing the desirability of a loan. And interest rates are kept low by the ready supply of easy money.
Other central bankers, while assuredly vulnerable to political pressure – which takes the form of forcing an increase in the money supply, more often than not, the better to bribe the public – at least had to exercise a degree of caution. They have less margin for error as their country's economies were never going to be as bullet proof as America's. In other words, there was a limit. For the Fed, there has never been a limit, which also means there has never been a time when they were not amply rewarded for inflating the currency, at the expense of the common man. The back stop has always been the petrodollars; the gift that keeps on giving. There is no incentive for either political party to preach fiscal responsibility and no need to dampen the mood with increased taxes; indeed, that message has frequently been electoral suicide.
“The ease of financing spending by the Congress with the help of the Federal Reserve makes huge deficits a foregone conclusion. It’s cheaper in the short run to inflate than it is to borrow and much more palatable than immediate taxation to pay the bills.”(10)
However, as previously noted, increasing the money supply without due regard to inflationary pressure will eventually have the inevitable effect of reducing the value of the dollar in the ordinary American's pocket. And it's the worker that will be hit hardest – they are far enough downstream.
“The Cantillon Effect explains that money is first distributed to the financial classes, bankers, government, etc., and then the masses. As money ripples through the economy, its value is inflated away. The first people to receive the money do not experience the inflationary (loss of purchasing power) that the last people to get the money do.”(11)
It can be seen that, structurally, any monetary system backed by a central bank will always be in debt. There will always be interest payable on loans to the government, because the political temptation to use the overdraft is too compelling. In America, even more so. And, notwithstanding the inequality of the Cantillon Effect, if the Federal Reserve had otherwise ripped everybody off without fear or favor, that would have been one thing. A low grade, long term indebtedness that would have to be paid for by generations to come. But, that hasn't been sufficiently rewarding for the banking community. It's easy to see why. How much altruism can one expect from people who have their hands on all the financial levers? Over a century ago, it was their industry predecessors who traduced the Constitution and transferred control of the nation from the government to the Federal Reserve.
In addition to ancient mismanagement of the economy which precipitated the Great Crash of 1929 and the subsequent Depression, there have been several notable cataclysms since 1975, all of which have resulted in the same outcome; sudden transfers of wealth from the 90% to the 10%. One of them in particular stands out, which serves to illustrate the confluence of interests between the banks and government, against the ordinary American.
In the early days of the new century, the Federal Reserve sought to prevent a recession by artificially keeping interest rates low. The effect?
“Artificially low interest rates are achieved by inflating the money supply, and they penalize the thrifty and cheat those who save. They promote consumption and borrowing over savings and investing. Manipulating interest rates is an immoral act. It’s economically destructive. A central bank setting interest rates is price - fixing and is a form of central economic planning. Price - fixing is a tool of socialism and destroys production. Central bankers, politicians, and bureaucrats can’t know what the proper rate should be.”(12)
So, as previously noted, if the fiscally responsible cannot find a home for their savings within the financial system, because low interest rates are unattractive and savings accounts risk being outstripped by price inflation, where else might they invest instead, in the first instance? Traditionally, in bricks and mortar.
And so, 2003-2008 saw a prolonged housing boom; the desire to stave off a possible recession saw the Fed pumping money into the economy, initially to the twelve Federal Reserve banks; these funds were then disbursed to other banks. And, as previously explained, the fractional reserve system ensured that multiples of the original sum was then loaned to businesses and consumers. Cheap mortgages abounded – there was no much available money that pretty much anyone could get a loan. The usual checks were circumvented or entirely abandoned, brokers earned large, upfront commissions and buyers were enticed by initial, discounted interest rates. The inevitable housing bubble was created.
This was very far from the first time that the market had become distorted; the dot com bubble of the late nineties had demonstrated the mechanism and the outcome to anyone who had failed to study anything other than recent history. Neither was it the first time that the housing market had overheated due to government intervention. The 1981 Tax Reform Act had kicked off a similar boom, which had concluded with the Savings and Loan Crisis, the biggest financial shock since 1929. In that case, legislation had been responsible for the rapid deflating of the bubble, too.
On average, homes were secured with 20% deposits. When property values dropped rapidly by over 30%, the inevitable happened. There was a blizzard of foreclosures, driving prices down further. The Savings and Loan companies lost revenue in the form of mortgage payments and were unable to unload the assets (housing) at a price that allowed them to remain solvent. Over the course of nearly a decade, around a third of them went under, some mired in fraud accusations, at a cost to the taxpayer of around $130 billion.(13)
This time around, the risk grew incrementally over the course of around five years. While the damage was eventually done by the packaging of sub-prime (meaning less than ideal) mortgages into financial instruments whose value was fraudulently inflated, the problem would not have existed if mortgages had continued to be paid, rather than defaulted on. But, when the initial interest rate holiday expired and borrowers had to pay the true cost of the mortgage, payments could frequently not be made. Gradually, defaults accumulated and pressure built.
The eventual trigger was a rise in the rate at which banks lent to each other, as they started to panic about the questionable assets that were cluttering their balance sheets and became reluctant to let any actual funds go elsewhere; the resulting illiquidity crystallized the crisis. The mid eighties spiral repeated itself; foreclosures and tumbling asset prices and this time, because of the massive exposure to the sub-prime instruments, it wasn't just mortgage companies that took the brunt of it. It was insurance companies and Wall Street bankers, too.
So, once again, a boom-bust cycle, to go with the ones in the 1970s, 1980s and 1990s. Another dereliction of duty by the very institution charged with ensuring economic stability, the Federal Reserve. The bank had fueled the bubble by inflating the money supply, done nothing to offset it for several years and then watched as, inevitably, it burst. But, what happened next rubbed salt in the wound and signaled a further departure from its designated role.
Having been responsible for causing the debacle, the Fed now stepped in to clear up its own mess. It swiftly became apparent that the solution with which it was most comfortable was to adopt the mantle of lender of last resort. Not content with having created multi billions of funny money in the previous five years or so, reducing the spending power of the dollar for ordinary Americans, the solution was to create and guarantee trillions more.
There were a number of different mechanisms, some of them allegedly loans, some of them direct payments to banks deemed “too big to fail”; some transactions were made transparently, others not so much. Naturally, the titans of Wall Street (Chase, AIG, Morgan Stanley et al) were preserved, all but one of the thirteen major banks receiving massive, company specific bailouts. Community banks, on the other hand, were largely abandoned with only 10% of them receiving any financial support.
This methodology turned the traditional role of the Fed on its head. It was supposed to provide market support in a more general, less distorting fashion. However, when the dust settled, the twelve largest banks in the country (all of whom had contributed hugely to the crisis and who had been within days of bankruptcy), now controlled 70% of all bank assets in the United States. Community banks now had higher borrowing costs as they were obliged to borrow from the bailed out big banks. They were second class citizens and, in a further blow to their viability, were now known not to be part of the system that was too big to fail.
The cost to the taxpayer, the actual total dollar value of the transfer of wealth from the ordinary American to the big banks, is difficult to calculate; largely due to the smoke and mirrors deployed by the Federal Reserve. Officially, spending and commitments totaled $16.8 trillion, not the $700 billion that the Treasury indicated it was.(14) It is also a matter of record that, from October 2008, the Fed started paying interest to banks on their mandatory reserves, reserves which were, at least partially, made up of the magic money that the Reserve was pumping into the banking system, in order to “stimulate the economy”.
It is difficult to see what they were actually hoping to achieve. Given the disastrous state of the economy and the fact that the markets were in a state of chaos, a good proportion of banks deemed it good business practice to keep hold of the money and earn interest from the Fed, rather than loaning the money and providing the allegedly desired stimulus . As late as 2012, banks were sitting on $1.5 trillion of reserves, instead of the $100 billion they were obliged to hold. Thus, economic recovery was stifled and the Fed let it happen.
In addition to the huge future tax commitment that the ordinary American was now saddled with, the assets that they had sought to own (and had, briefly) were now hoovered up by Wall Street at knock down prices. The process, as it actually played out, went as follows:
a) A bank lends a property developer the funds needed to build houses (often with funds summoned into existence by the Fed).
b) The develop builds the houses and pays back the bank.
c) The bank then lends a sub prime lender the funds to buy one of the houses and holds the house deeds as security.
d) The interest rate honeymoon ends, the house owner can't afford the mortgage and then defaults on the property.
e) The bank may fail (if it's a community bank), but the bigger banks upstream won't.
f) Said bank buys cheap, foreclosed property.
In summary, in addition to creating the conditions that allowed the Crash to happen, the Federal Reserve had also grossly distorted the market by way of response. Instead of a general propping up of the economy, the Fed had intervened with some banks and businesses and not with others. It alone had decided which businesses would be the beneficiaries of their largesse and which would not, and by how much. In the banking sector, the Wall Street banks who were also shareholders in the twelve Federal Reserve banks were favored. Any pretense of a free market had been abandoned – money and power had been deposited in the hands of a small group of players.
But, where there are winners, there must also be losers and, predictably, these ranks were peopled almost exclusively with those that make up the 90%, not the 10%. Houses had been built, then foreclosed on, seized by banks and investment companies and inspirational, former home owners were now renting again; only this time, financial institutions were picking up rent and benefiting from ownership of an appreciating asset, as well. And the message sent, by the government and the Fed, was that certain entities were entitled to a free pass and that the people would be the ones giving it to them, whether they liked it or not. Also, that the Federal Reserve could manipulate the economy, in so doing cause a crisis, then alleviate the crisis and do all that while taxing the people via an inflating economy and extra debt and get away with it scot free.
"Whosoever controls the volume of money in any country is absolute master of all industry and commerce... And when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."(15)
There doesn't appear to be a linear path between 1975 and today, certainly not in terms of the supranational coordination that is such a factor currently, but rather a tale of opportunistic greed leading to a scheme that has been in the works for the past twenty years or so. The previous booms and busts have borne the hallmarks of greed and/or incompetence. It's only since the dawn of the new century that a new pattern can be discerned and even that may be overstating the case. Certainly, from 2008 onwards, there has been an acceleration in the rate at which the ordinary American has been exploited and particular entities have exclusively benefited.
It may be that the elites have been encouraged by the ease with which they have separated the rest of us from our assets. The increasing disparity in wealth between the very rich and everyone else, may have engendered a class of people who have come to see themselves as superior, whose world view has been formed in an echo chamber – the increasing control that they exercise over society has quietened dissenting voices still further. This has allowed them to think in patterns that are alien to the rest of us. It is beyond dispute, however, that the vast majority of Americans have been systematically bled of resources since 1975, by dint of structural changes to taxes and regulations and, latterly, by sudden wealth transfers and yet their understanding of what has happened and why is hazy or entirely lacking.
The working hypothesis is to be applied to current events, to which I will turn next. But it can also be seen to have some applicability to the events described here. The claim is that the dollar is strong because the US economy has made it so. Not true; it is strong by virtue of an artificial structure, which is vulnerable to collapse, especially so as the power to do just that lies with foreign players. The Federal Reserve is held to be a part of government and, therefore, owned by the people. False. It's a private bank which earns money from the people for doing something the government should do. Notwithstanding that, it still performs a valuable function in managing the economy and smoothing out the bumps. Clearly not.
This is the backdrop to our current situation, the foundation upon which which current policies are designed. Next, we'll see how the current administration intends to transport us to 2030 and how much of the rhetoric with which they bombard us is merely lies and manipulation, the better to distract us from their true purpose.
Citations
1) https://www.breitbart.com/europe/2021/10/31/private-jets-swarm-glasgow- for-cop26-emit-more-co2-than-scots-churn-out-in-a-year/
2) https://time.com/5888024/50-trillion-income-inequality-america/
3) https://time.com/5888024/50-trillion-income-inequality-america/
4) https://followthemoney.com/preparing-for-the-collapse-of-the-petrodollar-system-part-1/
5) Ron Paul, End The Fed
6) Napoleon Bonaparte
7) Ron Paul, End The Fed
8) President Woodrow Wilson
9) http://www.xat.org/xat/moneyhistory.html
10) Ron Paul, End The Fed
12) Ron Paul, End The Fed
13) http://www.nabet.us/Archives/2004/pdf/belloit_and_grenci_paper.pdf
14) https://www.forbes.com/sites/mikecollins/2015/07/14/the-big-bank-bailout/?sh=30a2719d2d83
15) President James Garfield