Ever wonder why you just can’t “get ahead”? Well, it’s all part of the larger scheme of things. Oh, I know, some folks do get ahead in one way or another and to one extent or another. But only the very few – the less than one percent – really make money and keep it or even accumulate enough wealth to leave a sizable inheritance to their children. The number of Americans literally living from hand to mouth has grown astoundingly high, especially since the ascendancy of the new financial elites with the deregulation of financial markets. To understand it all we have to step outside of our ordinary ways of thinking about money, value, and our lives.
In a moral economy, things would be different. But that’s not where we live. Our economic system has devolved from open competition of individual entrepreneurs in wide open environments, to a closed system of centralized economic growth in denial of limits. The perpetual-growth economy is controlled by giant investment banks and hedge funds and runs on debt-based money. That means money is created by debt itself.
On first thought that doesn’t make much sense; money is supposed to represent value, not debt. But that is not how it has been set up ever since the private central banks were given control, indeed ownership, of the creation of money. Instead, money is a product of the strange relationship between the nation and its private bankers. The Federal Reserve System was established as the “lender of last resort.” in 1913. This was meant in part to respond to fiscal crises such as the financial panic of 1907. The other part was a quiet takeover of the money system by the big private investment banks.
Making Money by Indebting a Nation
Some argue that the creation of the Fed as an independent agency was in fact a takeover of the function of a national central bank by the private bankers of the time. That view has significant historical validity. Though chartered by the U.S. Congress, the Federal Reserve System consists of twelve tax-exempt regional Federal Reserve Banks organized and operated as private corporations. Most importantly, the Fed was given control over the creation and lending of money.
Absurd as it sounds – and ever so costly –the national currency is not created by the Treasury. The Treasury only acts as a printing shop for the Fed. In effect, the Fed is a private banking cartel that lends to the government and to member banks the money it creates by generating public debt. So, to conduct its operations, the government has to “borrow” money from the Fed, which sells Federal Notes and Bonds to represent that debt. The U.S. Treasury can only offset that debt by collection of income taxes and other revenue. A lot of technicalities in this process obscure the basic fact that the right of the nation to produce its own money was high jacked by the biggest banks – “members” of the Fed – back in 1913. That has cost us all dearly ever since.
The Federal Reserve issues Federal Reserve Notes and Bonds. These draw interest for the buyer and charge the government, in whose name the Fed issues these debt instruments. So, the money the government ‘spends’ is owed to those institutions which ‘buy’ from the Fed the bonds and notes that signify the debt. One might say that the Fed is a “free rider” middleman. This process indebts the government – that is, the people – for all the currency, whether paper or electronic, that the Fed issues as part of its monetary policy.
Perpetuating Public and Personal Debt for Fun and Profit
The government becomes indebted in its turn to the ‘creditor’ institution or nation that bought the bond, for its face value plus any interest that accrues over time. The Fed is owned by its member private Big Banks, which have a sweet deal we’d all love to get a piece of but never will. The Fed issues credit to the Big Banks, say a billion dollars, and the Big Banks in turn loan out many multiples of the billions it ‘borrows’ from the Fed. Since the crash of 2008, the deal has been especially sweet, since the Fed charges a near zero interest rate. The Big Banks get to charge market rates for multiples of the funds borrowed for next to nothing. Huge profits beget huge bonuses for bank executives, not to reward some kind of executive performance, but for their just ‘being there.’
We should all be so lucky. But we are not. The average person, small business, or even not-so-well connected corporation has to borrow from the institutions run by the financial elite – the Big Banks – in order to initiate a major project of whatever kind. That borrowing had to be paid back with interest, so that whatever is done with the money has to “earn” more money than was borrowed in order to pay back the loan. That is often not easy. Just paying a mortgage seems to take forever. Even at a “reasonable” interest rate for a thirty year mortgage, most folks “pay back” more than double what we originally borrowed.
But in any case, what most people don’t understand is that the result of all this is that more money is always owed than is “out there.” If every loan requires repayment plus interest, where does the interest come from? Well, from “profit” or from wages, if the borrower is lucky. But that profit or wage comes from money already in circulation; that money in circulation was also created as debt. So, the only way for all money owed to be paid back is for more debt to be created, releasing more dollars into the money supply, paying off prior debt.
Reaching the End Game
Sound like a Ponzy scheme? If it does, that means you are paying attention. It is essentially no different than a Ponzy scheme. The whole house of cards stands on a perpetual expansion of debt that enables previous debt to be paid and the system to continue. That is only one of the reasons why the debt based economics of endless growth cannot ultimately be sustained. Debt cannot be expanded indefinitely.
There is another reason the debt-based growth economy cannot continue indefinitely. As with any exponential scheme of expansion, the limits of its environment eventually constrain it from continuing. That is where we are today with reference to “capitalism as we know it” and the material limits of the planet earth.
If you know anything about population growth, you recognize that a seemingly small percentage rate of growth after a few generations results in a very large number of people. From our current world population of around seven billion, growing at a moderate rate, we will soon have a population that by anyone’s measure cannot be sustained on one planet. One additional fact is important. A relatively small proportion of world population participates in the industrial growth economy but everyone else – of course – wants to. That is why more and more people everywhere find it increasingly difficult to “get ahead.” The game is almost over; it has reached its limits. Current world financial instabilities are symptoms. Economies with social purpose must replace mindless growth for the purpose of concentrating wealth in fewer and fewer hands.
Another way is possible and necessary. Money is inherently a public good. It is an inherent right of the nation itself to maintain sovereignty over its monetary system. The central banking system should be nationalized and subjected to public policy rather than be driven by private profit for financial elites in opposition to the public interest. Then, money could be based on credit, properly invested in the public interest, and thereby eliminate most of the false public debt it has caused by having been privatized.