Questioning Capitalism: Goldman Sachs on Corporate Profit Margins

Bloomberg News reported on February 3, 2016, that a new report from Goldman Sachs Group Inc. analysts wonders whether currently very high corporate profit margins can be sustained. They are at near record levels, despite a stagnant real economy characterized by record low wages and listless job growth and declining opportunity structures. Well, according to the report, profit margins have expanded due to four trends: strong commodity prices, cheap goods made in emerging markets, demand growth from emerging markets, and improved “corporate efficiency” resulting from the use of new technology. Corporate profit margin strength, it seems, has little to do with the strength or weakness of the U.S. domestic economy.

Historically, profit margins oscillate, but periodically revert to the mean. The Bloomberg story quotes the Goldman report thus: “We are always wary of guiding for mean reversion. But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism.”


So, the question is, what are those broader questions about capitalism to which Goldman Sachs alludes?

Essentially, if profit margins continue at historically very high levels while investment in real economic activity (i.e., actual production of goods and services, other than the “financial services” sector which has grown insidiously in recent decades as a proportion of total GDP) remains stagnant, then what is actually happening to capital to make it produce such record profits?

I would suggest that we already know the cause, but most Banksters – the executive elites of the biggest banks – thus far have been unwilling to recognize it explicitly. Capital has become increasingly abstracted from the economy. That is, it is essentially feeding upon itself instead of feeding economic activity in the real world the rest of us inhabit. As long as large financial institutions are allowed to continue to generate phantom “value” by creating derivative financial instruments and by cannibalistic mergers and acquisitions, the function of capital will continue to be one of incestuous abstract ‘capital formation’ rather than fostering useful economic action. The Goldman report also mentioned, but apparently did not emphasize what I think is far more important than any external factor: the use of capital and cheap money from the Fed to undertake mergers, acquisitions, and share buybacks instead of investing in company projects that could contribute to “main street” economic activity.

The biggest multinational corporations have been awash in capital, with little incentive to invest it in production of benefit to society ever since the crash of 2008. Goldman does not elaborate, or at least the Bloomberg report doesn’t, but it is not alone in sensing that something is very wrong with the current condition of corporate capitalism.

What is capital, anyway? I would suggest that, ordinarily, it is nothing more than credit applied to the labor required to extract and process materials or to do other work that produces goods or services useful to some segment if not all of a society. But that is not what most of the “capital” held by central banks, investment houses, and large corporations does today. In fact, it seems quite a stretch to even call it capital, since it really does not venture outside the finance-capital complex in any real way.

Why do you think so many economists were afraid of hyperinflation when the Fed infused so much money into the central banks after the crash? The Fed bought up toxic “assets” – derivatives comprised of defective mortgage fragments. Operators like Goldman Sachs had sold “credit default swaps” – uncovered bets that claimed to insure a payoff if risky investments failed. The Fed covered trillions of dollars of losses by these speculators, resulting from their uncovered bets, by issuing debt upon the U.S. Treasury. “We the People” took on those losses in the form of an increased national debt.

Most economists assume that when money is “printed” – or, more commonly, electronically posted to the accounts of Fed member banks – it will be lent out to various entities in the real economy. That would result in too much money chasing too little goods and services, thereby driving up prices. But that never happened with the massive infusion of trillions of dollars of what some consider “phantom money” into the nation’s biggest financial institutions.

Why did this massive “printing of money” not cause hyper-inflation? Because the Big Banks and Brokerages did not lend it out to businesses. And they certainly were not about to lend it into the collapsing housing market they had triggered. So, in effect, they spent it on themselves. They bought up each other, they bought back millions of shares of their own stock from the public, driving up “valuations” in the stock market, and they also used it to retire some of those toxic assets. That was not inflationary for the whole economy since it was isolated from the real economy; but it was and continues to be inflationary for the financial industry, which had already expanded significantly as a percentage of the national economy. Those same banks and investment houses – like Goldman Sachs – have grown immensely since the “Quantitative Easing” that forced the American people, via the federal treasury, into such a huge increase in debt.

Republicans and corporate Democrats are fond of whining about the odious prospect of a “redistribution of wealth” that might occur “if we raise taxes.” And they always refer to the damage that would cause “small business.” But of course, it is Big Business (corporations) and Wall Street that make the political contributions that “encourage” politicians to take such a stance. However, the greatest transfer of wealth in human history has been accomplished by the government itself by creating massive public debt to finance the “bailout” of the nation’s financial elite, further enriching the CEOs of the Big Banks and investment houses in the process.

Of course, taxes have not increased in any significant way since the 1950s, just the opposite; they have regularly decreased, mainly for corporations (through loopholes, exceptions, and subsidies) and the very rich. The rest of us are paying for this crime. The greatest heist in history was not a bank robbery; it was the Banksters robbing the people.

How to Arrest a Bank

Seems like an absurd question, “How do you arrest a bank?” Well, it is absurd. Someone said, “If corporations are persons, then why doesn’t Texas execute some of them?” That is another seemingly absurd, though valid, question. The answer, of course, is simple. Corporations – including banks – are not persons, nor could they be. Jails are physical structures meant to house criminal persons – living organisms of the species Homo sapiens who have violated laws.

Corporations are not living organisms; they are legal sets of formal relations between (replaceable) humans, specific relations that are sanctioned by the state chartering process. You can’t jail a relationship. If Texas wanted to execute a corporation, it could only do so by rescinding its charter and disbanding it – then it would be “dead,” i.e., it would no longer exist. Without a valid legal charter, its state-approved legal incorporation papers, a corporation does not exist. Persons are not chartered; they simply exist in nature and have some natural lifespan. Corporations, including banks, exist indefinitely until they either fail on their own or their charter is revoked. But they cannot be jailed because they are not living persons.

Managing Banksterism, or Not

In the real world, persons and corporations are clearly very different phenomena, no matter what twisted logic a jurist may come up with. The foolishness over this pseudo-issue is at the root of the deep institutional corruption that has infected our political economy. We have all but forgotten that corporations are legally chartered by state or federal authority and – theoretically – can be as easily disbanded. When some (usually small regional) banks have gotten into trouble, they have been allowed to fail. Bank assets have been seized, insured depositors paid. They may be either reorganized with infusions of cash and may be taken over by a solvent bank. The other option is to “resolve” the bank by liquidating its assets – that is, the bank is disbanded, or in Texas terms, it is executed. But some mega-banks have become so powerful that they are deemed “too big to fail.” That kind of power encourages further corruption.

You can’t physically arrest a bank, but if you are the government banking authority you can institutionally arrest its corrupt practices or, if willing, “execute” it. But the financial elite today is so powerful that it seems to “regulate its regulators.” Also, a “shadow banking” system has arisen in the form of “non-banking financial intermediaries,” that is, speculative financial institutions that fall outside the normal banking regulatory structure. These “shadow banks,” along with the giant investment banks, caused the 2008 financial crisis by their misdeeds. The greatest threat to banking and monetary systems today is the imaginary “too big to fail” status of mega-banks and shadow banks. “Too big to fail” assures that failed gigantic financial speculation will be “bailed out” by the government to avoid institutional failure. These shadow banks and mega-banks have been allowed by political authorities to rule economies. They directly threaten the viability of those same economies by their corrupt behavior.

Corrupting the Economy

Corruption used to be a personal thing. So-and-so embezzled a half-million dollars from his employer. A cop demanded tribute to ‘protect’ shop keepers from ‘the mob.’ Etc. Today, however, something much more vast and sinister is happening. Financial power elites are high-jacking entire economies, both here and abroad, by manipulating stock markets and currencies. “We the people” are paying the financial elites for “protection” from the collapse of our economy that will result from their corruption. But we get no real protection. The mega-banks and shadow banks and their executives continue to be protected from the losses their risky behavior causes. Fines and penalties to these institutions are not real punishments; they are merely passed on to shareholders. That will inevitably result in the public eventually paying for Banksterism with government bailouts.

The mega-banks, shadow banks, and the other corporations they control are so big and powerful that actions they take can yield obscene profits by secretly fixing interest rate spreads and other financial factors. Like the Ponzi schemes of sub-prime mortgage derivatives, the continued and various forms of banking corruption tolerated by government will cause the next financial crisis. When the risks of their speculation and manipulations come home to roost, it will be the society at large who will pony up the costs of keeping the economy from complete collapse. Meanwhile, the jackals of Wall Street award themselves bonuses and take vast infusions of dollars from the Federal Reserve to cover their losses. The bailouts will, just like last time, be backed by new federal debt – our debt.

Arrested Development of Justice for Banking Crime

JPMorgan Chase, Citigroup, Barclays and Royal Bank of Scotland recently “pleaded guilty”* to several financial crimes involving manipulating currency markets around the world. The players even called themselves “The Cartel,” and communicated via a private chat room. Brazen young “Masters of the Universe” secretly colluded to control currency prices to trade them for huge profits. Most of the employees who committed these crimes were fired by the executives that had enabled a climate in which such behavior was condoned. The executives suffer only slight embarrassment. If it were not so insane, the biggest banks in the world “pleading guilty” would be as absurdly amusing as putting a bank in jail.

Less than a month after her Senate confirmation, Attorney General Loretta E. Lynch announced her intention to “prosecute financial crimes.” Yet in secret negotiations, the banks were allowed “waivers” to continue doing “business as usual.” Further, the Justice Department did not indict any of the persons who carried out these schemes or the executives who encouraged them. Instead, it imposed “penalties” on the banks to “pay” for the crimes of their employees. The combined penalties, around $5.6 billion, constitute a loss for shareholders, but mean nothing to the bonus-bloated executives and are a drop in the bucket compared to their multi-billion dollar schemes.

How do you arrest a bank? It’s really a simple matter of justice. Indict and prosecute the actual criminals, including the responsible executives, and “resolve” the corporation – in effect, execute it, terminate it. Distribute its assets to more deserving institutions such as local and regional banks that serve the financial needs of the nation. Assign the losses to the perpetrators, not the public. “If a bank is ‘too big to fail,’ says Bernie Sanders it is too big to exist.” Of course, none of this is likely to happen under current political conditions. But the banking crisis is one element in the converging crises of our time, which together are preventing us from responding to the very processes that are leading to societal as well as climate collapse.
* Michael Corkery and Ben Protess, “Rate rigging makes felons of top banks; 4 fined $5B.” The New York Times. [reprinted in the Santa Fe New Mexican, May 21, 2015, p. A-1]

The National Debt and Deficit Scam

Ever wonder why the richest nation in the world, the U.S., has become a “debtor nation”?  Oh, but they’ve already told you.  It’s those politicians, especially the ‘liberal’ ones who just spend too much.  You know, those “tax and spend” liberals.  Well, I’m no apologist for the liberals.  I agree with Chris Hedges that the liberal class of politicos is essentially dead.  They still talk some about their concerns for the “middle class” and “working people,” but their actions reflect the same servility to the rich and powerful as do the ‘conservative’ — the misuse of that term is a whole other story — Republicans who have been cutting taxes on the rich and shifting the costs of plutocracy to the poor for decades.  So, we sure have a clue as to why we are in so much debt.

The Banksters’ Coup

The history of money and banking is far more interesting than any economics course on the topic.  It is long and complicated, but the essence of how current economies have become debt-based can be condensed to some key elements in the struggle between the public purposes of money and credit, and money-lenders’ efforts to control the issuing of money and renting that money for profit.  A nice summary of the key historical events can be read in Ellen Brown’s latest book, The Public Bank Solution: From Austerity to Prosperity.  In that book she also explains effectively why we — both people and government — are all in such debt, but need not be.

The international private banking cartel was started with the Bank of England around the time of the American Revolution.  Ultimately, the Federal Reserve was formed in the U.S. as a private banking cartel, owned by its member private banks.  The Federal Reserve Act of 1913 was passed under great pressure from the major private banks in the U.S.  It ceded sovereign authority for creating money to the Big Banks we know so well today.  That raises important questions that are rarely discussed in public.  What is money if not a public utility for making the exchange of goods and services effective?  Why should a public utility be controlled by a private cartel?

Money, Sovereignty, and the Public Interest

Numerous examples of public banking throughout history demonstrate that for achieving public purposes, public banks are more effective than private banks.  But rather than argue the details of why — Ellen Brown’s book does that quite well — let’s look at purpose and principle.  Banks are a necessary part of any economy.  An economy is a crucial component of any operating society.  The public has an inherent interest in banks being operated to serve public purposes, primarily the management of the creation and circulation of money as the means for making economic exchange work and facilitating public projects.

Money is a public good; indeed, it is a public service.  Contrary to the mythology foisted on the people, the value of money exists in its movement.  Furthermore, it is a process, not a thing — its value is in what it represents, not what it is [paper, wooden tallies, gold, etc.].  And what it represents is credit.  Stored in a vault it means nothing… except in the illusions of whoever controls the vault.  Banking has become the epitome of the illusory game of acquisition of wealth.  From the perspective of the citizen, however, the circulation of money is the means by which the people are able to sustain themselves over time.  If “we the people” are sovereign, then why is not the monetary system owned by the public?  But on to the main point.

The Debt and Deficit Scam

Simply put, because it gave up its sovereignty over the creation of money to the private banking cartel, the government borrows money from the Federal Reserve (central bank), which it created and gave the power to create money.  Where does the Fed get the money it loans to the government?  Why, out of thin air of course!  An entry is made on an electronic ledger and money is created and loaned to the very entity — the government — that allowed that ledger [of the private banking cartel] to exist.  A federal debt is created.  How counter-productive — stupid — is that?  The only interest this proess serves is that of the concentration of wealth in the hands of the banksters.

Well, it’s very productive for the banksters.  After all, its free money to be lent out and for interest to be collected upon.  Wow!  We could all use some of that kind of deal.  Free money to loan out and make more money on.  Now, project that process into the whole economy and think of the result.

The underlying absurdity is that by structuring debt in that way, it can never be repaid.  Only by continuing to expand the economy to allow more loans can the principle and interest on existing loans continue to be paid.  With the recent financial collapse due to uncontrolled speculative manipulation of mortgage lending, the system was exposed for the Ponzi scheme that it is.

Is There a Way Out?

The Banksters are just too powerful to stop directly.  The financial elite virtually runs the federal government.  But, as they said in the 1960s, “What if they gave a war and nobody came?”  Several lines of action are possible.  The Bank of North Dakota — the only public bank in the nation — is a model of what states might accomplish.  But municipal and county owned banks can also be formed.  Local movements for local public banking are developing.  Meanwhile, take your money out of those Big Banks and put it into your local credit union.  Divestiture worked to stop apartheid in South Africa.  It is starting to work to turn around the carbon economy.  It can be a big part of the great transformation of banking from a private extractive industry to a set of public institutions serving the public interest.

Runaway Capital and the Necessity of SLOW

Slow Food; Slow Money; Slow Life. Such concepts are anathema to the frenzied culture of the dying industrial age. But these ideas are becoming popular among a small but growing class of folks who are simply tired of ‘the rat race.’ “Slow” is closely aligned with the simplicity movement. What do they mean, why should we want to achieve them, and what’s the point?

To fully recognize the fatal flaw of the current economic path and the need for a new direction, one really must understand acceleration. Or, grasping the power of compound interest would do. With regular savings and compound interest over a working career, a worker with a modest salary could retire a millionaire. But how many do?

For that to work, the saver must also avoid debt – especially consumer debt. That is increasingly less likely as wages are squeezed for ordinary workers who are pressured to consume more with “easy” credit. Of course, “credit” is the availability of money for borrowing. Consumer debt is a burden that more than neutralizes any savings program. The debt-based economy is a complex trap.

Runaway Capital
The debt-based economy must continually expand. How else can interest be paid but by adding more money to the system? Banks are allowed to loan a lot more money than they keep in “reserve.” That new money is created as debt in the accounts of borrowers. Economic expansion is based on expanding debt. Government debt and private debt are the basis for the profit that interest rates generate as growth.

Since the 2008 collapse, the Federal Reserve loans the Big Banks money at near zero rates. It has bought the bad debt that should have pushed the Big Banks into bankruptcy. But infused with new cheap capital, banks are nevertheless afraid to lend to businesses since so little demand remains in the economy. The result is that with institutional rates so low, banks buy each other instead of lending to business.

Corporations are afraid to invest in production since demand is so low. They use their trillions horded in cash to buy back shares and drive up share prices, making themselves appear more valuable. This allows executives to ‘justify’ larger bonuses, instead of investing in meaningful production – which would expand employment, if only in Asia.

In a finite world, at some point the acceleration of growth – via compound interest on growing debt– becomes an unsustainable Ponzi scheme. It is no longer the real economy that is growing. The expanding “financialized” economy of accelerated growth of phantom wealth through complex derivative instruments keeps expanding. It is allowed because no real restraints have been imposed on the banksters who caused the crash. The fatal flaw has been covered over in imaginary cash.

This false creation of money has no substantive basis for capital creation in real life. These financial manipulations generating phantom wealth produce no real value. The consequences for the currency will be dire. The basis for the value of the dollar cannot be sustained in debt alone. That is why the Chinese are quietly unloading dollar debt instruments – treasury notes and bonds – in favor of gold and currencies with more long-term security.

Slow Capital, Real Investment
The most important problem with “Fast Capital” is that it drives financialized economic growth at the expense of the real economies of communities. “The economy” no longer fits the real circumstances of the world we live in. It was a tenuous fit to begin with. By the 20th century so little of the world was left to conquer that it had scant room to grow. Now the growth model is being tested against environment limits. But financial growth, being abstract, is only limited by debt structures.

Today the real-growth economy is restrained by a finite supply of depleting resources and its own accelerating ecological destruction. Unfortunately, most attempts to provide an alternative world based on ‘renewable’ energy and resources are framed in the failing economic-growth model. Most advocates of renewable energy and resources do not argue for a no-growth economy. Growth is a deep political value in the economic culture. Growth is seen as an inevitable requirement for prosperity – everyone is for it. It is both the essential element and fundamental flaw in the conventional model of the economy.

A new economy that is based on slow capital is now necessary. Certainly, the transition from the economy of indiscriminant expansion to a carbon neutral economy of stability will involve selected areas of real growth – and others of major contraction. In this new context, capital investment must apply technological innovation to “the old ways” of producing needed goods in creative ways. The technologies of “labor saving” overproduction cannot work. Slow production with higher quality responding to real needs will support more jobs requiring more skill and education. Slow education is labor intensive and would require little capital – it will require social commitment of slow capital.

Creating an abundant new ecological economy requires innovative thinking and experimentation, not automated extractive industry to supply overproduced useless objects. Slow capital must be invested in new technologies for effective use of more skilled labor to convert the economy to more carbon-neutral activity serving human needs, not fast capital serving financial growth for elite phantom wealth.

It is still hard for us to visualize. Our thinking is so influenced by the growth-economy culture. But the ecological economy will be slow and both intellectually and artistically rewarding. It will focus on human interaction to realize the cultural goals of achieving basic sustenance, artistic expression, intellectual exploration, and civic engagement. None of these require fast capital, or false wants for overproduced meaningless objects of momentary attraction. All those suburban storage units will not be needed. What is most required is a societal commitment to an economy driven by core human needs.

Money: Banking on the Economy of the Absurd

Money and banking seem far too mysterious to far too many people.  Read all about it and you may feel that much of your time was wasted, simply because at root it seems not all that complicated.  Oh, the world of money and banking has been made quite complicated, but that’s because of who is running things and why they make decisions over all of our financial lives the way that they do.  With the endless elaboration of the complex institutions from which emanate the decisions that matter for the rest of us, the so-called “financial industry” has emerged as a much larger share of the economy than ever before.  But what does that mean?  Are we all wealthier?  Hardly.  As the “main street” economy has faltered while big corporations and banks grow ever larger profits, why has the financial industry—which claims to be so vital  to the nation’s economy—grown so large?

Along with the ideologically excused deregulation of banking and finance—driven, actually, by the growing influence of the big banks and their corporate companions over the laws that govern economic activity—have come a steady onslaught of banking practices that have made a very few people and corporations very, very rich and resulted in the rest of us falling further and further behind.  By expanding their control over the creation and lending of money, these institutions have expanded far beyond their usefulness to the nation. To big to fail?  Yes, if propped up by government bailouts.  But more important, too big to tolerate!

Have you ever wondered why over many generations people pay mortgages on their homes, yet very few of the succeeding generations ever live in a home without it being mortgaged?  Where is the accumulation of wealth?  Well, while complex interactions of a number of factors are at play, and individual cases vary, the “bottom line” is that we live in a debt-based economy, and it is debt based on purpose.  No, it wasn’t your idea and it wasn’t my idea.  It was the idea of the private bankers who took over the public function of banking way back when.  In a debt based economy, new money has to be created to pay the interest on old debt.  That requires endless economic expansion financed by new debt.  It is a never-ending cycle until one of two things happens:  1) a crash brought on by the excessive speculation in new debt—gambling—by the Banksters; or 2) the whole system expands beyond the carrying capacity of the ecological system on which we all depend.  The Great Depression of the 1930s has been matched by the real unemployment of the “Great Recession” of 2008-present as the absurd economy roars past sustainability.

Banking is an inherently public function.  In fact, money is a public institution.  Whether private banks control it has varied in time and place.  When you are playing Monopoly (the board game) the players are equivalent to the public but each acts as an individual, not as a member of that very small public—which helps to instill in the players an individualistic sense of what money is.  But the “play money” used in the game is “real money” for the purposes of that game.  One player is designated the banker, but only manages the allocation of money during play.  The players agree as to the initial distribution of money (usually equal) and to the rules of the game.

Eventually, through luck and skill, one of the players gathers so much money and property that the game is over—s/he won!  Oh, but then there’s no game anymore, unless the players want to start another game, in which case they have to redistribute the money so each player will have money with which to play.  In fact, once the game is over, there is no money, only amusing little pieces of colored paper in a box with the board and various symbols of property, etc.  But why does someone always win Monopoly?  The widely ignored fact of economic reality also ends every game of Monopoly.  Once a player has accumulated significant economic power, that player’s ability to gain economic power increases.  So it is in the real economy, with the added bonus of increased political power, which means that to keep the game going, something’s got to give.  The result has to be either collapse or some form of redistribution, that’s what history demonstrates.

So, you can see the difference between a game and social reality, or, technically, economic reality.  In the real world, the game can never be over, even when one element—the Banksters in our case—accumulates enough wealth to render the other players powerless to make a successful move.  In the real world, this holds right up to the point where some starve to death for lack of resources.  In the game, with all the money accumulated by a small number of lucky and/or skilled players, everyone else is out of the game.  In real life that is deadly and is bound to result in some kind of chaos, collapse, or major restructuring of the economy.  Look around, both in the world today and in history.  Money hasn’t been in play all that long.  It emerged slowly and in various odd forms when and where some surplus of valued goods was accumulated.  When, at various times when wealth became so concentrated in the hands of the elite, a monarch or emperor recognized that wealth had to be radically redistributed in order to keep the economy going.

The earliest examples of money and debt were in societies where sedentary agricultural practices replaced nomadic hunting and gathering.  Much of this is chronicled in David Graeber’s fascinating book, Debt: the First 5,000 Years.  Graebner is an anthropologist whose analysis of money and debt as cultural phenomena clearly breaks out of the illusions about money and debt upon which our deeply absurd, and equally unjust, economy is based.

Unless we face some very fundamental and widespread social illusions, we will be unable to grasp how debt drives our absurd economy and how deeply destabilized the system has become.  Sometimes these illusions have two sides, neither of which reflects economic or cultural reality.  For example, we have the “gold bugs” and the advocates of “fiat money.”  Gold bugs confuse symbols with reality and fiat money fanciers confuse wealth with abstractions of value.  Both obsess over the form of money, failing to see that the very essence of its existence is consensual rather than essential.

There is nothing in the essence of gold that makes it money and there is nothing in the essence of paper that prevents it from being money.  All manner of items at one time/place or another have been money because the conditions allowed and the people agreed to define them as money, from sticks to shells to stamped pieces of copper or other metal to beads to paper.  In no case did just any stick, shell or piece of paper do.  It had to have certain qualities or it couldn’t become money.

In one fascinating example, a stick with certain inscriptions would be split in two and the creditor and debtor each took a piece.  No other stick could represent that relationship of value-exchange because no two sticks will split in exactly the same way.  That made the stick parts a unique symbol of the value exchanged.  With gold, the size, ie., weight, of a nugget or shaped coin stands for its exchange value.  In every case of an object that becomes money, its value is designated in such a way that it cannot be altered.  So it is with paper.  With paper money, methods are devised to make it nearly impossible to duplicate without detection, but of course some counterfeiters have been very skillful, which results in a technology race between the legitimate and illegitimate printers of money.

Today, of course, most money takes the form of an electronic entry in computerized accounting systems controlled by banks and other financial institutions.  And that brings on an entirely new level of complexity and exploitability of what at base was a very simple relationship. But, as always, who controls the creation of money is still at the root of the way the money system works.

Because the nation so stupidly gave away the rights to control a fundamental public utility—money—to a cartel of private banks, the Federal Reserve, the creation of money (except for coins, which, trivially, are minted by the U.S. Treasury) is controlled not by public policy but by private banking interests.  “The Fed” is owned by its member big-private-banks yet is politically defined as a quasi-public institution even though it is entirely controlled by the cartel of private banks, except to the extent that the political system can influence its actions, which is almost nil.  Power flows from the banks to the government, not the other way around.

Well, you saw how well that worked out when the federal government essentially gave away the commonwealth by “covering” the bad bets of the world’s biggest gamblers—the Banksters, as I prefer to call them—because their agents, from Treasury Secretaries “Hank” Paulson and Timothy Geithner, Larry Summers, and the rest of the Wall Street gang were very much in control of the political response to the crisis.  These same Banksters had helped steer the congress to do away with the protections against gambling with depositors’ money that resulted from the Great Depression of the ‘30s.  The recent ‘Great Recession’ was the result of the same kinds of financial manipulations as precipitated the great crash, but now with lightning speed of computerized trading and lax limits on holding reserve capital to cover losses, as well as a whole new breed of “financial instruments” which are “derivatives” of complex combinations of debt.  The whole Dodd-Frank “reforms” were a smokescreen to cover continued abuse by the financial elite.

The whole system is, as they say, rigged.  And because it is entirely dependent on generating more debt in order to sustain profit, ultimately all that debt cannot be paid, since it is really a pyramid scheme basing illusory wealth on ever-expanding debt that cannot be sustained.  No, it is not about “the national debt” and “deficit spending” by the federal government, though they are part of the system.  And the “debt ceiling” is pure political theater.  It is about the centralized private control of the public means by which money is allocated to the actual people who participate in the economy as a way of sustaining their lives—through debt—with that private control being exercised in the sole interests of the so-called “masters of the universe,” the Wall Street Banksters and financial deal makers who have no idea what a real economy looks like.  It’s all about the art of the deal which generates paper profit [or, I should say, electronic profit] out of money generated with no other purpose, but which bounds the people to a system of debt over which they have no participation except as victims.

Therein lies the absurdity of the economy for you and me.  Money, the function of which had been to provide a medium for and a repository of actual exchange value—that is, the exchange of real objects and services of value to people in a real economy—has been perverted into a devise for generating false wealth—paper or electronic profit—which is treated as real wealth by the Banksters who control the Economy of the Absurd.