Why central banking persists

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Published : July 12th, 2015
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Only a few people care whether central banking persists, and they're the ones who profit from it.  In some cases they profit enormously.  The average Joe or Jill doesn't know about central banks and doesn't care to know.  To the ones at the top of the political - economic heap, this is how they want it.

A central bank comes about through political favors -- favors to big bankers and to politicians intent on buying votes and making war.  Where you find a country with a central bank, you have laws establishing it.  It requires political force to make them work.  A central bank is not an agreement among bankers.  It is an agreement backed by the monopoly force of government between bankers and politicians.  They are not free market entities, though they usually posture as one.

Central banks are often described as inflation fighters.  As monopoly producers of money, they are instead the sole source of inflation.

Central banks are said to be responsible for making capitalism work.  By making honest price discovery impossible and raging war against savers, they are in fact anti-capitalistic.  If you want to kill capitalism and replace it with cronyism and instability turn the market over to central bankers.

Almost every textbook that discusses the history of the U.S. central bank, the Federal Reserve, will say it came about as a solution to the various Panics of the 19th century and the Panic of 1907.  What the textbooks don't discuss is why the Panics came about: the common practice of fractional reserve banking.  In simplest terms fractional reserve banking consists of a bank giving two people equal claim to the same monetary unit at the same time.  This is standard operating procedure for banks.  Except among Austrian economists, it is noncontroversial.

As central banks were called on to play a major role in funding World War I, European belligerents suspended payment in gold -- in other words, they outlawed inflation-resistant money.   Doing so prolonged the war and resulted in 
casualty figures never before seen in mankind's history.  In the U.S. the public was strongly discouraged from attempting to redeem paper money for the gold it represented.  As historian Ralph Raico writes in Great Wars and Great Leaders: A Libertarian Rebuttal,

Had the war not occurred, the Prussian Hohenzollerns would most probably have remained heads of Germany, with their panoply of subordinate kings and nobility in charge of the lesser German states. Whatever gains Hitler might have scored in the Reichstag elections, could he have erected his totalitarian, exterminationist dictatorship in the midst of this powerful aristocratic superstructure? Highly unlikely. In Russia, Lenin’s few thousand Communist revolutionaries confronted the immense Imperial Russian Army, the largest in the world. For Lenin to have any chance to succeed, that great army had first to be pulverized, which is what the Germans did. So, a twentieth century without the Great War might well have meant a century without Nazis or Communists. Imagine that. [pp. 1-2]

No Great War, no Nazis or Communists.  No central banks, no Great War.

Central bank funding inflates the wars -- makes them bloodier and longer -- as it produces money for the belligerent governments to spend.  Central banking is very profitable for people on the receiving end of the new money.  They see to it that central banks stick around.

Central bank money today is not restricted by anything tangible.  Individuals can purchase gold or silver coins but the coins are not money proper.  Only central bank digits and paper are money in the sense of serving as a widely-accepted medium of exchange.  This was established by government fiat, not the free market.  Where you find fiat money -- whether it's gold, silver, paper, or digits -- you don't have a free market.

People don't care about monetary issues as long as their money buys things.  When it doesn't then they care, but they rarely understand it.  They know they're being cheated, but exactly how is a mystery.  They don't know about fractional reserve banking, and if they did most economists would tell them it's perfectly okay.  Even the gold-loving 
maestro inferred it was a legitimate practice, as he describes credit expansion under the government-controlled gold standard:


Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves.  This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits).

Do you see anything wrong with this picture?

Central banking will persist as long as fractional reserve banking remains unchallenged.


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George F. Smith is the author of The Flight of the Barbarous Relic, a novel about a renegade Fed chairman and the editor of Barbarous Relic.com.
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You state, “Where you find fiat money -- whether it's gold, silver, paper, or digits -- you don't have a free market.” As JP Morgan admitted, “Only gold is money” and it’s money because of it’s guaranteed scarcity. Therefore gold could never be a fiat currency. Silver wasn't so scarce and expanded the money supply by including the new Nevada silver mining production causing an expansion and collapse in 1893.

Fractional currency and reserve banking before 1914 was greatly restricted when we were on a 100% gold standard. After 1914 gold backed only 40% of the money supply and the Fed counterfeiters were now in charge with no restraints. This new counterfeited money representing 60% of the money supply, funded WW1 and by 1945 only 17% of the money was backed by gold.

The Fed is a foreign cabal of counterfeiters that took over the management of our money supply in the Fed Act of 1914. While before 1914, fractional reserve banking enabled bankers to loan out bank deposits and lose customer money on bad loans causing the bank runs and failures of 1873 and 1907, this new 40% gold backing allowed the counterfeiters to create new money from new bank loans with only typically 10% bank reserves required to reside in the bank.

Before 1914 there was virtually no new money being counterfeited as we were on a 100% gold standard. JP Morgan had the US Treasury print up unbacked currency to solve the bank run of 1907 for which he was declared a hero even though it was technically illegal. The damage to our economy occurred with the Feds new 40% gold backing that allowed new currency to be created through typically 10% bank reserve requirements, so $100 deposited in the bank could now back $1000 in new counterfeited money.

By 1933, we probably had only 40% gold backing of our money supply considering that by 1945 only 17% was backed by gold. There was no gold in the banks, not just because the Fed counterfeited our money supply, but also because the Fed were gold thieves as well. According to House Banking Chairman Louis McFadden, the Fed stole our gold and sent it to Germany. Later it was discovered to have funded our next conjured up enemy – Hitler.

After the bank runs of 1931-33 when America discovered the bank gold theft and money supply debasement, Senator Bronson Cutting led the fight to eliminate fractional reserve banking but was assassinated in a plane crash.

Also see Louis McFadden’s 1934 congressional speech imploring his fellow congressmen to arrest the Fed for gold theft and treason. They were scared sh*tless of the foreign bankers controlling America through the Fed and Wall St because they knew they could be killed. They abandoned him to be assassinated on their 3rd attempt in 1936.

House Banking Chairman Louis McFadden - An Astounding Exposure

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You state, “Where you find fiat money -- whether it's gold, silver, paper, or digits -- you don't have a free market.” As JP Morgan admitted, “Only gold is money” and it’s money because of it’s guaranteed scarcity. Therefore gold could never be a fia  Read more
sam_site - 7/13/2015 at 12:04 PM GMT
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