Globalism and Central Banking

Kevin Cecchine 2/19/17

first 100

The origins of banking date back to ancient times, when one would wish to store his wealth or “capital” without risk of that wealth being stolen. This would, in turn, make the wealth less readily available; however, it would also ensure its safety. For most private bank accounts, the tradeoff of less readily available money was to earn interest on that money. This then begs the question of how the holder of the people's wealth is able to earn a profit from merely holding the wealth that is not in circulation. The way that a bank can earn money from this is by loaning out the money that people have in their bank accounts at a later-determined interest rate. The bank makes a profit in the long run from the interest when the loan is payed back to that bank. The bank is able to lend an amount of people's money in their accounts because it is worth the risk, and it is highly unlikely that those people would all withdrawal at the same time. (Beattie, 2016)

         A bank must be careful, because if one were to set off a chain of withdrawals known as a “Bank Run,” where the bank does not actually have the funds that it records in its assets, then the bank would be in debt to all of those people. Thus, it would enter a state of bankruptcy. Because of this possibility, the banks can only lend out a fixed amount because of the possible risk that is imposed. This is a naturally occurring system of checks and balances, for each bank must also compete with other banks for better deals on loans, constantly keeping the best possible ratio between too much or too little lending, as well as interest payments on private accounts. Hence Adam Smith’s “Invisible Hand Theory” ( Library Economics Liberty, 2008). This system was the model for all naturally occurring banking. That is, until central banking through government quantitative easing became prominent.

         One of the earlier forms of central banking was the bank of England, founded in 1694. England was struggling to establish itself as a world power after a crushing defeat from France, but lacked the funds to monetize such an empire (Rodrigues, 2009). When one lacks the funds to invest into something, they can neither place money into it, nor can they borrow money to fund that investment.

         The problem with borrowing money is that it transfers leverage to the lender. It is inherently a promise to pay back that borrowed money. With central banking, countries often borrow from themselves, in effect printing the money out of nowhere, rather than from a true increase in wealth that has any intrinsic value (University of Groningen, 2012). This act of borrowing from your pocket of tomorrow is analogous on a small scale to a person that pays off his credit card debt with another credit card. This in turn causes inflation to rise and consequently debases the currency. The money that people have saved is now actually worth less because of this.

         The debasing of currency most viciously attacks the poor (Monnin, 2014). When a government works with a central bank to artificially inflate its currency, it devalues the existing capital. This is essentially a hidden tax on the public in order to meet the government's full obligations. However, it is not just a tax in the present, it is a tax for the future generations as well. Government debt grows with interest just like any other debt; therefore, the interest will eventually become unsustainable (Investopedia, 2016). The excuse in the present is that devaluing the currency can allow for a rise in more lucrative trade deals (Investopedia, 2015). Any minor short term benefit to this system of constant inflation cannot compare to the inevitable harm of central banking. The International Monetary Fund is funded mainly by first world super powers who have virtually limitless funds due to a combination of taxation and central banking. This means that it is an organization with essentially unlimited power (IMF, 2016). The motives behind central banking have been laid out to the public as a humanitarian effort to fight global poverty. In an effort to fight global poverty, the IMF loans out billions to poverty stricken countries, but at an unreasonably high interest rate (Caroll, 2016). The 3rd world country has no choice but to take the bailout, because the alternative is the continuation of its suffering. It is unknown what true value these bailouts have, considering that the IMF does not actually hold any real collateral, as it can just be replaced, while true capital remains limited. If the very thing that endows currency with intrinsic value is its scarcity, then how can one claim to give away wealth when they create it out of thin air? (Investopedia, 2013).

         This hidden tax is essentially theft. since a country's currency is the only legal tender recognized, it is the only currency in which one can pay taxes. It steals value right from the current money supply, and gives the value (and therefore wealth) to the suppliers (the banks). It is as if everyone must go through them to get everything and anything that they please. Many people see the solution to the plights of banking as more government oversight; however, once one understands that the expansion of government fuels central banking, then they will understand that government is not the answer. If the common man printed more of his nation’s legal tender, he would be arrested for counterfeit (International Trademark association, 2015). The International Monetary fund has a history of lending out the Western World's newly created money at an extremely high interest rate to these 3rd world nations that are simply unable to pay the debt back (Global exchange, 2016). One could make the argument that this is done on purpose to put the country into debt so that the International Monetary fund can then essentially own that country. Since these countries are often corrupt or very poorly organized, it is easy to make these deals that sell out the public to international interests. The 3rd World is bailed out with wealth that has been created from nothing. The people of the third world then are trapped into debt slavery to the highest financial elitists. This truly begs the question, of whether owning a central bank makes you one of the most powerful people in the world or not. Let us not forget, Mayer Amschel Baur Rothschild once said “"Give me control of a nation's money and I care not who makes it's laws". ( Liberty Tree, 2016)

         The World Bank was founded in 1945. The International Monetary Fund was founded in 1945. The said purpose of these international institutions was to achieve economic stability in Europe after World War 2 (IMF organization, 2016). It was essentially a bailout system for the Western World. Once that task was complete, the International Monetary Fund’s main purpose was in the name of “helping developing nations” (CITATION). However, in practice, this has not been the case. The true nature of large government organizations is anything but “humanitarian.” In practice, these 3rd World nations have ended up in debts that are so high that in some cases 40% of the National Budget must be allocated to the interest on the debt alone. One of the best examples of this debt enslavement is happening in the Philippines right now. A rapidly growing debt has to be paid. This is at the expense of the poor, who rely on exponentially diminishing government aid and services. (Index Mundi, 2016). When a country asks for more loans from the IMF, that country must enact changes to their governments. This may seem as though the IMF is pushing for less debt, but in reality are not. They ask the country's government to cut spending and raise taxes to promote lower deficits, however don't address the fact that the country is further indebting itself by borrowing the money in the first place (Global exchange, 2011).

Some could argue that these economic reforms are simply for the purpose of good publicity in order to conceal the true nature of the organization. One could conclude this because of the lack of any true turn around in an ailing country's national debt. In the case of the Philippines, the corrupt leader, Ferdinand Marcos, made a deal with the IMF to essentially deregulate in order to bring in power plants from the 1st World. Under normal conditions, deregulation would be good for the average person and promote true competition. However, this is not the case for the Philippines. The corporations that build plants and use cheap labor, benefit from the countries artificial barriers to entry for the people. That alone destroys competition, and allows for exploitation of the people for the elite’s interests. (Kenji Kushida, 2003). Those enormous artificial advantages, coupled with the subsidization of these corporations, gives every advantage possible to encourage a total monopoly over the geographical area. This type of cronyism is often mistaken for Capitalism and Free Trade. However, within the paradigm of true Capitalism, special advantages to special interest groups are not given any artificial advantages (Arthur kane, 2016).

There are many trade agreements that the United States makes with foreign nations that contain over one thousand pages of regulations- obstacles over which only a large corporation would be able to efficiently hurdle. One of the best examples of this is the “North American Free Trade Agreement, or “NAFTA”. This is supposedly a win for “free trade.” However, it contains 1,700 pages of regulation (Ferghane Azihari, 2015). This begs the question of whether or not these trade agreements are designed to benefit certain special interest groups. I believe this purposefully feeds into a misconception about Free Market economics.

         The most widely accepted school of economic thought today is keynesianism. My contention is that it is a deeply flawed theory. It is one that leads to unnatural business cycles and wealth disparities ( Alen S. Blinder, 2008). The theory mainly relies on a Central Bank setting interest rates to give the economy a boost, or a slow down whenever it is needed. In times of recession, Keynesians will argue that you must lower the interest rates to encourage spending in order to “stimulate” the economy. Even riding on the assumption that a central bank can accurately centrally plan, there are many flaws to this idea. When you lower interest rates below the natural market rate, you encourage mal investment (Louis Cammarosano, 2015). This is because the prices rise due to inflationary forces while the actual production does not increase, it only gives the illusion of newly created wealth. This illusion causes investors to invest more than they should, and in effect creates a bubble. It can be conceptualized best as giving a blood transfusion from your leg to your arm, and concluding that the blood is new. Financial bubbles, such as the real estate bubble in 2008, are caused by the government encouraging overinvestment both with the Federal reserve (the U.S central bank) and the United States Federal government (Peter Ferrara, 2011). This happened during the great depression in the United States as well. Many are under the false impression that President Hoover was a staunch Capitalist. This was, however, not the case, considering that he promoted artificially low interest rates and he was in favor of raising tariffs. If one believes in selective deregulation, they are somehow described as a Free Market Capitalist. The interest rates were at record lows right before the Great Depression ( Julie Borowski, 2012). Many people promote the ideas of setting interest rates because they believe the business cycle is inevitable; however, this is also not the case.

It is true that you cannot prevent all mal investment through a free market banking system, but it will be greatly reduced. The excuse used for the creation of the Federal Reserve was the 1907 market crash. However, little do people know that there was a Central Bank before the Federal Reserve called “The Bank of North America” in the 1800’s (Ryan baum, 2010). When there is overinvestment beyond true production caused by a central bank, the market will always correct itself with a crash. It only takes one person to sell at the artificially high price, then everyone wants out of all said stock. Meanwhile, the value crashes down to its true value. As for artificially raising interest rates, it causes too much saving and not enough spending, and can only be determined by individuals.

Another flaw in the Keynesian thought is that it promotes the creation of new currency that the banks create first and gives to the largest corporations first (John Mauldin, 2014). For people who are retired or on a fixed income, this is especially devastating. Since the supply of money has artificially increased, the true value has decreased- essentially stealing value from the current money supply. This is a literal transfer of wealth from the poor to the rich and powerful. Since they are creating more currency, and they have increased their own supply first, their percentage of total wealth increases relative to everyone else (Zoran Balac, 2014). This, coupled with over-regulation that shuts out small businesses from competing in the market, and other government subsidization, is the true reason for national wealth disparities. Despite people's belief that more government oversight is necessary, the wealth disparity has grown steadily with the growth of government. This may be because the nature of government’s hold on markets are an exclusive power that must be limited.

We apply the rules of supply and demand for consumer goods, so why wouldn't we with currency as well? There is no one who can centrally plan what you individually might want to eat or drink, but once there is a demand for a product, there will always be someone who is willing to supply it for their own personal gain. True wealth is created when two parties both feel that they received more out of the transaction than they put into the transaction. It is essentially the same for money, only money constantly adapts to tides of supply and demand that can determine how little or how much people should invest (Hunter Hastings, 2015). Risk is a factor that all individuals must take into account when investing.

Today we see the emergence of alternative currencies such as Bitcoin, even with heavy government involvement, the free market still shines as a glimmer of hope (Founders grid, 2014). Another common misconception concerning free market economics is that it breeds monopolies and poor working conditions. However, this could not be further from the truth. In a free market, each business would have to compete for labor just as they would have to compete for customers. Thus, bringing the best ratio of work to personal gain to for each individual. Many examples of labor exploitation by corporations that dissenters bring up all too often have some connection to government interference: be it by subsidization, bailouts, over regulation, over taxation, or complicated 70,000 pages of tax codes (Andrew Lundeen, 2013).

Many bring up the exploitation of the customers as well with near Monopolies or Oligopolies. One of the more recent famous examples of this was the corporation Enron, which many Progressives use as a basis to refute free markets. Enron committed fraud by recording assets that it did not yet actually own in anticipation of owning those assets in a non-stop effort to drive up stock prices. Enron had the energy market cornered in California in the early 2000’s. Enron purposely caused a widespread power outage in an effort to lower the supply of electricity in order to raise the price level of the electricity. People say that it was pure greed that caused these unfortunate turn of events. Upon further examination, one might ask themselves why they would leave themselves so open to their competitors out performing them. That is exactly the problem however: the Enron corporation did not have to worry about competition (the driving force of the free market) because they had the full backing of the federal and state government. It turns out that the Federal government provided a total of 3.7 billion dollars in subsidies to Enron corporation (Chris Seaburg, 2016). That is on the federal level alone. This did not include the meeting the corporation had with the governor of California a week before the event (Jason Leopold, 2003). This little known fact about the Enron story changes everything, and is all to often left out of the equation. It seems as though the very idea of government involvement in “keeping corporations in check” is the very thing that causes the need for government involvement in the first place. A roundabout of sorts, in which the people lose every step of the way. As Lord Acton said,“power tends to corrupt and absolute power will corrupt absolutely” (Lord Acton,1887), (Library of liberty, 2016).

Once someone is elected into office, they are not automatically endowed with moral enlightenment. People often forget that it is often the most rich and powerful that call for larger governments. This keynesian economic theory tends to devolve even further to the depths of Socialism, because it artificially creates a greater need for social programs. One example of a country led to destruction by Socialism is in Venezuela. Their country has accumulated far too much debt, and now cuts to government spending are the only option, along with hyperinflation. Hyperinflation is now so bad in Venezuela, that average people are literally forced to eat of the the garbage just to survive. This socialized Utopia has quickly turned into a Socialist dystopia (Matt Vespa, 2016). It is also often misunderstood how much the banks benefit from these corporations. When new money is created out of thin air, the money first trickles down to the corporations, which immediately debases the currency in their favor. By the time the trickle effect reaches the average American, it has lost some of its value. Trickle down economics is something that necessitates the abolition of central banks. There seems to be mass confusion among the general public in the realm of economics, which some who wish to continue these injustices may wish to exploit. This is why centralization of governments tends to become less efficient and more corrupt. Globalization of central banking and nations is one step further in the wrong direction for humanity. No one should ever wield that much power. I. IMF organization. (n.d.). Factsheet -- The IMF at a Glance. Retrieved March 23, 2016, from Global Exchange. Top Ten Reasons to Oppose the IMF | Global Exchange. Retrieved April 20, 2016, from Henderson, D. (2011, May 23). End the IMF | EconLog | Library of Economics and Liberty. 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How does inflation affect the exchange rate between two nations? | Investopedia. Retrieved May 31, 2016, from Cammarosano, L. (2015, October 20). 10 reasons negative interest rates are even worse than artificially low interest rates | Inman. Retrieved May 31, 2016, from Borowski, J. (2012, April 17). Debunking Myths of the Great Depression. Retrieved May 31, 2016, from Baum, R. (2010, April 16). Bank of North America: America's first bank - Guided By History. Retrieved May 31, 2016, from Mauldin, J. (2014, March 9). The Problem with Keynesianism. Retrieved May 31, 2016, from Balac, Z. (2014, July 30). Monetary Inflation's Effect on Wealth Inequality: An Austrian Analysis. Retrieved May 31, 2016, from Hastings, H. (2015, January 29). How Free Markets Enhance Freedom of Choice. Retrieved May 31, 2016, from Lundeen, A. (2013, October 22). The Income Tax Code Spans More than 70,000 Pages. Retrieved May 31, 2016, from Seabury, C. (2008). 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