News & Analysis
Blame Central Banking Not Banks
The financial crisis blame-game: have we got it right in just blaming the bankers? At the Feast of the Immaculate Economy – well before the crisis of 2007 and 2008 – there were many guests. Governments keen for endless amounts of cheap money to fund their mighty public sector programmes, homeowners keen for an extra bedroom even though their income didn't quite stretch, central banks who appeared to almost wilfully ignore what was going on under their very noses. And the waiters, of course, the bankers, running around the table filling everyone's glass to over-flowing, whipping everyone up into an ever-increasing frenzy and taking their very nice cut (and cut and cut), thank-you very much. In the blame game that followed it is the waiters who have got the spanking. – Kamal Ahmed/UK Telegraph
Dominant Social Theme: Is it just the bankers' fault?
Free-Market Analysis: We will take Mr. Ahmed up on his offer. We do not believe that blaming the bankers gets it "just right." In fact, it is the most common of all dominant social themes – that economic downturns are the fault of big, powerful private interests. This sort of populism has been cultivated by the power-elite throughout the past several centuries as a way of promoting an "us versus them" mentality. Let the "people" blame capitalism and turn to government for solutions and the power elite that stands behind government benefits inordinately.
In a sense this article in the UK Telegraph is surprising because for the most part the mainstream press, even in this day and age, is circumspect about criticizing central bankers. It was in fact surprising when criticism of the Federal Reserve went mainstream last year, but this was perhaps in part due to the massive nature of the downturn and the availability of a high-profile Fed critic, Congressman Ron Paul (R-Tex). As a result of Ron Paul's efforts, the Fed is facing an audit of its recent activities. The audit is not so far-reaching as Ron Paul and others hoped, but it is a start.
In Britain, criticism of the central bank has been more subdued, perhaps because the Bank of England is such an extraordinarily powerful institution, one of the first of its kind and the model for most other central banks around the world There is no doubt, of course, that the British central bank played its part in the financial meltdown just as the American central bank did. Nonetheless, the British press has been circumspect. Here's some more from the article:
Now, at last, someone has pointed the finger at another of the guests – the central banks, and in this specific instance, the Bank of England. In an essay for a new book called The Future of Finance, the former member of the Bank of England's monetary policy committee, Sushil Wadhwani, argues, in that wonderful way economists have, that is is "surprising" that the BoE doesn't appear to have apologised for its role. And by that he really means apologise and therefore understand what went wrong and what should be done to put it right. ...
Today, the UK's five biggest banks are being hauled in by George Osborne and Vince Cable for a summit on lending. You must do more, they will be told, and we can expect some suitably angry policy statement following the meeting to show that the Government means business. The question, though, as Mr Wadhwani says, is whether the other guests at the meal have really understood their role and changed their behaviour accordingly. Is Mr Wadhwani right to point the finger at the BoE and Mervyn King? Is it time we gave the banks some praise for the changes they have made and see their role in a more positive light?
What is most notable about this – other than that it points out central banking's culpability – is the statement that during his time at the bank, a former central banker says he "was surprised by the lack of interest in issues relating to financial markets." Mr Wadhwan continues: "Indeed there seemed to be a deliberate policy to run down resources in the financial stability wing."
Were there any real press freedom in the UK (at least so far as concerns the mainstream media) such a phrase would set off alarm bells. If we understand Wadhwan correctly, the Bank of England was purposefully destabilizing financial markets – or so it seemed to him. To us, that seems newsworthy. As does the "new regulatory structure" (within this context) that will give the Bank of England more power. We note that the same thing is occurring in America, where the Fed is set to take on more responsibility.
Of course it is in fact central banking that provides an endless destabilizing influence on economies the world over. This is why the current financial regulations being promulgated in Europe, the US and Britain are nonsensical. We write this quite a bit, as anyone who stops by the Bell already knows, but we remind ourselves we need to continue to do so because so far as the mainstream press is concerned it's "business as usual."
A tiny power elite basically controls the world's mercantilist central banks. Central bankers, politicians and others stand in front of this mercantilist crowd (worth trillions) to give the appearance that the system is necessary, inevitable and the natural outcome of a free market. But it is not so. The system is one of monetary control and the "work" that central bankers do involves fixing the price of the money which inevitably distorts economies over time.
Too much money leads first to a boom and then a terrible bust. Re-stimulation continues the process and makes economic imbalances worse over time until finally the whole system begins to collapse and something else emerges. We are in a collapse phase currently.
The problems begin and end with mercantilist central banks. Absent central banks and government involvement in money, gold and silver – probably in a free-banking environment with or without fractional banking – would be the order of the day. There would still be booms and busts, but they would likely be shorter in nature, regional in scope and far less destructive. Additionally each business cycle would thoroughly wring itself out instead of merely setting the stage for more serious problems down the road.
The financial regulations that are being rammed through the EU, America and Britain comprise a response that has been prevalent for the past 100 years. The idea is that people, incensed by "Wall Street" and by "the City" and by powerful and arrogant private banking in general, will throw their collective weight behind new regs aimed at rogue bankers. Of course it is not a satisfactory solution but it is not intended to be a rational one. It is supposed to satisfy emotionally.
But because of the Internet and the severity of the downturn, we have seen ample apocryphal evidence that this time around people DO understand that it is the central banking system itself that is at fault. Because the powers-that-be control governmental and regulatory structure, the process of blaming private sector banking continues, but without nearly so much credibility. The problem for the elites raised oh-so-quietly in this Telegraph article is that people DO know this time round.
The blame-game continues unabated but instead of properly channeling people's anger into regulatory retaliation – which leave the system basically unscathed – it will actually INCREASE anger and frustration this time round. This is the real problem the elite and its many enablers have to deal with.
Conclusion: The tool kit which has availed the elite over many generations is not working in the era of the Internet. More and more may have seen behind the curtain. Our answer to the question raised by this article is therefore, "Yes, it does go deeper than that." And also, "The crisis is probably not averted." If it is not ameliorated but continues on its present course, our suggestion would be that, "You haven't seen anything yet."
Posted by Mark Davis on 07/21/10 11:02 AM
"So you are satisfied with the justice system as it is?"
A non-sequitur in the form of question is a weak response to my point, but I'll bite. Of course not. The existing state positive-law justice (sic) system protects the legalized fraud that is the foundation of the existing banking system. What's the point of creating a positive law system if you can't help protect your elite friends from the hoi polloi when they do bad things? Simply put: we have a government of the bankers, by the bankers and for the bankers.
Natural Law applied through a free-market justice system of discovery and reinforced by growing acceptance, custom and social sanctions would not allow for fractional reserve banking due to the reasons outlined above.
So when you say "Why not let the market decide?" you need to clarify what market you are referring to: the market for banking services or the market for law. I too skirted the line trying to figure out which you meant and finally assumed that you meant allowing free-market banking under the existing state controlled positive law regime. Unless fractional reserve banking was recognized as the fraud it is by this positive-law system, a free-market in banking would result in unfair advantages to the scammers and we would get what we have now.
I would prefer a free market for both. I'm confident that the legal shield provided for the existing unethical banking system by the existing political positive-law justice (sic) system would be removed in a free-market justice system.
Reply from The Daily Bell
"Natural Law applied through a free-market justice system of discovery and reinforced by growing acceptance, custom and social sanctions would not allow for fractional reserve banking due to the reasons outlined above."
We repeat - OK, then let the market decide. It is not murder after all but a business practice. Let the free-market of goods, commerce and services decide - to be exact. The larger market. The market of Adam Smith's invisible hand and of Mises' human action, etc.
Posted by Mark Davis on 07/20/10 01:56 PM
Let the market decide what? Contract law? Whether banks that use fraudulent accounting practices can draw more customers? Or make higher profits for the scam bankers? Honest bankers being driven out of business by dishonest bankers resulting in boom and bust cycles for everyone is what we have now and what you would get even with competition.
So few people understand how this scam works that market forces become a poor determinant of ethical values. Like all deals with the Devil, the short-run benefits appear to outweigh the long-term costs which can be put off until a reckoning day.
Legalized fraud undermines free-markets because it provides an unfair advantage to those that participate in the fraud.
It also creates the conditions for business cycles that wreak havoc on the entire economy, not just the willing members of the banking scam (e.g. artificially drives up the prices of real estate, etc.). Enforcing contract law consistent with how all businesses other than banks currently operate would not allow this scam to exist in the market. These scammers would become outlaw banks in a just society. Paying a premium to be allowed to commit fraud, theft, murder or rape is not justice.
Reply from The Daily Bell
So you are satisfied with the justice system as it is?
Posted by Mark Davis on 07/19/10 12:49 PM
The fraud is when the bank promises two different people the same dollar. This is impossible. You can say that both people understand that they are being defrauded and will participate in the fraud, usually because they benefit from either lower interest rates on the mortgage loan or higher returns on their savings, but it is still fraud. Two people can't spend the same dollar without fraudulent accounting practices like fractional reserve banking.
It would be like a man who cheats on his wife while she knows about it, maybe she even benefits from the arrangement. But it is still adultery. It is what it is.
Reply from The Daily Bell
Why not let the market decide?
Posted by Bill Ross on 07/19/10 11:52 AM
DB: "Blame Central Banking Not Banks"
Translated and general truth: Blame the chiefs, not the Indians except for being stupid enough to follow.
The nature / function of hierarchy and central control is to take choice out of the hands of individuals / majority and place it in the hands of unaccountable minorities, while individuals / majority face the consequences / pay the costs.
THINK about it:
Click to view link
The truth WILL set you free...
Click to view linkfault: Familiarize yourself with the legal concept of "Odious Debt":
Click to view link
Posted by Bruce C. on 07/18/10 03:00 PM
Hopefully – possibly through dreams – the citizenry en masse will will know to default on the central banks at the right time, something they don't expect.
May the people finally get it!
Posted by Peter Underwood on 07/18/10 03:52 AM
Question from: Acudoc on 7/16/2010
"How do you turn a sow's ear into a silk purse? I wish I had that ability. I'd sleep a hell of a lot better"
The only way I know is to know something that others don't (insider trading). Friday was options expiry day in the market and surprise, surprise, the SEC announces that Goldman has been let off the hook for only half billion dollars. They made that up and much more on call options as Goldman stock rocketed! The same happened the other way round last expiry day, only you had to be short Goldman to catch that falling knife!
It's all manipulated, so where were the central banks who should have controlled this robbery, instead they actually promoted it in league with the PE. Talk about "fiddling" while Rome burns!
This is a great site for relevant information and education:
Click to view link
Posted by Jisa on 07/17/10 11:15 PM
Click to view link
thanks db for telling it like it is, the msm really wants us to buy the blame the banker game.
Posted by Mark V on 07/17/10 06:54 PM
"The tool kit which has availed the elite over many generations is not working in the era of the Internet. More and more may have seen behind the curtain."
Therefore, it's time to start censoring the Internet:
Click to view link
But this effort may run into a roadblock now and then:
Click to view link
So maybe the most effective approach is to misapply some of the myriad laws and regs already on the books:
Click to view link
After all, the Constitution is a "living" document that must keep up with modern times.
Unlike basic laws of physical science, fundamental philosophical and economic ideas seem to become obsolete by merely existing for a few decades. Or maybe, from simple disuse.
Posted by Victor Barney on 07/17/10 11:36 AM
Doesn't matter "who" we blame now, but the planned Marxist(anti-messiah) financial collapse still will occur by September 9th of this year! That's just how Marxism always has worked! Then, simply blame it on a designated people(I believe the white man) and holocaust them! No? Watch! PS: I know that our Government does keep track of all this and the SS Black Panthers will be crashing through "our" doors before Jacob's trouble for 3 1/2 years is over!
Posted by Pat Fields on 07/17/10 04:56 AM
Bobby Cite: "Even this publication has no real answers but just of myriad of logically sounding rhetoric which seems to make sense but is not measurable in terms of dollars and cents."
Somehow, I suspect you wouldn't recognize the solution if it ran up and bit a fair chunk from your posterior.
I happen to suggest we realize the residual true purchasing value of the banknotes in undenominated copper pieces so as to revert the entire game back to a specie basis immrdiately and seamlessly. From that point on, 'prices' would be set exclusively in weights of metallic ratios. Voila! Instant 'Universal Currency' that relates to the entire spectrum of goods and services planet-wide.
Posted by Bionic Mosquito on 07/17/10 02:29 AM
Fixing the problem will only come via education. Not new political parties, not a revolution -- only education. For this, the Daily Bell is doing its part. Other sites are as well.
If you want to be part of the solution, start a site. Or financially support sites that educate. Send links of good articles to your friends. Talk to people when you have an opportunity. Protect your assets and your family.
Beyond this, I have no advice.
Posted by Bionic Mosquito on 07/17/10 02:19 AM
@Luis re fractional reserve banking and fraud.
It is not fraud if a) the proprietor of the product is clear about the product, and b) the consumer of the product is not intentionally misled. These aspects are not true today, but could be true in a free market and could then compete with any other money system any group chooses to put to the market. In a free market where government force was not used to favor one system over another and allowed all systems to compete for business.
In such a case, I would expect the currency units issued from a fractional reserve bank would trade for a small fraction of the currency units from a commodity-backed bank.
"I want to buy a shirt." "That will be one gold backed unit, please." "But I only have units from the "we loan your dollar out 100 times bank" bank." "Oh, then it will cost you 100 units."
But in such a case, there would not be fraud.
Posted by John Edwards on 07/16/10 10:12 PM
In Australia there is going to be an election called for either the 21st or 28th of August. As far as I know.
For the first time in my life, I will be voting informal.
Through my exposure to the Internet, I have had the existence and history of the ongoing world-wide scam that is Mercantilist Central Banking revealed to me.
The Internet has been instrumental in connecting me with information sharing sites such as the Daily Bell, Lew Rockwell, Jeff Rence, 9/11 Truthers, Infowars, and a host of other sites, right across the broad spectrum of opinion that is available on the Net.
Because of this ability with the Internet to do my own independent research and verify others claims, I have been able to finally connect the dots of the Elite's roadmap that has been wrecking mine, and most everybody else's life.
Now I can plan for what's left of my future.
Voting isn't part of that future.
I have now recognised that Democracy is a LIE. Voting is utterly counter productive, as it just legitimises the whole Central Bank scam and it's cover from scrutiny; the parasitic political shell game.
Neither major political Party in Australia will so much as utter a squeak against the Central Banks.
This now obvious lack of interest in scrutinising the role of Central Banks in economic manipulation, confirms to me that politicians are, to the last man or woman, puppets of the ruling Elite, NWO, One World Government, or whatever amorphous term that we may coin for what in reality just describes international pirates who still operate under the 'Skull and Bones' insignia.
We in the West have been played for much bigger fools than our counterparts elsewhere. I discounted and tried to avoid those who I met through life who prospered through the exploitation of others. Only to recognise that the Central Banks make it so that exploitation and deceit are indeed at the core of our economic existence.
I think it's utterly reprehensible.
While this state of affairs with all politicians and Central Banks remains unchallenged and unchanged, they can go whistle for my vote.
I have no stupid delusions concerning organised opposition that could, 'change the system'.
Government in Australia is already too big and controls just about everything we do in this country, including the way we think.
It is such that I made a decision early on in life not to have children and thus end my families bloodline.
Having met face to face some of these Australian Elite only reinforced my decision. Having to watch as their Liberal/Labor children were promoted and led charmed existences because of their birth, showed me first hand how crooked the system is and the way it reaches down into the furthest reaches of our society to exert control in some subtle, not so subtle and unusual ways.
It is galling to recognise that you are just breeding stock for the ruling classes.
That they have even conned us into enslaving ourselves with debt to buy the 'incubator' as well, must be considered a priceless joke.
I had to admit that the proponents of the NWO/OWG have indeed won in Australia. All I can do is make sure that there are no more generations of my family to be exploited and finally killed by a system that is not going to change, in my life-time, at least.
Posted by Bobby on 07/16/10 07:07 PM
Instead of fixing the blame how about fixig the prolblem? Fixing the problem is something the White House is incapable of, the elite will never do, and the average citizen has no concept of. Even this publication has no real answers but just of myriad of logically sounding rhetoric which seems to make sense but is not measurable in terms of dollars and cents.
Posted by Luis on 07/16/10 06:39 PM
Let me add my total agreement with the post by
Mark Davis on 7/16/2010 2:31:59 PM
where he says among other things that
A fractional-reserve banking system is based on fraud with inherent moral hazard.
Hello Mr Davis, nice to have you aboard.
Posted by Luis on 07/16/10 06:35 PM
You are evading the question about fractional reserve banking, weaseling out is more like it! The god "market" is not to decide whether to continue with a system based on a crime called fractional reserve banking.
It is a crime period, for me and many others. I am just asking you to tell me if you agree. Just say no if that is your opinion. I want to have it stated.
Remember what you posted at the top: "The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it."
' John Kenneth Galbraith
Reply from The Daily Bell
We are not evading the question. We believe it is up to the market to decide on money and banking - which is nothing more than warehousing, anyway. If people understand they are dealing with an institution that utilizes fractional reserves, and they are compensated for the risk (in their opinion), then that is their choice. You would make it a crime anyway. Sounds fairly authoritarian to us.
Posted by Acudoc on 07/16/10 02:47 PM
I think even central bankers have fallen for the nonsensical ruse that money is that which can be created solely as debt-obligations by the citizenry and managed by an elite acting in society's interest.
Most bankers probably feel they are doing an indispensable job of "loaning" this money to their fellow man, and deserve to be rewarded accordingly---hence the statement by the chairman of Goldman-Sachs that he is doing God's work. Brother, what a prism he looks through!
How do you turn a sow's ear into a silk purse? I wish I had that ability. I'd sleep a hell of a lot better.
Posted by Jeanna on 07/16/10 02:37 PM
The central banks hand down the policy and regs to the rest, and the entire banking system must follow if they want to continue in business. So all are tainted, even though there are a few good ones who are trying to operate ethically. But, how does an ethical businessman succeed in an unethical and immoral environment? Until the banking industry is set free from the central banks, you might as well blame them all. It is the entire working group that keeps the system afloat.
I have great doubt that the American Spirit that began this country remains. Many of those who listened to the words of the American Revolutionaries were very comfortable with their Tory lifestyles, and family connections to nobility. When the call for Independence went forth, it was only a small percentage of the populace who carried it. And maybe that will be enough this time.
But, we have indoctrinated educators who pass along the same propaganda to each new generation, and they all believe three state supported religions; 1) that man crawled from the slime, and therefore answers to no higher power, 2) that government is necessary to stabilize a free market, and 3) that the state knows how we should live than we do.
It takes more faith to believe the false theory of Evolution than to acknowledge that God created the universe and all therein is. It takes blind faith to exchange your freedom for promises of security. And, after the first two, there follows only obedience to let the state govern and rule everything we do.
I am afraid that too many are too comfortable with the welfare and false promises they receive to look beyond their gilded cage and see the lion waiting outside.
Posted by Mark Davis on 07/16/10 02:31 PM
Central Banks were created to "control" the banks in order to protect greedy bankers from themselves. A fractional-reserve banking system is based on fraud with inherent moral hazard. In order to mitigate the ill effects that naturally stem from this unstable, immoral financial system of exploitation, central banks must appear to be "controlling" the moral hazard while hiding the fraud. Focusing on the moral hazard aspect is all well and good, but until the fraud is exposed, there can be no real understanding as to why there will always be a boom and bust cycle. The root problem of the systemic failure is fractional reserve banking, while central banking is just the institution set up to enable it.
Posted by Luis on 07/16/10 02:26 PM
One mention so far of fractional reserve banking, and in the comments section only, otherwise not a word in the text of the article and your own comments.
What's your take on fractional reserve? I was taught in Caltech in 1957 that fractional reserve banking was legalized fraud. Otherwise how to explain the the constantly recurring crises? not millions of dead people, destroyed factories, meteorites devastating continent, oceans going dry, whatever, just out of the blue financial crises (plural).
A civilization based on a fraud that is presumably kept hidden by so called probabilistic "laws" that are no laws at all. Hope I don't get excomunicated by the statistical faith. Too bad I have a PhD in probability theory.
Reply from The Daily Bell
It should be well known to those who stop by the Bell that we are in favor of letting the market decide these issues - whether it be real bills, fractional reserve banking (see Selgin, White) or full-reserve procedures.