23/04/2013 by Don Quijones
The Western world is currently undergoing one of the most drastic redistributions of wealth in its history, with almost all new money flowing in one direction: upwards. While its roots may date back decades, this trend has accelerated dramatically since the collapse of Lehman Brothers in 2008 and the subsequent reordering of the Western banking sectors.
And despite what we might hear in the MSM, this ongoing shift is not the result of mere chance or circumstance.
At every step of the way since the crisis began, conscious decisions have been taken at the uppermost reaches of government to protect one class of people — the financial and corporate elite — at the expense of all others. Politicians and central bankers on both sides of the Atlantic have trotted out the same old meme to defend their never-ending bailouts of the financial sector: “We had no choice; things would have been unimaginably worse if we hadn’t taken the decisive action we did.”
But this line of reasoning simply does not wash; it is a false paradigm. For the simple fact is we will never know what might have happened if some of the worst performing banks in the U.S. and Europe — with the obvious exception of Lehman Brothers — had actually been allowed to unwind (just as is supposed to happen in a free-market model of capitalism).
Maybe we would have suffered a more severe financial shock, resulting in a deeper global downturn. But while the initial shock might have been brutal, the resulting pain would likely have been far less protracted and at least some of the worst abuses in the financial sector may have been tackled – just as has happened in Iceland, the only Western country with the balls to refuse to bail out its failed banks with taxpayer funds.
Having politely rejected the advice and pleadings of the IMF, the World Bank and other European nations – in particular the UK and Netherlands – Iceland is not only back on track but its economy is actually experiencing a strong resurgence.
Contrast that with the economies of Spain, Greece or Ireland, whose governments have bent over backwards at every turn to appease the threats and demands of the money markets and the ECB. What did they get in return? A death sentence for their real, productive economies and the removal of the last remaining traces of their economic independence.
The Rise of the Über Banks
Meanwhile, the prospects for the TBTF banks could not be better. Despite being directly responsible for the 2007-08 credit crunch and the subsequent collapse in global economic growth, the world’s biggest banks and hedge funds have grown more powerful than even they could possibly have dreamt.
In countries across the West, big banks now enjoy almost complete dominance over the money supply, and hence the economy. In the UK and the eurozone, 97 percent of all money is created by private banks, in the form of interest bearing loans and credit. By contrast, the respective governments of each country produce a paltry 3 percent of the money supply, in the form of paper notes and coinage.
Yet ironically, most people continue to suffer under the dual delusions that most new money is created by the government and that private banks make loans by drawing on their customers’ deposits. The reality could not be further from the truth, as Washington’s Blog explains:
1) Each private bank “creates loans” out of thin air by entering into binding loan commitments with borrowers;
2) If the bank doesn’t have the required level of reserves, it simply borrows them from the central bank (or from another bank);
3) The central bank, in turn, creates the money which it lends to the private banks out of thin air.
One can but marvel at the simple audacity of the enterprise. In a nutshell, it is the most audacious con trick of modern human history.
An Orgy of Speculation
Fast forward to today, and no matter how much new digital money is pumped into the system by the major central banks, the moribund global economy refuses to turn the corner. The simple reason for this is that precious little of the trillions of new dollars and euros actually make it into the real economy.
Rather than extending long-term loans to credit-starved small and medium-sized enterprises, the banks have funneled their massive windfalls into liquid assets such as stocks, real estate or commodities, helping in the process to blow up short-term asset bubbles.
They have also used the new funds to plug some of the gaping holes in their balance sheets as well as step up their purchases of over-the-counter (read, totally unregulated) derivatives. Indeed, so great has been the demand for derivative hedges or speculation – what Warren Buffet once described as “weapons of mass financial destruction” – that the total nominal value of the market is estimated to be nominally worth close to one quadrillion dollars (that’s 15 zeros) – almost 20 times global GDP.
As the graph below (courtesy of zerohedge) shows, the global derivatives market grew by a staggering 1,000 percent between 1998 and 2011. What’s more, it shows no sign of halting.
Even more startling is the fact that one solitary U.S. bank, JP Morgan Chase, faces total derivatives exposure of over $70 trillion, far surpassing global GDP. In other words, as incredible as it may seem, one single bank has on its books financial instruments presumed to be worth more than the total value of all that is produced by every country on this planet in one year.
A System of Institutionalized Fraud
So, to recap, banks are able to create money out of thin air as well as hold liabilities on or off their books many times in excess of their actual reserves. What they do with that money is entirely up to them. Even when a bank is awarded a massive taxpayer funded bailout, there are little, if any, strings attached. As a result, most of the money they receive never actually makes it back into the real economy.
A pretty “cushty” arrangement, you’d have to admit. But that’s not all, for banks are also allowed, in many countries, to massage, if not completely reinvent, their books, all thanks to the wonders of mark-to-model accounting.
This novel system of bookkeeping effectively allows a business to price a position or portfolio at prices determined by financial models, in contrast to allowing the market to determine the price.
In Spain, for instance, the banks, with the full consent of the country’s government, began, in 2000, what is called “dynamic provisioning.” The term may sound impressive and sophisticated – as financial jargon so often does – but, according to Mark Grant, is nothing but a fancy name for “cooking the books”:
“It means that losses and reserves can be shifted and modified from one-quarter to the next and it also means that categories, such as Real Estate losses or provisions, may be falsified by some bank or by the government of Spain to show what they wish to show or hide what they wish to hide.”
Ignorance is Bliss, Knowledge is Power
Despite the increasing risk of a far more serious global economic crisis in the near future — resulting directly from the flawed system of money creation on which the parasitical banks and central banks depend for their survival — most people still have the barest inkling of how global finance actually functions. Financial ignorance, it seems, is the norm, not the exception.
It is the same financial ignorance which helped plunge the global economy into one of the worst economic depressions of modern history, and is now preventing it from making any kind of sustained recovery. It is also a major enabling factor in driving the financial elite to commit ever more outrageous acts of financial corruption and fraud.
As long as financial ignorance remains endemic, the chances of ever returning to a more sustainable and democratic economic system are extremely slim. And if we fail as a society to wake up in time to the very real dangers posed by the current financial system, we will likely, and deservedly, go down in history as the biggest mugs – or as Goldman Sachs employees would put it, “Muppets” – since the Easter Islanders.
The increasingly perverse financial system has enabled a renegade gang of enormously powerful banks and their agents in the central banks to hijack the Western economy and overload each nation with unpayable debts. As a result, countries like Greece, Spain, Ireland and Portugal have become mere vassal states, reduced to a state of total dependence on the money masters’ whimsical patronage.
It’s high time that the global citizenry wizened up to what is happening. Ignorance, so they say, may be bliss, but knowledge is power. And if societies around the globe are to have any hope of surviving the existential threat posed by the TBTF banks and their enablers in government, then a much broader section of the population must begin to understand the forces behind our encroaching debt enslavement.
(For those of you interested to learn more, 97% Owned, the documentary posted below, is as good a place as any to start. Produced by Peter Joseph, the creator of the Zeitgeist series, the documentary is of particular relevance to UK residents, but its lessons are quite literally universal).