INFLATION AND QUANTITATIVE EASING

photo credit

In 1910, the bankers who devised the Fed, agreed an important function of the central bank was to protect against bank runs in the event of an economic crash. Because banks are required to keep only 10% of their customers’ deposits, a mass of people rushing to close their bank accounts would quickly deplete a bank’s reserves. This is where the idea of government protected insurance came in. Why not let taxpayers protect bank customers? And thus the FDIC (Federal Depositor Insurance Company) was born.

In the aftermath of the 2008 economic crash, in effort to keep banks solvent, the Fed (unbeknown to anyone at the time) injected $1.65 trillion into the banking system. This was Quantitative Easing 1 (QE1) which lasted from November 2008 - March 2010. It was a huge success. The banks got lots of cheap money and no big bank ran out.

            But the economy wasn’t growing very well, and the country stood on the brink of recession, and to get banks lending and money circulating, the Fed implemented QE2, and injected $600 billion into the economy. That lasted from November 2010 until June 2011.

 Now, with the economy still sluggish, and banks still not lending to the public, the Fed is embarking on QE3, and planning to inject $40 billion a month into circulation.

            Where is it getting this money? It is printing it. As readers of the last post know, printing money dilutes the value of money already in circulation. The banks get free money, and the value of the dollar for everyone else is worth less. Quantitative Easing is a great boon to the banks. Not so great for the people.

             Why isn’t there inflation with all this money added to the circulation? Because it has been given to the banks and they’re holding on to it. They’re not lending it out to people, they’re playing the stock market. The general population hasn’t been the beneficiary of any Fed money. It was the big banks. As Senator Dick Durban knows, money is power. In 2009, he said, "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place."

GOOD GOVERNMENT BANKING

In a country we generally frown upon, the government’s central bank works like this: the bank prints money the government needs and provides it at no interest. This is unlike the U.S., where the government borrows from the Federal Reserve money on which it owes interest. Never mind that the government has a constitutional  duty to create money -- it gave this right away to the commercial banks in 1913. And, never mind that the Fed charges interest on  something it creates out of nothing (that is a subject for another day.) The end result is that we owe the Fed $1.6 trillion, and of course, social spending must be cut so we can begin to repay our 'debt.'  

This other country’s economy flourished after the 2007 global recession. Banks didn’t stop lending and the GDP grew by 10-11% (last year 8-9%), while in the U.S., growth was negative, and is now only 2-4%.

            What was this country? China! Yes, that terrible communist country that isn’t crippling its people with a mountain of debt.

         Why does the American government do this? President John Adams once said, there are two ways to conquer and enslave a country – one is by sword, the other is by debt. Our government is conquering its people through debt. We are voting into office, representatives who enslave us. We could stand to learn something from that communist country where leaders don’t take financial advantage of their people, don’t empower private banks, and don’t eviscerate their country's economy. 

HOW THE BIG BANKS GOT CONTROL OF WASHINGTON

The creation of the Federal Reserve is an instructive story of how the Big Banks took over Washington. There were two central banks in the country’s history that were so destructive to the nation’s economy that both lasted only the length of their charter, which was twenty years. The third, known as the Federal Reserve, has lasted almost one hundred. In 1910, the big bankers knew how difficult it would be to convince Congress to pass a bill to establish a central bank. If the bankers were honest in their demands – to establish a private banking cartel that would control the printing of money, and get taxpayers to cover risky bank bets – the public would never accept it. The central bank had to appear as if it were something that it wasn’t. It wouldn’t even have the word ‘bank’ in its name. No bankers would be associated with the bill, so their connection to it would not be in evidence. The central bank’s true objectives would never be stated, and false objectives would be offered in their place. The banking PR machine went into full swing, singing the praises of a Federal Reserve. It would get politics out of financial policy. It would stabilize the banks and the economy. Still, there was enough dissent that the bill was not tabled until three days before Christmas, when most representatives were home for the holidays. The bill passed. And that is how the big banks, in one bill, seized power over a country’s democracy. As banking magnate Mayer Amschel Rothschild said, ‘Let me issue and control a nation’s money and I care not who writes its laws.’