GOOD BANKING

North Dakota has the country’s only state bank. It is also the state with the lowest unemployment rate and highest job growth rate. The state is not near bankruptcy , there is no credit freeze stymieing job creators, and no cut backs to social services, higher education, state pensions, and the hiring of teachers, policemen, and firefighters. 

What’s going on?

            Well, in part, it’s the state bank. By law, all state money that comes from taxes and fees is deposited in the bank, which then issues low interest loans to students, farmers, and businesses. The bank buys government bonds to spur development and to shore-up infrastructure. With a state population of 600,000, last year it made $60 million in profit. Of this, it returned almost one half ($30 million) to the state for projects, disaster relief, and a rainy day savings account.

            Why can’t every state have a bank like this?

            Instead, banking in the remaining forty-nine states operates for profit. A state’s government deposits taxes and fees in a big commercial bank that’s usually headquartered in New York. These banks primary purpose is to generate profit for shareholders. To this end, the banks make risky investments in hopes of high returns. If a bet goes bad, the government (i.e. taxpayers) cover the loss, while the banks keep all profit. The state gets nothing back.

            Can someone tell me why we put up with this?

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.’

FOR BANKS, MONEY DOES GROW ON TREES

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            Another way banks ‘make’ money is through the fractional reserve. This is a percentage set by the Fed which determines how much of a deposit banks must hold in ‘reserve.’ Right now the reserve is 10 %. This means that if you deposit $100 in your account, the bank must hold on to $10. It can do what it wants with the remaining $90, like bet it on the stock market, or lend it to someone else at interest.

             Through the factional reserve, money is multiplied. It works like this. Say you deposit $100 in your account and your bank decides to lend $90 to Ann. When she deposits the $90 in her bank, that bank must keep $9, and can lend $81 to Mary.  Now, Mary has $81, Ann has $90, and you have $100. In this manner, your initial deposit can be multiplied ten-fold ($100+$91+72.90 … = $1000).  This is how money is created out of thin air and how banks have become so profitable. 

HOW BANKS MAKE MONEY

 The Fed is in the business of making money. It issues loans in returns for IOUs and expects to be repaid with interest. Banks work the same way. Take for instance, a mortgage on a house. You’ve found a house you love with an asking price of $150,000. You’re lucky and have a good job and the bank is happy to loan you the money over a thirty-year period at 5% interest. You sign the papers and take the keys to the house the bank now owns. The bank would like you to think that it has shifted money away from other sources to give to you, but this is not the case. As soon as your loan is approved, the bank prints the money. This is done with the push of a button; a ledger entry. You now have a debt of $150,000 and your debt is the bank’s asset. It has made +$150,000. Over 30 years, you will repay a total of $285,696 (the initial loan plus $135,696 if the interest rate is 5%) -- almost double what the house was originally worth. This money is profit for the bank, made on a house it never owned and on money it never had. The Fed works the same way. It prints money to give to the government, which taxpayers repay with interest.

WHAT WENT WRONG

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In 1910, a handful of bankers, a U.S. Senator, and the Treasury Secretary devised a plan to wrest control of the money supply from Congress and give it to the banks. Three years later, on December 23, 1913, with many elected officials home for the Christmas holidays, the Federal Reserve Board (Fed) was created. The legislation took from Congress and gave to the new central bank the power to print money. Hailed as a means to take politics out of financial policy and stabilize the economy, in reality, the aim of the central bank was to make a profit. It was no coincidence that the same year the Federal Reserve was created, Federal Income Tax was imposed. The tax was needed to pay interest on the money that the government could no longer mint itself, but now had to borrow from the Fed. We pay tax, in part, to pay interest on free money the Fed creates out of thin air. (For an excellent history of the Fed see: The Creature from Jekyll Island, by G. Edward Griffin.)

WELCOME

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Welcome to Gold Street News, my personal blog about the less-known machinations of money. I’m not an economist, so this isn't going to be too technical or advanced. I started studying our banking policy after the 2008 meltdown. I was so disturbed by what I learned, I had to do something. I wrote a novel, Gold Street, detailing how our monetary system works. This isn't taught in Economics 101 at university. When monetary theory is mentioned at all, it is so dry, so long-winded, and made so complicated, it’s nearly undecipherable. But it’s not that difficult to understand. I thought if I sprinkled economics into a fast-moving thriller, I could engage readers with a story that would culminate not only with a climax, but also an understanding of the U.S. economy. (Gold Street is available on Amazon and currently has a five-star rating.) I am writing this blog to raise awareness on how our economy works. To this end, I’m going to examine current and past events that are directly or indirectly related to the use, production, and control of money in this country. I invite you to join me and discover how our economy really works.