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If it weren’t for Capital’s restraint, (pun intended) the above title should have read: ‘Finance Destroying Economies’! We will apply our usual terse/harsh analysis to force chilling/sweeping conclusions on the current status of the global economy. This alarmist strategy, which has become a visible trademark of ours, is purposely utilized to highlight critical issues establishment discourse conveniently ignores and cynically forgets! Scribes that obediently serve dominant interests within the broader trade of ‘thinking businesses’ usually don’t agree with us. But that only encourages us to further pursue our trajectory, considered and willingly chosen! Finance used to be, primarily, an intermediary, a go-between, basically to facilitate productive activities. The radical economist (Karl Marx) formalized it as M-P-M’(M=Money, P=Product) . Today however, finance is hardly a means and is mostly an end on its own, M-M’! For instance, in the world’s total financial transactions, only around 5% involves payments to goods/services, the rest, a good 95% is financial speculations, i.e., to make more money out of just money. Welcome to the world of rarefied finance!
Deafening rhetoric of establishment discourse aside, the global economic system is almost exclusively based on finance severely detached from reality. This ‘predator supremo’, which has galvanized ‘rent seeking’ to a level unseen since medieval times of the feudal kingdoms, is finally collapsing faster than the fortunes of the dot com whizzes! At its core, global finance is based on the fraudulent notion of ‘Fractional Reserve Banking’ (FRB), which remains the major underlying cause of cyclical economic crisis that essentially defines the existing modern world system. We believe the time has come to deconstruct this deceitful scheme that operates behind all banking institutions and expose it (to the beast-human mass) for what it truly is; ‘a crime against humanity’! We think FRB is the grand heist (non-violent crime) of the past millennium! We will attempt a short synopsis of this criminal activity that continues to dominate global financial regimes in each and every country on earth!
Fractional Reserve Banking is when banks are allowed to lie to their depositors through their teeth. When banks lend money, it is money that is created out of thin air and is hardly from deposits. Putting it another way; ‘fractional reserve lending is the act of lending out more money than banks have a legitimate right-to-lend.’ For example, a 1000 birr deposit (of real money- birr notes on whose face ‘National Bank of Ethiopia’ is printed) in a particular bank ultimately ends up becoming 10,000 birr of ‘bank money’ in the larger economy, at the reserve rate of 10%. If the rate of reserve is not fractional, but full, (100%) then it won’t be possible for any run-of-the-mills commercial bank to create money (bank money) out of thin air! In a full reserve banking, it is only the central banks (National Bank of Ethiopia in our case) that can actually create money and we believe it should be so. In the words of the monetarists’ guru himself: ‘The creation of fiat currency should be a government monopoly.’ Milton Friedman. But in the USA for instance, the central bank (Federal Reserve Board) is owned not by the government, but rather by other private banks!
Full reserve banking enforces discipline, genuine competition in the market place and assigns real/ clearing prices to all economic transactions. Moreover, it encourages efficient uses of scarce resources, as it is mostly based on work/real values and not the hallucinations of the connected, political or otherwise. Naturally this has not and will not be to the likings of many economic actors (government, connected businesses, etc.,) It is mostly because of fractional reserve banking the world economy is now convulsing severely. Recently a research paper of the IMF advocated for the complete seizure of fractional reserve banking operations in the world (phony money printing), finally agreeing with us. This also indicates the degree of desperation inside this formidable institution of global economic governance!
Amongst the major problems of fractional reserve banking, two stand out. First, FRB allocates scarce resources (natural and non-renewable) inefficiently. Because money is cheap in a fractional reserve banking system, useless, unsustainable and destructive projects are promoted all over the world and this stupidity has become an entrenched feature of the modern world system! FRB systematically hides the built-in efficiency of market mechanisms by flooding them with phony/unearned money. Secondly, FRB steals money from workers/entrepreneurs, etc., and transfers it to rent seekers as well as inefficient consumers of resources, like governments of captured states (OECD). In this regards developmentalists seem to fare better. Nonetheless the offshoot of it all is inflation! Those on fixed income (wage earners, low income operators, etc.,) that live/work in the real economy and not in the make-believe world of government supported projects and debt financed adventures (of the rent seekers) suffer tremendously. For example, for every $7 (US) gov’t pumps into the economy (to ignite growth), only $1 contributes to the intended effort, while the rest is wasted in the attempt to sustain the unsustainable. Today the world is facing severe problems as a result of the FRB gimmick, which was initiated by crooked bankers of medieval era.
Since politicos are hardly the thinking/learning types, they don’t have much respect for history, at least to its essential essences. They seem to be concerned only with rhetoric/paraphernalia as well as vacuous aggrandizements of frivolous events, past and present. That is why organized humanity never tires of repeating proven mistakes! Here is a short and clear lecture from one of modern world’s economic gurus. “The best way to destroy the capitalist system is to debauch the currency. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens… The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” John Maynard Keynes.” Good Day!