Saturday, November 29, 2008

When Is Money Not Money? When It Is a Ponzi Scheme

So you think you understand finance? Do you think anybody understands finance? Does the Secretary of the Treasury understand finance? Well...according to this website:

Our money system is not what we have been led to believe. The creation of money has been "privatized," or taken over by a private money cartel. Except for coins, all of our money is now created as loans advanced by private banking institutions — including the private Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.

Could this be what's behind the whole economic collapse we're now trying to dig ourselves out of by selling bad debts to China? And would that then rob the Chinese of the value of their money?

Not only is virtually the entire money supply created privately by banks, but a mere handful of very big banks is responsible for a massive investment scheme known as "derivatives," which now tallies in at hundreds of trillions of dollars. The banking system has been contrived so that these big banks always get bailed out by the taxpayers from their risky ventures, but the scheme has reached its mathematical limits. There isn't enough money in the entire global economy to bail out the banks from a massive derivatives default today. When the investors realize that the "insurance" against catastrophe that they have purchased in the form of derivatives is worthless, they are liable to jump ship and bring the whole shaky edifice crashing down.

But Fareed Zakaria says China CAN bail out this system. If not, what exactly does "the whole shaky edifice crashing down" look like?

This article suggests that what has happened is nothing less than "The Collapse of a 300 Year Ponzi Scheme".

All the king’s men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on "fractional reserve" lending, which allows banks to create "credit" (or "debt") with accounting entries. Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way. The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough "money" (or "credit") to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 – until the whole world has now become mired in debt to the bankers’ private money monopoly.

And what happens when this long-standing house of cards falls? And what will finally call their bluff? Apparently, their bluff will be called by none other than the earth itself.

As British financial analyst Chris Cook observes:

"Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth’s resources."

So what is the solution - if any?

The parasite has finally run out of its food source. But the crisis is not in the economy itself, which is fundamentally sound – or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people’s money. Fortunately, we don’t need the credit of private banks. A sovereign government can create its own.

And how can we "grow our own" banking system without becoming essentially government-run, which sounds like - thunderstorm sound effects with Halloween music, please - "socialist"?

Ask Ron Paul, maybe? Or is the Government By the People not such a horrible thing after all? At least, not as horrible as a Ponzi-Scheming Banking Cartel Not By the People.


Anonymous said...

Does this mean you advocate the government running the banks? Isn't that socialism? Ron Paul would never agree to a socialist solution.

Omyma said...

No, I don't agree to the government running the banks, and no, I didn't link Ron Paul to this idea. I just mentioned him because he had what are considered "radical ideas" about how to fix the banking situation, ideas that were never really considered seriously. To arrive at a good working solution, ALL possible solutions should be considered from the left to the right. And decided by people other than the "banking cartel."

opit said...

'Socialism' is maligned because it was used as a 'stalking horse' for the communists.
Maybe I should say 'alleged communists' - as nobody seems to know what happened to the fraternal brothers of libertarians, the anarchists.
Regardless, money is the tool used to control people since the Middle Ages - and before. It is so important counterfeiting is a prime worry of governments : who restrict the practice of issuing money to government most countries.
Isn't it interesting that the first response you got was a nameless troll pushing 'talking points.' Doesn't that remind you of many press releases ? "Sources say..."

Omyma said...

Interesting comment, Opit. But I couldn't figure out where you stand on this, although admittedly, it's such a complex issue that it's hard to take a "stand" without about 16 explanatory addenda attached.

Good point that money is used to "control people", which, as I believe you also believe, is a good thing. Lack of control is definitely NOT a good thing. However, sometimes a group that gets into control of other people loses the moral imperative - or respect - that got them into that position of power. Then it's time for a change.