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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.

X-posted at thinkbridge

Originally posted to thinkbridge on Wed Dec 03, 2008 at 12:52 PM PST.

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Comment Preferences

  •  this subject just won't go away (9+ / 0-)

    thinkbridge "A state of war only serves as an excuse for domestic tyranny." Aleksandr Solzhenitsyn

    by thinkbridge on Wed Dec 03, 2008 at 12:52:57 PM PST

    •  The Fed isn't private (2+ / 0-)
      Recommended by:
      gjohnsit, Septima

      It's a cartel of private banks held in place by government. Why do you think the Fed was formed in secret by a handful of senators and bankers? 'cause those are the parties that benefit. If you are not a high-level govt. official or a banker, you lose.
      And yes, this is the cause of the current crisis. Credit expansions create booms, and busts necessarily follow.

    •  The Banksters won't let the system die (1+ / 0-)
      Recommended by:
      dharmafarmer

      at least not without trying to take all of us down with it.
       When charts start going parabolic then you know something is wrong, and almost every chart you read these days is going parabolic.
        It's a desperate attempt by the status quo to maintain their power.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Wed Dec 03, 2008 at 02:34:42 PM PST

      [ Parent ]

    •  My question based on links here is this... (1+ / 0-)
      Recommended by:
      thinkbridge

      This is from the first link in your diary (to a site written by Ellen Brown, JD):

      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.

      Has the government or the banks or anyone created a model as to what dollar amount or percentage of derivatives that are being held are being held by pension plans or mutual funds or perhaps life insurance annuities?

      I'm not supportive of moral judgments necessarily in deciding who gets bailed out when all parties own the same instruments. But these credit default swaps/derivatives are at the bottom of this morass, evidently. I'm not interested in bailing out those hedge funds or private equity funds that hold trillions of dollars in these swaps, as they knew the risks. But I think it's been unspoken by those who speak for the government in this bailout how risky are the many pension funds and other retirement funds that hold these "betting" instruments as "assets." I think if they told the truth, it would lead to massive panic.

      I would appreciate hearing from anyone who can shed some light on this.  

      •  great point, I think (1+ / 0-)
        Recommended by:
        DorothyT

        This issue is, like many economic issues, so complicated, and few really understand the whole picture - including Paulson. My opinion is that it needs a math genius together with some really honest investigation to simulate the possibilities for a solution to the problem.

        I agree that the CDS's are too horrible to really ethically "bail out."

        thinkbridge "A state of war only serves as an excuse for domestic tyranny." Aleksandr Solzhenitsyn

        by thinkbridge on Wed Dec 03, 2008 at 07:10:32 PM PST

        [ Parent ]

        •  Final point... (0+ / 0-)

          I realize that this diary has moved on to the archives, but if you read this, thinkbridge, I would appreciate seeing a final comment about this point:

          I agree that the CDS's are too horrible to really ethically "bail out."

          Do you tell the pensioners and retirees that their fund managers packed their funds with CDS's and they are out of luck? They don't even know what a CDS is, let alone that they are one of the biggest problems. That seems to be the dilemma. If it was just a question of bailing out mortgages, that could be done through restructuring, etc. But to deal with the products that are backed by CDS's when those products are retirement vehicles of some sort, that seems to be a huge, unsolvable problem. As Brown said (your first diary link):

          ...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.

  •  ugly but worth a read (2+ / 0-)
    Recommended by:
    defluxion10, thinkbridge

    No money, no foreign credit and no gold:

    http://www.atimes.com/...

  •  i wrote a poem about it a few years back: (2+ / 0-)
    Recommended by:
    defluxion10, thinkbridge

    Free Money
    What is this fake money interest
    Created to help your fellow man
    What is this fake money interest
    That never touches hand

    There's got to be more interest now than money
    Is there any money left?

    We're so creative even our money is a slave
    Money go work off that interest you can't be saved!

    And what are you saving it for anyway?
    You can't take it to the grave.

    FREE MONEY!!!!
    Now there's a concept and a chant

    FREE MONEY!!!!
    It's lent/bought it's way so far into the future
    That you can't.

    42.7% of all statistics are made up on the spot. A Wrightism

    by publicv on Wed Dec 03, 2008 at 01:02:46 PM PST

    •  thanx for the poem (1+ / 0-)
      Recommended by:
      publicv

      and this brings up the "old" idea, commonly known to Muslims, of the problem of usury - making exhorbitant (sometimes) amounts of money off of money with no work or real investment. It's really the old Ponzi scheme in a way. Many Islamic banks actually managed to stay afloat by avoiding the more toxic forms of monetary deals because they are considered usury.

      thinkbridge "A state of war only serves as an excuse for domestic tyranny." Aleksandr Solzhenitsyn

      by thinkbridge on Wed Dec 03, 2008 at 07:13:01 PM PST

      [ Parent ]

  •  interesting video in tocquedeville's recommended (2+ / 0-)

    diary yesterday money as debt.

    who cares what banks fail in yonkers - as long as you've got a kiss that conquers.

    by rasbobbo on Wed Dec 03, 2008 at 01:05:12 PM PST

  •  Why cant' we directly print the money printed. (1+ / 0-)
    Recommended by:
    snack related mishap

    Why IS it borrowed, creating a debt to the Federal Reserve?

    ...do the elites...actually believe that society can be destroyed by anyone except those who lead them? - John Ralston Saul -

    by Silverbird on Wed Dec 03, 2008 at 01:22:34 PM PST

  •  can we take the bankers out back? (3+ / 0-)
    Recommended by:
    happy camper, thinkbridge, xylonjay

    or do we need to storm the castle with pitchforks?

    •  I'd say a little of both for good measure (2+ / 0-)
      Recommended by:
      UncleCharlie, thinkbridge
    •  Take 'em out back (2+ / 0-)
      Recommended by:
      UncleCharlie, thinkbridge

      Reason with them, or at least with the reasonable ones. Say this:

      "When a pyramid collapses due to crumbling at the base, it's bad for every part of the pyramid, even the glorious capstone. So, Mr. Banker, we need your cooperation to keep our pyramid from outright collapse. The reason we think you'll want to help is that it's good for you personally."

      Once Mr. Banker agrees, we start to divert some of the mass of the pyramid (i.e. wealth) away from the top couple layers, where it has all been going for quite some time now (creating great instability in the process), and instead invest it in strengthening the lower layers of the pyramid.

      And who or what is in the lower layers? In this country, it's the middle and working classes. Internationally, it's the 2 billion or so who are living on a dollar or less a day. In a planetary frame, it is the natural world-- the real "bottom layer" that our entire species depends on for survival.

      Since bankers like survival, they're sure to come along willingly ;-)

    •  It'll take a revolution (1+ / 0-)
      Recommended by:
      UncleCharlie

      The banksters own the government. The government will fight to defend its true masters.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Wed Dec 03, 2008 at 02:36:12 PM PST

      [ Parent ]

  •  Its time to revolt... (1+ / 0-)
    Recommended by:
    gjohnsit

    America needs to wake up and bite the money masters hands as they stick their greedy paws in our collective pockets. Down with the FED!!!

  •  This is the more or less standard complaint... (2+ / 0-)
    Recommended by:
    DBunn, thinkbridge

    ...against fiat money, popular among Ron Paul supporters and gold-standard people.

    The flaw is that you assume that the extra money being printed is inflationary. As long as the money supply expands at the same rate that the rest of the economy does, there is no problem. The Fed printing 4% more cash in response to a 4% increase in GDP is not a problem and is not inflationary (in fact, is necessary to avoid deflation).

    The problem is if the money supply changes with respect to available output.

    •  Hold on. (1+ / 0-)
      Recommended by:
      DBunn

      The flaw is that you assume that the extra money being printed is inflationary

      Are you saying that this fiat money system is NOT inflationary? How much could a dollar buy in 1920? In 1960? Today?

      If interest weren't charged by the Fed, the system wouldn't be forced to grow exponentially or face collapse.

      This isn't a Ron Paul or gold standard criticism. Ron Paul harps on the fiat money issue, yes, but that's just because he was ahead of everyone else. It's only his issue if you make it his issue.

      •  Re (3+ / 0-)

        Are you saying that this fiat money system is NOT inflationary? How much could a dollar buy in 1920? In 1960? Today?

        Sure it's inflationary, but only slightly (aggregate inflation since 1900 has compounded at, what, 1-2% per year?).

        We can support small amounts of inflation indefinitely. With a hard money standard you end up with massive inflationary and deflationary booms and busts since the till isn't being operated by a theoretically accountable person, but by supply of whatever metal you're basing your currency on. If the economy "wants" to expand 3%, but you can't expand your gold supply 3%, you suffer major deflation very quickly. At least you can control a paper money supply (though, you can screw it up, too, as we're seeing now).

    •  Another thing... (0+ / 0-)

      Your example of 4% growth in GDP requiring 4% growth in money would seem to make sense to a monetarist. But we've seen money growing far faster than the economy, not to mention that much of the economic growth we've registered these past few years was an illusion of that oversupply of money.

    •  Agree and disagree (2+ / 0-)
      Recommended by:
      alefnot, thinkbridge

      The flaw is that you assume that the extra money being printed is inflationary. As long as the money supply expands at the same rate that the rest of the economy does, there is no problem.

      I'm no economist, but it seems obvious that as long as real value increases at about the same rate as the money supply, then the money retains about the same value.

      Our real problem, alluded to in the diary, is that there's no limit on how much money can be created, but there is a limit to how much real value can be created-- and we are at or near that limit. I refer to the constraints of resources and ecology.

      The evidence is everywhere: global warming, peak oil, water scarcity, deforestation, collapsing fisheries, desertification, etc. As a matter of bio-physical reality, the human economy is a subset of the natural world. That's our limit.

    •  That line was crossed a long time ago (0+ / 0-)

      The Fed has been printing money much faster than the GDP for decades now.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Wed Dec 03, 2008 at 02:37:29 PM PST

      [ Parent ]

    •  The problem, as I've found myself explaining (0+ / 0-)

      repeated over the last several days (mostly by linking to two particular comments I wrote) is that the capitalists demand a geometric return on their investments, at rates that are simply not feasible. Blame whichever set of institutions you want, hedge funds, sub-prime mortgages, credit default swaps, fiat money: it doesn't matter. the moneyed class will find a way to inflate the money supply far beyond the capacity of the proles to produce real value.

      I am further of the opinion that the President must be impeached and removed from office!

      by UntimelyRippd on Wed Dec 03, 2008 at 04:43:02 PM PST

      [ Parent ]

      •  Who are "the capitalists" and how do they (0+ / 0-)

        "demand" anything? I think you're talking about the government.

        the moneyed class will find a way to inflate the money supply

        The federal reserve system inflates the money supply, not some "moneyed class". And this is a government institution backed by force. You are not allowed to say "no thank you" when presented with a FR note (dollar bill).

  •  Not sure I understand this well at all. (0+ / 0-)

    What you're saying is that most of the 'wealth created' is just imaginary money?

    I get the whole Ponzi scheme idea, but how can banks lend out??? --

    Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend.

    That's just plain nuts.

  •  I can't deal with these mystical, claptrap (0+ / 0-)

    theories about money, and finance, and lending.

    The 21st century global economy and financial structure is incredibly complex and defies any attempt at summation.

    Truth is what most contradicts itself in time.

    by Blicero on Wed Dec 03, 2008 at 02:11:16 PM PST

  •  Buy wheelbarrows n/t (0+ / 0-)

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