As any long time readers–if I have any–know, I am against Fractional Reserve banking, period. There is nothing wrong with saving up money, then lending it at interest. But that is not what banks do. They save up enough money to be granted the legal right to create more, which they then do. When it works they get rich, and when it fails we have a recession or depression. In the first case they siphon off wealth, while adding nothing of intrinsic value, and in the second case they are the direct cause of mass poverty and economic and cultural dislocation. There is no case to be made that Fractional Reserve banking exists for the public good. It exists to make a wealthy elite more wealthy, and more elite. It is at the root of the growing disparity of wealth and power, in my view.
And the Fed, of course, exists in theory to soften the blows of the financial cycles. It exists to slow down inflation–which is the result of mass creation of and circulation of new money by banks–and to prevent bank crashes, when they don’t get back the money they created in loans.
Practically, though, and to an extent we can’t know, they also exist as a private source of capital for the largest banks in the United States, and perhaps even the world. We can’t know, as the Fed is more secretive, arguably, than the CIA, since the CIA at least in theory reports to the President. The Fed, by law, is required to do nothing other than deliver periodic reports which can, and generally do, say almost nothing about the details of their actual operations.
Consider the Quantitative Easing program. Some $50 billion a month was created for something like 5-8 years. Let us say it was five years. 50×12=600. 600×5: 3,000. This means some THREE TRILLION dollars was created by the Fed in the Obama era, on the low side, and disbursed to banks. We don’t know the details. We don’t know who got the money.
BUT THIS MONEY WAS CREATED FROM NOTHING, AND GIVEN TO MASSIVE BANKS WHO WERE ALSO PART OF THE BODY VOTING THE MONEY.
Can you see the problem here? If we call money potential wealth, it remains in potential until it is spent, which is to say put into circulation. Once it does start circulating, you get inflation, which is to say money competing with money, driving the overall value of it down.
Obviously, if the Fed is raising rates, it fears inflation. This may be a valid fear. But what I would like to encourage the President to do–and obviously this is the single most important blog on the internet (just ask me), so he will obviously read this and unhesitatingly follow my advice–is rethink the whole system.
We can, in one stroke, abolish all debt in the United States, and engineer a system which will be immune to economic cycles. Economic cycles should be a thing like smallpox epidemics, or malaria outbreaks, which we read about as having existed in the past. If money is real, if it’s value does not change, we get a supercharged, bulletproof economy which makes everyone into a wealthy person.
Self evidently, I do not favor unlimited consumption of everything, but I think wealth is most likely much like population. Most industrialized nations, once the inhabitants realize their children are highly likely to survive childhood, see a drop in population growth, and in older nations–such as most of Europe and Japan–birth rates are currently negative. Their populations are shrinking.
Likewise, I think once everyone has a taste of the good life, their need for all the fine things of life will diminish. It is possible to savor what is local and special. It is possible to build a global culture based on a sense of the plenitude of life, of the value and beauty in small, non-material things. It is possible to grow gardens the world over; to, as I say, feed the slow and nurture the small.
Anyway, here is my treatment of the topic: http://www.goodnessmovement.com/Page23.html