Common Sense Comes to Town!

Common sense is the most fairly distributed thing in the world, for each one thinks he is so well-endowed with it that even those who are hardest to satisfy in all other matters are not in the habit of desiring more of it than they already have. (Descartes)

Disinformation, Central Banks and Others

Posted on | November 13, 2011 | No Comments

A video added some time ago on the web gives a rather surprising explanation of the cause of the latest financial crisis. According to its author(s), the existence of a central bank is the root of all evil in world markets. This is a powerful argument but unfortunately totally off the mark. If you so desire, do watch the movie (it’s about 30 minutes long) as I’m going to unmake its main points in the next paragraphs.

Of course some facts are true yet put in the wrong context. Goldsmiths are indeed behind the rise of a banking system but the use of gold as a standard for transactions is more than 1000 years old. Banks do loan more money than they have in available liquidities; however deposits are insured by most governments and the liquidity ratio for each branch is strongly regulated.

As for the argument stating that the Federal Reserve Bank is privately owned, it is correct. But we’re not talking about the run-of-the-mill stock traded on public market. First, it is mandatory for a bank to own shares in order to be a participant in the Federal Reserve Bank. Second, the Board of Governors is not voted by the shareholders but decided by the American government. Finally profitability isn’t the first goal of the Fed, and restrictions exist to limit the amount it can hand out in dividends. The argument stating that the government has no access to the bank is therefore totally wrong.

The historical survey present facts with a one-sided, distorted vision, grossly anti-Semitic (note how the Rothschild are demonized). It is conveniently forgetting that episodes of US history without a central bank were noticeable either for uncontrolled inflation or by the sway of private interests over public finance.

If fact, central banking and the nationalization of money allow a government to influence economic condition through the control of inflation, using the monetary mass. Remove these two elements and you end up in a situation where banks, free to print their own money, can create an inflationary spiral in a snap. You also end up with a government dependent on private interests when it is necessary to borrow – which means that banks can then truly put a veto on federal policies.

This entire movie reeks of conspiracy theory, libertarianism and the elimination of the State’s power. The solution presented by the movie – eliminating the Fed – actually makes  no sense. In fact, you need to make the Fed stronger and more importantly, to regulate and watch more closely the whole banking system. The solution requires not a weaker state but a stronger one.

And for those interested in the reasons behind the actual financial crisis, go watch the excellent documentary on the topic, Inside Job.

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