Why you lose, the banks profit, and the Government expands

"The people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." — Henry Ford

Welcome to The Golden Sense! Have you ever wondered why you just can't seem to get ahead of the game, financially, no matter how big your recent raise was or how big a profit you made on that last investment? Just when you get that extra money all of the sudden food, gas, insurance, rent and taxes go up. It's as if you’re swimming upstream in the river of life and find yourself in the exact same place no matter how fast you swim.

Have you ever noticed that the prime real estate and the biggest buildings in your town are often occupied by a bank? How does Bank of America or Chase do it? It's very expensive to rent or own all the nicest buildings in America.

Have you ever wondered how the Government can continue to expand? How can they continue to find someone to lend them money to finance their debt? You'd think it would be hard to find enough organizations to lend you trillions of dollars for basically nothing in return.

How does this happen?

Answer: It's the way the Government built the system and I'll tell you how it works.

The system is based on money and regulation. The Government built the system based on two rules.

1st rule- Make the monetary system fiat. Fiat money is money with no backing except for a promise of payment.

2nd rule- Pass laws so the monetary system benefits the government with a middle man beneficiary.

Lets start with rule one. The U.S. Government severed off ties to the gold standard in the early 1970's. This made the U.S. dollar a fiat currency. Fiat money is a problem because it is political money. This is exactly what the government wants. 

The problem exists in the way the money makes its way through the economy. When the Federal Reserve inflates the money supply out of thin air (always with Government encouragement) the new money does not reach everyone proportionately or at the same time. It enters the economy at discrete points. This monetary standard is often applauded by the one who gets access to the "new" money first. “The earliest recipients of the new money include politically favored constituencies of one kind or another: banks, for example, or firms with government contracts- in other words wherever the government spends money. These privileged parties receive the new money before inflation has pushed prices higher. In effect, the economy doesn’t yet know how much the money supply has increased, and prices have not yet adjusted accordingly. By the time the new money makes its way through the whole economy, prices will have risen throughout practically all sectors. But while this process is taking place, the privileged firms that are lucky enough to get the new money early benefit from being able to make their purchases at the previously existing price level- thereby silently looting those from whom they buy. When the average person gets his hands on this new money- through higher wages, say, or lower borrowing costs, prices will have already been rising for quite a while, and he has been paying those prices all this time on his existing income” (Woods). The value of his money has gone down by the new money before it has reached him. 

This large monetary expansion could not occur if the dollar was pegged to the gold standard. The fiat standard causes unwanted Government growth, constituencies, and a privileged society because of its ability to inflate the supply of money. Hence the title "You lose, the banks profit, and the Government expands."

Let’s move onto rule two. The Government has imposed regulation 12 USC 24 on the banking system, ruling that national banks invest the majority of their security portfolio in government securities and only a small restricted amount (often 5% max) in corporate securities (private sector). This, in essence, guarantees the government the ability to always have someone lending them money. The banks have a choice of either making loans to public (which entails more risk) or investing in government debt that is guaranteed to be repaid. Furthermore the governments regulatory agencies crack down hard on lending to the public, and businesses in general, while they practically encourage buying government securities. This gives the government the power to expand and use the leveraged purchasing power of this new money for governmental purposes. 

Banks would actually prefer to buy corporate (private sector) securities because the yield (return) is much more attractive than Government securities. None the less, they are practically forced to buy Government securities. With this set up you can see why the average Joe has a hard time finding a loan while Government has a steady supply of creditors. Hence the title "You lose, the banks profit, and the Government expands."

Rule two is nicely set up so that when there is a hint of dissatisfaction by the public, the Government can easily pawn off the blame to their middle man (the banks). The public see the profits made by banks and naturally become jealous, but in actuality, it is the government who is ensuring the individual loses. 

There are a number of other reasons why you may lose, a bank profits, or why the Government expands. However, it is important to understand the basic fundamentals of how the system works. That way the world is not a trick anymore instead it is your game to be played.

Over and Out,

T. Norman


My friend has established a news and commentary website. Check out the latest and swing by www.politismarts.com


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A study by the Fed finds that after excluding loans in deferral or forbearance, the delinquency rate on student loan debt was an estimated 27% as of 3rd quarter 2011. The federal government guarantees 80% of all outstanding student loans and the sector is roughly $1T in size (larger than either credit cards or auto loans). 






References:
Woods, T. (2009) Meltdown. Regnery Publishing, Inc. Washington DC