The Banking and Monetary System

The sub-prime mortgage/banking crisis gained prominence in 2008 with the collapse of Lehman Brothers in the US and $700billion in tax payer funded bailouts for the remaining major banks which absorbed some of their weaker competitors with the US government's blessing. Globalisation ensured contagion and bailouts followed in the UK and Europe. The contagion wasn't limited to the banking sector as banks' losses were underwritten by governments increasing the burden on tax payers and citizens. In the succeeding years history has been rewritten to suggest that the global economic problem is a result of big government, the expense of public services, over generous social security programs etc.; in short the blame for the continuing crisis has been ascribed, by governments and economic commentators, to everyone other than the original authors of the crisis, narrow banking interests.

This is the modus operandi of these interests which have sought to manipulate events to exploit the world's resources and populations for centuries. Unless this is understood by a sufficient number of people, the prospects for the future are pretty grim, either the collapse of civilisation as we know it or a third world war, or both.

To understand how we've come to this state of affairs, we need to understand how these banking interests have used their wealth and power

to subvert the will of the people and control governments to do their bidding. This is no grand conspiracy as such but a collusion of interests of the rich and powerful to achieve selfish short term advantage at the expense of everyone else. Establishment of the Bank of England in 1694 institutionalised the banks' ability to control nations through the issuance of credit to Kings and subsequently to democratic governments.

Early banking, which developed in the 17th century, was two businesses: safe keeping of other people’s money and lending money to finance trade and exploration. Wealthy merchants (typically goldsmiths) needed to store their accumulated gold safely. Having built a vault or strongroom to store their gold, they could defray the cost and profit by offering to store gold for others for which they would charge a fee (demurrage). Goldsmiths could also lend their own gold at interest to facilitate trade and exploration. Depositors storing gold with a goldsmith (as many early bankers were) would receive notes promising to pay the bearer the amount of gold on the note. As the notes were portable and more convenient than carrying sacks of gold around, these notes, over time, came to be exchanged as though they were money.

The lending business evolved from these early bankers lending their own money to lending that of their depositors. They knew depositors seldom came to inspect their gold because they were using promissory receipts as money and had no need for their gold. By writing promissory notes against their customers’ deposits, the banks could earn additional interest. When it became known that banks were lending customers’ money and earning interest for themselves, two things happened. A critical judgement in law turned holding money for safekeeping (as applied to all other goods) from bailment to something quite different. Bailment required that the owner’s original goods were returned intact subject to any payments for storage. By this judgement the storing of money moved from being treated like any other goods to being treated as a fungible deposit. In other words, banks weren’t required to return the depositors’ own gold coins, merely coins to the same value. Failure to restore someone’s gold to them ceased to be a criminal offence but became subject to civil law. In return for banks being able to lend depositors’ money at interest, the depositors received a share of the interest charged to borrowers.

Thus the foundations for today’s monetary system were laid but this was only the beginning. Remember that the bankers knew depositors seldom asked for their gold and were unlikely to all demand their gold simultaneously. The bankers found they could write notes for more gold than they actually stored in their vaults, enabling them to earn interest which they wouldn’t have to share with depositors. Occasionally, word would spread that a bank had insufficient gold in its vaults and depositors would rush to the bank to withdraw their money (known as a “run on the bank”). As there was not enough gold to honour the promises issued by the bank, it would collapse. By this process, the system was self-regulating as reckless banks were driven out of business. Nevertheless, this practice of legalised fraud flourished. Depositors were cheated in so far as they didn’t know their money was being lent many times over and received no compensation by way of additional interest. The borrowers were defrauded by paying the banks interest for the use of money that banks never had. This was the genesis of fractional reserve lending as universally practised by banks today. Not content with the advantage obtained through fractional reserve banking, the banks also acquired control of the economy by the creation of central banks. The privately owned Bank of England was established in 1694 and by the Banking Act of 1844, was granted the monopoly power to issue and control the nation’s money. In return, the bank financed the government. Being able to control the money supply gave the banks great power not least because “he who pays the piper, calls the tune”. Thenceforth the bankers wielded ultimate control as they do today. Although the Bank of England was nationalised in 1946, it remains very much under the banks’ control and influence. Through manipulation of the money supply, bankers could expand their wealth and influence. As money is fed into the economy, asset prices rise and the value of the banks’ holdings rise. When the economy overheats and inflation rises, banks liquidate their holdings and reduce the money supply by ceasing to lend, thereby precipitating a sharp drop in asset prices, allowing them to buy yet more assets on the cheap. By successive economic booms and busts, the banks have gathered great wealth and political influence. Banking dynasties cross national boundaries financing both sides in wars and profiting whatever the outcome. Clearly, there is much to be gained from controlling the monetary system and writing the rules by which it is governed and regulated. As Amschel Rothschild said in 1838: ”Let me issue and control a Nation’s money and I care not who makes its laws”.

Which brings us to the fight for control of the American colonies. By the mid-eighteenth century the American colonies were thriving. One of the factors in the American War of Independence was the colonies issuing their own interest free, money (Colonial Scrip) which deprived England’s King George III of taxes and European bankers of their power over the American colonies’ money supply. “The refusal of King George to allow the colonies to operate an honest money system, which freed the ordinary man from clutches of the money manipulators was probably the prime cause of the revolution,” Benjamin Franklin, Founding Father. Having won independence from England in 1782 and secured the power to issue their own currency, the founding fathers sought to protect the American people from the power of banks. However, through buying influence over members of congress, the banks managed to achieve legislation to create a central bank in 1791 but its unpopularity was such that its twenty year charter wasn’t renewed. An another attempt was made in 1816 but it too failed to get its charter renewed, in 1836. Andrew Jackson, who became president in 1828, denounced the central bank as an engine of corruption. However, the bankers persisted in their political lobbying and eventually in 1913, the Federal Reserve Act, creating the Federal Reserve Board, was signed into law. The act passed on 23rd December when there were only three senators present for the vote. Woodrow Wilson, the president who signed the act into law, wrote that it was the biggest regret of his term in office. Following the stockmarket crash of 1929 and the ensuing depression, the banks were brought partially to heel by the Glass-Steagall Act of 1933. Following its introduction, the banks spent the next 60 years lobbying to have the Act removed or watered down and its demise was completed by the introduction of the Financial Services Modernization Act of 1999. Progressive deregulation over the last 30 years has awarded banks unprecedented power and not just over the economy. Financial interests dominate political, military,media, environmental and commercial activity across the globe.

Ownership of the twelve Federal Reserve Banks which control the Federal Reserve Board is stipulated in the Federal Reserve Act and the capital of the Federal Reserve Banks is subscribed by member banks.The member banks receive a 6% dividend annually. The Act also provides for money to be paid over to the government but this in no way means that the Federal Reserve isn’t under the bank member/owners’ control. Irrespective that the Federal Reserve Banks are privately owned, the illusion of a government controlled central bank is perpetuated through its website. The name was chosen deliberately to mislead and most people assume that the Federal Reserve Board (Fed) is part of the US government. While some aspects of the Fed are at the direction of government, monetary policy is not and clearly there are conflicts of interest. Furthermore, as the Fed is responsible for regulating banks, member banks are regulating themselves. Although the President appoints some members of the Fed including the Chairman, they are typically from a banking or conventional economics background (and only think in terms of the current monetary system without questioning its validity).

The establishment of the banks’ control of the Federal Reserve Board extended European banking influence westward and today bankers’ control of central banks is global. Most international trade and finance is conducted in US dollars and supra-national financial institutions, such as the Bank of International Settlements (the central banks’ bank) are privately owned or managed in the interests of banks.

A 2012 report by Tax Justice Network exposed that at least $22 trillion of private wealth is held in offshore tax havens and possibly up to $32 trillion. The City of London is the hub of global banking and lies at the heart of the tax haven network, operates outside UK jurisdiction and is accountable to no-one but private interests.

Professor Dr Wolfgang Berger describes the history of the City of London and its pivotal role in global affairs. Any threat to its dominance is met with violence and oppression. It is the source of the power of the global elites exerted through the banking and monetary system. 

City of London

The most powerful Country in the World

 While the major banks compete for business, they share a common interest in maximising opportunities to issue credit