What’s Going On?

Good interview.

I’ve always said that if people spent 45 minutes learning about our monetary system, then they’d soon after drop everything, take to the streets and riot. If one good thing has become of this GFC it has made people a little more aware of how central banking works.

Fractional reserve banking is fraud of the highest order, and the very existence of a centrally controlled fiat currency is nothing more legalised counterfeiting.

An excellent video produced by the Ludwig von Mises Institute about Banking and the Federal Reserve System explains the system very clearly:

http://www.youtube.com/watch?v=iYZM58dulPE

Murray Rothbard also wrote extensively arguing vehemently against the Fed. His book “The Case Against the Fed” is available in entireity in pdf form here:

http://mises.org/books/fed.pdf

I remember a few years back people complaining about fiat currency, but I always assumed that the system was set up to benefit the banking elite rather than the average system and didn’t really pay much attention. Over the last two years however I’ve been absorbing as much literature as possible on this subject, and the fraud is orders of magnitude more criminal and devious than I originally understood.

The ‘Open Market Operations’ of the Fed is one good example. To buy an asset (literally anything – from bonds, MBS, foreign currency), ALL they need to do is write a cheque out on themselves (despite not actually having the ‘money’). They then require the new asset on their books, and the seller simply takes the cheque and deposits it and – presto – new money has been created.

The money supply is inflated and purchasing power is further diminished. This has especially been the case since Sept ’08. This is a plot of total reserves in all major US banks:

http://dmarron.files.wordpress.com/2009/07/excess-reserves.jpg

Now luckily (for now) all this new money is being kept on the bank’s books as excess reserves, and for the first time in history the Fed is paying interest on this excess – to stop it entering circulation. So, the banks have the money, they are just preferring to earn a safe 0.5% interest instead of lending it out (‘liquidity problem’, my ass). When the Fed stops paying interest on these excess reserves, the banks will start pushing out the money as newly created credit – and that is when price inflation will start kicking in. Coupled with any artificial booms that this credit expansion brings makes for a perfect storm: hyperinflationary depression.

Mises.org is one of best sources (in quality and quantity) of libertarian/Austrian-school economics literature online. They have tons and tons of videos/articles/lectures/ebooks all available for free.