Financial crises - reasons and solution
As currently im doing a research on the financial system, I keep wondering if our society is interested at all in the level of dictatorship we live in.
I'm no zeitgeistman, no conspiracy theorist, working from facts, including even official data from the Federal Reserve. The Federal Reserve which is actually, entirely responsible for the financial crises, and which crises could be fixed very easily.
We keep voting for presidents, but you have to realise that these presidents only represent their leaders - supporters, who cannot be accounted on their policies.
When in Protected content democratic congressman demanded clear and independent audits on the FED, it was the President (democratic Clinton) who rejected it, whereas it would have given more power to him!
Currently I'm just curious and I will guess from visits and comments if actually our society is educated enough (obviously I presume in a professional environment this level should be higher then general) to recognise and think about these thoughts.
Just a few bullet points to start our discussion:
1. The commercial banks generate money and create new money on a reserve ratio. That is, they have to keep the reserve of only a fraction of their loans. So if you go in, and sign for a loan, they will actually create that money for you, out of thin air. Debit/Credit side increase with your debt, they have to keep a low fraction of your debt on the FED's account and the rest is given to you. But as your loan reaches the market and gets back to a bank account that becomes a reserve for another loan starting the process all over again.
This creation is a legal forfeiting process of money (creating debt and using as saving) on the basis, that - "what is wrong with our phony money if we actually have real money in our vaults, too?"
2. This leads to obviously inflation - which I do not want to go too deep - apart from taxing savers (the biggest savers of economy are the accumulated individuals with bank accounts - workers), but also has a value transferring effect. That is, the early users of new money gain more and benefit from having the extra money in their pocket than the late holders - since by then prices will adjust to the new money supply. So forfeiters take over wealth (banks).
Just a quick note: Protected content , Karl Marx and Friedrich Engels already stated in the Communist Manifesto that a communist state shall prioritise centralising banking activity and money issuance. Even Lord Keynes cites V. I. Lenin that "continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens".
We need sound money, no money supply increase!
3. A free - competitive - banking sector would mean (a) that if a bank would issue more bank notes then its savings-deposits the competitors would call the public for bank run. Hence, could not inflate and create new money under the protection of central bank. (b) The sound money would mean, that the interest rate - value of money - would be determined by market factors and not one central government agency - which now obviously has been manipulated for political reason - see: cheap dollar debt bought by Russian, Chinese government. Will they disagree on "solving" the crises, or other issues on the cost of devaluating their assets?
4. Concluding, current crises occurs since market mis-allocated its resources since the rent of money was cheaper than the economy would offer.
5. Investing from debt means, you have to pay an interest on the value you have not created yet - hence leading to breakdown later - recession.
If you have any doubts about these ideas, please read Ludwig von Mises: The Theory of Money and Credit, M. Rothbard: America's Great Depression, or the Nobel laureate, F. Hayek: Monetary Theory and the Trade Cycle, and his book of Road to Serfdom which is probably more applicable today than ever before.
Let's see how controlled our society is, and if we care about this fact at all, or we just happy to have our pan en circuemses, especially when our circus, the media has such a huge impact on what we think, or what we even know about.
Looking forward to your thoughts