Tuesday, June 05, 2007

The Real Leviathan

Politics--really--is just a sideshow. A diversion from seeing the man behind the curtain. Someone has created what looks like a rather good series of YouTube videos explaining the truth about how banks work and what our modern "money" really is. I've only seen part one so far, but it is well done.

I found the link in this post, which is also of interest. In the post, Mish describes the video series thusly:

Money and Debt

There is an interesting 5 part You-Tube series on money and debt. It covers in nice cartoon animation what has happened to money over time, fractional reserve lending, how money is created today, why interest rates are so low, why we get unsolicited credit offers, and why debt is exploding.

The video concludes that it is taking exponential increases in debt (money) to stave off a a collapse of the entire banking system, and that this cannot go on forever.

I agree with the video that there are practical limits on how high debt can get. So does economist Paul Kasriel at the Northern Trust. (See An Interview with Paul Kasriel)

Interesting Quotes from the Video:

* "Debt... That's what our money system is. If there were no debts in our money system, there wouldn't be any money." Marriner S. Eccles. Chairman and Governor of the Federal Reserve Board.

* This is a staggering thought. Someone has to borrow every dollar we have in circulation, cash or credit. We are absolutely, without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is." Robert H. Hemphill, Credit Manager, Federal Reserve Bank, Atlanta Georgia.

* "One thing to realize about our fractional reserve banking system is that, like a child's game of musicical chairs, as long as the music is playing there are no losers." Andrew Gause, Monetary Historian

* "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist." Kenneth Boulding, economist

* I have never yet had anyone who could through the use of logic and reason, justify the Federal Government borrowing the use of its own money... I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they actually blame you and me and everyone connected with Congress for sitting idly by and permitting such an idiotic system to continue." Wreight Patman, Congressman 1928-1976, Chairman, Committee on Banking and Currency 1963-1975

* The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of slight of hand that was ever invented. Sir Josiah Stamp, Director, Bank of England 1928-1941

Unfortunately the video's conclusion is a bunch of socialist nonsense: Eliminate interest, let governments and only governments create money, and supposedly government will then use that money wisely to build roads and bridges that will add value to society.

The government cannot decide what has value or not. Only the free market can do that. Otherwise you have bridges built to nowhere based on political clout, needless wars, and other malinvestments of capital. If government printing led to prosperity we would be talking about Zimbabwe, the Weimar Republic, and the Soviet style command economy of the 1940's through 1980's in glowing terms. The proposed solution is ridiculous.

The video also incorrectly blames the gold standard for problems created by fractional reserve lending. However, the video does a reasonable job of pointing out many of the problems with the current system of debt creation in a very entertaining and (for the most part) educational way. On that basis, I recommend watching all five parts.

No comments: