The Wall Street Ponzi Scheme Called Fractional Reserve Banking
by Ellen Brown, December 29th, 2008
www.webofdebt.com/articles/ponzi.php
Cartoon in the New Yorker:
A gun-toting man with large dark glasses, large hat pulled down, stands in front of a bank teller, who is reading a demand note. It says, “Give me all the money in my account.”
Bernie Madoff showed us how it was done: you induce many investors to invest their money, promising steady above-market returns; and you deliver – at least on paper. When your clients check their accounts, they see that their investments have indeed increased by the promised amount. Anyone who opts to pull out of the game is paid promptly and in full. You can afford to pay because most players stay in, and new players are constantly coming in to replace those who drop out. The players who drop out are simply paid with the money coming in from new recruits. The scheme works until the market turns and many players want their money back at once. Then it’s game over: you have to admit that you don’t have the funds, and you are probably looking at jail time.
A Ponzi scheme is a form of pyramid scheme in which earlier investors are paid with the money of later investors rather than from real profits. The perpetuation of the scheme requires an ever-increasing flow of money from investors in order to keep it going. Charles Ponzi was an engaging Boston ex-convict who defrauded investors out of $6 million in the 1920s by promising them a 400 percent return on redeemed postal reply coupons. When he finally could not pay, the scam earned him ten years in jail; and Bernie Madoff is likely to wind up there as well.
Most people are not involved in illegal Ponzi schemes, but we do keep our money in accounts that are tallied on computer screens rather than in stacks of coins or paper bills. How do we know that when we demand our money from our bank or broker that the funds will be there? The fact that banks are subject to “runs” (recall Northern Rock, Indymac and Washington Mutual) suggests that all may not be as it seems on our online screens. Banks themselves are involved in a sort of Ponzi scheme, one that has been perpetuated for hundreds of years. What distinguishes the legal scheme known as “fractional reserve” lending from the illegal schemes of Bernie Madoff and his ilk is that the bankers’ scheme is protected by government charter and backstopped with government funds. At last count, the Federal Reserve and the U.S. Treasury had committed $8.5 trillion to bailing out the banks from their follies.1 By comparison, M2, the largest measure of the money supply now reported by the Federal Reserve, was just under $8 trillion in December 2008.2 The sheer size of the bailout efforts indicates that the banking scheme has reached its mathematical limits and needs to be superseded by something more sustainable.
Penetrating the Bankers’ Ponzi Scheme
Continue...
www.webofdebt.com/articles/ponzi.php
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.
http://www.webofdebt.com/articles/ponzi.php
Wow, this made front page?
Guess I should have read it first.....8)
__________________________________________
"Life's tough......It's even tougher if you're stupid."
-John Wayne
http://www.ronpaulbrochure.com/
http://www.dailypaul.com/donate
The Fed Ponzi scheme
can only survive as long as there is debt on which they can collect interest.
Debt creates more debt and that is how the Money Masters of the world stay very rich. Most of the debt comes from keeping the world at war. War costs money and America is forever in debt and paying the interest to the Fed. If wars ended, the parasitic Money Masters could not survive.
Government Owned Banking?
I disagree with Ellen Brown's assertion that the solution is government owned banking. The power to create money out of thin air is to alluring to politicians with a 2-year to 8-year horizon on power. If we give them that power they will inflate away the currency before you know it. Better to remove the power of money completely from political hands and put it into the free market. Competing currencies based on hard metals are impossible to inflate. A good book on this subject is "The Mystery of Banking" by Rothbard.
JOhn
"Where does the money come from to pay the interest?"
Ellen Brown is also a proponent of the argument about the Fed not creating enough money to cover the cost of interest on debt; and, therefore, the world must forever be in debt. Rebuttal and answer on pages 191-192 of "The Creature from Jekyll Island" by G. Edward Griffin
---
www.campaignforliberty.com
www.libertyworksradionetwork.com
www.freedom-force.org
www.campaignforliberty.com
Counterfeiting is evil no matter what.
I agree,
Fiat money is deeply immoral system, no matter who is engaged in it.
While it is slightly better that government would create “interest free” money, it would still be steeling goods and services from those who labored to create them.
Ellen Brown gives a false solution. Only a commodity based monetary system, that cannot be counterfeited, is a safe and honest one, everything else is arguing whether it is better to drive off a cliff at 70 miles per hour verses 69.
Again I ask, by what moral right would a government bureaucrat or politician with a stroke of a pen or a punch of a computer lay claim to the fruits of labor of those who actually worked to produce goods and services? None. There is no such moral right. It is THEFT through counterfeiting. Counterfeiting is evil no matter who is engaged in it. If you conjure purchasing power from nothing, or from government coercion, you are no less a criminal than a guy who prints money in his basement.
Gold and silver historically have been the best commodity to be used as money, and it is precisely what the Constitution demands. Make no mistake, a fiat monetary system is a deadly enemy of freedom. It always leads to economic ruin and tyranny, always. It is clockwork! It flows from a philosophical principle that you cannot build a just and moral society on fraud. It will always collapse.
There is no system that cannot be counterfeited
If you know anything about network security, then you know that there is no such thing as a penetration-proof system except the system that's not on the grid (and even still it's not 100% penetration-proof). So it is with counterfeiting.
The best we can do is to investigate charges of counterfeiting, leave a small amount of risk to caveat emptor. Fiat to a certain degree is necessary because of the tort responsibility of the judiciary; the best we can do is to have the fiat currency backed by a commodity and to allow alternative currencies.
Finally, the banking system inflating the currency through fractional reserve (if done outside of the scope of the Federal Reserve Bank, i.e. with market-based interest rates) is naturally reversible and serves as a negative feedback loop smoothening out the chaos in the economy, and furthermore, banks would deserve to make that profit "just off of money" because they are providing liquidity to the economy. That is creation of value. However, when an entity like the FRB distorts the marketplace and uses strongarm tactics to meddle in the economy, redistribute wealth from the poor to the rich, this is a great moral hazard.
“creating liquidity” a.k.a. counterfeiting
When you create purchasing power by simply printing money How is that not fraud?
The other guy WORKED and sweated and labored to produce a car, a computer, a loaf of bread, and you punched 6 zeroes on a computer and took it all. That’s the evil of fiat money. It is theft! Plain and simple. It is immoral. It is fraud.
That’s why only a commodity based monetary system, where there is effort on the other side of the equation (you have to WORK to extract gold and silver from the earth, etc.) is a just one.
Of course any system can be counterfeited, but how much harder it is to counterfeit gold or a REAL commodity than just to type 9 or 12 zeroes on a computer! (Exactly what the Fed done a month ago when they conjured 2 trillion dollars out of thin air.)
That’s why the banksters HATE gold standard. It binds their hands in committing the counterfeiting fraud on such massive scale. That’s why the founders demanded, in writing, that nothing but gold and silver be used. (Read the Constitution). Commodity based monetary system is a great protector of liberty, because it binds down the government from steeling people's wealth through “creating liquidity” a.k.a. counterfeiting. This is precisely how the government was able to step out of the Constitutional bounds. They got monopoly on counterfeiting the money!
Think about this.
Interesting but...
Ponzi schemes require a consistently increasing stream of new clients in order to perpetuate the returns from the previous generation of clients, so it eventually collapses. Fractional reserve banking only requires the replacement of those who leave.
Fractional reserve banking, for example, works just fine with two people. Person A deposits money in the bank, and person B takes a loan on person A's money.
The only problem happens when person A withdraws the money away from the account before person B has amortized its value. Or if person B defaults. Having counterparty risk does not make something a Ponzi scheme.