We Aren’t In A Capitalistic System & Your Money Isn’t Yours.
You can sense a social movement brewing from the crowd swarm of the plebian class against capitalism and for a more socialist system. The feeling online is similar to just before the Occupy Wall St movement 10 years ago.
While it’s true that the US has not tried socialism yet, you must consider that it’s not tried real capitalism either.
Did you know that the “money” in your bank account doesn’t actually exist, it’s actually just a liability on the bank’s books. Your money is an IOU from the bank.
Did you know that there are now bank bail-in provisions where banks can legally write down their IOUs in a crisis? Your “money” can be slashed in half with a keystroke, legally.
FDIC in USA & CDIC in Canada protect your account up to a certain amount — but any amount over that is free for the taking in a bail-in situation.
Did you know that the FDIC Insurance Fund has ~1% of the money backing the bank accounts it insures? If there actually was a major banking crisis, FDIC would not help, they are laughably underfunded.
You might think banks in developed nations like USA & Canada wouldn’t need to perform a bail-in, but take a look at what’s been happening with the recent round of quantitative easing (bank bailouts) that the Federal Reserve has been doing through the REPO markets & you might have cause for concern.
What do I mean by “the money in your bank account doesn’t actually exist”?
Let’s say you deposit $10,000 into your bank account, the bank only keeps a fraction of it in reserve (usually 10%) & lends the rest of it out to Jorge. This is called fractional reserve banking.
When Jorge spends your $9000 on a used car at the local car dealership, it goes into the car dealer’s bank account. The fractional lending process is repeated again ($900 is kept in reserve & $8100 is loaned out to someone else.)
This is repeated again and again. As the $10,000 of real money compounds to upwards of $100,000 in unsecured credit card & consumer loans as well as secured loans like mortgages, banks are charging high interest rates & fees, making a killing on all of this fake money.
The bank is also taking ZERO risk.
The above graph shows how your $10,000 deposit of base money (read: actual real money) turns into $100,000 through fractional reserve banking & the money multiplier. $90,000 of the $100,000 is just pixels, it’s just an entry in the bank’s database.
This is why your money doesn’t actually exist, and why your money is really just a liability on the bank’s books. Your money is a bank’s debt.
Not only is this a bizarre concept to comprehend for most people — but it brings up a moral question. If the banks are committing usury, charging high interest on your money, why aren’t they sharing that profit with you — and why are they charging you bank fees!
The bank creates money from thin air, loans it out and charges 20% interest. If loans don’t get paid back, the bank just writes it off. There’s no risk to them because if the bank gets in trouble — they get bailed out!
Doesn’t sound like capitalism to me.
If you feel yourself getting angry at capitalism, you should consider redirecting your anger & outrage to the central banks.
It’s not Apple or Tesla that you should be mad at for being successful & earning insane amounts of money. Elon Musk is helping to solve the Michigan water crisis. Bill Gates is eradicating polio.
US Banks are laundering money and committing fraud. Canadian Banks are rigging gold markets. German banks are rigging bond markets.
The big banking cartels are the worst — they are literally criminals, but they make so much money that they just pay fines (hundreds of billions of dollars) and continue business as usual.
Capitalism doesn’t deserve your outrage, but perhaps the banks do.
Banks don’t operate with the same rules as the rest of society. If you or I print money, it’s called counterfeiting. It’s not capitalism when you can legally make money from nothing & charge plebs 20% interest on that money. That’s usury.
Credit card debt in USA is at an all time high of over $1 trillion. The banks didn’t put “money” up as collateral to create that money, it happens in an automated way on a central bank database (this is what people mean they they say the banks ‘create money from thin air’) and credited that to someone else’s bank account.
This is Counterfeit Capitalism.
After the 2008 financial collapse you might have heard the term “stress test” by the FED or financial regulators. As a response to the 2008 financial collapse, the third basel accords were adopted.
Known as basel III, these standards are voluntarily adopted by banks. Regulators do their best to enforce these stress test rules to prevent banks from taking on too much risk and blowing up the global money system again.
Under basel III, banks voluntarily agree to play by the same rules — and one of these rules is capital requirements.
In a system of counterfeit capitalism aka fractional reserve banking, banks are required to have a certain amount of base money (read: real money) in reserve compared to all of their outstanding fake money loans & derivatives & financial voodoo products.
Banks use this aforementioned REPO market as a sort of modern Trillion Dollar Bazaar to wheel & deal, making short term loans to each other so they can meet their basel III reserve requirements, among other mirky cantilliocapitalist profit machinations (which I have little knowledge about, honestly who does besides the 0.1%)
For a long time many of us have felt like this is just more manipulation by the same banksters that almost blew up the global economy in 2008 trying to transfer wealth from the taxpayer to the 0.1%
It seemed like these banks were not actually meeting their capital reserve requirements, instead they were just passing money around to make it appear like they are within the limits of basel III safety.
A deafening warning bell sounded recently when the REPO markets locked up and the Federal Reserve had to step in and start giving the banks tens of billions of dollars daily.
When’s the last time the Federal Reserve had to step in like this? 2008.
It doesn’t make a lot of sense to normal people — but one of the main reasons the financial crisis of 2008 happened was because the big banks stopped trusting each other to make loans back & forth. Access to liquid ‘base money’ dried up.
Obama & the Federal Reserve stepped in and turned money printers to 11, bailing the banks out of their liquidity predicament, and pumping the stock market with fake money.
Trump has continued this money printing policy. (This isn’t a republican vs democrat issue.) Since 2008, over 10 Trillion dollars has been injected into the banks via a Counterfeit Capitalism process known fancifully as Quantitative Easing.
Back to October 2019.
Banks stopped lending to each other again last month. The Federal Reserve had to step in to lend money (read: create from thin air & give) to banks who are unable to meet their basel III capital requirements.
There’s 2 main reasons why a bank would need to access the REPO market:
- No other banks want to lend to bank A because the other banks know bank A is insolvent.
- Banks on the whole are scared of lending with each other because they all have toxic debt. (this is what happened to cause the 2008 collapse, a great documentary to watch on this is The Big Short)
This means that there’s a giant gaping hole that the FED is trying to plug before the whole system freezes up and implodes again. This isn’t the only concerning thing happening recently with the global economy.
I just read Ray Dalio’s short article on Zerohedge where he voices his similar concerns about the USeconomy & our money system.
We are in a very odd dynamic, I don’t think we’ve ever seen this before.
Dalio says the elite investor class of 0.1% that are receiving this torrent Quantitative Easing money are flush with cash. They have been given access to this cheap cash at historically low interest rates by central banks via the money creation process we talked about above. This is causing the Cantillon Effect — the uneven distribution of money causing an increase in the wealth gap between the working class and the elite.
The wealth gap is real, but it’s not capitalism’s fault! Entrepreneurs who worked hard and achieved success should be celebrated not demonized. We should all strive for success.
I was recently at an exclusive entrepreneur event in Mexico where I got to hang out with 120 successful people from around the world.
The people who attended the event are ‘the 1%’ — folks who have achieved success and are doing meaningful things with their lives.
I got to speak to these entrepreneurs, authors & influencers about their passions. A common thread emerged. Caring, honesty, promoting health & wellness, counselling & coaching people through trauma, teaching & volunteering. Activism to make an impact for a cause was also a common thread.
Mind you this is an event where the organizer Jayson Gaignard painstakingly curates to find the cream of the crop of the 1%.
I heard Jim Estill speak. He’s a super successful entrepreneur that runs Danby, a Canadian appliance company. His philosophy on his wealth is that he should live the way his employees do. Jim lives in a modest home, drives a normal car & uses his money to help sponsor refugees from war torn countries.
We should all strive to be like Jim Estill, entrepreneurs like Jim are a shining beacon of capitalism & entrepreneurship in a sea of countercapitalist elite bankers that financially enslave the rest of us.
Don’t be mad at the 1%. In fact, if you make over $30k a year, you are actually part of the 1% globally.
Back to the Ray Dalio article. US National Debt is 23 Trillion dollars & government deficits are only increasing.
Central banks should raise interest rates, but they tried doing an extremely slow rise in interest rates and the global stock markets almost blew up again in the summer, so they had to make a drastic emergency rate cut (some say it was the largest interest rate cut in FED history.)
Central banks can’t raise interest rates without stock markets imploding, so they will just keep the money printers on 11.
Based on the bailouts happening in the REPO markets, you see banks are teetering on a liquidity crisis where they are not lending to each other — or at least there’s 1 big bank that isn’t being lent to.
Us plebs have no insight into who the FED is giving hundreds of billions of dollars to in exchange for toxic bank assets, we just know the total number which is alarmingly high.
Pension liabilities are also increasing. Pensions have a mandate of around 7% gain per year — according to the pensions have been working with credit firms which take this taxpayer money and invest into corporate bonds & corp stocks. The corps take this ‘limitless supply’ of public pension money and use it to do buybacks, fueling a rising stock market.
Rising stock market funded by buybacks instead of R&D or innovation causes a phantom value bubble that might burst when sales & profits start to decline since businesses have spent most of their money on buybacks instead of business advancement.
Dalio says baby boomers are the largest demographic & they are moving into the time of life when they will be needing more healthcare, and just like pensions, healthcare obligations are also unfunded.
As boomers move into needing more public healthcare, we will have to address it by either cutting benefits, raising taxes or printing more money.
Printing money is the easiest way to solve the problem, but it not only destroys the value of the dollar through inflation but it exacerbates the wealth distribution gap as seen from all the investors that have cash sloshing around wanting to invest in startups — while the rest of the population does not have access to money and actually carries the highest debtloads in history, and pays the highest interest rates on their debt in history.
Dalio thinks that a class battle will emerge where the working class will want the rich to be taxed more & the rich people want budgets to be balanced, which will cause wealthy people to leave the USA to try to find a country with less class conflict.
As the wealthy try to exit with their money, the government will try to trap the 1% in the USA.
It might be too late to educate the plebian class that it’s not the 1% or capitalism that they should be fed up, but the crony capitalist, countercapitalist, cantilliocapitalist 0.1% elite class. That is where anger & outrage should rightly be directed.
You can opt out of this insane paradigm of surveillance capitalism & patriarchal money, where the same banks who are counterfeiting value for the 0.1% are the custodians of your money.
Bitcoin is a paradigm shift — it combines true financial sovereignty with the benefits of electronic money and the store of value properties of a-political money like gold.
More on that another time.
