This Financial System Operates Absurdly

Werner De Gruijter 
RINF Alternative News

About the crisis of leadership in the West and the collapse of the monetary system

Against the backdrop of a global financial system that has become a shaky card-house — everywhere in the West confidence levels in politicians, bankers and economists are plummeting. Our financial problems are still far from over. Why is this crisis in economics in reality a severe crisis of leadership?

It was all promising to begin with — US Senator Barack Obama, just after his election in November 2008, when he spoke to the American people for the first time as the president-elect:

“…Let us remember that, if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers…”

But six years later Wall Street is flourishing while an increasing number of Americans don’t have even two nickels to rub together. The conclusion therefore is painful: Barack Obama turned out to be anything but a true leader. The president of the United States could not explain the situation in any meaningful way to the public by telling stories about the real (deep) causes that lay behind many economic problems. Hence, the president was unable to make solution-oriented, daring choices in order to express the democracy, the will of the American people — that so longed for “change..!”

Instead, the US president operated more like a manager or perhaps more accurately, like a technocrat: someone who solves all kinds of relatively little problems on a daily basis, finds short term solutions, protects vested interests and above all lacks in visionary imagination. But please note, Obama’s management style is not an isolated case — British Prime Minister James Cameron, his Spanish and Dutch counterparts, even German Reich chancellor Angela Merkel — the list is long. Beginning in the 1970s and onwards, Western “leadership” started more and more to make room for “management.”

This phenomenon reflects the slow shift in power that has taken place; from democracy to oligarchy. It was mainly bankers who usurped this power under the guise of deregulation, liberalization and privatization. But how does this power structure work in practice? And what are the consequences?

Accumulation of banking power for “free”

Central in this story is the year 1971. When governments gave the ultimate source of power, the creation and allocation of money, to private parties, the end result became known as the FIAT monetary system. From that year on, private bankers were allowed to issue money without a certain amount of gold as collateral. It meant basically the ability to create money out of thin air. Furthermore, two things are characteristic of this system: first, just like matter and antimatter, money and debt are chained to each other; money can only arise into existence if the same amount of debt is incurred. In real life, it works something like this: every euro, yen or dollar that is deposited at an savings account, gives the banks the right to create approximately ten times as much money out of thin air; and then lend it out with interest (this process of money creation is called: fractured reserve banking. And it is one of the main reasons for the rapid growth of the money supply). Second, since FIAT-money isn’t backed by anything, its real value is simply based on the amount of confidence people have in it — which, in the end, is a very shaky ground to base a currency upon.

Masters and slaves and other disadvantages

There are several reasons why bankers benefit from this monetary system. Since banks can charge interest by law, there is always more debt in the system than there is money available. This in itself creates an ‘everlasting’ feudal-like coercion bankers impose, on the one hand, on governments to collect taxes or to cut spending and, on the other hand, on private debtors to work very hard in order to pay down loans — or else… bankers will increase interests rates or, if necessary, use state power to defend their privileges. Simply put: not paying, people are supposed to believe, is not an option (the curious thing is – that among themselves, the bankers use a more humane set of social norms; one in which everything is negotiable depending on the circumstances). The real genius of this privatized monetary system, however, is that this master-slave relationship between bankers and the rest of society is continually able to manifest itself without the population or politicians being aware of it (mainly because the production of money, debt and interest is disconnected from the everyday life experiences of most of the people).

Furthermore in favor of the banks is the huge amount of money that is being pumped into the system by the fractured reserve banking process — this creates an upward price pressure on assets like houses, stocks and other possessions. And, although, in the end, it impairs the purchasing power of the population, it offers bankers the possibility to speculate — and seriously, a lot of money can be earned with, what is sometimes called, this ‘casino capitalism’. While, and that’s the outstanding part of it, very often the prices of these speculated assets do not in any sense resemble their real intrinsic values; they are simply the result of the surplus in created money. And if these financial bubbles burst (such as during the crisis of 2008), it is not the financial sector — but society itself who bares the burden of speculative ‘casino’ mistakes; without any of those responsible being brought to justice for it.

What it all comes down to is that ordinary taxpayers, at the expense of their own prosperity, are up until now ‘obliged’ to make the super rich even richer: that, in essence, is the absurdity of the financial system — an absurdity, by the way, that is not particularly sustainable.

Doomed to fail

As already stated, by definition (through the production of interest) more debt than money is created — which also means that a severe future debt problem could be in the making. Estimates from the privately owned FED, the U.S. Central Bank, shows for example that it first lasted 350 years before there were a trillion dollars in circulation, from 1620 until 1973; but the last time a trillion dollars were added to the money supply, lasted only five month (and this happened last year). Ever faster, ever more: and this exponential growth in the amount of money and debt characterizes the FIAT-monetary system (see chart 1). Of course, ever lasting economic growth could solve any debt problem, but in times of stagnation (which is currently the case in many parts of the Western world) — the situation is deteriorating. In these conditions the burden of debt can only be solved by creating ever more money into existence — but there’s a catch: it paradoxically leads to the creation of ever more debt into existence (and consequently soaring interest payments); a vicious cycle looms that slowly eats away confidence. Especially Japan seems to be vulnerable to this; since its gross national debt is standing at a towering 240 percent of GDP. Yet many Western countries seem to follow Japan’s footsteps.


Chart 1: exponential growth FIAT-money

money supply

​Source: peakprosperity


But even besides extreme debt accumulation; in the long run this monetary incentive to produce an ever-growing economy is still very worrisome. It may be that in theory the amount money and debt can grow infinitely; in practice, however — on an earth where the amount of land, raw materials and people are not in infinite quantities available — this monetary system is fundamentally doomed. It simply defies the laws of nature. What’s furthermore significant is that all the other FIAT-monetary systems that have ever existed in human history: have all failed. So the question is ‘when’ the ultimate crash will take place, not ‘if’ this crash will take place. And it could happen much sooner than most people think, considering the worrying economic conditions in countries like Russia, Greece, Japan or even the United States and China. It appears that there are innumerable possibilities to loose confidence in this FIAT monetary system; sooner or later.

Cui bono?

That there hasn’t been any intervention yet, is simple: there are too many ‘banker-look-a-likes’ who — at the expense of the average human being, the community, the nation-state and the environment — benefit from this system. It gives them an ever-increasing amount of power and, above all, money. That puts things in perspective. For example, not despite but precisely because of this economic crisis there have been never before so many super rich individuals on this planet as in our timeframe. After all, the more debts there are, the more profits there will be — for the creditors. And furthermore don’t forget the amount of extra money (ironically called ‘quantitative easing’) that has been pumped into the system since the beginning of the crisis; up until now it has mostly been used for speculation instead of for investment. In the mean time salary levels defy the imagination in absurdity. As for example the top ten earning hedge fund managers of Wall Street. Together these ten individuals earned, according to Forbes Magazine, roughly 11 billion dollars in a single year (in 2012).

False cultural stories

In a nutshell: despite Obama’s mandate for “change!” at the 2008 elections, structural reforms of the financial sector remained absent. This is not a coincidence. Western leaders behave like technocrats rather than as leaders; and bankers are the ones who have real power. Unfortunately this crisis in leadership hasn’t been without consequences. Our cultural values and institutions have become — unmistakably — the product of the false stories that both left-wing and right-wing technocrat-politicians continually keep telling (stories about privatization, deregulation, free market forces et cetera). It is only up until now that one sees how worrisome the West has developed itself as a result — to put it in the words of Harvard Professor of Economics, David Korten:

“Our financial systems are radiating out of control — beyond human accountability; extreme inequality is tearing apart the social fabric; earths critical living systems are collapsing; and political corruption has rendered our political institutions incapable of effective corrective action…”

Expect no hope from above — after all that’s the place where vested interests are carefully nurtured. It is much more realistic to find hope from below — in ordinary people who, driven by an inner experienced need, are really prepared to give democracy its true meaning back. So even though Barack Obama did not live up to his expectations — above all, nevertheless and wholeheartedly; don’t forget that in his slogan a truth resides that is of relevance today for virtually everyone on this planet who has the ability to be awake, namely:

Change… yes we can!