Let me start my post by asking you a simple, but important, question that might not seem related to the content (but is): Have you ever considered how important words are? Words direct our thoughts, and how we think about things influences how we behave. When it comes to how we spend and think about our money, our government would like our thinking to be, well, a bit fuzzy on the subject. That’s because, if we don’t really understand money (or, technically, currency, which is the green stuff in our wallets), we’re less likely to notice and react when they steal it from us. And steal it from us is what the government does in many ways. So when it comes to verbalizing the relationship between our spendthrift, heavily indebted government and our hard-earned currency, two words come to my mind: FINANCIAL REPRESSION.
Financial repression is a phrase that should strike terror into the hearts of anyone who believes in keeping their wealth, growing their wealth, saving for the future or having a life after retirement. Unfortunately, it’s a term that most savers and everyday investors really don’t understand. And that’s no wonder, because the government doesn’t exactly go out of its way to explain to the public in clear, simple language just how many ways it’s reaching into our individual and collective pocketbooks to relieve us of our hard-earned cash.
Financial repression might be thought of as a toolbox of policies and procedures deployed by government to redistribute wealth from us to it, and then onward to whatever recipients it chooses. If one searches for the definition of financial repression, one can come across a wide spectrum of analyses and opinions regarding the exact tools used. In my opinion (not financial advice!), while most of the definitions have a lot of merit, none are complete. The ways and means by which government parts citizens from their money are numerous and wily. So I though I’d give my readers the opportunity to see as detailed of a list of the tools of financial repression as I can come up with, all in one handy-dandy place. I won’t claim that it’s complete because those with more knowledge of the subject may see ways that I missed. However, if you take the following expose to heart, you’ll at least be armed with the knowledge of the most major and important ways that Uncle Sam rips you off each and every day – generally without your knowledge and certainly without your consent. Seeing how the tricks are accomplished is the first step to finding ways to end them. So – are you ready to take a trip to the dark side to see the many ways in which you’re being taken financial advantage of behind your back?
Financial Repression 101 – Basic Techniques (in no particular order)
- Taxation
Probably the most obvious method of financial repression and the one that receives the most publicity is taxation. Taxation is a simple, blunt and straightforward instrument for committing financial murder, with all the brute charm of a sledgehammer. Taxation as a tool of financial repression has its pluses and minuses from the views of both the taxing body and the taxed. From the point of view of the people paying, the “good” things about taxation are the facts that it’s obvious in the sense that you can see it happening and know how much it’s affecting you, and you can potentially change your tax rate by electing officials who have different ideologies regarding how high taxes should be, how they should be distributed, and so on. At least that’s the theory. From the point of view of the taxing body, taxes have the disadvantage of being subjected to the will of the voters (again, in theory). That’s why so many economists, financial advisors and so on claim that politicians are reluctant to raise taxes. They claim that leadership dislikes facing the wrath of the people when the people see that they’re being robbed.
Unfortunately, the idea that politicians don’t like raising taxes is far less true today than it used to be. Indeed, the promise to raise taxes and thereby repress taxpayers is more and more frequently being seen by both candidates and voters – including taxpayers themselves! – as a selling point in political campaigns. How is this possible? Because as more and more of the public, including working taxpayers, find both the motive and the means to become dependent for part of their keep upon largesse extracted from their neighbors by the police powers of the state, they see that for every $1 they pay in taxes, they, or somebody they care about, gets back $2 or $3 in mis-named “government” benefits. I say “mis-named” because the benefits come not from the government, but from the productive labor of their neighbors. It is merely appropriated and distributed by government after government takes a hefty cut from the proceeds to fund its massive redistribution infrastructure. Indeed, for more and more citizens, the arbitrage between what they pay in various taxes, including income taxes, property taxes, vehicle taxes, licensing fees and so on, and what they receive back in wealth redistributed to them in everything from food or rent assistance to medical subsidies and stimmy checks – all subsidized by the taxes extracted perhaps from themselves but more importantly from the collective mass of their neighbors – may be one of the biggest and safest arbitrages available anywhere in the financial world. This is especially true when the citizens or resident aliens receiving financial benefits, do not pay most forms of tax themselves. It would be a very interesting exercise to divide the total tax dollars spent on social welfare programs by the goods and services produced as a result. I’d even throw in the cost savings of harms actually avoided if they could be demonstrated over the long term and not merely theorized. My guess is that such an accounting would reveal a loss of value so staggering it would rival the amount of wealth stolen by the rest of the financial system. What if we added in the costs of social, mental and physical dysfunction fueled by the citizens’ tax arbitrage? My guess is that the costs to wage earners and society would likely make the trillions being siphoned off by the financial and political elites look rather reasonable by comparison.
2) Inflation
Inflation, or the devaluing of the purchasing power of the currency, is really a form of taxation. It’s a tried-and-true, favored method governments use to steal citizens’ wealth because a), most people don’t realize it’s a form of theft, and b) its origins are mysterious to most people. Therefore, the peasants are more apt to blame big business, labor unions, greedy politicians or the abominable snowman when the price of a loaf of bread now surpasses what we used to pay for a pound of prime rib. This isn’t to say that big business, labor unions and politicians – but probably not the snowman – don’t play indirect roles in feeding inflation by convincing the Federal Reserve to create more currency units to cover the costs of every good and service that the public and the military can possibly think of to spend money on. But inflation is, as Milton Friedman once quipped, everywhere and at all times a monetary phenomenon. That is, inflation is always the consequence of having too many currency units chasing too few goods and services, and rising prices are only the consequence or manifestation of inflation, or currency depreciation.
A prime benefit to government of taxing the people through inflation is that it can relieve us of incredibly massive sums of wealth while appearing to take only tiny quantities. For example, an annual inflation rate of ‘merely’ 2% will screw the average retirement saver out of nearly 40%% of his or her savings over a thirty year career. That happens courtesy of the cumulative, compounding effect of degrading the purchasing power of each dollar each year it’s kept in savings. The purchasing power of a dollar saved in 1971, for example, is worth only 15 cents in purchasing power today! Right now, even using deeply unrealistic numbers tilted in its favor, the government admits that annualized inflation is currently running about 5.25%. If one is guaranteed to retain only $82.03 of the purchasing power for every hundred dollars saved in ten years at a mere 2% inflation rate, of how much will one be robbed when inflation is over 5%? Or worse?
Wait – the Inflation Robbery Gets Even Worse!
When America was on a gold standard, prices remained relatively steady for long stretches of time. Economic expansion could occur only when more gold (or silver) entered the economy, either through mining or through trade with other nations that also used gold as money. Even after the Bretton Woods global monetary agreement in 1944, when the American dollar became the worlds’ reserve currency, the dollar was still valued at a certain weight of gold. It was no longer exchangeable for gold, but it represented a certain weight of gold that was supposedly held in government bullion depositories like Fort Knox. Business, banking and government interests soon began to dislike the dollar’s tether to gold, as they correctly saw that limiting the number of dollars in circulation to the number of ounces of gold held in the governments’ vaults, promoted national financial stability at the expense of allowing infinite growth for those with the greatest and most intimate access to both gold and dollars. Once Richard Nixon finally cut the remaining tie of dollars to gold, all limits on the creation of currency were removed and inflation became inevitable. After all, there was no reason to not spend, spend, spend on guns, butter and everything in-between because, to use Keynesian logic, “we owe the debt to ourselves, so it’s really not debt!”. Sadly, the reality is that spending currency that’s not fully backed by gold or silver IS debt that must be repaid some day, and our government has taken the sneaky, time honored tactic of repaying it largely through stealing the purchasing power of the dollars we earn, which is really a theft of our time, labor and talent.
With our national debt currently somewhere north of $26 trillion dollars, which is more than our combined national output of goods and services, or GDP, and our national budget deficits increasing every year, our government has no choice except to increase inflation, and keep increasing it annually, to avoid outright financial default and crashing the global economy. The cumulative effects of increasing inflation piled on top of increasing inflation, year after year, will quickly devastate the already pitiful value of whatever dollars you earn or set aside for tomorrow. The narrative that inflation will be transitory is a false one, because to the extent that the purchasing power of your dollars were to stop declining, the expense to service our national debt would start increasing over its already fantastic levels, and that would drag even more money out of the economy and hasten the monetary collapse that we’re already headed for. Unless there were to be a literally miraculous, massive and rapid upsurge in the the number of businesses expanding, jobs opening, people going back to work at good wages, and shrinkage of our welfare/warfare state, and what, seriously, are the odds of THAT happening?
3. Low, Low Interest Rates
Interest rates are the cost of money. Let’s say you took out a loan to fix up your house. Which would you prefer – a high, say 10%, or a low, say 2% interest loan? Of course, you’d take the lower interest loan. In fact, you’d shop around to get the lowest interest loan you can find.
Well, the government is no different, except that it has a friend in the Federal Reserve, our theoretically politically independent central bank. The Fed can help out ‘ol Uncle Sam by raising and lowering the base, or prime, interest rate upon which all other interest rates are based. Since our government is locked into spending ever-increasing quantities of cash to support the growing welfare state necessary for its political survival, as well as pay for the endless wars favored by the military/industrial complex and all manner of basic public services needed for a growing population, it must stay within its means by continually decreasing the amount of interest it pays on the money it borrows. Otherwise, the interest itself will become such a huge sum as to be unpayable given the level of goods and services our country can produce to earn income. If the interest rate were ever to rise significantly, forget about ever getting your money back on the loan principal – the government won’t even be able to make the interest payments!
But let’s face it – it’s not like the loan principle is ever going to be repaid, anyway, It can’t be, because our national debt now exceeds our annual gross domestic production, and our debt load is impeding growth. Even if our leadership had the will to buck the anger of the people and do what’s necessary to repay our debt principle, the sums now exceed our capacity to produce enough goods and services to generate that sort of cash. So the government is obliged to keep interest rates stapled to the floor. It’s the only way to prevent exceeding our ability to pay at least the interest on our loans so some fool keeps buying them, even if that fool is the Federal Reserve itself – the buyer of last, and often now only, resort.
It’s a scary reality. However, with our national debt unpayable and the size of interest payments both increasing exponentially and compounding as the debt grows, there is virtually no way that interest rates can ever rise again. I say “virtually’ because I do see two exceptions, but neither is a good one. In one scenario, it’s possible that there could be one very last, brief, and impotent “Hail Mary” attempt by the government to extract itself from what long ago became an economic tar pit by raising interest rates if the only alternative is to actually turn on the printing presses and flood the economy with true fiat worthless dollars. (We’re actually not at that point, yet, despite the popular meme of ‘printing press go brrrrrrr’. I’ll explain more in “Meet the New Money’ section later.) My point here is simply that the government has spent itself into a situation in which it has to keep lowering the interest rate on its Treasury securities so it can keep making its minimum payments. The good news is that with rates already almost at zero and the highly unnatural situation of negative rates so toxic that they would kill off the pension and money market funds, there’s not a lot more the Fed can do to repress savers and investors in this manner. The bad news is that the natural limits to squeezing more blood out of the public turnip in this manner is simply forcing the government to turn to even worse alternatives to forestall the inevitable.
The other possible alternative for forcing interest rates higher, in my opinion, is that the market simply stops listening to the Fed, and lenders of cash to borrowers of cash in the overnight collateralized loan market – called the Reposession, or Repo Market, for short – begin demanding far higher than federally “suggested” interest rates for overnight, or short term, loans. This happened once in recent history already, and the consequences were nearly catastrophic. The repo market blew out on the night of September 16, 2019, and overnight interest rates briefly reached almost 10%. The reason interest rates rose so high is because lenders didn’t trust borrowers. Credit worthiness of one or more big institutions was questionable, and nobody wanted to lend to them at the Fed’s pitiful interest rates. The risk of losing a large sum of money was just too great. So the Fed stepped in and flooded the market with cash. As a result, the risk of lending to a potentially insolvent company was reduced because there was less risk of insolvencies. Interestingly, the Fed is apparently trying to make the details of its emergency money loans handed out through its first three (and most opaque) crisis lending programs – the Primary Dealer Credit Facility (PDCF), the Commercial Paper Funding Facility (CPFF), and the Money Market Mutual Fund Liquidity Facility (MMLF) – “go away” so you don’t see how much of your money it’s spending to keep interest rates low and the whole system “solvent”. In the first of this year’s required semi-annual reports to Congress on just who got what and when under this emergency lending program, the Fed listed only the lump sum for all programs that it distributed from January through May. In its required June. July and August reports to Congress, the Fed declined to list these bailout programs at all1. Why? We can probably guess at the answer. What’s harder to guess at is why not one of our elected representatives apparently has yet to inquire about the disappearance of this vital information.
Putting it all together
When you add Point Two to Point Three, what you get is a rate of interest that’s below the rate of inflation. The bad thing for is that even though your money is growing in whatever interest-bearing savings vehicle you have it invested in, it’s still losing purchasing power against the greater rate of inflation. This trick of letting inflation rise faster than interest rates and thus forcing the purchasing power of money to depreciate over time is the classic core of financial repression. Indeed, many economists consider this trick to be financial repression, but as we will see, it’s but one of multiple ways the government secretly prevents you from accessing, using and enjoying the fruits of your labor.
Financial repression 401 – The graduate level courses on economic cheating
The three forms of financial repression discussed above are what one might consider basic, “entry-level” financial maneuvers employed by revenue-hungry governments. They’re each powerful on their own, but stack them together and they’re pretty much a knockout punch for ordinary savers and investors. Every increase in taxes reduces spendable or savable income. Inflation then robs earners of the purchasing power of the dollars they manage to bring home. Finally, interest rates that are lower than the rate of inflation guarantee that any post-tax dollars saved will lose purchasing power over time at a slower or faster rate depending upon how low the interest earned falls below the rate of inflation. Who can get ahead when the government is hell-bent on both stealing your cash outright, and repressing the value of each dollar you manage to keep?
Now, the interesting thing is, from the point of view of most governments, brutalizing wage earners, investors and savers via the three ‘basic’ methods of financial repression doesn’t rob the people quickly or deeply enough. It also excludes a juicy source of profits to rob: the banks. So, clever leaders around the world have invented more sophisticated methods of financial repression that carry on the job of robbing people in ways that most can’t see and few ever understand, and squeezing the banks while they’re at it. I call these methods ‘graduate level’ methods of financial repression. Like the first three methods, they may be applied individually but are usually applied as a sort of package, which makes them each more effective because each one reinforces the effectiveness of the others when applied together. These also magnify the effectiveness of the theft of financial resources from the public when applied in conjunction with the three ‘basic’ means of financial repression. Here they are, in no particular order.
4. Capital Controls
Capital controls simply refers to the government putting limits, or restrictions, on how, when, where and why you may access your money, or how much you may access at any given time. OK, to be fair, in some cases, controlling your access to your own capital might be so obvious that it should go under the ‘basic methods’ section. A glaring modern example of capital control was imposed in its full glory after the government of Cyprus collapsed, and Cypriots with money in their local banks were told that they could withdraw only a tiny amount of their own money each day. This form of capital control, while certainly doable from a regulatory point of view, is politically impractical for obvious reasons unless or until a financial collapse occurs. However, governments that are, on paper, still fiscally solvent and socially sound -including ours – can, and certainly do, impose capital controls every day in a very wide variety of ways that hide in plain sight.
While the many ‘everyday’ methods by which governments impose capital controls are too varied and numerous to be included in this article, I’m highlighting a few more interesting examples to give you an idea of just how broad and insidious this practice is. I’ll start with one method of capital control that has harmed and infuriated a huge swathe of middle-class Americans over the past couple of years: rent moratoriums. Via executive decree, executed through the CDC, our government (illegally) withheld capital (streams of rental income) from private owners of rental properties. On a smaller scale, some municipal governments have followed suit, imposing their own extended rent moratoriums even as Federal moratoriums have expired. Although imposed under the rubric of “controlling the pandemic for the broader public good”, what the rent moratoriums also accomplished was a guaranteed government control over private contracts concerning the flow of capital. While some may say the contracts were unfair, they were entered into and agreed upon by private individuals, and should have been solved by private markets.
Although of course the imposition of rent moratoriums was a completely obvious, “in your face” maneuver by our government, it nevertheless wasn’t widely thought of in the strict term of capital control by most people including landlords. But that’s exactly what it was. Include the poorly-administered compensation belatedly administered by the government to some affected landlords, and we have an example of capital control with a new twist: not only did the government block holders or receivers of capital to capital they hold or are contractually owed, it also dispensed capital to them in place of the private parties who are supposed to dispense the capital according to contract. In other words, capital control has morphed from a one-step proposition in which the government simply blocks or restricts your access to capital, to a two-step, full-circle proposition in which the government first blocks or restricts your access to your capital, then dispenses compensation to you from public funds according to the government’s own willingness and administrative competence to do so. The government has thus constructed a circular tri-party noose with which to not only repress but actually strangle small real estate investors with their own capital while cheating taxpayers, as well. This happens in two stages: first, by using the combined power of legal action and the police state to cut off the flow of capital contractually owed by one private party to another, and second, by directing public tax revenue as compensation to landlords and thus determining who gets access to capital and how much, according to the whims and administrative competence of the government itself. Thus financial repression has become an opening volley into pure socialism and a nice cudgel with which the state can impose whatever broad social changes it desires using the capital of small investors as its source of power. And this is all accomplished without most investors and taxpayers ever understanding how they are funding the destruction of their personal financial futures and the future of their society! What a trick!
5. Forcing institutions to buy government debt
Landlords, the favorite villians of the Socialists and Marxist utopians, haven’t been the only group that our government has been systematically robbing and cheating in the name of public safety and economic justice. Investors from single people with 401-K’s to huge public trusts have been getting the shaft as well, under the guise of government assistance to foster the well-being of working people.
If you have any investments, yourself, you may have heard a few years back that our benevolent guardians in Washington – being full of concern for the well-being of investors and future retirees – was going to make sure that financial advisors, pension funds and money markets were “dong what’s best for their clients”(aka exercising “feduciary responsibility”) by mandating them to put most or all of their clients’ money into only the supposedly safest and most liquid of all financial assets: U.S. Treasury bonds. All for the clients’ own long-term good, of course. Now, as Creepy Uncle Joe would say, come on, man! Do you REALLY think this move was being proposed in order to protect you and me?
Of course it wasn’t! The sneaky reason behind this loving financial embrace was to force domestic investors large and small into purchasing U.S. Treasury securities (i.e. national debt), when foreign funds and other impossible-to-control buyers started to say “no, thanks”. It’s no big secret that as the U.S. has had to issue more and more treasury securities to finance its ongoing operations, foreign holders of U.S. debt have grown reluctant to keep purchases in line with the ballooning debt size. They’ve been starting to realize that the “full faith and credit of the United States”, which is really only the power to increase taxation on working people, isn’t what it used to be. America is aging, our industrial base is a shadow of its former self, the welfare state has ballooned, we’re throwing good money after bad into our failed wars and there’s no rate of taxation that can be high enough to cover even the interest on our massive debt any more. We’re now so broke that even the fact that we pay a pittance of interest in our Treasury securities in contrast to most Western nations that offer negative rates on both soverign and corporate debt, doesn’t compensate adequately for the risk of losing everything in a default or, more likely, getting paid back in dollars that have no purchasing power. This poor tradeoff has become too much for many would-be bond buyers to deal with. But America’s overspending isn’t going to decrease, so where can debt-soaked Uncle find new pigeons to pluck?
Enter Mom, Pop and large institutional funds all hungry for yield – and safe returns. By mandating that we all buy U.S. Treasury securities (or, more precisely, that we purchase future tax increases), the government provides everyone with both yield and safety! Oh, what a good solution! For the government, at least, and for a fairly short while. What the government is really selling, of course, is the illusion of safety, at a tiny cost the government can sort of afford, for a historically short time. In reality, government isn’t selling safety, or even positive yield once inflation is factored in, to investors at all. What the government is selling is a guaranteed stream of debt funding to itself, paid for by both big and little investors required by law to keep the spigots of private money flowing to the government. This is really just a back door method to nationalize private sources of savings, financial security and contractual obligations in order to keep the government afloat when it can’t do its job in a cost-effective manner. It’s also a way to keep private money flowing to preferred parties such as government contractors. Not only are they getting OUR savings and investment money, they’re getting it before it’s eaten up by inflation. When they pass it on to their workers, who then spend it into the economy, it competes with existing dollars, pushing prices up for them and all the rest of us. The whole cycle ultimately widens the wealth gap and makes the rich richer while the poor schmo putting his inflation-ravaged dollars into a savings or money market account to earn a few bucks for retirement gets cheated by several forms of financial repression at each stage of his relationship with his earnings. Nice, eh?
As nasty as this is, it isn’t actually a new tactic of financial repression. It’s been in practice in various countries since at least 2010. It enjoys a good following among governments because it transfers wealth in huge quantities from working people to leadership and insiders in a way that looks to the people being preyed upon like they’re being protected from risk! And what is the final insult? The fact that the poor investors and retirees who thought they were getting a safe passage to their golden years, are going to see their taxes raised in order to pay the interest on the Treasury securities (debt) that was supposed to be paying them back when they could not longer work! I doubt that P.T. Barnum and Rube Goldberg together could have come up with a more devious, opaque and completely unethical way of enacting financial repression and wealth transfer on such a monumental scale while keeping most of the public completely in the dark. If I were the type to cheer for the evil Queen in Sleeping Beauty, I’d take my hat off to the darkly brilliant minds who conceived of such a masterful method of mass financial delusion. But I’m not, so I won’t. I’d rather do what I can to wake up the masses who are being taken such huge advantage of, instead, and hope that we collectively gain consciousness before the poison of financial repression leaves us all with empty nests for retirement, courtesy of government “financial safety” regulations.
6. Meet the New Money, same and the Old Money
The classic rock song called We Won’t Get Fooled Again by The Who, contains the following refrain:
I’ll tip my hat to the new constitution
Take a bow for the new revolution
Smile and grin at the change all around
Pick up my guitar and play
Just like yesterday
Then I’ll get on my knees and pray
We don’t get fooled again
They might have been singing about our current money supply and financial repression. We’re being told that the Fed is printing money like crazy and consequently, the banks and money market funds are awash with cash and looking for someplace to store it all and that’s what’s causing inflation. That’s not true. The money currently “flooding” the economy isn’t mostly new money, but our collective bank savings being recycled back to us through a back door of Fed policy. It’s yet another obscure and opaque form of financial theft and repression called Reserves Based Currency Creation, and its just a fancy term for outright (but carefully hidden) theft of our currency from our collective savings held in reserves by the banks, then feeding our own money back to us through stimmies and subsidies. And engaging in a little social engineering along the way by stealing from those who have savings and redistributing to those whom the government wants to reward and bribe for votes. It’s the government’s hope, using the somewhat poorly thought out logic of the Keynesian economists, is that those who receive their “free” money, courtesy of those who work and save, will go out and spend their ‘extra’ money and bring the economy back to life. Even as those who have been robbed but not know it will continue to count on their now depleted savings to be there for them in the future as though nothing has changed financially. This type of financial repression is called Reserves Based Currency Creation even though it’s not really creation at all, but actually recycling. (For a more detailed discussion and explanation of reserves-based currency creation, see “Fed Difficulties in Funding the National Debt Grow Worse” by Daniel Amerman, CFA at http://danielamerman.com/va/ccc/I3Gyrations.html)
The government theorizes that as the economy gets going again – assuming that it does – incomes and personal wealth will rise, allowing the government to then siphon off a bit of our increasing wealth through little tax hikes and such, and quietly replace the savings it stole from us to pay for our stimmy checks and pandemic support. That’s the hope, anyway, as ridiculous as the underlying proposition is. The reserves based economy trick is at once both simple and sophisticated, but it does have a fatal flaw; it depends upon stimulus reviving the economy to the point that wages and savings rise enough to create a surplus from which to steal the wealth to replace the previously existing wealth the government already stole. Like most Keynesian ideas, it sounds great in textbooks, but works poorly in the real world.
One potential problem is that the sheeple might get spooked before the chacanery fully plays out. If word of what the Fed is doing to our savings ever got around, the masses could suddenly begin pulling their cash out of their savings and checking deposits in the style of an old-fashioned bank run on a national scale. While that might sound far fetched, those following the economy might have noticed that an increasing number of independent commentators and ordinary people in places like precious metals forums, are expressing the idea that keeping currency in banks isn’t safe and is therefore no longer recommended. They may be the odd voices here and there for now, but could this sentiment ever take off on a national scale?
In the most concrete way, it almost did just this past March, during the resurgence of Covid and economic chaos. According to the Bitcoin.com.news, wealthy residents of The Hamptons reported that Chase Bank, Bank of America and JP Morgan all ran low on cash as a flood of customers all tried to make large withdrawls within a few days. At the same time, people across the country were complaining in social media that banks were restricting how much cash individuals could access from their own accounts2. In a different form, a slow bank run – more specifically, a shorting of he U.S. dollar – is gathering steam as a growing number of individuals and institutions are replacing an increasing number of dollars with “cash equivalent” alternative investments, namely, cryptos and precious metals. The rapid and extreme growth in the number of people holding alternative investments outside of the banking system is testimony to the decrease in public confidence in the value of the dollar and the institutions through which dollar-denominated transactions are mediated. This trend has become so widespread that recently, one large bank – U.S. Bank – became the first bank to offer a crypto custody service for fund managers3. This marks the birth of the evolution of banks into hybrid institutions that seek to simultaneously control both the flow of capital, on the one hand, by deciding, for example, who is worthy of a credit card or a loan, and facilitate the use of currencies, on the other hand, that free patrons from all institutional control (ibid.). This is a momentous monetary fusion process and historic moment in banking. If left to grow unchallenged, it may well change banks from the engines of currency creation and distribution, into a mere middleman facilitating the transfer of (electronic) currencies among entities and individuals operating beyond their control – at least until private cryptos and cash are both banned or regulated into oblivion and replaced by government-controlled FedCoin or a similar crypto controlled by a global central bank. But if private cryptos (and cash) survive the growing attempts by various soverign governments to ban them or make them unworkable, banking will run full circle back to whence it originated: the modern equivalent of the medieval goldsmiths who held and gave back customers’ deposits of precious coin without lending it out for profit. The paradigm of unending economic growth based on unlimited debt creation will have to be abandoned unless cryptos, like dollars, can be created in unlimited quantity. If that should happen, the banks will go back to being the custodians, rather than the creators, of economies.
It seems possible that, given another year or so – if the government and banking system we know lasts that long – a large enough portion of the population just might divest themselves of sufficient amounts of cash they hold in banks and associated institutions (money market funds, pension funds, etc.) to drain the banks’ increasingly depleted excess reserves. (“Excess” referring to all deposits beyond the vault cash needed for day to day transactions). The consequence would be a depression far worse than the Great depression, and would have severe global repercussions. Now you may ask, are there any publicly visible signs that bank reserves are really being depleted? Well, possibly. Bank depositors across the country have been reporting a growing number and variety of odd problems recently, such as increases in the time it takes for checks and money orders to clear, and sudden, strange and poorly explained outages in banking services. While not definitive, these would logically coincide with a shortage of reserves in banking system that’s actually not flush with cash reserves like we’ve been told. There may also be indirect signs popping up. A need to bring in more reserves may be contributing to the recent drives to extend banking to the “formerly underserved”, increase credit card usage, and expand bank and managed money institutions into rental housing. Somebody has to be putting new money into the system as others are pulling it out or the Ponzi falls apart! While the failure of the Ponzi may actually be the end game for the global banks, it must not happen until total financial and social control via electronic currency is implemented. The need to keep the scheme going for now may also explain banks’ sudden eagerness to expand into “underserved” (read: economically and socially risky) neighborhoods. It could be not to “lift up the poor” or serve “social justice” as they’re claiming, but really to get everyone herded into the electronic pen. A national bank run before this scheme was ready to be implemented would fully expose dear ‘ol Uncle with his pants down. The effects of millions of savers all discovering more or less simultaneously, thanks to modern technology like the internet, that their life savings have been appropriated to pay off the national debt, would make the unrest in Greece and Cyprus look like just the warm-up acts for a real meltdown.
But as you read earlier, a national bank run certainly is possible, with Covid-induced changes in the economy and supply chains as the most likely trigger. And it would be a run not only by individuals but also by institutions as well. Consider the behavior of hundreds of commercial entities in during the first quarter of 2021, when they suddenly all maxed out their lines of revolving bank credit during the the spring Covid resurgence. The banks were caught by surprise by this type of soft run. They could have been set up for potentially fatal losses of capital had many of the businesses used up their lines of credit then gone bankrupt (assuming no government bailout). The banks aren’t going to be prone to to let THAT happen again! That’s why the decision of Wells Fargo to suddenly cancel all customers’ personal lines of credit without warning this spring, was so concerning. Why were they suddenly afraid of customers securing their ability to access the full amount of credit the bank had already deemed them worthy of? Did they expect that last, Hail Mary rising interest rate gasp of a dying economy to catch them with billions in outstanding loans paying miniscule interest rates, when they’re suddenly required to pay much higher rates on the dollars they borrow? Or are they afraid of customers suddenly using their lines of credit en masse to survive upcoming severe inflation? There may be other explanations for what happened, but there’s little likelihood that any of them would point to the bank being well capitalized with billions in customer savings sitting untouched in a fat account at the Federal Reserve, happily earning 0.05% interest the bank while the government keeps it well protected.
Final thoughts
While I certainly haven’t covered each and every way that our government steadily and faithfully picks our pockets at every turn, often without our knowing it, I hope I’ve given you some better idea as to why it’s become so much more difficult for most of us to get ahead or even stay afloat. Our government has created forms of financial repression to steal bits of our hard earned wealth with just about everything we do. As bad as things are now, though, should our government and others force our economy into becoming digital, the repression will be draconian and complete. Until and unless that nightmare becomes a reality, however, I hope this article has given you at least some insights that will help you to see where you’re vulnerable and take action to minimize the government’s ability to grab for itself what should be yours. There is no virtue in feeding the beast. Here’s to your ability to shepherd your wealth as a sheep herder tends his flock, awake to the tricks and dangers or predation lurking camouflaged everywhere in the financial jungle.
REFERENCES
Economics Watchdog 