Needless to say, the economy, both domestic and international, is in shambles. From the neighborhood bank through the various national central banks, economic policy is in chaos. The result is that we as individuals, nations, and cooperative international trading organizations and governments are in a state of flux. Despite the apparent complexity of economics it is in fact, quite simple, quite simple indeed, to both understand and remedy, therefore, the answer to the seeming dilemma of the present economy lies in simplicity.
What is banking today?
Banking today is merely and exclusively money creation. It is no longer a primary banking function of intermediate handling of pre-existing savings; meaning that banks no longer rely on deposits and in turn lend based on said deposits. Indeed, it is not even a secondary or tertiary function. No, it is chiefly the creation of money ex nihilo, that is, creation out of nothing. This is the foundational support of our current debt based economy. Many think that the Federal Reserve is at the heart of this economic crisis, and surely it has a hand in it, but this is only part of the mechanism of the debt based economy. The Fed’s policies, in addition to reprehensible governmental legislation, provide the environment for the banks’ ability to create money, ex nihilo. Effectively, while the Feds do print money, the gross creation of money occurs at your local bank. This is due to fractional reserve policy. This allows banks to lend 90% more money than the deposits in their ledgers. Such loans are, quite literally, created out of thin air and add to the overall money supply, which triggers inflation. As an illustration here is the equation of Fractional Reserve Banking:
Since lending is universal in our Western Society, (most especially in the indiscriminate lending practices of most banks to risky individuals and organizations by government mandate in the pursuit of the false notion of fairness of opportunity), money is continuously being produced. The law of Supply and Demand then comes into play as it does in all commodities, that is, with more money in circulation, (even electronic money), the less valuable overall it becomes. When applied to money it is known as inflation. This is not to say that lending is not necessary to a healthy economy but merely the economic maneuverings must be revamped. To illustrate for contemporary understanding, Fractional Reserve Banking practices, that is money creation ex nihilo, is the equivalent of adding ethanol to the gasoline. It may seem inconsequential at first, but as the percentage of ethanol is increased, the effectiveness of the gasoline is reduced; until it begins to affect engine performance.
What about the Gold Standard?
Most folks, if not all, realize that there is something fundamentally wrong with the economy. Many are advocating a return to the Gold Standard, which President Richard M. Nixon did away with in 1971. However, this is a simplistic and futile solution for many reasons:
1. the gold market is severely manipulated by both large market players and governments;
2. the gold supply is so limited that should we go to a gold standard, (money manipulators aside), gold would be beyond the reach of individual citizens and thus be even more accessible to manipulators;
3. most people forget that the gold standard was in effect in the 1920’s, the Roaring Twenties, which was the decade leading up to the Great Depression of the 1930’s. It apparently had little effect on the boom and bust cycle both before and after the Depression.
So what is the effective remedy to our current situation? Clearly, it is not the petro-dollar, which is based on the US$ as the world reserve currency. Since the dollar has largely been compromised by our own US monetary policies and the underlying Fractional Reserve Banking manipulation, it comes as no surprise that many nations, notably, Russia, China, Iran, India, and others are liquidating their holdings of the Greenback in favor of market basket currencies and commodities, local currencies, and combinations thereof. With no agreement on a World Reserve Currency, this leads to the economic chaos we now observe and also foments wars, which in our day, has the potential of wiping out civilization and throwing us back into a primitive culture …if we survive at all.
So what is the Most Effective Remedy?
To determine the most effective remedy it is necessary, like any other human endeavor, to establish goals to be achieved. So here in a nutshell are the goals, which apply both on a macro and micro level to any solution:
o provide an adequate and stable monetary system that prevents bank failures, (and subsequent bail-out or bail-ins by the taxpayers,
o to prevent uncontrolled inflation, deflation, stag-flation, or hyperinflation,
o to prevent, curtail, or mitigate the cycles of boom and bust, most especially deep and destructive depressions that most especially impact families,
o provide an oversight system that will monitor and control prices of commodities thus curtailing or eliminating speculative manipulation, most especially of basic necessities like food and fuel,
o to hold and stabilize the purchasing power of money, (in other words, curtail inflation),
o restore normal prosperity and assure its continuance.
So stated, the solution must be beyond the hands of politicians; governmental agencies, like the Fed; bankers; and other money manipulators who see an opportunity to advance their own wealth and status. In short, it must be in the hands of the citizenry who have an intrinsic and abiding stake in the outcome of the economy.
Many readers may at this point say that the above goals, while noble, are essentially unachievable, yet I believe that most readers, considering that this is a Catholic blog will agree it is exceedingly achievable, if we base our economy on Catholic principles, but more on this and specific solutions to come in subsequent issues of Catholic Rural Solutions. Meantime, should the readership have any suggestions of their own please submit them by replying and commenting either to the WordPress blog or return email.
As much as anything else in our human experience, the answer to the above assumes Divine help thorough Mary, the Mother of God, so please storm heaven with your Rosaries for the Consecration of Russia to the Immaculate Heart of Mary. She, contrary to Pope Paul VI’s assertion that the United Nations is the last hope of humanity, is our final recourse in our deeply troubled times.
Richard of Danbury, D.S.G.