5-6-2018 interview of Naomi Klein: Since the financial crisis (2008) the Fed has been unleashed. The US central bank has quite literally fabricated nearly $4.5 trillion in funds to buy bonds (assets) from the major private banks. It should be noted that those private banking institutions are members of the Fed system. The Fed then provides that money to the banks and the institution can then hold the funds in reserve or choose to sell their Treasury or mortgage bonds back to the Fed.
The Fed’s playbook was then deployed across the world by other central banks. In particular, the G7 collectively fabricated $21 trillion worth of money. They took the liberty then to buy government bonds, corporate bonds, mortgage bonds and, in the case of Japan, ETFs (exchange-traded funds). Other banks, like Switzerland, went so far as to create money and directly purchase stocks.
What this meant was that an external supply of money was injected into the world’s markets, in a nearly limitless amount. These actions pushed markets higher, and the bond markets were inflated with this excess money, causing a new round of debt bubbles.
These “conjured money” efforts did nothing to alter the fundamental values of companies. Companies could borrow money and buy their own stocks on the cheap, increasing the size of corporate debt and the level of the stock market to record highs. Because money was so cheap and interest rates so low, no other investment opportunities could offer the same high returns, so speculators piled into the stock markets, further elevating their levels.
Why does a banking collapse “larger than the 2008 financial crisis” loom?
Because we have built up corporate debt and the markets to such great highs that the potential for a fall would be at an unprecedented level. To further complicate the matter we have seen record buybacks occurring in the markets, but such landmark moves are not connected to organic growth and are detached from the foundation of any economy. To visualize this, imagine pulling the rug out from under a table full of dishes. The higher you stack the dishes, the greater the crash when they fall.
Today’s global debt to GDP ratio stands at a record of 224 percent, according to the IMF’s latest calculations, amidst record debt of $164 trillion. Much of that debt was created because the central banks offered up money at such cheap levels to borrow.
To add to the complexity, certain central banks are starting to realize that reversing their course could present its own problems. If those cheap money rates do rise, and currencies like the dollar appreciate in value, developing countries that took on debts over the past decade will be cornered into a difficult position to repay it. That debt trap itself could be a catalyst for economic shock and job losses . Such moves would likely begin in lesser-developed economies and eventually grow outward.
There is also considerable reason to believe that any major banking collapse could have similar characteristics. Banks will either lock-down the money they lent or restrict the funds available for withdrawal to depositors, depending on the severity level of collapse. Historically governments have tried to respond to such conditions with government-led bailouts (augmented by corresponding central bank bailouts), but they are not usually enough to forestall stock markets crashing, pensions tanking and life-insurance funds being gutted.
Perhaps most alarming we have seen virtually no real steps to reform the financial system. Despite some cosmetic regulations to curtail certain risky behaviors, since the repeal of the Glass-Steagall Act in 1999 there is still no division between depositors’ funds and those used by banks for speculation. The big banks continue to make massive trading bets, and corporations are still focused on buying back stock for short-term shareholder gains rather than reinvestment in their businesses.
Since the financial crisis not a single bank CEO has been jailed, despite multiple infractions, frauds and felonies committed by the biggest US banks. If a person steals a car, they get charged with a felony and likely go to prison. If a big bank, like Wells Fargo recently, scams millions of dollars of phony fees from its customers, its CEO gets a raise. Meanwhile the government regulator in charge gets a promotion to a top spot in the Federal Reserve system.
What do you offer as some solutions to this threat?
By bringing back legislation like the Glass-Steagall Act that divides those two elements of banking so as to separate them into different institutions, we could keep banks from having greater influence on government and due to their possession of everyday citizens’ money.
Meanwhile we could limit the amount of money central banks can fabricate to artificially elevate these banks and the markets--markets in which the majority of people have no stake. In fact just 10 percent of the population owns 84 percent of the stock market. At the very least we could have an independent audit of these central banks to allow voters and leaders to better understand where their money goes and what is used for.
We should also call out and alter the austerity measures enacted throughout the world that are punitive to people while in the backdrop so much money has been conjured to help the banks and financial system.
By doing so we could potentially shift central banks’ roles [forget central bank and central banking entirely, Naomi!! Better still, figure out the central banking scam--monopoly!! -r.] [In 1800 financial power in France was in the hands of about ten to fifteen banking houses whose founders, in most cases, came from Switzerland in the second half of the eighteenth century. These bankers were deeply involved in the agitations leading up to the French Revolution. When the revolutionary violence got out of hand they orchestrated the rise of Napoleon,whom they regarded as the restorer of order. As a reward for their support Napoleon in 1800 gave the bankers a monopoly over French finance by giving them control of the new Bank of France .[1] https://en.wikipedia.org/wiki/Bank_of_France ] [In brief, these were the financiers who, shortly after the coup d'état of November 9, 1799 established the government of the Consulate, met with the new First Consul, Napoleon Bonaparte, and convinced him to enlarge and transform the Caisse des Comptes Courants into the Bank of France, to be capitalized at 30 million francs. They agreed to loan the new government 12 million francs to get the bank started....
Claude Perier died at his mansion in Paris on February 6, 1801. He was 59 years old. He had brought the Periers successfully through the difficult years of the Revolution, leaving an enormous fortune and invaluable social and business connections that would help the family on its way to prominence. For the Perier family, he had "opened the doors to the two powers entrusted to Notables, politics and high finance."[22] https://en.wikipedia.org/wiki/Claude_Perier ]
as well as private banks’ incentives to building longterm infrastructure and to financing small and local businesses. In this way we could assist the less wealthy and enable upward mobility for all. Globally the $21 trillion conjured by these central banks that still remains, if diverted into the foundational--or real--economy could provide regular citizens of the world (to whom I dedicate this book) a fighting chance. https://truthout.org/articles/by-rigging-the-cost-of-money-central-banks-contributed-to-inequality/
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