Gold News

A Great Racket (If You're On The Inside)

Financiers and bankers hate gold. They also love it too...

WHAT IS "The Money Power"? asks Dan Denning in the Daily Reckoning Australia.

My description below may not sound sinister. And it probably isn't, at least in the sense that the ultimate aim of wealth and power through ill-gotten advantage is more or less the same goal of organized crime. It's as old as humanity, really.

"The Money Power" is the disparate group of financiers and bankers who profit the most from accumulating assets when they're cheap and selling debt to the government and the public.

What makes the Money Power so destructive is that it achieves its aims through the control of the price of money. This allows it to engineer a cyclical wealth transfer from the public purse to the private purse and from the Middle Class to the Bankers.

Now normally we wouldn't use such incendiary and populist rhetoric. And to be clear we don't mean to suggest there's any kind of global conspiracy by a secret and shady group of elite trans-national criminals. That would be a good story, though.

No, what we mean is that there has always been profit in controlling the price of money. Think about it for a moment. Imagine you run a business where you can create the product you sell at no cost AND charge interest for its use. You turn your cost of capital into a rental income. That is a pretty clever trick.

The Money Power has accomplished this trick through the artificial setting of interest rates and fractional reserve banking. With fractional reserve banking, banks can expand credit far in excess of the accumulated savings on deposit in the banking system. Through manipulating interests, the banks can make the cost of this credit appear attractive to the public.

And indeed, for a while, the low cost of credit—or what is also referred to here as "access to mortgage finance"—induces people to borrow so they can buy assets (stocks and bonds and houses). A vast accumulation of private debt ensues, driving up asset prices and looking rather benign.

But then, when a crisis hits and asset values begin to fall—as they always do when they become too expensive relative to the income they generate or the value they deliver—the debts accumulated at low interest rates do not change in value. The Money Power can then buy up the assets at bargain basement prices, while tending to its debt slaves and collecting interests.

There is a further wrinkle, too. The government! US interests rates (at least short-term rates)—otherwise known as the price of money—are set by a private cartel of bankers (the Money Power). The Money Power is happy to encourage large government debts because it makes money by lending money to the government. Whether the government is borrowing money for foreign wars or domestic wars doesn't matter.

The Money Power benefits from the permanent expansion of the Welfare/Warfare State because it means the permanent expansion of government debt (debt that will never be paid off, only refinanced or defaulted on). The result is the same as in the private sector, only this time the State is forced to sell assets off to the Money Power at fire sale prices. This is what's happening in Greece now.

And of course, this is what's been happening in cycles for years. The advocates of debt-based money have simply sunk their tentacles into the financial life of the world more effectively now than at any other time in history. Private and public debt has exploded across the globe. Creditors earn interest on the loans they've made. But because of fractional reserve banking, they are able to create new product (money) out of thin air at no cost.

It's a great racket if you're on the inside. But if you're on the outside, this systematic transfer of wealth through manipulation of money and interest rates turns the economy into a boom-bust nightmare. It also impoverishes a lot of people, leaving them with no assets and a lot of debts.

This is why the Money Power both loves and hates gold. It loves gold and owns it because gold is money that is not anyone else's debt. It hates gold because it allows the common man to insulate himself against the manipulation of interest rates and inflation.

This cycle of inflating assets and increasing debts through fiat money and fractional reserve banking isn't necessarily by design. And you don't have to be a conspiracy theorist to believe it. But you do have to be willing to entertain the idea that the entire edifice of the modern financial system is based on a monetary fraud.

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Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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