"Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, "there'd be a revolution beforetomorrow morning".
Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "
Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as
Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window."
The above quote is from The Guardian's recent article regarding a statement paper from the Bank of England. The BOE simply stated the obvious and actually told the truth...sort of. The world's various currencies are in fact not money, they are IOU's. While I applaud the BOE for being forthright, I must ask "how in the world did this happen"? Are they crazy? Who is going to get fired for this one? I'm not sure exactly the reasoning behind the "publicity", the Guardian believes that the BOE is simply stating the obvious about money creation. I'm not so sure, it may be "obvious" to some of us, maybe 5% or even less, but the other 95% either don't understand or don't have a clue. As I've mentioned before in other writings, the "elite" feel that it is "bad form" to destroy someone without "prior warning"...this may just be their way of "warning the peasants" and fulfilling their own "good manners"?
As the article states, this is a very dangerous path for the BOE to go down because "the people" might just find out that they've "been had" (my words). If the average person figured out that what he has borrowed is not in fact someone else's hard earned savings but instead something that their bank created with no sweat or effort...merely the push of a couple of keystrokes, there will be hell to pay. The thought process of "hey, why do I have to manually work for 'pounds' while you bankers can just freely create them?" could manifest quickly if the masses truly understood.
Within the Bank of England "statement", the following link is to a very short video that is worth watching
https://www.youtube.com/watch?v=CvRAqR2pAgw . What struck me was how the "bloke" from the BOE said "during normal times" which also occurs in the written statement itself. Why are these not "normal times"? Also, why in the world did they do this interview standing in a vault surrounded by "gold" (tungsten?)? Is this some sort of subliminal message? Does being surrounded by gold (real money) add a sense of "importance" or truth to his words? Or maybe it's "look, see, we still have some"? Why do they feel the need to "explain what money is"? Everyone knows what money is right? Money is the stuff you have in your bank account, it is the stuff you hand over to the waitress for coffee and doughnuts each morning. ...It is the stuff that you pay your mortgage and taxes with. It is the stuff your employer pays you at the end of the week for your labors. But but but, now they want to tell us that we don't understand money?
They explain that money is "finite" and that the central banks are set up so that governments cannot create money in unlimited amounts (and out of thin air)...because governments can't be trusted but central banks can. They say that central banks do not "directly fund" governments (really?)...and that they carefully regulate the amounts of money created (again, really?)..."during normal times". They say that "QE" (because these are not normal times) came about to put "more money on the streets". And since interest rates are so low, people will seek higher yields and place their "bets" in lower quality (read higher risk) investments that will flow through to marginal businesses and aid in the entire economy levitating...in "normal times".
Well, these are not normal times by any stretch of the imagination. In fact, these are the "end times". These are the end times of the current monetary experiment because we have reached "debt saturation". Individuals and businesses can (will) only borrow so much before they either cannot or decide they will not borrow more (this was 2006-07). The only remedy for this situation is for governments themselves to step up and "borrow" (create more money) which is what happened from 2008 on. This is why back in 2012 and '13 we heard of governments themselves getting into trouble financially. This is why the world collectively has borrowed far more than GDP... which is why when debt cannot be repaid we arrive at the reality "when that, that supports the currency's value is worthless...so is the currency".
So what's the problem? Central banks can create as much money as they'd like right? Yes they can...but, they need someone, somewhere to borrow it...and that is where we are today. There are not enough borrowers left to borrow in the amounts necessary to hold "asset values" up. We are already seeing this in China with their very first defaults. Less than $10 billion has defaulted so far in 3 separate tranches yet their "wealthy" are already out selling luxury properties all over the world...to raise cash. This is because their shadow banking system went from creating $160 billion in new loans in January to a big fat ZERO in February! The credit spigot has simply been shut off. Why? For two simple reasons, lack of collateral to lend or borrow against and that phrase I keep repeating "debt saturation".
As to "why" the BOE decided that "now" is the time to 'fess up and explain what money is ...during normal times..."and these aren't them" (I know the Brits would gasp at my grammar), I can only guess that they "know". They know that the jig is up. They know that the Chinese are "running their bank" and withdrawing too much money (gold). They know that they will be forced to close their doors but "you were warned" so if you didn't "get it"? ...Well then, it's your own damn fault! Regards, Bill Holter