3 Wealth Destroyers – The FED, Fractional Reserve Banking and Keynesian Economics

In my quest to find the source of our continuing investment roller-coaster I have already mentioned my concerns about the three wealth destroyers which are in place even before you begin investing,

  • The FED and how it controls to cost of money and the amount of money in the economy. I have always found it strange that the whole world basically puts it’s financial fate in the hands of a Greenspan or a Bernanke. This is just plain stupid to me. No one has any way of “really” knowing how a highly complex economy is going to perform or behave in the long term – remember its the long term that gets you.
  • The Fractional Reserve Banking System which allows Banks to leverage themselves up aided and abetted by the FED to the point where they create a credit boom with the inevitable financial crash. These cycles seem to be getting faster and more volatile.
  • Keynesian Economics which died after Reagan/Thatcher destroyed it. But it was quietly being taught in all the universities by true believers and now almost all economists lead by Paul Krugman believe the only way is the Keynesian way.

As I have stated previously you need to have a good economic environment in order to invest for the long term. Right now it does not exist. Anything you do with your retirement nest egg should be considered trading and you should be prepared to go to cash fast.

Those three things are the base of the investment environment and they are seriously flawed.

How can you make long term rational investment decisions when you know a Greenspan or a Bernanke can change the rules on a whim based on their then current view of the economic or political (yes I know they are supposed to be independent but Bernanke has a revolving door access to the oval office and is in the plunge protection team for the President, so don’t give me that independent rubbish) situation at the time?

The only thing he is independent on is printing money with no congressional oversight and manipulating interest rates to help his mates. He also gives US money away with very little accounting for it.

I never knew the fractional reserve banking system was based on fraud perpetrated a couple of hundred years ago but Kings and governments saw the benefits to them so legalised it. (I’m still studying this and its implication and alternatives)

Keynesian Economics was the cause of the very high inflation we had in the 70’s after more than 30 years of trying to implement it as an economic system. It failed period.

What we have is governments around the world propping up failed banking and large corporations when they should have been allowed to die and their assets purchased by other businesses who have done the right thing. Banking is the oil on which the economy runs and right now it needs changing completely and new oil put in.

These failed entities are still trading, taking your money to invest and generally they have gotten away with it. This is just plain wrong so why would you trust them with your money a THIRD TIME in this century and we aren’t even into the century’s teens yet.

In additional we have governments spending our tax dollars and redistributing them to support the economy until the consumer starts spending again and able to take on more debt. That’s Keynesian economics at work.

We should ban the word credit and only use the word debt. You should apply to the bank for a debt – not for credit. Credit is what you bring to the bank in order to get a debt from the bank in accordance with how much they credit you with being able to pay off the debt. Henceforth there should only be debt cards and if you persist in running up large debts and not paying them off your card should be renamed “Really Bad Debt” card.

You should be forced by law to present your debt cards and your “Really Bad Debt” cards whenever you apply for yet another debt card to roll over the debts. This should be called “You’re crazy and stupid” debt card and you should have to wear it around your neck so everyone knows NOT to give you any more debt – not credit!

Sorry, I went off topic there 🙁

Of the three evils above the only one that is likely to change is the Keynesian Economic model. But what the conservatives will do is shackle it not eliminate it. They have no stomach for true capitalism with well designed regulations that protect individual rights.

Republics apart from Ron Paul won’t get rid of the FED. Dodd seems to want to control the FED but for reasons of power not for the benefit of the people.

Free banking is another thing we can only dream of. It only occurred to me the other day that the investment banks all applied for commercial licenses when things got bad. I thought it was to get under the governments umbrella of protection. But now I think it was to get a commercial banking license for them to be able to practice fractional reserve banking. It basically allows them to print money as they keep loaning out basically the same money but each time hold back a fraction.

So yet again you’ve been had. And you want to go and see a financial planner or adviser who will only put all your retirement nest egg into this financially unstable quagmire where in the long run, the only winners will be the banks and the government because they can destroy your nest egg and get tax payer money and print money to bail themselves out.

Note that they don’t replace the money they lost that was in your retirement account. They use the tax-payer money and printed FED money to rebuild their “balance sheets” supported by governments that tell us we must have a strong banking and financial system.

That’s true but it can be all new players with some honesty and integrity can’t it?

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