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SOVEREIGN MAN

Why do we need a central bank?

bernanke

July 25, 2012
London, England

For the last two weeks here in the UK, TV stations have been running a documentary series called “Bank of Dave“, in which down-to-earth businessman Dave Fishwick attempts to establish his own bank.

The premise sounds plausible: offer depositors 5% interest (as opposed to zero), and lend to credible small businesses that are otherwise ignored by the majors.

But as the irrepressible Dave soon discovers, getting a new banking licence in the UK isn’t easy.

‘Bank of Dave’ has obviously been, albeit inadvertently, deliciously well-timed, arriving on television and computer screens accompanied by increasingly shrill coverage of interest rate rigging in the LIBOR manipulation scandal.

Granted, the news of the world’s biggest banks colluding to manipulate interest rates to their own benefit has spark a major debate about banking. But what’s frustrating about the banking debate is how narrowly focused most contributors are.

Critics of the commercial banks loudly vent their outrage at the covert manipulation of interest rates, for example. But almost nobody thinks to question the overt manipulation of interest rates on the part of central banks.

It is generally accepted that central banks should be allowed to set interest rates. In the US, the base rate is effectively zero.

In the UK, it’s now being held at 0.50%, explicitly to help the banking sector at the expense of all non-bank members of the population who are unable to earn an economic return on their savings.

One might ask why we take this official rate manipulation for granted. One would also ask why the economically critical business of SAVING is being so offhandedly crushed in the name of banking expedience…

Why, for example, do we need a central bank at all?

A typical if feeble answer is that we need a lender of last resort. To which the answer is… Why? Why do we need a government-appointed entity to support banks that get in over their heads?

A typical answer is that if our banks start failing, our society starts going down the toilet. (It already has, but never mind.)

So now we have the worst of all possible worlds. Our banks are already failing, in the sense of no longer functioning according to the principles of offering an economic rate to depositors and offering economic funding to borrowers.

Plus, now we have ended up with a handful of quasi-nationalised banking group zombies that appear to be being run for the sole purpose of being granted dollops of money that they are free to hoard whenever the central bank deems it appropriate to depreciate our currencies some more.

If our banks were free to fail, a) we would have no need of a central bank, and b) we would have no need for banking guarantees.

Banking deposit agreements would simply come with a giant ‘Caveat Emptor’ on them, and depositors might be able to start earning a positive real interest rate on their savings again.

Abolishing central banks and their core functions would have the happy and non-trivial side effect of reintroducing something akin to sound money into the world economy, rather than live with permanent inflation and have the entire economy held hostage by banking interests.

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Comments on this entry are closed.

  • TheHuron1

    Sounds suspiciously like Ron-Paulian heresy! Keep up the good work!

  • Chihhsing

    What is the point of writing this? The UK is about as likely to abolish its Central Bank as to change its official language to Swedish. “If your aunt had balls, she’d be your uncle.” Why not try a topic that is not a waste of time?

    • Tim Price

       What is the point of challenging anything, then ? Meekly accepting an awful situation is not enough (not to me, at any rate). I accept that effecting this sort of change in the UK, and elsewhere, will be difficult. But if other people shared such a defeatist attitude, we would never have had democracy, or genuine free market capitalism, or civil rights, or equality, in any form whatever. A journey of a thousand miles starts with a single step.

  • Uncle Sam’s – er….cousin

    Republic credits???  Republic credits are no good out here… I need something more real!!

  • Howard Roark

    Wonderful post–thank you so much. I hope this message catches on and all CENTRAL BANKS will be TOTALLY OBLITERATED. They have been the cause of world wars and untold human suffering. Good job, Tim.

  • http://americanexpatchiangmai.com/ greg

    So is the Bank of Dave still going?

  • Patrick

    The Fed is a banking cartel, protected by force.  The beneficiaries of this cartel enjoy protection from competition and the ability to speculate recklessly, keeping their profits while forcing losses onto taxpayers.

    The Fed was designed specifically with these objectives in mind, and by that standard it is a rousing success.

  • Rogermanners

    Banks do not create money
    They merely, deceitfully, fool you into signing a contract to pay a determined amount of real money (labour-laden), nominally equal to the digits entered onto your account, plus an interest charge, which is created by them on their computer,.
    Now, you go out and work to create the money: in order for you to obtain banknotes or digits you have to work; it is this act of work that attaches value to the, hitherto signing of the, so-called loan agreement, worthless banknotes and digits.
    As all money and digits came into being in the same fraudulent way, everyone you trade with is adding value to the notes and digits by their work—the banks add no value at all. So why do we give them labour-laden digits and notes when there was nothing from them? They did not lend us money!!!
    The answer is: because the law of the land has made us believe we made a legitimate contract with the bank. In common law, the contracts we sign can be null-and-voided as the bank does not give ‘good consideration’ (Something of value) to make the contract binding.
    Now we know this, we may say ‘Oh, in that case I will not pay any more to the banks’
    Oh yes you will!!! because the legal system is rigged to send the bully boy bailiffs to kick your door down and, seemingly, legally—but not, throw you out of your house. The government is complicit in this crime as it stands by doing nothing to protect us against these respectable-looking loan-sharks, sitting in their fortress-style buildings.
    The emphasis on this malady, by most correspondents is on how money is created ‘out of thin air’ and interest is charged; that is the smaller crime—the bigger crime is ignored; maybe because such writers cannot get their head around the simplicity of it. Regarding the bigger crime; I have read nothing about the criminality of banks, after they have lent nothing of value, demanding labour-laden notes/digits—in many cases by menacing in the way described above.
    Avoid any site or report that does not connect the present banking system with fraud and extortion. None of the sites, which I have read, do this—they merely make recommendations for some type of modification and they explain the system as though it is legitimate but needs modification—it is not; it’s criminal; USURY is not the only crime—add to that extortion!
    A similar system in the hands of the government only replaces one criminal with another. Repayment of loans should go to a community-owned bank with democratically-elected directors. Your labour-laden notes/digits would then go into a common fund available for loans to all the people who attached value to them by their labour—that is to say all working people.
    Is the current system justice? I can give you a piece of worthless paper or print a digit on a computer and if you do not replace them with labour-laden notes or digits I can have the courts send the bully boys round to steal something of value from you.
    I saw an article in the Independent, which, at least exposes the fact that the banks create money ‘out of thin air’ but the article did not mention the extortion element. Anyway, that’s an MSM start to make people think a bit deeper.

  • Blue4949

    One reason we have a Central Bank is so they can loan money at interest to Governments, which then passes the power over to whomever owns/controls the banks (thereby rendering all politicians as Central Bank employees). It is all about power.

    The same families that own the huge “too big to fails” also own much of the shares in the Central Banks!!!  These people really got us by the toes. But they screwed themselves (and know it) when they had their little smart plan to relocate all Western industry to China, etc….

    Now that is totally blowing up in their faces and you can almost see the desperation on some of their faces as they attempt to correct their mistake. LOL

    Gee, some of us lil’ folk would just be happy to get back our money we “invested” in our “retirements” via the Social security administration.

    The Government (Paid Politicians for the CB’s) has no problem paying out interest when the Central Bank loans it money to keep the government operating (so it can service the CB’s).

    But many bitch about some worker taking more out in Social Security than what he paid into it…..NOT even taking into account that for 40 or more years, this guy has been “investing” in his retirement by loaning the money to the government… Interest Free!

    If we charged the government Compound interest on the money they take from our hard work, like the banks charge us for credit and the banks charge the government interest….Many of us would actually have WAY MORE Return-on-investment, than what we end up collecting in our old age..

    But only a small group of guys get to do these interest tricks and collect big time. Meanwhile, the Media (true to its owners) has been passing off articles as “journalism” attempting to turn the little people against their own hard work and money that was taken from them.

    It is really a corrupt and sick system, and only a few people (comparatively speaking) are perpetrating these tactical maneuvers against the many. Make no mistake, this economic disaster unfolding has been very systematic and well thought out. This will go on for another 100 or so years; it takes time for an entire Western hemisphere to collapse!! What they are doing now is making sure that when the dust settles they will still be in control. That is where they are wrong and where they will be defeated and the world will finally be able to MOVE ON.

     

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