The Banker

Imagine you are very good at juggling IOUs from others with IOUs you issue. You are a person of stature, and exude trustworthiness; your IOUs serve as money in the community because people trust you will be good for your debts. You create new money by issuing loans to family, friends and people in positions of power. Your power to create money is grounded in your ability to maintain public confidence in your integrity. They think you have the money to begin with and you are simply lending it. Since their understanding does not match reality, it is more of a con than a business.

You’re good at this. You are making huge amounts of money. You live a luxurious life style, comfortably a member of the rich and famous. You’re a favorite of those in power who always need more money. But, your con is always at risk: you could make an error in judging how many reserves to keep on hand. You are at risk that a mistake by you or your staff may erode the authority and trustworthiness of the IOU-future-value money you create.

To keep your comfortable position of power behind the throne, you may need to make loans to individuals in powerful positions, who will fail to pay you back. If too many of your clients default or face financial ruin, you can be brought down with them.

And your financial empire is vulnerable to the whims of those in political power, who can put an end to your con with a wave of their scepter, or a bill from their assembly. So, how can you get a secure and legal right to continue creating new money? You make a pact of mutual benefit with the government.

The King

Now imagine you are one of the heads of state over the past 700 years. It is mostly a boys’ game of wealth display, power grab, and conquest — costing a lot of money. You can tax and demand tribute. But, there is a practical limit; you can’t take what your subjects do not have, and the more you pay war contractors and build grand palaces, the less likely it is these expenses can be borne by the general population through taxation. Your own overspending and imprudence calls into question your authority to create new money. New money must be created. But the right of the Crown to create money has been challenged by the power of an independent new system of global money creators – the private banks. So, where can you get more money to support your endeavors? You make a pact of mutual benefit with these new bankers.

The Deal

Bankers with an unstable but profitable money creation system, and governments in need of easy money to maintain their power and avoid more taxation strike a deal: private bankers get to create new IOU-future-value money and their money becomes the legal tender and official currency of the realm. The bankers will make loans that create new money for the government on demand, and will submit to some rules and regulation established by the government. (Though first and foremost, they will exercise the power money creation brings to assure these rules and regulations suit their interests).

For about the last 700 years, bankers have been increasingly successful at convincing governments to adopt the money they create as legal tender – the legal and exclusive money of the realm. Some of this convincing happened because monarchs were imprudent, and their IOU (tax credit) money was risky instead of trustworthy. In their defense, monarchs and despots walk a challenging path when people want a Big-Daddy-cares-for-me government. They must spend and maintain a display of outsize wealth without overtaxing their population. That’s not really possible.

Some convincing has happened because wealthy merchant-bankers in the private sector did a better job of establishing confidence in the trustworthiness of the IOU-future-value money they created. These bankers could buy the confidence and accommodation of people in power. This made it possible to shift some of their expenses, such as the safety of their trade routes, or the integrity of their IOUs (anti-counterfeiting measures) onto the government, the manufacturer and the guarantor. With these costs ultimately shifted to taxpayers, bankers had an easier job maintaining trustworthy IOUs.

This bargain has been made by nearly all nations. For the past century, most nations have had single national currencies created by private banking cartels, with national central bank services and a government guarantee. There are supposedly benefits for everyone, though it is often WE the people who pay when mistakes are made. I’ll talk more about the specific bargain the US struck with the private banking sector in Chapter 5.

Banker benefits from the bargain

A deal between private banker money creators and government offers three major benefits to the bankers:

  1. a monopoly, or near monopoly on money creation;
  2. the highest level of authority and trustworthiness from a guarantee that the money they create is backed by the full faith, credit and common wealth of a sovereign entity; and,
  3. increased profits as some money system costs can be pushed onto taxpayers.

Throw in a central bank, with essentially little power over your operations, but able to serve your needs for efficiency and backup, while creating an illusion of government authority and sanction for your choices – that’s a sweet deal.

Monopoly and authority

If private bankers issue their own proprietary money, they have to compete against each other for primacy in the marketplace. When private banks become the creator of the national money, they have a monopoly advantage; they are not just creating a new money with their proprietary imprimatur, they are creating the national legal tender. No competition for authority and trustworthiness is required.

And it is much better and more profitable to have a monopoly on the issuance of money for a nation – even if individual banks have to share this privilege with their fellow bankers, the advantages far outweigh any loss of autonomy. Banks on their own, without a central bank, lose efficiency, and in a fractional reserve money creation system they must keep more reserves on hand to survive, which reduces their profits. Creating the legal tender is more profitable.


Individual bankers and cartels with central bank capabilities that practice fractional reserve money creation are unstable and vulnerable to collapse. Bankers have discovered it’s prudent to have some rules, regulations and standards because it protects them from being pulled down by the misjudgments or ineptitude of another bank. But, it is costly to supervise and maintain standards. So, if this task can be partially pushed off onto the taxpayers, that is another boon to their bottom line. Though nearly all banks will tell you they don’t want government rules and regulations interfering with the efficiency of their operations because they would never do anything wrong, they recognize someone needs to check on their competitors, because the other guys are not so wise.

Once a nation gives the power to create new money to the private bankers, it is in the nation’s best interest to assure strong banking system integrity. If banks fail, so does the entire economy in this system. Therefore, to protect itself, the nation must bear the costs of this integrity maintenance – and the banks are off the hook for the burden of their mistakes. However, when the government has bottom-line responsibility for the stability and safety of the money creation system, responsible people in government want to create standards, laws and regulations to reduce government’s liability and the risk to the entire economy. From the bankers’ viewpoint, a prudent government’s rules, regulations and standards are too stringent for their liking. The bankers are faced with a dilemma: it is to their benefit to have the credibility of a national currency for their IOUs, but then they will have to face some government control over their operations.

To answer the dilemma, bankers have developed a robust campaign to justify their privilege, including propagating the myth that the best decisions are made by a privately run marketplace where individuals make decisions unhampered by the decision-making of governing bodies. Bankers have also been the ones writing the laws that give them the authority to create a nation’s money and establish the role and governance of their central bank – the foxes design the hen house and then claim to stand guard. To obscure this reality, private bank owners have been quite adept at creating an illusion of government ownership and central control over the process of money creation.

Power struggles between the bankers

The distribution of the power of money creation among the private bankers has been a bone of contention for hundreds of years. Should many individual private banks get to print their own money? Or, should there be only one kind of national money issued by all the banks? Should governments charter private bank money creators, or should anyone be free to set up a bank and create their own money to compete with others in the marketplace?

Sometimes the bankers have had to compete with a few other legal tender banks. Sometimes the privilege has been exclusive. Spreading out the privilege has been popular with farmers and local businesses, because they have traditionally been treated better by local banks. Locally controlled banks are more likely to support the communities in which they reside. Nationally controlled banks are more likely to be efficient and make greater profits because they have economies of scale and the resources to provide more sophisticated services to the people with the greatest wealth. National, and now global banks, are more popular with the people of greatest wealth, who often own them. Because a fractional reserve money creation system will shift the wealth of a nation from the many to the few (Chapter 6.676.68), those with greatest wealth have won this struggle between distributed or monopolized privilege, steadily reducing the number of banks in the world.

Today in the US, small local and regional banks face formidable competition from a handful of banks that control most of the financial marketplace. One in four local banks have vanished since 2008, while megabanks (assets over $100 Billion) have increased their control over all assets from 17 percent in 1995 to 59 percent just 20 years later.11

Citizen benefits

It is difficult to see any benefit to citizens in a pact that gives private bankers the privilege of creating a nation’s money, while requiring that the full faith, credit, and common wealth of the nation guarantee this privately-created money. Please let me know if you can think of any at USMoney.US.

As opposed to a benefit, the system shifts wealth from the many to the few and makes increasing one’s wealth the overriding value. That is, literally or figuratively, the devil’s work.

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