13.1 The Failing Financial System
271
The private “share-holders” of (central) banks are interested in a permanent
increase of the debt level, because this generates new money for them. But their
private interest is not aligned with public interest. If they want to get money, it is
important that the government needs money, i.e. the situation in the country must be
sufficiently bad. In fact, over the years the situation became so bad that it was claimed
“quantitative easing”
11 was needed to keep the economy afloat, thereby, channeling
trillions of public property (such as government bonds
12 ) into private hands. Some
would say, with raising debt levels, companies, countries, and indebted people were
increasingly “owned” by a small banking elite.
It is hard to imagine how much wealth and power could be accumulated in this
way over hundred years or more. However, no matter whether you believe in private
shareholders of central banks and in the above money creation mechanism or not, it
is certainly correct to say that banks control the world to a much larger extent than
most people know. But how much longer would this system work?
In the end of 2019, the REPO markets got in trouble.
13 Apparently, some banks
did not trust each other anymore, and they did not lend each other money as they used
to. The central banks had to jump in.
14 In 2020, they created insane amounts of new
money.
15 Market indicators reached levels comparable to those before the financial
crisis back in 2007/08.
16 The oil market, too, became unstable. Shortly, oil prices
even dropped below zero.
17 It became increasingly clear that the financial system
was about to fail again, and there was no possibility to save it this time, given the
accumulated levels of public debts. An entirely new system would be needed.
The Chinese Credit Score system could potentially have replaced this monetary
system. It would certainly be possible to run an economy on its basis. Say, there
were a hundred thousand cars produced. Who would get one? The principle could
be “just (virtually) raise your hand (on an Internet platform)”, and we will give cars
to those with the highest Credit Scores, until we run out of cars. In other words,
11 See https://en.wikipedia.org/wiki/Quantitative_easing.
12 European Central Bank takes its pandemic bond buying to 1.35 trillion euro to try to prop
up economy, CNBC (June 4, 2020) https://www.cnbc.com/2020/06/04/european-central-bankramps-up-its-pandemic-bond-buying-to-1point35-trillion-euros.html; Christine Lagarde says ECB
is ‘undeterred’ by German court challenge, Financial Times (May 7, 2020) https://www.ft.com/con
tent/d93008c5-2b3c-4b2e-9499-5eabaaa959db.
13 Why the US Repo Market Blew Up and How to Fix It, Bloomberg (January 6,
2020) https://www.bloomberg.com/news/articles/2020-01-06/why-the-u-s-repo-market-blew-upand-how-to-fix-it-quicktake.
14 The Fed seems to have halted a potential crisis in the overnight lending market – for now, CNBC
(December 30, 2019) https://www.ft.com/content/d93008c5-2b3c-4b2e-9499-5eabaaa959db.
15 The Crash of 2020, QE and the Federal Reserve’s Market, Forbes (April 20, 2020) https://www.for
bes.com/sites/investor/2020/04/20/the-crash-of-2020-qe-and-the-federal-reserves-market-corner/.
16 Market and Macro Data Signal COVID-10 Economic Crisis, Forbes (March 31, 2020) https://
www.forbes.com/sites/mayrarodriguezvalladares/2020/03/31/market-and-macro-data-signal-covid-19-economic-crisis-will-be-worse-than-in-2008/.
17 Over a barrel: how oil prices dropped below zero, The Guardian (April 20, 2020) https://www.
theguardian.com/business/2020/apr/20/over-a-barrel-how-oil-prices-dropped-below-zero.
271
The private “share-holders” of (central) banks are interested in a permanent
increase of the debt level, because this generates new money for them. But their
private interest is not aligned with public interest. If they want to get money, it is
important that the government needs money, i.e. the situation in the country must be
sufficiently bad. In fact, over the years the situation became so bad that it was claimed
“quantitative easing”
11 was needed to keep the economy afloat, thereby, channeling
trillions of public property (such as government bonds
12 ) into private hands. Some
would say, with raising debt levels, companies, countries, and indebted people were
increasingly “owned” by a small banking elite.
It is hard to imagine how much wealth and power could be accumulated in this
way over hundred years or more. However, no matter whether you believe in private
shareholders of central banks and in the above money creation mechanism or not, it
is certainly correct to say that banks control the world to a much larger extent than
most people know. But how much longer would this system work?
In the end of 2019, the REPO markets got in trouble.
13 Apparently, some banks
did not trust each other anymore, and they did not lend each other money as they used
to. The central banks had to jump in.
14 In 2020, they created insane amounts of new
money.
15 Market indicators reached levels comparable to those before the financial
crisis back in 2007/08.
16 The oil market, too, became unstable. Shortly, oil prices
even dropped below zero.
17 It became increasingly clear that the financial system
was about to fail again, and there was no possibility to save it this time, given the
accumulated levels of public debts. An entirely new system would be needed.
The Chinese Credit Score system could potentially have replaced this monetary
system. It would certainly be possible to run an economy on its basis. Say, there
were a hundred thousand cars produced. Who would get one? The principle could
be “just (virtually) raise your hand (on an Internet platform)”, and we will give cars
to those with the highest Credit Scores, until we run out of cars. In other words,
11 See https://en.wikipedia.org/wiki/Quantitative_easing.
12 European Central Bank takes its pandemic bond buying to 1.35 trillion euro to try to prop
up economy, CNBC (June 4, 2020) https://www.cnbc.com/2020/06/04/european-central-bankramps-up-its-pandemic-bond-buying-to-1point35-trillion-euros.html; Christine Lagarde says ECB
is ‘undeterred’ by German court challenge, Financial Times (May 7, 2020) https://www.ft.com/con
tent/d93008c5-2b3c-4b2e-9499-5eabaaa959db.
13 Why the US Repo Market Blew Up and How to Fix It, Bloomberg (January 6,
2020) https://www.bloomberg.com/news/articles/2020-01-06/why-the-u-s-repo-market-blew-upand-how-to-fix-it-quicktake.
14 The Fed seems to have halted a potential crisis in the overnight lending market – for now, CNBC
(December 30, 2019) https://www.ft.com/content/d93008c5-2b3c-4b2e-9499-5eabaaa959db.
15 The Crash of 2020, QE and the Federal Reserve’s Market, Forbes (April 20, 2020) https://www.for
bes.com/sites/investor/2020/04/20/the-crash-of-2020-qe-and-the-federal-reserves-market-corner/.
16 Market and Macro Data Signal COVID-10 Economic Crisis, Forbes (March 31, 2020) https://
www.forbes.com/sites/mayrarodriguezvalladares/2020/03/31/market-and-macro-data-signal-covid-19-economic-crisis-will-be-worse-than-in-2008/.
17 Over a barrel: how oil prices dropped below zero, The Guardian (April 20, 2020) https://www.
theguardian.com/business/2020/apr/20/over-a-barrel-how-oil-prices-dropped-below-zero.