Idaho's Weekly Journal of Local & National Commentary  Week 1614


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by Free Market Duck

More Voo-Doo Economics: “Good Bank, Bad Bank”
Mar 13, 2009

Washington, DC – Gather round, listen up, and pour yourselves another hot cup of Rocket Java, girl friends.  Barackie, Timmy, and Benny have another Central Banking Fairytale for you.  It’s called:  “Good Bank, Bad Bank.”

   First, it is absolutely incredible how -- once you embark upon false economic premises -- one can push the absurdities of one’s economic sophisms to their reductio ad absurda, aka: absolute stupidity.  Take, for example, the stupid economic premise that a government or central bank – I’m thinking Federal Reserve here, girl friends – can (1) remove the conceptual and physical backing of a hard commodity (e.g. gold) for paper currency, (2) redefine that same paper currency from being a receipt for said hard commodity (e.g. gold) to a non-receipt for anything of value (e.g. hot air comes to mind), and (3) convince the citizens of a nation that issuing and spending trillions and trillions of these paper, plastic, and virtual non-receipts for nothing, zip, zero, nada, can enrich a nation.

   The precursor stupid economic premise to the above, of course, is that the bankers claim it is OK for a government or private central bank – I’m thinking Federal Reserve again, girl friends – to conjure up and inflict upon citizens the popular banking fraud known as, “Fractional Reserve Banking.”  Hoo-hoo, fractional reserve banking, the Ponzi Scheme of the century, aka:  counterfeiting the people’s paper money.  Before we get to the ultimate – “Good Bank, Bad Bank” -- let’s see how this banking scam works:

  •      Citizens deposit their gold and silver coins into a bank or U.S. Treasury for storage.

  • The banker gives the depositor a gold or silver certificate, a receipt for the deposit.

  • The gold or silver certificate states the amount of gold or silver deposited (i.e. $1, $5, $20, $100, $1,000, etc. defined as X-troy oz at .995 fine) and that the gold or silver is redeemable from the bank to any bearer of the certificate on demand.

  • The gold and silver deposited, as coins or bars, are real commodity money.

  • The gold and silver certificates represent receipts for the real money.  Let me repeat that:  the certificates are legal contracts of obligation; they are receipts for real commodity money, the gold, but the certificates are not real commodity money themselves.  Just like the pink slip to your ’57 Chevy is not the car itself; it is a receipt for the car.  It shows ownership, expressing private property rights based upon individual freedom and objective law.  Gold and silver certificates are not real money; they are receipts for real money.  (I’m hammering this into your noggins because this is a very important concept to understand:  a paper receipt is not the same as the commodity for which it is a receipt.)

  • If the gold and silver certificates in our example are used by the people as a medium of economic exchange – and they will because paper is lighter and more convenient to exchange than heavy gold or silver -- then the certificates circulate and act as paper money.  But remember, paper money is nothing but a receipt for the real commodity money, e.g. the gold.  Remove the gold and you have a receipt for nothing.

   And now, along comes Jones, er-er-screeching tires.  Here is where we come to the scene of the crime, where the bankers get too clever for their own britches and trick the crap out of everybody:

  •       If the bankers storing your gold or silver decide to print up and issue more paper certificates than the amount of gold or silver stored in their bank, they have committed fraud.  This type of fraud is called “Fractional Reserve Banking,” and is actually a form of counterfeiting.  The Federal Reserve has been practicing “Fractional Reserve Banking,” or counterfeiting, for many years.  The rationale by the bankers is that they can issue more paper certificates than the amount of gold or silver stored – a 10% fractional reserve system would mean 9 times as much paper receipts are issued than each 1 unit of stored gold – because, the bankers claim, not everybody will run to the bank to redeem their gold certificates all at once.  Therefore, reason the crafty bankers, they can loan out lots more paper money (and credit) and earn lots more interest.  What’s wrong with this picture?  The point is not whether the bankers can get away with it (for awhile) because not everybody will run to the bank to cash in their gold and silver certificates all at once but rather the point is that the bankers are COUNTERFEITING their storage receipts in order to make more profits.  Counterfeiting the people’s paper money is worse than fraud.  It is robbery since it cleverly steals, through inflation, the value of the depositors’ savings and wealth (i.e. the value of their gold and silver).  The bankers’ ridiculous argument for “Fractional Reserve Banking” is a lot like saying one can counterfeit the pink slip to one’s car or the title to one’s house by a million-fold, sell the extra pink slips or extra home titles into the market, and that’s OK because not everybody holding a fake pink slip is going to dash over to claim and drive the ’57 Chevy all at once.  But it’s not OK.  It’s still counterfeiting, it’s a big lie, it’s fraud, it’s inflation, it’s debasement of our paper money, and the bankers have simply made up – and citizens have bought off on it – a stupid but crafty economic excuse for transferring everybody’s wealth into the hands of the bankers through the Ponzi Scheme of “Fractional Reserve Banking.”

   But the Voo-Doo Economics gets worse, girl friends.

   Not only have the U.S. Government and private Federal Reserve central bankers robbed you through “Fractional Reserve Banking,” they have removed ALL pretense of storing your gold or silver, or issuing paper receipts for the storage of your gold and silver, by erasing the legal words – “Payable to the Bearer on Demand,” the obligation of contractual backing or redeemability – of your paper receipts for the gold or silver.  In short, the U.S. Government and private Federal Reserve have stolen your stored wealth, your gold and silver, and issued counterfeit monetary tokens to you instead by making your gold and silver certificates non-redeemable.  Now, the bankers get to keep your real commodity money, i.e. the gold.

   In addition, the U.S. Government and private Federal Reserve central bankers have patted you on the back for accepting your position as victim of their Great Counterfeit Monetary Ponzi Scheme and all the major universities present this economic stupidity as the latest and greatest in sound monetary practices.  In fact, the Government, Fed Reserve, and 90% of the world’s economists now claim you must spend, spend, spend your counterfeit monetary tokens as fast as possible in order to enrich yourself, create jobs, and stimulate the domestic and international markets.  What a cruel joke.  They rob you and then force you to keep on robbing yourself and others.

   Let’s think about what has transpired in the new Voo-Doo Economics from a conceptual point of view:

   New Economics 101A:  The bankers stole your gold, gave you paper, and told you that you will become wealthy by spending trillions of pieces of little green paper printed up out of thin air.  And you bought off on it.  Wow.  Are we dolts, or what?

   Now that everybody in the nation accepts the above stupidity as economic fact, it is not surprising that this same concept of counterfeiting – “Fractional Reserve Banking” – has spilled over into the stock market, the insurance market, the housing market, the automobile market, the credit card market, the school loan market, and all other markets.  And thus, in the same manner that the U.S. Dollar was counterfeited by “Fractional Reserve Banking,” all markets that are counterfeiting their particular commercial paper – i.e. issuing non-backed, non-receipts for nothing of real value – have created a huge indebtedness of all types of toxic derivatives from subprime mortgages to credit default swaps.  What do all of these different types of paper instruments have in common?  No value.  By switching from gold and other hard commodities to paper, the central bankers have stolen the value from your wealth in every sector of the economy.  How clever.

  And now here is the crème de la crème of today’s Voo-Doo Economic stupidity:  the absolutely ridiculous concept that the government and private Federal Reserve bankers can create a “Good Bank, Bad Bank” – you know, like the good cop, bad cop scenario in the movies – and somehow siphon off whatever the counterfeiting bankers consider “bad” counterfeited paper (counterfeited in the sense that the investment bankers or Fannie & Freddie, for example, printed the worthless toxic derivatives up out of nowhere with no real collateral or no real capital or capital goods and no real market value), shove them onto the books of the “Bad Bank,” and leave what the bankers consider “good” counterfeited paper in one of their existing “Good Banks.”  Guess what?  The “Bad Bank” belongs to you, the taxpayer.

   Ain’t that clever?

   First you debase the people’s real commodity money, i.e. gold, bad-mouth gold as “barbaric,” then you replace it with non-backed paper using “Fractional Reserve Banking,” then you hyper-inflate the crap out of the Pulp Fiction U.S. Dollar (our current counterfeited monetary tokens), then you spill this idiocy over into the stock market and housing market, and then when the inevitable Depression occurs, you create a “Good Bank, Bad Bank” stupidity to try and hide all the precursor robbery that’s been going on by the Government and the central bankers for the last fifty years.  Yahoo, girl friends!

   Will a “Good Bank, Bad Bank” work?

   Yes and no.  Yes for the bankers in charge and no for you.  The goal of the central bankers is not to clean up the economy.  The goal is to destroy the rest of the economy and then take total control.

   Think about the current financial mess that’s been created.  How in hell can anybody separate out the so-called “good” commercial paper from the “bad” commercial paper when the basis for our measurement, our medium of economic exchange, the Pulp Fiction U.S. Dollar, is a hyper-inflated, counterfeit monetary token itself?  How can anybody separate out the individual values of the computer-generated, sliced and diced toxic derivatives or trace them to the value of any hard commodities – houses, cars, or anything else -- that may or may not exist as real collateral?  Better yet, what is their current market value and who gets to determine that value?

   Once again, the real financial problem today is not lack of enough counterfeit monetary tokens.  The real problem is lack of value in the U.S. Dollar or the toxic derivatives created by the bankers.  Remember back at the beginning of our discussion of “Fractional Reserve Banking?”  Value was stolen from you by the crafty bankers.  Are you surprised?

   Not only is it impossible to create a “Good Bank, Bad Bank” solution, the entire concept is ridiculous because it doesn’t even attempt to solve the basic, root problem, which is:  the lack of a sound monetary system.  Nor does it attempt to address the criminal action of a “Fractional Reserve” robbery by the Government and central bankers.  The “Good Bank, Bad Bank” idea simply attempts to legitimize the previous robbery and extend the crime into a bigger crime by pretending to hide it or by denying it exists.  It’s like kids playing Monopoly with fake money and making up the rules as they go along.  Note that the winners are:  ta-da, the banks, as they create more fake Funny Money and charge interest by loaning it out.  And the losers are:  dum-da-dum-dum, you the taxpayers uponst whom are dumped the liabilities and indebtedness of the “Bad Bank.”  “Lucky you,” say the bankers.  “We just saved you from a systemic risk.”

   Oh, thank you, thank you, Team Obama, U.S. Treasury, and Federal Reserve central bankers for saving us from YOUR systemic risk.

   But, you can’t cheat Mother Nature or the Universal Laws of Cause and Effect.

   As soon as the U.S. and the entire world pretended that paper per se could replace gold, that counterfeiting extra receipts for stored gold is OK – i.e. “Fractional Reserve Banking,” and that the path to wealth is by continually hyper-inflating and spending counterfeit monetary tokens, the only obvious outcome had to be today’s financial catastrophe:  our current Depression.  It is absolutely absurd to think that we can spend our way out of a Depression with more Pulp Fiction Dollars, especially since it was the Government and the Federal Reserve doing exactly that that got us into this mess in the first place.  If you are dying from arsenic poisoning, you don’t gulp down more and more arsenic.  (Amazingly, Fed Chief Ben Bernanke is busy claiming that the reason we are dying from arsenic poisoning is because we haven’t gobbled down enough arsenic.  In the New Speak of Keynesian socialist economics, “inflation” is defined as “good.”  Go figure.)

   In short, a “Good Bank, Bad Bank” scheme by the Government and private central bankers is just another bad economic idea piled on top of precursor bad economic ideas, all of which can be summarized as stupid Voo-Doo Socialist Economics.  Barack Obama's role in all this Keynesian socialist crap?  Obama is just "a useful idiot," chosen because he's as malleable as Nutty-Putty on a stick.  Like FDR and George Bush, Obama understands zip about what the central bankers are really up to.

   At the philosophical level, our current financial mess and international Depression is not about “Fractional Reserve Banking” or “Good Bank, Bad Banks.”  The real battle that’s going on is the war between individual rights vs. state collectivism.  Our politicians and central bankers are well on their way to establishing a socialist dictatorship in America, all with the sanction of their victims:  you.

   What can you do to stop it?  While Team Obama and his state collectivists are screaming for more self-sacrificing of the individual upon the altar of the Omnipotent State, you should be demanding – not asking, DEMANDING -- for a return to The Gold Standard, which represents the ultimate in private property rights.  It’s your only hope for freedom.  Do it now, before it’s too late. – FM Duck

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