We live in a deeply corrupt society.
Actually, let me rephrase that: We live in a society run by deeply corrupt people. Most ordinary Americans are honest, hardworking and keenly aware of the difference between fair play and crony capitalism.
Not so for the masters of the universe in charge of the U.S. financial system. Not only have they created a financial structure that guarantees financial crises from which you and I must bail them out — they have basically purchased Washington, D.C. to insure their system continues.
This isn’t a new phenomenon, however. In fact, the roots of Wall Street’s “money power” go back over 100 years. But now the financial powers-that-be have overplayed their hand, ushering in a dollar collapse … and put your wealth at risk.
A Century of Wrong
The Federal Reserve Act of 1913 (FRA) established “the Fed” and required all federally chartered banks to become part of a new system of central banking. Under this system, commercial banks “create” money by issuing loans. But unlike the pre-FRA world, the money thus created — the Federal Reserve Note, aka the dollar — was to be an obligation of the U.S. Treasury. In other words, we are all ultimately on the hook for commercial banks’ business decisions, as we learned in 2008.
Besides acting as the “lender of last resort” to U.S. banks, the Federal Reserve provides them with many services at low or no cost — services for which you and I pay an arm and a leg. They include wiring funds and securities, transporting currency and coin, redeeming and servicing savings bonds, issuing Treasury securities, vault inventories, settling stock trades and check clearing.
Now, under the FRA, banks are required to purchase non-transferable stock in their regional Federal Reserve banks equal to 6% of their assets. That stock doesn’t gain value and cannot be traded or sold. Sounds like a drag — that’s money that could be earning profits for the banks, right? Maybe that mandatory stock is what pays for all those Fed freebies?
Never fear, they thought of that: The Fed pays out a 6% guaranteed dividend payment on the banks’ stock, and it’s tax-free. You heard that right: While you and I are earning next to nothing on our bank savings, the banks themselves are earning a guaranteed 6% annual tax-free return on their own deposits with the Federal Reserve.
We Pay, They Profit
What’s that got to do with me, you may ask? A lot. Any profit earned by the 12 Federal Reserve Banks is turned over to the U.S. Treasury and can be used to retire government debt. The banks’ guaranteed 6% comes out of Fed profit, reducing the amount available to the federal government by billions every year — and thus keeping us taxpayers on the hook for federal deficits.
That tax subsidy is in addition to the profits banks make by borrowing dollars from the Fed at 0.13% and lending them out to us at vastly higher rates. Consider what we’re paying for credit: 4% interest for student loans; 4% to 5% for a new car and 3% to 5% for a mortgage. Consumers pay up to 22% interest on credit-card debt.
Of course, because they can get money for nothing from the Fed, U.S. banks pay diddly for consumer savings. A few years ago, a $500,000 retirement account paid around $25,000 annually. But now it’s around $5,000. Who can live on that?
Banks: The Ultimate Threat to Your Wealth
Like my colleague James Dale Davidson, I have an “old-fashioned” view of economic life. Central to that worldview is the recognition that money is not wealth. Whether it’s in a bank or under your mattress, money is just a claim on wealth, one that may or may not be honored in future (certainly not in the event of a dollar collapse). There’s no guarantee, despite what it says on the U.S. dollar.
Real wealth is something people can use: food, land and tools of all kinds. Try eating money: You won’t do it twice. The next best thing is something, like gold, that people regard as a store of value regardless of what governments say — something that you can readily exchange for true wealth anywhere, at any time.
By behaving as if money was actual wealth, the U.S. banking system is destroying money as a claim on wealth. The more money that system generates, the less valuable it will be. When the dollar collapse occurs, all the 6% dividends in the world won’t buy bankers anything to eat.
At the Total Wealth Symposium this October in The Bahamas, my colleagues and I are going to be talking a lot about what you can do to ensure that you don’t end up like a banker, with nothing to eat but a pile of worthless paper.
After all, there’s no better time than the present.
Offshore and Asset Protection Editor