Financialization and the Road to Zero

fi·nan·cial·i·za·tion

/fəˌnanCHələˈzāSHən, fīˌnanCHələˈzāSHən/

noun

1. The process by which financial institutions, markets et cetera increase in size and influence.

This definition is about as complex as one finds in the popular financial media, nestled in a hyperlink somewhere between a continuous onslaught of graphs, numbers, and opinions shouted from frenetic podcasts.  One enters financialization’s surface world as if it is the natural and evolved state of things, and leaves believing every increase in that buzz and energy must be good, progressive, and lead to some kind of a collective better tomorrow.  There is this perpetual urge and ever present push to “do something”.  Everyone’s piling in - get in now or you’ll miss the boat.  Thirty year mortgage refi rates are at historic lows.  It has never been a better time to buy a house.  Zero commission brokerage accounts click here (fees and restrictions apply).  Buy, sell, or hold?  What are you waiting for?  Another all-time high!  Synergies, paradigm shifts, raising the bar, the deal of a lifetime, low hanging fruit, win-win.  Get off the fence, get your ducks in a row, step up to the plate, and think outside the box and push the envelope because failure is not an option.  The business of America - is business.

Somewhat “deeper” discussions about financialization exist within the Fourth Estate front page editorials filled with explanations of its effects and non-explanations of its causes penned by an assortment of well-compensated Nobel Laureates, PhDs, think tank advisors, and Wall Street promoters.  After reading such well-crafted pieces one barely senses the authors’ constrained yet directed criticisms of financialization nudging one’s doubts towards acceptance of “reforms” and away from underlying systemic issues.  Adjustments and a minor compromise are always the solutions.  A tweak here, a Congressional rider there, a new regulation or two should patch things up.  Who could possibly argue against such esteemed credentials? 

And then there are the “learned” journal tomes full of lofty enumerations of financialization’s effects, theories as to its complex workings complete with equations full of Greek letters and predicate logic, and so many competing ideas that the sum total of all this erudite thinking is a zero sum non-consensus that for all the tens of thousands of pages does not definitively identify causa principalis.  Here are some random examples -

“Financialization refers to the increasing importance of finance, financial markets, and financial institutions to the workings of the economy.”

"A pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production."

"The fusion of the interests of domestic and foreign financial capital in the state apparatus as the institutionalized priorities and overarching social logic guiding the actions of state managers and government elites, often to the detriment of labor."

The above three sentences penned by distinguished scholars took a combined twenty-four years of college to construct, so it is little wonder why it is so difficult for the uninitiated layman to compile the true workings and objectives of financialization.  The more one reads, the closer one comes to this educated zero sum non-consensus and no closer to unlocking the secrets of not only why does financialization exist, but also why has a mass edifice of confusion been purpose built to hide these secrets?

Profits and risk mitigation are standard replies to that existential why, spoken with all the confidence bestowed by Fourth Estate economists.  Mockery and conspiracy theory accusations follow every mention of the purpose built mass edifice of confusion surrounding financialization.  But these are the ground level foot soldier answers that push one squarely back into financialization’s surface world, just more of that buzz and energy that is the perceived natural and evolved state of things.  Profit motive – case closed.  But profit and risk mitigation were achieved with the old industrial production and export model, so why has financialization today risen to supremacy?  Higher profits and greater risk mitigation – just more begging the question, ad infinitum.  But could there be hidden mechanisms at work facilitating this rise of financialization and, is there a larger opaque objective to it?

At a ground level perspective one generally sees the accumulation of money as power.  But when one looks at “wealth” from a higher level perspective, it is actually vouchsafed, gathered up in that “free market” scrum called “competition” from the invisible hands of those with the ability to conjure money out of thin air and throw it into the general arena.  And the working mechanisms within “wealth” accumulation also hold the mechanisms of “wealth” destruction and confiscation, so “wealth” cannot be power in of its self, as it can be both granted and denied, and therefore is only a tenuous grant of privilege.  And granted by whom, by what higher authority?  What class of people are above the power of money, control the mechanisms of “wealth” accumulation and destruction and confiscation, and are able to both vouchsafe and expropriate this privilege that money provides?  Is there a higher order level design at work within financialization, and if so, what are its means and end goals?

This essay examines and defines what financialization is, identifies what has enabled it to rise above all other economic activity in stature, and binds together financialization with the role it plays in this higher order design for the nation.  The preceding essay The Evolution of Fiat Money, Endless War, and the End of Citizenship provides much of the underlying philosophical premises upon which this present work is constructed.  It is necessary background towards a comprehensive understand of how financialization is ultimately regressive, dehumanizing, and will not lead to a better collective tomorrow – rather, it will serve as an evolutionary societal dead end for the bulk of humanity.

The Evolution of Commerce

For untold millennia the human economic condition remained that of the hunter-gatherer where simple goods of utility were produced and consumed by their users.  Sharing produced goods among tribal members or stealing them from other tribes were probably about as complex as commerce got during this long stretch of pre-history.  Then roughly 40,000 years ago cave paintings and sculpted objet d’art began to appear in the archeological record indicating some amount of leisure was afforded our ancient ancestors.  This advent of leisure appears to have led to the development of other time consuming and non-essential activities like ritualistic burial practices and simple jewelry craft.  Soon afterward the first instances of proto-industrial labor specialization appears where flint, chert, and obsidian were quarried to mass produce a surplus of sophisticated arrowheads, stone axes, spear tips, and implements used to skin and dismember hunting kills.  It is this first indication of surplus that suggests some form of trade existed between our Mesolithic brethren and is supported by the wide distribution of these manufactured tools far beyond their quarry and production sites.   From analogy to Mesolithic peoples encountered during European colonialization of the Americas, our ancestors did not use money and therefore, surplus was not produced to obtain profit, but instead was an ancient form of “foreign policy” that brought the various scattered tribes together and served as a means of maintaining cordial relations.  Thus in the Mesolithic world, our ancestors did not prosecute trade wars, but likely practiced a kind of trade peace.

Our Neolithic ancestors developed additional survival skills like animal husbandry and proto-farming so they tended to spend more time in one place and their settlements began to take on a permanent nature.  They depended less on hunting and gathering and more on tending animals and crops for their existence.  Surplus food was stored as reserve for times of scarcity and individual private ownership is not well defined in the archeological record.  Proto-industry now matured into industry where labor specialization expanded with the rise of cities requiring large amounts of standardized building materials, pottery stockpiles, and large scale meat, cooking oil, and grain processing capabilities.  Within these cities we begin to see the development of a managerial class – the priests and their administrators – who control the cities’ collective food surplus but do not own it.  Using this control over food surplus the theocratic-managerial class were able to entice workers away from their own food producing activities to instead undertake civil works projects like digging and maintaining irrigation canals, excavating cisterns, constructing perimeter fortifications, erecting public buildings, the provision of sanitation, and maintenance of a bureaucracy to provide project services like design, procurement, and execution.  Again by analogy with Neolithic peoples encountered during colonialization, all of this occurred in a world without money and would not have been possible without the rise of barter trade and most importantly – the advent of labor barter. 

The civilized Neolithic world had a quasi-collective property ownership structure evidenced by large repositories of unearthed clay pots used to store grain, cooking oil, and wine with no identifying ownership markings, a prevalence of communal buildings in the city layout - possibly mess halls, interconnected housing units et cetera.  Barter was the sole form of commerce, and is defined here as the mutually agreed exchange of goods and / or services between individuals without the aid of an intermediate exchange means (i.e., money).  Thus barter suggests some nascent concept of private ownership, and labor barter implies a notion of independence from the collective where one “owns” his labor to offer in exchange for rations from the collective stores.  With the growth of cities and the collection of groups of cities into civilizations, labor barter became the primary economic transaction in the civilized Neolithic world where money and private ownership of large surplus does not appear to exist.  Thus labor barter is one of humanity’s oldest and most fundamental social interactions and is a critical component to what it means for an individual to belong to a complex society - a necessary part of being human among one’s fellow men.

Labor barter allowed individuals to temporarily walk away from their personal food producing activities to provide collective labor for civil projects, yet still procure food from the city surplus for them and their families and was the necessary prerequisite for the development of both cities and industry.  E.g., it was common practice in ancient Egypt for Nile Valley farmers to move to the mountain quarries during the flood season and work there until the waters subsided, where they would then return home to survey their fields and plant, sow, and harvest that year’s single crop.  A societal equilibrium was established where the laborer received food for his labor and the theocratic-managerial class got the manual labor they needed for their public works projects, and more elaborate benefactor schemes were provided to full time skilled laborers and the administrative bureaucracy.  This equilibrium worked successfully for several millennia as archeology suggests there was no need for slavery in the civilized Neolithic world, nor was there the need to force people into a labor corvée to accomplish these ancient civil works projects.

As cities grew and our Neolithic ancestors entered the Bronze Age, it did not take long for larger families to become predominate under the barter trade system as they could pool their superior collective resources to accomplish more ambitious endeavors.  Over time these large families accumulated a surplus to themselves and used it to purchase the labor of others in pursuit of accumulating further surplus to themselves with which they then exchanged for land, animals, implements, and materials to build larger homes.  This development is evident in the archeological record in Bronze Age cities where for the first time there are clearly demarcated housing units and the clay pots in grain repositories bear ownership markings.  With the advent of bronze in faraway mountain lands these families assembled some of their surplus into caravans for export and trade with early metallurgists, salt workers, and native metal and gem miners.  Laden with goods for their return journey, these early traders picked up other exotic goods from cities along the route home.  Once home, these traders then exchanged the metals, salt, and exotic goods with other families possessing surplus and generated a “profit” in these exchanges  – e.g., 50 jars of commonly available wine could be traded for scarce brass ingots that were brought back home and traded again for 200 jars of wine.  Thus begins the dawn of private property and private enterprise embodied in this surplus of goods accumulated through one’s own endeavors - the mercantile period of human history.  Mercantilism is defined here as the exchange of goods for the purpose of generating a profit where the merchants and creditors of goods assume full liability and risk in the event of loss, theft, spoilage et cetera.  There is no mechanism within mercantilism to lessen or adsorb these potential risks and real losses. 

Trade between cities and civilizations flourished through the Bronze Age into the Iron Age with labor barter, goods and service barter, and mercantile commerce all practiced simultaneously and settling into a similarly ordered societal hierarchy with the theocratic-managerial class now replaced at the highest level with kings and their royal lieutenants.  These kings assumed ownership over the collective surplus that was used more and more to provision standing armies and provide for a coterie of advisors and enforcers.  And for the first time, we observe not only a surplus in food stuffs but a surplus in gold and silver accumulated by the sovereign obtained through war, tribute, and the collection of taxes.  Thus it appears that this change in ownership of the communal surplus is the seminal factor in the formation of standing armies and prosecution of wars of conquest.  And with the advent of standing armies and taxes, we also observe the first instances of slavery and people forced into a labor corvée.

With rising Iron Age trade, networks of extensive, well maintained, and secured overland trade routes were constructed complete with toll and excise stations, and port cities proliferated for the transport of goods by sea.  It is safe to assume that with the expansion of trade facilities, the profits from mercantile endeavors were expanding as well and so too was the tax take from these activities as cities grew larger and better fortified and offered increased public amenities.  So the rhythm of civilized Iron Age humanity was established by the activities of trade, supported by the actions of agricultural, pastoral, and industrial producers with piracy, highway robbery, and war always lurking to disrupt this rhythm.  And thus the mercantile story remains consistent for approximately 4,500 years from the kings of Akkad to the French Revolution where the mercantile model operated and spread to nearly every corner of Eurasia and North Africa.  Despite the many advents and inventions to facilitate mercantile trade – usury, credit vehicles, precious metal coins and their use as a store of value in of its self, coin debasement and inflation, et cetera – this commercial model in its essential form as defined earlier continued unabated despite a kaleidoscope of empires, peoples, and technologies rolling through it.  That was, until the late 17^th century arrived to the City of London Corporation and a small group of bankers and promoters would change the world forever.

At the onset of the end of mercantilism all modes of commerce described up to this point were practiced at some place in the world.  The hunter-gatherers remained active with the Bushmen of southern Africa, the arctic Eskimo, and the Australian Aborigine.  Mesolithic cultures were predominant in what was to become the United States and Canada, and civilized Neolithic peoples were predominant in Mesoamerica and the northern Andes mountains of South America, although they had declined significantly from their technological and cultural zeniths.  Thus a great swath of the world lay open to musket, canon, and credit based ventures seeking unlimited stocks of exotic goods and undiscovered gold and silver reserves for the taking.  But that taking was expensive, dangerous, and represented a significant risk and not unlikely loss of large quantities of gold and silver to both entrepreneur and creditor.  To get at these exotic goods and untouched mineral resources, one had to first invade and subjugate these regions, and due to the extreme investment risk inherent in colonization, a new commercial model was needed to make these endeavors profitable – to generate a “positive expected value”.  And that new commercial model was capitalism.

The imperative for the development a new commercial model was presented with the “conquest funded by physical money” rapid rise and failures of the Spanish and Portuguese states.  Although the 16^th century Spanish conquest of the Americas brought the crown tremendous amounts of silver and gold, the costs to support their navy flotillas to protect and transport these riches were great, and losses through piracy and storms at sea occurred regularly.  These losses could have been adsorbed and profits maintained had colonial extraction been the only pursuit of the Spanish kings.  However, these riches soon drew the envy of rivals and grew the European continental aspirations of the Spanish kings themselves.  So when the high operating costs of colonial wealth extraction were combined with the very high costs of prosecuting wealth depleting wars closer to home - wars paid for in physical silver and gold - the mercantile commercial model began to show its flaws when applied to modern super-states as the Spanish treasury depleted with every battle.  This mature mercantile commercial model could not simultaneously secure extensive colonial trade networks and simultaneously prosecute large scale wars of attrition, and it inevitably led to state bankruptcy and military defeat.  The sovereign existing in the mercantile commercial world therefore had to choose between either trade or war, but ego generally led to the sovereign choosing both and therefore secured the downfall of many prosperous mercantile states.  And, as Spain was a Catholic country, foreign creditors were rare that would lend money to a nation that had banned usury and had not long before expelled its nascent bankers en masse.  The Portuguese experience was even more convoluted as their empire delivered little in the way of silver and gold and all commodities extracted like spices and textiles had to first be sold and converted into physical gold and silver to cover the costs to secure its colonial holdings and fund its wars on the European continent.  So if there were no buyers, there was no secure colonial empire and no European wars other than defensive, which did not last long as national gold and silver reserves depleted.  In the end, when the silver ran low, defeats at home and abroad mounted and the bankrupt states fell to those countries that could afford to continue to pay for these wars of attrition.  Some other funding solution was needed if a nation was to conquer the world, keep hold of it while extracting every conceivable thing of value from it, while at all times prosecuting wars of attrition on the European home front.

Capitalism is specifically defined here as a commercial model whereby investment risk is not wholly borne by entrepreneurs and their creditors, but instead spread over the entirety of society through the deployment of fiat money connected to a fractional reserve banking system.  Fiat money acts as the mere representation of some physical underlying store of value held in trust by the controllers of this fractional reserve banking system.  Under capitalism, investment losses transacted in fiat money do not jeopardize the physical holdings of real value – stockpiles of gold and silver - but only depreciate the perceived exchange “value” of that fiat money relative to some unit price, again in fiat money, of the underlying gold and silver reserve assuming a transparent and impartial banking system.  Thus as credit based business ventures in the aggregate progress into “profits” or “losses”, in the transparent and impartial banking system, fiat money will either appreciate or depreciate in purchasing power relative to the underlying unit reserve of real value held in gold and silver.  For those who control this fiat money, capitalism is a risk free proposition as the real value - gold and silver held in “trust” - never leaves their possession as fiat money losses accumulate.  It is instead the populace and especially the peripheral fiat empire satellites that bear the full effects of inflation and inevitably “pay” for aggregate commercial losses through their erosion of purchasing power.  Unlike mercantilism, losses are pushed onto both participants and non-participants in commerce which makes capitalism the ultimate “heads we win, tails they lose” banking hedge.  This hedge against any real value loss is the core mechanism of modern “free enterprise” as it is indeed enterprise free of risk and loss at the highest level of its system – the central bank cross-ownership nexus.  So unlike mercantilism where creditors lose physical gold and silver, under capitalism entrepreneurs lose chits of paper and credibility, and the central banks lose only chits of paper and continue to hold their gold and silver reserves regardless of all aggregate gains or losses transacted in fiat money. 

Three mechanisms were required to enable this new capitalism to operate effectively - an opaque central bank, an empire forced to import value added goods from and export raw commodities to the home country, and a fiat currency used throughout the empire to pay for all these goods exchanges that tolerates no rival.  The central bank exercises full macroscopic control regarding who it will issue credit to or withhold credit from, is the sole agency that sets interest rates to its primary dealers who then devolve this fiat money down to all hopeful debtors, and provides the only store and account for gold and silver held in “trust” that theoretically gives fiat money its “value”.  Private ownership of the central bank is required to ensure the home country government does not interfere in monetary policy and risk the central bank’s power and profitability.  And besides discretely making its owners the most powerful unseen men in their home country, private ownership provides the opacity required to shield the true amounts of gold and silver held in “trust”, allows the initiation of economic “crises” as political weapons with reduced interference from the home government, and enables the covert manipulation of foreign exchange rates and commodity prices.  The empire was needed to cycle the fiat money out of and back into the home country via a “virtuous cycle” that provided underwriting to the aggregate credit-based export ventures domiciled in the home country.  The home country’s value added export economy was necessary for the return of the fiat money as this “virtuous cycle” underpins “growth” within the home country, increases the “value” of all goods and services including labor simultaneously through inflation, and acts as a dampener on inflationary pressures for imported raw materials at home.  And the fiat currency itself required only a printing press and a formidable standing army to assure its supremacy.

A special note on communism.  Both communism and capitalism are unnatural commercial models invented by monetary and political scientists and forced upon the world through conquest, revolution, legislation, incrementalism, and subterfuge.  Capitalism is no more a natural and evolutionary progression from mercantilism as is communism a natural and evolutionary progression from capitalism.  As capitalism is not a natural commercial evolution, it follows that neither is communism.  When one compares the nature of both commercial models using the definition of capitalism provided earlier, one finds that in both systems investment risk is not wholly borne by entrepreneurs or state entities and their creditors, but instead spread over the entirety of society through the deployment of fiat money connected to a fractional reserve banking system.  The aggregate accumulating gains or losses in fiat money from commercial activity in both systems never puts the underlying reserves of gold held by either capitalist or communist central banks at risk.  Furthermore, both systems employ opaque central banks to set monetary policy and both systems have fiat empires attached to their home countries.  Additionally, as both systems issue loans at interest, the accumulating amount of loans grows much faster than the underlying value of reserves held in “trust”, and this widening disparity depreciates the “value” of each systems fiat money equally.  This depreciation generates the inflation required in each system to simulate economic “growth” and the illusion of “prosperity”.  All aggregate losses from individual or state commercial activities are socialized to both participants and non-participants of commercial activity through this process of inflation.  Both systems tax their subjects, both systems rely heavily on war for economic “stimulus”, and both systems will tolerate no rival to their fiat empires.  Both see the other as the enemy, both strive for the destruction of the other, and both claim the moral and righteous prerogative.  Despite nearly 100 years of animosity, wars both hot and cold, and entire military infrastructures designed at the ready to destroy the other, there is at their fundamental cores no operating difference between communism and capitalism, and for all practical purposes they are identical systems.  Thus communism and capitalism are, in fact, the equivalence of choice between baked and boiled potatoes in political economy.

Thus with the advent of the capitalist commercial model of debt-based fiat money enterprise, the world stage was set for the consolidation of the colonial empires into an integrated nexus, the industrial revolution was set to proceed, and the prosecution of endless wars that no longer depleted national treasuries could be undertaken in earnest all thanks to the magic formula of unlimited fiat money.

From Capitalism to Financialization – Part I

But 4,500 years of mercantilism were not going down without a fight.  Fractional reserve banking had been steadily growing since the 14^th century but was exclusively a private business affair unrelated to the state.  These early fractional reserve “banks” began as safe stores for gold and silver but it did not take long for their unscrupulous owners to start speculating with their customers’ deposits, thus the nascent fractional reserve nature of these deposits where redemption coupons in circulation outnumbered physical gold and silver held in “trust”.  After many rounds of speculative losses with other people’s gold and silver, “banks” crashed, losses accumulated, and the Renaissance city states ultimately stepped in to ban this fractional reserve practice and re-enforce the Catholic prohibitions against usury.  As a result, the early 16^th century mercantile “banking” industry evolved into a transparent and audited business based upon fees received for the facilitation of foreign coin exchange, notary services, and the provision of letters of account credibility.  With usury removed, the business of transparent and audited mercantile banking spread from Northern Italy throughout Western Europe and control of the banking industry transferred to Catholic and later, Protestant businessmen.  So from 1585 to 1650 the golden age of transparent and audited mercantile banking laid the groundwork for the rise and exploitation of the Dutch and English colonial empires, and the success of mercantile banking also sowed the seeds for its eventual corruption by unscrupulous players in usury friendly Protestant England.

With the resurrection of the European super-state after centuries of dormancy, the various crowns found it increasingly difficult to secure funding to fight their continental wars of ego, secure their growing colonial empires, and fund their increasing opulence at home, so sovereigns began to form nascent “central banks” within their court administrations.  These nascent “central banks” served the crown and the crown alone and existed as polite shake-down operations as wealthy subjects placed themselves in peril if they refused to lend their gold and silver despite high probability the sovereign would default as was his divine right.  So after depleting the royal treasury during the Second Anglo-Dutch War, the English crown initiated a shakedown of the goldsmith bankers when Parliament passed The Great Stop of the Exchequer in 1672 which repudiated all outstanding loans and all but destroyed the English mercantile banking system.  What gold and silver was left to the Exchequer immediately went to use in prosecuting both the Third Anglo-Dutch War and the Franco-Dutch War, which by 1678 left the Exchequer in such dire financial circumstances that it put national security at serious risk.  A funding void followed where loans to the crown in gold and silver were nearly impossible to secure, so a first attempt at pure fiat money promoted as “legal tender” followed without success.  Then in 1685 Charles II died and the Catholic James II ascended the throne putting usury and national finances at risk of eliminating any recourse at replenishing the depleted Exchequer.  So under cover of religion, the Catholic king’s authority was nullified, his Protestant daughter ascended the throne, usury was preserved, and Parliament with its powers to raise funds acquired legal supremacy over the crown.  

With a weakened monarchy, new relative strength in Parliament, and a depleted Exchequer, Parliament pulled itself together and got to work and, once lingering legal succession issues surrounding James II were resolved, it passed the Bank of England Act of 1694.  The overt exigencies in this act were related to funding the new war with France and controlling rebellion in Ireland.  But the act also replaced the old rarely used pure fiat money of Charles II with bills redeemable in gold which also paid interest to their holders.  Thus usury was legally preserved by an act of Parliament which a weakened future potentially Catholic monarch could not overturn.  These bills backed with gold gained in popularity and filled the Exchequer’s immediate funding gap and allowed England to continue prosecuting its wars against the Dutch.  For a brief eleven years, from 1696-1707, England had returned to sound mercantile banking practice and acceptance of these interest bearing bills spread, filling the Exchequer with physical gold and silver.

But then enter one Sir William Paterson.  This same Sir William - chief organizer of the ill-fated Darien Scheme where investors lost everything and 1,200 Panamanian colonists perished - in 1694 was the primary promoter behind the joint stock incorporation and charter of the privately owned Bank of England.  A major conflict of interest – not recognized by divine right - arose here whereby King William III was himself a major shareholder in this newly chartered bank.  But this bank was merely one of many banks chartered at the time operating under the ruinous fractional reserve practice, and nearly all these banks eventually failed save one – the Bank of England.  What made this bank charter special was its inside connection to the House of Stuart and its location inside the untouchable City of London Corporation – that one square mile of sovereign within a sovereign ceded in 1067 by William the Conqueror to the inhabitants of London.  And, this special Bank of England had discovered the magic formula that transformed Parliament into a perpetual debtor, turned the bank’s liabilities into assets, and as the money they created had zero cost, afforded the owners of this special Bank of England an infinite rate of return on fiat issuance.  Not since the Pharaohs convinced the Egyptians they were Gods had such an elaborate fraud been perpetrated upon mankind.

To coincide with the Union of England and Scotland in 1707, this special Bank of England – one of many chartered banks at the time - was awarded responsibility for managing the issue and redemption of the popular interest bearing bills of what was now the Exchequer of Great Britain.  Given the enticement of near infinite rates of return, it did not take the Bank of England long to begin issuing its own fiat money for use by Parliament and to retire the old interest bearing bills with redemptions.  The magic formula was set – the Bank of England had figured out not how to receive interest from lending its own money, but how to receive interest by creating new money.  And the opaque nature of the magic formula with its unknown gold and silver reserves held in “trust”, together with pomp and trappings, gave the fiat money financial process the appearance of authority and legitimacy.  Parliament got its means to fund a new round of wars of attrition with France, the people got taxed at a slower rate of increase, and the House of Stuart and their banker friends got wealthy beyond belief.  And to the holders of accumulated fiat money, they discovered a way how to transfer the bulk of a society’s real wealth – land, gold, labor, and raw materials - into their own possession for free, using this fiat money of no inherit value to purchase things having real intrinsic value.  Therefore, at its most fundamental level, capitalism became the mechanism by which one trades the family cow for a bag of magic beans.

This special relationship between Parliament and its wars of attrition and the House of Stuart and its banker friends had solved the riddle of Exchequer funding so Great Britain could now focus on its primary 18^th century endeavor – war with France.  From 1701 to the final defeat of Napoleon in 1815, Great Britain prosecuted eighteen officially declared wars against France.  The stakes were serious now as France and its livre had wrested control of the world’s reserve currency from the mercantile banking Dutch after their late 17^th century wars with both England and France had exhausted the Dutch treasury and the Dutch, with their mercantile banking model, could not print their way back from defeat.  The House of Stuart and its banker friends now saw defeating France and appropriating the world reserve currency to their Bank of England as the overriding collective purpose of Great Britain, and Parliament was ready and eager to assist for the “Glory of Britannia”.  But neither France’s nor Great Britain’s empires contained large quantities of gold or silver, so privateers on both sides played a large role in wartime funding but this stolen loot was especially important to the French corsairs and their mercantile banking system.  Thus the inherent empire self-destruct mechanism latent in all physical money based commercial models – depleting the crown treasury – would play a major strategy in the prosecution of Great Britain’s prolonged wars of attrition with France.  Thus 18^th century Europe pitted infinite paper fiat money versus limited physical gold and silver to the death in winner-take-all stakes for control of the world reserve currency.

The first Industrial Revolution from 1760–1820 did not create a large “virtuous cycle” for British fiat money, and given the fractured nature of the British chartered banking system, this early land empire was not yet conducive to establishing a fiat money empire.  For an idea of the imbalance in economic scale versus land size existing within the 18^th century British colonies, at the cusp of the 1755 tobacco price crash the tiny Caribbean island of Barbados brought in more customs and excise income to the crown than all American colonies combined.  And, economic depressions in the colonies caused by events in and taxes imposed by the home country were common which prompted early colonialists to build up a high degree of productive diversification and self-sufficiency.  However, after more than 100 years of war against France and the final defeat of Napoleon, the mantle of world reserve currency passed to the House of Hanover and its banker enablers, so Parliament’s favorite charter bank began in earnest to churn out incredible amounts of bank notes that were now no longer needed to fund wars of attrition.  Other charter banks knew well of this special relationship between Parliament and the Bank of England so these banks began accumulating the Bank of England fiat money to use as their “reserves” held in “trust”.  The inflation caused by this round of excessive money printing, combined with little to no increase in wages, reached the point of starvation in the London streets, and Parliament’s disastrous Corn Act of 1815 drove grain prices even higher resulting in food riots and complete economic stagnation.  Thus to this point first the House of Stuart and their banking friends, then the House of Hanover and its banker enablers, through the magic formula of fiat money, had brought the United Kingdom 121 years of near continuous war, recurring national bankruptcies, and now open starvation.  Something had to be done.

So Parliament set about to save its favorite banking charter.  Six years after the London food riots, it required the Bank of England to maintain a minimum reserve held in “trust” and to facilitate conversion of its fiat money into gold.  So the House of Hanover and its banker enablers discovered the new magic trick of borrowing gold to fulfil this new inconvenience, and promptly went back to churning out more fiat money and by 1825 had precipitated a collapse of the United Kingdom banking system that effectively eliminated nearly all competing charter banks.  For their disastrous actions, in 1833 the Bank of England was again rewarded by Parliament with the Bank of England Act granting its fiat money monopoly status as “legal tender” for a “limited period” under “certain conditions”, which over time became unlimited and unconditional as no certain conditions were ever enumerated.  Thus the act wiped out all competing charter banks and forced every person and entity in the British empire to either use or pay exchange fees to use the Bank of England’s fiat money.  And on top of all this, the House of Hanover and its banker enablers, ensconced within the untouchable City of London Corporation, from the safety of this “anachronism gifted by the Normans”, found even more profitable ventures than fraudulent banking and war funding in the forms of the slave and opium trades.  So by 1833 the same people behind slavery and opium were handed gratis sole control over the fiat money that would soon engulf 26% of the world’s land surface.  What could possibly go wrong?

The Bank of England itself, that’s what went wrong.  Another major financial crisis initiated by the House of Hanover and its banker enablers’ boom-bust magic formula was “solved” by Parliament’s Bank Act of 1844 that set a fictional amount of imaginary gold as a fabricated “reserve” held in opaque “trust” and thereby “limited” the amount of fake fiat money the Bank of England could issue out of thin air against its imaginary gold reserves, but excluded loans to the public whose losses bothered no one in the House of Lords.  The Bank Act worked so well that by 1847 the Bank of England itself teetered on the brink of insolvency, so to retain their special relationship, Parliament repealed the Bank Act of 1844 and now the Bank of England was legally free again to print as much fiat money as it wanted.  And so economic crises and near collapse followed again from 1857-8, 1867-9, and 1873-96, each time fixed by Parliament with a tweak here, and act there, and a new unenforced regulation or two.  Thus following the 1833 grant of “legal tender” status, during their 67 years of 19^th century money monopoly the House of Hanover and its banker enablers gave the United Kingdom 32 years of recession, depression, bankruptcy, and financial collapse.  But despite its delivery record its special relationship with Parliament continued into the 20^th century where it once again found its raison d’être – war funding.

One side benefit inadvertently derived from the never ending 19^th century financial crises precipitated by Bank of England fiat money mis-managers was Parliament spent so much time dealing with economic problems at home and unrest in the colonies abroad that it had little time to prosecute new European wars of attrition.  With the Crimean War excepted, a sort of Pax Decoctur gripped the United Kingdom’s European aspirations as it focused on its Second Industrial Revolution at home and small scale conflicts abroad to secure far flung provinces against both people that mostly didn’t use money and people that mostly did use opium.  This “Peace through Insolvency” enabled the United Kingdom to continuously reduce its national debt without exception from a level of about 265% of GDP in 1820, down to around 40% of GDP at the start of the 20^th century.  As a result, the House of Hanover and its banker enablers were able to finally develop the “virtuous cycle” necessary for the proper function of a true fiat money empire – the colonies ship raw materials to the home country and receive fiat money in payment, the home country took those raw materials and produces value added manufactured goods, then exported those manufactured goods back to the colonies that paid for these value added goods with fiat money received from the sale of raw materials.  All value added activities remained in the home country, and with European populations increasing across the colonies, this “virtuous cycle” generated economic “growth” and “profit” across the United Kingdom’s industrialized areas.  However, these cheap raw materials from abroad also sealed the demise of domestic producers, promoting urbanization at home that stagnated factory wages and led to large scale emigration to the colonies abroad, both phenomena adding to the “virtuous cycle” and increasing “value add” to those with access to capital and ownership of the means of production.

A key component to this British “virtuous cycle” was the House of Hanover and its banker enablers were able to capture the bulk of world raw material sales and thus expand its fiat money empire outside the colonies by the process of commoditization.  Large brokerage houses, often controlled by subsidiaries of the Bank of England, bought and sold such huge quantities of these raw materials on forward contracts that they were able to manipulate their prices.  These hedge purchases and sales not only provided trading income, but also ensured all contracts were settled in Bank of England fiat money regardless of point of sale or purchase.  To squeeze even more profit from this “value chain”, other Bank of England subsidiaries expanded into corporate plantation holdings throughout the colonies, especially in India following the 1862 Cotton Famine.  This practice then spread to mining tenements following the discovery of huge gold deposits throughout Australia and the annexation of the Transvaal.  Thus the vast majority of the “virtuous cycle” was captured and maximum “value” squeezed out the entire “value chain” and into the hands of the House of Hanover and its banker enablers.  And so began a new line of exploitation for capitalism – the manipulation of commodity prices via the coordinated bulk purchase and sale of these commodities in concert with the manipulation of the “value” of fiat currency.  Entire sectors of commodity production around the world were sent into financial ruin by a coordinated attack from both the brokerages and Bank of England monetary policy, these sectors bought nearly en toto for a shilling on the pound, then pumped and dumped using the same coordinated mechanism but in the opposite directions.  Large swaths of entire industries like cotton, land, oil, wheat, coal, iron ore, et cetera regularly passed into and out of the hands of the House of Hanover and its banker enablers generating tremendous profits for them and debilitating losses for others. 

At the dawn of the 20^th century, capitalism had fully matured, sound money mercantile banking no longer existed, and the magic formula had made the United Kingdom the most powerful financial, economic, and political empire ever assembled.  The covert secret formula however was it had fought only one major European war – The Crimean War - since the defeat of Napoleon, and since then the Exchequer had reduced its outstanding budget deficit relative to GDP a full 85%.  And for the first time in the fiat empire’s history, it began delivering large amounts of gold into the City of London Corporation.  The sun never set on Britannia, it ruled the waves, it had commoditized every basic raw material important to the Second Industrial Revolution, and it had subjugated nearly every primary producer on the planet to its service through price manipulated contracts denominated in Bank of England fiat money.  The United Kingdom was in a commanding position but had not yet proven itself as undisputed world military power, and the German Empire was beginning to accumulate victories and influence on the Continent.  So it was inevitable that the egos in Parliament would go back to their old bad habits of 100 years ago and start looking for a major fight to revive the “Glory of Britannia”.  And thus began a 50 year effort to destroy the rising European star of Germany, with its formidable military, efficient and technologically advanced industry, growing colonial empire, and Hegelian guiding principles of “objectivity, truth, and ethical life” which now threatened to not only swallow up and assimilate all the Germanic peoples of Europe, but to swallow up and eliminate their privately owned central banks as well.  The City of London Corporation would tolerate no fiat money rival and Germany could not continue to grow unchecked in influence - nigh, could not continue to exist - and put at risk ownership of the Bank of England’s magic money formula.

From Capitalism to Financialization – Part II

This is where the banking story of the United States merges with that of the House of Hanover and its banker enablers.  To its great credit, the United States had three times in its early history repelled the external imposition of a privately owned central bank.  After Andrew Jackson allowed the Federal charter for the den of vipers - aka Second Bank of the United States – to expire in 1837, the existing network of disunited state chartered banks grew across the young country with the addition of every new state, each charter issuing its own semi-fiat money backed by reserve requirements dictated by each state.  Fiat money from the states varied in exchange value and bank failures were common, but the distributed and discretized nature of this Free Banking Era localized the crises and generally did not lead to national economic disasters as did the regular and recurring management failures of the Bank of England.  It was during this laisse-faire period that the United States experienced incredible growth of territory, population, political clout, and economic output, and the Federal Treasury had financially strengthened to the point where the country had the temerity to negotiate for territory, wage its own wars of conquest, and purchase new territories without serious economic repercussion.  With regards to banking it seemed the United States had found the magic money formula by not finding the magic money formula and had instead wandered into a kind of balanced budget quasi-capitalism where state charter banks issued local fiat money that few wanted as it had to compete with the gold and silver specie put in circulation by the Federal Treasury.  But then every balanced budget just begs for a good war of attrition and that’s exactly what came next.

At the cusp of the American Civil War, the Bank of England had coopted the South into its commoditized fiat empire as most of their raw cotton exports went to British textile mills.  Thus the Bank of England’s fiat empire had crept quietly into America when the London financiers gave full support to Confederate war funding by purchasing its heavily subscribed and sterling denominated Cotton Bonds.  To facilitate war funding at home, both the Union and Confederacy resorted to fiat money issue, with the Confederacy printing greybacks and the Union printing greenbacks.  To enforce these new greenbacks as Union fiat money, Congress passed the National Banking Act of 1863 establishing a system and network of national banks using a uniform fiat money with a stipulated uniform fractional reserve requirement mandating these banks purchase and hold US Treasury bills as “reserves”.  Both sides struggled with inflation, but the Confederacy, if not defeated in battle, would likely have succumbed eventually to inflation that by war’s end ran at 9,000% of prewar levels rendering the greybacks effectively worthless.  But the old magic money formula of turning liabilities into assets worked just well enough for the Union and with this National Banking Act their greenbacks replaced the former hocus pocus uncoordinated sideshows from state charter bank fiat issue antics commonly backed with no more than borrowed gold.  Ironically, counterfeiting during the Civil War was a persistent problem, so the National Banking Act not only removed gold convertibility and gold and silver reserve requirements, but also established the United States Secret Service to ensure the Union’s new fake paper money was not fake fake paper money.  And just like the creation of its progenitor the Bank of England, greenbacks were only to be in circulation for a limited time, which in 1878 became legally unlimited time but with the re-imposition of convertibility into gold.  America had officially entered into the world of capitalism, and for the first time had a uniform national banking system under the control of the US Treasury using a single fiat currency convertible into gold with a fractional reserve requirement.  But the greenback was finding itself more and more controlled by Wall Street proxies of the City of London Corporation, Wall Street’s influence was growing immensely within the US Congress, and the bankers of the City of London Corporation had set their sights on gaining control of the levers of America’s new magic formula. 

But full control of that magic formula would take some time to acquire as the American people proved more intractable than the pliant Dickensian subjects of the City of London Corporation.  The weakened post bellum United States with its new national bank network, huge Federal budget deficit, new fiat money empire throughout the defeated Confederate States, and fast expanding Northern modern industrial base presented the City of London Corporation bankers with proverbial low hanging fruit.  After both sides weathered the depression caused by the Panic of 1873, the City of London Corporation bankers’ first salvo at usurping the American money creation mechanism was the financially engineered Panic of 1893 where a coordinated commodity price crash was timed with a run on the US Treasury gold holdings that nearly drew down the country’s entire gold reserve and sent the United States into prolonged depression.  But there’s no depression a good war can’t fix, so the politically popular 1898 Spanish-American War was prosecuted and with a quick victory the US spirits and economy sprang back to life.  The City of London Corporation bankers’ initial crude efforts was thwarted, so a second better organized salvo was launched in 1907, this time at the undertaking of Wall Street proxies, complete with a ready-made plan to fix everything and paid agents ready in Congress to promote the benevolence and virtue of the Money Trust.  And to show the American people their selfless good intentions, both J. P. Morgan and John D. Rockefeller magnanimously gifted their own money to acquire and “save” insolvent banks after the US Secretary of the Treasury secretly pledged taxpayer bailout money should Morgan’s and Rockefeller’s bank investments fail.  Wall Street began its marketing campaign through Congress for the privatization of both the national currency issue and monetary policy, promising America that once control of these powers passed into secret hands all these recurring depressions caused by these very same secret hands would immediately cease.  But not all members of Congress were yet paid agents of Wall Street, and in 1913 the Pujo Committee released the results of its scathing Money Trust investigations.  The American public was in no mood to submit their sovereignty to the Wall Street Money Trust on behalf of the City of London Corporation bankers, and time was running out for the bankers to get America ensnared into their plans to deal with the new, powerful Continental upstart that threatened the Bank of England’s fiat empire gravy train – Germany.

The second half of the European 20^th century following the brutal wars of unification saw the Prussian state and its German coalition fiefdoms start to grind out military victories over first Denmark and next Austria, but it wasn’t until the German Empire coalesced after its decisive and highly efficient defeat of world power France in 1871 that alarms began ringing in the City of London Corporation.  The German people, united under one state and the Hegelian principles of “objectivity, truth, and ethical life”, was one thing, but this Hegelian destiny to unite all Germanic peoples under that state – including Germanic peoples living in states with privately owned central banks – was another thing entirely.  But the German Empire with its sound monetary policy, advanced high tech ground based military capability, and expanding colonial empire presented a formidable adversary, one that guaranteed mutually assured destruction if challenged alone.  Initial efforts to destabilize the German Empire from within using communist agitators all fell flat as the German government enacted liberal labor and social reforms blunting each new call for a general strike.  Against this rising German Empire stood a United Kingdom that had won just one major war in 85 years, was crawling out of the 20 years Long Depression, and whose banks and investment houses were clear culprits in ever recurring financial panic, one after the other, that had disastrously rippled throughout the global economy.  The limits of growth had been reached with the industrial-colonial model of the British Empire, the system was devolving into stasis, and the Exchequer’s budget deficit had been reduced to the point where a new major war of attrition could now be prosecuted.   

On the American home front the Jekyll Island conspiracy between the Wall Street proxies for the City of London Corporation bankers and the US Congress had been in play since 1910.  Its success was a crucial step for the Exchequer to gain a reliable overseas source of credit and for the Ministry of Defense to establish a supply chain prior to prosecuting its coming war of attrition against the German Empire.  It is likely these conspirators knew full well their plans would commit the United States to not only massive war funding to Great Britain, but also pit the Americans as enemy against whatever countries Parliament might declare war upon for the “Glory of Britannia”.  So in practice, when Congress passed the Federal Reserve Act in August 1913 despite the Pujo Committee findings, it not only robbed the American people of control over its monetary policy, but to a large extent robbed it of control over much of its foreign policy as well.  Thus this fateful act of betrayal to both American citizens and British subjects joined the eventual downfall of the British fiat empire with an American commitment to Endless Wars in defense of its coming fiat empire.  This was a master stroke for the City of London Corporation bankers that brought the Federal Reserve System into its cross ownership nexus that now facilitated trans-continental coordination of both monetary and foreign policies that assured aggregate coordinated outcomes always resulted in a net gain to the City of London Corporation bankers, regardless of which side of the Atlantic experienced victory or defeat.  And this new Federal Reserve System was isolated from all direct European land based military threats and had the ability to create huge quantities of fiat money adsorbed by a brand new tax base within the expanding American industrial economy which was now inescapably locked into ever growing Federal debt by the XVI Amendment.  Thus not since the fall of Troy had a free and independent people willingly invited such unseen dangers into their midst, and by subterfuge the Federal Reserve Act ended 137 years of fierce American independence with a single unconscionable law and just 30 words contained in a new constitutional amendment.

Within four years of the Federal Reserve Act’s passage, the City of London Corporation bankers were victorious, the German Empire crushed absolutely, and the flame of “objectivity, truth, and ethical life” extinguished.  There would be no consolidation of the Germanic peoples under a single state controlled central bank, and no challenge to the Bank of England’s control over its fiat empire.  The costs were staggering - 20 million dead, 21 million injured, 1.2 million Queen’s subjects killed, USD $3.2 trillion.  Despite these losses, the combined ownership nexus of the Bank of England and the Federal Reserve System saw the City of London Corporation bankers in an even more powerful position that before the war, and for the first time since wresting control of the world reserve currency from France in 1815, the Bank of England began to share this status with the United States dollars it also controlled.  And to ensure the permanent dominance of the Federal Reserve System and avoid any resurrection of populist economic policy threats like the Free Silver Movement, or for that matter, to forever eliminate serious economic policy discussion from public debate, in 1920 Congress ratified the XIX Amendment.  Accumulated post-WWI budget deficits on both sides of the Atlantic ballooned – the Exchequer’s climbed from a prewar 20% of GDP to 180%, and the Treasury’s increased from 10% to 40% of GDP, with both countries finding themselves in the usual post-war recessions.  Time to fire up the post-war printing presses – but this time, only on the other side of the Atlantic as the City of London Corporation had grand plans for its new American vassal.

And for all that post-war M2 fiat money now flooding into America – from a total of $18 billion circulating in 1915 to $47 billion in 1929 – the United States got things like flappers, guys going over waterfalls in barrels, jazz clubs, ultra-rich organized crime families, a mass entertainment industry, and through that cultural miasma somehow managed to build thousands of factories, make millions of cars, pave thousands of miles of roads, erect skyscrapers, and electrify cities.  But the average Queen’s subject didn’t even get so much as an extra helping of pudding.  What were the Roaring 20s in America, where industrial and service jobs abounded with the flood of fiat money created out of thin air, were more like the Boring 20s in the United Kingdom, where the printing presses remained idle and recession and mass unemployment were the order of the decade.  But then under orders from the City of London Corporation bankers the Federal Reserve System raised interest rates from 4% to 6%, and suddenly the jazz music stopped, the flappers quit flapping, and the bills for all that art deco came due in October 1929.  We all know the story of what happened next. 

One side benefit of the Great Depression in the United States was so many people were unemployed that few paid income taxes, so Congress could not immediately start a new war of attrition to right the ship of finance at Wall Street’s behest.  Learned advisors first had to resort to their old bag of tricks with a tweak here, a Congressional rider there, a new regulation or two, and even introduced the new academic driven massive Keynesian make-work stimulus programs.  Nothing worked no matter how rarefied or how many respected monetary scientists offered lofty solutions, so with the Federal Reserve insolvent and out of gold, President Roosevelt resorted to the old goldsmith shakedown tactic and issued Executive Order 6102 in April 1933, followed by Congress and its Gold Reserve Act of January 1934.  The EO effectively confiscated all gold in the United States, gave it to the privately owned Federal Reserve System at $20.67 per troy ounce, removed the gold standard again, then raised the gold price to $35 a troy ounce and began printing massive amounts of pure fiat money.  That gave the appearance of working, and industrial output slowly rose to greater than 1929 pre-crash gold standard levels entirely on the back of the inflation unleashed by pure fiat issuance until everything collapsed again in 1937.  It began to look more and more like the fog of war was the only solution to pull America out of this depression and unbeknownst to most, the country had been rearming itself since early 1940, nearly two years before the bombing of Pearl Harbor. 

The United Kingdom was in serious economic trouble too, having spent the entirety of the 1920s in deep recession and now hopelessly mired in a depression it could not shake.  The old 18^th century playbook would have to be dusted off, but at a great cost – financial destruction of the British Empire and sacrifice of the Bank of England for the greater good of the City of London Corporation’s central bank cross ownership nexus.  Starting in the early 1920s, the City of London Corporation bankers had recalled their communists to kick in the teeth and pick whatever flesh was remaining from the bones of the Weimar Republic, and the now worthless Reichsbank was put to work printing up never before seen hyper-inflation.  These actions not only plunged Germany into the economic stone ages, but deprived nexus owned Bank of France of war reparations desperately needed to modernize its industrial base.  Such was the threat posed by even the remains of a German Empire that such actions were deemed acceptable losses so long as “objectivity, truth, and ethical life” were sent to the unequivocal dustbin of history.  Now, on its knees before the world’s creditors and on the brink of devolving into a failed state, Germany was needed once again by these same creditors – and needed fast by Great Britain.  Despite having few natural resources within its borders, Germany’s military machine would be resurrected from the dead and come roaring back with a vengeance on a mission to once again unite all Germanic peoples under the banner of a revisionist version of “objectivity, truth, and ethical life”, and it could only do that through the magic formula of central banking foreign credit.

Within six years of Hitler’s ascension to the German Chancellery, Wall Street and the City of London Corporation bankers had financed the greatest mechanized military ever assembled – the Wehrmacht.  The Dawes plan of 1924 had initiated the linkage between German industry and Wall Street finance for which the American banker Charles G. Dawes shared the 1925 Nobel Peace Prize.  Under the Dawes Plan, prior to the 1929 crash, the Weimar Republic had paid its war reparations not to France or England, but to a consortium of Wall Street investment banks.  This Dawes Plan gave Germany a life-sustaining infusion of US dollar credit that would in theory produce trade that would hypothetically generate customs and excise taxes that were surmised to eventually go towards war reparations to England and France.  But then Hitler repudiated the Versailles Treaty, and the Gold Reserve Act allowed millions more pure fiat US dollars to flow out of Wall Street to their agents in “neutral” Stockholm and into the Nazi controlled Deutsche Reichsbank.  Wall Street and the City of London Corporation loved Hitler and the House of Windsor openly saluted him.  Nazism was to be a great boon to the trans-Atlantic financiers as Hitler would devoured the expendable and unprofitable Slavic peoples and ensured a never ending stream of new revenue with every eastern conquest.  It was a foolproof plan - the Atlantic Ocean was wide, the Kriegsmarine small, the Luftwaffe would run out of gas before it arrived over New York City, and the communist martyrs installed in Russia would put up a fierce and expensive fight until Lebensraum ran out of room.  But what Wall Street had not figured into its equations was that Hitler would sign an Anti-Comintern Pact, a Phony War would transform into a hot war, and another go at uniting all the Germanic peoples of Europe would commence under the new banner of Blut und Boden.  The City of London Corporation bankers would have to fix this Wall Street mess themselves and call up the blue blooded true believers, those who existed for one purpose and one purpose only - the “Glory of Britannia”.

We all know the story of what happened next and how WWII dragged in the entire central bank cross ownership nexus to secure victory for the “Glory of Churchill”.  But for all the tens of thousands of pages published in the learned journal tomes, there is not one observation made how the Federal Reserve System failed to deliver the expectations sold to America that it would end the boom-bust cycles inherent under post bellum 19^th century quasi-capitalism.  There was not one erudite call to re-examine the “special relationship” now cemented between Congress and the Federal Reserve System, and not one monetary scientist noticed the Federal Reserve System cross ownership nexus came out of the Great Depression – the depression it created - more powerful than when it entered.  Instead, the world got lofty excuses like The General Theory of Employment, Interest, and Money proclaiming that more of the same failures would make everything indubitably jolly good.  Not one political scientist noticed the Great Depression was used to eliminate banks not in favor with the elite ownership hierarchy within the trans-Atlantic central bank cross ownership nexus.  And, not one scholarly paragraph examined how depressions are, and have always been, financially engineered mechanisms to destroy competitor banks and consolidate increasing power into a handful of fewer banks owned by a shrinking secret ownership pool.

With the conclusion of WWII, the Exchequer was broke as it had issued such an immense quantity of debt to finance the war that it could never be repaid without resorting to harsh austerity measures at home that would threaten social unrest during a period of national weakness.  But with the Bank of England in control of monetary policy, any semblance of economic recovery would be impossible, so after 252 years of their “special relationship”, Parliament made the only logical choice available to it and in 1946 the Bank of England was nationalized and played no further dominant role in world capitalism.  But the central bank cross ownership nexus made out just fine as the Bank of England wiggled out of holding the bag on all those unpayable war debts as the nationalization dumped them onto the backs of the Queen’s subjects in another miraculous “heads they win, tails you lose” event.  Thus 1946 begins the British period of state controlled capitalism that was in effect a transition period into de-industrialization where large segments of its economy were nationalized to ensure they were not revived through modernization and thus would never be placed into competition with industry in the United States or other European countries that were using their post-WWII rebuilding programs to modernize their industries. 

After both the Bank of England and Bank of France were lost to nationalizations, Wall Street tool the pre-eminent role within the central bank cross ownership nexus and got straight to work on elevating the US dollar to the status of undisputed world reserve currency, thus ending the 130 year run of the pound sterling.  And a modern world reserve currency needed a colonial fiat empire, so the United States started with Western Europe via the Anglo-American Loan Agreement of 1946 and later the Marshall Plan of 1948 to kick off its “virtuous cycle”.  The Russian financial system remained unchanged, and it absorbed Eastern Europe into its new expanded fiat empire.  Thus, the true winners at the cessation of hostilities from a purely financial perspective were the United States and the Soviet Union.

In 1951 during the fog of the Korean War and with the Secretary of the Treasury in the hospital, the Assistant Secretary of the US Treasury – not Congress – handed the power to set interest rates independently of government economic policy entirely to the Federal Reserve System.  Like the original Federal Reserve Act, this additional power grab was sold to the American people on the premise the privately owned Federal Reserve System would “tame inflation” and “foster economic stability without responding to short-term political pressure”.  This single act by an adjutant set the stage for the Federal Reserve System to wield incredible power over government policy and essentially hold Congress to ransom, where although the US Treasury was responsible for raising government money, the privately owned Federal Reserve System was now responsible for setting that money’s price paid to it for creating it out of thin air.  So the Federal Reserve System now had the power to create or destroy national wealth by reducing or raising interest rates and there was no legal stipulation for whom their policies should benefit.  Thus unbeknownst to the American people, this unnecessary power relinquishment was, in effect, the crucial piece that would set the stage for enabling the financialization of the America economy.

Post-WWII capitalism under the American fiat leadership functioned much like it did prior to the war except where the fiat empire was concerned.  Instead of conquest and physical occupation of resource rich lands and filling these lands up with colonists, the United States resorted to a proxy conquest model where it initiated coup d’états, assassinations, foreign espionage, fraudulent elections, and foreign propaganda campaigns to install pliable dictators and friendly juntas.  These leaders were amicable to pursuing “growth” policies, allowed American military bases on their soil, and had no qualms about crushing dissent at home or piling billions of US dollar denominated debt onto the heads of their citizenry.  In exchange for their compliance, these dictators and juntas were kept in power with generous foreign aid packages, and they in turn doled out lucrative resource development concessions, purchased US made military hardware, and awarded contracts to US corporations for industrial, civil, and defense projects.  In a new twist on colonization, many of these American proxy conquests created large numbers of emigres into the United States and provided a mechanism to ensure the consumer base at home continued to grow and devour excess production capacity as American living standards rose and native born birth rates declined.  A new “virtuous cycle” evolved whereby industry in the conquered fiat empire eventually began to generate export income sold into the US dollar denominated commodity markets, and those US dollars returned to the United States to purchase US value added exports and services.  And to secure this new “virtuous cycle”, in 1947 the Central Intelligence Agency was born out of the National Security Act, and it quickly evolved into its main directive of waging clandestine foreign hybrid wars to consolidate and grow the American fiat empire, install and keep friendly governments investing in US exports – especially military equipment - and defeat the competing Soviet fiat money empire.  Thus with its responsibility of maintaining its new global fiat empire, the United States entered into its historical phase of Endless War. 

The United Kingdom on the other hand could no longer afford control over its fiat empire as it had no viable value added export capability at war’s end and thus its “virtuous cycle” stopped functioning.  It instead resorted to de-colonialization, but only in terms of physical land holdings.  The City of London Corporation bankers either kept effective control over these former colonies’ new central banking systems or was its primary beneficiary, and in either case it retained the majority of financial profits derived from these newly created banking systems.  This “de-colonized” banking model was similar to the false “independence” of the Federal Reserve System, but here the City of London Corporation bankers retained control through majority stock ownership of the member banks that comprised the new banking systems.  In the English speaking constitutional monarchies where the serious financial profits were generated, an additional failsafe was guaranteed by the Queen’s appointment of Governor Generals who could – and once did in Australia - sack recalcitrant duly elected governments that did not put the City of London Corporation’s interests above those of their own people.

One post-WWII change with huge repercussions to American capitalism was the US dollar denomination takeover of global commodities trade from the pound sterling.  As world population and industrialization increased and Western Europe crept back into consumer manufacturing, the volume of forward contracts traded in dollars grew in step.  However, all that American ingenuity put into its fiat empire’s “virtuous cycle” began to work too well in the Middle East and North African oil sectors.  By 1965 the combined dollar revenues received from new oil exports, taken together with all Western European dollar revenue streams, were greater than what the US domestic export capacity could absorb through its “virtuous cycle”.  Instead of buying US value added exports, these surplus overseas dollars went searching for investments and with limited low risk opportunities available, they eventually found the US Treasury Gold Window.  The 1934 Gold Reserve Act had ended domestic dollar convertibility into physical gold but not international convertibility, which was retained as per the Bretton Woods agreement, and during the second half of the 1960s these foreign dollars began to drain the US Treasury of its gold reserves.  Despite the gold rush, the US Treasury held its official exchange price constant at $35 an ounce - the same price set after the depression era Gold Reserve Act.  When the House of Rothschild finally raised the gold price in 1968, it signaled US gold reserves were in decline and prompted frenzied buying from Western Europe up until the day that American capitalism ended.

From Financialization to Breakdown

August 15^th, 1971.  America’s 108 year run with capitalism was over.  The Nixon Shock - or was it?  The dog that didn’t bark during the late 1960s gold run was the US Treasury, the only piece left in the Federal Reserve System that could claim some independence from the central bank cross ownership nexus.  Its lack of action to either raise official gold prices to slow the withdrawals, or close the gold window earlier as foreign dollars washed ashore onto its financial beachhead suggests collusion in the purposeful destruction of capitalism’s pre-eminent precious metal reserve.  We are led to believe that America was propelled by surprise and necessity into its new commercial model divorced from physical gold reserves and silver stockpiles, but when one follows the money what was originally billed as an unexpected emergency reveals a decade long ruthless history of preparation.

The US Treasury wasn’t so passive during the early 1960s and had quickly transformed into a serious existential threat to the central bank cross ownership nexus.  Silver had become a contentious issue when the US Treasury’s silver stockpiles decline by 80% in a matter of months during a 1961 purchase run – possibly depleted by banking agents in an offensive action to create artificial scarcity and render it perceived unreliable as money.  But President Kennedy halted government silver sales in late 1961 and, after rebuilding the stockpile, signed his fateful Executive Order 11110 in June 1963 directing the US Treasury to issue debt free United States Notes based on a non-fractional 1:1 ratio to the silver stockpile.  Thus a new form of American money was born – one that did not pay interest to the central bank cross ownership nexus – and did not conform to the working definition of capitalism.  This interest free money was placed in direct competition to the heavily fractional and interest paying “gold based” Federal Reserve Notes in circulation and more than $4.3 billion of this new debt free money was issued.  But although these notes were only about 1% of the total M2 money supply, they represented a return to sound mercantile banking and put at risk the unlimited spending requirements of the growing special relationship between Congress and the Military and Industrial Complex.  Infinite fiat money was needed to expand and maintain the American Fiat Empire, and this new sound money limited by silver stockpiles could not stand in empire’s way - five months after signing Executive Order 11110, President Kennedy was dead.

The Johnson administration got straight to work destroying silver as money starting with the oldest trick in the book – coin debasement.  The Coinage Act of 1965 was the nation’s first step towards a pure fiat currency.  The act initially removed silver from dimes and quarters, reduced silver content in half dollars from 90% to 40%, and suspended new silver dollar production until 1970.  Then in 1970, the Nixon administration eliminated silver from both half and full dollar coins, with the silver-less “silver dollars” minted again and put into circulation primarily for use in slot machines - a perfect metaphor for the coming commercial model.  With no silver in coins, their true value was guaranteed at only a fraction of their face “value”, and so the US Treasury quit trying to hide the underlying inflationary pressures created by increased fiat money printing combined with dwindling precious metal reserves and gave up suppressing the silver price which doubled between 1967 and 1968.  Thus by the beginning of 1971, the United States had created nearly pure fiat coins comprised of low value nickel and copper, and in November 1970 the US Treasury sold the last of its dwindling silver stockpile and all but removed its self from influencing future monetary policy.

The 1960s was also a busy time printing money to build and protect the American Fiat Empire with wars both covert and declared.  These wars became increasingly expensive and the Federal spending trajectory through the 1960s indicated there were serious limits to the Fiat Empire’s expansion under the constraints imposed by a fractional reserve banking system.  Heavy funding commitments were made for proxy wars in Indonesia, Congo, Laos, the Dominican Republic, Brazil, Iraq, Chile, and Cambodia.  These expenses were added to the costly and overt Korean occupation and declared war in Vietnam.  These war costs, increased spending on social engineering project, and late 1950s income tax cuts necessitated an increased reliance on US Treasury bill issuance to fund government aspirations.  Increased debt issuance, in turn, fueled domestic inflation as the fractional reserve nature of the Federal Reserve System still operated to some degree as it should.  The 1950s value added American export boom had acted like a sponge to dampen inflation at home, as the “virtuous cycle” inflated wages faster than the cost of domestic goods.  But when the growth of value added exports stalled in the 1960s, the inflation remained so domestic wages and consumer purchasing power stagnated.  This inflation in turn reduced both American domestic consumption and foreign consumption of American value added exports abroad, so more foreign held US dollars were available to go shopping for investments.  The 1960s “virtuous cycle” was not adsorbing all these foreign held US dollars and all the collective thinking of the learned monetary and political scientists could not foresee this coming run on cheap gold despite the US Treasury’s previous recent experience with the run on silver.  Thus any logical assessment can come to only two conclusions – either the monetary and political scientists were incompetent, or the US Treasury was complicit as its gold reserves steadily drained away.

In the middle of all that 1960s war spending and stagflation, Congress got to work printing even more money and launched a plethora of expensive programs under the umbrella of the “Great Society”.  These programs laid the groundwork for adsorbing the coming tens of millions of unemployed de-industrialized factory workers and created a pool of docile voters focused on their own dependent and immediate material needs.  Large spending bills were enacted like the Economic Opportunity Act of 1964, the Food Stamp Act of 1964, the Public Works and Economic Development Act of 1965, the Social Security Act of 1965 authorizing Medicare, the Social Security Act Amendment of 1965 Title XVIII authorizing Medicaid, and the Social Security Amendments of 1967.  Other large spending bills established government propaganda arms vested with influencing the coming pool of docile, dependent voters including the National Endowment on the Arts and Humanities Act of 1965 and the Public Broadcasting Act of 1967.  And although this “Great Society” did everything but create a great society, it got them voting on the welfare plantation for 200 years, and to ensure there was no resurrection of sound monetary policy, or for that matter, any serious economic policy discussion in public debate, in 1965 Congress passed the Voting Rights Act, the Nationality Services Act, and ratified both the XXIV Amendment in 1962 and the XXVI Amendment in 1971.  Never before in the history of a modern enfranchised people would a society be so devoid of monetary policy discussions, and thus the Federal Reserve System would dissolve further into invisibility with every carnival-like election cycle.

All that war and welfare deficit spending got rolling while the American Fiat Empire’s “virtuous cycle” was unravelling with the nation both entrapped in its Bretton Woods Venus Flytrap commitment and unable to increase its value added export capacity with its aging industrial infrastructure.  Heavy investment by Anglo-American oil companies in the Middle East and North Africa during the early 1960s began to generate large US dollar royalty and profit oil streams to their host countries resulting in a flood of surplus foreign held US dollars looking for investments while US value added export capability flat lined.  Oil production from Saudi Arabia increased from 1.35 million barrels of oil per day (MM bopd) in 1960 to nearly 4.0 MM bopd in 1970.  Libya came on stream in 1965 at 1.2 MM bopd and by 1970 was producing 3.4 MM bopd.  Iran, Venezuela, Kuwait, and Indonesia all experienced similar production increases.  Billions of foreign held US dollars were generated from the sale of crude oil into the global US dollar denominated commodity market with no coordination by the US Treasury to head off a potential gold buying rush.  And when it was obvious the gold rush was on, America’s European “allies” piled in too – France, Germany, England, and Japan.  All this took place without the US Treasury raising the gold price or taking any action whatsoever to stem its rapidly accelerating gold depletion.  It was as if “free enterprise” were nearly free when it came to buying subsidized gold with foreign held US dollars.

So on the morning of August 15^th 1971, the United States’ “virtuous cycle” was sputtering, its precious metal reserves pilfered, and its value added export capability muddling along with an outmoded and inefficient industrial infrastructure.  Add to that rampant domestic inflation, unending foreign wars, civil unrest, high unemployment, and skyrocketing debt across all government levels when suddenly, with “no advanced warning”, the US Treasury went bankrupt – or more precisely, was constrained by a depleted gold reserve with no way to print the country out of its funding morass.  The magic formula had ceased to work, and Bretton Woods would have to be abandoned and a more abstract type of fiat money born to save the American “virtuous cycle” and soak up all those foreign held US dollars or the Soviets world gain control of the reserve currency status.  The United States faced an existential crisis comparable to its Fort Sumter decision - either continue to prosecute its Fiat Empire wars and ignore domestic economic troubles, or address domestic economic troubles and relinquish the Fiat Empire.  Nothing the monetary scientists did after August 1971 to salvage both options conjured up a false domestic prosperity that could also fund preservation of the Fiat Empire and wishful thinking had come to an end.  The Nixon Shock may have placated public opinion but did nothing to solve the underlying systemic problems in the “virtuous cycle”, so the US dollar plunged week after week against all major world currencies, stagflation settled in, and the “virtuous cycle” got a little more unraveled with every passing month.  And in early 1973 the entire national political apparatus was consumed with the Watergate scandal, so now nothing was going to get fixed.  The Powers Behind the Curtain would have to step out of the shadows to revive the American “virtuous cycle” and save its Fiat Empire on behalf of the central bank cross ownership nexus – enter the Globalists.

The new fractional “reserve” would have to revive demand for US dollars on a world changing scale, be price-pliable through political pressure, and under full control of US military “influence”.  That influence meant a full and unequivocal commitment to both Fiat Empire and Endless War at a cost of never solving America’s domestic economic and social problems.  So the Powers Behind the Curtain got to work, the United States made its third Faustian deal, and signed on with its Globalist savior – crude oil.  Oil was the perfect fractional “reserve” substitute –plentiful, cheap to produce, concentrated in defendable geographic regions, everybody needed it, and nearly every barrel traded was denominated in US dollars.  So from August 15^th forward, with the Treasury’s Gold Window permanently closed and the requirement to hold gold reserves eliminated, the United States could, in theory, immediately get to work printing infinite pure fiat money.  And it would have gotten to work right away testing that theory save for one problem - oil was cheap and wouldn’t sufficiently soak up all those European and Japanese held US dollars.  Some calamitous event had to be conjured to pull the US dollar out of its malaise, stimulate global demand, and strengthen it against a competing basket of foreign currencies.  What the Fiat Empire needed was a global shock to offset the Nixon Shock.  The Powers Behind the Curtain had a solution, and it could not wait for the monetary scientists to figure things out.

That solution was war.  But not just any old war of attrition - a very unique, surgically placed Yom Kippur War in October 1973 of limited scope but tremendous global ramification.  After two years of muddling through stagflation with no solution in sight and Watergate coming to a boil, decisive proxy action was taken and during six months in 1973 oil prices rose from $3.56 per barrel to over $10.  The prologue OPEC embargo worked, and the denouement short war permanently established higher oil prices.  Now international demand for US dollars soared, and US domestic political confusion gave cover to its fiat money’s reversion to its true value in gold, rising unnoticed by a public stuck in odd-even gasoline lines from $41 per ounce at the Nixon Shock to $187 by the end of 1974.  And oil prices stayed high even as inelastic demand fell as the Middle East’s Kabuki Theater of rumors of war, terrorism, and threatened supply cuts culminated in the Powers Behind the Curtain’s pièce de résistance – the 1979 Iranian Revolution and $25 per barrel.  Mission accomplished, and the price of success was a decade of stagflation, costly long-term foreign aid payouts to the main actors, Endless Wars wherever there was oil, the rise of the Neo-Conservatives, and nationalization of Anglo-American Middle East oil concessions.  But Big Oil was quickly compensated - higher oil prices suddenly rendered frontier discoveries in the North Sea and Alaskan North Slope commercially viable.  Thus the Powers Behind the Curtain had achieved by politics what the monetary scientists could not with equations – a new fractional “reserve” that through the magic formula of inflation would soak up most of the European, Middle Eastern, and Japanese held US dollars to preserve the American “virtuous cycle” for the central bank cross ownership nexus and its new partner – The Military and Industrial Complex.

But this flood of new PetroDollars coming into OPEC states had to be soaked up too, and the decrepit and outmoded US value added industrial export capacity would cost too much and take too long to modernize to be of any practical use.  So the Powers Behind the Curtain set America on a dual strategy – vastly increased US Treasury bill issuance auctioned to foreign buyers combined with domestic de-industrialization.  The US Treasury bill issuance would soak up much of those PetroDollars and deals were struck with the new Middle East national oil companies where in lieu of America “challenging” the expropriation of the Anglo-American oil concessions, these OPEC states would instead purchase large sums of US Treasury bills at regular intervals and pledge to sell every barrel of oil produced in US fiat dollars.  Domestic de-industrialization was more complex and relied on a combination of creeping punitive environmental regulations wielded by a weaponized Environmental Protection Agency, together with the Federal Reserve System setting ever skyrocketing interest rates that eventually reaching 22.36%.  This combination drove foreign demand for US Treasury bills and practically shut down new capital investments for domestic industrial activity, and by the start of the 1980s much of America’s domestic industrial base shut down and either relocated production overseas or sourced finished product from foreign suppliers.  This offshoring was important as it sent US dollars overseas to develop a new contingent of US Treasury bill buyers and soaked up their surplus US dollars back into the “virtuous cycle”, thus not only preserving, but growing the US dollar Fiat Empire at the expense of the domestic workers’ now inescapable decline in living standards.  Entire swaths of America’s Rust Belt began to wallow in unemployment and hopelessness, while countries like Japan, Taiwan, and Korea saw record GDP gains and unparalleled growth in domestic consumer demand all while under the all-expenses-paid protection of the US Military and Industrial Complex.  Thus Japan’s, Taiwan’s, Korea’s, and eventually China’s industrializations were subsidized by American wages through the purposeful de-industrialization of the United States, as government’s unspoken policy now dictated the United States remain non-competitive to these East Asian countries so long as their financial institutions made large, reliable purchases of US Treasury bills. 

During the late 1970s and early 1980s, both Britain and the United States respectively saw coordinated political shifts billed as the rise of “conservatism” but were in reality accelerations into more developed financialization commercial models.  Despite the economic hype surrounding Thatcherism and Reaganomics, both platforms continued each country’s de-industrialization project, deficit spending took exponential form, and foreign trade imbalances began their inextricable divergence.  And after interest rates peaked in 1981 and regular foreign buyers had been lured in, the Federal Reserve System reversed interest rate policy and began reducing rates combined with widespread media promotion of independent material success.  Together, these produced an explosion of US consumer credit and a shift in employment towards service sectors like finance, retail, and information technology.  To facilitate the rise in consumer credit, ambitious financial deregulation was enacted and the transportation industry de-regulated to accommodate nationwide distribution of rising foreign imports.  With reliable foreign demand for US Treasury bills established from Japan, Western Europe, and OPEC countries, the Powers Behind the Curtain could now crash the oil price to spur even more western consumer demand for imported goods, de-industrialize the American oil sector, and accelerate military spending to challenge the Russian fiat empire to a fiscal duel of attrition to the death.  The Globalist financialization plans had fallen into place, and Fiat Empire victory over Russia was just one fiscal quarter of deficit spending away.  

And that victory came in November 1989 with the collapse of the Berlin Wall and an end to the Russian fiat empire.  With its ever increased military spending requirements to fend off American threats, the Russians were unable to invest in modernizing their industrial infrastructure which had decayed to the point where it could no longer support the Soviet fiat empire’s “virtuous cycle”.  With insufficient value added exports coming out of Russia for purchase by its satellites, demand for rubles dried up, the ruble disintegrated, and the Russian fiat empire dissolved as trade vaporized.  Had the Russian commercial model transitioned into some form of Soviet financialization where it offshored its industrial value added capability to its satellites, while simultaneously adopting deficit spending with ever widening trade imbalances, backed with ruble denominated debt sales to these satellites, the Soviet “virtuous cycle” may have been salvaged and continued on.  Thus what we learn from the American and Russian experience is that financialization is the transition out of capitalism by which technically bankrupt fiat empires outsource the costs to modernize their industrial export capability to satellites with the fiat empire in order to keep the “virtuous cycle” operating.  This industrial outsourcing enables the fiat power to commit the maximum amount of spending to maintain its military capability in defense of its fiat empire using its tax base and the expanding money inflows received from Federal debt issuance to foreign holders of fiat money.  Thus financialization is in essence a commercial model of securing guns through tax dollars and butter through credit.

With the Russian fiat empire vanquished, the start of the 1990s saw the American Neo-conservatives take over from the Powers Behind the Curtain and assumed full control of US – and therefore global - foreign policy.  They quickly filled the entirety of the political void left by the end of the Cold War with hot wars, and unleashed the shock and awe of Freedom across the unaligned no-man’s land throughout the Islamic fringes of the old Soviet fiat empire.  Almost overnight the world’s greatest enemies became those counties that the Cold War had kept the central bank cross ownership nexus from devouring.  War, chaos, and occupation-without-conquest led to a string of new US military bases across Asia and East Africa, a score of new countries added to the Fiat Empire, billion dollar arms deals with newly built “democracies”, and trillions of newly printed fiat money pouring into the Military and Industrial Complex.  Freedom exploded throughout the unipolar world, the red-white-and-blue was planted on nearly every meridian and longitude, and dissent was ground into ashes.  But payment for this great expansion of war was hedged on the back of the new “Information Economy”, an economy that produced nothing but more of itself that in turn produced more nothing but was the important receptacle for hundreds of billions of additional fiat dollars that created a simulation of economic growth and prosperity without generating operating profits.  And that simulation fueled the inflation that drove “valuations” ever higher that underwrote printing more billions to throw into the next round of the Next Big Thing that produced capital gains that funded the wars and death around the globe and delivered “You’ve Got Mail” on the home front.  Everyone partied like it was 1999 when the speculation floodgates were thrown wide open, the money printing presses were dialed up, and that Depression era relic Glass-Steagall finally repealed and that worked for a whole five months until April 2000 – the month that financialization broke.  Enter the monetary scientists to Wall Street’s rescue.

It wasn’t supposed to happen.  The Fiat Empire was at grave risk as hedged capital gains dried up and war funding became uncertain.  But rather than fix anything – and how could anything be fixed at this point - the central bank cross ownership nexus doubled down on its financialization bets.  What the United States needed was an even bigger Fiat Empire and a massive monetary stimulus to blow an even greater investment bubble spread across many sectors – bonds, stocks, commodities, property, and much more valueless information technology.  Every conceivable thing of any perceivable “value” was called up to duty and commoditized, collateralized, capitalized, hedged covered and naked, hypothecated, leveraged, re-hypothecated, and securitized.  Financialization 2.0’s success depended heavily on a distracted populace unaware of its immersion within a simulation of economic “prosperity”, combined with dialing up the money printing presses to 10 and ridding the country of every last evil financial regulation and restraint.  Thus 9/11 inaugurated the initiation of Endless-Endless Wars in pursuit of conquering every unclaimed square foot of the planet for the US dollar Fiat Empire.  All pretense about fiat issuance and an underlying fractional “reserve” were discarded, and a hyper-financialized period of choreographed DLIA record highs and interest rate record lows was designed to give cover to the immense “wealth” concentration taking place into Wall Street hands during the fog of terror.  And to ensure success for Financialization 2.0 and complete the American de-industrialization cycle, China quietly gain full membership into the World Trade Organization just four months after the 9/11 controlled demolition.  Subsidizing this rise of China’s industrial economy would not only speed the US economic transition into pure financialization, but also make it a quasi-satellite of the US Fiat Empire’s “virtuous cycle”, replacing long anemic Japan and securing another source of increasing long-term demand for US Treasury bills needed to support years of additional deficit spending.  Thus 9/11 initiated the Great Hedge to monetize the national asset base and extract every dollar of future “value” creation from the remaining American simulacra of capitalism, and transfer the bulk of economic endeavors into four new grand domestic sectors – Wars, Waste, Wall Street, and Welfare.  And Financialization 2.0 worked for some until September, 2008.  Enter again the monetary scientists to Wall Street’s rescue.

Financialization 3.0 got underway at the onset 2008’s Great Recession and ushered in the age of Hope and Change under the brave new centrally planned world of Modern Monetary Theory – TARP, UBI 1.0, QE1, QE1 Extension, QE2, Operation Twist, and QE3.  No one paid attention to the “economy” anymore as all eyes were transfixed on the next FOMC minutes release and that buzz the instantaneous HFT response to the DJIA 30.  The simulated American “economy” entered into a new uncharted phase of never ending toxic CDO and CLO backstops to save the mountains of accumulated CDSs that underpinned all manner debt issuance that supported the rising stock “values” that were now totally divorced from any profit generation, and the simulation was MMT goal-seeked towards data-driven macroscopic objectives inferred from biased and skewed statistically manipulated information.  The money printing presses were dialed up to 11, the failed and fungible “Information Economy” was rebranded into the “Sharing Economy”, and all national bets were triple-downed on intangibles and goodwill and non-GAAP enterprise values.  But again almost nobody created anything of tangible value to drive true recovery as getting onboard the money transfer mechanism was what passed for an “economy”.  Those few tangible things left in the real economy took a backseat their financing by the “smart money, as the creation of these tangible necessary and beneficial things was left to the mugs and dupes who had to assume risk and exist in what small element of the commoditized world that had yet to be de-industrialized.  The “Sharing Economy” shared no profits other than capital gains with a select few early investors and again produced nothing but more of itself that in turn produced more nothing but was the important receptacle for trillions of additional fiat money that now created a simulation of a simulation of “growth” and the perception of “prosperity” that generated negative operating profits despite ever increasing “valuations”.  And the central bank cross ownership nexus shrunk again leaving even fewer parties standing to reap the rewards bestowed by the monetary scientists.  This simulation of a simulation fueled even more inflation that drove “valuations” ever higher that underwrote printing more multi-trillions to throw into the next round of the next Next Big Thing that produced capital gains that funded the wars and death around the globe and delivered not only “You’ve Got Spam” on the home front, but now that spam came with a file attachment from a Nigerian Prince.  And Financialization 3.0 worked for even fewer until September, 2019.  Enter the crisis management professionals, not so much to rescue Wall Street but to put the American “economy” on life support  to give the central bank cross ownership nexus just enough time to exit their positions and grab what they could just before the Big Reversion to the Mean.

Financialization 3.0 was not supposed to fail – the monetary scientists had promised the central bank cross ownership nexus it would transition successfully into Globalism.  America’s de-industrialization was not complete, there were still some things of real value left that did not yet have liens attached, and there were still vast profits to be hedged and brought forward from future “prosperity”.  However, financialization did break via the bond market’s exposure to its weakest links in Germany, so another round of monetary giveaways courtesy of the Federal Reserve System commenced.  Just unadorned REPO this time, no Hope and Change, no learned monetary scientists, no glowing Fourth Estate front page editorials, and no partying like it was 1999.  Then, by sheer coincidence, the World Military Games were held in Wuhan China where by accident Team USA stayed less that two blocks from a certain wet market and came in 35^th like some bunch of biochemistry sissies and six weeks later there were dead Chinese in the streets.  No one noticed the bond market’s continuing implosion when the global shutdowns started and the REPO and PPP began, no one noticed it took a trillion in new money to get hundreds of billions in stock market appreciations, no one noticed tech billionaires getting billions more while they were infused with the excitement of a $1,200 UBI 2.0 direct deposit.  And how could anyone possibly imagine that one day all the bills would come due while they were sheltering in place and stuck in the middle of a flu virus transformed into a political pandemic scheduled to wipe out humanity?

And that is where financialization stands today – outright unabashed money transfer to Wall Street and the ultra-rich, a window into the Globalism which we were supposed to smoothly transition.  There is no excited talk anymore about grand plans of industry, no more predictions about things like flying cars, no one gazes up at the moon in wonderment anymore.  Expectations have been managed downward and optimism has been crushed in preparation for the coming events.  Nothing remains of the American Exceptionalism except a pantomime of stock buy backs, over-hyped iShit rollouts, diversity and inclusion, LBOs, ETFs, HFT, HFT ETFs, and disrupting the world one Java script code block at a time using H-1B imported labor.  But despite the broken and adrift system, the financial surface world screams normality, there is still the perpetual urge and ever present push to “do something” even though everyone can perceive something is seriously different this time.  Everyone’s piling in - get in now or you’ll miss the big tech short.  Thirty year mortgage refi rates are at historic lows - hurry before you lose your job and can’t qualify.  It has never been a better time to buy a house - get out of the city now before the mob burns down your 900 square foot crap shack.  Zero commission brokerage accounts click here (fees and restrictions apply) – and…it’s gone.  Buy, sell, or hold?  What are you waiting for?  Another all-time high.  Synergies, paradigm shifts, raising the bar, the deal of a lifetime, low hanging fruit, win-win.  Get off the fence, get your ducks in a row, step up to the plate, and think outside the box and push the envelope because failure is not an option.  The business of America - is still business.  But that business now is the business of financialization, the gathering up of the remaining mugs and dupes who still own some disposable assets to be sucked into the giant wealth transfer vacuum that is Wall Street.  And when Wall Street has sucked up every last penny, our trip down the Road to Zero will be complete.  That is when the salvation of Globalism will be forced upon us.

What Financialization Really Is

But what really is financialization?  Its simplest definition is, separated from the buzz and energy of its surface world, the present hedging of an entire nation’s aggregate asset value plus the hedging of all future profits derived from these assets in every sector of the economy, both public and private.  This hedge is accomplished through maximizing the amount of debt leveraged against every conceivable tangible, intangible, and imaginary asset class, including the national citizenry.  In perfectly efficient financialization, all accumulated liabilities eventually balance to zero against the aggregate net present value of the national asset base, plus all future profits generated by that asset base.  Maximizing this leverage is accomplished through a coordinated program of zero real interest rates (or less), combined with the creation of tens of trillions in new fiat money used by first-tier recipients – i.e., Federal Reserve System member banks - to monetize this national asset base.  Thus financialization is, at its core, the national descent into zero aggregate net present value and is, for lack of better terminology, the great cashing-in of an entire nation by its financial overlords.

When this national asset base and all its future profits are fully monetized with debt, the entire ownership and control of the national economy are transferred from stock owners (second tier unsecured liens) to bond owners (first tier secured liens).  Therefore, full and efficient financialization turns the entire focus of national economic endeavor away from generating profits that fund discretionary capital investments that lead to collective economic growth, towards generating revenue to cover ever increasing non-discretionary interest payments for a concentrated select group of bond holders.  Growth sustaining capital investments eventually evaporate as these increasing interest payments devour more and more discretionary spending, and thus “business” becomes a quest to continually whittle away at its remaining discretionary cost base, like labor and innovation, while simultaneously acting out a facade surrounding “shareholder value” for the decreasing number of shareholders who become increasingly irrelevant with every new corporate bond issue and share buy-back.  This change in the national asset base ownership therefore turns the stock market into a giant casino as “profits” derived from short positions are just wealth transfers from one party to another in a zero sum game, and long positions become entirely dependent upon the amount of inflation generated by increased fiat money creation that drives up both asset “values” and net cash flows from stagnant unit sales in a declining wage environment.  The nation is hollowed out as capital spending dries up, economic growth in real terms turns negative, and the entire investment “economy” is dependent upon ever increasing inflation driven by ever increasing Federal debt sales.  Thus in a perfectly financialized private sector, the lien holders control the “value” and the stock owners hold the bets. 

As capital spending and real growth evaporate, it falls to government to provide more and more of the “stimulus” that drives economic endeavor.  But as government is ultimately concerned only with politics, their spending programs serve to primarily sustain the Four Pillars of the new economic model – Wars, Waste, Wall Street, and Welfare.  As financialization matures, it establishes a permanent decline in the national standard of living as efficient financialization demands either minimal wages or foreign outsourced labor arbitrage.  For those occupations that cannot be outsourced, wages get reduced below that required to support one’s self and family, so government steps in with its “Great Society” that is in reality a subsidy for the transfer of wages into interest payments.  Thus all welfare is ultimately a corporate subsidy as efficient financialization matures.  So when private economic endeavors are squashed through regulation or competition with corporate entities and the majority of the national citizenry are welfare recipients, discretionary capital spending will end, growth will cease, and real economic activity grinds to a halt.  So financialization is not only a national descent into zero net present value, it is a national descent into zero collective drive, zero collective motivation, and zero coordinated direction.  It is fundamentally opposite to that of the natural human state of people within a complex society practicing the social interactions of labor barter and trade among individuals.  As financialization matures through the destruction of individual economic endeavor, the formation of corporate monopoly cartels, and the transformation of society into a pool of government dependents, it cancels the fundamental underlying conditions of individual membership within society and replaces social intercourse not only with alienation from the means of production, but alienation from one’s fellow members in society.  Thus financialization is, ultimately, the national descent into zero coherence and zero rationality.  It is in fact, the breakdown of society its self.  It is the Road to Zero.

This perfectly efficient financialization works equally in the public sector through all levels of government and has been working nearly undetected in the United States for 149 years.  The District of Columbia Organic Act of 1871 incorporated and privatized THE UNITED STATES when the country was bankrupt due to its insurmountable Civil War debts.  It was by no coincidence that a bankrupt United States, depleted of its gold reserves, reemerged six years later as THE UNITED STATES and, although bankrupt, was able to pass the Coinage Act of 1873, end bimetallism, and magically have enough gold to return to both a gold standard and a fully functioning fractional reserve banking system – i.e., mature classical capitalism out of the ashes of war and bankruptcy.  This sudden appearance of gold was likely the original Faustian deal to sell out the American people, and in return this new privatized form of Federal government and all its departments – including the military – were placed into unspecified ownership, likely the same parties that assumed the Civil War debts, and put a permanent end to Federalism “for the People”.  The nation’s new owners lay relatively dormant until they forced through the Federal Reserve Act of 1913 and pushed America into WWI to destroy Germany on behalf of the central bank cross ownership nexus.  Since 1913, the nation’s owners have raised their heads from time to time - the Roaring 20s stock market bubble, the Great Depression, the Roosevelt coup plot, WWII, the Cold War, Kennedy’s assassination, and 9/11.  But the final bill came due 100 years after the deal with the Devil was struck to finally and those Civil War debts were finally called in.  So for 100 years, Americans have been living within a great hypothecation until the starting gun of the Nixon Shock signaled the beginning of cashing-in on THE UNITED STATES.  Thus much of the national angst that has accumulated since 1971 can be explained as the conflict between the true national owners and those who believe they are its owners.  And much of the national citizenry still believe they are the national owners because they have yet to perceive that The United States “for the People” has transformed into THE UNITED STATES “of the People” and is now nothing more than a bank with a standing army.

The public sector’s main financialization vehicle is the Federal issue of US Treasury bills.  In perfectly efficient financialization, real interest rates are zero or below and discounting is not required, so cumulative federal debt issuance can equal the “value” of the national asset base plus annual national GDP times the remaining number of years a nation is expected to function.  E.g., if a nation’s asset base is worth $225 trillion and annual GDP is $25 trillion per year, and the central bank cross ownership nexus has set a remaining national life of 10 years, when Federal debt issuance reaches a cumulative $475 trillion at zero real interest rates, that nation’s public sector has been efficiently financialized.  These zero real interest rates are important as they do not erode through discounting the cumulative expected national GDP and thus allow maximum Federal debt issuance, and therefore maximum “value” extraction over the remaining functional life of a nation. 

Other public sector financialization mechanisms include bond issuance at successively lower levels of government.  These bond issues allow for maximizing macroscopic debt issuance at a cumulative national level as they are merely successive re-hypothecations of underlying asset “values” and their future income streams already pledged at the Federal level.  E.g., debt issued at state level backed by state assets and future income streams have already been pledged in the Federal US Treasury bill issuance and accounted for in national GDP.  County debt issuance backed by county assets and future income streams have already been pledged in the state debt issuance and accounted for in state GDP, and so on down through city bond issues, utility bond issues, school district bond issues, et cetera.  Thus from this multi-level re-hypothecation of over-lapping pledged assets and future income streams, through the magic formula of fiat money working together with financialization, the national asset base plus total cumulative future GDP can be leveraged at multipliers greater than one. 

Yet another public sector financialization mechanism is public civil infrastructure at all levels of government.  Water corporations, storm drain networks, government buildings, passenger rail services, sewage plants, hospitals, highways, and fresh water aquifers are sold off – usually for cents on the dollar – and turned into quasi-bond issues for interest generating entities paid for by “public use fees”.  Public land confiscation under pretense of environmental conservation is also a common public sector financialization mechanism.  The 1973 Endangered Species Act – passed by Congress soon after the Nixon Shock - legalized the termination of private lease-holdings and confiscated vast tracts of public land to create scores of nondescript national monuments, national forests, preserves, wildlife sanctuaries et cetera.  This expanding federally owned land portfolio is used to increase the collective national asset base for monetization and is, in actuality, a collateral pool of last resort for use in the next Federal default comprising 28% of all US territory.  Similar land confiscation programs exists at the state, county, city, and school district levels where the primary mechanism of confiscation here are tax nonpayment liens and eminent domain.  Thus public sector financialization is, in unadorned language, the process by which a nation is strip mined by the central bank cross ownership nexus and where its children one day really do wake up homeless on the continent their forefathers conquered. 

There are five processes that facilitate financialization – the legal framework, de-industrialization, inflation, propaganda, and a creeping police state.  Several significant individual acts of law have already been described that allowed the transition from capitalism into financialization to proceed unopposed, but the most relevant legal elements are contained within the District of Columbia Organic Act of 1871 that not only turned The United States into a private corporation under undisclosed ownership, but also established a dual Constitution without ratification via an Article V Convention.  This illegal constitution altered the scope of Federal governance from that acting “for the People”, to that acting “of the People”, which is a meaningless legal term that renders the entire American population disenfranchised from the scope of Federal governance objectives.  Since 1871, the true ownership of THE UNITED STATES has remained unstated, and legally this is important as an unstated corporate ownership here has the equivalence of stating that “We the People” do not own our own country.  So it is no wonder that for most of the last 129 years the actors within Federal government may change but their outcomes never do.  Only when one realizes that the primary purpose of Federal government since 1971 is to pile as much debt as possible onto the heads “of the People” can financialization be truly understood, and one can finally make logical sense from the perspective of who ultimately benefits from this national journey down the Road to Zero.  

De-industrialization was necessary to support the growing issuance of US Treasury bills needed to achieve perfectly efficient financialization of the national asset base.  The coarse workings of the American Fiat Empire’s “virtuous cycle” had to be altered after the Nixon Shock as US economic growth in value added exports had stalled, the aggregate US industrial base was too expensive to modernize, and a run on US gold reserves had left the country technically bankrupt under the constraints of a fractional reserve banking system.  Thus by the beginning of the 1970s the usefulness of the American industrialization cycle to the central bank cross ownership nexus had played itself out, but some alternative to American value added exports was needed to keep the “virtuous cycle” functioning lest the Soviet Union and its ruble expropriate world reserve currency status.  So outsourcing the US value added export economy to the likes of Japan, Taiwan, and Kores was the solution, with America now the importer of value added goods paid for in US dollars that generated foreign US dollar earnings that returned to the United States through the “soft” avenues in the Fiat Empire’s “virtuous cycle” to buy US Treasury bills.  Thus Federal government policy post-1971 was to aid and abet the destruction of the US American value added export capacity along with the elimination of millions of well-paying skilled factory jobs in order to pass US dollar earnings on to foreign nations that would then return these US dollars to the United States with the purchase of US Treasury bills.  But despite all this destruction of American factories and their well-paying jobs, the Fiat Empire’s “virtuous cycle” kept operating as before at the macroscopic level.  But once down the de-industrialization path, the Federal government could never allow the return of US value added export capacity as these exports would compete for foreign held US dollars with US Treasury bills, and if enough value added export goods were produced and sold in US dollars to foreign nations, that would reduce the amount of US Treasury bills sold, strengthen the US dollar, and put the American financialization project at risk by neutering the facilitating process of inflation.

As perfectly efficient financialization progresses and the national net present value approaches zero, the inflation generated through continuous US Treasury bill issuance drives the aggregate national asset base “value” higher, and each uptick in aggregate asset “value” underwrites ever more Federal debt issuance against what would otherwise be, in an inflation-less world, a static aggregate asset “value” with a finite amount of potential liens.  As inflation churns away and aggregate asset “values” rise, the national zero net present value point gets pushed further into the future and thus more cumulative debt can be issued over a longer period of time.  If inflation were to run high enough for long enough, Federal debt issuance could theoretically go on indefinitely and fund Wars, Waste, Wall Street, and Welfare forever despite the country producing next to nothing of true value.  Inflation also has the same effect on national aggregate revenue streams, and this is why deflation can grind the financialized economy to a halt as its entire workings are dependent upon the inflation that drives an increasing national asset “value” that drives the never ending issue of US Treasury bills that drives the inflation circulus in probando.  But with deflation, the aggregate national asset “value” shrinks, and US Treasury bill issuance can either stop – which means no more Wars, Waste, Wall Street, or Welfare - or continue and trigger hyper-inflation yet still salvage the Wars, Waste, Wall Street, and Welfare. 

Deflation is also the Achilles Heel of US national security since crippling economic crises can be easily engineered by foreign players that, either willingly or by coincidence, collectively do not buy US Treasury bills as did happen starting in 2014.  Thus as the Fiat Empire goes, not buying US Treasury bills is in effect a declaration of war “by other means” and is why since 2019 the Federal Reserve System has been frantically buying up its own debt to save the Wars, Waste, Wall Street, and Welfare at all (socialized) costs.  So the magic formula of creating money out of thin air births the creation of even more money out of thin air through inflation, and when the magic runs out and the rabbit insists on staying inside the hat, the abomination of deflation is released.  Thus inflation is the secret ingredient that drives asset prices ever higher and makes the wealthy asset holders even wealthier with every multi-billion dollar US Treasury bill auction.  But the cost of inflation is borne primarily by those who do not hold assets and cannot afford inflation, so inflation is thereby socialized through the mugs and dupes that make up “of the People”.  Deflation on the other hand, although the bringer of immediate economic carnage to a financialized economy, is over the long term the ultimate re-distributor, the bringer of equity and equilibrium, and the destroyer of the wealthy.  So, financialization is, by design, socialism for the rich, and deflation is thus the unwinding of this socialism and the cleansing reversion to the mean.

We are all familiar with the sustained and incessant propaganda campaign that we experience every day.  That unsolicited red, white, and blue bunting on city streets, the spectacular 4^th of July fireworks display, the F-35 flyover at the football game, and a special appearance by Uncle Sam on Stilts at this year’s patriotic flag waving parade.  But what we often do not perceive is our willing participation in these displays, the need to be drawn into rituals that block our subconscious knowledge that something really is seriously wrong with the nation, and these things that are seriously wrong will never be fixed.  So as this collective subconscious block grows, the more manufactured and elaborate these patriotic displays become - the harder we wave those flags, the louder we sing the Star Spangled Banner, the more ferociously we vote, and the more vigorously we do what effectively amounts to nothing.  It is when this collective block descends over our collective impotence that we then enter the final stages of financialization and the police state.

When financialization matures to the point where in its real world underbelly tens of millions have been disenfranchised from participating in economic activity, while its surface world screams about new all-time highs and the exotic travel tastes of tech trillionaires and their celebrity friends, the police state becomes the final, logical solution to keep “of the People” in check while the final pennies are plucked from the national carcass.  It is no coincidence that the Patriot Act was passed by Congress a mere 45 days after the 9/11 controlled demolitions, and it will be the vehicle by which the dissenting and disenfranchised will find themselves branded as “terrorists”, gathered up into the box cars, and shipped away to be disappeared by the millions.  Clean, efficient, cheap elimination, sustainable and always environmentally friendly.  And it will be at that point, in these cramped box cars, within these hot and stinking quarters during that collective silence where time is suspended between repeating clanks of iron on iron and the hypnotic rhythm of the carriage roll, it is here where “of the people” will ponder upon why they did not wake up, why they did not wise up, and why they did not rise up.  And so these thoughts go, box car after box car, train after train, day after day.  And as the trains slow into the camps, “of the People” will finally experience the epiphany of just how few individuals there were who ruled over the world, but will also discover too late just how few bullets would have fixed things early, how little blood need be shed to derail this Road to Zero.