POWER OF STORY: WHO CONTROLS OUR MONEY SYSTEM?

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

Your agreement with your bank when you make a deposit is that they will return your money to you whenever you demand it if it is in a checking account, or within a period of a few months if it is in some form of a savings account.

This is a promise that the banker only presumes he can keep. Your money is then taken, and the majority of it is loaned to someone who may not be required to repay the money for perhaps twenty or thirty years. Obviously, the bank cannot technically keep both agreements. History has proven, however, that if the element of confidence is present, new depositors will put more money into the bank, and out of that new deposit you can receive your money if you so demand.

In the late 1700s, the young government of the United States quickly realized the need for some type of control over banking. Independence and freedom, however, were the key items in the development of early America, and the fear of federal control and “money monopoly” frustrated any successful attempt by the government to bridle banking. “Wildcat banking” was prevalent, and since all banks were scrambling to make a profit, many banks failed due to undisciplined management. The bank panics of 1819, 1837, and 1857 brought about the National Banking Act of 1864.

In 1900, the United States went on the gold standard that was intended to stabilize the economy by making all forms of U.S. currency redeemable with gold. But following the panic of 1907, Congress was persuaded that the reason for all the country’s economic “ups and downs” was that there was no central banking system. They claimed that with such a system there

• Would be control over the nation’s total money supply.

• The central bank could step in and protect the depositors of any bank that had become overextended.

It was argued that this would guarantee once and for all the confidence in the banking system. Thus, two days before Christmas, 1913, (after most Congressmen had left Washington D.C. and returned to their homes for Christmas holidays), President Woodrow Wilson signed the Federal Reserve Act.

There was strong reluctance on the part of the individual banks to create a strong central system in Washington D.C. or New York, so the Federal Reserve Act became somewhat of a compromise. It divided the country into twelve districts with each district containing a Federal Reserve Bank and additional branch banks. All banks with “National Bank” designation were required to join, but the state banks only joined if they so desired.

The Federal Reserve Bank is a separate organization, not under the direct control of Congress or the President of the United States. The stated intent was to establish an impartial “referee” to oversee the banking system. The current President, however, does appoint any vacancy on the Board of Governors. The Board consists of seven members. Each member is appointed for a fourteen year term and they completely supervise the Federal Reserve System.

You could not walk into a Federal Reserve Bank and make a deposit or negotiate a loan. A Federal Reserve Bank is a “banker’s bank” that receives deposits, holds reserves, issues notes and currency, and clears checks . . . just for banks. You are affected, however, by an agency known as the Federal Depositors Insurance Corporation (FDIC) that serves to bolster your confidence in the Federal Reserve System by claiming that every bank account is guaranteed up to $250,000, and that since 1934 no depositor has lost any insured funds as a result of bank failure. That guarantee is supposed to alleviate your fears of making deposits in your local bank, even though you subconsciously know that the institution could ultimately only cover a fraction of a penny for every dollar on deposit.

The U.S. Treasury prints paper money and mints coins, but the Federal Reserve System alone is authorized to place them into circulation. The U.S. Treasury also maintains its deposits from taxation, fees, etc., in the “Fed,” as it is often called.

The Board of Governors is assisted by a Federal Advisory Council and the Federal Open Market Committee that is in charge of buying and selling government securities (we will see the importance of this committee later, in the role of inflation).

Of course, the old established banks had no desire to be controlled, but, they had lobbied Congress for government regulations to make it more difficult for additional banks to enter into the competition and to keep the other established banks from initiating competitive practices that would have affected their profits. Perhaps it was due to these ulterior motives that the Federal Reserve System failed so miserably in helping ward off the Great Depression and the bank crashes of 1929.

A most important fact to remember is that the Federal Reserve Board has ultimate control over the money supply of the United States of America. They have the power to either increase or decrease the total amount of money, including the ethereal numbers of computer money digits in the monetary system.

Next week: the three basic methods the Federal Reserve uses in its alteration of the money supply.

              (Research ideas from Dr. Jackson’s new writing project on Cultural Economics)
 

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

POWER OF STORY: BANKING

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

The last half dozen articles I have written have dealt with the question: What is Money? The conclusion was that over the past two hundred years our concept of money has slowly changed. Cash has become a concept and not a commodity. No longer do we think of money as a bar of gold or silver from which we peel off enough shavings to fulfill the requirement of the balance scale. We instead, fancy money as simply a credit or debit stored in the memory chip of a computer and backed up solely by confidence.

The money system has morphed into what it is because of our demand for convenience, and it is based strictly on the confidence that someone else will accept our ethereal numbers from the computer to satisfy what we owe. There is now no such thing as gold or silver to back up the value.

Here is a confession: I actually went back and read again what I had written about money. My question was: Why did I write that material as if I were an economics professor delivering a lecture in front of a classroom?

I am one of the diehards who still wholeheartedly believe in the power of story. We usually understand best through story. If we are to understand:

• our fractional reserve system of banking,
• how and why the Federal Reserve System exists without control of the US government or the banks,
• how the phenomenon of inflation takes wealth away from you like a thief in the night without the necessity of even one vote of congress,

it will be absolutely necessary to understand some very simple and basic facts that will probably not be gleaned from an economic lecture.

So, please indulge me to try to utilize the power of story to explain in the next set of writings how all of this works together in the real world of money and finance:

The story of banking begins with the ancient goldsmiths. When “Barney Businessman” was fortunate enough to accumulate a sizeable amount of gold or silver as a result of his business dealings, he was then confronted with the problem of keeping it safe from those who had intention of forced wealth redistribution, i.e., thieves and robbers.

Because “Gaffney Goldsmith’s” business was that of dealing in precious metals, he had been forced to construct a thief-proof vault. It was only natural then that Barney Businessman would go to Gaffney and request of him space in his vault to store his accumulated gold. In fact, Barney was willing to pay Gaffney a fee for the “safekeeping” of his gold.

Of course, when Barney deposited his gold into Gaffney’s vault, he requested and received a receipt of deposit which he had to present whenever he wished to reclaim his gold. Other people in the community began to realize that Gaffney Goldsmith’s vault was an extremely safe and convenient place to keep their gold. In fact, Gaffney’s vault became somewhat of a warehouse for gold.

Gaffney was pretty intelligent and he had taken mostly honors classes in school, so it didn’t take him long to realize that on any given day, eighty to ninety percent of the gold in his vault simply sat there collecting dust. He became convinced that there would never be a day when everyone would come to his vault and want to withdraw all their gold at the same time. Any daily withdrawals of gold would be offset by that day’s receipts of gold. And since gold is gold and gold is gold, no one seemed to care whose gold he received when he wanted to make a withdrawal.

Therefore, Gaffney usually made all of his transactions out of the few bags of gold in the front of his vault while all the bags in the back sat there collecting dust and taking up a lot of valuable vault space. Gaffney realized that he had a good thing going. And his books always balanced!

GAFFNEY GOLDSMITH

                                                                                             *        LIABILITIES &

                                                                       ASSETS          *            NET WORTH

                                                   --------------------------------*---------------------------------

                                                      GOLD             $2000       *        RECEIPTS      $2000

The gold was an asset to Gaffney, because it was under his control. The receipts were a liability to him, because they represented the owner’s claim on the gold, and sooner or later, he would be called upon to return the gold.

Question for next week: How was it possible for Gaffney to keep his books balanced and at the same time create more money in the community? 

          (Research ideas from Dr. Jackson’s new writing project on Cultural Economics) 

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

SO, WHAT IS MONEY? PART 5

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

As we have discussed, the only reason printed paper money has purchasing power today is because people accept it as having value. You accept paper money in payment only because you have confidence in the fact that other people will accept your paper money when you wish to pay for something.

 

It is not too difficult to see how check writing came into practice. It, too, was based on convenience and confidence. The practice of check writing was somewhat of a throwback to the old idea of signing over to someone else the receipt that the goldsmith had issued when you gave him your precious metal to hold in his vault for “safe keeping.”

The explicit instruction on that paper check allowed a depositor to tell the holder of the value to transfer the funds from the depositor’s account to the account of another to whom the payment needed to be made. As long as the intended recipient of the funds was convinced he would actually end up with the funds, he would accept the written check as payment.

The plastic credit card was a phenomenon of my lifetime. In the beginning it was not really seen as money, because the credit card required another form of money, either cash or check, to pay off the monthly charges. But the convenience of the plastic credit and debit cards was so alluring and so addictive that the requirements for the factors of confidence were hardly given a second thought.  More and more usage of the plastic credit cards included the direct authorization of transfer of value from holder, through the financial institution, and on to the merchant.

Over time, the tangible aspect of money has come to be seen as a nuisance as well as a nescience. There is so much tacit confidence and presumption in the emerging system of ethereal money that to me it smacks of overwhelming incredulity. The full confidence is placed not in something that is even remotely tangible and protectable, but in the wishful thinking that envisions a failsafe system of convenience and absolute confidence placed in a collection of numbers stored in a computer. Cash has become a concept and not a tangible asset. That is a scary and very vulnerable position for a culture.

         (Research ideas from Dr. Jackson's new writing project on Cultural Economics)

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com