Before we begin,
we repeat that the annual Rally at the Federal Reserve and the CESJ gathering
scheduled for this coming weekend, April 22-23, have been postponed due to
predicted inclement weather and other factors.
All is not lost, however, as several things are in motion that may help
us draw a larger crowd, and not come into conflict with various other events on
the DC Mall.
 |
| Not quite this enjoyable. |
Yesterday we had
a most interesting discussion with a CESJ Fellow who has been visiting an
African country (we'll call it "Country Y" because we want to know Y they're doing what they're doing . . . and Africa has no country's name that starts with "y" and "x" has been overused). Among the things on
which she reported was a Just Third Way perspective on the local financial and
banking system . . . which, to be generous, is approximately three or four
hundred years out of date.
Specifically, Country Y’s central bank is, to all intents and purposes, the government’s
private money machine. Since all but the
very highest levels of government are corrupt, this means that Country Y's central bank
is being used to create money to ship Country Y’s wealth to Switzerland,
Panama, and the Cayman Islands. This
problem is inherent in the global misuse of the world’s central banks, but it
has reached epidemic proportions in Country Y.
 |
| "No, no, NO!! I said there were too many CHEATERS." |
Thus, the main
purpose of a central bank, to provide an “elastic,” uniform, stable,
asset-backed currency to meet the needs of the private sector (NOT finance government),
is being completely ignored in favor of siphoning off Country Y’s resources
by anyone who gets away with taking enough bribes and getting enough kickbacks to feather his or her nest.
Nor is that all. Two other key functions of a central bank do
not even exist, i.e., serving as a
lender of last resort to commercial banks, and overseeing clearinghouse
operations.
Strictly
speaking, Country Y's central bank is not a true central bank, for it does not function
as a “bank for banks.” Instead, anyone
who can come up with the bribe money can get a bank charter and go into
business without being a member of the central banking system.
As a result, Country Y has what is called a “wildcat” banking system. Private banks operate with no tie to the
central bank, which has no member banks. Fortunately, private banks in Country Y cannot issue
banknotes, or there would be complete chaos, for each bank’s notes would have a
different value for its currency.
 |
| Calm down, banana breath. It was a stage name, anyway. |
Of course, that
also means that there is no real commercial banking system in Country Y, for people do not
trust checks or private promissory notes, only cash. Loans can therefore only be made out of cash
deposits . . . which means few loans are made because few people trust the
banks sufficiently to deposit their cash.
Fewer than 3% of the people have bank accounts.
As for
clearinghouse operations . . . there aren’t any clearinghouses. This means that a check drawn on one bank
will not be honored or even accepted for collection at any other bank — banks
don’t “talk” to each other, and can’t offset balances . . . thereby ensuring
inadequate reserves and no way to increase them except by accepting more
deposits . . . which people aren’t making because they don’t trust the banks. .
. .
 |
| "Just your money. Your life stinks." |
The commercial banks in Country Y have virtually
no foreign currency reserves — all that is taken in is shipped out of the
country into someone’s offshore bank account.
If a traveler wants money changed, he or she goes out in the street and
starts asking if someone will buy his or her currency. You can imagine how safe someone feels going
around asking people, “Say, can you change U.S. $100.00?” (To which the answer on occasion is very
likely, “Yes. From yours to mine. Hand it over.”)
Is there a
solution? There is always a
solution. Tune in tomorrow.
#30#
