February 27, 2015, by Jim Brown
[originally posted August 18, 2014 on We Hold These Truths]
The Merriam–Webster dictionary defines “fascism” as a political system that exalts the state above the individual. Fascism employs a centralized, autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition.
Historically, fascist regimes have ruled by coercion (for example, via the military) for an obvious reason: brute force is the only way they can subdue a population that would otherwise rise up against fascism’s tangible violations of individual rights.
But now it seems a new variety of fascism has been born. Instead of brute force, this new fascism employs deception. Instead of using prisons and terror, it relies on widespread ignorance for its success. I call this new depravity Monetary Fascism because it uses the authority of the nation’s central bank as a tool of almost unlimited power to implement central planning and control of the economy. It is a worldwide phenomenon, employed by the central banks of the world’s great economic powers.
Like a slow-growing obesity, this new fascism has mostly gone unnoticed because it is an extension of what central banks have been doing for decades via their “normal” monetary policy. Historically, this policy has consisted mainly of growing the money supply modestly (6-7% annually) by purchasing government debt with newly created money. Even this “normal” intervention causes many unseen distortions in the economy, but it is paltry compared to the current level of central bank interference. For example, since the 2008 financial crisis, the US Federal Reserve, through its so-called “quantitative easing” program, has created nearly $3 Trillion of new and additional money which it has used to purchase US Treasuries and mortgage-backed securities. This new money – equivalent to legalized, counterfeit currency – is injected into the economy on a massive scale, benefiting government and its cronies at the expense of the rest of us. Other central banks, especially those of Japan, the United Kingdom, and China, have engaged in similar programs of unprecedented monetary expansion.
This scheme may be the most massive theft in history. Consider a few of the ways in which wealth is unfairly transferred from ordinary citizens to the government and its cronies. (Note: this list merely scratches the surface.)
1. When the Fed or any other central bank purchases a government bond, it provides new, additional, unearned money to the seller of the bond. This new money has the same purchasing power as all other money in existence, but its creators, the central bankers, did nothing to earn it – they simply conjured it out of thin air. Each newly-created dollar or pound or yen represents a new potential claim on the real assets of the economy, thus raising asset prices and diluting the economy’s existing pool of money. The recipient of the new money (usually the government’s treasury, or perhaps a bank) benefits directly from the new purchasing power, while everyone else’s money gets “clipped,” i.e., diluted in value.
2. Central bank bond purchases constitute a huge additional demand for government bonds, forcing interest rates down to levels much lower than what would otherwise exist in a free market. Today’s ultra-low rates provide cheap financing to government, encouraging growth of government activity that could not take place under normal (higher) interest rates. Low interest rates also finance private business entities that would not exist in a free market. Because of suppressed rates, capital tied up in these sub-par businesses is not liquidated and cannot find its most profitable and most important use. Businesses that should not exist continue to limp along, while other businesses or startups that might prosper under higher interest rates are starved for capital. This “malinvestment” – all caused by central banks’ intrusion into the bond market – is hard to observe and impossible to quantify, but, without a doubt, the damage and distortion to the economy is immense.
3. Low interest rates rob savers. Conservative investors, who normally would depend on interest from their savings, are forced to consume capital or reduce their lifestyle because they can no longer earn a decent return on their nest egg. To the same extent the recipient of the “new money” prospers from “new” purchasing power, the saver suffers from dilution of his “old” purchasing power.
4. Central banks’ intervention in the bond market is the leading cause of unjust economic inequality. By flooding the economy with money at low interest rates, central banks pump up prices in the stock market. And, of course, the owners of stocks are, overwhelmingly, the wealthy owners of stocks. By contrast, the poor – who hold most of their meager wealth in the form of money – are penalized by the depreciation of their money’s purchasing power. Actually it is worse than what I have just stated, because many wealthy people are “in on the game” to the extent they understand why their stock prices are going up, while practically none of the poor are in a position to understand what is happening to them. Make no mistake, this is the outcome desired by our central bankers. It is nothing less than a cynical and unconscionable transfer of wealth from the poor to the rich. For a detailed description of this sad state of affairs, see Dr. George Reisman’s prescient essay: Credit Expansion, Economic Inequality, and Stagnant Wages.
5. Bad as all this is, things have recently gotten worse. Central banks are now intervening directly in the stock market. According to the website of The Official Monetary and Financial Institutions Forum (OMFIF – an association of central banks and other public sector investors):
“Central banks around the world, including in Europe, are buying increasing volumes of equities as part of diversification by official asset holders that are now a global force on international capital markets. This is among the findings of Global Public Investor (GPI) 2014, the first comprehensive survey of $29.1tn worth of investments held by 400 public sector institutions in 162 countries.”
According to the article – written in the dry tone of a bank report – central banks are purchasing equities because yields in the bond market are too low. (Never mind that they themselves are responsible for forcing bond prices up and driving those yields down!) Like the rest of the investing world, central banks need investments that produce income. Having crushed the incomes of millions of investors, the world’s central banks are now raiding the stock market.
Think about what is happening here. Monetary authorities are now purchasing actual legal ownership in real companies. What is to prevent these modern day money-printers from buying up entire companies or industries? If you want to buy stock in a company, you have to save your money or borrow someone else’s saved money to do so. But central bankers merely print new money to buy their stock investments – after which they can vote proxies, elect directors, and hire and fire management just like any legitimate shareholder.
Some of the banks mentioned in the OMFIF report – for instance, the Swiss National Bank, the Bank of Israel, and the Bank of Japan – were once considered bankers to the most capitalistic nations on earth. No more. They now compete directly against the free market forces of capitalism itself. By virtue of their ability to conjure new money with nothing more than a keystroke or a mouse click, they have nearly unlimited power to own and control private industry. If this is not “monetary fascism,” I don’t know what else to call it.
Most citizens, if asked, would strongly object to their government owning and controlling private businesses. The problem is that most citizens have no idea what the world’s central banks are doing. Few understand the adverse consequences of their central bank’s “normal” monetary policy. Even fewer know about this new equity-buying trend that portends a new, increased level of control by government over private industry.
So far the US Federal Reserve is not playing this game, as that would require an act of Congress. But how long will it be before the Fed gets this authority in the name of obtaining a “level playing field” with other central banks?
Perhaps the worst aspect of this wealth transfer and property-grab is that practically no one, aside from the governments involved and their cronies in the investment markets, are aware of what is happening. This must change. Ordinary citizens need to wake up and smell the coffee. They need to vote for politicians who will put strict limits on – or better yet, eliminate – the world’s central banks. The future of capitalism – and our individual freedom – depends on it.