The Symbiotic Relationship Between Central Banking and Total War

The following is the prepared version of a speech delivered at the Ron Paul Institute Conference in Sterling, VA.

I am here today to talk about one of the most important, but also most overlooked, issues of our day: the relationship between central banking and total war. When you focus on central banking and the problems that result from it, it’s very easy to see how central banks enable larger, more centralized, and more pervasive governments. But it isn’t always easy for those who oppose war to see how central banks enable war. So I’ll go ahead and give you kind of the 10,000 foot view of the symbiotic relationship between central banking and war.

One of the primary activities that states engage in is fighting wars. But wars cost money. Armies march on their stomachs, and someone has to buy the necessary food and transport it. Weapons and armament cost money too, all of which has to be paid for. So where have kings and governments historically gotten that money from, particularly when their own treasuries ran out? As Willie Sutton could have told them – banks.

Banks developed initially as a means for merchants to store their funds safely and securely. But eventually those banks took in so much money that they got the idea to loan out some of those funds, hoping that they could juggle loans and receive enough payment on outstanding loans to satisfy demands for redemption by depositors. Thus was born fractional reserve banking and the recourse to banks as lenders of money. Sure, kings could expropriate money from banks, but that only went so far. If you continued to rob banks outright, they would eventually either hide their money or disappear from the kingdom and the king was left with no money to fight his wars. So what developed was a relationship that has developed over time and become ever closer and more symbiotic over the course of time between banks and governments.

Daily Money & Banking News Update: 09/27/2016

  1. Why Study Economics? – Speech by Vice Chairman Stanley Fischer (Federal Reserve Board)
  2. Fed’s Fischer Urges Diversity, Steers Clear of Policy Outlook (CNBC)
  3. Labor Force Participation Rate Decline Is Mostly Structural, Fed’s Fischer Says (MarketWatch)
  4. Donald Trump Accuses Yellen, Fed of Politicizing Interest Rates (MarketWatch)
  5. Bank of Dave (Alt-M)
  6. Precious Metals Update: Bullion Sales Down This Week (Coin Update)
  7. Europe’s Latest Bank Crackdown Sparks Fear and Relief (Financial Times)
  8. China Cities Move to Halt Housing Market Frenzy (Financial Times)
  9. Wells Fargo Likely to Decide on Clawback Before Thursday (Reuters)
  10. Political Support for Banks Must End: Bundesbank (Reuters)
  11. BOJ Board Was Uncertain of Reaching Price Goal: July Minutes (Reuters)
  12. Banks Typically Reject 6-15 Percent of Would-Be Clients: Survey (Reuters)
  13. Don’t Look for a Bailout of Deutsche Bank Anytime Soon (CNBC)
  14. Vancouver Named as the Financial Center With the World’s Riskiest Housing Bubble (CNBC)
  15. Bank of America to Cut Asia Investment Banking Jobs (CNBC)
  16. Donald Trump Charges China with Yuan Manipulation – Again (Wall Street Journal)
  17. Bitcoin-Inspired Technology Starts to Reshape Currency Markets (Wall Street Journal)
  18. SWIFT Reports Summer Cyber Attacks on Three Banks (Wall Street Journal)
  19. Why Yellen May Quit If Trump Wins (MarketWatch)
  20. Wells Fargo Board Is Actively Considering Executive Clawbacks (MarketWatch)
  21. German Lawmakers to Quiz ECB’s Draghi Over Monetary Policy (Reuters)
  22. Royal Bank of Scotland to Pay $1.1 Billion to Resolve US Regulator’s Mortgage Case (Reuters)
  23. World Bank Reappoints Kim to Five-Year Term as President (Reuters)
  24. Lawmaker Hensarling in Favor of Wells Fargo Clawbacks (Reuters)
  25. Wells Fargo CEO to Give Up $41 Million in Pay After Sales Scandal (Washington Post)
  26. Wells Fargo Launches Investigation Into Retail Banking Sales Practices (Reuters)
  27. Germany Reaps Upside to ECB’s Easy Money Policies (Wall Street Journal)

Ron Paul: Wells Fargo or the Federal Reserve – Who’s the Bigger Fraud?

The Wells Fargo bank account scandal took center stage in the news last week and in all likelihood will continue to make headlines for many weeks to come. What Wells Fargo employees did in opening bank accounts without customers’ authorization was obviously wrong, but in true Washington fashion the scandal is being used to deflect attention away from larger, more enduring, and more important scandals.

What Wells Fargo employees who opened these accounts engaged in was nothing more than fraud and theft, and they should be punished accordingly. But how much larger is the fraud perpetrated by the Federal Reserve System and why does the Fed continue to go unpunished? For over 100 years the Federal Reserve System has been devaluing the dollar, siphoning money from the wallets of savers into the pockets of debtors. Where is the outrage? Where are the hearings? Why isn’t Congress up in arms about the Fed’s malfeasance? It reminds me of the story of the pirate confronting Alexander the Great. When accused by Alexander of piracy, he replies “Because I do it with a small boat, I am called a pirate and a thief. You, with a great navy, molest the world and are called an emperor.”

Over two thousand years later, not much has changed. Wells Fargo will face more scrutiny and perhaps more punishment. There will undoubtedly be more calls for stricter regulation, notwithstanding the fact that regulators failed to detect this fraud, just as they have failed to detect every fraud and financial crisis in history. And who will suffer? Why, the average account-holder of course.

Daily Money & Banking News Update: 09/26/2016

  1. Goldman Axing Nearly 30 Percent of Asia Investment Banking Jobs (CNBC)
  2. Wells Fargo CEO Gets $123.6 Million If He Walks (CNBC)
  3. What to Do If You Were Scammed by Wells Fargo (CNBC)
  4. Does Fed Policy Reveal a Ternary Mandate? (Boston Fed)
  5. Negative Rates Aren’t Working. Why Do Central Banks Persist? (American Enterprise Institute)
  6. Japan’s Record Cash Pile No Good for Banks (Financial Times)
  7. Donald Trump’s Salvos Add to Pressure on Federal Reserve (Financial Times)
  8. Deutsche Bank Says No Need for Berlin’s Help in $14 Billion US Dispute (Reuters)
  9. Eurozone Economy “Resilient” Despite Brexit Vote: Draghi (Reuters)
  10. EU May Refuse to Sign Up to New Banking Rules: Sources (Reuters)
  11. States Must Stick to Bank Bailout Rules: ECB’s Angeloni (Reuters)
  12. EBA Chairman Urges Quick Decision on New Location of EU Authority (Reuters)
  13. Yen Gains After Kuroda Sticks to Negative Rate Script (Reuters)
  14. Europeans Want “Tangible Benefits” From EU Institutions: ECB’s Draghi (CNBC)
  15. ECB’s Draghi Says Low Rates for a Very Long Time Have Side Effects (CNBC)
  16. Japanese Banks: New Policy, Same Old Pain (Wall Street Journal)
  17. Bank of Japan Tries Another Way to Spur Inflation (Wall Street Journal)
  18. Tarullo: Fed Will Seek More Capital From Largest US Banks (CNBC)
  19. Desperate Central Banks Double Down on Failed Policies (MarketWatch)
  20. Mervyn King Says This Is the Future of Central Banks (MarketWatch)
  21. Credit Card Payments Surpass Cash Worldwide for the First Time Ever (MarketWatch)
  22. Next Steps in the Evolution of Stress Testing – Speech by Governor Daniel Tarullo (Federal Reserve Board)
  23. The Limited Rise of the Yuan (Wall Street Journal)
  24. Fed’s Tarullo Raises Prospect of Bank Breakups (Financial Times)
  25. US Labor Department Launches Review of All Wells Fargo Complaints (Reuters)
  26. Fed’s Kashkari Says No US Rate Hike Was Right Move (Reuters)
  27. American Express Can Enforce Credit Card Anti-Steering Rules (Reuters)
  28. Fed Outlines Which Banks Would Get Stress Test Relief (Reuters)
  29. R3, Eight Banks Successfully Test Intel Blockchain Platform for Bond Trading (Reuters)
  30. Commerzbank to Cut 9,000 Jobs in Restructuring – Handelsblatt (Reuters)
  31. ECB and Italy’s Bank Rescue Fund Head Clash Over Bailout Rules (Reuters)
  32. SWIFT Says Bank Hacks Set to Increase (Reuters)
  33. ECB’s Coeuré Says QE Less Effective Than Hoped Due to External Shocks (Reuters)
  34. Wider Criminal Background Checks for Bank Executives Unveiled by CSBS (Roll Call)
  35. OCC Chief Denies Increased Federal Regulation Has Hurt Banks (Roll Call)
  36. Germany Won’t Let Deutsche Bank Become “Lehman Moment”: Analyst Peter Boockvar (CNBC)

Daily Money & Banking News Update: 09/23/2016

  1. Global Banks Partner to Form Blockchain Payments Network (CoinDesk)
  2. SWIFT 2.0? Ripple Signs Major Banks to Blockchain Payments Deal (Cointelegraph)
  3. Boston Fed’s Rosengren: Economy Needs “Modest, Gradual Tightening Now” (CNBC)
  4. Federal Reserve Proposes New Limits on Wall Street Energy Bets (CNBC)
  5. Statement of Eric S. Rosengren, Commenting on Dissenting Vote at the Meeting of the Federal Open Market Committee (Boston Fed)
  6. Let’s Not Start a War on Cash (Cato Institute)
  7. Financial Privacy in a Free Society (Heritage Foundation)
  8. Russia’s Central Bank Criticizes the Easy Money Policies of Its Peers (CNBC)
  9. Confidence Grows That Mark Carney Will Steer BOE Through Brexit (Financial Times)
  10. Säästöpankki: Finns Unlikely to Give Up Cash Altogether in Near Future (Helsinki Times)
  11. Recession Risk Has Grown Because Fed Didn’t Hike, Rosengren Says (MarketWatch)
  12. Ten Million US Families Don’t Use a Bank – Here’s What It Costs Them (MarketWatch)
  13. Fed’s Internal Split Tied to Dueling Views on Jobs Outlook (Reuters)
  14. Fed Policy Is Not as Accommodative as People Think, Kaplan Says (Reuters)
  15. Fed’s Kashkari Tweets Rate Hike Worries, Without Emoji (Reuters)
  16. France, Germany Warn Against Stricter Capital Rules for Banks (Reuters)
  17. Fed’s Kashkari Says He Worries About Raising Rates Too Quickly (Reuters)
  18. ECB Policy Seen Effective, So Only Minor Tweaks Coming: ECB and Central Bank Sources (Reuters)
  19. Payments Group Announces Same-Day ACH Processing Rule for US Banks (Reuters)
  20. Atlanta Fed’s Lockhart Says Inequality Among Most Pressing National Issues (Reuters)
  21. US Judge Tells CFTC He Won’t “Rubber Stamp” Deutsche Bank Deal (Reuters)
  22. Barroso Says Goldman Is “No Drug Cartel,” Blasts EU Judgment (Reuters)
  23. China’s Money Rates Ease After Fund Injection But Pressure Persists (Reuters)
  24. PIMCO Says Bond Yields to Rise Gradually as Central Banks Run Out of Rope (Reuters)
  25. Schäuble Urged Lawmakers to Grill ECB’s Draghi: BILD Newspaper (Reuters)
  26. China’s Toxic Debt Pile May Be Ten Times Official Estimates: Fitch (CNBC)

Daily Money & Banking News Update: 09/22/2016

  1. There Are Too Many Banks for the Industry to Be Profitable: Draghi (CNBC)
  2. Making Bank: The Ten Best-Paid Bankers (CNBC)
  3. Yellen Is Afraid of Donald Trump, Strategist Says (CNBC)
  4. ECB’s Draghi Warns Crowded Banking Sector Is Squashing Profits (MarketWatch)
  5. ECB Fears Legal Action Will Rein In Scope for QE (Financial Times)
  6. Why Some Fed Voting Members Hold More Influence Than Others (Fox Business)
  7. US Activity Slowed by Factory Slowdown, Chicago Fed Index Shows (MarketWatch)
  8. IMF Says Portugal Bailout Only “Qualified Success”, Leaving Unfinished Business (Reuters)
  9. Europe’s Shadow Bank Sector Needs Closer Scrutiny: Draghi (Reuters)
  10. Citi Declares the End of QE as Japan Overhauls Its Policy (CNBC)
  11. Japan’s New Special Relationship with the Federal Reserve (Wall Street Journal)
  12. Central Bank Tools Are Losing Their Edge (Wall Street Journal)
  13. Central Bankers at Wit’s End (Wall Street Journal)
  14. US House Bill Aims to Set Up “Sandbox” for Fintech Innovation (Wall Street Journal)
  15. Yellen to Be Grilled by House Panel Over Bank Supervision (MarketWatch)
  16. Wells Fargo CEO Resigns From Advisory Role with the Federal Reserve (Washington Post)
  17. US Banks Hold Top Five Places in Global Investment Ranking (Financial Times)
  18. Doves Ascendant in Janet Yellen’s Federal Reserve (Financial Times)
  19. ECB Should Use Flexible Time Horizon to Reach Inflation Goal: Knot (Reuters)
  20. Bank of England’s Forbes Sees No Case for Further Rate Cut (Reuters)
  21. Wells Fargo Investigation Only in Third Inning, Rep. Hensarling Says (CNBC)
  22. Why the Bank of Japan May Be Praying for a Fed Rate Hike (CNBC)

Daily Money & Banking News Update: 09/21/2016

  1. A Surprise Fed Interest Rate Hike Can’t Be Ruled Out (MarketWatch)
  2. The Latest From the Bank of Japan (Ben Bernanke’s Blog)
  3. BOJ Launches New Form of Policy Easing (Financial Times)
  4. “A Radical Step” – Analysts React to Bank of Japan’s Policy Reboot (MarketWatch)
  5. Here’s Why the Bank of Japan Is Putting Its Focus on the Yield Curve (MarketWatch)
  6. BOJ Overhauls Policy Focus, Sets Target for Government Bond Yields (Reuters)
  7. Heat Rises on Wells Fargo CEO After Lawmaker Grilling (Reuters)
  8. IMF Eyes More China Yuan Transparency with Reserve Currency Move (Reuters)
  9. Bank of Japan Criticized for Behaving Like “Control Freaks” (CNBC)
  10. Bank of Japan Announces Major Policy Overhaul in Latest Bid to Goose Economy (CNBC)
  11. Bank of Japan Makes Yield Curve Maneuvers in the Dark (Wall Street Journal)
  12. Bank of Japan Sets Bond Rate Target in Policy Revamp (Wall Street Journal)
  13. Fed Stands Pat on Interest Rates “For Time Being” (MarketWatch)
  14. Fed “Dot Plot” Predicts Slower Pace of Rate Hikes (MarketWatch)
  15. Divided Fed Holds Interest Rates Steady But Notes Improving Economy (New York Times)
  16. Fed Keeps Rates Steady, Signals One Hike by End of Year (Reuters)
  17. Central Banks Tell Regulators Banks Must Tighten SWIFT Security (Reuters)
  18. Fed Looks Set to Move in December… Maybe (CNBC)
  19. Fed’s Yellen: I Would Expect to See a Rate Hike This Year (CNBC)
  20. Yellen Responds to Trump: I Can “Emphatically” Say Politics Do Not Affect Us (CNBC)
  21. Here’s What Changed in the New Fed Statement (CNBC)
  22. FOMC Leaves Rates Unchanged in September Meeting (CNBC)
  23. Janet Yellen Isn’t Going After Wells Fargo (CNBC)
  24. BOJ Experiment Risks the Worst of All Worlds (Financial Times)
  25. The Most Fed Members Dissented Since 2014 – Here’s What They’ve Said (CNBC)
  26. Investors Stuck Between Two Central Banks (Wall Street Journal)
  27. Three Fed Officials Dissent in Interest Rate Decision, Want Increase Now (Wall Street Journal)

FOMC, Not Surprisingly, Holds on Interest Rates Again

The Federal Open Market Committee (FOMC) decided yet again today to hold off on raising the target federal funds rate. Not much changed in the language of the FOMC statement, with the Fed believing that the labor market continues to strengthen and that economic activity is picking up. The FOMC continues to see economic activity expanding, the labor market strengthening, and thus a stronger case for an increase in the federal funds rate. Perhaps the only shocking part of today’s FOMC statement was that there were three dissensions from the decision. Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester, and Boston Fed President Eric Rosengren all dissented, each favoring a rise in the federal funds rate to 1/2 to 3/4 percent.

While there had been some discussion of a surprise rate rise today, and the dissent of three FOMC members shows indications that a rate rise may very well be around the corner, news of today’s Bank of Japan monetary policy action may have also played a role in the Fed’s decision not to raise rates today. Tightening monetary policy, no matter how loose it still remains, while other central banks continue to loosen, will only exacerbate the effects of the Fed’s actions. Perhaps the Fed is just taking a wait and see approach to see what happens in Japan and Europe before it decides to go ahead with another rate hike. Let’s hope that someone asks that question in this afternoon’s press conference.