Money is power, and the big banks know it

It was many years ago that modern Western civilization crossed the Rubicon and developed a system of banking that lent more power to bankers than to the people. This is how modern money mechanics work - and it's not all bad.

With trillions of dollars on balance sheets at banks - big and small - it is important to have banks that ensure the proper flow of capital to resources that are in demand. It is the backbone of the capitalist system - the "profit motive" that built the Modern Era.

Politicians are prone to "pet projects" and support for unproductive industries, because they have constituents who would suffer without political support. This is planned economics - and it's not all bad either (unless you start forcing your plan on people). This helps mitigate shocks - and allows steady growth to proceed without the short-term vacillations of market forces that can be devastating to individual lives and families.

Since the 2008 financial crisis and the subsequent Great Recession, the interdependency of bankers and politicians has created a new form of state-sponsored capitalism - a hybrid of both ideas. The secret to the Great Recession that no one likes to talk about is this transition was irrevocably accelerated and has led to a much greater than advertised bailout to the banks.

With AIG and the Big Banks having paid off (mostly) the $700 billion that the government granted them in 2008. We need to look at the continuing bailout that is creating new global imbalances and will likely be described as the cause of the next big crisis. With 0.5% interest to banks, that are lending to consumers at 4.5% - they are minting a profit. This is doing two things:

1) Giving banks a government subsidy by inflating the money supply. This is great for them because: it makes their debts smallers; and improves their capital. But, 2% inflation to everyone but central bankers means making 98% of last year's earning. This makes paying bills more difficult and has a negative affect on consumer spending and investment (the real economy). This process is likely to accelerate into 2013-2015 as the deflationary spiral that was averted by Ben Bernanke (by printing money), turns hyper-inflationary as real growth begins. Consumers will start hurting more and more as inflation ticks up to 4-6%.

2) Increased leverage rates at banks

Investment banking is the "shadow economy" - it creates massive wealth by making nothing. It is the process of taking A, giving it to B and making money on the transaction. Modern banking was founded on this, it was the toll that the real economy paid to ensure that capital was able to move freely and seek out profit.

This traditional view has changed as speculative bubbles are running amok (at the behest of the Fed). Banks are no longer looking for "investments" - a small company with a great idea that will grow; or the real estate company that needs money to build homes, but will sell at the end for a profit - those do not make return in a quarter, they are long-term. So banks have turned to financial instruments - derivatives, CDOs - because they can make quick profit.

This is the real danger of the state-sponsored capitalist model (currently being experimented with in China as well). The government is subsidizing massive gambles on pieces of paper. A derivative is a bet - a bet that something will happen (you don't buy a stock in a company, thinking it will go up, you buy a piece of paper that pays out if the company stock goes up - the investor owns nothing). It is not investing - it is gambling.

The central banks of the world are controlled by the Big Banks - and have complete control of the money supply. They have now - following a financial collapse that the majority of law makers still don't understand - convinced the political system to provide unneeded support. Support that hurts consumers.