How Wall Street is Scamming America

Video Version:

For a quick background on myself, I am a former currencies trader, and nearly everything that follows are things that I learned from others in the industry, most of them who made far more money than I ever did. You will probably never be taught this in economics class

Let’s start with the base unit of money, the dollar. In the past a currency used to be a tangible thing—a gold coin, a goat, etc, and many people today blame the shift away from the gold standard as the fundamental change in the nature of the monetary system, but they are wrong. The fundamental change is not that it’s not backed by a hard-asset (this credit system of money has been around for thousands of years), but that it has entirely been removed from the physical world and exists in the unconstrained digital world. Today, money is nothing more than a computer input on a complicated excel spreadsheet.

Most popular economic schools of thought use logic from the pre-Information Age to describe the digital world, meaning that their conclusions are utterly wrong. For example, to talk in terms of the government “printing more money.” What the government (Federal Reserve, actually) does when it wants to “print money” is add more zeros to a given amount on a computer. There are no physical limitations to the amount that a person can possess, transfer, owe, etc.

In fact, this is why the United States has been the true winner with its trade deficit in recent years. We have had less zeros on our spreadsheet, but more physical goods and services (up until recently). Meanwhile, the rest of the world’s governments have had more zeros over the past few decades, but have lived in greater destitution. We were literally getting something for nothing. Everybody was perfectly happy to go along with it until the greed increased and the masses stopped getting the benefits.

So, what actually happens when you deposit money into a bank in US Dollars? Every bank holding USD has an account with the Federal Reserve (and it works the same with other currencies in their equivalent central banks). To simplify matters, let’s say that you deposit $100,000 in Bank of America. BoA, in turn, holds an account with the Fed. Now BoA decides to loan $80,000 to a farmer. All that’s happening is that $80,000 is being transferred to BoA’s savings account from its checking account. See below:

And here’s the vital point to understand, so long as the transaction always remains in USD, nothing ever leaves the Federal Reserve. The net change is zero. This is called double-entry bookkeeping. 

You’re now ready to understand why the national debt is a scam on the American people. Oh, but the US is borrowing money from China, you may protest. Actually, the way that the US “borrows” money is in “selling” Treasury Securities to other nations. The whole transaction is done in USD so, again, nothing ever leaves the Federal Reserve. But most importantly, the only thing that paying the national debt consists of is transferring money from a savings account into a checking account:

The Chinese are not staring into an empty bank vault wondering when the US will give them money to fill it back up. This is why nobody is actually worried about China taking over the USA due to its massive “holdings” in this country. The Fed can nix that plan in an instant. Actually, the entire national debt could be resolved in 60 seconds. Remember when the president of Ecuador declared that he wouldn’t pay his debts to the United States and got away with it?

Similarly, foreign banks offering USD accounts, or even that can receive wire transfers in dollars, will have an account in the United States with what is called an “intermediary bank.” This bank, in turn, will have an account directly with the Fed, so it’s all linked, and it’s all centrally controlled. Thus, the debt is a scam; the government actively chooses to be in debt.

So what are our taxes paying for? Nothing, actually. To say that the government must levy income taxes to pay for roads, education, or health care is yet another sleight of hand. It should be clear now that the government never needs to touch your bank account to have money to pay for these programs. If they want something, they can have it. So why are we taxed so much? Taxes directly control inflation, which hurts the 99% when when the price of goods increases while their salaries do not.

Taxes are the government’s way of doing damage control from the bank’s actions, and it works for them because the harder times get, the more desperate people are to believe in politicians for change. It’s also useful to have a poor population for a number of other reasons—they are unarmed, uneducated, and can’t leave. Going back to how the Federal Reserve works, the only thing that happens when you are taxed is that X amount is debited from your account and transferred into another’s checking account, all in one internal transaction. I’ve heard that the IRS literally will burn cash if you take it to them, though I’m not sure that this is true. However since the only thing they would do is count the cash, and change the amount that shows up in the system, it is possible, and for this reason perhaps they discourage you paying in cash.

So why are people charged for criminal tax evasion and other such trumped up financial “offenses?” The reason for criminal tax evasion was originally to slam people for unrelated crimes that the government cannot prove. The first person to be charged with criminal tax evasion was Al Capone, and even in the pre-digital world it was recognized that this money wasn’t directly needed to fund anything. Since then, things have really gotten out of hand. Taxes are also useful in forcing people to rely on the single, central currency (directly benefiting the Federal Reserve), even though it’s already been proven that it’s not necessary to have a single currency for a country to operate effectively, as most of the world once lived this way.

To further elaborate on this control structure, it’s the banks who also control exchange rates, thanks to the system of floating exchange rates. The government and its banking friends like to perpetuate the myth that this actually means that the rates are controlled by an ambiguous entity called “the free market,” when in reality, the rates are set by a small group of banks that participate in the Interbank Market. They thus control how much your assets are worth, and even purposefully destabilize markets to force you to pay them more money to reduce your own risk. This affects your daily life more than you realize, and, naturally, they make billions off of you whether the price moves up or down.

And really, with this system, why would the 1% want to change it in any way? They have all the upside and none of the downside. When things go wrong and their bubbles inevitably burst, austerity measures are imposed on the 99%, while their lives continue on pretty much the same. When they get tired of the grind, they get appointed to governmental offices. This system is why the Democrats can comfortably work with the bankers, creating government programs and bailing out the institutions that are “too big to fail,” only increasing their power and arrogance. This is why the Republicans can promise more deregulation and lower taxes, letting them run even more wild. This is why the people will continue to support the system, believing it’s a benign form of capitalism that will “trickle” down to them, even though it never really does.

That’s why they are laughing at the protestors and toasting them with champagne. So long as this centralized form of control remains, they will continue the tragic charade. Indeed, the rabbit hole goes far deeper than I’ve presented here, but hopefully this has been a good primer on how taxes and currencies really work. If you want to know more, read up on Modern Monetary Theory. I want to clarify that I do not agree with the recommendations of these economists, but the way that they describe the monetary system is correct.


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