Money II
Cast your minds back fourteen years, I know it's difficult, to the Great American Bank Bailouts. There sat Jamie Dimon at the top of JP Morgan, doing “God's work” as one of his colleagues called it, accepting billions in bailouts for all the worthless bonds they created over the course of the previous half-dozen years – no one went to jail.
Morgan Chase made $45 billion last year. The top four banks in the US now control over half of banking, Morgan at the top. In the last 2 years, with the Federal Reserve pumping trillions, Morgan's value doubled. Yet, an analyst from the third biggest bank, Wells Fargo, states, “Investing in banks is always a degree of investing in a black box — it’s a different shade of grey leading up to black. In the case of JPMorgan, this got to be too dark a grey for our comfort zone.”
Investing in a bank is investing in a “black box?” Phew! What should be more open? A regulated industry, that literally creates money, where there's loans and assets, yet it's a black box? Such is the present banking system. Just as importantly, the Fed reports “since the late 1990s, nearly 60 percent of total credit extended to the nonfinancial business sector has been from nonbanks.” Black boxes and nonbank credit creation says a lot more than anyone likes about the money system at this point.
Money is always a faith based system, thus William Greider titled his seminal history of the Fed, Secrets of the Temple. Like all power, money power doesn't like discussions about how and why, nor crises of faith, just acceptance and genteel reverence. Yet, despite money's veil of permanence, it is constantly changing. As that Greek once said about never stepping into the same river twice, the same goes for the last two centuries money system.
In the US, banks eventually monopolized the money creation process, despite what was an anti-bank attitude held by many across the country's history. Maybe the most democratic period of money in the US, was when Andrew Jackson got rid of the Second Bank of the United States, Jefferson had deposed the first. For the next 25 years, money across the US was largely various banks' notes.
It would take another seven decades for this bank money system to be institutionalized with the creation of the Federal Reserve. Notice, if you still carry paper money, at the top of the dollar it states, “Federal Reserve Note,” a self-referential promissory, turn it into the Fed you get another note. Even with the creation of the Fed and the modern banking system, the money system continued to change. On, off, on, and off again a gold standard, and in the last half-century with the money supply becoming electronic, banking deregulation, and everyone, for example General Electric, getting into the money game, money changed radically, though most believe a dollar is still the dollar it always was.
With bank debt as modern money, (nonbank debt, maybe that's post-modern money?) money creation has been nothing short of astronomical over the last fourteen years. The Federal Reserve pumped trillions, pumping up the price of bonds, stocks, real estate, and now seemingly the price of everything else, though wages not so much.
There's increasing talk of the Fed tightening the money pump. Jamie Dimon, still at the top of JP Morgan Chase, calls for six interest rate increases this year, but then he's got a direct Fed backstop, so talk is cheap. Can the Fed raise rates without tanking the money system? This is unclear. One thing for certain, wealth concentration will continue and that was always alright with J.P. Morgan.