Monday, February 16, 2009

Who Runs the World

So, what did I find? And why did it inspire me to start a blog? Continuing my investigation into the historical roots of the current financial turmoil, on the recommendation of a friend I recently watched Paul Grignon's curiously unsettling 47-minute film Money As Debt:

The 2006 film sets out to explain how the international banking system works, communicating in easy-to-understand animation an astonishing amount of information, without once getting bogged down in detail. Although I believe he makes he makes a couple of errors in his evidence(1), Grignon still manages to build a disturbingly compelling case that our banks are far more than the boring, staid, passive repositories for our money most people take them for. On the contrary, they control a great deal more of our lives than most of us give them credit for (pardon the [bad] pun).

But I’m getting ahead of myself. Let’s just say that from a personal viewpoint, he has forced me return to the history books and raised many questions about what I thought I knew about the importance of money as a historical force.

(I know what you're thinking: “That's all we need - another conspiracy theory.” Isn't it funny how people laugh at the term until the evidence is presented, then, as the story becomes common knowledge, it is accepted as fact, little more than an unpublished business plan. This, however, is not so much a conspiracy theory as an institutional theory.(2) )

In essence, what Money as Debt has done is force me to re-examine everything I thought I knew about the way the world came to be as it is today. It's still work in progress, but so far I have drawn the following conclusions from my research:

1. For a considerable time, international banks have had more power than national governments.

2. Banks (an Italian invention) became hungry to expand beyond Europe in the 15th century and were eager to lend money for new enterprises. They were the driving force behind the European expeditions to the new world, which were essentially finance-driven resource-grabs.

3. Britain’s fractional reserve banking system(3)  – inherited from England in the creation of the UK of GB in 1707 – allowed her to wage almost perpetual war in the 18th century and is what finally gave Britain the edge over France in their struggle for global supremacy.

4. France's archaic banking system left her bankrupt after supporting the thirteen colonies against Britain in the American War of Independence. France’s bankruptcy was the principal reason for the events that led to the French Revolution.

5. The US Federal Reserve, or ‘Fed’ as it is often known, was created in 1913, and was responsible for the Great Depression of the 1930s, as Ben Bernanke himself admitted in 2002.(5)

6. A cartel of private banks, not the US Government, controls the US Federal Reserve.(5)  US politicians like Ron Paul are campaigning to make ordinary Americans wake up to this, and to change the system.(6)

7. Although corporations are powerful, they owe their very existence to banks who are free to choose in whom they invest. Also, corporations are beholden to banks via their constant need for credit to operate, as the current credit crunch is testimony. Popular but specious theories about corporations running the world are missing the mark, a misconception that suits the banks.(7)

8. International banks often use national governments to wage wars on their behalf, to secure natural resources for their corporations to process. Again, the banks are above reproach for the actions of governments, democratically elected or otherwise. This relationship has become much clearer in recent wars. In the Iraq War, for example, much of the occupation and security apparatus has been openly provided by private corporations.(8)

9. International banks use corporations to allow them to behave despotically within democracies. They are convenient ways to corral otherwise free citizens into unfree efficient hierarchical units to manage the processing, distribution and conversion of natural resources into capital. If the corporation happens to use unsavoury methods to secure those resources, this does not reflect badly on the banks.

10. Elections, where they occur, do not lead to a change of power in most democracies. Rather, international banks and their corporations find the pseudo-democratic ‘representative’ democracies around the world fairly easy to control. This includes the UK.(9)

11. International banks, and by extension the governments and corporations they control, get nervous when national governments - elected or otherwise - begin to speak of controlling their natural resources or preventing corporations from extracting profits. This was the unstated reason for the US interventions described before - Iran in 1953, Guatemala in 1954, Chile in 1973, El Salvador & Nicaragua in the 1980s - all of which had been democracies before the US-backed military coups.(10)  The stated reason for every one of these US interventions was to keep the country from falling into communism, when in fact all that each country had done was to vote democratically for socialism. Some may argue that these actions were in the context of the Cold War, but this does not explain current US opposition to Hugo Chavez in Venezuela.

12. The international media is powerful but is, in my opinion, only a tool of international capital. This is hard to prove - each probably believes itself to be in charge. Like the leaders of most corporations, media moguls like Rupert Murdoch believe they are acting autonomously, and certainly act as if they have their own agenda. Murdoch may feel he is a self-made multi-millionaire, but questions must surely be asked about his ready access to capital to fund his quest for global media domination. Why on earth would international banks fund media outlets that question the morality of their actions?

13. The last hundred years' cycles of inflation and depression have been no accident. Unless a country has a nationalised central bank, inflation is not caused by governments printing too much money: it is a deliberate policy by local branches of international banks to increase of the amount of cash in local circulation. It is a direct indicator of how much faster banks are giving out new loans than outstanding loans are being paid off. The national government has no control over how much banks lend apart from interest rates, which do not prevent lending as such - they only make it more expensive (and therefore profitable for the bank). Inflation forces people to return their savings into circulation or to watch them wither in value.

OK, so if this is how international banks control the major players of world affairs, how does this help us to understand what is happening in the world today? The problem is that this is only part of the picture. What we also need to appreciate is the context in which the players operate. To use an analogy, we may understand what is motivating the captains of our ships to sail, but we also need to see the winds and reefs through which they are navigating, to see what they see.

To this end, I believe that the world's current financial turmoil is the result of at least three simultaneous global paradigm shifts:

A. The world's economy is undergoing a technology transformation from fossil fuels to a sustainable economy. No news here, but a change in the technology on which the world's economy was based was the fundamental reason for the depressions of the 1890s and the 1930s.(11)  The transition is going to be painful, and the price of oil will rise sharply as peak oil is passed(12), accelerating the transition as expensive new green technologies are rendered relatively more affordable. The difference between this technology change and, say, the one in the 1890s, is that the change is being driven by the last energy source running out, not a better one coming along. A shortage of horses did not force the move to electric trams.

B. Sooner or later, the world's economies will begin to move their reserve currencies away from the US dollar, just as they did from sterling in the twentieth century. Investors and governments may disagree on when, or to where they should move their funds(13), but it seems that the Euro may act as the world’s reserve currency in the short term, with various commodities acting as safe havens in the meantime. Ultimately, though, one global reserve currency will emerge.(14)  Despite US Government nervousness(15), China has been buying the Euro for some time(16), and via her $2 trillion in US reserves holds a potent weapon if the Obama administration decides to start a currency war.(17)  The flight of capital from the US dollar will be the first stage of the transformation. Alternative means of exchange will appear as they did in the 1920s & 1930s(18), meeting hostility from the US Government.(19) 

C. As the relative economic decline of the US gathers apace, the relative strength of its conventional military forces will follow suit as China asserts itself militarily. From a geopolitical perspective, until China achieves military superiority, we are entering a truly dangerous global multi-polar moment(20), not unlike the prelude to WW1. Due to the immense size of the US military, its decline might take a number of years. As a consequence of this, the next few decades will be among the most turbulent in human history. With US military influence diminishing globally, regional powers will begin to increasingly flex their muscles and major regional conflicts will become commonplace. In short, everything is up for grabs, and almost anything could happen.

Unfortunately, it is difficult to foresee what geopolitical events might occur next, unless one is part of a national government, or one of the players described above. Iraq may be carved up by her neighbours; Pakistan may tear itself apart; Russia may decide to annex East Ukraine; there could well be land riots in Africa as locals resist a Chinese government plan to settle a hundred million Chinese across Africa to secure its natural resources(21); or Israel could become increasingly difficult to control - if indeed it has ever been easy. (Some argue Israel is the one doing the controlling!)

In the current financial crisis, it is still too early to say whether international banks will manage to hold on to their traditional power, or whether they will all end up state-owned and nationalised once the financial dust has settled. President Obama seems to be driven by a desire to keep the current system going, and appears to want to prevent banks from failing, with ‘Crash’ Gordon Brown singing from the same song sheet. How this plays out will profoundly affect the shape of our world.

That is what made me decide to put fingers to keyboard: the feeling that anything could happen next, and to be part of it, in however small a way.

I wouldn’t miss this for the world.

A Historical Perspective
As events unfold over the next few years, the focus of my blog will be to understand what is happening in the world today by understanding what has brought us to this point. You will no doubt be heartened to hear that international finance will not be the central theme of this blog. My epiphany about international banks has only served to rekindle my interest in the historical origins of current affairs, and led me to believe that it is indeed possible to understand what is happening behind the scenes, in spite of the complexity of international relations and geopolitics today. There are many forces at work in the world, and perhaps banks have had their day. Time will tell.

To give a bit of variety, from time to time I will also be re-examining historical events, armed with my newly broadened perspective, as it were. For example, I’d like to re-examine the history of the British Empire, the origins of WW1, German hyperinflation of the early 1920s, alternative reasons for the Nazis' obsession with the Jews, and the origins of WW2. I will also be following the milestones along the road to Scottish independence – an event that I feel to be inevitable – and putting it into an international and historical context.

And that’s just for starters.

I’ll try to keep doing autobiographical posts, and keep them as readable and humorous as the subject matter allows.

I look forward to your company and your comments.


1. Grignon uses a common misquote of a couple of statements by Woodrow Wilson on the US Federal Reserve. For an explanation and correction see:

2. For an explanation of why conspiracy theories focus too much on people and not enough on institutional intent, see

3. For background theory to the arguments given in Money as Debt see the Wikipedia entry on Fractional-Reserve Banking.

4. “Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again,” said then Federal Reserve Governor Ben S. Bernanke to Milton Friedman at an event to honour his 90th Birthday, November 8, 2002. See:

5. Murray N. Rothbard, The Case Against the Fed, Ludwig Von Mises Institute, 2007 (2nd ed)

6. Ron Paul, Pillars of Prosperity, Mises Institute, 2008. He is part of a growing popular campaign in the US to have the US Federal Reserve abolished, with the Fed routinely dismissing any concerns as to its motives as 'conspiracy theories.'

7. For example the documentary The Corporation. To be fair, the thesis of the documentary is not that corporations run the world, but that they are inherently amoral and exploitative, with all the rights but none of the responsibilities of humans. It argues convincingly that if they were human, their behavior would be like that of a psychopath.

8. The security contract for Blackwater to operate in Iraq will end in May 2009 following an incident in 2007 when 17 Iraqis were killed.
Cullen Murphy, A New Rome, Houghton Mifflin, New York, 2007, p87, contends that “the Iraqi war is the most privatized major conflict since the Renaissance.”

9. See George Monbiot, Captive State: the corporate takeover of Britain, Pan, 2001. Monbiot “documents the end of representative government in Britain. The state is no longer the initiator of policy but an increasingly helpless bystander” (Publisher’s note).

10. American Stephen Kinzer covers the long history of US foreign interventions in Overthrow: America's Century of Regime Change from Hawaii to Iraq, Henry Holt and Co, 2007. 
John Pilger covers the history of fifty years of US intervention in Central and South America in his excellent 2007 documentary The War on Democracy.

11. This has been called the Kondratieff long wave cycle. Its four phases are inflation-stagflation-deflation-depression. The deflation period is usually regarded as a golden age, with extensive technological innovation. As the economy is transformed to use the new ideas, this leads to depression while industry retools and the workforce is retrained. See for a better explanation.

12. Peak oil has either already happened, or is expected to occur in the next 20 years, depending on who you ask. Most commentators seem to agree that it will occur in the next 10 years.

13. Investment ‘legend’ Jim Rogers recently recommends ‘Yen, commodities, Chinese & Taiwan shares…[anything] where the fundamentals have not been impaired’ but also recommends the Euro in another presentation:

14. Barry Eichengreen, ‘Sterling’s Past, Dollar’s Future:
Historical Perspectives on Reserve Currency Competition’, UCB, April 2005, is an excellent history of the many reserve currencies used down the centuries. 

15. In its article ‘DAVOS-China makes no big change to FX reserves- ex-lawmaker’, Reuters reports from Davos that “Observers have been very sensitive to the idea that Beijing could start shifting a significant part of its nearly $2 trillion in currency reserves out of U.S. government debt, just as Washington is issuing huge amounts of bonds to finance its attempts to revive the economy.”

16. Keith Bradsher, in “US Debt is Losing Its Appeal to China,’ International Herald Tribune, January 8, 2009, contends that although “China manages its reserves with considerable secrecy, ...economists believe about 70 percent is in dollar-denominated assets and most of the rest in euros.”

17. Ambrose Evans-Pritchard, “US-China currency war eclipses Davos, and threatens the world”, London Telegraph, January 28 2009,

18. Bernard Lietaer, The Future of Money, Century, 2001, describes the various alternative currencies that have been attempted, including the demurrage system.

19. Although it was raided by the FBI and Secret Service in Nov 2007, the organisation that makes the ‘Liberty Dollar’ claims they are legal and as yet no charges have been laid. See and also for a profile of the case.

20. See A. Wess Mitchell, ‘Obama’s Unipolar Moment,’ LA Times, Nov 23 2008.,0,6835373.story?track=rss

21. Andrew Malone, “How China's taking over Africa, and why the West should be VERY worried,” MailOnline, 18th July 2008, says that “In the greatest movement of people the world has ever seen, China is secretly working to turn the entire continent into a new colony...a staggering 750,000 Chinese have settled in Africa over the past expert has estimated that China will eventually need to send 300 million people to Africa.”


scunnert said...

A great post. I haven't watched the vid yet, but I believe the function of the present "economic crisis" is to make nations so indebted that they will be forced to privatise all services and resources.

OutLander said...

Re: Scunnert

This would be the IMF fix, certainly. Unfortunately, even they will soon run out of money. They usually offer cash in return for economic 'liberalisation' and the dropping of trade tariffs, but it'll be hard for the IMF to dictate the terms of economic restructuring to countries if there's no money to invest.

I think China has a role to play here. Why go cap-in-hand to the West when China has $2trillion looking for a good home?