CHAPTER 1
The Great Devaluation: Old Money, Central Banks, and the Fed

There is a long trail of victims around the world affected by the crimes that led up to the economic crash of September 2008, when over $10 trillion was wiped out of the American economy and millions of people lost their homes. Homelessness has always been a problem in the United States, but it became much worse after the 2008 crash. In the decade following the crash, large tent villages began to pop up in every major city, and this heartbreaking trend has continued to grow, even after the stock market recovered and soared to new highs.1

For nearly a decade beforehand, the government and large financial institutions had promised that everything was okay, even though it should have been obvious that the real estate market was in a bubble. Many economists, like Peter Schiff and Nouriel Roubini, were actually warning that this was the case, but the Federal Reserve (the Fed) and the bankers assured the public that the fundamentals in the market were strong. Ben Bernanke, who was chairman of the Federal Reserve at the time, said that the “troubles” in the “subprime sector” would be “limited,” and that they did “not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”2

The media was complicit as well. “Mad Money” Jim Cramer was on television night after night telling his viewers to keep their money in failing institutions like Bear Stearns: “Bear Stearns is fine. Do not take your money out. If there's one takeaway, Bear Stearns is not in trouble. I mean, if anything, they're more likely to be taken over. Don't move your money from Bear. That's just being silly. Don't be silly,” Cramer shouted at the camera.3

Unfortunately, these assurances couldn't have been further from the truth. The market was a house of cards, and it was only a matter of time before it came crashing down.

This crisis began in the real estate markets. In the late 1990s, the Federal National Mortgage Association (FNMA), a government‐sponsored financial institution commonly known as Fannie Mae, began experimenting with something called “subprime mortgages.” These were basically high‐value mortgages that were given to working‐class people with low credit scores – essentially, people who weren't actually qualified to receive the loan. As a result they were “highly leveraged”: meaning that, ultimately, the debt to the financiers was greater than the combined value of the owners' income and their home.

That's because the banks covered their assets by implementing very strict terms on these types of loans. These loans didn't just have high interest rates; the rates were also adjustable, which meant that they would fluctuate based on market conditions, such as changes to the Fed's balance sheet. In the mid‐2000s, the Fed began raising its rates after years of offering cheap money, and interest rates for homeowners began rising to unaffordable levels. People quickly found themselves unable to pay their mortgages, and had to forfeit both their homes and the money they'd invested in them. And because the banks had signed off on way too many of these unconscionably predatory loans, foreclosures began to spiral out of control. Numerous financial institutions were facing ruin as a result of the crash, including many with federal backing, but the government stepped in with a massive $700 billion bailout package to save them and prevent further damage to the economy.4 In other words, “too big to fail” criminals were given the chance to recover (and rebound) from the consequences of their mistakes – a benefit that taxpayers and small business owners have never received. Wall Street was rescued, but Main Street was left holding the bag, which made it very obvious that our financial system is not designed to protect the average person. Most Americans were furious, regardless of where they fell on the political spectrum. It was one of the few times that the left and the right actually agreed about something. That political cease‐fire didn't last very long, however, since the tribes quickly took their grievances in separate directions – through movements like the conservative Tea Party (which began in 2009) and Occupy Wall Street (which began in September 2011). But the crash of 2008 revealed the cracks in the system, and forced people from all walks of life to get more educated about economics.

Central Banks

Those of us who dove into the research eventually learned that most of the financial problems that we see across the world with corruption, instability, and inequality, all seem to trace back to the global system of central banking. A central bank is essentially a government‐focused bank that is tasked with issuing and managing a country's currency. These banks are the most powerful financial institutions in the world, and in many ways they are even more powerful than the governments they're supposed to be working for. In the United States we have the Federal Reserve, which manipulates the global economy through its control of the US dollar, the global reserve currency. While the Federal Reserve and other central banks are primarily single‐customer operations that deal with specific governments, they are actually independent institutions. Central banks are not government entities; they are businesses, and governments are their customers.

This means that central banks have no real obligations to the citizens of the countries that they claim to serve, and they often run into situations where their interests clash with those of the general population. The same can be said about many politicians as well, but the organizations that are in control of our money and our economy have much more secrecy – and since they're unelected officials, they don't need to worry about keeping voters happy for the next election. The president and the members of Congress might get all of the attention, but there's an extensive web of unelected, much less visible officials who arguably have more power and influence in the US government. This element of government is often called the “deep state.”5 And since the media usually doesn't pay much attention to them, they're able to both effectively push through their policies and maintain those policies over a long time horizon. High‐ranking officials in intelligence agencies often know more about our spying operations than the president or Congress do; and, in many cases, they don't have to answer to elected officials – even when their programs are extremely unpopular with the general public. (We saw this in action in 2013 after computer intelligence consultant Edward Snowden leaked highly classified information from the National Security Agency.) Supreme Court justices also hold more power than elected legislators, and we see this trend in nearly every corner of government. Even in seemingly innocuous sectors like health there are figures like Dr. Anthony Fauci who, having “advised every president since Ronald Reagan,”6 has a large influence on national policy.

The Federal Reserve is a whole agency of unelected officials, and it isn't even technically a part of the government – it's a private bank that plays by its own rules. This situation is not unique to the United States; there is a network of central banks all across the world that play similar roles in their local economies. These banks often have drastically different policies based on the politics of the region they're located in, but their structures are nearly identical, with small centralized groups of bureaucrats having total control over the money supply. In my view, this experiment has been a total failure everywhere it was attempted, with some estimates suggesting that the average lifespan of a fiat currency is only 35 years.7 (“Fiat currencies” are legal tender; there's more on them in Chapter 2.) Currencies are typically short‐lived, lasting only a few decades before a crash or total debasement of the asset. When governments are able to survive these crashes, they will rarely actually change the name of their currency, but in order to bring their nation's economy back to life they are often forced to drastically change monetary policies in ways that change the fundamentals of the currency, effectively making it an entirely different asset. That's what we've seen in the United States over the past century that the dollar has been in circulation. The dollar has taken many different forms over the years: slowly, and then quickly, descending into a worthless piece of paper due to policies enacted by the Federal Reserve and politicians from both parties. By constantly changing interest rates and tweaking other policies to control the monetary supply, they maintain the stability of the economy temporarily, but it comes at the cost of the long‐term stability of the money.

This same scenario has played out many times before throughout history, with empires growing out of control and eventually imploding because their currency was diluted and lost its value. This was one of the primary contributing factors to the collapse of both the Greek and Roman empires, and this cycle has continued to repeat over the centuries. Even now, around the world there are numerous countries like Venezuela, Zimbabwe, and Argentina facing...