Tuesday, May 18, 2010

We Don't Need Central Banks

By Lars Schall
MMNews Germany
Saturday, May 15, 2010


J.S. Kim, founder of the investment consulting firm SmartKnowledgeU, gives in an exclusive interview for MMNews his take on the deflation-inflation debate, talks about the Plunge Protection Team and reasons why it is important to understand that “there are no free-markets.”

J.S. Kim graduated from the University of Pennsylvania in 1990 (in Neurobiology) and earned a double master degrees from the University of Texas at Austin in 1997 (in Business Administration and Public Policy). Subsequently, he worked within the Private Wealth Management division of Wells Fargo and later on at Smith Barney.

After leaving the commercial investment industry, he launched in 2005 his own company SmartKnowledgeU, LLC, an independent investment research and wealth consulting firm, where he serves as President and Chief Investment Strategist. His investment newsletter, the Crisis Investment Opportunities newsletter, has yielded positive return every year since its establishment in 2007, easily beating for example the US S&P500 in 2007, 08 and 09. He actively maintains a blog, The Underground Investor, and is the author of the book “Confessions of a Wall Street Insider.”

Mr. Kim strongly advocates the abolition of central banks and the return to a gold or gold & silver backed monetary system. His investment strategies don’t rely on fundamental or technical analysis as primary screens to select stocks but instead utilize the strength of corporate-government-banking relationships to predict share prize appreciation. Away from the investment world, he is an avid martial artist and splits his time between the U.S. and Asia.

Mr. Kim, in your point of view our current fiat money system does not only belong to the root causes for the financial/economic crisis we’re going through, but also that it is fraudulent per se. Why so?

Well, the reason I believe it’s fraudulent is because our current money system is a system that creates money as debt. If we had no debts in our global monetary system, no money could exist. That’s a fairly ludicrous concept if you think about it. It’s also a system in which central banks are allowed to print money – and when I say “print money” I use this term very loosely, because the predominant amount of money today is created as digital debits and credits. So when we think of fiat money, most people think of paper money, but in reality most paper money doesn’t even exist. It’s just digital credits credited from central bank to regional banks to commercial banks and then to the various creditors and debtors in the system. So there’s virtually zero labour that’s being performed and banks charge consumers interest on this absence of labour. Centuries ago, we used to call that usury and fraud. Today we just accept it as that’s the way the system works.

Do you believe that a gold standard could have worked given the real economic growth?

I don’t see why not. The arguments against a gold standard are mostly propelled by bankers that want the status quo and fraud to continue. There’s nothing about a gold standard that would hold back economic growth. In my opinion a gold standard would keep money honest. If we look at some of the most prominent central bankers in the past, for example, Alan Greenspan – he said a gold standard would set interest rates in the economy on its own at a proper rate and regulate economic growth to contribute to steady growth without the boom-and-bust cycles that we experience every few years. I definitely believe that it could work.

Is actual the “fraudulent monetary system” the problem or rather the “fraudulent money men”?

That’s a very interesting question and I’ve heard arguments on both sides. There are people who say it doesn’t matter if money is sound or unsound if criminals run the system as they do today. I disagree with that. Under a sound monetary system, people will ultimately control the value of money. With the unsound system, that we have today, “the money masters”, “the money men” or whatever you want to call them, they control the value of money.

For example if people look to Bretton Woods and say that it is an example of the gold standard not working, that’s simply not true. Under Bretton Woods, a true gold standard never existed. That’s what happened: the bankers were basically lying to the people about maintaining a true gold standard. France called the US bankers’ bluff in not maintaining the gold standard and that’s why it fell apart. So this is an instance where we had a relatively sound monetary system and even though the bankers were committing fraudulent practices under this system, the people ultimately were still able to control the value of money. That’s why President Nixon had to close the gold window – because the people were forcing the bankers to lose money when they committed fraud. And that’s why the financial oligarchs do not want a sound monetary system because they lose control over the value of money.

Why do you think that central banks do “more harm than good”?[1]

Because they prevent free-markets from operating. What they do is that they set interest rates at either artificially too high or artificially too low rates, to create booms or busts. In reality, a boom is not really a boom, but it’s a distortion of free-market prices above and beyond what the free-market would set. And then they create the busts which are not really busts, but just collapses of distorted prices returning to their free-market equilibrium.

Central banks create these booms and busts in part because commercial banks profit from them. The Goldman Sachses, the JP Morgans of the world, they make tremendous amounts of money on the upside and downside of the boom-bust cycles they help create. That’s why I say Central Banks do more harm than good. If they would just get out of the way and let free-markets operate, then the free-markets would set the interest rates. We don’t need central banks.

But the reason why the majority of people think that the absence of Central Banks would lead to chaos is because we’ve been taught this lie by bankers for hundreds of years. Did economies not function before we had Central Banks? Of course they did, and they would function with more stability without them.

What was/is the Federal Reserve’s contribution to this crisis?

I think everything, although of course the media and the Federal Reserve always state that they did not contribute to this crisis at all. But I think that the Federal Reserve – not just by itself, though it is the most powerful central bank of the world – but I would say that central banks contributed to this crisis.

In America in particular, the Federal Reserve helped to destroy the Glass-Steagall regulations. It was Alan Greenspan, who catered to the agents of JPMorgan, Goldman Sachs, Citigroup, and the behemoths of the banking world and allowed the creation of all kinds of financial derivative products that were not well understood. In the process, he destroyed almost all of the regulations that protected the consumer.

And in fact, Citigroup, which was the merger of the Traveler Group and Citicorp, was created before the entity was even legal. If you investigate how that happened, you will find out that Citigroup CEO Sandy Weill basically had access to a direct line to Alan Greenspan and he was assured that legislation would pass that would make Citigroup legal even as Sandy formed this new company during a time it was not. The Federal Reserve always says: “We protect the people.” But the whole creation of Citigroup is much more an act of Fascism than that of a Democracy or a Republic.

Are you supporting the House Resolution 1207 Federal Reserve Transparency Act of 2009?

One hundred per cent I support it, but I have extreme reservations of the potency of the final iteration of the bill if and when it finally passes. The bill still has to pass through the Senate as Senate bill 64, and Senate is much more closely aligned with bankers than the House of Representatives. It’s in the Senate where a lot of it will be destroyed. I would hope that it get passed in its original format but I have grave reservations that it will.

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