“Scam” is an evoactive word. It conjures up images of this or that injustice, criminal or immoral act. Looking at scams can help us clarify the ethics of what is right and what is wrong, especially when we are talking about money. So here’s a look at a video that i was sent recently, in which the presenter suggests he is going to uncover the biggest scam in the history of mankind. When asked if i had an opinion on this video, i suggested it was a scam… Here’s why.

First, The Video

OK, i will admit to being a little challenged on this one. Firstly, i did not want to provide more traffic and income for those who have made this video but it’s a bit unfair to pillory something without first allowing a fair review of the point at hand. On the other hand, the people who follow the ideas in the video often vehemently believe in the ideology, and some are highly intelligent thinking people. So here’s the link to the Youtube video…

The greatest scam in history

It’s nearly half an hour long, so i’m not going to expect anyone to look through the entire thing. The video is an extremely polished, well-made presentation of a particular point of view. The presenter is poised, presentable and talks in a very measured and reliable tone, giving even more authority to the points raised.

The biggest scam in history – the USA Federal Reserve Bank

At least, that is what the video is suggesting. Complicit in this scam are all politicians, all banks, many large institutions and secretive groups lurking in the background. The entire monetary system is shown as a flawed, evil machine that was build for the sole purpose of enriching its secretive owners and fleecing all hard-working people everywhere, enslaving them in a way that they cannot even see. There is a lot of material raised, and some of the ideas under discussion are dealing with complex processes but overall the presentation does a particularly good job of simplifying those difficult processes.

Why is this the biggest scam in history?

The argument goes something like this:

• Way back in 2013, the USA Federal Reserve Bank was formed – but by shadowy secretive people – scam!
• For the first time, income tax was levied – and that’s a scam!
• The system required the creation of a currency based on faith in the government’s ability to pay back debt – in other words, by creating I.O.U’s. These debt notes were created from thin air, sold to banks who received a cheque when selling them to the Federal Reserve. A cheque from an account with no money in it – and voila! Currency is created – scam!
• The currency is a fraud – because it has no “monetary value”. That is…
• Once upon a time US dollars were backed by gold dollars, appropriately limiting the ability of the government to overspend – scam! These earlier times were “golden years” (my attempt at a joke).
• Once the “gold standard” as it was called, was stopped then governments and the Federal Reserve could create money from nothing – from IOU’s. That’s called “fiat money” – scam.
• The banks then take their currency and lend it out to people or invest it or whatever they do. BUT they put that loan down on their books as an asset, which is supposed to balance the debts they owe to savers who have left their cash at the bank. Except that the loans are far bigger than the deposits – so banks only keep a fraction of their total liabilities in cash – the rest is spread far and wide. This is “fractional banking”, which is portrayed as more scam work.

Principles of the scam idea

Let’s narrow this down to a few key points that can be worked through.

• Gold standard money was “real money” as gold has the capacity to hold its value through time.
• Income tax is bad.
• Fractional banking is bad.
• Government debt is bad.
• Government debt cannot be paid off as it is deflationary.
• The current system creates booms and busts that hurt average people.
• The system creates disparity of wealth.

Are these points really scams?

i won’t put in the time required for a complete answer to these issues – but i will highlight that the underlying drivers are ideological viewpoints. In other words, they are based on a firm belief that this or that way of acting is better than other possibilities. Here is a quick response to each point above…

• Gold has shown extended periods of failing to keep pace with inflation, so it’s ability to hold its value and be “real money” is dependent upon everyone agreeing to it actually having this ability. That’s faith folks – and it’s no different to the faith in government ability to back its notes under the current fiat monetary system.
• Fractional banking allows for growth, and allows capital to be made available for innovative, entrepreneurial ventures which show merit. So long as it is operated prudently, fractional banking is quite reasonable. Just look at Australia’s banking system vs the USA banking system in the last 15 years for details of what makes for good or what makes for bad, banking practise.
• Government debt is not always a bad thing. It can be when used at the extremes but not all government debt is a bad thing. A growing population and a growing economy will require infrastructure and social services to maintain living standards for the community. In such cases, prudent borrowing is reasonable. What is NOT reasonable is borrowing year after year after year with no reasonable prospect of repaying that debt – this is called a “structural deficit” based debt and truly is an awful thing. This is the anchor dragging a large chunk of Europe’s economy through very difficult times. Structural deficits are weakening governments and their ability to deliver social services or maintain basic infrastructure. The key point – not all government debt is bad.
• Government debt can be paid off and this can be deflationary. So the claims here are partially true. Government debt can certainly be paid off. The USA government has done so in the past. Each time a government runs a “surplus” (brings in more than it spends) then it is possible to use that money to pay down debt. Australia’s government did so, and used some of its surplus to establish the Future Fund (amongst other initiatives) to help meet future obligations to public servants. Paying down debt is usually going to be deflationary as it is taking money out of the system. That could reduce prices and values. However, the idea is that private enterprise will take up some of the slack. It’s just that private enterprise has to be quite healthy to do so.
• Booms and busts of the economic cycle are not new. Suggesting the fiat monetary system creats booms and busts is one of the more ridiculous claims of the video. Anyone with a knowledge of economic history would be able to point to numerous booms and busts throughout civilised history. Alexander the Great plundering the incredible treasure palaces of the Persians unleashed a wave of inflationary pressure. It has been suggested that the UK’s economic growth of King Richard’s day only avoided a bust because of the money taken out of the country to pay his enormous ransom. More recently, and during the “gold standard” times of “real money” there have been horrific booms and busts – some in the period leading up to the creation of the Federal Reserve Bank. The video’s attempt to pin this one as a scam of the current system is a highly flawed argument.
• The fiat system is not the only system that can create income inequality. To suggest that it is shows yet another blatant disregard for history. For an eloquent discussion of the inequities of the USA system prior to the introduction of income taxes, enjoy a few nights reading Bill Bryson’s “At Home : A Short History of Private Life”. i guarantee you’ll love at least some part of this book – it contains so many gems of information and background on why our homes look how they do today. In amongst this is an extended discussion of the incredible level of wealth displayed by the USA elite prior to the introduction of income taxes, which is contrasted with the dangerous, difficult and dreary lives of those at the bottom of society. There is incredibly income disparity today and it appears to be getting worse – but this is arguably a function of government policy rather than a necessary outcome of the fiat monetary system.

There could be more said but that’s really enough time spent discussing a scam’s idea of a scam.

Scams – Look for the money

It’s an old adage but if you want to find the driving force behind scams or ideological struggles, look for the money. There are two driving forces that are immediately apparent in this video and the ideas it puts forward:

1. Gold investors would like to see gold used as a monetary standard. If that happens, they can see a massive profit from their gold holdings.
2. Libertarian ideologies (especially USA badged versions) don’t just see government debt as bad – they see government itself as bad. Tax is also bad because governments are by nature evil, and people in control should not have access to the money of everyday people.

For proof i would offer the following points (again simplified because of time constraints):

1. The video narrator runs a website www.hiddensecretsofmoney.com in which he seeks to publicise his views and build a fanbase of people convinced of the trust of his “scam” message. Follow the money, and you’ll find that the narrator owns the website www.goldsilver.com. Here’s the blurb from the first site…
   • “Hidden Secrets Of Money is brought to you by GoldSilver.com, one of the world’s largest and most trusted precious metals dealers. Founded by Mike Maloney in 2005, GoldSilver.com is an industry leader in providing gold and silver bullion in secure storage, retirement accounts, or delivered to your door.”
2. The recent USA government “debt ceiling” debacle was arguably prompted by extremely well funded Libertarians who see governments as fundamentally evil and taxes in the same light. They vehemently disagree with social programs for the less fortunate (in their eyes, the lazy, indolent and criminal). The video is supported by Libertarian thinking USA politicians and throughout it is assumed that income taxes and governments are only a bad thing. You can always make a case to argue that point but any careful analysis would usually identify such argument as being an attempt to “keep the poor in their place” and reduce representational government.

Is the video a scam?

Probably not. It is however, a poorly disguised attempt to bolster the commercial prospects of the people who sponsored it. If it were not for the quite obvious commercial links, i could grant the video more authority. It certainly does a great job of presenting difficult material in a simple manner – it’s just that it does so with an extreme form of bias and then fails to disclose that bias. It’s probably more hypocritical than anything but to me it steps a lot further over the line than that.

Why do i bother?

Why am i putting this much effort into a fringe video? There are a few reasons:

1. i can type fairly quickly, and the video assertions have been made by many conspiracy theorists previously, so it really isn’t much work for me…
2. The point of this website is to try to use my financial knowledge, training and experience to help people gain a better understanding of money. The monetary system that we operate under is flawed in many ways – but it is better to understand it than to simply throw accusations of “scam” against it.
3. The incredible lack of statement of bias irks me. It’s like the “self-help” gurus who knock all financial planners as awful corrupt, uncaring and biased crooks, while blithely peddling their self-help videos, books, websites, share trading packages, systems and businesses. As anyone who reads my blog knows, bias is a big thing to me, and i don’t think anyone can be free of it – but professionals should be able to discuss the biases that apply to their world.
4. The ideology of the video is seriously flawed, and my rather anarchistic value structure doesn’t like to see a well-meaning philosophy brought into comtempt.

NOTES:

• This is a rather opinionated piece.
• i’ve not provided a lot of academic backing for my own assertions. However, i’m feeling quite comfortable about that, as the video completely fails to do so anyway.
• If you are really interested in the background of all this, feel free to comment and i’ll provide more detail where i can.
• Feel free to argue against me or comment or criticise or point out failings in my own arrogance…

Best Regards

 

Michael O’Hara