There are people who rob banks, and banks that rob people. This is about the latter. Our friendly Main Street banker is a robber; in two ways now, and with a third in preparation.
Way #1 applies directly and terribly, but to only a few of his customers, and until he strikes, it's fairly well hidden. Some years ago I opened a bank account, and eventually received a nice brochure about “Privacy.” It assured me that nobody but the bank's staff, who were sworn to secrecy and ethical conduct, would ever know anything about my money.
So I wrote the boss to thank him, and asked whether this applied to the IRS, with whom I'd been having discussions at the time. Suppose they asked the bank to freeze my account, or even surrender its contents. How would he respond?
Well, yes, the bank's legal counsel told me on the phone, because of this law here, if we got a letter saying there's a lien on your property, we'd have to cooperate.
So I drew his attention to its actual words, which say liens can be placed only on someone “liable to pay any tax [who] neglects or refuses to pay the same within 10 days after notice and demand” and asked him which statute makes anyone “liable” for an income tax. In reply he promised “Let me get back to you on that.” That was about ten years ago. Despite reminders, I'm still waiting.
Nobody has yet found such a statute, but banks do anyway freeze customer accounts for 21 days upon IRS request, and then hand over the contents unless the IRS says the dispute in question has been resolved. That is the robbery to which I refer, and it can be devastating.
Way #2 applies to everyone, a little at a time, and it's hidden even more deeply. When the bank receives a deposit, the money is not safely stored but is loaned out at interest to someone else; or up to 90% of it is. Then when that person deposits the check in the same bank or some other in the cartel, 90% of that can be loaned out, and so on. This shell game is called “fractional reserve banking,” and since 1913, it's been perfectly legal. It enables the banker to earn about 60% interest on the original deposit (though currently less, because of the very low prevailing rates.) This racket will not survive the coming transition to a free society, because no rational person will trust his money to an outfit that will keep only 10% of it on hand; but meanwhile, bankers love it. Subtract the costs of those faux-marble columns and prime locations and plush furniture and pretty tellers, and still they have enough left out of that 60% interest to bind them closely to the authors of fractional reserve banking.
Racket it clearly is; counterfeiting it clearly is. But in what way is it robbery?
As the primary engine of inflation (because all those loans amount to new money, created out of nothing) it robs, firstly, everyone on a fixed income. For example, I have a small pension, paid by the agent of my employer of 30-some years ago. It comes regularly as promised, but as a result of that banker-created inflation, its purchasing power has eroded; today it's worth just pocket money. I've been robbed.
That banker-created inflation has an even worse effect on savers. Suppose you've somehow put a nest-egg away for a rainy day. Every year, according to government measurers, it loses about 4% of its value. That robs it of half its purchasing power every 18 years. Over 36 years, three quarters of its value will have vanished in a puff of inflationary smoke. That's robbery on a grand scale, and bankers are the robbers, by explicit government permission.
Saving, as everyone ought to know, is what creates capital for investment, which is what in turn generates a rising standard of life for the whole of society. So if saving is penalized as above, there will be less of it; and the result of that is that living standards will rise less. This is exactly what has been happening. The marvel is not that in America the savings rate is so low (at 1%) but that it is so high. Inflation is the great destroyer of wealth – for everyone. Bankers have robbed us all of a major increase in our standard of life.
Way #3 is a treat in store; this kind of bank robbery hasn't happened yet, but a whiff of it was smelled recently in Cyprus--an island whose name has now been turned into a verb. Further and like Way #1 above, the banker will not be the direct beneficiary; he will facilitate the theft but the money will go to the government. A law will be written to raid the contents of bank accounts directly, to fill the chasm created by government overspending. The banker will still benefit indirectly by being able to continue earning that 60% interest thanks to his government licensed money creation scheme, but not directly.
Government spending is popular, it earns them votes; taxes have the opposite effect. Inflation is the next source of revenue and that too is unpopular. Finally, government can borrow, but when it becomes obvious that repayment is impossible, lenders get antsy. That is today's situation, worldwide, though some governments are deeper in the hole than others. When those three sources of funds have dried up, a fourth will be called into play – they will, like Willie Sutton, go where the money is and grab it. They will raid bank accounts and broker accounts and retirement accounts, and any other accounts where money can be found; and the raid will be quite easy because all those account administrators are licensed to operate by the very government that will do the raiding. Hence, they will have to open their computerized account books so that the raiders will know where to grab, and how much.
The raids will be a last resort, and everyone will know that, so it will destroy confidence in both banks and government, so I don't think it will happen here very soon. When it does happen, in fact, we can look forward to the imminent end of the government era. The recent trial balloon in Cyprus tended to confirm that view; the protests were vigorous, even from Cypriots – even though most of the money lined up to be grabbed was (to them) foreign.
So, why trust robbers? It makes no sense to entrust money for safe keeping with a known thief. All bankers are thieves, and (by Way #3) will steal even more in the future, so the moral of the tale is surely clear: avoid bankers. They are, at minimum, collection agents for the IRS.
The reason for using them is the great inconvenience of transferring money without them, that is the hold they have over us. Check writing to pay bills is so very easy, compared with buying postal money orders. Debit and credit cards are so very useful, when shopping – even though they leave a detailed track record of every transaction, over which government computers can salivate. Even Paypal, the most convenient payment transfer service of the lot, will fall over if pushed by the government; those transactions, too, are an open book to its spies. And to top it all, those receiving a salary may have no alternative; pay is electronically transferred to a bank account, or it's not delivered at all. How, then, can one avoid dealing with robbers?
I doubt whether it's possible, and so conclude that one must compromise a little. Have some kind of bank account, but keep in it as small a balance as can be. If a multi-thousand dollar salary payment is made on Day X, withdraw most of it as cash by Day X+1. Reduce the risk.
And if any of it can be put aside as saving, use it to buy gold and silver coins and keep them in places known only to yourself and your heirs. In fact, it's a very good idea to save in that manner, given that when the government meltdown gains momentum, it will raid retirement accounts as well as checking accounts; gold coins will outperform most pension plans anyway. This too is a tragedy, for pension money is capital that could be used to invest in a profitable enterprise, whereas gold is just gold; but that is a result of government's existence. Over the long term, gold will keep its value (unlike anything denominated in fiat money) but unlike a well-placed stock purchase, it won't grow in real value. But since stocks too will be grabbed when the chips are down, until government evaporates, it's a safe alternative.
Another alternative is Bitcoin, which was recently examined by the BBC. While critical in parts, the clip does show quite a good explanation of how the system works – and another introduction appears in The Freeman. The best description I found (thanks to Alex Knight) is at Falkvinge & Co, and there's a breathtaking headline at Forbes, no less: “Bitcoin Obliterates 'The State Theory Of Money'.” Compared to gold, it has the huge advantage that it can be transferred instantly worldwide confidentially and without banker participation; unlike gold, it has no inherent value and is vulnerable to hostile government action if it should apply enough resources. I'd counsel caution, for that reason; it looks very good for almost-anonymous payments, less good for secure saving. But it's an ill Cypriot wind, that blows no one good.
Happily, this bizarre situation is temporary. When enough government employees have quit their jobs, taxes will become uncollectible so the wages of the residue will have to be printed – so inflation will gather a head of steam and then everyone will be looking for a serviceable currency and a safe haven for money. Some banks will begin to reform, and those that do not will collapse completely and the shells will be bought when the process is complete and the state has evaporated fully; they will then have the form of honest bankers, earning money by storing gold and silver for a fee and issuing no more warehouse receipts than reflect the actual money in the vault – that is, with a 100% reserve.
At that stage, legal tender laws no longer having any force, Gresham's Law will be reversed and good money will drive out bad; the only kind of bank robbers remaining will be some who try to imitate Butch Cassidy; and a free-market detection and justice industry will ensure there won't be many, nor for long.