The Federal Reserve Act hands the privilege of creating our money supply over to the private banking sector. About 99 percent of the money we use today is created by private bankers or their central bank. Our government can only make and issue coins, and these represent about one percent of the money supply.
Privately held banks and their central bank are essentially free to create as much new money as their confidence dictates, and they are free to choose who will receive the new money first and for what. This puts them in charge of our economy and our society. This is a privilege – a law just for them that gives banks powers accorded to no other business in the nation. It is a privilege not currently accorded to our government, which can print cash bills, but cannot turn them into money. Our government is currently limited to providing the authority and guaranteeing our money.
Consolidation and monopoly
In 1913 when this decision was made, the right to make our nation’s money was more broadly distributed among a substantial number of privately owned, government chartered banks. However, we have been in an era of increasing monopoly, due to technological advances and the tendency of wealth to accumulate more wealth when unconstrained. The number of banks has dwindled dramatically as banks consolidate, and the big guys push efficiencies of scale and regulations that give them an advantage. Fewer and fewer people make the decisions about how much new money to create and how to enter it into the economy.
In 1915 there were 25,825 banks, one bank for every 3,893 people. By 1983 there were 14,400 banks creating our money supply, one bank for every 16,250 people. By 2017 there were 4,852 banks, one bank for every 67,300 people.24 25
But the number of banks is only part of the story; size matters.
The big banks rule
According to the St. Louis Fed, in 2015, the five largest US financial institutions held 47 percent of the national bank and thrift industry’s total assets. The top ten banks held 53 percent.26 Remember these assets are what balance the creation of the money supply.
The top 10 largest banks create 53 percent of our reported money supply by picking and choosing who gets a loan and for what purpose. If on average they have 10 people on their boards setting policy for issuing these loans, then just 100 people have the ability to determine the direction of our economy and the quality of our lives. One hundred people are deciding for 325,000,000. That’s a recipe for bad decisions. It is crazy and scary!