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The idea of credit, based on borrowing and lending, began way back in ancient Mesopotamia. Europe in the Christian era saddled with the Roman numerical system which made complex mathematical calculations difficult or impossible, was way behind the eastern world of the Abbasid caliphate, India and Sung China in the evolution of commercial bookkeeping. It was not until the 13th century and the introduction by Leonardo Fibonacci of Hindu and Arabic numerals and the decimal system that western banking became possible.
The "Merchant of Venice" was based on a story written by Giovanni Fiortano in 1378 by which time Jews had been providing commercial credit for nearly a century. To borrow money Venetian merchants had to go to the Jewish ghetto. Lending money at interest was considered a sin by Christians. Jews too were not supposed to lend at interest but Deuteronomy supplied a convenient get-out clause: "Unto a stranger thou mayst lend upon usury but unto thy brother thou shalt not lend upon usury."
A fundamental difficulty in lending money is that the business is too small and risky to allow low interest rates. Business bills of exchange had developed in the course of the Middle Ages as a way for financing trade. The rise of the Medici in the 14th century illustrates the potential power of finance. They were the first bankers to make the transition from financial success to an hereditary state and power. They did this by making their bank bigger and more diversified and thus could spread their risks. The Italian banking system became the model for the nations that would achieve the greatest commercial success - mainly the Dutch, English and Swedes - and was the forerunner of modern central banks.
The next step in the creation of the modern financial system was the birth of the bond.
For much of the fourteenth and fifteenth centuries the mediaevel city states of Tuscany were at war with each other. Wars that were waged by money as much as by men. The cost of incessant war plunged the Italian states into crisis. The larger the debts became the more bonds they had to issue and the more bonds they issued the greater became the risk of default. Not only did the Italian city states contribute to the rise of the bond market, but northern Europe too had to circumvent the problem of financing their deficits without falling foul of the Church, which prohibited the charge of interest. However the usury laws did not apply to the mediaevel contract which allowed one party to buy annual payments from another. In the 13th century such annuities began to be issued by northern French towns and both the French and Spanish monarchies raised money in the same way. Part of the reason for Spain's financial difficulties was the revolt of the Northern Netherlands against Spanish rule. The United Provinces, as a city state with the scale of a nation state, were able to finance their wars by developing Amsterdam as the market of the whole range of new securities not only life and perpetual annuities but also lottery loans.
The Amsterdam Exchange Bank in 1609 pioneered the system of cheques or direct debits or transfers. The limitation of their system was that there was an almost 100 per cent ratio between its deposits and reserves of precious metal and coins which meant that a run on the bank would have been impossible. Bearing in mind Adam Smith's description of money as a wagon transporting goods from one place to another but without any real value in itself, money has to move constantly - hidden in a box under the bed it does not fulfil this requirement. Throughout the western world money was no longer considered as precious metal that had to be dug up and minted into coins.
With the "Glorious Revolution" of 1688 in England in favour of the Dutch Protestant Prince of Orange these and other innovations crossed the English Channel from Amsterdan to London. The lands owned by the Crown (i.e. the King) had been sold off earlier than elsewhere thus increasing the power of Parliament.
Governments and large corporations issue bonds as a means of borrowing money from a broader range of people. The bond market is powerful because it passes a daily judgement on the creditability of every government.
In London by the mid-eighteenth century there was a thriving bond market where government consols were the dominant securities traded.
The Rothschilds bestrode the mid 19th century financial world as masters of the bond market. Reactionaries lamented the rise of a new form of wealth, higher yielding and more liquid than the landed estates of Europe's aristocratic elites. As Heinrich Heine said
"There was something profoundly revolutionary about the financial system the Rothschilds were creating."In Heine's eyes Rothschild could be mentioned in the same breath as Richelieu and Robespierre for the gradual annihilation of the old aristocracy. Richelieu had destroyed its power. Robespierre had decapitated the remnant and Rothschild was providing Europe with a new social elite.
War and their financing of it had brought the Rothschilds into power. To retain their position they need war.
During the American Civil War it was alleged that the Confederacy turned to the Rothschilds. A northern commentator said "Belmont,(the Rothschild's agent), the Rothschilds and the whole tribe of Jews have been buying up Confederate bonds..." In reality however the Rothschilds opted not to back the south. With its domestic bond market exhausted and only two or three foreign loans the Confederates were forced to print unbacked paper dollars to pay for the war and other expenses.
Within a decade of the American Revolutionary War, which ended in 1783, another nation was going down the same road. In 1788, the French Monarchy was bankrupt, and prominent French bankers refused to extend necessary short-term credit to the government and arranged to have shipments of grain and food to Paris “delayed” to trigger hunger riots.
In 1810-1850 the merchant bankers of London had already at hand the Stock Exchange, the Bank of England, and the London money market, They brought into their financial network the provincial banking centres, organised as commercial banks and savings banks, as well as insurance companies to form all of these into a single financial system on an international scale which manipulated the quantity and flow of money. The "British Empire" was nothing more than an extension of the East India Company. Although operated as always by agents who may or may not have considered they were working for king and country, the real rulers (and beneficiaries) were the internationalists of the "City" of London. From their point of view the operation was a success. The costs of "Empire" were borne by the taxpayer whilst the fruits went into their coffers. With their fingers on the controls, all the old Asian rulers of China, Burma, Siam and India had been removed so that they were able to influence, if not control, governments on one side and industries on the other.
In Europe the “new imperialism,” proliferated throughout Europe following the rapid expansion of banking throughout the continent, and the pre-eminence of international financiers over governments, creating debt that then had to be serviced by the purchase of more infrastructure, and expansion of territory. This led European nations to undertake a massive imperial effort across much of the globe, to find and control foreign markets and expand their capital.
English banks in this period were nearly all private partnerships. Some specialising in the business of the "City" which was the focus for mercantile finance. More and more of the clearing of sums owed by one bank to another went through the Bank of England.
Most advanced economies followed the British lead when it came to regulation through a monopolistic central bank operating the gold standard. The Bank of France was established in 1800, the German Reichsbank in 1885, the Bank of Japan in 1882 and the Swiss National Bank in 1907. In the US the evolution of finance was different due to a fear of over-mighty financiers.
The Federal Reserve was created in December, 1913 and was the product of cloak-and-dagger machinations by Wall Street financiers and their political mouthpieces, many of them in league with the "City" of London. Also on hand was Paul Warburg of the notorious international banking family, descended from the Del Banco family of Venice.
Invented almost exactly four hundred years ago, the joint stock limited liability company is a miraculous institution as is the stock market where its ownership can be bought and sold.
After 1858 the restriction on joint-stock banking was lifted paving the way for a group of big commercial banks. An especially important role was played by the new "savings" bank. Money was now primarily inside banks and out of sight.
The bond market, the stock market, the insurance market and the real estate market are the key components of the financial system and the globalisation of all these markets that has taken place over the past twenty years.
The capital adequacy of banks in the developed world has been slowly and steadily declining. In Europe bank capital is now equivalent to less than ten per cent of its assets. In other words banks are not only taking in more deposits, they are lending out a greater proportion of them and minimalising their capital base.
The decline of the aristocracy as a political force has been explained in many ways At its heart was finance. Home-ownership for most of history was the exclusive privilege of an aristocratic elite. Every one else was a mere tenant paying rent to a landlord. However the great magnates took full advantage of their ability to borrow to the hilt. Some did it to improve their estates, others to finance a life style of conspicuous consumption. The trouble with property is the fact that no matter how much there is, it is only of value to the person who lends you money. That is why many 20th century investors were attracted to mortagages as a risk free investment. In addition landowners had to pay a newly instituted land tax ,at a time when their economic position was further eroded by the combination of industrialisation and the increase in grain production around the world.
The central banking system has, from its inception, acted in ways which monopolise industry, merging the interests of both the economic and political realms into a holistic ruling class – holding the authority and power of a government body, but representing the interests and submitting to the ownership of private individuals. Massive industrial consolidation by a few oligarchic elites was the rule of the day.
Throughout much of the 1800s and into the 1900s, the United States suffered several economic crises. A situation which was built into a system which was chaotic in its nature, in which only the very rich were secure.
The banking interests were allied with European banking interests. On the European side, specifically in Britain, the elite were largely involved in the Scramble for Africa at this time. Among them was Cecil Rhodes, who made his fortune in the diamond and gold mining in Africa. With the financial aid of Rothschild and Alfred Beit, he was able to monopolise the diamond mines of South Africa as De Beers Consolidated Mines. Interestingly, as historian Niall Ferguson explained, “It is usually assumed that Rhodes owned De Beers, but this was not the case... by 1899 the Rothschilds’ stake was twice that of Rhodes.”
In 1901 Rhodes chose Milner as his successor with the purpose of a British-led cosmopolitical world order, one global system of governance under British hegemony. Was he so naive as to believe this was a nationalist undertaking when the key players were the Rothschilds and other banking interests?
In the early 20th century, European and American banking interests achieved what they had desired for over a century within America, the creation of a privately owned central bank. The creation of the Federal Reserve cemented the alliance between New York and London bankers.
The twentieth century saw an increase in the small landowner who for the first time actually owned their houses. They too fell into the same ditch and learnt the harsh truth of mortgage, where borrowing could rapidly end with the loss of the home.
The great economic and financial cataclysm of the first half of the twentieth century, known as "The Great Depression" was caused by the Bank of England, the "British" government, and the "City" of London. The events leading to the Great Depression are all related to British economic warfare against the rest of the world, which mainly took the form of the attempt to restore a London- centered world monetary system incorporating the gold standard. The efforts of the British oligarchy in this regard were carried out by a clique of international central bankers dominated by "Lord" Montagu Norman of the Bank of England, assisted by his tools Benjamin Strong of the New York Federal Reserve Bank and Hjalmar Schacht of the German Reichsbank.
The depression was rendered far more severe and, most importantly, permanent, by the British default on gold payment in September, 1931. The repertoire of central bank intrigue, speculative bubbles, defaults, devaluations, bank rate manipulations, deflations and inflations constitute the essential arsenal being used by "British" economic warfare planners today.
In late 1929 and 1930 the British financiers noticed very little change in their usual depression routine. But the explosion in New York wrecked the banking system in central Europe, resulting in the Kreditanstalt bankruptcy in Vienna in May 1931, the fall of the Danatbank and the rest of the German banks in July of that year.
Norman's trump card was his ability to manipulate the policies of the United States Federal Reserve System through a series of Morgan-linked puppets.
Insurance and welfare are not the only way of buying protection against future shock. The other is hedge funds. The origins of "hedging" are agricultural. For a farmer planting a crop the important thing is the price it will fetch when it is taken to market. A future contract allows him to protect himself by committing a merchant to buy his crop when it comes to market. A prior hedge eliminates risk entirely, It requires a speculator as a counter party to take on the risk. Most hedges tend to engage in some measure of speculative activity partly because the public feels that hedge markets are little better than casinos. But in the 1970s futures could also be issued for currencies and interest rates. But not until 1982 was it possible for future contracts to be on the stock market. The underlying principles are simple: They are all derived from the value of underlying assets. All assets of contracts are forms of derivatives. The rise of derivatives, which are financial instruments (or contracts), the prices of which are derived from one or more underlying assets, indexes, or other items was also one of the key factors that led to the economic crisis.
Closely related though distinct from futures are the financial contracts known as options. In essence the buyer of a call option has the right but not the obligation to buy an agreed quantity of a particular commodity at a certain time for a certain price.
The l5th August 1971 closed the gold window and from that day forward the centuries-old link between money and precious metal was broken.
The Canada-US Free Trade Agreement of 1989, was signed by President George H.W. Bush and Canadian Prime Minister Brian Mulroney a member of the board of Barrick Gold Corporation and the International Advisory Board of the Council on Foreign Relations,
In 1990, the private sector lobbying groups began the promotion of the North American Free Trade Agreement (NAFTA) to expand the Canada-US Free Trade Agreement to include Mexico. NAFTA was signed in 1993, and went into effect in 1994.
In the late 1990s, with the stock market surging, large banks merging with and swallowing up smaller banks, and a huge increase in banks having transnational branches, Wall Street wanted to eliminate the regulations that had been intended to protect investors and stabilise the financial system and in 1999 repealed key parts of the Glass-Steagall and the Bank Holding Act and allowed commercial and investment banks to merge, to offer home mortgage loans, sell securities and stocks and offer insurance.
One of the architects of this was Clinton's Treasury Secretary Robert Rubin. ex Goldman Sachs, who worked with Alan Greenspan to oppose the regulation of derivatives.
The 1990s saw the expansion and formation of regional blocs, with the formation of the European Union, the signing of the North American Free Trade Agreement (NAFTA) and the creation of the WTO. The World Trade Organsation was officially formed in 1995, as the successor to the General Agreements on Tariffs and Trade (GATT),formed in 1944 at the Bretton-Woods Conference.
In 1992, the Maastricht Treaty was signed, which officially formed the European Union in 1993. In 1994, the European Monetary Institute (EMI) was formed, followed by the European Central Bank (ECB) in 1998, and the single European currency, the Euro, in 1999. In 2004, the European Constitution was to be signed by all 25-member states of the EU, which was a treaty to establish a constitution for the entire European Union - i.e. a move towards creating a European superstate.
The Constitution was largely written up by Valéry Giscard d’Estaing, former President of the French Republic from 1974 to 1981 and a member of the Bilderberg Group, the Trilateral Commission, and a close friend of Henry Kissinger.
Speculation had proved itself to be a powerful weapon of finance capital with the speculative attack on the peso in the 1990s, leading to the collapse of the Mexican economy in 1994, and later in East Asia in 1997 and in 2001 and 2002.
On March 23, 2005, the leaders of Canada, the US, and Mexico, (Paul Martin, George W. Bush, and Vicente Fox, respectively), announced “the establishment of the Security and Prosperity Partnership of North America.”
In 2007, it was reported that the European Union and the United States were beginning the process of transatlantic economic integration.
The financial crisis that began in August 2007 had little to do with traditional bank lending or bankruptcies. Its prime cause was the rise and fall of securitised lending which allowed banks to originate loans but then repackage and sell them on. Another cause was the creation of massive consumer credit to fuel consumption, with much of the source of this capital coming from foreign investors.
In 2008 the Union of South American Nations (UNASUR) was formed.
The Gulf Cooperation Council, a regional bloc of Arab Middle Eastern governments, is pursuing economic integration in the form of a common central bank and a common currency. There has been much discussion of an Asian Monetary Union and East Asian economic integration to be modeled upon the East Asian regional block of ASEAN (Association of Southeast Asian Nations).
Africa is being organized as a regional bloc under the African Union, and is also pursuing regional economic integration, and has even set the agenda for the creation of a continental African central bank and the formation of a single African currency.
In 2008, it was announced that Canadian and European officials plan to begin negotiating a massive agreement to integrate Canada’s economy with the 27 nations of the European Union.
Following the April 2009 G20 Summit, leaders issued a communiqué which set the groundwork for the creation of a global currency.