What is happening to the economy? Why is the banking system failing? What went wrong?

This is a very complex issue, but at bottom the problem is one of greed involving the immoral expropriation of society’s economic resources by our banks and governments. The responsibility for this situation has been squarely placed on the banks by the media and politicians, and it is true that they are responsible. But modern governments are equally responsible because our governments have permitted the banking system to act in this irresponsible and immoral way, and the reason for this is that the government is the main beneficiary of this morally corrupt banking system. This is not a party political issue though, since all governments, regardless of party politics, have been involved in this.

The problem basically boils down to the fact that we have a central banking system operating a fractional reserve system of banking. It would take a long time to explain precisely how this system works, but essentially it works by monetising debt, in other words the banking system has turned debt into money. At the heart of the modern banking system is the Bank of England, which is part of the problem, not part of the answer. There is no end to the amount of debt-based money that can be created, but as more and more is created the value of the monetary unit falls. Economies based on this banking system continually experience what is called the business cycle, i.e. periods of apparent economic growth (booms or bubbles) followed by recessions (slumps). If the government continues with this kind of economic policy and permits and encourages the banking system to continue inflating the money supply (by creating debt-based money), the economy eventually collapses and the monetary unit become useless (this is called crack-up boom by economists, and a good example of this was what happened in the Weimar Republic in Germany from 1919 to 1933).

Politicians try to manage this situation by controlling the banks through the central bank (the Bank of England in Britain). However, modern governments have not reformed the system to solve the problem and they show no intention of doing so because money is power and this banking system provides governments with money and with a means of controlling the economy. The only kind of reform that governments have done to this system is tinkering at the edges in an attempt to steer the economy away from depressions and crack up-booms, not any real reform that would end the immoral practice of fractional reserve banking. But just as Dr Frankenstein was unable to control the monster he created, likewise governments have been unable to control the monster of the business cycle created by the fractional reserve banking system. The problem is that our governments want to keep the monster alive because it brings them economic resources and power, but they cannot control it properly, and it continually turns round and attacks them by laying waste to the economy. The only answer to this problem is to end the fractional reserve system altogether and return to an honest monetary system, a monetary system based on Christian principles of morality.

The same kind of banking system exists in other countries. It is a global system, and this is why a serious recession in one large country, such as the United States or the European Union, can cause problems the world over.

There is a very good video presentation of how this system works on the internet here. The system is explained in terms of the United States economy and the Federal Reserve (which is the US equivalent of the Bank of England). Although there are some minor differences between the American and British systems they both work in the same way and this video gives a good presentation of how the modern fractional reserve system works in the UK as well. A more detailed description of how the British banking system works and an analysis of why it is immoral is given in “The Banking System,” Chapter Four of my book The Political Economy of a Christian Society. A free PDF of this book can be downloaded here. If you prefer to read the actual book you can purchase a hard copy here.

Answered by Stephen Perks