How your future is decided for you. The real reason for inflation
In the featured video, Ivor Cummins interviews Professor Richard Werner, author of Princes of the Yen – Japan’s Central Bankers and the Transformation of the Economy on The Fat Emperor Podcast. Werner holds a PhD in Economics from the University of Oxford. In the 1990s he was a visiting scholar at the Bank of Japan.
In 1995, he developed a monetary policy known as quantitative easing, intended to help banks overcome financial crises more quickly and avoid long-term recessions.
More recently, Werner founded a nonprofit company called Local First, which provides communities with the know-how to start local community banks. In this interview, he explains how the world works from the perspective of central banks, how ordinary people are affected by these policies, what we can expect from central bank digital currencies (CBDCs), and much more.
How central bankers rule the world
In his book Princes of the Yen, Werner describes how a small group of insiders within the central bank runs the whole show. They do draw media attention to interest rates, but that is just a deception. They focus not on the price of money, but on the money supply as measured by the amount of credit creation.
This tiny core group of insiders are selected when they enter the Bank of Japan in their early 30s and are told that in 30 years they will become governors of the bank. They are referred to as the “Princes”. They control the boom and bust cycles in Japan by controlling the amount of credit.
Similar groups exist in other central banks, says Werner, and these central bankers are not responsible for their actions. They use this power to bring about events that serve their own purposes (which usually involve increasing their own power).
In 2003, Werner warned that the European Central Bank (ECB) was “a monster” that would create bank lending-driven asset bubbles and real estate bubbles, followed by banking crises and recessions, and that is exactly what took place.
Central banks’ plan to monopolize global finance
Werner points out that although central banks are touting CBDCs as digital currencies, digital currencies have been around for decades, so the digital aspect of this currency is nothing new. Cash – paper banknotes and coins – makes up only a small portion – about 3% in most countries – of the total money supply. The rest is digital.
Today only central banks have the authority to issue banknotes, but 97% of money is created by normal banks through lending. You are not allowed to issue paper tickets. Instead, they issue deposits into your bank account that are digital. So you could say that we have been using a digital bank currency (BDC) for decades, says Werner.
The difference between BDCs and CBDCs is the centralized aspect. What is occurring now is that the central banks that regulate the banks are coming into direct competition with the banks that they regulate. Werner compares this to the referee entering a game. Of course, that makes it an unfair game.
“This is a big danger,” says Werner to Cummins. “And you can see where this is going. If we allow central bank digital currencies, sooner or later they will drive out competition from the private sector. They will displace the banks.
And of course we also have this other problem, that every time we have a banking crisis and a financial crisis, the regulators get more power because every time they argue, ‘Oh, this is what took place now, it’s different than before and that’s because we don’t have enough power yet. We need to have more powers.
This is a moral hazard of regulation. If the regulator is rewarded for its failure, you can be sure we will have more crises because they will be given more powers. Now they want to introduce CBDCs, and of course the best time from their point of view is another banking crisis, so people want to withdraw their money from the banks.
That’s the easiest way to introduce this, which means we now have a massive incentive for the regulators, for the central planners, to create another major financial crisis so that they can then take over.
That is of course the end, because the banking system will not recover from this. Do we really want the number of banks to decrease so much that there is only one bank left?
In the roughly 23 years of its existence, the ECB has already destroyed around 5,000 banks in Europe, and they weren’t the big ones. Thousands of banks have also disappeared in America, and of course they are being absorbed by JP Morgan and Co., so they simply become big, fat megabanks.
It looks like the ECB will be the only bank they want left in Europe and that’s what will occur if we allow CBDCs. So now we really need to stand up and say, ‘We don’t need this; we already have digital currencies, thank you very much’.”
Perceived need for CBDCs must be manufactured
Central bankers know they have to get creative because CBDCs have “no compelling value proposition,” meaning there is no perceived need for them.
So they have the unenviable task of selling us a solution to a problem we don’t have, while at the same time trying to hide the fact that what they are proposing is a digital slave system over which they have full control about whether, when and where you can spend the money you earn.
As mentioned in the interview, this is also the reason why they haven’t fully rolled out the CBCDs yet. They need first to create or manufacture the need, and that will likely be a series of financial crises that damage trust in the banks.
“With CBDCs, the central bank decides if, when and how you can spend your money and can use this monetary control to enforce compliance with all global governance agendas.”
There are also technical questions that need to be clarified. If the electricity is turned off, you can still use cash. Not so with CBDCs. A network of technologies need to function simultaneously for CBDCs to function as intended. And because of centralization, the system is not only more complex but also far less resilient.
And finally there is the question of trust. According to a report cited in the interview, European citizens are suspicious and suspect that governments and central banks want to monitor, control and restrict transactions using CBDCs. And they are absolutely right. That’s what CBDCs are ultimately for, so central planners need to figure out how to hide that intention or somehow sell it as a good idea.
CBDCs are a population control mechanism
On October 19, 2020, Agustin Carstens, Director General of the Bank for International Settlements (BIS) – the central bank of central banks – explained the intention behind this new centrally controlled digital currency:
“In our analysis of CBDC, particularly in general use, we tend to draw equivalence to cash, and there is a big difference. With cash, for example, we don’t know who is using a $100 bill today. We don’t know who is using the 1,000 peso bill today.
A key difference with CBDC is that the central bank has absolute control over the rules and regulations that govern the use of this expression of central bank liability. Plus, we will have the technology to enforce this. These two points are extremely important, and that makes a big difference in terms of what cash is.”
As Werner explains, the CBDC issuer, the central bank, has the power to decide whether you can use your own money. Essentially, you have to request permission to use it for a specific purchase, and that request can be rejected.
“So it’s a conditional currency that’s based on actually getting that approval,” says Werner. “Now if you are a critic of government policy or a critic of central banks, this could be difficult. Or if you dare to venture outside the 15-minute zone of the city, you might find that it doesn’t work.
Of course, they will come up with excuses why you can’t do what you want to do. They’ll never tell you the real reason, but the official reason is probably something like your carbon footprint, which is another vague concept. For every bank transaction you get a carbon score or a quantified number.
I mean, you can come up with a whole range of concepts. The problem with CBDC is that the central bank has the power – and essentially it will be an arbitrary power – to say yes or no to what you want to do with the money you thought was your money.”
Plus, you can rest assured that if your CBDCs are accidentally switched off or if a purchase attempt is rejected and you want to appeal, there will be no one to complain to. Just look at how difficult it is to resolve an issue with one of our social media companies.
The CBDC system will be far larger, more complex and more automated than any other social media company on the planet. Most of it will be controlled by algorithms and artificial intelligence, without any human input. “There is no real right to object,” says Werner. “That will be the reality.”
CBDCs need digital ID
Many suspect that the covid pandemic was a pretext to legitimize the introduction of a digital “vaccine passport,” which can then be converted into a digital ID card.
The World Health Organization is now introducing an international vaccination passport based on the European Union’s digital health certificate, although this makes no medical sense as the covid vaccination cannot prevent infection or transmission and this passport will eventually be linked to CBDCs. There is no doubt about that, says Werner.
Coming back to finance in general, many people around the world are affected by inflation. According to Werner, what we are experiencing now is similar to what occurred in the 1970s, when hyperinflation masked another major economic shift, namely the transition from a gold-backed currency to a fiat currency backed by thin air.
“The official narrative is, again, like in the 70s, there is a war, and as a result there is some kind of energy embargo. In the 70s it was the OPEC embargo. As a result, energy prices skyrocketed and we got inflation. That’s why we had inflation in the ’70s and again in 2021, with a kind of peak [at the end of 2022]. That is the official narrative.
Unfortunately, when you look at the data, you see that this is not the case. Inflation peaks in essentially both periods… before the war. In the ’70s, the war was in mid-October 1973, [but] oil prices weren’t going up – yet. Henry Kissinger had to fly to Saudi Arabia and get the oil secretary to quadruple the price of oil, which happened in January ’74.
In many countries inflation had already peaked and declined by this point, so the timing was wrong. Similarly, recent inflation was already significant before [Russia’s] military action in Ukraine, so that doesn’t work. And of course oil and energy prices are still down and much lower.
So why do we have this significant double-digit inflation? It’s much simpler, and this applies to both the 70s and the most recent era. In the 1970s we saw that central banks suddenly forced banks in all major countries to massively expand money creation. Surprise surprise. How else could you create inflation?
In March 2020, the Federal Reserve and at the same time the other major central banks decided on a very specific policy that is quite unusual. Normally something like this is only done once per century or twice per century at most, so it’s not like, ‘Oh, we did that by mistake.’ It’s very specific. It has to be intentional, and there is evidence that it is intentional.”
As Werner explains, banks create new money through lending. In the 2000s, banks pumped this new money into real estate markets, causing property prices to rise. Eventually a bubble is created, and when it bursts, the system collapses and banks stop lending, causing the entire economy to slow down.
The monetary policy developed by Werner, quantitative easing, has two aspects. The first, called QE1, involves the central bank stepping in and buying up distressed assets in the banking system at face value. This solves the banks’ problem and gives them a solid balance sheet again.
But that’s not enough to get them to increase lending again. Therefore, with QE2, the central bank can force banks to create more money and pump it into the economy. He explains how this works:
“When a central bank buys something from the non-banking sector, e.g. the seller of a property, how does she get the money?
Well, the central bank transfers it into her bank account, which means that all of a sudden they have money in their bank account that is actually created by the bank because it receives a booking in their reserve account at the central bank. So that’s how it works, and that’s how the central bank can pump money directly into the economy.
Those were the two forms of QE. In 2008, when [the real estate market] collapsed in America, Bernanke said, ‘Oh, the Werner proposal QE, yes, we’re doing that, and they did it straight away, while themselves in Europe didn’t understand the intricacies. [They thought they would just buy assets.]
So in Europe it took much longer to overcome the 2008 crisis, while America recovered very quickly because the Fed bought the banks’ non-performing assets almost at face value, so that the banks were suddenly healthy in one fell swoop.
But the second recommendation was still not followed because U.S. didn’t think it was necessary. Well, it took two years for the banks to significantly increase lending.”
Quantitative easing was intentionally misused
In March 2020, the US Federal Reserve reintroduced QE, but this time it was wrong and, according to Werner, deliberate. He tells Cummins:
“In 2020, in March, the Federal Reserve introduced QE2 at a time when the economy was actually doing well. Growth was fine. Bank credit growth was 5 to 6%. There was no deflation. This was a recommendation for deflation and for a shrinking economy.
They did QE2 and a massive expansion ensued, with the Federal Reserve buying private sector assets from non-banks, forcing banks to create credit on a whole new scale, the largest in the postwar period. At the same time, there were government restrictions in 2020.
If you reduce supply but massively increase borrowing through money creation by putting that money into the economy (which in 2008 was just an accounting transaction, there was no new money so it didn’t cause inflation), it becomes high inflation.
I warned that it would lead to inflation. Most commentators thought – because they don’t understand the difference between the two QE – that it will be fine [like 2008]. No, it’s completely different.
We could see the smoking gun. How do we know this was really intentional? Well, it’s a very specific policy that is used very rarely [and yet] all the central banks suddenly did it. The other evidence is that just before covid, in August 2019, in the annual central bankers’ conference, BlackRock, the world’s largest asset manager, made this proposal.
They said there will be another crisis, but this time we should create inflation. The implication is unspoken. The crisis will be deflationary, so we have to create inflation, and that’s how we will do it.
[They said] we need to support fiscal policy through money creation and get the central bank to pump money directly into the economy, which you can do by purchasing assets from the non-banking sector.
And how do we know that’s what the Fed did in March 2020? We have the data. And there is another factor. The Federal Reserve hired Blackrock to purchase assets in March 2020.
This inflation is deliberately created by the central banks, by the central planners. How will we punish them for this? Oh, let’s give them even more unprecedented power over everything, over life on Earth, through central bank digital currencies.”
Recommendations for further action
According to Werner, inflation in the 1970s was used to cover up the transition from the gold-backed dollar to the petrodollar. Today he believes that inflation is being used to cover up the collapse of the petrodollar and the transition to a new CBDC system.
Unfortunately, they will succeed unless we somehow stop them. To protect your assets from this intentionally created inflation, Werner recommends purchasing physical gold and silver. He also calls on everyone to “do more in local communities.”
“If we work together at the local level, it can create a very resilient structure and then we can use whatever we want as a means of payment. We can have a local currency, a gold based system, a silver based system or we can just have a local community bank, and then you can have your own credit creation locally.
As central planners want to reduce the number of banks, now is the time for people with a little capital to step forward and say, ‘Let’s create community banks. Here are five million euros, which is the minimum you need. [My] nonprofit Local First has the know-how. We can get the banking license.
We need people to step forward now. We will establish community banks locally and get the banks approved. This can be the core of a local economy. It also shows that this decentralization system is much better because the local banks are responsible locally.
Community banks can either be structured with a local charity so that all profits flow locally to that geographically limited area. Germany has been successful for 200 years because 80% of its banks are local, non-profit community banks that only lend locally.
These small companies are highly productive, they can constantly upgrade because the local bank is always giving them loans to get the latest technology.
That’s why productivity in Germany is much higher than, for example, in the UK, but this is of course threatened by central planners. They want to force them to merge. But fundamentally we need to create new banks, and we believe we can do that if we act quickly. Now, in the next two years, we really need to get this going.”
September 19, 2023