The Risks of Banking Cartels

The concept of banking cartels refers to the idea that a group of powerful financial institutions – often both private and public – collaborate to exert control over the global financial system, including the money supply, credit, and interest rates. While the term “banking cartel” is not typically used in formal economics, it has gained popularity in critical discussions of modern financial systems, particularly among those who view central banks and large private banks as having undue influence over governments, economies, and individual wealth. The Federal Reserve, the central bank of the United States, plays a key role in this system, as it controls the money supply and sets key interest rates.

A cartel is a group of independent organisations or entities that collaborate to regulate competition, often with the goal of controlling market prices, restricting production, or influencing economic outcomes in their favour. In the context of banking, a banking cartel refers to a group of large financial institutions – private banks, central banks, and international financial bodies – that work together, often covertly, to manipulate or control the flow of money, credit, and financial policies globally.

Three key features of a banking cartel include:

1. Monopoly or Oligopoly: a small number of large banks or financial institutions dominate the market and can collectively influence monetary policy and economic outcomes.
2. Collusion: these banks may work together to set interest rates, loan terms, and financial regulations that benefit them, often at the expense of consumers or the broader economy.
3. Government Influence: central banks, like the Federal Reserve in the U.S. or the European Central Bank, are often viewed as part of the cartel due to their ability to create money and set monetary policy, which directly influences inflation, unemployment, and economic growth

Critics of the banking cartel, such as Dr. Perry Kyles, argue that it manipulates the economy for its own benefit, inflating the currency by printing more money and directing economic resources through its control of credit and debt. Many believe that central banks and private financial institutions, rather than governments, have become the most powerful economic entities in the world. This power imbalance has led to allegations of economic manipulation and corruption, with the financial elites benefiting while the general public bears the costs in the form of inflation, devalued savings, and growing wealth inequality. An example is the 2008 Financial Crisis, which started with the collapse of Lehman Brothers and the subsequent global financial crisis revealed how interconnected and powerful banks had become. The too-big-to-fail banks were bailed out by governments, effectively socialising the losses from reckless financial practices. Critics argue that this event further entrenched the power of the banking cartel and revealed how financial institutions operate with minimal accountability. 

The Case of the Federal Reserve

The Federal Reserve, which is the banking cartel Dr. Perry Kyles speaks off, is the central bank of the U.S. and plays a crucial role in controlling the money supply, setting interest rates, and regulating financial institutions. However, critics argue that the Federal Reserve is too closely aligned with large private banks and that its policies often favour financial elites rather than the broader population.

Three influences of the Federal Reserve:

1. Monetary Policy Control: the Federal Reserve has the authority to print money (referred to as “monetising debt”) and set the federal funds rate, which impacts borrowing costs across the economy. Critics argue that this power can lead to inflation, wealth inequality, and asset bubbles, often benefiting large financial institutions that are able to access cheap credit.
2. Private Ownership: though the Federal Reserve is a government institution, it has private bank ownership. The Federal Reserve’s 12 regional banks are privately owned by member banks, which gives private financial institutions a degree of influence over the Fed’s decisions. Critics argue that this creates a conflict of interest, as the Fed’s policies may disproportionately benefit the banks that own it.
3. Lack of Transparency: the Federal Reserve operates with a level of autonomy from the U.S. government, and its decisions are often made behind closed doors. This lack of transparency has led to concerns that decisions are made to benefit powerful banking interests rather than the general public.

So How do These Banking Cartels Manipulate the Economy?

1. Inflation and Currency Devaluation

Central banks control the money supply. By printing more money or adjusting interest rates, they can influence inflation. Critics argue that excessive money printing (quantitative easing) leads to inflation, eroding the purchasing power of ordinary citizens while benefiting those who hold significant amounts of assets—such as large banks. In addition, as central banks expand the money supply, the value of the currency typically declines. This process is seen as beneficial to banks with large holdings in assets like stocks, real estate, or commodities, as these assets tend to increase in value relative to fiat currency. However, it harms regular consumers who see the cost of goods and services rise.

2. Bailouts and Government Intervention

During times of financial crisis, central banks and governments often bail out large banks and financial institutions (e.g., the 2008 financial crisis). These bailouts are often criticised because they are seen as rewarding banks for reckless behaviour, while ordinary citizens suffer from job losses, inflation, or wage stagnation. Critics argue that the banking cartel benefits from these bailouts by making risky investments and relying on government intervention when things go wrong. This situation creates a “moral hazard,” where financial institutions take on excessive risk, knowing that they may be bailed out by taxpayers if things go wrong. The 2008 crisis, for example, involved significant risks taken by major banks that were eventually rescued by government funds.

3. Debts and Interest Rates

The banking cartel is also accused of driving governments and individuals into debt. By issuing loans and controlling the money supply, banks and financial institutions can create and manage debt. Governments borrow money from central banks (or private banks) to finance deficit spending, which can lead to national debt spirals. For individuals, credit cards, mortgages, and student loans are all ways in which the banking cartel profits from interest payments. Central banks manipulate interest rates to control borrowing costs and influence the economy. While low interest rates can stimulate economic growth, they can also inflate asset bubbles, leading to greater wealth inequality. On the other hand, high interest rates can lead to economic stagnation and higher debt service costs. 

Alternatives?

Many people, such as Dr. Perry Kyles, see gold and silver as a way to break free from the influence of central banks and the banking cartel, he discusses this in depth in Episode 213. By holding precious metals, individuals can safeguard their wealth from inflation, devaluation, and monetary manipulation. There is also the rise of cryptocurrencies such as Bitcoin, that are seen as an alternative.

Cryptocurrencies are decentralised, meaning they are not controlled by any government or central bank, and are seen by some as a way to avoid the inflationary effects of fiat currencies. Finally, there are advocates for reforms to central banking systems, including greater transparency, more accountability to elected officials, and restrictions on the influence of private banks in central bank decision-making.