The “Business” of Central Banking—Usury and Tax Farming

Guest Post by Nick Giambruno

Central banking is “a great business to be in, where you print money, and people believe it.”

That’s what the head of New Zealand’s central bank said recently in an unscripted moment of candor.

It led me to wonder about the nature of this strange “business.”

Let me put it into the simplest and most concise terms.

1. Central banks create fake money out of thin air and loan it to governments at interest.
2. Governments use violence and threats of violence to extract taxes from average citizens to pay the interest on the fake money the central banks created out of thin air.
3. Like the mafia, they can deploy violence to ensure there is no competition to their privileged racket.

That’s the unvarnished truth about central banking.

In short, it’s the business of usury and tax farming.

(To me, a more practical modern meaning of usury is “enslaving people with financial trickery.” Central banking clearly fits the bill.)

The central bank is a powerful wealth transfer mechanism that enables governments to harvest the productive efforts of their citizens efficiently and surreptitiously.

The central bank’s currency debasement transfers wealth from savers to those closest to the money printer, namely governments and their cronies.

The central bank’s real mandate is to transfer as much wealth as possible via currency debasement to the political class without causing alarm among the plebs. Ideally, it happens gradually so nobody notices, like a child taking only a little money out of his mother’s purse each day so she doesn’t notice.

However, sometimes their theft spirals out of control, and it’s impossible for the plebs not to notice.

Consider this.

The Federal Reserve—the central bank of the US—has printed more fake money in recent years than it has for its entire existence.

Since March 2020, the Fed has inflated the money supply by more than 30%.

In other words, if your after-tax wealth hasn’t increased by 30% since then, you aren’t keeping pace with the monetary debasement.

As Michael Saylor puts it, “The road to serfdom consists of working exponentially harder in order to earn a currency growing exponentially weaker.”

It’s no wonder an increasing number of people are having a harder time making ends meet. The speed only ratchets upward when running on the fiat treadmill.

Outpacing Debasement

According to even the official government inflation statistics—which drastically understate reality—the US dollar has recently been shedding 7-8% of its purchasing power each year.

Let’s presume this continues, though I think that is a conservative estimate because the coming inflation could be much worse.

That means everyone holding US dollars will lose 50% of their purchasing power every nine years.

And that’s the BEST case scenario.

Those holding other fiat currencies could see their savings melt away even faster.

Also, consider how fast the cost of groceries, rent, medical care, and many other things are rising. It’s clearly much worse than what is reflected in the crooked CPI.

As bad as it is, I expect things to get much worse soon.

The coming currency debasement could be unlike anything we’ve ever seen before.

That’s terrible news for those who store the fruits of their labor in fake money that central bankers can create without effort.

Think about it.

How will you save for the future—or retirement—when the US dollar loses 50% of its value every nine years, in the best-case scenario?

In reality, you probably have much less than nine years before the US dollar loses half of its purchasing power again.

That’s a big problem EVERYONE will have to address soon.

Outpacing Debasement AND Taxation

Living under the central bank’s fiat currency regime means you must earn your money twice, first when you earn it and then to preserve its value from the corrosive effects of inflation.

That’s why many people turn to riskier assets such as stocks, bonds, and real estate in a struggle to maintain their purchasing power.

However, there is no guarantee that those investments will keep up with inflation. But suppose they do. They will then be subject to a capital gains tax, even if it’s only a nominal gain.

That means savers face the daunting task of outpacing inflation AND the capital gains tax just to maintain their purchasing power.

That’s made saving an impossible task for many people.

Previously, people could simply save in money, which was either gold or a derivative of it.

There was no need for a dentist, a construction worker, or a taxi driver to also become a hedge fund manager to try to keep their heads above water.

In other words, currency debasement has forced people to park their savings in assets they otherwise wouldn’t have—particularly bonds.

Bonds are just a promise to pay someone central bank confetti in the future. They are an extension of the fiat system.

In recent decades, bonds in general, and US Treasuries in particular, have become the “go-to” savings vehicles for many people.

However, I think that will change soon as bonds will be incapable of storing value in the face of rampant inflation.

Recently, we saw the worst year for Treasuries in American history. The shift away from bonds has probably already begun.

That means a lot of the capital parked in bonds will be looking for a new home that functions as a better store of value.

What could that be?

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