From time to time I read or hear people blaming the economic crisis on the deregulation of banks or the free market. I understand some people heard this on T.V. or on the Web but it can’t be further from the truth. Most banks in most nations are not free or deregulated; most are controlled by a central bank. In fact if you wanted to start up a gold bullion bank where you don’t charge interest and don’t practice the act of fractional reserve banking, in most cases it would be impossible. The reason for it being impossible is not because a business model of a gold bullion bank is impractical; it is because the central banks which get its power from government don’t like anything to remotely threaten its monopolistic control over most banks.

Let me give an analogy. Imagine there was a nation where every cookie factory was regulated by a central cookie factory. The central factory told every cookie factory what and how much ingredients to put. Then one day the central factory loosened up one of its rules when it comes to the ingredients. The rule was you are now allowed to put as much sugar as you like. Since sugar being one of the expensive ingredients, most factories used less of it and started making horrible cookies. Can someone in this case say it was the lack of regulation and the free market that made the horrible cookies? Can someone say if a cookie company was not regulated and used its own ingredients those cookies would always be horrible?

This is the same thing like blaming the economic crisis on the lack of regulations on banks or the free market. The only difference is in this analogy the operation of the central cookie factory is somewhat sustainable. Now imagine the central factory dictating to all factories on how much cookies they can make. No matter how much profits or losses each factory has, they must make the same amount of cookies. What do you think will happen? Factories will go out of business because of making too much or too little cookies compared to the profits or losses they make. Now I will make a list on some of the regulations most banks have on them.

1. Must use fiat currency (Gold coins or Gold bars are out of the question and with fiat currency banks have to use it as soon as possible or lose profits through inflation.)

2. Fractional reserve banking (Must lend out more money than they have/ create money out of thin air.)

3. Interest rates are somewhat uniformed. (If a bank has to used the central bank or other banks to get currency they can not have interest rates too low or will take a loss.)

4. Give out risky loans or face penalties. (This is becoming less of a rule these days but was emplaced nonetheless.)

So the reason for the economic crisis is not the lack of regulations or the free market. In fact it’s the opposite. What mainly caused the economic crisis are three things. 1. The lack of real competition in the banking sector. 2. The unsustainable use of fiat currency. And 3. The Central control of the banking system. All three can be put at the foot of government and not the free market.