Change in US Gross Federal Debt by Presidency (1790-2026) | Chris Martz

Something happened in 1971.

55 years of bankruptcy fraud.

Western Free Trade vs. National Systems of Political Economy | Alex Krainer

Many conflicts we are witnessing in the world today stem from the clash between two systems of governance. Usually, this is framed as the clash between democracies and autocracies. But in truth, the conflict is between the Western colonialist system of "free trade" and anyone who rejects its demand for subjugation—be it Cuba, Venezuela, Bolivia, Russia, Belarus, China, North Korea, Yemen, or Iran. The geopolitical manifestations of this conflict are easier to discern, but its roots stem from its economic foundations, which determine the nature and conduct of the opposed systems.

» Who rules East Europe commands the Heartland; 

Who rules the Heartland commands the World-Island; 

Who rules the World-Island commands the world. «

1904 Heartland map by British imperialist strategist Halford Mackinder, depicting the Eurasian landmass as the center of an emerging Eurasian geopolitical and economic world order, which the British must prevent and stop at all costs. After WWII, Mackinder's Heartland Theory shifted through US Admiral Alfred Thayer Mahan's naval doctrine into Nicholas John Spykman's upgraded Rimland Theory, redirecting American grand strategy from isolating the Eurasian core to the US, NATO, the Five Eyes, and the State of Israel militarily encircling its maritime coastlines (mainly through South Korea, Japan, the Philippines, Taiwan, Diego Garcia, Qatar, Bahrain, the UAE, Kuwait, Saudi Arabia, Egypt, Greece, Turkey, Ukraine, Romania, the Baltic states, Norway, Sweden, and Finland) and controlling resources, finance, and trade.

Free Trade vs. National System

Western colonialism favors and seeks to impose the British system of free trade. But those nations that prefer independence and wish to chart a sovereign path to their development prefer the national system of political economy, also known as the American System. The national system seeks to stimulate domestic manufacturing to accumulate capital at home, invested into the society's own development, infrastructure, education, research, innovation, culture, and other uses that raise the country's living standards and quality of life.

British fighting for free opium trade in Zhenjiang, China, July 21, 1842.

 

By contrast, the British free trade system extracts wealth and concentrates it in the hands of a financier oligarchy and their largest corporate clients. Free trade entails removing all barriers to the unobstructed worldwide flow of capital, always in pursuit of the highest possible returns. Any costs that reduce the returns on capital must be slashed, including social spending and protection of the environment. Under the free trade system, nations are obliged to compete for investment capital by systematically depressing wages, job security, pensions, healthcare services, and education. Therefore, the free trade system amounts to a competitive race to the bottom.

 

The conventional debate between socialism and capitalism, or left and right, obscures this more fundamental distinction between a free-market system and a national system of political economy. A free-market system seeks to remove barriers to international capital flows. Nations then compete to provide investors with the highest possible returns, creating pressure to reduce costs—including wages, pensions, healthcare, infrastructure, and other expenditures that improve living standards. A national system of political economy instead seeks to retain the benefits of productivity within the nation and reinvest them in productive capacity, infrastructure, education, and healthcare.

 

US bombing campaign in Nigeria. On Christmas Day 2025. "Against terrorism."

 

The effects of the free-trade system in Great Britain and how it nearly destroyed her economy are as obvious and real as the examples of the United States, Germany, and Italy in the 19th and 20th centuries, and China in recent decades, where the national system boosted economic development and raised standards of living in rather spectacular ways.

 

The Historical American System of Political Economy

The national system of political economy has roots in thinkers such as Alexander Hamilton, Henry Carey, and Friedrich List. It helped transform the United States from a collection of former British colonies into an industrial power. Its principal components included a strong manufacturing base supported by tariffs and subsidies, extensive physical infrastructure, and a national banking system capable of directing credit toward productive investment.

France, Germany, Russia, and Japan subsequently adopted variations of this approach. The historical record is therefore more complicated than the modern narrative that presents free markets and open trade as the uncontested foundations of development. The Roosevelt administration again incorporated elements of the national system during the 1930s and 1940s. After Harry Truman became president, the United States moved back toward a more liberalized international economic system. In this view, the resulting financialization encouraged wealth extraction rather than productive reinvestment.

1911 Wall Street and 1903 Detroit factory.

The industrial-capitalist tradition associated with Hamilton and List regarded unrestrained free trade as potentially a form of "free-trade imperialism." The alternative, the American System, rested on manufacturing, infrastructure, and national banking. That model helped the United States become a major industrial power during the nineteenth century and influenced other nations. Nineteenth-century economic liberalism itself recognized the distinction between productive activity and economic rent. Thinkers such as David Ricardo and John Stuart Mill argued that rent extraction could undermine productive development.

Taxing rent-seeking activity could prevent entrenched oligarchies while providing resources for infrastructure and education. The purpose was to strengthen national productivity and living standards. Today, proposals to redirect wealth accumulated through financial rent toward the physical economy are often characterized as socialism, despite their roots in the classical economic tradition.
 

China's Economic Ascent

The nation that certainly put the national system of political economy to its best effect over the last several decades has been China. Back in the 1970s, China used to be among the very poorest nations in the world. In the early 1970s, her annual GDP per capita was just over $100. By today, Chinese GDP per capita is nearing $15,000. In purchasing power parity terms, that figure corresponds to over $31,000 per capita—a massive jump from the $100 range where it was only 50 years ago. Importantly, China's economic development has been very broad-based. Having completed 14 sequential, national, government-directed five-year economic and social development plans, China has lifted some 800 million of its people out of poverty. And this blossoming of China has been nothing short of spectacular.
 

China's high-speed rail network in 2026.

While it would be impossible to cover every aspect of China's development over this period, it is worth looking at some of her most remarkable achievements in implementing the national system of political economy. For example, starting from almost nothing in 2008, China has built the largest high-speed rail network in the whole world. In less than 20 years, they have completed fully 50,000 kilometers—more than 31,000 miles—of high-speed rail connections, which represents over 70% of the total global high-speed rail mileage, surpassing the combined total of high-speed rail mileage in all other countries in the world combined. This was accompanied by the construction of breathtaking railway stations and network hubs across China. 

Recently, an entire train station in Longyan in Fujian Province was upgraded in only nine hours. This year, they completed the construction of a massive high-speed railway hub in Chongqing, covering 1.22 million square meters in a place that only 38 months ago was a mountain. The whole structure is an impressive architectural masterpiece on the scale of the Egyptian pyramids. The construction of the whole edifice cost some $7.8 billion.

Over the last two decades, China has also advanced from almost nothing to being the world's leading producer of cars. In the year 2000, Chinese car manufacturers accounted for about 1% of the global auto market. By 2023, 39% of cars sold in the world were Chinese-made. They are progressively displacing American, European, and Japanese cars. And the competitiveness of Chinese manufacturers isn't just based on lower prices. Their models are increasingly beating Western manufacturers also in terms of innovation, features, and performance. And indeed, the innovation train in China is now advancing to such an extent that flying cars could become a reality in the not-too-distant future. In some cities, they already have autonomous flying taxis. And just in case anyone should dismiss this as an AI confabulation, I personally know people who have actually used the flying taxi service in China.

The Artificial Intelligence Race

Today, one of the strategically most critical industries where the United States sought to establish an unassailable primacy is artificial intelligence. In spite of a considerable head start and literally trillions of dollars in capital expenditure, China has rapidly caught up with the leading American platforms and even surpassed them on some performance metrics.

In January 2025, China's DeepSeek AI released a new artificial intelligence model, the DeepSeek-R1, marking what Marc Andreessen called a "Sputnik moment" for the industry. Just as the Soviet Union's launch of the Sputnik satellite in 1957 upended the assumptions about American technological dominance in space-related technology, DeepSeek announced a similar challenge to the recently prevailing assumptions in the AI tech race. From that moment on, new milestones would be reached and surpassed in quick succession. DeepSeek-R1 already matched the performance of leading American models, even though its total development budget was only $6 million. 

On April 23 this year, OpenAI launched their most advanced model, GPT-5.5. DeepSeek responded the very next day with their own challenger, the V4 model, which nearly matched OpenAI's model in terms of performance. But the real, gaping difference between "Made in USA" and "Made in China" popped up in terms of cost. DeepSeek is up to 107 times cheaper than GPT-5.5. For heavy users, that difference could add up to tens of thousands of dollars a year—a make-or-break issue in the AI wars. Of course, DeepSeek is only one of dozens of Chinese companies in the artificial intelligence space, and their most popular models include Qwen, MiniMax, GLM, and Kimi. This last one, Kimi, launched their K3 model in late July 2026, which very nearly closed the performance gap with the most advanced American models and even surpassed them along some metrics like coding and agentic tasks.

Again, at a fraction of the cost of the American models, the cost difference has had a significant impact even among the largest and presumably least cost-sensitive users. For example, within June of 2026, Microsoft canceled most of its Claude Code licenses for some of its own software products due to the very high token cost. That was quite a surprise given that Microsoft invested as much as $5 billion in Claude's creator, Anthropic. Also, Uber's CTO complained that their 2026 AI budget was already depleted by April of this year due to the heavy cost associated with Claude Code use. In fact, many companies found that the cost of American AI models significantly exceeded even the cost of human employees. One of them was Nvidia. Their vice president of applied deep learning, Bryan Catanzaro, said, "For my team, the cost of compute is far beyond the cost of the employees."

 

Closed US AI Funding Loop Scam and Bubble according to Bloomberg. 

Ultimately, the result is that many American companies have been shifting to Chinese AI models. In an interview with Bloomberg News, Airbnb CEO Brian Chesky explained their preference for "Made in China": "We're relying a lot on Alibaba's Qwen model. It's very good. It's also fast and cheap. We use OpenAI's latest models, but we typically don't use them that much in production because there are faster and cheaper models." The same realization has rippled through the tech community, and the result is that China is now winning the AI race. Perhaps the most convincing verdict came from the most highly performance- and cost-sensitive market segment: Silicon Valley technology startups. According to the Andreessen Horowitz venture capital firm, 80% of these startups rely on Chinese AI models.
 

Now, one of the most extraordinary cases among them was that of Mira Murati's Thinking Machines Lab. Murati was formerly the CTO at OpenAI. So when she spun off her own company, she was able to raise $2 billion in investment capital. But rather than building on OpenAI models, Thinking Machines Lab adopted Chinese AI. The first product Murati's company released was a tool that helps developers fine-tune Alibaba's Qwen model. Indeed, the writing is on the wall, and China seems to be winning the arms race in high technology in general. In a December 2025 report for its investors, UBS Global Wealth Management rated Chinese technology companies as "most attractive."
 

Social Prosperity in China

But China's development is about so much more than AI, flying cars, or high-speed rail networks. On the back of its economic success, China's whole society is experiencing an extraordinary civilizational renaissance—a blossoming achievement of the human spirit that is making the world a better place for its people. An ordinary Chinese citizen today is more prosperous, wealthier, healthier, and freer than ever before. While China's public spaces are remarkably clean and almost uniformly safe, a Chinese working family can aspire to living in considerable comfort. 

 

As an example, for a typical modern apartment in the southeastern province of Jiangxi the monthly rent is about $27. Many new developments are conceived to offer residents a level of comfort that would be regarded as unaffordable, high-end luxury in most places in the world, featuring spacious living quarters and exceptionally large terrace areas. These are now mandated for all new approved residential developments in China.

 

Xiamen University, between green hills and the blue waters of the Taiwan Strait.

 

Young people in China have the choice of over 3,100 universities to pursue their education, which is affordable and accessible to all. Today, Chinese universities are among the world's most modern institutions, producing over 12 million new graduates every year. Chinese people also enjoy the benefit of one of the world's most effective healthcare systems and near-universal basic medical coverage. Chinese families don't suffer from anxieties that a trip in an ambulance or a treatment at a hospital might bankrupt them. 

 

To help us appreciate just how well the whole system functions and how affordable it is, a young American woman named Jennifer posted a short video of her own experience. She had no health insurance of any kind in China, but she needed to see a doctor in order to obtain a prescription for some medicines. So, she walked into a public hospital, and 19 minutes and $12 later, she walked out with everything she needed. Here is her video:
 

»  How much would it cost where you live? 

And oh, by the way, I did all of this without insurance. «  

 

If such a system could be created for China's 1.4 billion people, why could it not be created everywhere else? Why should this be out of reach for the American people? And why shouldn't it be as affordable for Americans as it is for the Chinese people?

Comparing Systemic Efficiency

Indeed, when we make comparisons of alternative systems of economic governance, something has to be said about the cost of things. We just saw how quick, easy, and inexpensive it was for Jennifer to obtain her medicines, even though she had no medical insurance at all. Earlier, we saw the comfortable living quarters available to Chinese families for just over $200 per month. For this unit below, the monthly rent is only about $84. It's more modest to be sure, but still quite nice and very affordable.

High-end luxury mandated for all residential developments.

Now, if we take purchasing power parity into account, that amount in the United States or Western Europe would be about 200 dollars or euros per month, and 500 per month for the larger unit we saw earlier in this report. But that is still an almost unimaginable value for money in any Western city. As it turns out, China's affordable healthcare, affordable education, travel, and affordable living are in fact symptomatic of her entire system, which again sharply contrasts with the Western free trade system.

A massive high-speed railway hub in Chongqing was completed in only 38 months at a cost of $7.8 billion. It was not a small amount of money, but compare that to the projections for the repair of the Francis Scott Key Bridge in Baltimore. The bridge collapsed after it was struck by a large freight ship in March of 2024. Its reconstruction is expected to be completed by late 2030—more than six years from its collapse—at a cost that is currently estimated at between 4.3 and 5.2 billion dollars.

Chongqing East Railway Station in Nan'an District.

Thus, one system can build a brand new, modern piece of infrastructure at the scale of the Egyptian pyramids in 38 months, while the other struggles to repair an old bridge in twice the time frame and at a comparable cost. Consider again the cost and pace of high-speed railroad construction. 

In May of 2024, the California High-Speed Rail Authority proudly announced the completion of the Fresno River Viaduct in Madera County. Although the viaduct measures only 1,600 feet in length, it took nine years to complete. Sadly, this was a rather typical example. In the 29 years since its establishment, the California High-Speed Rail Authority built 38 structures totaling 39 miles at a cost of $13.66 billion—nearly $350 million per mile of high-speed railroads that are still not remotely operational. Across the entire United States in 2024, there were some 30 sites of high-speed rail under active construction totaling 119 miles.

Meanwhile, in less than 20 years, China built over 30,000 miles at a cost of between 17 and 21 million dollars per kilometer, or 27 to 34 million dollars per mile. That is less than one-tenth of the cost per mile of American high-speed rail, which might never be operational. Then there is the AI industry again. Hundreds of billions of dollars were invested in the creation of the leading American models. China's DeepSeek spent a total of only $6 million in the development of their DeepSeek-R1 model—a very credible rival offering.

It is almost like the Western system was set up for systematic looting, so that just about everything costs ten times what it could or should cost. If that is true, it would follow that our system is systematically robbing us of the fruits of our labor and our creativity. We are forced to pay more for everything and get considerably less in exchange.

Western Societal Decline

The American people pay for by far the world's most expensive healthcare system, but they get some of the worst healthcare outcomes of any advanced economy in the world on almost any metric. For example, healthcare is the third leading cause of death in the United States. 50% of US adults and 30% of teens have prediabetes or type 2 diabetes. 40% of 18-year-olds have a mental health diagnosis. 

The US has the highest infant and maternal mortality rate in the developed world, in spite of spending more than twice as much on infant and maternal care as other countries. 25% of American women are on antidepressants. 1 in 36 children has autism; in California, it is 1 in 32. Rates of myocarditis, pericarditis, and cancers among young people are exploding. Since 2019, life expectancy in the United States has been shrinking and is now 7.65% lower than in other developed nations—82.4 years versus 76.1 years based on 2021 data.

I could go on enumerating case after case where the people in the West are shortchanged and robbed of their health, their wealth, their freedom, and their future. And contrast that to the very different realities faced by the Chinese people. 

 

All this could strain a Western audience's credulity, as though it were propaganda. But it is not propaganda. It is the reality confronting any Western visitor to China today. Earlier this year, President Trump visited President Xi Jinping, and his visit focused the world's attention on China in a way that was hard to overlook or ignore. The large American delegation and all the international journalists who followed the diplomatic encounters in Beijing were clearly impressed with what they saw. Among them were Nvidia CEO Jensen Huang and Elon Musk—two individuals who should generally be hard to impress.

Homeless children in the City of Angels, California, September 2026.

Another one was Bill Gurley, an investor who took the occasion to spend 10 days in China. As a learned observer, Gurley knew all about China, but like other visitors, he was still taken aback by what he experienced there. Among other observations, he mentioned that the high-speed rail network transports millions of people daily at 300 kilometers per hour quietly, comfortably, and on time. What impressed him was the very fact that such monumental pieces of infrastructure even exist, since their building involves monumental investments.

This brings us back to the purpose of this report, which was to point at the systemic drivers of China's advancement, as well as the systemic factors that have caused Western powers to fall behind.
 

Lessons from China's Success

China's success was not the result of Adam Smith's "invisible hand," nor his system of absolute free trade where private interests only need to focus on pursuing their own selfish objectives, expecting that they thereby magically create the greatest possible benefit to the collective.

Chinese factory workers operating advanced manufacturing equipment.

China built itself up through a concerted effort and a strategy formulated and pursued by its central government in the form of 15 consecutive five-year plans. On October 29, 1955, Chairman Mao Zedong announced his government's intent in his address at the Symposium of the Socialist Transformation of Capitalist Industry and Commerce. Mao said: 

"Our goal is to catch up with and surpass the United States. As for how many decades it will take, depending on everyone's efforts, it will take at least 50 years, perhaps 75—which is 15 five-year plans. Only when we catch up with and surpass the United States can we finally breathe easy."

This was during the period of socialist transformation in the mid-1950s, around the time of the First Five-Year Plan, which ran from 1953 to 1957. Deng Xiaoping's leadership (1978 to 1989) focused on the Four Modernizations, aimed at turning China into a moderately prosperous society by the year 2000.

 

When China and Japan were friends: Chinese leader Deng Xiaoping meeting with

visiting Japanese Prime Minister Yasuhiro Nakasone in Beijing on March 25, 1984.

In this way, by setting goals and formulating explicit plans, successive Chinese governments mobilized the creative potential and hard work of the Chinese people toward achieving specifically set objectives. The capital China gradually accumulated was invested in the buildup of the nation's infrastructure, including large investments in educational institutions, research and development campuses, and healthcare. And most importantly, China today provides the most concrete example of what is possible and what is achievable with competent and constructive leadership.

It is also the most undeniable case for the superiority of the national system of political economy and the legitimacy of the government's role, as opposed to the laissez-faire approach and the unrestrained system of global free trade. There are zero reasons for us to subordinate the future development of our societies to the failed ideological framework imposed by those who use it to systematically loot wealth from our economies, preventing them like a parasite from attaining their full potential in a way that benefits every member of the collective.

 

A Major Turning Point

The ideologues will screech "socialism!" But by this time, a simple grasp of the obvious should suggest that if we want to transcend our present predicaments and build a better future, we need to reexamine our convictions and especially our certitudes. The world is approaching a major turning point. Understanding history, economics, and geopolitics is essential to navigating it. Modern society possesses an unprecedented accumulation of knowledge and technological capability. No previous generation had comparable access to information and communication.

Datong.

  

If enough people study, research, and contribute to the construction of a future society, the present transition can become an opportunity to build something substantially better. As Isaac Newton famously expressed it, scientific progress comes from standing "on the shoulders of giants." The same principle applies to society: we inherit accumulated knowledge and can build upon it. The existing order is under increasing pressure. That creates both danger and opportunity—and the outcome will depend on what replaces it. 

Reference:
Alex Krainer (September 24, 2026) - Bond Market Collapse and China's New Economic Order.

Alex Krainer (September 8, 2026) - How China is Winning the Economic War.

Alex Krainer (b. 1970) is a Croatian-born market analyst, author, and former hedge fund manager based in Monaco who specializes in commodity futures, systematic trend-following, and geopolitical risk analysis. Drawing on over two decades of experience in oil trading and asset management—where he developed the proprietary I-System Trend Following model—his work explores the intersections of Anglo-American financial empire, global debt markets, and multipolar geoeconomics. He is best known for his critical geopolitical commentary and books, including Grand Deception (an investigation into the Bill Browder/Magnitsky case) and Mastering Uncertainty in Commodity Trading.

Economic Stagnation or Growth: Two Financial Systems | Richard A. Werner

Throughout his career as a banking economist, Richard Werner has provided empirical evidence that economic stagnation is not an inevitable condition of mature economies. The central issue is how the financial system creates and allocates credit. Productive credit can finance investment, technology, productivity, employment, and sustained high growth. Credit directed instead toward consumption, property, and financial assets fuels inflation, speculation, asset-price bubbles, and recurring financial crises. At the center of this system are central banks, major commercial banks, international financial institutions, and globalist financial elites whose interests and activities extend across national borders. Through their policies and institutional structures, these actors influence who receives credit, on what terms, for what purposes, and, ultimately, who controls the productive economy.
 

» Double-Entry Accounting was invented for banking to obscure. «

Fra Luca Pacioli and Leonardo da Vinci: two geniuses at work.

 

The problem is not simply high interest rates or inadequate government spending. It is the concentration of financial power and the deliberate structure of credit allocation. Globalist central bankers and financial institutions that place their international financial interests above national production, employment, and the common good are traitors to their own countries and to the national interest. The World Bank and IMF belong to this globalist international financial architecture. Banking crises are not merely disasters within this system; they are "opportunities for restructuring ownership, consolidating institutions, and transferring control." This language of systemic crisis as "windows of opportunity" for structural and ownership "reforms" appears explicitly in World Bank material.

 

When a bank makes a loan, where does the money come from? The answer is that banks create money out of nothing: no deposits or reserves are transferred, and reserves need not even be checked. The bank simply creates and credits the new money. Why doesn't the bank take a deposit? Because, in law, there is no such thing as a bank deposit. What is commonly called a deposit is legally a loan made to the bank by its client. Banks therefore take loans from clients rather than deposits. Nor, legally, do banks lend money. They purchase securities. A borrower's signed loan contract constitutes a promissory note—an IOU or debt instrument—which the bank purchases and records as an asset on its balance sheet. The corresponding "deposit" is simply the bank's newly created liability to the borrower: a record of what the bank owes. It is therefore a fictitious deposit in the conventional sense; legally, it is an accounts-payable liability arising from the loan contract, booked as a customer deposit.

 Economics Must Be Tested Against Reality

Mainstream economics has repeatedly constructed theories first and then treated their internal logic as evidence of truth. Ricardo's deductive methodology established this pattern: begin with a preferred conclusion, construct assumptions that produce it, build a model around those assumptions, and then treat the resulting logical conclusion as economic reality (Ricardian Vice). But logic is not truth. A logically consistent model can still describe a world that does not exist. The same problem extends across classical, Keynesian, neoclassical, post-Keynesian, monetarist, Wicksellian, and other schools that rely heavily on equilibrium constructions rather than direct empirical testing.

 

Paul Samuelson's principle of revealed preference points toward a more useful approach: watch what people and institutions actually do rather than what they say they do. The natural-science approach is therefore essential. Economic propositions should be confronted with data and tested against observable behavior. David Hendry's general-to-specific methodology provides one example: begin with a sufficiently general empirical model, test it against the data, eliminate what the evidence does not support, and retain relationships that survive rigorous testing.

Banks Create Money Through Double-Entry Bookkeeping—and Control Its Allocation

The conventional description of fractional-reserve banking obscures the central mechanism. Commercial banks do not simply collect existing deposits and lend that money onward. When a bank makes a loan, it simultaneously creates a deposit through double-entry accounting: the bank records a loan asset and a matching deposit liability.

» Opportunities for restructuring ownership, consolidating institutions, and transferring control. «

The Fractional-Reserve Credit Expansion Cycle.

 

This mechanism has been understood within banking for centuries but has rarely been made central to mainstream economic analysis. The accounting entries can make money creation appear merely to be a transfer when, operationally, new purchasing power has been created. That distinction matters because whoever controls bank lending controls the direction of newly created purchasing power. The crucial question is therefore not simply how much money exists, but where newly created credit goes.

 

Commercial banks do not simply take existing deposits and pass them on to borrowers. When a bank makes a loan, it creates a corresponding deposit: the loan appears as an asset on the bank's balance sheet, while the newly created deposit appears as a liability. The bank's balance sheet expands on both sides through a double-entry accounting operation.

Double-entry bookkeeping is crucial because it can obscure what is actually happening. Every entry has an offsetting entry, so the books remain perfectly balanced. The accounting identity can therefore make money creation look like a transfer between accounts rather than the creation of new purchasing power. The conventional story says that banks first obtain money through deposits and then lend those deposits. The opposing interpretation is that, in the act of lending, the bank simultaneously creates the loan and the deposit. The deposit did not previously exist; it is created as the counterpart to the bank's new loan asset.

This distinction matters because it determines how the banking system should be understood. If banks create deposits through lending, then credit creation is not merely the redistribution of pre-existing savings. It is the creation of new purchasing power, and therefore the allocation of bank credit becomes one of the central mechanisms determining what the economy produces. Double-entry bookkeeping does not make the money creation disappear; it records the creation in a way that keeps the balance sheet mathematically consistent. The loan and deposit are created together, with the debit and credit balancing exactly. The accounting system describes the transaction, but the balanced accounts can conceal the economic significance of the transaction itself.

That is why the question is not simply whether banks "have the money" to lend. The more fundamental question is what happens when a bank decides to create a loan, because that decision simultaneously creates a deposit and directs newly created purchasing power toward a particular use. The implications are enormous. If credit finances productive investment, it can fund technology, capital formation, productivity, employment, and economic growth. If it finances consumption, property, or financial speculation, it can instead generate consumer-price inflation, asset inflation, leverage, and financial crises.

 

 Productive Credit vs. Financial Inflation

The decisive issue is therefore not merely the quantity of money but who controls the creation of credit, how that credit is created, and where the newly created purchasing power is directed. Credit directed toward productive business investment creates a powerful economic chain: 

bank credit → business investment → technology → productivity → higher output → economic growth

A company borrowing to purchase machinery, develop technology, expand production, or improve processes can generate additional output that services the debt and increases national income. Credit becomes a mechanism for expanding productive capacity. 

  

Money and credit are not neutral tools that merely grease the wheels of commerce;

they are active instruments of statecraft and industrial design. High growth as 

a policy objective requires the right institutional and financial mechanisms.

 

The opposite occurs when credit primarily finances consumption or speculation. Consumption lending can push up consumer prices without increasing productive capacity. Lending against property and financial assets can inflate asset prices, encourage leverage, and eventually generate the conditions for financial crises. The distinction is therefore not simply between "more" and "less" credit. It is between productive credit and credit that inflates existing claims on wealth.

Japan's Income Doubling Plan and the Deliberate Creation of Growth and Wealth in the 1960s

Japan demonstrated what becomes possible when financial policy is directed toward structural transformation and productive expansion. Initiated by Prime Minister Hayato Ikeda in 1960, the Income Doubling Plan was not a rigid, Soviet-style command directive, but a highly sophisticated public-private roadmap. While the official target was a 7.2% annual growth rate to double the Gross National Product (GNP) in 10 years, Japan actualized an astonishing average growth rate of over 10%, achieving its goal in roughly 4.5 years.

The Japanese model subsequently influenced South Korea, Taiwan, Singapore, and China. When Deng Xiaoping visited Japan in 1978 with approximately 300 senior Chinese officials, the purpose was to study how Japan had achieved extraordinarily rapid economic development and how China could generate similarly high rates of growth. High growth was therefore not treated as an impossibility imposed by the laws of economics. It was treated as a policy objective requiring the right institutional and financial mechanisms.

Britain's Concentrated Banking System

Britain developed in the opposite direction. Five major banks came to control more than 80 percent of deposits, with balance sheets exceeding £2 trillion (HSBC, HSBC UK / HSBC Holdings; Barclays; Lloyds Banking Group, including Lloyds Bank, Halifax, and Bank of Scotland; NatWest Group, formerly Royal Bank of Scotland Group, including NatWest, and RBS; Santander UK). Large centralized banks naturally concentrate on large corporate customers and standardized lending structures. Small and medium-sized businesses operate differently. They require relationship banking, local knowledge, rapid decisions, and financing for technology, machinery, expansion, and working capital. Around 65 percent of British employment is associated with small and medium-sized firms, yet the banking structure is poorly adapted to their financing requirements.

Germany historically maintained approximately 1,200 small local, cooperative, and savings banks. Japan, South Korea, and China likewise developed extensive local banking networks. Local firms can approach institutions that understand their businesses and make rapid decisions about financing investment and technological adoption. Britain's productivity problem therefore cannot be separated from its banking structure. A financial system dominated by a handful of enormous institutions can be highly efficient at servicing large corporations while remaining structurally incapable of supplying the dispersed productive credit required by thousands of smaller firms.

The Productivity Problem Was Identified a Century Ago

This is not a newly discovered problem. The 1918 Colwyn Committee Report examined Britain's banking system and identified the concentration of financial power in the Big Five (National Provincial Bank, London County Westminster & Parr's Bank, London Joint City & Midland Bank, Lloyds Bank) together with inadequate long-term finance for smaller enterprises. The problem has therefore persisted for more than a century: productive businesses require credit, but the banking system concentrates financial decision-making in institutions whose incentives favor scale, established borrowers, and financial assets. The solution is not simply another government subsidy layered onto the existing structure. It is decentralization of financial power.

Britain could support thousands of local banks, cooperatives, savings institutions, and other locally rooted lenders. A hypothetical network of 5,000 banks, each operating 30 branches with 35 loan officers per branch, would create more than five million local lending positions. Credit decisions could once again be made close to the businesses and communities receiving the money. Britain itself previously had thousands of banks, cooperatives, savings banks, credit unions, and provincial financial institutions. Those decentralized structures existed during periods when Britain achieved exceptionally high rates of economic growth, including periods of double-digit expansion.

The Local-Banking Growth Flywheel

The mechanism is straightforward. A community bank with £20 million in capital can support a substantially larger loan book as it develops deposits, retained earnings, and lending relationships. Over three or four years, £20 million could support £400–500 million of lending and potentially approach £1 billion as the institution grows. 

 

» The solution is decentralization of financial power. «

 

Productive lending creates its own economic feedback loop. Businesses borrow, invest, expand output, increase productivity, generate income, repay loans, and create new deposits. Those deposits support further lending, which finances further investment. This is the banking flywheel:

capital → productive loans → investment → productivity → income → deposits → additional lending → further investment

However, in 2014, Werner himself founded Hampshire Community Bank (HCB) in the UK, envisioning it as a proof of concept for a German-style local savings-bank system. Instead, HCB spent more than a decade trapped in a regulatory stalemate before entering operation in November 2024. HCB's experience demonstrated the difficulty of establishing small, localized banks within the UK’s existing regulatory framework. Compliance costs, capital-adequacy requirements, and technology standards designed to supervise multitrillion-pound high-street banks are applied with little differentiation to small community-bank startups. Without a specialized tier of "light-touch" regulation for local, non-systemic institutions—comparable to the American community-banking sector or Germany's Sparkassen—the legal and structural barriers to expanding local banking in the UK remain firmly in place.

Growth Is Not a Fixed Physical Limit

The conventional language of "limits to growth" confuses physical resources with economic output. GDP and national income are statistical measures, not physical quantities existing independently of human production. Economic growth is fundamentally driven by human ingenuity, technology, organization, and productivity. A society can produce more with the same physical resources when it discovers better methods of production.

There is therefore no fixed physical law imposing permanently low economic growth on advanced economies. The constraint is institutional: whether the financial system provides productive businesses with the credit necessary to develop and implement new technologies. The scarcity narrative becomes fraudulent when it is used to present stagnation, austerity, declining living standards, or permanently constrained production as unavoidable while enormous financial resources continue to flow into asset markets and speculative activities.

Interest Rates Are Not the Whole Mechanism

Interest rates are often treated as the principal mechanism governing economic activity. But the quantity and allocation of credit matter at least as much. The critical question is not merely whether money is cheap or expensive. It is whether banks are actually creating credit for productive investment. An economy can have low interest rates and weak growth if credit is directed toward property speculation, financial engineering, or existing assets rather than productive enterprises.

The claim that interest rates cause growth also reverses the causal relationship. Strong economic growth creates demand for productive investment and credit, which can influence interest rates. The rate itself is not necessarily the originating force. Dame Kate Barker's criticism of the Monetary Policy Committee—describing its long tenure as having "really been a bit of a waste of time"—illustrates the broader question: if monetary policy focuses overwhelmingly on the price of money while ignoring the quantity and destination of credit, it can miss the mechanism actually driving productive growth.

Central Banking, Creation of Income Tax, and the Concentration of Power

Central banking is not merely a technical exercise in setting interest rates. It is a system of monetary power. The creation of the Federal Reserve coincided with the creation of the federal income tax and the expansion of federal financial power. Over time, increasingly concentrated financial institutions have accumulated enormous influence over governments, national debt, taxation, and monetary policy.

The same concentration appears internationally through the World Bank, IMF, central banks, multinational financial institutions, and the globalist financial elite. Their influence extends beyond individual loans or interest-rate decisions into the architecture of national economies. The result is a system in which financial power becomes increasingly detached from local productive economies. National governments can retain formal political authority while the practical allocation of capital increasingly occurs through institutions operating within an international financial system.

The Austrian School and the Missing Empirical Method

The Austrian School deserves credit for recognizing the importance of bank-created credit and warning against centralized economic planning. Its analysis of monetary expansion and financial distortions contains important insights. But rejecting statistical analysis entirely goes too far. Economics cannot escape empirical testing simply because human behavior is complex.

The appropriate approach combines institutional understanding with rigorous empirical analysis. The papers "Can Banks Individually Create Money Out of Nothing?" and "The Lost Century in Economics" are part of the effort to recover the actual mechanics of banking and test economic propositions against observable evidence. The essential question remains simple: what actually happens when banks lend, and where does the resulting purchasing power go?

Globalism, Europe, and the Loss of Monetary Sovereignty

The European monetary system extends the same problem from national banking to supranational financial governance. The euro removes important elements of national monetary sovereignty by placing member states inside a common monetary framework. Germany's industrial model—particularly its automobile industry and vast network of suppliers—has been subjected to increasingly severe pressures while monetary and regulatory authority has moved upward into European institutions.

»  The concern is ultimately simple: they want our savings. «

 

The European Union compounds the problem by separating major decisions from direct national democratic control. The European Parliament lacks the normal legislative initiative possessed by national parliaments, while the European Commission exercises major executive and regulatory authority without being directly elected by the European population. The structure resembles, in important respects, the centralized political-economic model that European nations supposedly abandoned after the Soviet experience: power moves away from local institutions and toward increasingly distant administrative authorities.

Europe, Savings, and Financial Centralization

Financial centralization extends beyond monetary policy. Restrictions on banks from outside the European Union offering deposits without an EU license can become part of a broader architecture of capital control. The concern is ultimately simple: they want our savings. Once financial institutions, governments, and supranational authorities acquire greater control over where citizens can hold money, how capital moves across borders, and which institutions may provide financial services, control over savings becomes another instrument of political and economic power. The issue is therefore not merely banking regulation. It is who controls the accumulated wealth of households and businesses and who determines where that wealth can be deployed.

Germany, Sovereignty, and Institutional Control

Germany provides the most extreme historical example of the relationship between political sovereignty and external institutional power. Germany remains constrained by postwar occupation arrangements. American intelligence structures have maintained extensive influence since 1945, while German political institutions were shaped by postwar re-education. Germany never recovered sovereign independence, and these postwar arrangements continue to shape contemporary German political developments. Policies that were regarded as mainstream or centrist two decades ago are increasingly described as "right wing," while the political center has moved substantially toward the left.

 

The Common Good vs. Concentrated Financial Power

The central economic problem is ultimately political: who controls the creation and allocation of money? A decentralized banking system distributes financial decision-making among thousands of institutions embedded in local economies. A concentrated banking system places that power in a handful of enormous institutions. 

 

An internationalized financial system transfers still more power toward central banks, multinational financial institutions, the IMF, World Bank, and global financial networks. The consequence is a widening separation between financial power and the common good. Productive businesses need credit to invest, innovate, employ people, and increase productivity, while financial capital can instead be directed toward assets, speculation, debt structures, and institutions whose interests are increasingly detached from national economies.

The alternative is not austerity or permanent scarcity. It is productive credit, decentralized banking, technological investment, rising productivity, and the restoration of financial power to the communities and nations in which economic activity actually takes place. The fundamental choice is therefore between a financial system organized around productive national development and the common good and one increasingly organized around centralized monetary authority, global financial interests, and the concentration of economic power.

Reference:

Richard A. Werner (2025) - You've Been Lied to About the History of Money. 

 Richard A. Werner (2025) - Money Creation—Banking's Best-Kept Secret.

Richard A. Werner (2025) - The Secrets of the Financial System.
Richard A. Werner (2024) - Banks Make Money out of Nothing.

Richard A. Werner (2023) - Princes of the Yen: Japan's Central Bankers and the Transformation of the Economy.
Richard A. Werner (2023) - The Secret of Financial Stability and Growth.

Richard A. Werner (2023) - "Satoshi Nakamoto" and the Origin of Bitcoin.

Richard A. Werner (2020) - Interest Rates: The Con of the Century. 
Richard A. Werner (2017) - The East Asian Economic Miracle–Credit Guidance. 
Richard A. Werner (2016) - A Lost Century in Economics: Three Theories of Banking and the Conclusive Evidence. 

Richard Andreas Werner (b. 1967) is a German economist and professor, currently at the University of Winchester, best known for coining "Quantitative Easing" in 1995 while proposing recovery strategies for Japan. He authored the Quantity Theory of Credit, empirically demonstrating that commercial banks create money out of thin air when granting loans and distinguishing between GDP-effective credit and speculative financial credit. A prominent critic of Western central bank policies and CBDCs, his research—including his bestseller Princes of the Yen—advocates for localized community banking to prevent financial crises.