Monday, February 20, 2012

February, Monday 20, 2012

What would happen if the Federal Reserve was shut down? Most Americans don’t really think about the Fed much. Most Americans think the Federal Reserve is just another government agency that sets our interest rates. But that is not the case at all. Most Americans don't realize the Fed isn't really a government agency, and that we haven't always had a central bank.

The Federal Reserve's stated mission is to conduct the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates; to supervise and regulate banking and financial systems to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers; and to maintain the stability of the financial system and contain systemic risk that may arise in financial markets.

The truth is that the Federal Reserve is a private banking cartel that has  systematically destroyed the value of our currency, diminished the wealth of the American public and subjects the federal government to perpetually expanding debt.

The Constitution states that Congress has the responsibility to conduct the nation's monetary policy, but the Federal Reserve has usurped that authority. Any honest review of the past 30 years would conclude that the Fed has failed in its mission. The Fed's monetary manipulations led to the worst unemployment since the Great Depression, price volatility, excessive swings in interest rates, extremely low rates for member banks, and usurious for the general public, along with almost non-existent regulation of financial institutions, massive bank failures, and systemic risk that threatened to meltdown the global financial system. The Fed's manipulations did succeed in making the rich richer and the poor poorer.  If you were trying to devise a corrupt monetary system, the Fed could be used as a blueprint.

During this election year, the economy is the number one issue that voters are concerned about. But instead of endlessly blaming both political parties, the truth is that most of the blame should be placed at the feet of the Federal Reserve. The Federal Reserve has more power over the performance of the U.S. economy than anyone else does. The Federal Reserve controls the money supply, the Federal Reserve sets the interest rates and the Federal Reserve hands out bailouts to the big banks that absolutely dwarf anything that Congress ever did. If the American people are ever going to learn what is really going on with our economy, then it is absolutely imperative that they get educated about the Federal Reserve.

The Federal Reserve is not a government agency.
The Fed is a privately owned central bank. It is owned by the banks that are members of the Federal Reserve system. We do not know how much of the system each bank owns, because that has never been disclosed to the American people.
The Federal Reserve openly admits that it is privately owned. In a recent response to a Freedom of Information Act request, the Federal Reserve stated in court that it was “not an agency” of the federal government and therefore not subject to the Freedom of Information Act.

In fact, if you want to find out that the Federal Reserve system is owned by the member banks, all you have to do is go to the Fed's website and this is what you could read:

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

As long as the Federal Reserve System exists, U.S. government debt will continue to go up and up and up.

The way our system works, whenever more money is created more debt is created as well. Or, when more debt is created, money is created.
For example, whenever the U.S. government wants to spend more money than it takes in (which happens constantly), it has to go ask the Federal Reserve for it. The federal government gives U.S. Treasury bonds to the Federal Reserve, and the Federal Reserve gives the U.S. government “Federal Reserve Notes” in return. Usually this is just done electronically.
So where does the Federal Reserve get the Federal Reserve Notes?
It just creates them out of thin air.
Wouldn’t you like to be able to create money out of thin air?
Instead of issuing money directly, the U.S. government lets the Federal Reserve create it out of thin air and then the U.S. government borrows it.
Here's how it works: Treasury bonds are sold at auctions; the bonds are usually purchased by big banks. The money that is used to purchase the bonds is sent into the Treasury and the Treasury distributes the money to pay for various government programs. Sometimes, the Federal Reserve buys the bonds from a bank. To do this, the Fed simply transfers money in the amount of the bond to the other bank and the Fed takes possession of the bond. The bond is exchanged for money.
Where did the Fed get the money to buy the bond? They created the money, out of thin air. Newly created money is always exchanged for debt. I know it sounds a little crazy. Maybe you think there has to be more to it, but it really is pretty simple. The government creates debt and the Fed creates money to buy the debt.
This doesn't mean the Fed is literally cranking up the printing press; most of the money created is just an electronic transfer. OK,  the Federal Reserve's own publication entitled “Putting it Simply” describes the process;  "When you or I write a check, there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check, there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money."
When this new debt is created, the amount of interest that the U.S. government will eventually pay on that debt is not also created.
So where will that money come from?
Well, eventually the U.S. government will have to go back to the Federal Reserve to get even more money to finance the ever expanding debt that it has gotten itself trapped into.
It is a debt spiral that is designed to go on perpetually.
The important concept to remember is that all dollars are backed by debt. That dollar bill in your pocket is a promissory note – an IOU. At the local bank level, all new money is loaned into existence. At the central bank level, the money is created out of thin air and exchanged for interest paying government debt. The constant is that all dollars are backed by debt, and don't forget that interest must be payed on that debt.
Where does the money come from to pay the interest on the debt? The Federal Reserve creates the money out of thin air. Each year, new money must be loaned into existence to pay the interest on all of the past outstanding debt.
You see, the reality is that the money supply is designed to constantly expand under the Federal Reserve system. That is why we have all become accustomed to thinking of inflation as “normal”.
At the very minimum, our outstanding debt must compound by the amount of interest due on the outstanding debt. This means that the debt is growing exponentially.
And at some point, the debt will become unsustainable, the interest due will be more than we produce as a nation. We're seeing this play out in Europe, but the US has a debt to GDP ratio that is higher than many Euro-countries facing a debt crisis right now.

Most Americans today don’t understand how any of this works, but many prominent Americans in the past did understand it.
For example, Thomas Edison was once quoted as saying:
“People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account.
But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.”

And Henry Ford said: “It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.”

We should have listened to men like Edison and Ford.
But we didn’t.

Did you know that the dollar has been devalued. There have been a couple of examples of formal devaluation under FDR and then later by Richard Nixon; unofficially, the Fed has robbed 97% of the value of the dollar. Over the past 100 years, the dollar has lost 97% of its value. Because the money supply is designed to expand constantly, it is guaranteed that all of our dollars will constantly lose value.

The American people got so upset about the bailouts that Congress gave to the Wall Street banks and to the big automakers, but did you know that the biggest bailouts of all were given out by the Federal Reserve?

Thanks to a very limited audit of the Federal Reserve that Congress approved a while back, we learned that the Fed made trillions of dollars in secret bailout loans to the big Wall Street banks during the last financial crisis. They even secretly loaned out hundreds of billions of dollars to foreign banks.
A total of $16.1 trillion in secret loans were made by the Federal Reserve between December 1, 2007 and July 21, 2010.

Loan recipients included well known names like Citigroup - $2.5 trillion, Morgan Stanley - $2 trillion, Merrill lynch, Bank of America, Goldman Sachs, and even foreign banks, such as Barclays received $868 billion, Societe Generale borrowed $124 billion, Deutsche Bank took more than $350 billion. And some of the loans ended up in the hands of Moammar Khaddafi. If it seems strange that the Fed would be lending money to foreign banks – well, it is strange.

But it gets even stranger: Not only did the Federal Reserve give 16.1 trillion dollars in nearly interest-free loans to the “too big to fail” banks, the Fed also paid them over 600 million dollars to help run the emergency lending program. According to the GAO, the Fed paid $659 million in fees to the very financial institutions which caused the financial crisis in the first place.

So, the banks made money servicing their own loans. And then the Fed pays the banks not to make loans to you. It's true. Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on “excess reserves” that U.S. banks park at the Fed.

So the banks can just send their cash to the Fed and watch the money come rolling in risk-free.
The amount of “excess reserves” parked at the Fed has gone from nearly nothing to about 1.5 trillion dollars since 2008….

But shouldn’t the banks be lending the money to us so that we can start businesses and buy homes?

You would think that is how it is supposed to work.
Unfortunately, the Federal Reserve is not working for us.
The Federal Reserve is working for the big banks. The Federal Reserve is owned by the big banks, and that's who they work for.

Another example is the government debt carry trade.
Here is how it works. The Federal Reserve lends gigantic piles of nearly interest-free cash to the big Wall Street banks, and in turn those banks use the money to buy up huge amounts of government debt – which pays a much higher interest rate – the bankers pocket the difference. It doesn't take a clever banker to make a profit on that deal – any dolt could do it.
Over the past several decades, we have seen bubble after bubble. Most of these have been the result of the Federal Reserve keeping interest rates artificially low.
For example, the housing crash would have never been so difficult if the Federal Reserve had not created such ideal conditions for a housing bubble in the first place. But we allow the Fed to continue to make the same mistakes.
Right now, the Federal Reserve continues to set interest rates artificially low. This is causing a tremendous misallocation of economic resources, and there will be massive consequences for that down the line.

The Federal Reserve is the most undemocratic institution in America.
The Federal Reserve has become so powerful that it is now known as “the fourth branch of government”, but there are less checks and balances on the Fed than there are on the other three branches.
The Federal Reserve runs the U.S. economy but it is not accountable to the American people. We can’t vote those that run the Fed out of office if we do not like what they do.
Yes, the president appoints those that run the Fed, but he also knows that if he does not tread lightly he won’t get the money from the big Wall Street banks that he needs for his next election.

According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress has been given the responsibility to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

So why is the Federal Reserve doing it?

How would the U.S. economy function without the Fed? Something has to take its place, right?”

No, the truth is that we don’t need anyone to “manage” our economy.
The U.S. Treasury could be in charge of issuing our currency; just like it says in the Constitution.
We don’t need to have a centrally-planned economy.
We aren’t China.
And it goes against everything that our founders believed to be running up so much government debt.
For example, Thomas Jefferson once declared that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing….
I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.

There's another quote form Jefferson:
“If the American people ever allow private banks to control the issue of their currency, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.