The United States gave birth to an abomination on December 23, 1913. It was conceived by a group of men right out of Rosemary’s Baby and consummated in a secret gathering place known as Jekyll Island. Some of the richest and most powerful men in America would go on to be its Godfathers. They nurtured this demon spawn and played wet nurse as it was sold to the public as the new panacea that would free us from the evils of the business cycle. The abomination they created is none other than the Federal Reserve.
The Federal Reserve is not your friend. The Federal Reserve believes it operates above the law, and if looked at with an objective eye, it functions much like a type of banking cartel our founding fathers feared could threaten the concept of a limited government. They were right. The Fed is at the very heart of our financial problems, and until the vast majority of the public becomes aware of this, they will not subside.
The Founding Fathers were very specific about what they wanted when they wrote the Constitution. According to Article I, Section 8, Congress is supposed to have the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.” The government was never supposed to be in the banking business; they were to be in the sound currency business. The problem with this is that a sound currency does not need a bank. And because a sound currency does not lose its purchasing power over time, modern banking is its foe.
The Fed was designed “to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.” Since 1950, the U.S. has had 10 different recessions, about one every seven years–viewed as a normal business cycle. The Fed oversaw the Great Depression, the “internet bubble,” the “housing bubble,” and now possibly the largest bubble of them all, a “bond” bubble. Additionally, the dollar has lost 95.75% of its purchasing power under its management. How’s that for fulfilling its mission?
The Fed is operated “much like a private corporation” that does not function for a profit and is steered by unelected and unaccountable central planners. Although there may not be direct compensation at the heart of the arrangement, it is an organization run by banks, for banks. If our system was so endangered by the “too big to fail” giants back in 2008, then how has the Fed allowed them to grow even larger? It seems the 47,000 pages of regulation weren’t enough to prevent what amounts to structural fraud. In just the last five years, the six largest banks have grown in asset size by 37% and now control 67% of the pie. We, as a nation, have created an economy based on debt under the Fed–a debt that unfortunately continues to grow.
Some of the most recent moves by the Fed should give every American pause as to what fiscal insanity has been occurring. This includes:
- “Creating” 2.75 trillion dollars over the last five years and injecting $85 billion of it per month into the debt market to manipulate interest rates lower. This works out to over $250 per person per month, or roughly that of an average car payment;
- Conducting secret bailouts to the tune of 16.1 trillion dollars with the following recipients:
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
JP Morgan Chase – $391 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Wells Fargo – $159 billion
Wachovia – $142 billion
(This list doesn’t even reflect the foreign banks’ 3.08 trillion);
- Giving the banks secret loans, but also paying them $659.4 million in fees to administer those same loans; and
- Enriching the already-wealthy with these policies so that 95% of the income gains over the last five years has gone to the top 1%, while median household income continues to fall.
Inflation was never really a long-term problem in the U.S. until the creation of the Fed–with a previous annual rate of about a half a percent in the preceding 100 years. Since its formation, the average annual rate of inflation has been about 3.5%. With the Fed’s dual mandate, including the lowering of unemployment, their solutions have left us with more unemployed than the population of Greece (U-6 20.3 million) and more Americans on Food Stamps than the population of Spain (47.2 million). I don’t think the Fed would earn a passing grade, by any stretch of the imagination.
For the last 100 years the U.S. has drifted further and further into a debt-driven economy that is structurally flawed. The constant need to increase the debt load, in and of itself, can’t last without eventually undermining the currency and endangering the entire monetary and financial system. The Fed’s actions have shown that it has NOT prevented the business cycle, and its efforts to correct the economy’s problems (based on Keynesian economic theory) has only led to a world where the economy experiences bubble after bubble, blown larger by the Fed’s own actions. Sound finance? I think not.
The real problem is not the mundane functions of organizing the nation’s payment system, the regulatory oversight, or even the “protecting of the credit rights of consumers.” The problem resides in the false belief that an economy can be managed and that the prime beneficiaries of its actions work against the public at large, enriching the well-connected and wealthy, be they individuals or corporations.
The other day there was a televised ceremony celebrating the Fed’s 100-year anniversary. There were smiles all around as the masters of the universe praised each other and basked in their brilliance at managing the economy during their tenure. The one thing the room lacked was honesty, and with that, practical solutions to future problems. Since they failed to do this, I will briefly outline some simple free market solutions to return sanity to our financial system:
- The U.S. banking system will no longer provide any FDIC coverage for any bank that, after 2018, is still involved in derivative activity. FDIC coverage will be lowered back down to a limit of only 100k;
- As of the first of the year all banks are to post in their literature, and on every door next to the existing FDIC signs, the amount of derivative exposure they have as of that current quarter;
- The Federal Reserve will exit the “managing the economy” business and function only as a service provider for overseeing the mundane functions of banking until it can be returned to its rightful place under the Department of the Treasury; and
- The free market will set the price of all interest rates, free from government intervention of any kind.
Each of these solutions will reduce the exposure of the American taxpayer to a minimum, while keeping the integrity of the existing system’s settlement mechanisms in place. The heightened transparency, as well as reduction in meddling, will allow the return of a non-manipulated world where borrowers and savers can reach mutually beneficial arrangements. Most importantly, it will break the back of the government’s systematic theft of the public with its continued debasement of the currency, while starving it of the ability to finance the expanding authoritarian state. In short, these solutions will END THE FED as we know it.