The Fed & Monetary Collapse
US tax receipts began running
at only 57 percent of outlays by 2011 and are unlikely to recover
anytime soon. This obviously cannot be supported long term except
through the printing of money by the Federal Reserve. The active
destruction of a country's currency for political motive is certainly
an attempt to control the population, creating a class of haves-nots
by stealth confiscation of working-class assets while protecting the
bankers and Wall Street. Thus you need to know how the Fed became the
engine for the destruction of American wealth to avoid the suicidal
Central banking has always been
characterized by mystique, an attribute its elders have cultivated to
give the impression of god-like omnipotence. There was a time when
the Fed didn't bother to announce its policy decisions at all –
not letting the public know was very much a part of its modus
operandi. The central bank saw itself as a kind of Delphic oracle,
dishing out whatever judgments and interventions it deemed necessary
for the survival of the nation. Lesser mortals were invited to
believe in the wisdom of these judgments, but they were not allowed
to understand them. The Federal Reserve, through its extensive
network of consultants, visiting scholars, alumni and staff
economists, so thoroughly dominates the field of economics that real
criticism of the central bank has become a career liability for
members of the profession.
Alan Greenspan, Fed chairman
from 1987 to 2006, may have been speaking with his tongue in his
cheek when he said, "if I turn out to be particularly clear,
you've probably misunderstood what I've said",
So don't count on the Federal
Reserve to fix America’s financial problems - THEY ARE THE
PROBLEM. The Fed has had a conflict of interest with that of
U.S. citizens since their inception in 1913. The Federal
Reserve System is not federal, it has no reserves and it is not a
system. Their deceptive name hides the fact that they are a privately
owned, central bank, with no reserves. They are no more a part of the
Federal government than is Federal Express. The Federal Reserve is a
privately owned corporation, a private banking cartel who has a total
monopoly on "creating" money for the U.S. government.
The average person believes the
Fed is an agency of the U.S. government that stabilizes our economy
by controlling interest rates and providing liquidity when needed. In
practice, the Fed "creates" money and then loans it to our
government (actually exchanges it for U.S. bonds) thus creating an
endless cycle of national debt. This creation of money from thin air
is a way to "monetize the debt," that is, to pay for
government spending in excess of tax receipts through inflation.
While this may avoid raising visible taxes, it is a stealth tax none
the less which erodes the standard of living for all Americans.
currency based on the "full faith and credit" is a recipe
for slavery at the hands of an oligarchy. It's no accident that the
federal Income Tax amendment was passed at about the same the Reserve
bank was created: the latter depends on the former for its
collateralization. The collateral is us and our labor. But we don't
get to decide how much we get mortgaged for: the bank and its private
owners do. We just get handed the bill, called "income taxes".
The FED does not actually print
money, All U.S. currency is in fact printed by the Bureau of
Engraving and Printing (BEP). The Fed, rather is the master
distributor of the money, which they "create" by executing
a simple computer entry in their accounting system. This
immense power leads to the accusation that the Fed's only real agenda
is to turn a profit. Conspiracy theories abound, which revolve
around two different ways the Fed can manipulate the economy for
benefit of elites:
They can manipulate interest rates to create "boom-bust"
cycles which work out to the advantage of "insiders”.
They increase the money supply by "creating" money through
their lucrative "sweet heart" deal they've had with the
U.S. government. Debasing the currency is a form of theft.
When the U.S. Government needs
money, they go to the Fed to borrow it. The Fed calls the Treasury
and asks them to print x amount of Federal Reserve Notes (FRN) in
units of one hundred dollars. The Treasury charges the Fed 2.3 cents
for each note. The Fed then lends that money to the government at
face value plus interest. The government has to create a bond for the
loan amount as security for the loan.
Now the government owes the
private ownership of the Fed the face value of the bonds plus
interest. In other words, the Fed earns interest by "loaning"
that money to the U.S. government. They earn interest by loaning
money which is not even theirs to loan which they just created
out of thin air. So essentially every bill they "create"
has a debt associated to it and if the debt is not paid they have
only one option. They create more Federal Reserve Notes so they can
loan more to the government (actually exchange for U.S. bonds) in
order to pay off the debt, thereby growing the national debt even
This is what is referred to as
a debt monetary system, our currency has a debt attached to it before
we ever spend any of it. We can never get out of debt because it is a
self propagating, vicious cycle, that ultimately ends with the
destruction of our currency and bankruptcy of our nation. Under our
debt based monetary system, money is backed not by a commodity that
is in demand like cigarettes or gold, but by debt. Ultimately it is
the debt of the United States government that backs our currency.
Since we are the government in the United States, it is our own debts
that back our currency. Our paper currency has no intrinsic value
other than that we need it to pay back our own debts.
This sounds circular, confusing
and insane, because it is. It is meant to be so that you don't
understand it. It was this understanding that led Henry Ford to
proclaim, 'It is well enough that people of the nation do not
understand our banking and monetary system, for if they did, I
believe there would be a revolution before tomorrow morning.' The
great economist John Kenneth Galbraith put is even more succinctly:
'The process by which banks create money is so simple that the mind
When money is deposited in a
bank, it can then be lent out to another person. If the initial
deposit was $100 and the bank lends out $100 to another customer the
money supply has increased by $100. However, because the depositor
can ask for the money back, banks have to maintain minimum reserves
to service customer needs. If the reserve requirement is 10% then the
bank can only lend $90 and thus the money supply increases by only
$90. The reserve requirement therefore acts as a limit on this
multiplier effect. Because the reserve requirement only applies to
the more narrow forms of money creation (corresponding to M1), but
does not apply to certain types of deposits (such as time deposits),
reserve requirements play a limited role in monetary policy.
Currently, the US government
maintains over 800 billion US dollars in cash money (primarily
Federal Reserve Notes) in circulation throughout the world, up from a
sum of less than 30 billion dollars in 1959. Theoretically, the
amount of money in circulation generally is increased to accommodate
money demanded by the growth of the country's production. In reality,
it is increased to pay for profligate government spending. The
process is as follows:
Of the total money deposited at
private banks, predictable proportions remain deposited and are
referred to as "core deposits." Banks use the bulk of
"non-moving" money (their stable or "core"
deposit base) to loan it out, with a legal obligation to keep a
fraction of bank deposit money on-hand at all times (fractional
In order to raise additional
money to cover excess spending, Congress increases the size of the
National Debt by issuing securities typically in the form of a
Treasury Bond. It offers the Treasury security for sale, and
someone pays cash to the government in exchange. Banks are often the
purchasers of these securities, and these securities currently play a
crucial role in the process.
The 12-person Federal Open
Market Committee, which consists of the heads of the Federal Reserve
System (the 7 Federal governors along with 5 bank presidents), meets
eight times a year to determine how they would like to influence the
economy. They create a plan called the country's "monetary
policy" which sets targets for interest rates and monetary
Every business day, the Federal
Reserve System engages in Open market operations. If the Federal
Reserve wants to increase the money supply, it will buy securities
(such as US Treasury Bonds) anonymously from banks in exchange for
dollars. If the Federal Reserve wants to decrease the money supply,
it will sell securities to the banks in exchange for dollars, taking
those dollars out of circulation. When the Federal Reserve makes a
purchase, it credits the seller's reserve account (with the Federal
Reserve). The money that it deposits into the seller's account is not
transferred from any existing funds, therefore it is at this point
that the Federal Reserve has created high-powered money.
By means of open market
operations, the Federal Reserve affects the free reserves of
commercial banks in the country. When the Federal Reserve increases
reserves, banks loan out the money up to the amount of these excess
reserves, because holding the money would amount to accepting the
cost of foregone interest. This creates an equal amount of deposits
as the granted money is added to bank account balances.
The Federal Reserve's
high-powered money is thus multiplied into a larger amount of broad
money, through bank loans. As banks increase or decrease loans,
the nation's (broad) money supply increases or decreases.
Because account-holders may request cash withdrawals, banks must keep
a supply of cash handy. When they believe they need more cash than
they have on hand, banks can make requests for cash with the Federal
Reserve. In turn, the Federal Reserve examines these requests and
places an order for printed money with the US Treasury Department.
The Treasury Department sends these requests to the Bureau of
Engraving and Printing (to make dollar bills) and the Bureau of the
Mint (to stamp the coins).
The US Treasury sells this
newly printed money to the Federal Reserve for the cost of printing.
Aside from printing costs, the Federal Reserve must pledge collateral
(typically government securities such as Treasury bonds) to put new
money, which does not replace old notes, into circulation. This
printed cash can then be distributed to banks, as needed.
Though the Federal Reserve
authorizes and distributes the currency printed by the Treasury (the
primary component of the narrow monetary base), the broad money
supply is primarily created by commercial banks through the money
multiplier mechanism. The Fed" controls the money supply in the
United States by controlling the amount of loans made by commercial
banks. New loans are usually in the form of increased checking
account balances, and since checkable deposits are part of the money
supply, the money supply increases when new loans are made.
This type of money is
convertible into cash when depositors request cash withdrawals, which
will require banks to limit or reduce their lending. The vast
majority of the broad money supply throughout the world represents
current outstanding loans of banks to various debtors.
Debt Money System and
Fractional Reserve Banking
Our money is created out of
debt and is a debt money system. Our money is initially created by
the purchase of U.S. bonds. The public buys bonds like savings bonds,
the banks buy bonds, foreigners buy bonds and when the Fed wants to
create more money in the system it buys bonds, but pays for them with
a simple bookkeeping entry which it creates out of nothing. This new
Fed created money is multiplied by a factor of 10 by the banks
through the fractional reserve principle.
Although the banks don't create
currency, they do create checkbook money or deposits by making new
loans. In turn, over 1 trillion dollars of this privately created
money has been used to purchase U.S. bonds on the open market, which
provides the banks with roughly 50 billion dollars in interest, risk
free, each year, less the interest they pay to depositors. In this
way, through fractional reserve lending, banks create over 90% of the
money and therefore cause over 90% of our inflation.
The Fed has a vested interest
in favor of bailouts because they are in the business of creating
money. The bailouts call for spending hundreds of billions of dollars
that our government does not have and the Fed will earn billions in
interest by creating all of this money. These bailouts will
ultimately fail even as our national debt and inflation grow. As the
Fed creates deliberate boom-bust cycles, banking "insiders"
profit enormously while our currency become more and more worthless.
In fact, the dollar today is worth only four cents compared to the
dollar in 1913, when the Federal Reserve started.
Even worse, the Fed cannot be
audited and does answer to the President or anyone for that matter.
The president appoints the Board of Governors but has no control over
their activities. Congress knows nothing of the plans, and actions
taken in concert with other central banks. We get less and less
information regarding the money supply each year, and M3 money supply
numbers are no longer reported.
It is no coincidence that the
Federal Income tax law was enacted in the same year as the Federal
Reserve Act. Prior to this, the U.S prospered and the government paid
its bills without needing revenue from income tax, but that ended
with the enactment of the Federal Reserve Act of 1913.
History of Central Banks in
In 1690, the Massachusetts Bay
Colony became the first in the United States to issue paper money,
but soon others began printing their own money as well. The demand
for currency in the colonies was due to the scarcity of coins, which
had been the primary means of trade. Colonies' paper currencies were
used to pay for their expenses, as well as a means to lend money to
the colonies' citizens. Paper money quickly became the primary means
of exchange within each colony, and it even began to be used in
financial transactions with other colonies. However, some of the
currencies were not redeemable in gold or silver, which caused them
The first attempt at a national
currency was during the American Revolutionary war. In 1775 the
Continental Congress began issuing its own paper currency, calling
their bills "Continentals". The Continentals were backed
only by future tax revenue, and were used to help finance the
Revolutionary War. As a result, the value of a Continental diminished
quickly. This experience lead the United States to be skeptical of
unbacked currencies, which were not issued again until the Civil War.
The majority of our founding
fathers were vehemently opposed to the notion of a central bank with
a few, such as Alexander Hamilton and other "federalists"
in favor. Thomas Jefferson famously said:
believe that banking institutions are more dangerous to our liberties
that standing armies"
central bank is an institution of the most deadly hostility existing
against the principles and form of our constitution. I am an enemy to
all banks, discounting bills or notes for anything but coin. If the
American people allow private banks to control the issuance of their
currency, first by inflation and then by deflation, the banks and
corporations that will grow up around them will deprive the people of
all their property until their children will wake up homeless on the
continent their fathers conquered."
James Madison said "History
records that the money changers have used every form of abuse,
intrigue, deceit, and violent means possible to maintain their
control over governments by controlling the money and its issuance."
Andrew Jackson said "It is
not our own citizens only who are to receive the bounty of our
government. More than eight millions of the stock of this bank are
held by foreigners... is there no danger to our liberty and
independence in a bank that in its nature has so little to bind it to
our country? ... Controlling our currency, receiving our public
moneys, and holding thousands of our citizens in dependence... would
be more formidable and dangerous than a military power of the enemy."
Abraham Lincoln said "The
government should create, issue and circulate all the currency and
credit needed to satisfy the spending power of the government and the
buying power of consumers ... The privilege of creating and issuing
money is not only the supreme prerogative of Government, but it is
the Government's greatest creative opportunity. By the adoption of
these principles, the long-felt want for a uniform medium will be
satisfied. The taxpayers will be saved immense sums of interest..."
In accordance with Thomas
Jefferson's views, Article 1, Section 8 of the US Constitution
specifically says that Congress is the only body that can "coin
money and regulate the value thereof." The US Constitution has
never been amended to allow anyone other than Congress to coin and
regulate currency. Still, throughout our history, several central
banking systems have been implemented.
First Bank of the United
States: In 1791, Alexander Hamilton, the Secretary of the
Treasury, made a deal to support the transfer of the capital from
Philadelphia to the banks of the Potomac in exchange for southern
support for his Bank project. As a result, the First Bank of the
United States (1791-1811) was chartered by Congress in that same
year. The First Bank of the United States was modeled after the Bank
of England and differed in many ways from today's central banks. For
example, it was partly owned by foreigners, who would share from its
profits. It was also not solely responsible for the country's money
supply; its share was only 20%, while private banks accounted for the
rest. The Bank was bitterly opposed by several founding fathers,
including Thomas Jefferson and James Madison, who saw it as an engine
for speculation, financial manipulation, and corruption.
Second Bank of the United
States: After a five-year interval, the Federal government
chartered its successor, the Second Bank of the United States
(1816-1836). It was basically a copy of the First Bank, with branches
over the country. Andrew Jackson, who became president in 1828,
denounced it as an engine of corruption that benefited his enemies.
His destruction of the bank was a major political issue in the 1830s
and shaped the Second Party System, as Democrats in the states
opposed banks and Whigs supported them.
1837-1863: While there had always been state-chartered banks in
the United States, with loss of the Second Bank's charter, there was
a need for more banking. Consequently, during the period from 1837 to
the Civil War, commonly known as the free banking era, states passed
"free bank laws," which allowed banks to operate under a
much less onerous charter. While banks were regulated, they were
relatively free to enter the business by simply depositing government
bonds with state auditors.
These bonds were the collateral
backing the notes free banks issued. In addition, free banks were
required to redeem their notes on demand in specie. As a result of
the free banking laws, hundreds of new banks opened their doors, and
free bank notes circulated around the country, often at a discount:
The discount on a given bank note varied in part with the distance
from the issuing bank and in part with the perceived soundness of the
Over this period a private
institution, known as the Suffolk Bank in New England, took on some
of the roles typical of a central bank, such as clearing payments,
exchanging notes and disciplining banks that were over-issuing their
notes. Also, in response to a rising volume of note and check
transactions beginning in the late-1840s, the New York Clearinghouse
Association was established in 1853 to provide a way for the city's
banks to exchange notes and checks and settle accounts.
National Banks: 1863-1913
The outbreak of the Civil War and the need to finance it led again to
a renewed interest in a national bank. But this time, with the
lessons of the Second Bank, the designers took a different approach,
modeled on the free banking system. In 1863, they established what is
now known as the "national banking system." The new system
allowed banks to choose between a national charter and a state
charter. With a national charter, banks had to issue
government-printed bills for their own notes, and the notes had to be
backed by Federal bonds, which helped fund the war effort. In 1865,
state bank notes were taxed out of existence. Thus, in spite of all
previous attempts, this was the first time a uniform national
currency was established in the United States.
Birth of the Fed
By the early 20th century the
U.S. had already implemented and removed a few central banking
systems dominated by banking interests. The dominant families in the
banking and business world were the Rockefellers, the Morgans, the
Warburgs and the Rothchilds. The catalyst for legislation to
create another central bank was "The Panic of 1907”, also
known as the 1907 Bankers' Panic, which was a financial crisis that
occurred in the United States when the New York Stock Exchange fell
close to 50% from its peak the previous year. Panic occurred, as this
was during a time of economic recession, and there were numerous runs
on banks and trust companies. The 1907 panic eventually spread
throughout the nation when many state and local banks and businesses
entered into bankruptcy. Primary causes of the run include a
retraction of market liquidity by a number of New York City banks and
a loss of confidence among depositors, exacerbated by unregulated
side bets at bucket shops.
The crisis was triggered by the
failed attempt in October 1907 to corner the market on stock of the
United Copper Company. When this bid failed, banks that had lent
money to the cornering scheme suffered runs that later spread to
affiliated banks and trusts, leading a week later to the downfall of
the Knickerbocker Trust Company—New York City's third-largest
trust. The collapse of the Knickerbocker spread fear throughout the
city's trusts as regional banks withdrew reserves from New York City
banks and vast numbers of people withdrew deposits from their
The panic may have deepened if
not for the intervention of financier J. P. Morgan, who pledged large
sums of his own money, and convinced other New York bankers to do the
same, to shore up the banking system. Some question whether Morgan
acted out of altruism, but at the time, the United States did not
have a central bank to inject liquidity back into the market. By
November the financial contagion had largely ended, yet a further
crisis emerged when a large brokerage firm borrowed heavily using the
stock of Tennessee Coal, Iron and Railroad Company (TC&I) as
collateral. Collapse of TC&I's stock price was averted by an
emergency takeover by Morgan's U.S. Steel Corporation—a move
approved by anti-monopolist president Theodore Roosevelt. The
following year, Senator Nelson W. Aldrich established and chaired a
commission to investigate the crisis and propose future solutions,
leading to the creation of the Federal Reserve System. The Aldrich
commission recommended a central bank should be implemented so that a
panic like 1907 could never happen again, but questions remain
whether this benefited the people or bankers more.
In 1910, a secret meeting was
held at a J.P. Morgan estate on Jekyll Island off the cost of
Georgia. Aldrich met with representatives of prominent banking firms.
Such men included Henry Davison (senior partner of J.P. Morgan
Company), Frank Vandelip (President of the National Bank of New York
associated with the Rockefellers), Charles D. Norton (president of
the Morgan-dominated of First National Bank of New York), Benjamin
Strong (representing J.P. Morgan), and the primary architect of the
Act, Paul Warburg (representing Kuhn, Loeb & Co.)
Over a period of ten days these
bankers drafted the Federal Reserve Act, which it then handed
to Senator Nelson Aldrich to push through congress. The Federal
Reserve Act of 1913 was voted on and passed through the Senate two
days before Christmas, between the hours of 1:30 A.M. and 4:30 A.M.,
when much of Congress was at home with their families for the
Woodrow Wilson was elected
president in 1912 with heavy political sponsorship by the bankers
after agreeing to sign the Federal Reserve Act. Wilson signed the
bill into law on December 23, 1913, transferring control of the money
supply of the United States from Congress as defined in the U.S.
Constitution to the private banking elite. Years later, Woodrow
Wilson wrote in regret "I am a most unhappy man. I have
unwittingly ruined my country. A great industrial nation is now
controlled by its system of credit. We are no longer a government by
free opinion, no longer a government by conviction and the vote of
the majority, but a government by the opinion and duress of a small
group of dominant men"
The Federal Reserve act of 1913
was an easy sell to the big US banks. By fixing prices, they would be
able to sell all the loans they wanted. They knew in advance when
interest rates would be lowered or raised, enabling them to profit
from the boom/bust cycles. The small banks, on the other hand, didn't
have inside information and many of them were wiped out.
The public was told that the
Federal Reserve was an economic stabilizer and that inflation and
economic crisis were a thing of the past, but history has shown
nothing is further from the truth. From 1914-1919 the Fed increased
the money supply by nearly 100%, resulting in extensive loans from
small banks to the public. Then in 1920, the Fed called in mass
percentages of the outstanding money supply, resulting in supporting
banks having to call in huge numbers of loans. Just like in 1907 bank
runs, bankruptcy and collapse occurred and over 5400 competitive
banks outside of the Federal Reserve System collapsed, further
consolidating the Fed monopoly.
The United States adopted the
Federal Reserve System in 1913. Milton Friedman and Anna Schwartz, in
A Monetary History of the United States, identify mistakes in
Federal Reserve policy as a key factor in the 1920 crisis. At the end
of the war the Federal Reserve Bank of New York began raising
interest rates sharply. In December 1919 the rate was raised from
4.75% to 5%. A month later it was raised to 6% and in June 1920 it
was raised to 7% (the highest interest rates of any period except the
1970s and early 1980s). The high rates sharply reduced the amount of
bank lending in the country, both to other banks and to consumers and
businesses. In the latter half of 1921, the New York Federal Reserve
reduced rates in successive half-point moves during the July-
November period from the 7% high to 4.5% on November 3, 1921 and the
Congressman Charles Lindbergh
said in 1921 "Under the Federal Reserve Act, panics are
scientifically created. The present panic is the first scientifically
created one, worked out as we figure a mathematical equation."
How the Fed Caused the Great
From 1921 through 1929 the Fed
again increased the money supply, this time by 62%, resulting once
again in extensive loans to the public and banks. This caused
inflation and an economic boom. A new type of loan in the stock
market called the margin loan allowed investors to put down only 10%
of a stock’s price with the other 90% loaned through the
broker. A person could own $1000 worth of stock with only $100 down,
making margin loans popular in the roaring 1920's as everyone seemed
to make money in the market. Margin loans could be called in at
anytime to be paid within 24 hours, typically result in the selling
of the stock purchased with the loan.
The Great Depression is often
blamed on "greedy speculators". However, as it is today,
with artificially low interest rates, it made sense to borrow and buy
assets. If interest rates are 2% and inflation is 10%, then borrowing
to invest is sensible. The Federal Reserve and negative interest
rates were the real culprit. The speculators were following the false
signal the Federal Reserve was sending via artificially cheap
Four major errors by U.S.
monetary policymakers helped lead to the Great Depression. The Fed's
first mistake was the tightening of monetary policy in the spring of
1928 that continued until the stock market crash of October 1929.
This monetary tightening did not seem particularly justified by the
macroeconomic environment: The economy was only just emerging from a
recession, commodity prices were declining sharply, and there was
little hint of inflation. The Federal Reserve raised interest rates
in 1928 because of their concern about speculation on Wall Street.
Drawing a sharp distinction between "productive" (that is,
good) and "speculative" (bad) uses of credit, Fed
policymakers were concerned that bank lending to brokers and
investors was fueling a speculative wave in the stock market. When
attempts to persuade banks not to lend for speculative purposes
proved ineffective, Fed officials decided to dissuade lending
directly by raising the policy interest rate.
The market crash of October
1929 showed that the Fed can bring down stock prices. But the cost of
this "victory" was very high, the Fed's tight-money
policies led to the onset of a recession in August 1929. The slowdown
in economic activity, together with high interest rates, was the most
important source of the stock market crash that followed in October.
The market crash, rather than being the cause of the Depression, was
in fact largely the result of an economic slowdown and the
inappropriate monetary policies that preceded it.
The second monetary policy
action occurred in September and October of 1931. The United States
and the great majority of other nations were on the gold standard,
where central banks stood ready to maintain the fixed values of their
currencies by offering to trade gold for money at the legally
determined rate of exchange.
The fact that the value of each
currency was fixed in terms of gold implied that the rate of exchange
between any two currencies was likewise fixed. As with any system of
fixed exchange rates, the gold standard was subject to speculative
attack if investors doubted the ability of a country to maintain the
value of its currency at the legally specified parity. In September
1931, following a period of financial upheaval in Europe that created
concerns about British investments on the Continent, speculators
attacked the British pound, presenting pounds to the Bank of England
and demanding gold in return. The Bank of England quickly
depleted its gold reserves and unable to support the pound at its
official value, left the gold standard, allowing the pound to float
With the collapse of the pound,
in 1931 speculators turned their attention to the U.S. dollar, the
next currency in line for devaluation. Central banks as well as
private investors converted a substantial quantity of dollar assets
to gold in September and October of 1931, reducing the Federal
Reserve's gold reserves. The speculative attack on the dollar helped
create a panic in the U.S. banking system. Fearing imminent
devaluation of the dollar, many foreign and domestic depositors
withdrew their funds from U.S. banks in order to convert them into
gold or other assets.
banking practice required that the Fed respond both to the
speculative attack on the dollar and to the domestic banking panics.
However, the Fed decided to ignore the plight of the banking system
and to focus only on stopping the loss of gold reserves to protect
the dollar. To stabilize the dollar, the Fed once again raised
interest rates sharply, on the view that currency speculators would
be less willing to liquidate dollar assets if they could earn a
higher rate of return on them. The Fed's strategy worked, in that the
attack on the dollar subsided and the U.S. commitment to the gold
standard was successfully defended, at least for the moment. However,
once again the Fed had chosen to tighten monetary policy despite the
fact that macroeconomic conditions--including an accelerating decline
in output, prices, and the money supply--seemed to demand policy
The third policy action
occurred in spring of 1932 when Congress began to place considerable
pressure on the Federal Reserve to ease monetary policy. The Board
was reluctant to comply, but conducted open-market operations between
April and June of 1932 designed to increase the national money
supply. These policy actions reduced interest rates on government
bonds and corporate debt and appeared to arrest the decline in prices
and economic activity. However, Fed officials remained ambivalent
about their policy of monetary expansion. Some viewed the Depression
as the necessary purging of financial excesses built up during the
1920s and slowing the economic collapse by easing monetary policy
only delayed the inevitable adjustment. Other officials, noting the
very low level of nominal interest rates, concluded monetary policy
was in fact already quite easy and that no more should be done. These
policymakers did not appreciate that, even though nominal interest
rates were very low, ongoing deflation meant the real cost of
borrowing was very high because any loans would have to be repaid in
dollars of much greater value. Thus monetary policy was not in fact
easy at all, despite the very low level of nominal interest rates.
Fed officials convinced themselves that the policy ease advocated by
the Congress was not appropriate, and so when the Congress adjourned
in July 1932, the Fed reversed the policy. By the latter part of the
year, the economy had relapsed dramatically.
The fourth and final policy
mistake was the Fed's ongoing neglect of problems in the U.S. banking
sector. As depositor fears about the health of banks grew, runs on
banks became increasingly common. A series of banking panics spread
across the country, often affecting all the banks in a major city or
even an entire region. Between December 1930 and March 1933, when
President Roosevelt declared a "banking holiday" that shut
down the entire U.S. banking system, about half of U.S. banks either
closed or merged with other banks. Surviving banks, rather than
expanding their deposits and loans to replace those of the banks lost
to panics, retrenched sharply.
Removing The Gold Standard
The bank panics of
February/March 1933 created foreign exchange movements that put the
Fed in danger of exhausting its holdings of gold. Removing the
gold standard would allow the Fed to create more money, but to do
this they needed to acquire the remaining gold in the system. Under
the pretence of helping to end the depression, came the 1933 gold
In January of 1933 Hoover was a
lame duck republican president with a democratic congress. FDR had
been elected and was waiting to be sworn in early in the month of
March. Hoover tried to restore confidence in the banking system and
save banks that were threatened, starting the Reconstruction Finance
Corporation to help banks with emergency funds that were threatened
with runs. With fractional reserve banking, very little of the
deposits made at a bank are actually on hand.
At the beginning of February
, Herbert Hoover proposed to the Federal Reserve Board that
every bank in the country should be closed for just one day. Each
bank would then submit a statement of its assets and liabilities. It
would list its live assets and its dying or dead assets separately.
The Federal Reserve would accept the banks' own statement. The next
day all solvent banks would be opened and the government would
declare them to be solvent. Ogden Mills, head of the Federal
Reserve, reported to Hoover that he learned that the men around
Roosevelt believe that the worse the situation got the more evident
to the country would be the failure of the Republican Party. 'In
other words,' Mills said, 'they do not wish to check the panic.'"
Executive Order 6102 ended the
gold standard in the U.S. and was signed on April 5, 1933, by U.S.
President Franklin D. Roosevelt "forbidding the Hoarding of Gold
Coin, Gold Bullion, and Gold Certificates" by U.S. citizens. The
order criminalized the American public's ability to own gold as an
investment vehicle. Executive Order 6102 required U.S. citizens to
deliver on or before May 1, 1933, all but a small amount of gold
coin, gold bullion, and gold certificates owned by them to the
Federal Reserve, in exchange for $20.67 per troy ounce, essentially
robbing the public of what little wealth they had left. Under the
Trading With the Enemy Act of October 6, 1917, as amended on March 9,
1933, violation of the order was punishable by fine up to $10,000
($167,700 if adjusted for inflation as of 2010) or up to ten years in
prison, or both.
The price of gold from the
Treasury for international transactions was thereafter raised to $35
an ounce ($587 in 2010 dollars). The resulting profit that the
government realized funded the Exchange Stabilization Fund
established by the Gold Reserve Act in 1934. The Gold Reserve
Act of 1934 made gold clauses unenforceable, and changed the value of
the dollar in gold from $20.67 to $35 per ounce, thereby decreasing
the value of the dollar overnight by 40.94%. This price
remained in effect until August 15, 1971, when President Richard
Nixon announced that the United States would no longer convert
dollars to gold at a fixed value, thus abandoning the gold standard
for foreign exchange.
The limitation on gold
ownership in the U.S. was repealed after President Gerald Ford signed
a bill legalizing private ownership of gold coins, bars and
certificates by an act of Congress codified in Pub.L. 93-373,
which went into effect December 31, 1974. P.L. 93-373 did not repeal
the Gold Repeal Joint Resolution, which made unlawful any contracts
that specified payment in a fixed amount of money or a fixed amount
of gold. That is, contracts remained unenforceable if they used gold
monetarily rather than as a commodity of trade. However, Act of Oct.
28, 1977, Pub. L. No. 95-147, § 4(c), 91 Stat. 1227, 1229
(originally codified at 31 U.S.C. § 463 note, recodified as
amended at 31 U.S.C. § 5118(d)(2)) amended the 1933 Joint
Resolution and made it clear that parties could again include
so-called gold clauses in contracts formed after 1977.
If you look at a dollar bill
from before 1933 it says it is redeemable in gold. If you look at a
dollar bill today, it says it is legal tender, backed by nothing more
than faith, it is worthless paper. The only thing that gives our
money value is how much of it is in circulation. Since the dollar was
no longer redeemable in gold, this allowed a further increase in the
money supply and an even more devalued dollar. Many loan
contracts contained "gold clauses" requiring payment to be
increased if the dollar were devalued relative to gold. Congress
declared these "gold clauses" invalid, defrauding creditors
and providing a massive subsidy to debtors.
Politically connected insiders
profited from all three legs of the Great Depression. They profited
by borrowing and buying assets at the start of the boom. They were
first in line to buy assets with the newly created money, so were the
primary beneficiaries of inflation. Due to their political
connections, they were able to foresee the crash coming. They
converted their holdings to cash before the crash. At the bottom of
the Depression, they were able to borrow and buy assets at a
discount. Later, they were able to default on these loans via
inflation; inflation meant these loans could be repaid with devalued
dollars. Similar manipulations of bailout money, interest rates and
the value of the dollar are currently allowing the Goldman Sachs of
our times to profit immensely.
Louis McFadden and the Fed
On June 10, 1932, Congressman
Louis McFadden, a long-time adversary to the Federal Reserve and a
lifelong banker himself, made a 25-minute speech before the House of
Representatives, in which he accused the Federal Reserve of
deliberately causing the Great Depression. In 1933, McFadden
introduced House Resolution No. 158, Articles of Impeachment for the
Secretary of the Treasury, the Comptroller of the Currency, and the
Board of Governors of the Federal Reserve, for numerous criminal
acts, including but not limited to, conspiracy, fraud, unlawful
conversion, and treason.
The following are some quotes
from McFadden's 1933 speech and resolution:
"Mr. Chairman, I see no
reason why citizens of the United States should be terrorized into
surrendering their property to the International Bankers who own and
control the Fed. The statement that gold would be taken from its
lawful owners if they did not voluntarily surrender it, to private
interests, show that there is an anarchist in our Government."
"The statement that it
is necessary for the people to give their gold- the only real money-
to the banks in order to protect the currency is a statement of
"By his unlawful
usurpation of power on the night of March 5, 1933, and by his
proclamation, which in my opinion was in violation of the
Constitution of the United States, Roosevelt divorced the currency of
the United States from gold, and the United States currency is no
longer protected by gold. It is therefore sheer dishonesty to say
that the people's gold is needed to protect the currency."
"Roosevelt ordered the
people to give their gold to private interests- that is, to banks,
and he took control of the banks so that all the gold and gold values
in them, or given into them, might be handed over to the predatory
International Bankers who own and control the Fed."
"Roosevelt cast his lot
with the usurers. He agreed to save the corrupt and dishonest at the
expense of the people of the United States. . . . ."
"By his action in
closing the banks of the United States, Roosevelt seized the gold
value of forty billions or more of bank deposits in the United States
banks. Those deposits were deposits of gold values. By his action he
has rendered them payable to the depositors in paper only, if payable
at all, and the paper money he proposes to pay out to bank depositors
and to the people generally in lieu of their hard earned gold values
in itself, and being based on nothing into which the people can
convert it the said paper money is of negligible value altogether."
"It is the money of
slaves, not of free men. If the people of the United States permit it
to be imposed upon them at the will of their credit masters, the next
step in their downward progress will be their acceptance of orders on
company stores for what they eat and wear. Their case will be similar
to that of starving coal miners. They, too, will be paid with orders
on Company stores for food and clothing, both of indifferent quality
and be forced to live in Company-owned houses from which they may be
evicted at the drop of a hat. More of them will be forced into
conscript labor camps under supervision."
accusations the rantings of a lunatic? He had been president of a
bank and spent ten years on the House Banking Committee, so his words
are difficult to dismiss, especially since they parallel much of what
is going on today. At least partial vindication is found in the
current value of gold which has gone through the roof as people lose
faith in our fiat currency. While it may be wide of the mark to
accuse international bankers of a conspiracy to steal the world’s
wealth, the collapse in the value of the dollar makes the debate
moot. Our currency is headed towards irrelevance and the only
ones being bailed out are the large banks who are too big to fail,
but have contributed mightily to the explosion of the debt bomb.
Louis McFadden warned about the same cronyism that bailed out the
banks and Wall Street back in 1933.
The Federal Reserve Act and
Federal Income Tax
The Federal Reserve act was not
the only unconstitutional bill pushed through congress in 1913. Also
passed was the Sixteenth Amendment, which gave Congress the power to
collect taxes, based on income, without regard to the States or the
Census. The Federal Reserve System wherein every dollar created is an
instrument of debt requires the collection of large sums of money
from the people to pay off the interest. The new income tax was
needed in order to guarantee repayments on the Federal Reserve debt.
It is completely unconstitutional, as it is a direct unapportioned
tax. In order to to be constitutionally legal, all direct taxes have
to be apportioned (equal for every person).
Being unconstitutional doesn’t
mean you don’t have to follow the law as currently enforced
because many people have spent jail time arguing the merits of tax
avoidance. What you need to understand is that the entire
system is corrupt, but it is collapsing of its own weight. Your
goal is to survive, not to waste energy debating with IRS auditors
and judges how many years you are willing to stay in jail for a lost
cause. Pay your taxes and live to fight another day.
The Federal Reserve Act and the
16th amendment are the functional equivalent of a surrender treaty.
The Federal Reserve Act surrendered control of the monetary system to
the banking cartel, guaranteeing the eventual abandonment of the gold
standard. The Federal Reserve's debt-based money guaranteed the
enslavement of every American under a crushing debt burden.
The income tax enabled
politicians to greatly increase the size of the government and their
power. At present, roughly 35% of the average worker's income is
taken from them via this tax, requiring 4 months of work out of the
year to fulfill this tax obligation. A good chunk of this money goes
to pay the interest on the currency being produced by the Federal
Reserve Bank, not to any government program.
Bretton Woods Agreement
The United States emerged from
the Second World War as a dominant world power both militarily and
economically. In 1945, the U.S. produced half the world's coal,
two-thirds of the oil, and more than half of the electricity. The
U.S. manufacturing industry was able to produce great quantities of
machinery, including ships, airplanes, vehicles, armaments, machine
tools, and chemicals. In addition, the U.S. held over 65% of world's
gold reserves and was the sole possessor of the atomic bomb.
Delegates from 44 Allied
nations gathered at the Mount Washington Hotel in Bretton Woods, New
Hampshire for the United Nations Monetary and Financial Conference
during the first three weeks of July 1944. The purpose of the
conference was to establish the rules for commercial and financial
relations amongst the world's major industrial states. The agreements
signed at this conference became known as the Bretton Woods Monetary
The Bretton Woods Monetary
System was basically a pegged rate currency exchange system with the
U.S. dollar functioning as the underlying currency. All countries
would peg their currency to the U.S. dollar and would buy and sell
U.S. dollars to keep the market exchange rates within a trading band
of plus or minus 1% from the original ratio. The U.S. dollar would be
convertible into gold at a rate of US$35 per troy ounce. In effect,
the U.S. dollar took over the role held by gold under the previous
international gold standard financial system.
The U.S. has enjoyed an
enormous advantage from this system because we are the only entity
legally capable of creating more of the reserve currency, that being
U.S. dollars. Other nations were forced to buy large amounts of U.S.
dollar reserves to maintain their currency within the trading band.
JFK and the Fed
On June 4, 1963, John F.
Kennedy signed a virtually unknown Presidential decree, Executive
Order 11110, four months before his assassination on November 22,
1963. This decree returned to the U.S. Federal government, the
Constitutional right to create and "to issue silver
certificates based on any silver bullion, silver, or standard silver
dollars in the Treasury."
This meant that based on the
amount of silver physically held in the U.S. Treasury's vault, the
government could introduce new money. More than $4 billion of new
"Kennedy Bills" were created through the U.S. Treasury and
put into circulation in $2 and $5 denominations. $10 and $20 United
States Notes (USN) being printed by the Treasury Department when
Kennedy was assassinated were never put into circulation.
Kennedy must have known that if
the silver-backed USN were widely circulated, they would eliminate
the demand for Federal Reserve Notes (FRN). The USN was backed by
silver while the FRN was backed by nothing of intrinsic value, and
was also an instrument of debt. Executive Order 11110 should have
prevented the national debt from reaching its current level of nearly
$15 trillion, all created since 1963.
Had LBJ or any subsequent
President enforced Kennedy's Executive Order 11110, it would have
given the U.S. Government the ability to repay its debt without going
to the private Federal Reserve Banks and being charged interest to
create new "money". However, in 1964, Kennedy's
successor, Lyndon B. Johnson "caved in", stating that,
"Silver has become too valuable to be used as money." And
thus the Kennedy bills were removed from circulation.
Nixon Unilaterally Closed
the Gold Window
Escalating costs from both the
Vietnam War and domestic social programs resulted in ever increasing
amounts of U.S. dollars being created. In the early 1970's, the
United States as a whole began running a trade deficit for the first
time in the twentieth century. Foreign owners of U.S. dollars began
to question the ability of the U.S. government to reduce budget and
trade deficits. Increasingly, foreign nations, in particular the
French under Charles de Gaulle, began to send the U.S. dollars earned
by exporting to the U.S. back to be redeemed in gold as legally
entitled under the Bretton Woods Agreement signed in 1944.
The drain on U.S. gold
threatened to completely empty the U.S. Treasury. To prevent this
from happening, on August 15, 1971, President Richard Nixon
unilaterally closed the gold window. He made the dollar inconvertible
to gold directly, except on the open market. The severing of this
last link between gold and paper money meant that all the world's
currencies now "floated" against one another. The result
was inevitable with gold soaring from US$35 to US$195 an ounce by the
end of 1974. This was the final step in abandoning the gold standard.
All the central banks had to control now was the public's perception
of inflation to allow them to create as much money as desired. The
U.S. was now on a total fiat money system - paper money.
How to Abolish The Federal
Is it even possible to get off
the Federal Reserve merry go round? There may be a way to fix
the problem within a few short years without causing financial
collapse by paying off U.S. bonds with debt free U.S. notes just like
president Lincoln issued. That would create tremendous
inflation since our currency is now multiplied by the fractional
reserve banking system, but there is an ingenious solution advanced
in part by Milton Friedman to keep the money supply stable and avoid
inflation and deflation while the debt is retired.
As the treasury buys up its
bonds on the open market with U.S. notes, the reserve requirements of
local banks need to be raised proportionally so the amount of money
in circulation remains constant. As those holding bonds are paid off
in U.S. notes, they deposit this money, making available the currency
needed by the banks to increase their reserves. Once all the U.S.
bonds are replaced with U.S. notes, we will be at 100% reserve
banking instead of the fractional reserve system currently in use.
The Federal Reserve Act would
no longer be necessary and could be repealed. Monetary power could be
transferred back to the treasury dept and there would no further
creation or contraction of money by banks. Our national debt could be
paid off in a single year. The Fed and fractional reserve banking
could be abolished, without national bankruptcy, financial collapse,
inflation or deflation or any significant change in the way the
average American goes about his business.
Pay off the debt with
debt-free U.S. notes.- As Thomas Edison put it "If the U.S.
can issue a dollar bond it can issue a dollar bill, they both rest
purely on the faith and credit of the U.S. government." Paying
off the debt (U.S. bonds) with U.S. notes, amounts to a simple
substitution of one type of government obligation for another. U.S.
bonds bear interest while U.S. Notes do not.
Abolish fractional reserve
banking. - As the debt is paid off, the reserve requirements of
all banks and financial institutions would be raised proportionally
at the same time to absorb the new U.S. notes, which would be
deposited and become the banks increased reserves. Towards the end of
the transition period, the remaining liabilities of financial
institutions would be assumed or acquired by the U.S. government in a
onetime operation, also eventually paid off in debt free U.S. notes
in order to keep the total money supply stable. The national debt
would be paid and the Fed would become an obsolete anachronism.
Repeal the "Federal
Reserve Act of 1913" and the "National Banking act of 1864"
--These acts delegate money power to a private banking monopoly.
No banker or person affiliated with financial institutions should be
allowed to regulate banking. Money power should be in the hands of
the Department of Treasury, as it was under President Lincoln.
Withdraw the U.S. from the
IMF, the BIS (bank of international settlements) and the World
Bank.-Institutions like the Federal Reserve centralize the power
of the international bankers over the world’s economy.
Monetary reform would guarantee
the amount of money in circulation would stay very stable causing
neither inflation nor deflation. For decades the Fed has doubled the
American money supply every 10 years. That fact and fractional
reserve banking are the real causes of inflation and a reduction in
our buying power, a hidden tax.
The money supply should
increase slowly to keep prices stable, roughly in proportion to
population growth (about 3% per year), which is similar to what
growth in our GDP has also been. Monetary regulators and the
treasury dept should have absolutely no discretion in this matter
except in time of declared war. Money supply should not be at the
whim of a group of bankers meeting in secret. Decisions on how much
money will be in the American economy need to be made based on the
statistics of population/GDP growth and the price level index. You
would then have open and honest monetary policy with all
deliberations in public, not secret meetings of the Fed board of
governors as today.
Surviving Civil War II
Preparing For Economic, Social & Political Collapse
Now Available Through Amazon.com
It is clear that we are in the early stages of a Civil War brought on by the economic collapse of the entitlement state. "Surviving Civil War II " isn't a call to revolt, but a manual on how to survive the civil war you already sense is in progress. This book provides the reader with the historical, economic, political and social background necessary to cope with this modern civil war, which will look nothing like our first Civil War.
The first great American Civil War was about ending slavery. Civil War II is about the same thing, except the slave owners in this case are the bureaucrat and entitlement classes who have yoked productive citizens and future generations to a grindstone of $100 trillion of unfunded social liabilities, environmental Gaia worship and bureaucratic strangulation.
This time things are different.
We cannot get out of this financial and regulatory black hole unless one of two things happens:
A) The productive class resigns itself to being tethered to a permanent millstone of egregious taxation in support of the consumption class of bureaucrats and entitled, or
B) There is a Civil War and revolt of the productive class, essentially an economic default on the obligation to support the non-productive classes, which realigns the entire system.
There is no need to spend time arguing about which option will be taken. That which cannot be, cannot be. There is no way to overcome the size of future entitlements except through default by the productive classes on the state's overextended promises. Since option A, the status quo which leaves the current governmental order in place is untenable; we are left with option B, revolt as the path of necessity.
But this book is not advocating a war of freedom, an insurrection, uprisings or anything disruptive of any kind as solutions to our current dilemmas. Instead, the forces of disruption are already upon us and at work, so the nature of this book is entirely defensive and reactive, not proactive. This isn't a call to break into someone else's home, steal their property, rape their women and kill the owner (as anarchists might suggest) in the pursuit of some abstract revolutionary freedom. Instead, this is a call to bolt your door, hide your valuables and defend yourself from others who are now trying to get in to your home to rape, pillage and enslave you. Apparently that is a revolutionary concept to many.
In other words, you canít change the devolutionary course that we are on, except at the margins; the Leviathan of state is auguring in of its own colossal weight. If you are smart though, and hunker down tightly enough, you might just get through this mess with some health and a little wealth intact and be prepared for the rainbow at the end of the storm.
Proceeds from this and other work helps support my ongoing investigation of payoffs to Harry Reid (Harry: Money Mob and Influence)
For a more 'Prepper' oriented book, see Going Galt: Surviving Economic Armageddon
Part I Civil War II
Civil War Inevitable
Civil War Defined
Civil War In Progress
Philosophical Roots Of War
Modern Debt Slavery
Roman Slave Revolts
Part II Political Landscape
Constitution In Conflict
Part III Demography of War
Part IV New Civil Warfare
Weapons of War
Neutering the Military
Calling Out The Troops
The Religion Of Peace
Part V Economic Warfare
Keynesian Epic Fail
Stagflation Biflation Inflation Deflation
The Fed & Monetary Collapse
The Rise of Crypto Cash
Medicaid, Medicare & Obamacare
Outsourcing Our Future
Cyclical Financial Implosion
Confiscation of Wealth
Tax The Rich
Failure of Starve the Beast
Coping With Economic Collapse
Part VI Social Upheaval
Part VII Environmental War
Green Energy Dystopia
Global Food Crisis
Part VIII Fighting Back
Philosophy Of War
Black and Gray Markets
Now Available Through Amazon.com