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 financial consequences.

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.

A 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 more.

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 is repelled.'

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.

Money Creation

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 reserve banking).

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 growth.

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 the U.S.

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 to depreciate.

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:

 "I believe that banking institutions are more dangerous to our liberties that standing armies"

"The 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.

"Free" Banks: 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 bank.

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 regional banks.

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 Christmas holidays.

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 depression ended.

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 Depression

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 interest rates.

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 freely.

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.

Long-established central 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 ease.

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 seizure.

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 [1933], 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[5][6], 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 calculated dishonesty!"

"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."

Were McFadden’s 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 System.

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 Reserve

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

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: