This is a guest post by Austin Eldridge.The views expressed in this article may or may not be those of El
Pensador.
The Fed. These words
sometimes strike terror into your heart when you hear them. But, when someone
mentions the Fed, do you know what they mean? Just what is the Fed? What is it
for? Why was it created? In this post, I am going to do my best to answer these
questions, and also point out the problems with the system. So, without further
ado, let’s rock and roll.
The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States.
It was created on Dec. 23, 1913
when President Woodrow Wilson signed the Federal Reserve Act into law. It was originally
created by congress (it is NOT a government program) to provide the nation with
a safer, more flexible, and more stable monetary and financial system. (http://www.federalreserve.gov/faqs/about_12594.htm)
The Congress established two key
objectives for monetary policy--maximum employment and stable prices--in the
Federal Reserve Act. These objectives are sometimes referred to as the Federal
Reserve's dual mandate.
But today, the Fed’s
responsibilities have expanded (much like everything else in government), and
they include:
1)- Conducting the
nation's monetary policy by influencing money and credit conditions in the
economy in pursuit of full employment and stable prices.
2)- Supervising and regulating banks
and other important financial institutions to ensure the safety and soundness
of the nation's banking and financial system and to protect the credit rights
of consumers.
3)-Maintaining the stability of the
financial system and containing systemic risk that may arise in financial
markets.
4)-Providing certain financial services
to the U.S. government, U.S. financial institutions, and foreign official
institutions, and playing a major role in operating and overseeing the nation's
payments systems.
Has the Fed really done all this,
though? Do we really have a stable financial system? I would say no. After all,
we are trillions of dollars in debt! (As I write this, America is
$15,227,062,303,020 in debt, and it’s going up every second). The Fed is one of
the main reasons for this, because they have so much control over our economic
system. Also, we must ask ourselves, does the Fed have too much control, or are
they overstepping their bounds? I personally believe they have too much
control, control that they don’t really have the right to have, but, you can
form your own opinions.
So, just how much of a problem is the
Fed? Take a look at these 19 points taken from the Economic Collapse Blog.
(Listed here are just the reasons themselves. I did not have room to fit the
explanations due to the excessive length. You might want to look at the blog
itself here to get the extended explanations.)
#1
The Federal Reserve system is a debt-based financial system.
#2
The Federal Reserve and the bankers have a monopoly on the creation of this debt-based
money.
#3
The power of money creation and debt creation is in the hands of private
individuals - not the government.
#4
The Federal Reserve itself is not much of a profit-making institution.
Rather, it is a tool that enables others to make obscene amounts of money.
#5
The Federal Reserve is a perpetual debt machine
#6
The Federal Reserve system is designed to cause inflation.
The U.S. never had massive
problems with inflation before the Fed was created, but now it is just wildly
out of control....
#7
The Federal Reserve has decided to play bizarre games with our money supply.
#8
The Federal Reserve is undemocratic.
#9
The Federal Reserve runs the U.S. economy.
#10
The Federal Reserve favors the big banks.
#11
The worse the debt problems caused by the Federal Reserve become, the more
money the IRS needs to collect from the rest of us.#12 The Federal Reserve
creates artificial financial bubbles.
#13
The Federal Reserve is anti-free market.
#14
The Federal Reserve tells the rest of our banks what to do.
#15
The people currently running the Federal Reserve pretty much have no idea what
they are doing.
If one of us could go down the street
and appoint the manager of the local Dairy Queen as the Chairman of the Federal
Reserve, it is very doubtful that person would do a worse job than Bernanke has
done.
#16
Even though the Federal Reserve has such extraordinary power over the financial
system, the American people are not permitted to examine their books.
#18
The Federal Reserve is dominated by Wall Street and the New York banks.
#19
The Federal Reserve has brought us to the brink of economic collapse.
(Keep in mind these are points from the Economic
Collapse Blog, not myself or El Pensador, and the views expressed may not
necessarily be our views.)
What have others had to say about
this? “All the perplexities, confusion,
and distress in America arise not from defects of the constitution, not from
want of honor or virtue, so much as from downright ignorance of the nature of
coin, credit, and circulation.” -John Adams in a 1787 letter to Thomas
Jefferson.
“Of all the contrivances devised for
cheating the laboring classes of mankind, none has been more effective than
that which deludes him with paper money.”-Daniel Webster
"We
have, in this country, one of the most corrupt institutions the world has ever
known. I refer to the Federal Reserve Board. This evil institution has
impoverished the people of the United States and has practically bankrupted our
government. It has done this through the corrupt practices of the moneyed
vultures who control it". —
Congressman Louis T. McFadden in 1932
"I
believe that banking institutions are more dangerous to our liberties than
standing armies. Already they have raised up a monied aristocracy that has set
the government at defiance. The issuing power (of money) should be taken away
from the banks and restored to the people to whom it properly belongs."-Thomas Jefferson
And
finally, a quote on debt from one of our favorite presidents, Ronald Reagan: “We don't have a trillion-dollar
debt because we haven't taxed enough; we have a trillion-dollar debt because we
spend too much”
These
are just a few statements on the problems with the Fed. There are many more.
Basically, the Fed is putting our liberty in jeopardy. The more debt you are
in, the more vulnerable you are. Many people realized that, but, their wisdom
was not heeded, and look where we are today. We are facing the biggest economic
crisis since the great depression.
So,
what can we do about it? That’s a tough question. Te best thing to do would be
to end the Fed and go back to a gold standard. Alan Greenspan had this to say
about the gold standard:
In the
absence of the gold standard, there is no way to protect savings from
confiscation through inflation. ... This is the shabby secret of the welfare
statists' tirades against gold. Deficit spending is simply a scheme for the
confiscation of wealth. Gold stands in the way of this insidious process. It
stands as a protector of property rights. If one grasps this, one has no
difficulty in understanding the statists' antagonism toward the gold standard”
Ludwig von Mises said “The
gold standard has one tremendous virtue: the quantity of the money supply,
under the gold standard, is independent of the policies of governments and
political parties. This is its advantage. It is a form of protection against
spendthrift governments”
Ronald
Reagan was also firmly in support of the gold standard. (http://www.youtube.com/watch?v=ZjpT1qMC7Pk) Reagan said “There has never been a great
nation that gave up the gold standard and remained great.”
Again,
these are just a few of many quotes on the subject.
One
last point I would like to touch on. Velocity.
What is velocity? Simply put, it is the speed at which money changes hands. But
let me explain. Here is an example given by economist Richard Maybury in his
book “Whatever Happened To Penny Candy” (which you should read!). Imagine ten
people sitting in a circle. Each has two things in his hands, a dollar bill and
a baseball card. Now imagine each person selling his card to the person on his
right for one dollar. Every card has been sold, and every dollar has changed
hands once. The velocity of the money is one. Now imagine the same circle. Each
person has a baseball card, but only one person has a dollar. Now imagine the
person with the dollar buying his neighbors card. The neighbor then uses the
dollar to buy his neighbor’s card, and so forth. The dollar goes all the way around
the circle. That single dollar has done the same work as the ten dollars in the
first example. But the money has changed hands not once, but ten times.
Velocity is ten. So, a small amount of money can do the same work as a large
amount. It can be used in the same number of transactions and have the same
effect on prices if it changes hands quickly enough. So, why would people trade
their money away faster? A decline in the demand for money.
Money
responds to the laws of supply and demand. There is a demand for money, as well
as a supply of it. All that to say, this is where our money problem has come
in.
The
problem is this: When money is printed in large quantities, the volume (amount) of money goes up.
What happens when the amount of something increases? The demand for it goes down. The same
goes for money. The demand goes down when the volume goes up. What happens when
the demand goes down? The value decreases. When people don’t
want or need something, it isn’t worth as much. This is what has happened with
our money! We have had so much money, (which today just means paper that’s
green), printed that there is a great quantity of it! Sounds good doesn’t it?
Well it isn’t. Now that there is so much paper money in the system, the demand
has gone down. The dollar is going more and more down the trail to being
worthless. Thus creating another huge problem in the economy.
I hope
this article helps you in your understanding of the Fed, what it does, and why
it is a flawed system, as well as more understanding of the problems with
inflation.
So,
until next time, so long!
