Most people have heard my rants regarding the Federal Reserve (FED), and how it is a rip-off for Americans. The history of the FED pretty much proves what a clandestine and subversive organization it actually is. Yet it operates in the open, sanctioned by the U.S. Government, and exercises control over the more important aspects of our economy, and, ultimately, our freedom. Worse yet, it is widely praised and respected. Why?
For a good look at the history of the FED, including why and how much opposition there was (and is) to its very creation, I suggest the book, “The Creature from Jekyll Island,” by G. Edward Griffin. It is available for the Kindle now, as well as hard cover and soft cover editions. At over 600 pages, it is a commitment to read, but I promise that most of you will be astounded by the facts and the history covered in the book.
Without getting into the background, let’s look at the Mission Statement of the FED. It says that the Central Bank (another name for this type organization) is charged with several, often contradictory, policy objectives. Following is the actual text:
The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
Today, the Federal Reserve's duties fall into four general areas:
- conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
- supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
- maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
- providing financial services to depository institutions, the U.S. government, and foreign official institutions (emphasis added), including playing a major role in operating the nation's payments system
How have they been doing the past few years, especially on the concepts of stability and maximum employment? I’ll leave that to the readers and listeners. For now, I want to focus on what lies ahead.
First, where does the FED get its money? Look at the currency in your pocket – it says “Federal Reserve Note.” So, our money comes from the FED’s printing presses. Since the FED is not owned by the U.S. Government, nor the U.S. taxpayers, it was created and is granted to us by people who do not necessarily have our best interests at heart.
Why does Congress sanction this secretive system? Because it lets them off the hook for their profligate spending habits. All they need to spend more money is ----- more money! Where do they get it? The FED. The very compliant FED. The FED that prints money at will (although previous FED Chairman Ben Bernanke said that “it’s all done electronically,” which to me is one of the most revealing and dangerous disclosures in the nation’s history).
Wait, there is more. There is also the rebate of “profits” to the U. S. Treasury annually, which lately is nearly $100 Billion. With a “B.” That helps the smoke and mirrors by which the budgeting process is done in Congress. What could possibly go wrong?
The FED holds deposits from member banks, and they pay an interest rate a lot higher than the Treasury pays on T-Bills. The “excess profits” are sent back to the Treasury annually. But there is more. Lots more.
Where does the FED get income? Lately, they get a lot of it from bonds they purchased in conducting operations such as the QE (Quantitative Easing) Series and “Operation Twist.” But many of these bonds are coming due every year, and as they do, the FED uses the proceeds to buy more bonds. OK, so what? Here’s the rub. The FED is paying above-face value prices for the bonds, which mature at face value. They are intentionally losing money, in the name of propping up the financial institutions they “serve.”
The sheer volume of their purchases of bonds over many years is coming back to haunt them. And us, eventually. Interest rates, controlled by the FED, are rising, resulting from their own policy. As rates rise, payments to the banks for their deposits become more costly. The FED’s cash flow is diminishing, and simultaneously their losses are mounting.
Author and economist Herbert Stein once wrote, “Anything that is unsustainable will stop.”
When the money runs dry, the true subversive nature of the Central Bank will be seen. But how will this happen? Unlike you and me, the FED doesn’t run out of money. Their ownership of the printing press guarantees that their supply of money is endless. In theory.
In practice, over the last 103 years of the FED’s existence, this has worked for them. Unless, of course, you consider the effects on American taxpayers. Like any commodity (including U.S. Dollars), an increasing supply, ceteris paribus, means a lessening of value of the commodity. So it has gone, as the purchasing power of the dollar has declined by over 95% in this time. That means individuals have to work longer and harder to break even.
And it’s all done on purpose.
As these conflicting forces come to a head, the annual FED payments to the Treasury (the ones that allow the Congress to overlook damage that is being caused by the very existence of the FED) will inevitably shrink. How do you suppose our elected officials are going to greet that revelation?
Thomas Jefferson was likely the most intellectual of our nation’s founders. He warned repeatedly of the dangers of a Central Bank. Although Jefferson is widely quoted by all sides of the political spectrum, we fail to recognize one of his most important warnings. That is a sad way to honor the memory of the great man.
When the U.S. Dollar reaches the point where it is no longer in demand, newly-printed money will be worthless. It is preventable.
I have no idea what will eventually happen, but of one thing I am confident. We, the people, will end up with the bill.