Regardless of their political beliefs, more and more people are realizing that there is something deeply wrong not only with this country, but with the world, and that it is getting worse every day. We see more wars, a government that's growing to truly frightening levels, more taxes, jobs leaving the country and unemployment in general, and absurdly high prices for just about everything.
With so much obviously wrong, many people get discouraged or disgusted and never find out that there is a single root cause to many of these problems and it's right under their nose. Without a doubt, the problem is our money and the system by which it is created: the Federal Reserve.
Entire civilizations have risen and fallen because of their money, yet few people know or even care where their money comes from or what is really is. It's an extremely difficult topic to discuss simply because any explanation is long-winded and the process is intentionally confusing. But if power can be bought - and everyone knows that a Senator is the best investment - then the power to create money out of thin air is a magic trick that obviously needs explaining. I understand that this is a long post, but please, take a little time to read this or bookmark it and check it out again later because it truly is the single most important issue facing not only us Americans but every person in the world.
The Federal Reserve System
The Federal Reserve is a central bank, which means that, through legal tender and anti-counterfeiting laws, the government has granted it a monopoly over the issuance of our money, allowing the cartel to collect interest on money it creates out of nothing. The Federal Reserve isn't a public or private institution, it's both. It's a cartel of private banks that could not exist without the support of government force.
I'm really not going to go into the history of the Fed because that's a different topic than how it works and how it affects us. Rest assured that it's a truly intriguing and rarely-told bedtime story that spans hundreds of years and features men who could buy entire countries, corrupt politicians, and the enslavement of unborn generations.
But lets take a closer look at how it works...
The money-creation process starts when our politicians vote to spend more money than the government actually has (or is willing to directly tax you and I for fear of public resistance) in order to pay for current social programs, wars, etc. But the money to pay for it all has to come from somewhere, right? Do you think your taxes pay for it? Nope. The country wouldn't be able to afford almost any of it if that were the case (more on where your taxes do go in just a moment). So where does the money come from?
The Federal Reserve can create money in three different ways. The first way, and the one that needs the most explanation, is by purchasing Treasury Bonds and other debts through a deliberately confusing and nonsensical process called...
Open Market Operations
What happens is the US Treasury borrows money by issuing a glorified IOU called a Treasury Bond. It's a piece of paper with fancy designs around the edges and a few signatures and it basically says "give us X amount of money and we'll pay you that amount back plus interest." The trick is that you and I, the American people, are responsible for the payment of the bond plus interest because our government claims to represent us. This is the national debt. A Treasury Bond is basically a promise to tax the American people for the amount of the bond plus interest. This is what your tax dollars are actually go toward: paying interest on our national debt (which is over $17 trillion dollars and growing).
But you and I don't pay each other in Treasury Bonds. Where does the actual money come in? Actually, by issuing the Treasury Bond, the government has basically created cash; it just doesn't look like cash. Yet. That's where The Fed comes in. To start the process, the US Treasury takes the bond it just issued and holds a bond auction among the world's largest banks. The banks buy part of our national debt (Treasury Bonds) hoping to make money off the interest payments (your taxes), and the government gets the money it needs to pay for whatever crap (guns and butter).
These banks then give the bond to the Fed, which then writes a check on itself for the amount of the bond. The Federal Reserve gives these checks back to the banks, and the banks use them to buy more Treasury Bonds so the government can keep spending on more crap. Once the government gets the money, it spends it, sending out checks to its employees, welfare beneficiaries, political allies, etc., dispersing throughout society and eventually winding up deposited in private bank accounts like yours and mine.
This is also where we get into the second way the Fed creates money:
How this works is that in the Fed's accounting books (if it actually has any), the bond is now called a reserve, or the money available on demand. Using these reserves as a "base," they lend out 9 additional dollars for every dollar they have in reserve. So if the Treasury Bond was for one million dollars, the Federal Reserve gives the requested million to Congress, but also creates nine million dollars more to lend to banks as the source of every loan given to individuals or businesses in the country. It's important to note that although the Fed sets the reserve ratios for every bank in the country, reserve ratios of money that can be created out of thin air are largely pointless as the Fed can just create more money or alter reserve ratios as they wish.
This process, where not only the Federal Reserve but every bank in the country only has to keep on hand only a fraction of the amount of money they have lent out, is called
So when you take your money to the bank and deposit, for example, $10,000, the bank isn't actually holding on to your $10,000 in a vault. It's keeping $1000 as a cash reserve, then loaning out $9000 from your deposit to various business interests while filling the difference in your account with bank credits/IOU's that are supposed to be redeemable on demand for cash. If someone comes in for a $9000 loan, the bank gives them the $9000 (while charging interest) and uses that person's debt as a fractional reserve to loan out even more money. Deposits become loans, loans become deposits, and this process snowballs as the money supply expands exponentially. This expansion of the money supply is called inflation, but is not to be confused with a general rise in prices (price inflation), which is simply an effect of inflation.
The third way the Fed creates money is refreshingly simple:
The "Discount Window"
This is just the name of the process where banks can take out loans from the Federal Reserve at extremely low interest rates and then loan out that money at higher interest rates for a profit. Remember that the principles of fractional reserve banking and reserve ratios also apply here, so basically the Fed takes our tax dollars, multiplies them because it can, then gives that money out to member banks so they can lend our money right back to us.
ShadowStats.com). Since the Federal Reserve was chartered in 1913, the US Dollar has lost about 96% of its value (www.usinflationcalculator.com). That means an item bought in 1913 for just $1 would cost ~$23.50 now, all because of inflation.
It's a hidden tax that affects the lower classes, those who save their money, and those living on fixed incomes the most. On the other hand, the very nature of The Fed and central banking in general funnels the wealth of the masses to the people closest to the money-fountain, which are usually bankers and other business leaders, politicians, and the ruling class in general, which is exactly why you hear so often that 95% percent of the country's money is in only 5% of the people's hands.
As the country goes further into debt and the Fed adds more money to the economy, there will eventually come a point where there are so many dollars in existence and the Fed is adding more at such a high rate that they simply aren't worth anything. This is called hyperinflation. Many countries throughout history have experienced hyperinflation. In fact, fiat money (money that has no value except for a government decree saying it's worth such-and-such amount) has a 100% failure rate throughout history.
|Yes, that's a pile of money-bricks. The sad thing is the children in the picture are still poor as hell.|
Another side effect of the Fed's managing the money supply through reserves is the process of booms and busts/depressions/recessions. As the Fed injects money into the economy, it tricks people and businesses into making decisions as if they have money that they don't. They spend and take out loans because money is cheap and plentiful. Prices rise. People keep spending and borrowing. Prices keep rising. This is the boom or bubble.
Eventually prices rise to the point where even with all the cheap money, people don't feel comfortable paying the ridiculous prices and refuse to take on new debt, instead choosing to pay off old debt. Since our money is based on debt, when people pay back their debt, the money supply shrinks and prices begin to fall, and suddenly the market collapses as the bubble bursts. This is what happened recently in 2007/08, but the Fed has also been the reason behind every economic recession/depression since 1913, including the Great Depression.
Unwilling to let the free market's self-cleaning mechanism work itself out, the government then votes to spend even more money on bailouts, work programs, welfare, war, etc. to resurrect the dying economy, digging the hole even deeper and piling on more debt to be paid off by future generations. These programs and policies never work, and the recession always gets worse as the government gets involved.
So let's finally recap: the Federal Reserve System is a cozy partnership between Big Banking and Big Government through which the banks can create money out of thin air and collect interest on it while the politicians get unlimited funding without the American people realizing that we're being taxed.
This virtually unlimited supply of money all but guarantees that our government will continue to expand and expand for as long as the Federal Reserve and fiat money exists, destroying our wealth and the wealth of those who follow us.
The way I see it, there are three things that need to be done to fix the problem with our money:
1. Abolish legal tender laws - Doing so will allow for consumer's choice through competing currencies. Legal tender laws are the backbone are the Federal Reserve System. This is a necessary step before we go ahead and...
2. Abolish the Federal Reserve - This should be obvious by now. The Fed has failed disastrously at its stated goals and fuels the creation of more debt.
3. Repudiate the National Debt - Why should you and I be forced to pay for something created by the politicians of a previous generation? This is nothing more than politicians stealing from your kids and grandkids before they're even born.
No matter what, another economic crash is coming, and it's going to be enormous. It's inevitable given the structure of our monetary system. In fact, many countries around the world are beginning to view the Dollar as a ticking time bomb. Just about every country in the world uses the US Dollar to back their own currencies, and many, including Brazil, Russia, India, China, and South Africa, have already begun to take steps away from the US Dollar. China, in particular, is buying gold faster than it can be mined.
However, by following the above recommendations, we could at least minimize the damage done by this inherently evil system by not allowing the hole to get any deeper. Even more importantly we could bring freedom to our money by taking away the guns that back it, and we could free unborn generations from being born into serfdom. This isn't just an important issue, it's the issue, and people need to know about it.
There are many books that do a better job explaining all this than I ever could. Here are several that I personally recommend (click the links or pictures to purchase from Amazon and support SFPA):
by Ron Paul
by G. Edward Griffin
by Murray Rothbard
Also, here's a great show by Mike Maloney, who correctly predicted the 2007-08 crash, explaining the Federal Reserve System and its effects. It's called "The Biggest Scam In The History Of Mankind":