Caveat emptor.  Let the buyer beware.  Most transactions that we engage in don’t require us to take on this cynical, defensive view of the world.  Most sellers of goods and services act in manner that is beneficial to their customers because their customers would leave en masse if they thought they were getting screwed.  When it comes to government and banking, however, everybody thinks they are getting screwed, but they can’t exit the system because the government forbids them to interact with bankers that aren’t part of the sanctioned cartel.  Caveat emptor?  How did we get here?    

The Fed’s dual mandates are to promote price stability and maximum employment.  In it’s nearly hundred years of existence, the Fed has failed colossally in both of these areas.  All we need to do is to look at a few of the fiascos in that time – the Grate Depression, 1970s stagflation, the current recession/depression – to see what an incompetent inept organization it is.  Inflation as calculated by the Bureau of Labor Statistics inflation calculator indicates that the dollar has lost more than 95 percent of its value in 1913.  And the real rate of unemployment is running over 20 percent similar to levels in the 1930s.  Clearly the Fed is not accomplishing these goals, but it does not mean that it is not succeeding at what it was intended to do.

The Fed is the titular head of the sanctioned cartel.  It determines the rules that govern banking operations, controls entry to the marketplace, and protects the member institutions from competition.  It also provides check clearing services for the systems as a whole.  The Fed is the lender of last resort to members of the cartel and to the US government.  It was chartered in 1913 in response to the Panic of 1907 by Congress even though the Constitution does not give the federal government the power to regulate incorporation.

The Fed’s purpose in the banking arena is to protect large banks from suffering the consequences of bad business decisions when the chickens come home to roost.  When large banks are about to fail, the Fed jumps in with special reserve lending facilities to save the failing institution.  These reserves are created out of thin air as accounting entries in the Fed books.  Legalized counterfeiting becomes the salvation from heaven if you happen to be important enough to the right people.

The government uses the Fed to effectively tax the American population without having to legislate the taxation.  The Fed creates new deposits again and uses them to buy Treasury bonds to protect the borrower from the harshness of the free market.  The Treasury gets lower interest rates and money not raised by taxing voters.  The Fed gets interest on counterfeit deposits loaned out.

Americans get higher prices because a lot more money is now chasing the same amount of goods.  Americans also get higher taxes as asset prices increase because of the currency devaluation while the IRS doesn’t allow indexing for inflation.  Bond investors get defrauded because their loans are repaid with dollars that are worth less than when they purchased the bonds, although they might have a taxable gain based on the sale price. The government and the Fed win.  Everybody else loses.

Now we find out that in our current crisis that the Fed in its New Lending Programs to Save the Economy was feeding cash to Goldman Sachs, GE, and other major corporations as well as to foreign banks.  This little bit of information came out as a result of an amputated audit the Fed clause in the Dodd-Frank legislation to further cripple the economy.

The Panic of 1907 was an opportunity for the big banks controlled by Morgan and Rockefeller to push for a central bank to be a backstop for their bad lending practices during boom cycles.  They sought to create a more elastic money supply so that the country could recover from busts more quickly.  In reality what they did was create a monster that destroys the value of savings and protects the bankers using the money in the pockets of all Americans.

The alternative to the fraud-laced enterprise of fractional reserve banking is to return to 100 percent reserves for all demand deposits.  Loans would only be made against time deposits at the same 100 percent reserve ratio.  The likely response from bankers will be that the money supply will become too inelastic meaning that they won’t be able to pump out loans that aren’t backed by deposits when a slowdown occurs in the economy.

What this in fact does is forces the economy to adjust more quickly to a downturn rather than dragging out recessions for extended periods of time.  Prices will move to correct the malinvestments that have accumulated over time and set the stage for stable growth in the future.  What won’t happen is the creation of new bad investments by pumping underpriced loans into the market thus creating a new bubble that will result in another panic.

In addition the Fed should be denied the power to manipulate the market interest rate by purchasing assets with newly created money.  This would make all borrowing decisions occur based on the real risk and cost factors rather than subsidized capital prices.  It also would force the government to borrow money at market rates competing against productive capital investments hopefully discouraging the rash of deficit and debt financing that DC now uses for everything.

Finally the Fed should be prohibited from doing what the rest of the population is denied – counterfeiting money.  The practice of creating money that is not backed by consideration is a violation of one of the fundamental traits of contract law.  It was illegal in this country from the inception of the Constitution until the Federal Reserve was created.  It is now legal for the Fed, but not the public.  This is solely designed to defraud the population of wealth and transfer it to the bankers and the government.

If we don’t change the practices of the banking system in this country and worldwide we are destined to enter another Great Depression that will likely result in a more severe collapse than in the 1930s.  Capital investment will dry up as nation after nation is drained by inflation and government debt.  Sovereign defaults will tank the banks and destroy individual savings.  Only those invested in hard physical assets like gold, silver, land, and commodities will survive financially intact.

So when you’re looking at economic and tax programs from your elected political heroes, caveat emptor, baby.

  1. […] Just to be clear, the Fed and the banking cartel don’t think that you should have information about the strength and solvency of banks because you might choose to move your money to another institution where it would be safer.  The Federal Reserve is the organization that Americans everywhere are supposed to trust to protect their finances, lower unemployment, and successfully manipulate the economy to keep it from tanking.  Caveat emptor, baby! […]

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