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The End of Slavery, Equal Rights and Abolishing the Fed are not Radical Ideas

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The Federal Reserve system needs to be abolished, placed on the scrapheap of financial/economic history. I realize this is a radical, you might even say a fringe, idea. But, if you think about it, it is no more an extreme idea today than the abolition of slavery was in the 1840s and equal rights were for black Americans in the 1950s. Slavery was eventually abolished, and equal rights were given, because they were the right things to do. When Americans realize the Federal Reserve in the 20th and early 21st centuries has enslaved them to a monetary system that benefits the political elite and favored rich at the expense of themselves, they should do the right thing and force Congress to eradicate the system.

The framework for our current Federal Reserve system was hatched at a secret meeting of bankers at Jekyll Island, Georgia in November 1913. Orchestrated by JP Morgan, the goal of the system was to provide the nation with a “safer, more flexible, and more stable monetary and financial system.” But, as will soon be pointed out, the Fed has never accomplished its mandate. In fact, it has been used more as a vehicle by politicians to spend recklessly so they can get reelected and as a business plan for big banks to make a fortune.

As to the first accusation against politicians, it’s no secret that the federal government is broke. Indeed, Washington owes a little over $11.6 trillion, not including about $45 trillion in unfunded future liabilities for Social Security and Medicare. Since September 28 2007, the national debt has increased by about $4 billion a day. So how is it that Washington can continue to spend us into oblivion on such ridiculous programs as Cash for Clunkers? In a sweetheart arrangement, the Fed monetizes the government’s debt by printing money and purchasing a bond (debt instrument) from Congress. It then attempts to sell that bond to individuals, banks, countries, and other institutions as an investment. Uncle Sam then must pay interest on that investment. One can immediately realize a big problem: increasing debt means higher interest payments, and higher interest payments mean a larger percentage of the federal budget must be used just to service the debt.

To complete the sweetheart deal, Congress has given the Fed complete control of our money and the ability to keep secret its inner workings. These inner workings include shady deals to bail out failed member banks and currency transfers to foreign banks. Consequently, everyone wins — well, sort of. The politicians get to promise and deliver goodies to their constituents and special interests without any of the restraints faced by those with a fixed budget, and the Fed can wheel and deal in helping its colleagues in the banking industry all over the world. Let’s not forget too, that the Fed is a political organization. The members of the Federal Open Market Committee (FOMC) are appointed and reappointed by the president. This means that the organ of the Fed that has primary responsibility for monetary policy is ultimately beholden to the president. Consequently, the FOMC has historically maintained a policy of easy money because it is perceived that this is what keeps economies strong and the electorate happy.

Now, I mentioned earlier that everyone wins from this arrangement, sort of. The politicians and bankers are big winners, but American workers, consumers, and taxpayers are big losers. All that printing of money, selling of debt, and shady bank deals has a cost. Unlike what Bernanke and the rest of the big spenders in D.C. want us to believe, just like any commodity, when the supply of dollars increases, generally speaking, the value goes down. So as the Fed pumps too many dollars into the economy by means of the printing press, low interest rates, and the fractional reserve accounting scheme, the value of our dollar falls. Of course, this means that more dollars are generally needed to buy the same items. In fact, the things we demand most should and do go up the most in price. Look at the cost of health care, a college education, and automobiles.

Now, blanket statements are fine, but hard statistics really prove the point. In the 95 years prior to the founding of the Fed, prices in the United States generally fell by about 35 percent. This means that the same basket of goods that cost $100 in 1818 only cost $65 in 1913. However, after the Fed began making our financial system safer, more flexible, and more stable, prices for the next 95 years increased by a phenomenal 2052 percent! Thus, in 1913, a basket of goods costing $100 cost $2152.03 in 2008. The biggest difference between 1818-1913 and 1913-2008 is the operation of the Fed during the latter time period. In the previous period there was no central bank inflating the dollar supply and thus raising prices through the printing press, artificially low interest rates, and fractional reserve banking. Additionally, during most of the 1818-1913 period, the U.S dollar was backed by gold. This put a further restraint on reckless spending by Washington. However, in 1933, FDR took us off the gold standard domestically, and in 1971, Nixon closed the gold window to foreigners, thus ushering in the biggest spending era in U.S. history.

Reckless federal spending, big bank bailouts, and shady financial deals are all made possible through the Federal Reserve system. This is why the system must go. An even bigger reason the Fed must go is because it is responsible for perpetual price increases. These price increases, especially in things like health care, enslave Americans;force many to take two jobs, forgo other purchases or work beyond normal retirement age. This is why the Fed should be abolished and why eventually this idea, like the abolition of slavery and equal rights, will not be considered far-fetched.

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About Kenn Jacobine

  • Franco

    Edward,

    Everything you have outlined in broad strokes is mostly true.

    So for the sake of your argument lets suppose all greedy and or selfish politicians saw the light and agreed with you. How dose one weenie our system off the Fed? What are the steps and the effects in moving to this end? Have you given this any thought?

  • Kenn Jacobine

    I think a start is by informing all Americans about the Fed and its practices. H.R.1207 Federal Reserve Transparency Act of 2009 is a start in the weening process. Then, there has to be a transition period between fiat money and a commodity backed dollar. Perhaps the Fed is abolished and Congress reassumes it constitutional right to print and coin money. Then a commission is assembled to fix the rate (gold weight per dollar and the guidelines of the system). It won’t happen overnight and I think reform of other systems is futile given the need for sound money to contain costs.

  • Bliffle

    I think it’s too late: too much inertia.

    Anyhow, commodity-backed currency is a loser. It doesn’t work, and eventually it is overthrown by politicians.