Tuesday, October 11, 2011

The Fed, Economic Growth and Economic Stability

With all that's going on in the world today I thought it might be interesting to take a step back and consider the question "How did we get here?" I know that at times it might seem like I harp on the subject, but I believe it is an important one. Sometimes, we don't know how far back into antiquity some ideas go. Often times I am surprised when I find out just how long ago certain knowledge was gained. It seems to me that there is not only truth to the saying that he who doesn't know history is doomed to repeat it, but I think that perhaps those who know history can manipulate those who don't and profit from their knowledge coupled with others' ignorance.

History, to me, is more than just names and dates and a series of events that happened on a timeline. It is more than just a linear progression. It is not two dimensional to be looked at simply in terms of cause and effect. It is like a diamond, like a clear multi-faceted crystal that can be examined in a multitude of ways from nearly infinite perspectives. To get a more accurate view of history it is important to examine as many of these perspectives and facets as possible. By doing so we can gain insight into the inner workings of mankind's psychology, particularly at the different class levels as they existed then and as they exist now. It is also important to examine the things that didn't happen, the would've beens and could've beens that never were. In this way we exercise our imaginations to help us evaluate present and future decisions for our personal lives going forward.

For the purpose of brevity, I don't want to go too far back into the past. I would like to mention a couple of points, however. The first is that money has been around for a very, very long time. It originated out of a need to represent the labor needed to produce certain products for trade for a more efficient barter system. The second is that the manipulation of money has been around for nearly as long as money has. Since money was usually coined from precious metals, it wasn't long before people figured out how to shave coins and debase the metals for their own profit while making the money worth less for the common folk. Such practices were quickly recognized as fraudulent, a form of stealing, and laws were enacted to attempt to prevent people from engaging in such practices.

The third point I'd like to mention is that paper money originated long ago in the form of receipts for gold deposited in the safes of local goldsmiths. In this way, the goldsmiths soon became the world's first bankers of sorts. Some of them soon discovered that the receipts they gave out were, in fact, as good as gold. They noticed that only a certain percentage of their costumers at any one time would come back soon and claim their gold, so they began to give out a certain percentage more receipts than they had gold, a practice very much like what is known today as fractional reserve. This made them very wealthy. It didn't take long, however, for the people to recognize the fraudulent nature of this practice and demand an end to it. Theft is theft whether done through covert or overt means.

This brings us to fiat money. It seems that with wealth comes power and influence. At some point, the wealthy bankers were able to convince the royalty of Europe to team up with them, so to speak. It wasn't hard to see the advantage this would have for both those classes of society as they could siphon off the wealth of the working, productive class and move it to the parasitic ruling class without direct taxation which most people oppose. Many people believe that fiat money is synonymous with paper money, but this is not so. Fiat money merely means money by decree, or money that law says must be accepted as a token of exchange when conducting trade. If a government passed a law requiring maple leaves to be used as tokens of exchange when conducting trade, then maple leaves would become legal tender and one could gather up maple leaves as one sees fit and use them at local merchants to purchase goods and services. If a merchant refused to take the maple leaves, the consumer could report that merchant to the local authorities and the merchant could be arrested and thrown in jail. This would remain so as long as the populace believed their government to be legitimate.

Fast forward to 1913. It was near the end of this year, actually closer to 1914, that the Federal Reserve act was passed. It is interesting to note that this act was not passed until after the 16th amendment to the Constitution was ratified, which happened earlier in Feb. 1913. This was, in my opinion, the most significant event of the 20th century. It was the creation of a semi-private, quasi-governmental central bank in the United States of America. It came about despite the dismantling of central banks in this nation twice in its young history. It came about despite the debates that had been going on since the inception of the nation. It came about despite the pragmatic arguments against letting such an institution take hold in our nation. It came about despite Constitutional law that forbade such an enterprise. It came about and legalized practices that had already been recognized as fraudulent centuries before.

There also was much secrecy surrounding the creation of the Federal Reserve. It seems to me that the population at the time was much more aware of the dangers of central banking than it is today. In order to gain the public trust those who would most benefit from such a system, the same oligarchic families that are involved in it today, had to resort to a great deal of deception and unethical means. These men knew what they were doing and they knew it was unsavory, that's why they wanted to remain hidden and they wanted the public misinformed. They knew their eventual goal would be to create a fiat paper currency that would slowly but surely steal the purchasing power of the common folk. In the meantime, as their system moved the economy toward inevitable collapse, they and their descendents would acquire an incredible amount of the real wealth in the world.

My favorite illustration of how this works follows. Let's say you had a rich great grandfather who had an extra two hundred thousand dollars he didn't know what to do with back in 1914. This was a very hefty sum back then, and he figured it was much more than was necessary to keep a family going for many generations. At the outbreak of WWI, (which coincidentally started not long after the passing of the Federal Reserve Act) he becomes uncertain as to the fate of mankind and so he decides to bury it in the backyard. He divides the money in half and puts a hundred thousand in cash in one box and buys a hundred thousand in physical gold bullion which he buries in another box. Not long after he dies and the two boxes are forgotten as he takes their hiding place to the grave, not that it matters as his estate is quite large even without it.

Now, let's say that you inherit his estate. You spot a place that looks like it might make a good rose garden and lo and behold you dig up the two boxes as you get to work. The cash, taken at face value, has lost an extreme amount of buying power. Consider that one could buy a loaf of bread for a nickel or less in 1914, a Ford Model T would cost one $99 dollars and a very nice house would cost one three thousand dollars or less. I'm not sure but I would guess that mansions would run from ten to thirty thousand. Although a hundred grand is still a good chunk of money today, it would only make a very nice down payment on most homes and you'd still have to take out a mortgage. You certainly couldn't easily buy twenty or more rental properties with it like you could back then.

Ah, but you also got the box of gold. While that gold had the exact same purchasing power in 1914 as the face value of the cash, it's purchasing power today is much more than a hundred grand. Let's do some quick math. The average cost of an ounce of gold in 1914, according to this chart by the National Mining Association, was $18.99. A hundred thousand dollars would have bought $100,000÷$18.99 per ounce, or 5265.92 ounces of gold. Today's gold price, as I write this, is $1664.28 per ounce. The gold has the purchasing power of $1664.28 per ounce multiplied by 5265.92 ounces, or $8,763,981.04 in today's dollars. Do you see where that purchasing power has been stolen? That's $8,663,981 in purchasing power that's been lost. That means that a hundred dollars used to have the purchasing power of approximately $8,764. Ten dollars back then was like approximately $870 today.

Looking again at the National Mining Association chart mentioned above, one quickly notices how long gold held its value at around twenty dollars per ounce. The chart only goes back to 1833, but the gold constant goes back much further, at least to the 1400s, according to this source. During all these years, there was no central bank in the United States of America, but the state banks more or less competed against each other using the Constitutionally approved coining standards for precious metals. That's economic stability. While there were economically troubled times, those times were short lived as the freer markets established in this nation quickly adjusted to market fluctuations and the market manipulations of the European central banks.

One notices how the cost of gold shoots up in the early thirties and then once again in the early seventies. Those were very economically troubled times and personally I'd like to know how much gold was owned and bought by central banks and the families that own them at the time. It's getting very scary now how quickly the price of not only gold, but of all precious metals, has shot up. That is an indication of how many dollars are out there floating around. While the economy might be growing in terms of dollars, economic activity has certainly slowed. I've heard that some indicators are pointing toward recovery, and I certainly hope they're correct, but in my personal life I see no indication that the economy is going to get better any time soon.

So we find ourselves in the present circumstances. With all the protests going on, with all the "occupation" movements taking place, it is apparent that the common folk have come to realize that something is very wrong. Very few people, however, seem to understand the history of how we came to this point in time. They blame this politician or that politician, this political party or that political party, this policy or that policy, this philosophy or that philosophy. They don't seem to understand that, while all these things may have contributed to the problems in one way or another, all these things have been manipulated across time to benefit the moneyed elite. If one thing has remained nearly constant over the past hundred years, it's that the old money has stayed with the same shadowy group of families controlling the world's central banking cartel. One thing is certain, since the Fed's birth in 1913 the economy has grown, but it has been quite unstable with huge mood swings. All the economic growth seems to have gone into their coffers. They have had a government sponsored and endorsed monopoly on the creation of our currency for nearly a hundred years and they have managed to utterly fail on maintaining the stability in the markets and a high employment rate as they promised they would.

What Americans had before the creation of the Fed was ownership. What they had was pride that they had earned their belongings, self reliance as they made their way through life, and respect for others' private property. What they had was freedom and independence. That has been taken away from us. Such principles have been slowly eroded over the decades. Hard work, ingenuity and independence have been replaced by sloth and dependence on the system. The vast majority of us own nothing. We are too far in debt. Too many of us are one step away from losing everything. We no longer do for ourselves and our families anymore. We no longer take the risks and reap the rewards. We stifle ourselves from fear of breaking one of the millions of laws on the books. We beg permission from government agencies to allow us to start our own businesses, to do what we do best. We demand that things be given to us for nothing and have become dependent on the system to take care of us. That is what happens when a monetary system based on something of value is allowed to be shifted into a fiat, paper currency system based on credit.

Yes, there are viable solutions out there that can be used to turn this economic situation around. Yes, I even think that some solutions based on government force of law and regulation can be applied to help the situation. But I don't think this will help if we lose focus on the main causes of the problem. I don't think government solutions will work so long as the Federal Reserve and their corporate cronies have so much power within the federal government. If we allow for competition in the market place, if we stop allowing government to protect and bailout corporations and the international banking systems, we can start empowering the individual.

People have a tendency to protect their selves, their families and their friends. They have a tendency to hang onto power tenaciously once they achieve it. They have a tendency to reward their friends and punish their enemies if given a chance. They have a tendency to become corrupted by the power. As long as government decides who is too big to fail and who is not, the wealthiest of the moneyed elite will be able to pay to play and to bankrupt those who they don't want to play with. As long as a government sanctioned monopoly on currency exists, it will be the moneyed elite and their political cronies who will call the shots. The ultimate answer has nothing to do with increasing taxes or imposing more regulations, the ultimate answer is to empower individuals and let them decide who thrives and who fails in an open, transparent marketplace by voting with their dollars. When the common folk once again throw off the chains of socialist government, demand respect for their natural rights, and are able to keep all the money they earn and possess property without fear of government sanctioned confiscation, then they shall be truly free and we will once again prosper. Then we will know economic stability whether we have economic growth or not.

My archived articles are available at szandorblestman.com. Please visit there and make a donation to help support me and my efforts. I also have an ebook available entitled "The Ouijiers" by Matthew Wayne.

1 comment:

schizophrenic said...

Pretty good job of explaining the Fed. Wonder how many of the protesters really understand what they doth protest?