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<< Part 2

Inflation, Instability, Crisis, & Collapse

Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government. It has done this through defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board and through the corrupt practices of the moneyed vultures who control it.

- Rep. Louis T. McFadden, Chairman of the Committee on Banking and Currency. Congressional Record 12595-12603 (10 June 1932)

In the next election, Congressman McFadden’s opponent received a phenomenal amount of campaign contributions from unknown donors and defeated Mr. McFadden. Never fight the Fed. For those who prefer graphs, below is a picture that requires no words. The United States grew rapidly for 120 years with virtually no inflation. With the creation of the Federal Reserve in 1913, the inflation genie was let out of the bottle. Nixon’s closing of the gold window in 1971 unleashed a tsunami of inflation, covered up by statistical manipulation by the Fed and government.

File:USACPI1800.svg

Source: Wikipedia

For those who prefer seeing what real things cost, below is a chart with some key financial items for the average person. If it feels like your family has fallen behind since 1971, you’re right. Your pay has not come close to keeping up with the cost of a new house, a new car or gas to fill up that car. This is why it takes two parents working to just to keep up with inflation.

Items

1971

2007

% Increase

Average Cost of new house

$28,000

$314,000

1121%

Median HH Income

$10,300

$58,700

570%

Average Monthly Rent

$150

$730

487%

Cost of a gallon of Gas

$0.40

$2.80

700%

Average New Car Price

$3,430

$28,000

816%

United States postage Stamp

$0.08

$0.41

512%

Movie Ticket

$1.50

$7.00

467%

The 14 men who have occupied the position of Federal Reserve Chairman should have occupied the office with a huge dose of humbleness. The complexity of financial markets makes it impossible for anyone to pull the levers of monetary policy in order to generate the result that you wish for. Humans are incapable of understanding the millions of interactions the makeup world commerce. The Federal Reserve cannot control the emotions or irrational behavior of investors. The Federal Reserve mandate of moderate long-term interest rates has clearly not been met. The Fed Funds Rate has plotted a path of extremes over the decades, ranging from 0% to 19%, not exactly stable. The Federal Reserve has consistently set rates too low, leading to credit bubbles, which always end in recession or depression. Free market pricing would not be manipulated or influenced by political considerations or agendas.

File:Federal Funds Rate (effective).svg

Source: Wikipedia

The mandate of maximum employment has also been a miserable failure. The easy credit policies of the Federal Reserve during the 1920’s led to the Great Depression with unemployment rates exceeding 20%. Unemployment has averaged between 5% and 10% consistently since the formation of the Federal Reserve. Government bureaucrats have attempted to hide the true rate of unemployment through the use of deceptive categories and changing the rules of the game. True unemployment, consistent with the way it was measured during the 1930’s, is currently over 16%. This level of “maximum” employment is due to the policies of the Federal Reserve.

File:US Unemployment 1890-2008.gif

Source: Wikipedia

The facts prove beyond a shadow of a doubt that the Federal Reserve has failed in every one of its mandates. Inflation has destroyed the value of the dollar. Interest rates and employment have been violently erratic. The Fed has been manipulated by politicians, showing a complete lack of independence. Only two of the fourteen Chairmen have been truly independent and competent – Paul Volcker & William McChesney Martin. The incompetence and arrogance of the other Chairmen have brought the country to its knees. The final chapter is about to be written.

Bad Moon Rising

http://farm1.static.flickr.com/91/210694486_801a9f3e26.jpg

I see the bad moon arising.

I see trouble on the way.

I see earthquakes and lightnin'.

I see bad times today.

Don't go around tonight,

Well, it's bound to take your life,

There's a bad moon on the rise.

I hear hurricanes ablowing.

I know the end is coming soon.

I fear rivers over flowing.

I hear the voice of rage and ruin.

Hope you got your things together.

Hope you are quite prepared to die.

Looks like we're in for nasty weather.

One eye is taken for an eye.

Bad Moon Rising - Creedence Clearwater Revival

There have been 18 recessions since the creation of the Federal Reserve, including the worst Depression in the history of the country and today’s ongoing Depression which will set records of its own. Most have lasted 12 to 14 months with a decline in Real GDP of 2% from peak to trough. The amount of fiscal and monetary stimulus as a % of GDP generated by the Federal Reserve and politicians during these recessions has averaged 2.5%, excluding the Great Depression and the recent recessions.

http://www.chartoftheday.com/20090612.gif

The stimulus response by Herbert Hoover and the Federal Reserve to the economic collapse of 1929 – 1933 was unprecedented at 8.3% of GDP. This was to combat a 27% decline in real GDP. George W. Bush and Alan Greenspan almost reached that level of stimulus at 7.2% to combat a 0.2% decrease in real GDP in 2001. That excessive response ultimately produced the housing bubble and today’s far worse financial crisis. Excessive is too mild of a term to describe the response by George W., Barack O., and Ben B. to the current downturn. Real GDP has declined by 1.8%. In 1953 the economy suffered a 2.7% real decline in GDP. The Eisenhower Administration did nothing. Miraculously, the economy recovered. The fiscal stimulus response to our 1.8% decline in GDP has been 29.9% of GDP. Our downturn has been 1/15th the decline of the Great Depression and our Keynesian response has been 3.6 times as great. If you were to add all of the guarantees by the Federal Reserve, FDIC, and Treasury, the response has been 12 times larger than the response to the Great Depression. This historically excessive response will have unintended consequences. It always does.

Length

Decline in

Stimulus as a % of GDP

Peak

Trough

(months)

real GDP

Monetary

Fiscal

Combined

August-29

March-33

43

27.0%

3.4%

4.9%

8.3%

May-37

June-38

13

3.4%

0.0%

2.2%

2.2%

November-48

November-49

11

1.7%

-2.2%

5.5%

3.3%

July-53

May-54

10

2.7%

0.0%

-1.4%

-1.4%

August-57

April-58

8

3.2%

0.0%

3.2%

3.2%

April-60

February-61

10

1.0%

0.7%

1.0%

1.7%

December-69

November-70

11

0.2%

0.3%

2.4%

2.7%

November-73

March-75

16

3.1%

0.9%

3.1%

4.0%

January-80

July-80

6

2.2%

0.4%

1.1%

1.5%

July-81

November-82

16

2.6%

0.3%

3.5%

3.8%

July-90

March-91

8

1.3%

1.0%

1.8%

2.8%

March-01

November-01

8

0.2%

1.3%

5.9%

7.2%

December-07

15

1.8%

18.0%

11.9%

29.9%

* Est.

Source: Grant’s Interest Rate Observer

The way the system is supposed to work, when times like this come, the solid people, the competent people, take over the assets from the incompetent people and then you start over again from a sound base, this is what South Korea did, this is what Russia did, and they did fine. What they’re doing this time is they’re taking the assets away from the competent people and giving them to the incompetent people and saying now you compete with the competent people with their assets and their money – it’s terrible economics and it’s not going to work, it hasn’t worked before and it’s not going to work this time. The way the system is supposed to work is when you make a mistake you go broke, he refused to let people go broke, he saved his friends and now we’re all having to pay for them.

Jim Rogers

The moral hazard created by the Federal Reserve’s and the government’s response to every financial difficulty faced by banks and corporations have left our financial system teetering on the brink of collapse. Our largest banks are insolvent. Over 300 smaller regional banks will fail in the next year. Our National Debt is approaching $12 trillion and will surpass $15 trillion by the end of Obama’s term. Foreclosures will exceed 3 million this year. Almost 50%, or 25 million homes, will be underwater on their mortgage loans by 2011. It has gotten so bad that it takes the leader of a socialist country to provide capitalistic free market common sense to American leaders:

This crisis did not come about because we issued too little money but because we created economic growth with too much money and it was not sustainable. If we want to learn from that, the answer is not to repeat the mistakes of the past.

– Angela Merkel

Final Solution

You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.

George Bernard Shaw

Our fiat currency system has proved to be a wretched failure. Within the next five years a final crisis will bring an end to this diabolical experiment in hubris. Man is not smarter than the free markets. The U.S. dollar is a piece of paper. It only has value because people have trust that the government issuing the paper is financially stable with rational fiscal policies. This does not describe the United States of today. When the next crisis causes the dollar to collapse and uncontrollable inflation to result, abolition of the Federal Reserve will become feasible. Average Americans have been victims of the boom and bust caused by the Federal Reserve policies. The sole beneficiaries have been bankers, politicians, the military industrial complex, and the super rich elite.

Journalist H.L. Mencken understood overbearing government, the ignorant masses and the power of a few brave men:

All government, of course, is against liberty. The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary. Most people want security in this world, not liberty.

The most dangerous man to any government is the man who is able to think things out... without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable. It doesn't take a majority to make a rebellion; it takes only a few determined leaders and a sound cause.

The abolition of the Federal Reserve will not be without a ferocious, possibly deadly, fight. Without a fiat currency, Democrats would not be able to tax and spend on their social program agenda. Republicans would not be able to tax and spend on their beloved military industrial complex and the wars it encourages. A sound commodity backed currency would force government to become smaller and dramatically reduce the obscene profits of bankers. A commodity backed currency would favor saving and investment versus borrowing and consuming. If there is one thing that should have been learned in the last two years is that an unsustainable trend will not be sustained. The actions taken by the Federal Reserve and the Obama Administration have created an unsustainable situation for the U.S. dollar. Representative Ron Paul makes the most persuasive case for abolishing the Federal Reserve:

The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts. With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America's exports or the low rate of savings should be enthusiastic supporters of this legislation.

Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of the special interests and their own appetite for big government.

Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.

In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy.

We have a sound cause. It only takes a few determined leaders to start the rebellion.

Join me at www.TheBurningPlatform.com to fight the Fed.

Source: The Federal Reserve Must Die, Part 3