QE2 and the Upcoming Second American Revolution

by: Avery Goodman

The rallying cry of the American revolutionaries, back in the late 18th century, was "Taxation without representation". They were sure that such taxes violated the "rights of Englishmen."

It had long been a part of unwritten English law that only the legislature could tax the people. The King largely controlled the English Parliament. But, because of the distance, however, he did not control the assemblies of the various colonies. He knew he would never obtain their consent to new taxes, so taxes were levied without bothering to consult state assemblies. As a pretext, in order to claim that the tradition was being upheld, permission from the English Parliament to levy these taxes was obtained, and, according to the King's lawyers, Acts of Parliament were binding on the colonies. This was in spite of the fact that the colonies were not represented in Parliament. They only had the right to elect representatives to colonial assemblies. The actions of the King inflamed the anger of the American colonists, who rightfully concluded that the traditional "rights of Englishmen" were being violated.

Eventually, all of this led to the famous "Boston Tea Party". Tea was one item upon which a heavy duty had been imposed without the consent of the Massachusetts assembly. Colonists boarded the tea-carrying ships at night, and forcibly dumped the commodity into Boston Harbor, causing serious financial loss to the British merchantilists who were closely aligned to the King. That led to an attempted disciplinary action against the colonists by the crown, and, then, in reaction, it led to open war between them. Eventually, after several years, the revolutionaries prevailed.

Once they had won their revolution, the colonists turned to nation-building. They set about creating a "United States of America". They attributed the problem of an unjust King to the fact that the traditional "rights of Engishmen" had never been written down, To protect future generations, therefore, from similar abuses, they resolved to create a written document, which they called the "Constitution", which would set out, in writing, all the traditonal "rights of Englishmen". In it, they carefully proscribed the separation of powers between the executive branch (King or President), legislative branch (Parliament or Congress) and the judicial branch (courts). Doing so, they felt, would forever protect the People's liberties.

One of the most important points of the exercise, of course, was to insure that "taxation without representation" never happened again. So, they codified the pre-existing English tradition that only the legislature had the power to tax the people into the separation of powers. An elected two house Congress was designed to protect the People, and was to be the only entity with power to levy taxes, and to declare wars.

The problem with money debasement was also well known to the Founding Fathers. And, so, Article 1, Section 10 forbid the states from issuing "bills of credit" (paper or "fiat" money) or making anything but gold and silver coin "legal tender". In light of this proscription, in the 1870 case of Hepburn v. Griswold, in response to the "Legal Tender Act of 1862", and the resulting flood of paper "greenbacks" during the Civil War, the U.S. Supreme Court held that the issuance of paper money violated the American Constitution.

However, in 1871, the Supreme Court backpeddled. In the cases of Knox v. Lee and Parker v. Davis in 1871, the Court reversed itself, citing the problem of war as an excuse for printing paper money. Then, finally, in Juiliard v. Greenman, in 1884, the high court reversed itself completely, and held that the prohibitation against paper money applied only to legal tender issued by the states, but not to the federal government, and that the Federal government could issue paper money even in peacetime.

The lack of wisdom that the justices showed, back then, has led to terrible consequences. It was the backdrop behind which a severe deterioration in U.S. government finances has occured since then. Those foolish justices unknowingly authorized a process of continual money debasement that would eventually culminate in the near destruction of the Union during the 1930s, and the very same "taxation without representation" that was the rallying cry of the American Revolution.

By 1914, when the Federal Reserve opened for business, pursuant to the Federal Reserve Act of 1913, the manifest error of those Supeme Court Justices took form and substance, like Sauron rising in the fictional land of Mordor in Middle Earth. Something had gone terribly wrong. A group of bankers met, secretly, on an island off the coast of Georgia, and managed to use their influence to take control of the United States currency through their brainchild, the Federal Reserve. The Constitution of our nation had become corrupted.

Over the last 95 years, things have gone from bad to worse. The Federal Reserve began its mischief almost immediately after its creation, by printing large numbers of so-called "Federal Reserve Notes". These were given the stamp of approval as "legal tender", and circulated alongside "United States Notes" (which, incidentally, no longer exist). The 1920s Federal Reserve was encouraged in its paper money excess by Wall Street firms who wanted rising stock prices and did not understand the inevitable result of their actions. Paper money from the Fed caused a huge boom of the 1920s, and an even bigger bust during the Great Depression of the 1930s.

Paper money excess is the stock and trade of the Fed. The blowing and bursting of serial bubbes also caused a myriad of smaller booms and busts in between the Great Depression and the present. In 2007, the newest bubble blown by the Fed began to bust, resulting in the worldwide Financial Crisis of 2008, and the newest excess in paper money printing (this time electronic printing!) known as the so-called "quantitative easing", or QE for short, began.

Today, we have a new King. He is as bad and incompetent as the one who ruled the British Empire in 1775. His name is Benjamin Bernanke. Although his office and position was never written into the Constitution, he has been allowed to accumulate more economic power than the President of the United States. His "Parliament" is the FOMC, and the merchantile interests that once oppressed the American colonies, have been replaced by oppression by the primary dealers of the Federal Reserve. We, the People, are once again oppressed by taxation without representation. King Bernanke and his "Parliament" are levying unconstitutional taxes without our consent, in the form of repeated episodes of so-called quantitative easing.

In QE-1, starting in March 2010 and ending in April 2010, the Fed bought mortgage backed and agency securities that the private market was only buying at a deep discount, as well as about $300 billion worth of Treasury bonds. It created a market that didn't exist, at that time, for mortgage backed securities owned by banks and other financial institutions, and this helped the banks avoid selling assets at reduced prices. Instead, the Fed bought them, with electronically printed counterfeited Federal Reserve Notes, thereby giving away free money to the banks. This decreased the purchasing power of dollar denominated savings held by grandma, grandpa and every other honest saver, and was the largest unconstitutional tax ever to be levied upon the American people. It constituted a theft, and subsequent transfer of the buying power value of savers to speculators.

Now, we are facing a second massive unconstitutional tax. Most of the primary dealers say that QE-2 will be enacted on November 3rd, 2010. It is yet another giveaway program for banks, as well as a means of funding the U.S. government. This time they intend to buy more treasury bonds. The value of bank-held assets will, once again, be increased, and the buying power value of the savings of grandma, grandpa and other savers proportionatey decreased. In short, they seek to impose yet another massive tax upon Americans, transferring wealth from one class of citizens to another without the affirmative action of our elected representatives.

The actions of the Federal Reserve are taxation without representation, just as much as those of the King of England back in the 1770s. The Fed is an extra-constitutional entity, created by Act of Congress, but not authorized by the Constitution. Its actions favor large banking institutions over smaller ones, and it represents the interests of only a very small part of the population. Yet, it has the power to unilaterally impose taxation without the active consent of Congress.

By allowing the corrupt Federal Reserve to behave in this manner, Congress has abdicated its responsibility to levy open and honest taxes agreed to by the People's representatives. It has also failed to cut the budget to a level that America can afford, which would be the alternative. The Fed, under the influence of the small number of banking institutions, has taken the lead, and imposed stealth taxes upon savers, and given their money to speculators.

Under such circumstances of oppression, our Founding Fathers would have supported a new American Revolution. When the government no longer serves the people, the people have the right to change that government. Thankfully, in America, we can do this peaceably, using our voting rights. That explains the popularity of the Tea Party. Let us hope that, once elected, they live up to their name. The first thing they need to do is end the power of King Bernanke and his underlings by ending the Federal Reserve.

Disclosure: No positions.