|Sat, 5:55 PM|
Why Federal Reserve Bank Which Is Neither Federal Nor Has Any Reserves Should Be Abolished|
I have often identified Keynesian economists and the Federal Reserve as cargo cults. After the U.S. won World War II in the Pacific Theater, its forces left huge stockpiles of goods behind on remote South Pacific islands because it wasn't worth taking it all back to America. After the Americans left, some islanders, nostalgic for the seemingly endless fleet of ships loaded with technological goodies, started Cargo Cults that believed magical rituals and incantations would bring the ships of "free" wealth back. Some mimicked technology by painting radio dials on rocks and using the phantom radio to "call back" the "free wealth" ships.
Real household income by age bracket: only the 65+ group's income has increased.
Labor's share of the non-farm private-sector economy has fallen off a cliff:
Household debt has far outpaced wages: households are over-indebted and over-leveraged. Only the top 5% have reduced leverage. Remove their income and debt from the calculation and the "households are deleveraging" argument collapses.
The economy is 14 million jobs short of what's needed to support housing and spending:
The Fed's monetary policies of saving the "too big to fail banks" and stealing from savers to subsidize cheap mortgages and other debt has failed on multiple levels:The "wealth effect" it sought to create by manipulating the stock market ever higher has been limited to the top 5%, an easily predictable result (all you have to do is look at who owns most the nation's stocks and bonds--surprise, it's the top 5%).
The Fed's Cargo Cult faith held that this largesse to the banks and the wealthy would magically trickle down to the bottom 95%. It didn't, as anyone who actually lives in the real world could have predicted.
The Fed Cargo Cult wants to paint dials on rocks and re-set the S-curve that guides all speculative bubbles and busts. This time we'll force people to buy houses for inflated prices and force lenders to make risky loans to credit-impaired buyers with our magic mind control! The housing industry and its Fed backers were ecstatic with recent increases in the Case-Shiller index of housing prices. I've marked up the chart to reveal the underlying dynamics of this underwhelming reflation.
The entire Fed Cargo Cult depends on the "magic" of manipulating internal psychological states: 1. Boosting expectations of inflation so people will be encouraged to spend what money they have now. 2. Creating the perception that housing is recovering, as opposed to the truth that housing is only rising due to stupendous incentives created by subsidies paid by others and the banks' stealth campaign to lower supply by holding millions of defaulted homes off the market. 3. By stimulating demand and artificially reducing supply, the Fed and the banks hope to create phantom collateral (home equity) that can support another enormous wave of new borrowing and spending.
The Cargo Cult of the Federal Reserve has failed, and it should be abolished as the ultimate destroyer of wealth via its policies of manipulation, malinvestment and moral hazard.
Why the fed must be abolished.
The Fed should be abolished . It a private cartel of bankers
• It is incapable of accomplishing its stated objectives.
• It is a cartel operating against the public interest.
• It is the supreme instrument of usury.
• It generates our most unfair tax.
• It encourages war.
• It destabilizes the economy.
• It is an instrument of totalitarianism.
details of all 7 upon request
It is is not abolished the fourth collapse of the three previous Central banks of the United is imminent and unavoidable.
Historians seeking to justify governmental control of the monetary system have claimed the booms and busts that occurred during the Civil War through the 1920's were the result of free and competitive banking. But these destructive cycles were the direct result of the creation and then extinguishing of fiat money through a system of federally chartered banks, dominated by a handful of firm on Wall Street which constituted a half-way house to central banking. None of these banks were truly free of state control nor were they competitive in the traditional sense of the word. They were in fact subsidized by the government and had many monopolistic privileges. From the perspective of bankers on Wall Street however there was a great deal more to be desired. For one thing, America
Between 1900 and 1910 seventy percent of American Corporate growth was funded internally, making industry increasingly independent of the banks. What the bankers wanted-- and what many businessmen wanted also -- was a more "flexible" or "elastic" money supply that would allow them to create enough of it at any point in time so as to be able to drive interest rates downward at will. That would make loans to businessmen so attractive they would have little choice but to return to the bankers' stable.
One more problem facing Wall Street was the fact that the biggest investment houses, such as Morgan & Company and Kuhn Loeb & Company, although they remained as competitors, were by this time so large they ceased doing serious battle against each other. The concept of trusts and cartels had dawned in America and, to those who already had made it to the top. joint ventures, market sharing, price fixing, and mergers were far more profitable than free-enterprise competition as Ron Chernow explains on pages 433 and 434
This trend was not unique to the banking industry, Ron Paul and Lewis Lehrman provide the historical perspective on pages 434 and 435. The challenge no longer was how to overcome one's adversaries, but how to keep new ones from entering the field. When John D, used his enormous profits from Standard Oil to take control the Chase national bank, and his brother, William, bought th national City Bank of new York, Wall Street, had ye tone more gladiator in the financial arena. Morgan found that he had no choice except to allow Rockefellers into the club but, now that they were in, they all agreed
And the event of the Aldrich-Vreeland Act of 1908 as well as the creation of a national Monetary Commission to study the problems of the American banking industry and make recommendations to Congress finally brings us to he Jekyll Island plan for convincing Congress and the public that the establishment of a banking cartel was ,somehow, a measure to protect the public.
The Jekyll Island strategists laid down the following plan of action.
1. Do not call it a cartel or even a central bank
2. Make it look like a government agency
3. Establish regional branches to create the appearance of
4. begin with a conservative structure including many sound
5. Use the anger caused by recent panics and bank failures to
6. Offer the Jekyll Island Plan as though it were in
7. Employ university professors to give the plan the
8 Speak out against the plan to convince the public that
The American public would never have accepted the Federal reserve System if they had known it was half cartel and half central bank. Even though the concept of government protectionism was rapidly gaining acceptance in business and academic circles, of cartels, trusts, and restraints of free competition was still quite alien to the average voter. And within the halls of Congress, any forthright proposal for either a cartel or a central bank would have been soundly defeated. This is further described on page 439 through 449.
Banking in the period immediately prior to the passage of the Federal Reserve Act was subject to a myriad of controls regulations, subsidies and privileges at both the federal and state levels. Popular history portrays this period as one of unbridled competition and free banking. It was in fact, a half-way house to central banking. Wall Street, however, wanted a "lender of last resort to create unlimited amounts of fiat money for their
The first draft of the Federal Reserve Act was called the Aldrich Bill and was co-sponsored by Congressman Vreeland, but it was not the work of either of these politicians. It was the brainchild of banker Paul Warburg and was eventually written by bankers frank Vanderlip and Benjamin Strong. Aldrich's name attached to a banking bill was bad strategy because he was known as a Wall Street Senator. His bill was not politically acceptable and was never released from committee. The groundwork had been done, however, and the time had arrived to change labels and political parties. The measure would now undergo minor cosmetic surgery and reappear under the sponsorship of a politician whose name would be associated in the public mind with anti-Wall Street sentiments
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.