Mon Post #3: Adrian Salbuchi OP ED, "FED up? Hundred years of manipulating the US dollar"

A couple of quotes from an excellent Op Ed piece by Adrian Salbuchi, a political analyst, author, speaker and radio/TV commentator in Argentina. 

The article, marking the 100th anniversary of the creation of the US Federal Reserve, is titled: FED up? Hundred years of manipulating the US dollar

In a Public Broadcast System (PBS) interview on “News Hour” aired on September 18, 2007, US journalist Jim Lehrer had this Q&A session with former decades-long Fed Chairman (and JP Morgan bank officer) Alan Greenspan:

Jim Lehrer: “What is the proper relationship between a chairman of the Fed and a president of the United States?”

Alan Greenspan: “Well, first of all, the Federal Reserve is an independent agency, and that means, basically, that there is no other agency of government which can overrule actions that we take. So long as that is in place and there is no evidence that the administration or the Congress or anybody else is requesting that we do things other than what we think is the appropriate thing, then what the relationships are don’t frankly matter.”

Huh? If you’re a US citizen, you should re-read the above once or twice.

And,

But don’t think that the FED’s global financial enslavement system is simply aimed outside the US; it kicked off a century ago by first silently enslaving the very people of the United States it is supposed to serve.

Here’s how that works: every time the US Government decides to put money into circulation – those 1, 5, 10, 20, 50, 100 dollar bills we’re all so familiar with – instead of asking the government mint to print them at a penny’s cost in paper and ink, the government instead asks the private banksters at the Fed to print those bills for the Treasury, in exchange delivering to the Fed interest-bearing US Treasury Bills and Bonds, which translates into trillions of dollars’ in profits funneled to the private banking elite though the Fed.

It was all so well planned a hundred years ago, that just before the Federal Reserve Act was passed on December 23, 1913, they also maneuvered to close this parasitic circle, for if the US Government was to begin making gigantic interest payments to the Fed just for printing its own money, they first needed to have a revenue scheme in place to milk the American taxpayer: the Income Tax Act!

And,

Not that you haven’t been warned. In 1923, Minnesota representative, Charles Lindbergh, father of the famous aviator, sent an early warning: “The financial system has been turned over to the Federal Reserve Board which administers the finance system by authority of a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money.”

One final excerpt,

Even president John Kennedy understood this when he issued Executive Order No. 11110 on June 4, 1963, ordering the US Treasury to print zero-interest public money to the tune of 4.3 billion dollars, fully bypassing the Fed. But he too ran into some trouble in Dallas barely five months later on 22 November.

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In honour of the Debt Ceiling extension, an interesting video by Mike Maloney on the US Federal Reserve

The debt ceiling debate in the United States is over (for a few months, at least) and to we take the opportunity to hilight this video from Mike Maloney discussing the debt based money system and the current version of US Currency: the Federal Reserve note.

We say 'current version' because the United States has gone through a number of different currency's in it's 237 year history.

The current version, the Federal Reserve note, is only 99 years old.

So as the US debt ceiling is raised once again, we bring you this interesting dissertation on the fiat the currently makes up the world's reserve currency.

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Sunday Post #2: Money for Nothing - Inside the Federal Reserve

On November 15 the movie, "Money for Nothing: Inside the Federal Reserve" will have its world premiere at the International Documentary Film Festival in Amsterdam.

After that, the plan is to screen the movie in U.S. theaters in 2013, then release it on television and DVD.

Money for Nothing is narrated by Liev Schreiber. It is an independent, nonpartisan, feature-length documentary film.

The cast includes prominent Fed watcher James Grant of Grant's Interest Rate Observer. Also appearing in the film are former Fed Chairman Paul Volcker; investor Jeremy Grantham; former Vice Chairman of the Fed Alan Blinder; Peter Fisher, former Under Secretary of the Treasury for Domestic Finance; Philadelphia Fed President Charles Plosser; Richmond Fed President Jeffrey Lacker; Vice Chair of the Fed Board of Governors Janet Yellen; and many more.

Money For Nothing covers 100 years of Fed history and in many cases is quite critical of Fed policies. The film asks the question: Can the Fed learn from its past?

The movie pays homage to Volcker and lays out thoughtful and respectful criticism of former Chairmen Arthur Burns and Alan Greenspan and current Chairman Ben Bernanke, among others.

The movie's director, Jim Bruce, says the goal of the film is to create informed debate that exposes the impact of Fed policy on the U.S. economy and on society (from the Greenspan Put to the Bernanke Put). The film questions the rationale behind today's Fed actions and calls for better policies in the future.

Starting with the Panic of 1907 and ending with the risks on the horizon of today's quantitative-easing quagmire, Money for Nothing dramatically and entertainingly reveals the Fed's ongoing reluctance to shed old ideas. The movie is filled with wonderful narrative and fascinating images that capture the world of finance throughout the Twentieth Century.

Above is a three-minute trailer. There are some great quotes which have relevance to our own housing bubble.

"You know... the way a healthy economy grows is people earn money and they go out and spend it.

They way an unhealthy economy grows is people borrow money, and then go out and spend it."

Make a point of trying to see this film, it will be well worth watching.

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Thurs Post #1: Audit the Federal Reserve Bill passes in US House of Representatives

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Unmasking the US Federal Reserve

A 35 minute video in which Joseph Salerno, Economics Professor at Pace University, speaks on the US Federal Reserve and exposes some of the fallacies regarding how the Federal Reserve functions, creates money, and controls the monetary system the United States.

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The Dollar dump continues

Last Saturday we made reference to a Zero Hedge article that commented about what was then a record $77 billion in Treasury sales from the Fed's custody account.

The obvious conclusion from that data is that, contrary to what one hears in the media, foreigners are offloading US paper hand over fist.

ZH then wondered, if Treasurys are being dumped, "what they are converting the USD into, and how much longer will the go on for? The last thing the US can afford is a wholesale dumping of its Treasurys."

The concern is that the traditional diagonal rise in foreign holdings of US paper has not only pleateaued, but it is in fact declining: a first in the history of the post-globalization world.

Well here we are a week later and as of yesterday's H.4.1 update, the outflow has increased to it's 6th consecutive week by yet another $8 billion to a new all time record of $85 billion.

The 6 consecutive weeks of outflows is now tied for the longest consecutive period of outflows from the Fed's Custody account ever. 

This week's sale brings the total notional of Treasurys in the Custody account to just $2.66 trillion (down from a record $2.75 trillion) and the same as April of last year. 

And since the sellers are countries who have traditionally constantly recycled their trade surplus into US paper, this is quite a distrubing development. 

As ZH notes, it is getting increasingly more difficult to ignore this disturbing trend, especially with US bond auctions mysteriously pricing at record low yields month after month. 

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If the US walked into the bank and asked to raise their 'debt limit'...

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The bailouts continue... you're just not hearing about them

A while back, US Republican candidate Ron Paul commented on the ongoing bailouts of Europe by the US Federal Reserve:

The Fed's latest actions in cooperating with foreign central banks to undertake liquidity swaps of dollars for foreign currencies is another reason why Congress needs enhanced power to oversee and audit the Fed.  Under current law Congress cannot examine these types of agreements.  Those who would argue that auditing the Fed or these agreements with central banks harms the Fed's independence should reevaluate the Fed's supposed independence when the Fed bails out Europe so soon after President Obama promised US assistance in resolving the Euro crisis.

And today the Wall Street Journal reported that former Dallas Fed Vice President, Gerald Driscoll has come right out and accused the Fed of bailing out Europe courtesy of "incomprehensible" currency swaps, and implicitly accusing Bernanke of lying that he would not bail out Europe even as he has done precisely that.

The Federal Reserve's Covert Bailout of Europe 

When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap.

America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.

The Fed is using what is termed a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.

Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman's collapse in the fall of 2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.

The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.

The ECB is entangled in an even bigger legal and political mess. What the heads of many European governments want is for the ECB to bail them out. The central bank and some European governments say that it cannot constitutionally do that. The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities. Meanwhile, European governments pressure the banks to purchase still more sovereign debt.

This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light. Reporting in Europe is on the mark. On Dec. 21 the Frankfurter Allgemeine Zeitung noted on its website that European banks took three-month credits worth $33 billion, which was financed by a swap between the ECB and the Fed. When it first came out in 2009 that the Greek government was much more heavily indebted than previously known, currency swaps reportedly arranged by Goldman Sachs were one subterfuge employed to hide its debts.

The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed's reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed's Swap Operations report, and the ECB website.)

More and more balls are being thrown in the air.

The question remains... how long can the ponzi juggling act be maintained?

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Tues Post#2: Federal Reserve bailout by the numbers

In the first week of December we talked about how Bloomberg had uncovered that the US Federal Reserve bailouts of the banks was much higher than previously known. According to documents released through the Freedom of Information Act, the bailout given to America's big banks was far bigger than the Federal Reserve let the public, and even members of Congress, know.

The US Federal Reserve basically provided free loans of $7.7 Trillion to wall street banks so that they could turn around and buy US Treasuries and made a profit on the interest difference - about $13 Billion (a profit which comes off the backs of the US taxpayers, of course). This is how the Federal Reserve is helping banks make money in this massive liquidity squeeze.

The youtube clip is set up to prevent embedding but you can view it by clicking here.

Another excellent clip involving Alan Grayson, former US Representative, who points out that when combined with the earlier revelations ($16 Trillion reported earlier), the Fed has bailed out the banks to the tune of $26 Trillion while all over America people are being kicked out to their homes via foreclosures.

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Fri Post #2: Jon Stewart and the secret $7.7 Trillion bank bailout

Last night Jon Stewart explored the US Federal Reserve's secret $7.7 Trillion bailout of the banks that was revealled last week.

The US Federal Reserve basically provided free loans of $7.7 Trillion to wall street banks so that they could turn around and buy US Treasuries and made a profit on the interest difference - about $13 Billion (a profit which comes off the backs of the US taxpayers, of course).

This is how the Federal Reserve is helping banks make money in this massive liquidity squeeze.

Stewart's comedy piece is perhaps one of the most succinct analysis of what is wrong with the US Federal Reserve and how they are raping the American Taxpayer.

The clip cannot be embedded here so follow the link above or click here to watch it (clip link is via Canada's Comedy Network. Not sure if it is viewable outside of Canada. Canadians cannot watch clip on US's Comedy Central so you may have to source the clip if you are outside Canada).

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Mon Post #2: Ron Paul explains how America shifted away from 'debt' money after the Civil War and can do it again

Ron Paul continues to lay out his platform calling for the end of the Federal Reserve and returning America to sound monetary policy.

"We know what to do - we did it once after the Civil War period, we went from a paper standard back to the gold standard, and the event wasn't that dramatic. But today the big problem is that both the conservatives and liberals have an big apetite for big government for different reasons, therefore they need the Fed to tie them over and monetize the debt. So if you don't get rid of that appetite it's going to be more difficult, but the transition isn't that difficult. You have to get your house in order; you have to balance the budget, you have to not run up debt, and you have to promise not to print any more money..."

"I am quite convinced that the system we have will not be maintained - that's what these last 4 years was all about, and that's what the turmoil in Europe is all about. The question is are they going to move toward a constitutional form of money. or are we going to go another step further into international money - instead of having an international gold standard based on the market, are we going to go toward a UN, IMF standard where they are going to control with the use of force another fiat standard. I consider that a very, very dangerous move."

Paul's comments come a day after more secret Fed bailouts were publicized.

Bloomberg reported yesterday that Secret Fed Loans Gave Banks $13 Billion.

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

Is there anyone who still really believes we shouldn’t be taking a closer look at the Federal Reserve’s activities?

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Mon Post #1: Events in Europe, QE and Gold/Silver

To say that we live in interesting times is nothing short of an understatement.

Sovereign Debt will be the issue of this decade and the situation with the PIIGS (Portugal, Ireland, Italy, Greece, Spain) in Europe dominates the headlines again this past weekend.

A stunning article appreared in the UK newspaper, The Telegraph, which reported that Britain's Foreign Office has given instructions to embassies and consulates to begin contingency planning to help expats should the crushing debt of the PIIGS collapse the Euro.

Even more incredibly, a senior minister has revealed that Britain is now planning on the basis that a Euro collapse is not just a possibility, but that it is only a matter of time.

A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time. “It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph.

Meanwhile Société Générale (SocGen), a large European Bank and a major Financial Services company that has a substantial global presence, has come out its Multi Asset Portfolio Scenario/Strategy guide wherein the French bank makes the simple case that the worse things get, the stronger the response by global central banks will be.

"A major liquidity crisis should not occur this time, as we think we are on the eve of major QE in the UK, US and (a bit) later on in the EZ."

How big will QE3 be?

According to SocGen, the Fed will preannounce it in the January 2012 FOMC statement and that the monetization will last from March 2012 until the end of the year and will buy a total of $600 billion.

Many analysts believe the actual total will be well greater, probably in the $1.5 trillion range as the Fed will finally say "enough" to piecemeal solutions and grab the bull by the horns.

What really stands out is SocGen's investment advice:

"Buy gold ahead of QE3 as money creation has a strong impact on prices... Gold is highly sensitive to US QE, as every dollar of QE goes into M0, triggering the debasement of the USD."

SocGen sees Gold going to $8,500/oz so as...

"to catch up with the increase in the monetary base since 1920 (as it did in the early 80s)."

Older readers will recall that was a time when Gold went from $35/oz to $850/oz.

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Who will bail out the US Federal Reserve?

Came across an interesting editorial by James Rickards, senior managing director of Tangent Capital and author of the book 'Currency Wars'. Rickards asks some interesting questions about how the US Federal Reserve funds itself.

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From Occupy Wall Street to the halls of Congress there is anger at bailouts orchestrated by the U.S. Federal Reserve. These bailouts have not been limited to banks but include brokers, money market funds and foreign corporations. The Fed has released details grudgingly and some disclosures were forced by the Dodd-Frank legislation. Gradually the bailouts have been revealed as if a veil were slowly being drawn to display a densely formed mosaic. The bailouts have enriched stockholders, bondholders and CEO’s while unemployment remains at depression levels and forty-six million Americans survive on food stamps.

But what if the Fed itself needed to be bailed-out? The Fed may be a central bank, but it is still a bank with a balance sheet and capital. A balance sheet has two sides consisting of assets and liabilities. The Fed’s assets are mostly government securities it buys and its liabilities are mostly the money it prints to buy them. Capital consists of the assets minus the liabilities.

The Fed has capital of about $60 billion and assets approaching $3 trillion. If the Fed’s assets declined in value by just 2 percent, that decline applied to $3 trillion in assets produces a $60 billion loss—enough to wipe out the Fed’s capital. A 2 percent decline is not unusual in today’s volatile markets.

The Fed is well aware of this problem. In 2008, the Fed met with Congress to discuss propping up its balance sheet by issuing its own bonds as the Treasury does now. By getting permission from Congress to issue new Fed Bonds, the Federal Reserve could tighten monetary conditions when the time came without having to sell the bonds on its books and realize losses. Sales of the new Fed Bonds would replace sales of the old Treasury bonds to reduce the money supply. This way, the losses on the old Treasury bonds would stay hidden.

In 2009, Janet Yellen, now a member of the Fed board, went public with this request in a New York speech. Regarding the power to issue new Fed Bonds, Yellen said, “I would feel happier having it now.” Yellen seemed eager to get the program under way, and with good reason. The Fed’s looming insolvency was becoming more apparent by the day as it piled more leverage on its capital base.

This bond scam was shot down on Capitol Hill, and once it failed, the Fed needed another solution quickly. The answer was a deal struck between Treasury and the Fed that did not require approval from Congress.

The Fed earns huge profits every year on the interest received on Treasury bonds the Fed owns. The Fed normally pays these profits back to the Treasury. Behind closed doors, the Fed and Treasury agreed that the Fed could suspend the repayments and keep the cash. The amount the Fed would usually pay to the Treasury would be set up as an IOU.

Now as losses on future bond sales arise, the Fed does not reduce capital, as would normally occur, instead they increase the amount of the IOU to the Treasury. In effect, the Fed is issuing private IOUs to the Treasury and using the cash to avoid appearing insolvent. As long as the Fed can keep issuing these IOUs, its capital will not be wiped out by losses on its bonds. Corporate executives who played these kinds of accounting games would be sent to jail. Americans might be outraged to know that the Treasury is a public institution while the Fed is privately owned by banks, so this accounting sham is another example of bilking the taxpayers to enrich the banks.

The United States now has a system in which the Treasury runs huge deficits and sells bonds to keep from going broke. The Fed prints money to buy those bonds and loses money owning them. Then the Treasury takes IOUs back from the Fed to keep the Fed from going broke. This arrangement resembles two drunks leaning on each other so neither one falls down. Today, with its 50-to-1 leverage and investment in volatile securities, the Fed looks more like a poorly run hedge fund than a central bank.

Even this Treasury lifeline to the Fed may not be enough in the long run. If the Fed begins a new round of money printing and the Treasury continues with trillion-dollar plus deficits, there may come a time when even the credit of the Treasury and Fed are called into question and the money printing circus grinds to a halt. At that point the Fed could “phone a friend” at the IMF and be bailed out by a kind of IMF funny money called “special drawing rights” or SDR’s, or the Fed could use its nuclear option and go back to the gold standard using the gold in Fort Knox. Given the limited amount of gold and the huge amount of paper money that would have to be backstopped, the new gold price would be $7,000 per ounce or higher. These kinds of spikes in the price of gold during money crises have happened before – in 1930’s and the 1970’s. Those crises were forty years apart and the last one was forty years ago so a new crisis in the near future would be right on time.

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Ron Paul on the US Federal Reserve: "It is immoral"

Congressman Ron Paul (and candidate for the US Republican 2011 presidential nomination) delivered a speech for the National Association of Home Builders at the 29th Annual Cato Monetary Conference yesterday.

The key topics were the US monetary policy and the US Federal Reserve.

"I think there is no doubt that the Federal Reserve is immoral, it's unconstitutional, it's a disaster and we don't need it... The Federal Reserve is an institution that was created by the Congress and the Congress has been totally derelict in their duties as far as oversight of the Federal Reserve."

In the middle of an election campaign, here you have a man who is speaking consistently with everything he has said about monetary policy for the last 30 years. He refuses to pander to the electorate and change his opinions to garner votes. Ron Paul tells you exactly how it is in this excellent speech.

This is the man who 'should' be the next president of the United States.

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What's wrong with this picture?

Did you ever play Monopoly as a kid and, as the designated banker, succumb to the temptation to simply remove some money for yourself if you were strapped for cash?

Wouldn't it be great if you could do that in real life?  Solve your money problems by simply creating more cash for yourself?

That's basically what the United States is doing.

As CNSNews.com notes, at the close of business on Tuesday the debt of the US federal government exceeded $15 trillion for the first time - with the largest single owner of the publicly held portion of that debt being the US Federal Reserve.

Over the past year, as the Federal Reserve massively increased its holdings of U.S. Treasury securities and entities in China marginally decreased theirs, the Fed surpassed the Chinese as the top owner of publicly held U.S. government debt.

In its latest monthly report, the US Federal Reserve said that as of Sept. 28, it owned $1.665 trillion in U.S. Treasury securities. That was more than double the $812 billion in U.S. Treasury securities the Fed said it owned as of Sept. 29, 2010.

Meanwhile, as of the end of this September, entities in mainland China owned $1.1483 trillion in U.S. Treasury securities, according to data published today by the U.S. Treasury Department. That was down slightly from the $1.1519 trillion in U.S. Treasury securities the Chinese owned as of the end of September 2010, according to the same Treasury Department report.

Thus, at the end of September 2010, the Chinese owned about $339.9 billion more in U.S. Treasury securities than the Fed owned at that time. By the end of September 2011, the Fed owned about $516.7 billion more in U.S. Treasury securities than the Chinese owned.

Perhaps the most astonishing statistic is that since Barack Obama has been President, the US debt has gone from $10,626,877,048,913 on January 20, 2009 to $15,033,607,255,920 as of yesterday. That's a stunning increase of 41.5%, or $4.4 trillion.

No wonder the US Federal Reserve is now the largest holder of debt.  Who else, besides the ones who are printing the currency, is there to buy it?

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US Republican Presidential Candidate says " Blame the Fed"

US Republican Presidential Candidate, Ron Paul, has written an Op Ed piece for the Wall Street Journal reinforcing the theme we have carried for the past week - that the root of our problems lie with Central Banks and the US Federal Reserve.

Here is what he had to say:

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Blame the Fed for the Financial Crisis

The Fed fails to grasp that an interest rate is a price, the price of time. Attempting to manipulate that price is as destructive as any other government price control.

By Ron Paul

To know what is wrong with the Federal Reserve, one must first understand the nature of money. Money is like any other good in our economy that emerges from the market to satisfy the needs and wants of consumers. Its particular usefulness is that it helps facilitate indirect exchange, making it easier for us to buy and sell goods because there is a common way of measuring their value. Money is not a government phenomenon, and it need not and should not be managed by government. When central banks like the Fed manage money they are engaging in price fixing, which leads not to prosperity but to disaster.

The Federal Reserve has caused every single boom and bust that has occurred in this country since the bank's creation in 1913. It pumps new money into the financial system to lower interest rates and spur the economy. Adding new money increases the supply of money, making the price of money over time—the interest rate—lower than the market would make it. These lower interest rates affect the allocation of resources, causing capital to be malinvested throughout the economy. So certain projects and ventures that appear profitable when funded at artificially low interest rates are not in fact the best use of those resources.

Eventually, the economic boom created by the Fed's actions is found to be unsustainable, and the bust ensues as this malinvested capital manifests itself in a surplus of capital goods, inventory overhangs, etc. Until these misdirected resources are put to a more productive use—the uses the free market actually desires—the economy stagnates.

The great contribution of the Austrian school of economics to economic theory was in its description of this business cycle: the process of booms and busts, and their origins in monetary intervention by the government in cooperation with the banking system. Yet policy makers at the Federal Reserve still fail to understand the causes of our most recent financial crisis. So they find themselves unable to come up with an adequate solution.

In many respects the governors of the Federal Reserve System and the members of the Federal Open Market Committee are like all other high-ranking powerful officials. Because they make decisions that profoundly affect the workings of the economy and because they have hundreds of bright economists working for them doing research and collecting data, they buy into the pretense of knowledge—the illusion that because they have all these resources at their fingertips they therefore have the ability to guide the economy as they see fit.

Nothing could be further from the truth. No attitude could be more destructive. What the Austrian economists Ludwig von Mises and Friedrich von Hayek victoriously asserted in the socialist calculation debate of the 1920s and 1930s—the notion that the marketplace, where people freely decide what they need and want to pay for, is the only effective way to allocate resources—may be obvious to many ordinary Americans. But it has not influenced government leaders today, who do not seem to see the importance of prices to the functioning of a market economy.

The manner of thinking of the Federal Reserve now is no different than that of the former Soviet Union, which employed hundreds of thousands of people to perform research and provide calculations in an attempt to mimic the price system of the West's (relatively) free markets. Despite the obvious lesson to be drawn from the Soviet collapse, the U.S. still has not fully absorbed it.

The Fed fails to grasp that an interest rate is a price—the price of time—and that attempting to manipulate that price is as destructive as any other government price control. It fails to see that the price of housing was artificially inflated through the Fed's monetary pumping during the early 2000s, and that the only way to restore soundness to the housing sector is to allow prices to return to sustainable market levels. Instead, the Fed's actions have had one aim—to keep prices elevated at bubble levels—thus ensuring that bad debt remains on the books and failing firms remain in business, albatrosses around the market's neck.

The Fed's quantitative easing programs increased the national debt by trillions of dollars. The debt is now so large that if the central bank begins to move away from its zero interest-rate policy, the rise in interest rates will result in the U.S. government having to pay hundreds of billions of dollars in additional interest on the national debt each year. Thus there is significant political pressure being placed on the Fed to keep interest rates low. The Fed has painted itself so far into a corner now that even if it wanted to raise interest rates, as a practical matter it might not be able to do so. But it will do something, we know, because the pressure to "just do something" often outweighs all other considerations.

What exactly the Fed will do is anyone's guess, and it is no surprise that markets continue to founder as anticipation mounts. If the Fed would stop intervening and distorting the market, and would allow the functioning of a truly free market that deals with profit and loss, our economy could recover. The continued existence of an organization that can create trillions of dollars out of thin air to purchase financial assets and prop up a fundamentally insolvent banking system is a black mark on an economy that professes to be free.

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"They would go to the Fed if they knew what the Fed was"

Video take by some Wall Street traders who watch as protesters of Occupy Wall Street are arrested, with one person in the background of the video suggesting he wanted to shoot the protesters with a Glock pistol.

The most salient point of the video, however, comes near the end at about the 6:45 mark.

Commenting on how it has taken the protesters almost a month to find their way down to Wall Street itself, one trader says: "They would go to the Fed if they knew what the Fed was!"

And that dear reader is the issue in a nutshell. 

Whatever the cornucopia of complaints the #Occupy Wall Street individuals may have, the root of the problem is the Federal Reserve - the privately owned Central Bank who currently has the authority to control the money supply.

US President Thomas Jefferson saw this when he said:

• "The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered."

He also said:

• "A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army... We must not let our rulers load us with perpetual debt."

President Andrew Jackson also saw this. When he disbanded the US Central Bank (created after the time of Thomas Jefferson and called, at the time, the 2nd Bank of the United States).

When it came time to renew the bank’s charter in 1832, President Jackson put his re-election bid on the line and, after winning the election, vetoed Congress’ attempt to renew that Charter. When he vetoed the Charter renewal he said:

• "Is there no danger to our liberty and independence in a bank that in its nature has so little to bind it to our country? Is there not cause to tremble for the purity of our elections in peace and for the independence of our country in war? Controlling our currency, receiving our public monies, and holding thousands of our citizens in dependence, it would be more formidable and dangerous than a naval and military power of the enemy."

Most people do not understand the Federal Reserve Bank.

It is necessary to understand that the Federal Reserve is not owned by the United States government as many believe.

The central bank, the Federal Reserve Bank, is a private bank, owned by some of the richest and most powerful people in the world. This bank has nothing to do with the U.S. government other than the connection that allows it to print US currency.

The Federal Reserve Bank has a total, government-enforced monopoly in money.

This is the root of all the problems which the protestors at #Occupy Wall Street, and all those in sympathy with them, wish to address.

And to address those problems, efforts must be focused on the root of the problem: Central Banks and the US Federal Reserve.

That's why Ralph Nader recently said on CNN:

• “The Federal Reserve is now a government within a government. It is totally out of control. Congress doesn't control it. It's funded by the banks and we either have constitutional government or we don't."

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Part 4 delayed, Jim Rogers says Bernanke is lying

Part 4 of our 'History of Central Banks' is delayed.

In the meantime some great comments from Jim Rogers on CNBC who says US Federal Reserve Chairman Ben Bernanke is lying to us, QE 3 is underway as we speak.

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The History of Central Banks - Part 1 (48 B.C. - 1791 A.D.)

A great many people believe the current crisis we are in is a direct result of the playing out of the debt-based monetary system and the scourge of Central Banks in our society.

A battle over the place and power of a central bank in America has rumbled throughout U.S. history.

It has pitted capitalists against populists who feared the wealthy few would hog power and crush liberty. The skirmishing has resurfaced amid the current credit crackup, with book after book faulting the Federal Reserve for allowing Americans to run up some $34 trillion in domestic non-financial debt.    

But most people have no idea what the Central Bank is and what role they play in our economy.

US Republican Presidential Candidate Ron Paul has vowed to end the Central Bank and has written a book about it.

But what is the Central Bank? 

How did it evolve and what is their place in our economy?

To understand why there is a push to end the US Federal Reserve we must understand the history behind the Central Banks.  That's what this series will be about.  The content is adapted from a history written by Andrew Carrington.

It will be long and broken down into multiple parts, but I hope you will take the time to read through it all.

In this first installment we look at the period from 48 BC to the introduction of the first Central Bank in the United States in 1791, the Bank of North America.

Central Banks sprung from the money changers of the time, so we start with them.

(Click on all images to enlarge)

48 B.C.

We can find reference to the money changers in the time of Julius Ceasar.

Julius Caesar took back from the money changers the power to coin money and then minted coins for the benefit of all. With this new, plentiful supply of money, he established many massive construction projects and built great public works. By making money plentiful, Caesar won the love of the common people.

But the money changers hated him for it and this is why Caesar was assassinated. Immediately after his assassination came the demise of plentiful money in Rome, taxes increased, as did corruption.

Eventually the Roman money supply was reduced by 90%, which resulted in the common people losing their lands and homes.

The growth and contraction of the money supply is a common theme throughout economic history.

30 A.D.

We next find reference to the money changers in the Bible in the time of Jesus Christ.

When Jews came to Jerusalem to pay their Temple tax, they could only pay it with a special coin, the half-shekel. This was a half-ounce of pure silver, about the size of a quarter. It was the only coin at that time which was pure silver and of assured weight, without the image of a pagan Emperor, and therefore to the Jews it was the only coin acceptable to God.

Unfortunately these coins were not plentiful, the money changers had cornered the market on them, and so they raised the price of them to whatever the market could bear. They used their monopoly they had on these coins to make exorbitant profits, forcing the Jews to pay whatever these money changers demanded.

Jesus Christ in the last year of his life uses physical force to throw the money changers out of the temple. He threw the money changers out as their monopoly on these coins totally violated the sanctity of God's house. These money changers called for his death days later.

1024

The money changers had control of Medieval England's money supply and at this time were generally known as goldsmiths.

This is when the concept of paper money started out.

Paper money was simply a receipt you would get after depositing gold with a goldsmith, in their safe rooms or vaults.

This paper started being traded as it was far more convenient than carrying around a lot of heavy gold and silver coins.

Over time, to simplify the process, the receipts were made to the bearer, rather than to the individual depositor, making it readily transferable without the need for a signature. This broke the tie to any identifiable deposit of gold.

Eventually the goldsmiths recognized that only a fraction of depositors ever came in and demanded their gold at any one time, so they found out how they could cheat on the system. They started to issue more receipts than they had gold to back those receipts and no one would be any the wiser. They would loan out these receipts (which were not backed by the gold they had in their depositories) and collect interest on them.

This was the birth of the system we know today as Fractional Reserve Banking, and like this system of today this meant the goldsmiths were able to make astronomical amounts of money by loaning out what were essentially receipts. Critics of the paper money system call these receipts "fradulent receipts" because they were receipts for gold the goldsmiths didn't possess.

As the goldsmiths gradually got more confident with the system they had created, they would loan out up to 10 times the amount of paper receipts vs the gold they had in their deposits.

To simplify how they made money on this let's give an example in which a goldsmith charges the same rate of interest to creditors and debtors. In this example a goldsmith would pay interest of 6% on gold you had deposited with them, and then charge 6% interest on the paper receipts (money) you borrowed from them.

As they would lend out ten times what you had deposited with them, they're paying you 6% interest while they are making 60% interest.

This is how they made money on your gold.

The goldsmiths also discovered that their control of this fraudulent money supply gave them control over the economy and the assets of the people. They exacted their control by rowing the economy between easy money and tight money.

The way they did this was to make money easy to borrow and therefore increase the amount of money in circulation. Then they would suddenly tighten the money supply, taking it out of circulation by making loans more difficult to get or stopping offering loans altogether.

Why did they do this?

Because the result would be a certain percentage of the people being unable to repay their previous loans. By not having the facility to take out loans they would go bankrupt and be forced to sell their assets to the goldsmiths for literally pennies on the dollar.

This is the early version of what some claim is exactly what happens in the world economy of today. Today we use words like, "the business cycle," "boom and bust," "recession," and "depression." Critics contend it is nothing more than an extension of the money changer game of pulling money from the money supply, but on a much grander scale.

1100

King Henry I succeeds King William II to the throne of England. During his reign he decided to take the power the money changers had over the people, and he did this by creating a completely new form of money that took the form of a stick.

This stick was called, a "talley stick," and ended up being the longest lasting form of currency, lasting 726 years until 1826 (even though other currencies came and went in that same period and ran alongside the talley sticks).

The talley stick was a stick of polished wood into which notches were cut along one side, to indicate the denomination of money the stick represented. The stick was then split lengthwise through the notches, so that both pieces had a record of the notches. The King kept one half to protect against counterfeiting and the other half was spent into the economy and circulated as money.

It was also one of the most successful money systems in history, as the King demanded that all the King's taxes had to be paid in, "talley sticks," so this increased their circulation and acceptance as a legitimate form of money. This system would work well in keeping the power away from the money changers in England.

1225

St. Thomas Aquinas is born. And as the leading theologian of the Catholic Church, he argues that the charging of interest is wrong because it applies to "double charging," charging for both the money and the use of the money.

This concept followed the teachings of Aristotle that taught the purpose of money was to serve the members of society and to facilitate the exchange of goods needed to lead a virtuous life. Interest was contrary to reason and justice because it put an unnecessary burden on the use of money.

Thus, Church law in Middle Ages Europe forbade the charging of interest on loans and even made it a crime called, "usury."

1509

King Henry VIII succeeds King Henry VII to the throne in England. During his reign he relaxed the laws regarding usury, and and the money changers did not waste any time in re-asserting themselves over the population.

They quickly made their gold and silver coin system plentiful again. It is interesting to note that under King Henry VIII the Church of England separated from Roman Catholicism, whose Church law prevented the charging of interest on money.

England will become a prominent place for the money changers to codify their practice.

1553 

Queen Mary I succeeds Lady Jane Grey's nine day reign to the throne in England.

During her reign, Queen Mary I, a staunch Catholic, tightened the usury laws again. The money changers were not amused and in revenge they tightened the money supply by hoarding gold and silver coins and causing the economy to plummet.

1558

Queen Elizabeth I succeeds Queen Mary I, her half sister, to the throne in England.

During her reign, Queen Elizabeth I decided that in order to wrest control of the money supply she would have to issue her own gold and silver coins. She did this through the public treasury and successfully took control of the money supply from the money changers.

1609

The money changers in the Netherlands establish the the first central bank in history, in Amsterdam.

1642

Oliver Cromwell is financed by the money changers for the purposes of formenting a revolution in England, and allowing them to take control of the money system again.

After much bloodshed, Cromwell finally purges the parliament, overthrows King Charles I and puts him to death in 1649.

The money changers immediately consolidate their power and for the next few decades plunge Great Britain into a costly series of wars. They also take over a square mile of property in the center of London which becomes known as the City of London.

1688

The money changers in England following a series of squabbles with the Stuart Kings, Charles II (1660 - 1685) and James II (1685 - 1688), conspire with their far more successful money changing counterparts in the Netherlands, who had already set up a central bank there.

They decide to finance an invasion by William of Orange of Netherlands who they sound out and establish will be more favorable to them. The invasion is successful and William of Orange ascends to the throne in England as King William III in 1689.

1694 

Following a costly series of wars over the last 50 years, English Government officials go, cap in hand, to the money changers for loans necessary to pursue their political purposes. The money changers agree to solve this problem in exchange for a government sanctioned privately owned bank which could issue money created out of nothing.

This was deceptively named the "Bank of England." Critics content this was done for the sole purpose of duping the general public into believing it was part of the government, which it was not.

Like any other private corporation the Bank of England sold shares to get started.

The private investors, whose names were never revealed, were supposed to put up £1,250,000 in gold coins to buy their shares in the bank, but only £750,000 was ever received. Despite that the bank was duly chartered and began loaning out several times the money it supposedly had in reserves, all at interest... a theme that lies at the heart of every private Central Bank throughout history.

Although the Bank of England's private investors were never revealed, one of the Directors, William Paterson, stated:

• "The Bank hath benefit of interest on all monies which it creates out of nothing.”

Furthermore the Bank of England would loan government officials as much of the new currency as they wanted, as long as they secured the debt by direct taxation of the British people.

The Bank of England amounted to nothing less than the legal counterfeiting of a national currency for private gain, and thus any country that would fall under the control of a private bank would amount to nothing more than a plutocracy.

Soon after the Bank of England was formed it attacked the talley stick system, as it was money outside of the power of the money changers, just as King Henry I had intended it to be.

1698 

Following four years of the Bank of England, their plan to control the money supply had come on in leaps and bounds. They had flooded the country with so much money that the Government debt to the Bank had grown from the initial £1,250,000, to £16,000,000, in only four years.

That's an increase of 1,280%.

Critics content this increase in the money supply is the first step in a crucial process.

If the money in circulation in a country is £5,000,000, and a central bank is set up and prints another £15,000,000, then by sending this money out into the economy through loans etc, reduces the value of the initial £5,000,000 in circulation before the bank was formed.

This is because the initial £5,000,000 is now only 25% of the economy.

It also gives the bank control of 75% of the money in circulation with the £15,000,000 they sent out into the economy.

This inflation which is the reduction in worth of money borne by the common person, due to the economy being flooded with too much money, an economy which the Central Bank are responsible for.

Critics content Stage 2 of the Central Bank plan occurs as this inflation takes hold. The common person's money is worth less so he has to go to the bank to get a loan to help run his business etc. When the Central Bank is satisfied there are enough people with debt out there, the bank tightens the supply of money by not offering loans. 

Stage 3 occurs as the Central Bank sits back and waits for the debtors to them to go bankrupt, allowing the bank to then seize from them real wealth, businesses and property etc, for pennies on the dollar.

Inflation never effects a central bank in fact they are the only group who can benefit from it, as if they are ever short of money they can simply print more.

1757 

Benjamin Franklin travels to England and spends the next 18 years of his life there until just before the start of the American Revolution.

1760

Mayer Amschel Bauer changes him name to Mayer Amschel Rothschild and sets up the, House Of Rothschild, and soon learns that if he loans out money to Governments and Royalty then this is far more profitable than loaning to individuals. This is because the loans made are bigger and backed by their nations' taxes. He trains his five sons in the art of money creation.

1764

Benjamin Franklin is asked by officials of the Bank of England to explain the prosperity of the colonies in America. He replies:

• "That is simple. In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one."

As a result of Franklin's statement, the British Parliament hurriedly passed the Currency Act of 1764. This prohibited colonial officials from issuing their own money and ordered them to pay all future taxes in gold or silver coins.

Referring to move after this act was passed, Franklin would state the following in his autobiography:

• "In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the colonies were filled with the unemployed... The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money which created unemployment and dissatisfaction."
  
  "The viability of the colonists to get power to issue their own money permanently out of the hands of King George III  and the international bankers was the prime reason for the revolutionary war."

Control of America's money system will change hands 8 times since 1764.

1775

April 19th sees the start of the revolutionary war in Lexington, Massachusetts.

By this time the colonies had been drained of silver and gold coins as a result of British taxation. As a result of this, the continental government had no choice but to print money to finance the war.

At the start of the revolution the American money supply stood at $12,000,000. By the end of the war it was nearly $500,000,000 and as a result the currency was virtually worthless.

An example of this is that a pair of shoes now sold for $5,000 dollars. This also shows the danger of printing too much money. The reason Colonial Scrip had worked was because just enough was used to facilitate trade.

1781 (The Central Bank comes to America) 

Towards the end of the American Revolution the Continental Congress were desperate for money, so they allowed Robert Morris, their Financial Superintendent, to open a privately owned central bank, in the hope this would sort out the money problem.

Morris was a wealthy man who had grown wealthier during the revolution by trading in war materials.

This first central bank in America was called the Bank of North America, which was set up with a four year charter, and was closely modeled after the Bank of England. It was allowed to practice the fraudulent system of fractional reserve banking, so it could create money it didn't have, then charge interest on it.

The bank's charter called for private investors to put up $400,000 of initial capital, which Morris found himself unable to raise. Nevertheless he unashamedly used his political influence to have gold deposited in the bank, which had been loaned to America by France. Morris then loaned the money he needed to buy this bank from this deposit of gold that belonged to the government, or rather the American people.

This Bank of North America, again deceptively named so the common people would believe it was under the control of the government, was given a monopoly over the national currency.

Next up will be Part 2 (1791 - 1865).

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