A Brief History on How the Federal Reserve Became the Undemocratic, Corrupt and Destructive Force it is Today

Perhaps the most famous, and prescient, financial cartoon in American history is the depiction of the Federal Reserve Bank as a giant octopus that would come to parasitically suck the life out of all U.S. institutions as well as free markets. The image is taken from Alfred Owen Crozier’s US Money Vs Corporation Currency, “Aldrich Plan,” Wall Street Confessions! Great Bank Combinepublished in 1912, just a year before the creation of the Federal Reserve. Here it is in all its glory:

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Our ancestors were wiser and far more educated than modern Americans about the dangers posed by a centralized, monopolistic system charged with the creation and distribution of money, and our society and economy have paid a very heavy price for its ignorance.

Indeed, some of today’s Fed critics aren’t even aware that the U.S. Central Bank originally had far less power than it does today. As concerned as they were, its early critics could never have imagined how perverted its mandate would become in the subsequent 100 years. A mandate that has now made it the single most powerful and destructive force on planet earth.

Earlier today, I came across an excellent op-ed in the Wall Street Journal in which the author explains this transformation in just a few short paragraphs. Here’s some of what he wrote:

History suggests that the only way to rein in the sprawling Federal Reserve is to end its money monopoly and restore the American people’s ability to use gold as a competing currency.

The legislative compromise that created the Fed in 1913 recognized that the power to print money, left unchecked, could corrupt both the government and the economy. Accordingly, the Federal Reserve Act created the Federal Reserve System without a centralized balance sheet, a central monetary-policy committee or even a central office. 

The Fed’s regional banks were prohibited from buying government debt and required to maintain a 40% gold reserve against dollars in circulation. Moreover, each of the reserve banks was obligated to redeem dollars for gold at a fixed price in unlimited amounts.

Over the past century, every one of these constraints has been removed. Today the Fed has a centrally managed balance sheet of $4 trillion, and is the largest participant in the market for U.S. government bonds. The dollar is no longer fixed to gold, and the IRS assesses a 28% marginal tax on realized gains when gold is used as currency.

The largest increases in the Fed’s power have occurred at moments of financial stress. Federal Reserve banks first financed the purchase of government bonds during World War I. The gold-reserve requirement was dramatically reduced and a central monetary policy-committee was created during the Great Depression. President Richard Nixon broke the last link to gold to stave off a run on the dollar in 1971.

This same combination of crisis and expediency played out in 2008 as the Fed bailed out a series of nonbank financial institutions and initiated a massive balance-sheet expansion labeled “quantitative easing.” To end this cycle, Americans need an alternative to the Fed’s money monopoly.

And that, in a nutshell, is how American citizens lost their country and became a nation of debt serfs.

For related articles, see:

Bank of America Admits – Central Bank Policy Enriched Wall Street While “Steamrolling” Main Street

The Federal Reserve Refuses to Provide Names Requested by Congress in Probe

Why Fiat Money is Immoral

American Serfdom in One Chart

In Liberty,
Michael Krieger

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4 thoughts on “A Brief History on How the Federal Reserve Became the Undemocratic, Corrupt and Destructive Force it is Today”

  1. Notes From Underground: The King of Hearts Syndrome Dominates the Markets

    One of the great movies of the 1960s asks who is more insane: Those in the asylum or those who create wars? The present state of central banking can lead one to ask the same question about the overseers of FIAT CURRENCY and those who make investment decisions based on the policies of those academics so in love with their economic models. As the Bernanke victory tour rolls on, the fallback position of the recent anointed savior of the global financial system poses the counter-factual of, “What if we hadn’t acted by embarking on a massive liquidity injection? Aren’t you all satisfied that the unemployment rate is hovering around the defined level of full-employment?”

    My question back to Ben Bernanke is posed as another counter-factual. What if you had not MADE YOURSELF the only game in town? By preempting Congress and continually adding liquidity through large-scale asset purchases, didn’t you make it possible for Congress to do nothing since cheap money was providing the stimulus? It was Senator Chuck Schumer who called you the only game in town. But it was IMF chief economist Olivier Blanchard who wrote that the multiplier effect of infrastructure spending was a greater stimulus than mere provision of liquidity. The initial QE program was necessary to prevent the liquidation of assets but the continued efforts of QE2 and QE3 made it easy for Congress to DO NOTHING. Like the counter-factual put forward by Bernanke, the truth is we will never know the outcomes of either hypothesis.

    http://yragharris.com/2015/11/02/kingofhearts/#comments

    Reply
  2. Right at the beginning of this “excellent” op-ed, the writer demonstrates the he is merely impressing the ignorant: “competing currency”

    As is known by anyone somewhat familiar woth currency when currencies compete, the least worthy piece of paper will circulate the most, will take over the field (no one wants to hold onto something that may loose its purchasing power overnight)

    If gold coins and FedRes notes competed, coins would disappear under floor boards

    real life example:
    https://name789.wordpress.com/competing-currencies/

    Reply

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