~Bumped November 14, 2009
Why we must nationalize the Federal Reserve (by Richard Clark)
Our money system is not what we have been led to believe. The creation of money has been "privatized," or taken over by a private money cartel. Except for coins, all of our money is now created as loans advanced by private banking institutions — including the privately held Federal Reserve. Banks create the principal but not the interest to service their loans. To obtain the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.
Not only is virtually the entire money supply created privately by banks, but a mere handful of very big banks is responsible for a massive investment scheme known as "derivatives," which now tallies in at hundreds of trillions of dollars. The banking system has been contrived so that these big banks always get bailed out by the taxpayers from their risky ventures.
Problem is, this scheme has reached its mathematical limits. Specifically, there isn't enough money in the entire global economy to bail out the banks from a massive derivatives default today. And when the investors realize that the "insurance" against catastrophe that they have purchased, in the form of derivatives, is worthless, they are quite likely to jump ship and bring the whole shaky edifice crashing down.
Just the interest on the U.S. government's burgeoning $9 trillion debt will soon be more than the taxpayers can afford to pay. When that happens, the economy will collapse unless the monetary system is radically overhauled.
Articles are appearing daily in the news that bring the looming economic crisis into sharper focus and strengthen the case for monetary reform. Foreign central banks are increasingly abandoning the U.S. dollar as a reserve currency, while the impending implosion of the housing bubble threatens to bring down the whole money system, national and international.
As the riskier mortgages go into foreclosure, the institutional investors owning them as mortgage-backed securities will be left holding the bag. But these institutional investors are largely the pension funds on which the retirements of workers depend. So, to keep up appearances, the "Plunge Protection Team" has been authorized by presidential order to use U.S. taxpayer money to manipulate markets to make them appear healthier than they are, and lately it has been working overtime. But official assurances of a "soft landing" are mere window dressing, aimed at preventing another worldwide depression as home buyers and stock market investors stampede for the exits.
http://www.webofdebt.com/
The Case for Nationalizing the Fed
"Banking is not a proper function of the government, but oversight is. The Treasury Department should not be outsourcing to the Fed its oversight responsibilities. The Fed, which failed miserably to oversee the banks, should be put under Treasury instead. It's time for the government to operate in the public interest, not in the interest of private banks. It's time to stop bailing out banks and begin building up America."
Congressman Dennis Kucinich
The Fed is a private bank owned by other banks. In the hands of the wrong people, it could be used at the peril of the entire nation. Any private central bank is driven by a small financial elite in secret boardroom meetings that are beyond congressional control. The power to create money is a double-edged sword even for a government, but at least a government must answer to the people in the public forum of a democracy.
The Treasury's Troubled Asset Relief Program (or TARP) moved "toxic" assets off the books of the culpable Wall Street derivative banks and onto the backs of the taxpayers. (here)
The key problem here is that government officials and Federal Reserve officials alike believe that the only way the nation can have a functioning credit system is to maintain business as usual on Wall Street. But this is not true. A public banking system headed by a truly federal central bank could provide all the credit we need.
To prevent corruption and abuse, the current system of money and credit would need to be made subject to the sort of public monitoring and control provided by the checks and balances built into the Constitution. Stephen Zarlenga, president of the American Monetary Institute, suggests that the U.S. money system should be organized as a fourth branch of government alongside the executive, judicial and congressional branches.
The Fed is acting like a fourth branch now, but without the public oversight of a true government agency. Congressman Ron Paul has brought a bill (HR1027) to audit the Federal Reserve, and Congressman Dennis Kucinich told Congress earlier this month that he would soon be bringing a bill to nationalize the Fed.
Note, however, that if the Fed is nationalized and it continues to issue credit for the benefit of consumers, small businesses, and the government itself, it will actually be in the banking business; and that is indeed how it should be.
Our money system today is nothing more than a series of legal agreements between parties. "Credit" is merely an agreement to repay over time. While private parties and private banks should be free to lend their own money or their investors' money, we also need the sort of "credit" that is created on a computer screen; and that sort of credit, as money reformer Richard Cook observes, is properly administered as a public utility.
The dollar is backed by nothing but "the full faith and credit of the United States" and should be dispensed and monitored by the United States. As William Jennings Bryan declared in his winning presidential nomination speech at the Democratic Convention in 1896:
"We" believe that the right to coin money and issue money is a function of government. . . . Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business.
I stand with Jefferson . . . and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business. . . . When we have restored the money of the Constitution, all other necessary reforms will be possible, and . . . until that is done there is no reform that can be accomplished."
The Fed's credit facility could have two advantages over that of private banks: (1.) it is not subject to the lending freeze, and (2.) its profits would be rebated to the government, which would ultimately serve the taxpayers' interest.
Nationalizing the Federal Reserve is the ideal solution; but while we are waiting for that development, the government can do the next best thing and tap into the very cheap, readily available credit provided by its own central bank.
Printing money out of thin air, to buy government issued debt securities
Pundits predicted the end of American life as we know it after Fed Chairman Ben Bernanke announced on March 18 that he would be dropping yet another trillion dollars in “helicopter money” here , with up to $300 billion of it to buy long-term government bonds, and an additional $750 billion to buy private debt, using the Term Asset-backed Securities Loan Facility (TALF), which was to be opened up for the sake of consumers and small businesses.
The dollar then experienced its worst drop in 25 years, amid worries that the Fed's intervention would spur hyperinflation. Typical of the concerned commentators expressing these sentiments was Mark Larson, who wrote in "Money and Markets" on March 20:
"This is Banana Republic-type stuff! And I'm not talking about the clothing store. Printing money out of thin air at the central bank, only to turn around and buy debt securities issued by your Treasury, is the kind of practice you typically see in emerging market regimes. We're essentially monetizing our country's debt and deliberately devaluing our country's currency!"
Tim Wood wrote in "Financial Sense" on March 21:
"I'm now beginning to wonder if the powers that be are really in their minds trying to 'fix' things or if they are actually trying to destroy the dollar, the free markets, and perhaps even the nation. To be honest, the latter is starting to make more sense to me because surely there is enough intelligence in Washington to understand the potential consequences of these actions."
Commentators on the Financial Sense Newshour suggested that the Fed's move toward "quantitative easing" would be looked back upon as the watershed event in the beginning of the end of the United States dollar. As explained in Wikipedia:
"The term quantitative easing refers to the creation of a pre-determined quantity of new money . . . In very simple layman's terms, the central bank creates new money out of thin air. It then uses this money to buy what is essentially an IOU [that is, to make a loan]. . . . Today the new money is generally created electronically rather than physically printed."
The Fed has the capacity to create money on its books and lend it to whomever it will. There is thus a danger that we may just see more money being funneled to those same Wall Street banks that got us into this crisis in the first place. But while the Fed's new "quantitative easing" tool is fraught with risk, it also has some interesting potential. This funding mechanism could be extended not only to replace the loans that banks have been unwilling or unable to make, but to fund Obama's stimulus package -- at little or no cost to the American taxpayer.
What we are faced with today is not inflation but deflation
Lending has dried up not only from banks but from the "shadow banking system," i.e. all those pension funds, hedge funds, and foreign investors who used to snatch up mortgage-backed securities. And that means the velocity of money has slowed. Money is sitting in bank accounts rather than being lent into the economy for consumer and homeowner use. The government's stimulus plan is meant to pick up the slack, but who is going to fund it? The Chinese and other foreign investors are balking at buying more of our debt, and the taxpayers are tapped out. That just leaves the central bank itself. And that's why it must be nationalized.
This could be the watershed moment when the Federal Reserve finally adjusts its focus and starts to act more like a government central bank, one that advances "the full faith and credit of the United States" for the benefit of the United States and its citizenry, rather than just for the bankers who have held the government and its central bank hostage for so long. President Obama suggested a move in this direction when he said on the Tonight Show with Jay Leno on March 19:
"We're taking a lot of steps to . . . open up separate credit lines outside of banks for small businesses so that they can get credit -- because there are a lot of small businesses out here who are just barely hanging on. Their credit lines are starting to be cut. We're trying to set up a securitized market for student loans and auto loans outside of the banking system. So there are other ways of getting credit flowing again."
The Fed now appears to be taking on the role of lender of last resort, not just for its member banks but for consumers, businesses, and the government itself. Provisos and cautions aside, its new "quantitative easing" policy at least has the potential to be harnessed to serve the government and the people it represents; and that is a promising development.
Harnessing the Federal Reserve for Federal Purposes
The Federal Reserve was originally set up in 1913 by a powerful Wall Street group to serve the private banking system, and it agreed to return its profits to the government only under duress. This actually happened after Congressman Wright Patman, head of the House Banking and Currency Committee in the 1960s, peered closely at its operations and pressed for its nationalization. The developments were chronicled by Congressman Jerry Voorhis, who wrote in 1973:
"As a direct result of logical and relentless agitation by members of Congress, led by Congressman Wright Patman as well as by other competent monetary experts, the Federal Reserve began to pay to the U.S. Treasury a considerable part of its earnings from interest on government securities.
This was done without public notice and few people, even today, know that it is being done. It was done, quite obviously, as acknowledgment that the Federal Reserve Banks were acting on the one hand as a national bank of issue, creating the nation's money, but on the other hand charging the nation interest on its own credit -- which no true national bank of issue could conceivably, or with any show of justice, dare to do."
The potential for the Fed to act as a truly "federal" central bank that issues loans to the public and return the profits to the government has been there since the 1960s; but until now, the Fed and the Administration have not made much use of it. The Fed has used its dollar-issuing power only to the extent necessary to provide the reserves to backstop bank runs.
The vast majority of the money supply has continued to be created privately by banks in the form of loans; and as Congressman Voorhis observed, "where the commercial banks are concerned, there is no such repayment of the people's money" as there is with the Federal Reserve.
Commercial banks do not rebate the interest they receive, although they also "'buy the bonds with newly created demand deposit entries on their books -- nothing more." This, Voorhis maintained, was a violation of the Constitutional provision that "Congress shall have the power to coin money and regulate the value thereof."
http://www.opednews.com/articles/3/Why-we-must-nationalize-th-by-Richard-Clark-091113-293.html
Richard Clark (read all of his articles - link below)
Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've always been more interested in political economics and what's going on behind the scenes in politics, than in mechanical engineering, and because of that I've rarely worked more than 6 months a year, devoting much of the rest of the year to reading and writing about that which interests me most.
http://www.opednews.com/author/author8235.html
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