In the end, banking sophistication has consistently trumped the National
Interest managed by Bumpkins. Even when
confronted by abject failure, they dance sideways while assigning blame freely.
As I have posted before, the key step is not even determining who owns
what. It is critical to download the
power of credit creation and even creating fiat money unto lower levels of
governance. We have the particular
example of North Dakota in the USA and general experience worldwide. I even go beyond that and seek an equivalent
at the level of the natural community of approximately one hundred and fifty
souls. This will lead to the outright
end of poverty.
This produces a powerful fundamental credit economy that is able to
absorb the initiatives generated by higher levels of communal enterprise
without producing real inflation.
100 Years Is Enough: Time to Make the Fed a
Public Utility
Posted on Dec 22, 2013
By Ellen Brown, Web of Debt
December 23, 2013, marks the 100th anniversary
of the Federal Reserve, warranting a review of its performance. Has it
achieved the purposes for which it was designed?
The answer depends on whose purposes we are
talking about. For the banks, the Fed has served quite well. For
the laboring masses whose populist movement prompted it, not much has changed
in a century.
Thwarting Populist Demands
The Federal Reserve Act was passed in 1913 in
response to a wave of bank crises, which had hit on average every six years
over a period of 80 years. The resulting economic depressions triggered a
populist movement for monetary reform in the 1890s. Mary Ellen Lease, an
early populist leader, said in a fiery speech that could have been written
today:
Wall
Street owns the country. It is no longer a government of the people, by the
people, and for the people, but a government of Wall Street, by Wall Street,
and for Wall Street. The great common people of this country are slaves, and
monopoly is the master. . . . Money rules . . . .Our laws are the output of a
system which clothes rascals in robes and honesty in rags. The parties lie to
us and the political speakers mislead us.
We
want money, land and transportation. We want the abolition of the National
Banks, and we want the power to make loans direct from the government. We want
the foreclosure system wiped out.
That was what they wanted, but the Federal
Reserve Act that they got was not what the populists had fought for, or what
their leader William Jennings Bryan thought he was approving when he voted for
it in 1913. In the stirring speech that won him the Democratic presidential
nomination in 1896, Bryan insisted:
[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.
He concluded with this famous outcry against the
restrictive gold standard:
You shall not press down upon the brow of
labor this crown of thorns, you shall not crucify mankind upon a cross of gold.
What Bryan and the populists sought was a
national currency issued debt-free and interest-free by the government, on the model of Lincoln’s Greenbacks.
What the American people got was a money supply created by private banks as
credit (or debt) lent to the government and the people at interest. Although
the national money supply would be printed by the U.S. Bureau of Engraving and Printing,
it would be issued by the “bankers’ bank,” the Federal Reserve. The Fed is
composed of twelve branches, all of which are 100 percent owned by the banks in
their districts. Until 1935, these branches could each independently issue
paper dollars for the cost of printing them, and could lend them at interest.
1929: The Fed Triggers the Worst Bank Run in
History
The new system was supposed to prevent bank
runs, but it clearly failed in that endeavor. In 1929, the United States
experienced the worst bank run in its history.
The New York Fed had been pouring newly-created
money into New York banks, which then lent it to stock speculators. When the
New York Fed heard that the Federal Reserve Board of Governors had held an
all-night meeting discussing this risky situation, the flood of speculative
funding was retracted, precipitating the 1929 stock market crash.
At that time, paper dollars were freely
redeemable in gold; but banks were required to keep sufficient gold to cover
only 40 percent of their deposits. When panicked bank customers rushed to cash
in their dollars, gold reserves shrank. Loans then had to be recalled to
maintain the 40 percent requirement, collapsing the money supply.
The result was widespread unemployment and loss
of homes and savings, similar to that seen today. In a scathing indictment
before Congress in 1934, Representative Louis McFadden blamed the Federal
Reserve. He said:
Mr. Chairman, we have in this Country one of
the most corrupt institutions the world has ever known. I refer to the Federal
Reserve Board and the Federal Reserve Banks . . . .
The depredations and iniquities of the Fed has
cost enough money to pay the National debt several times over. . . .
Some people think that the Federal Reserve
Banks are United States Government institutions. They are private
monopolies which prey upon the people of these United States for the benefit of
themselves and their foreign customers; foreign and domestic speculators and
swindlers; and rich and predatory money lenders.
These twelve private credit monopolies were
deceitfully and disloyally foisted upon this Country by the bankers who came
here from Europe and repaid us our hospitality by undermining our American
institutions.
Freed from the Bankers’ “Cross of Gold”
To stop the collapse of the money supply, in
1933 Roosevelt took the dollar off the gold standard within the United States.
The gold standard had prevailed since the founding of the country, and the move
was highly controversial. Critics viewed it as a crime. But proponents saw it
as finally allowing the country to be economically sovereign.
This more benign view was taken by Beardsley
Ruml, Chairman of the Federal Reserve Bank of New York, in a presentation
before the American Bar Association in 1945. He said the government was now at
liberty to spend as needed to meet its budget, drawing on credit issued by its
own central bank. It could do this until price inflation indicated a weakened
purchasing power of the currency. Then, and only then, would the government
need to levy taxes—not to fund the budget but to counteract inflation by
contracting the money supply. The principal purpose of taxes, said Ruml, was
“the maintenance of a dollar which has stable purchasing power over the years.
Sometimes this purpose is stated as ‘the avoidance of inflation.’”
[what they failed to do miserably was to rebuild consumer credit –
arclein – this went on until we entered the fifties ]
It was a remarkable realization. The government
could be funded without taxes, by drawing on credit from its own central bank.
Since there was no longer a need for gold to cover the loan, the central bank
would not have to borrow. It could just create the money on its books. Only
when prices rose across the board, signaling an excess of money in the money
supply, would the government need to tax—not to fund the government but simply
to keep supply (goods and services) in balance with demand (money).
Ruml’s vision is echoed today in the school of
economic thought called Modern Monetary Theory (MMT). But after Roosevelt’s
demise, it was not pursued. The U.S. government continued to fund itself with
taxes; and when it failed to recover enough to pay its bills, it continued to
borrow, putting itself in debt.
The Fed Agrees to Return the Interest
For its first half century,
the Federal Reserve continued to pocket the interest on the money it issued and
lent to the government. But in the 1960s, Wright Patman, Chairman of the House
Banking and Currency Committee, pushed to have the Fed nationalized. To avoid
that result, the Fed quietly agreed to rebate its profits to the U.S. Treasury.
In The Strange Case of Richard Milhous Nixon,
published in 1973, Congressman Jerry Voorhis wrote of this concession:
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.
Rebating the interest to the Treasury was
clearly a step in the right direction. But the central bank
funded very little of the federal debt. Commercial banks held a large chunk of
it; and as Voorhis observed, “[w]here the commercial banks are concerned, there
is no such repayment of the people’s money.” Commercial banks did not rebate
the interest they collected to the government, said Voorhis, although they also
“‘buy’ the bonds with newly created demand deposit entries on their
books—nothing more.”
Today the proportion of the federal debt held by
the Federal Reserve has shot up, due to repeated rounds of “quantitative
easing.” But the majority of the debt is still funded privately at interest,
and most of the dollars funding it originated as “bank credit” created on the
books of private banks.
Time for a New Populist Movement?
The Treasury’s website reports the amount of
interest paid on the national debt each year, going back 26 years. At the end
of 2013, the total for the previous 26 years came to about $9 trillion on a
federal debt of $17.25 trillion. If the government had been borrowing from its
own central bank interest-free during that period, the debt would have been
reduced by more than half. And that was just the interest for 26 years. The
federal debt has been accumulating ever since 1835, when Andrew Jackson paid it
off and vetoed the Second U.S. Bank’s renewal; and all that time it has been
accruing interest. If the government had been borrowing from its central bank
all along, it might have had no federal debt at all today.
In 1977, Congress gave the Fed a dual mandate,
not only to maintain the stability of the currency but to promote full
employment. The Fed got the mandate but not the tools,
as discussed in my earlier article here.
It may be time for a new populist movement, one
that demands that the power to issue money be returned to the government and
the people it represents; and that the Federal Reserve be made a public
utility, owned by the people and serving them. The firehose of cheap credit
lavished on Wall Street needs to be re-directed to Main Street.
Ellen Brown is an attorney, president of the Public
Banking Institute, and author of twelve books including the bestselling Web
of Debt. In The
Public Bank Solution, her latest book, she explores successful public banking models
historically and globally. Her blog articles are at EllenBrown.com. She is currently running for California State
Treasurer on the Green Party ticket.
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