Minyanville: Fed up with the Fed

[Winehole23]

Op-Ed: Fed Up With the Fed


The average American doesn’t know much about the Federal Reserve. Most Americans believe it’s part of the government. They’re wrong; it’s a privately held corporation owned by its stockholders, the largest banks in the United States.

But which banks own shares in the Federal Reserve is a secret. Why? And does this explain why Citigroup (C), Bank of America (BAC) and JPMorgan (JPM) are being propped up by the Fed?

The history of national banks in the United States has been controversial since the signing of the Declaration of Independence, and the Cons ution unequivocally states that only Congress has the authority to coin money. So how did the Fed come to have the authority to run the printing presses - and drive up inflation?

The government began keeping official track of inflation in 1913, the year the Federal Reserve was created. The CPI on January 1, 1914 was 10.0. The CPI on January 1, 2009 was 211.1. This means that a man’s suit that cost $10 in 1913 would cost $211 today, a 2,111% increase in 96 years. This is a 95% loss in purchasing power.

The average American might say that prices always go up - so what’s the big deal about inflation? The CPI was 30.9 in 1964. Today, it’s 211.1. This means that prices have risen 683% since 1964. The only problem: Your wages haven’t risen at the same rate, even using government-manipulated CPI. Using a true CPI figure, average weekly earnings are 64% below what they were in 1964. This explains why a family of 5 could live well with only one parent working in 1964; now, with both parents working and prodigious debt, the average family can’t even approach that standard of living.

In the years following the creation of the Federal Reserve, inflation skyrocketed as the US sought to finance its participation in World War I. After President Nixon closed the gold window in 1971, rampant inflation was the norm until the early 1980s, when Paul Volcker, the only independent Federal Reserve chairman in its history, put a stop to it.

According to the Federal Reserve’s own website, their duties fall into 4 general areas:

1. Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term rates.

2. Supervising and regulating banking ins utions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers

3. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

4. Providing financial services to depository ins utions, the US government, and foreign official ins utions, including playing a major role in operating the nation's payments system.

he Federal Reserve’s primary mandates were maximum employment, stable prices and moderate long-term interest rates. Their other chief function was to supervise and regulate banks to ensure the banking system is safe. Let’s assess their success regarding their mandates:

• Unemployment reached 25% during the Great Depression, attained levels above 10% in 1982, and will breach 10% in the next year.
  Grade: F
• Since the Federal Reserve’s inception, the dollar has lost 95% of its purchasing power.
  Grade: F
  
• Interest rates have been anything but moderate since the inception of the Federal Reserve. They have consistently caused booms and busts by setting rates too low or too high.
  Grade: F
  
  
• The Federal Reserve was supposed to supervise the activities of banks. Instead, under Alan Greenspan, they stepped aside and let banks take preposterous risks while giving tacit assurance that the Fed would clean up their messes. This total dereliction of duty has led to the greatest financial collapse in history.
  Grade: F
  

Anyone who isn’t mad as at this point isn’t paying attention. The never-ending tsunami of paper from the Federal Reserve means every dollar is worth less. They have systematically created inflation that has slowly but surely reduced your standard of living.

Bankers love debt. The more debt, the more interest they collect. Issuing credit ]cards and collecting 21% interest and billions in late fees seemed like a can’t-miss proposition - at least until overextended citizens couldn’t pay the debt back.

Now the unwinding of the greatest debt bubble in history has created a second great depression. Instead of learning from the past, the Federal Reserve has chosen to repeat it, lowering rates to 0% and printed money at prodigious rates. The Fed has doubled its balance sheet in the last 12 months, loaning billions to bankrupt banks while accepting worthless pieces of paper as collateral. It won’t publicly reveal which banks have been lent to, or the collateral it has received.



The arrogance of Ben Bernanke and his ilk shows that the Federal Reserve answers to bankers, not to the American public. Its books and records aren’t open to scrutiny by the General Accounting Office. Ron Paul has introduced the Federal Reserve Transparency Act, which would open its books to the public. No organization with as much power as the Federal Reserve should be permitted to operate in the shadows.

There’s no painless solution to this crisis. The only solution that would put America back on a path of sustainable prosperity would be a currency backed by gold, which would force the government and its citizens to live within their means.