Welcome to The Golden Sense! It is mid August and there is no shortage of news in today's world. Fingers are pointed everywhere and confusion reigns supreme. Being young or old...this whole economy and financial world is hard to understand. The brightest men in the world cannot agree on what is going on in market. Most average folks give up or some will believe anything in order to make sense of it all.
This edition of The Golden Sense is probably the most important in regards to subject matter. If you thought that economics, finance and world trends were confusing then I am sure that recent activities in the world have your head spinning. The stock, bond, and commodity markets are all swinging wildly. Big moves happen everyday. Unemployment is extremely high, and political tensions are growing throughout the world.
If we really want to dissect the problems in today's world, then we have to cut through the crap and look at what truly makes the world go around.
What is that? Well you know the saying...
"money rules the world"
Question: Who is responsible for our monetary system?
Answer: This organization is called The Federal Reserve. They control the United States banking and monetary system.
What I want to talk about is the central fallacy in the Federal Reserve. This fallacy is that The Federal Reserve acts as "the lender of last resort".
The Fed is hardly ever mentioned in connection with an economic crisis, except perhaps as our savior. Major newspapers, magazines, and websites attempt to dissect the crisis and identify its causes without mentioning the Fed at all. That's nothing new: there has been no serious discussion of the Federal Reserve in the public realm since its creation, nearly one hundred years ago. Most people do not even know what the Federal Reserve does.
If asked, most people could hardly give you any history or facts about the Federal Reserve System. Go ask any stranger walking down the street and you will probably get a blank stare.
To understand the key fallacy, we must relate it to our own lives. Have you ever ran up a credit card bill? Took out mortgage on a house that was too big for you to handle? Have you ever used your debit card too much over the weekend, only to see your bank account go negative? I'm sure most people are aware of one or more of these scenarios. Being in any of these situations is a place you DON'T want to be.
What do you do if you have a credit card bill that is too high? Who can help you cover up your financial problems? Where does your help come from? The answer?
-Nobody. You're held responsible and that's the way it should be.
Regular folks don't have anybody they can turn to in the case that they are financially reckless. This is normal. However, when large corporations, banks, or our Government act in a way that is financially reckless guess who they turn to? Well, it is "the lender of last resort" - the Federal Reserve.
Lets take a look at The Federal Reserve and their respective track record. By doing this, we will be able to draw some conclusions about today's economy.
So how did the Federal Reserve get started?
The idea and formation of the Federal Reserve System started in 1910 at a secret meeting at J.P Morgan's private resort on Jekyll Island off the coast of Georgia. Those who attended represented the great financial institutions of Wall Street. They emerged as a cartel with an agreement of six objectives:
1.Stop the competition from the nation's newer banks.
2.Obtain a franchise to create money out of nothing for the purpose of lending.
3.Get control of all bank reserves and stop any bank-runs on banks who had lent recklessly .
4.Get the taxpayer to pick up the cartel's inevitable losses.
5.Convince congress that the purpose was to protect the public.
6. Act as a 'lender of last resort'
On a snowy night two days before Christmas (December 23rd 1913) the Federal Reserve Act was signed into law. The Federal Reserve system has 12 regional banks throughout the United States. The Federal Reserve issues the currency in our country known as the U.S. Dollar. Although national monetary events may appear mysterious and chaotic, they are governed by well established rules which bankers and politicians rigidly follow. The central fact to understanding these events is that all the money in the banking system has been created out of nothing through the process of making loans.
Have you ever heard the phrase"all power corrupts"?
The power of creating money from nothing happens when the Federal Reserve becomes the "the lender of last resort". Lets look at how this power has been used.
The game is called "bailout" and the Fed orchestrates loans using money created out of nothing. The tax payer picks up the check through the silent tax of inflation which comes from the increase in money supply which the Fed issues. (Taxpayers take the hit through higher prices).
Let's check out a couple of examples:
1970- Penn Central railroad became bankrupt. The Federal Reserve bailed them out through the use of Government subsidies and bank loans. Congress was told that the collapse of Penn Central would be devastating to the public interest. So congress acted and a $125 million bailout was complete. Penn Central became AMTRAK and continues today to operate at a loss.
1972- Commonwealth Bank of Detroit was given a $1.5 billion dollar bailout due to bad lending practices.
1975- New York City essentially became bankrupt due to its extravagant bureaucracy and miniature welfare state. Congress was told that the public would be jeopardized if city services were curtailed. A $2.3 billion bailout ensued.
1978- Chrysler was on the verge of bankruptcy. Congress was informed that the public would suffer greatly if the company folded. A $1.5 billion bailout was made available.
1979- First Pennsylvania Bank almost failed. A $1 billion line of credit and hundreds of millions of dollars were created to save this bank. Of course...it was in the interest of public good.
1982- Chicago Continental Illinois became insolvent. $4.5 billion in bad loans were covered up. The bank essentially became nationalized.
All of the bailouts of previous years are pale by the comparison to the TRILLIONS of dollars pumped into the banks in 2008 in response to subprime meltdown. This huge amount of money does not come from the Government or the Federal Reserve. It comes from the American consumers (you and me) in the form of higher prices. Of course, these bailouts were made because they convinced Congress the public would suffer if nothing was done.
All of the money to accomplish these bailouts was made possible by the Federal Reserve System acting as the "lender of last resort". That was the purpose for which it was created. We must not forget that the phrase "lender of last resort" means that money is created out of nothing, resulting in the confiscation of our nation's wealth though the hidden tax of inflation. The problem is that inflation is subtle and regular folks do not notice it. The Federal Reserve is basically our elephant in the living room. Everybody pretends it's not there.
Let's put it this way: A dollar in 1913 would be worth 5 cents today. The dollar has lost 95% of its purchasing power since the Federal Reserve was created.
The Fed's policy of intervening in the economy to push interest rates lower than the market would have set them, was the single greatest contributor to the crisis that continues to unfold before us. Making cheap credit available for the asking encourages excessive leverage, speculation, and indebtedness. Being a lender of last resort for the past 100 years has massively increased the money supply and set our economy off balance. The Fed manipulates interest rates and thereby misleads investors about real economic conditions, which does in fact misdirect capital into unsustainable lines of production and discombobulate the market. (Woods)
Take a look at how our U.S. dollar has fared against other currencies around the world. As the blue line heads lower...it means that the U.S. dollar is worth less compared to six other major currencies in the world. Not a pretty picture.
Lets take a look at the U.S. dollar priced in gold. As this chart heads higher, it shows that the U.S. dollar is losing value. Again...not a pretty picture...unless you are invested in gold.
Time and time again throughout the past century the Federal Reserve has intervened into the economy with generous bailouts, bad lending practices and manipulated interest rates. These practices have created an economy that is severely unbalanced. Today, the wild stock market supports this notion. Rising gold is a sign that something is seriously wrong with our currency.
We expect our monetary system to be stable. We expect that the money we work for today will be worth the same amount tomorrow.
Definition: fraud is an intentional deception made for personal gain or to damage another individual.
Being a lender of last resort and creating money for the sole benefit of bankers, governments, or "special" corporations and consequently diminishing the wealth of all other American citizens is a form of fraud.
I don't know about you, but I think it's time to stand up and acknowledge the elephant in the living room.
When I read the quote below it makes me smile. Our founding fathers actually knew better.
"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." (Thomas Jefferson)
Sincerely,
T. Norman
A new season of The Jersey Shore has started. The cast is in Florence, Italy. They are up to the same ol shenanigans... and I like it. Recently, Abercrombie and Fitch offered Mike 'the situation' a non-endorsement deal. They want to pay him to NOT wear their clothes!!! It's incredible. I see Abercrombie and Fitch as a failing company. Their marketing is poor and they consistently try to sell clothes with their huge brand name written all over them. Styles have changed. This is a sign that they have failed to adapt to the changing retail market. Not to mention....Mike 'the situation' wears their clothes. Say no more.
Hugo Chavez just recently nationalized the Gold industry in Venezuela. The government took control of all mining operations.
When this happens- you know your country's Government is corrupt and looking to retain power. You know the old rule: "He who owns the gold makes the rules".
Robbie Kean, the all time record goal scorer for Ireland's national soccer team has joined the LA Galaxy. He lined up alongside David Beckham and Landon Donavon in his first game. Of course, he scored within 20 minutes. Not bad.
Robbie loves his futbol... but LA also has birds, booze, and sunshine.
It's an Irishman's dream!
References:
Griffin, E. (2008) The Creature from Jekyll Island. American Media. Westlake, CA
Woods, T (2009) Meltdown. Regnery Publishing, Inc. Washington DC.
