The Federal Reserve is the privately owned central bank given authority by Congress in 1913 to create and manage U. S. currency. Andrew Jackson, elected president in 1828 and re-elected by landslide in 1832, was the last U. S. president to oppose a private central bank and survive the conflict. Jackson knew a private central bank to be a viper at the breast of all humanity, and he spent much of his two presidential terms defeating extension of the central bank’s charter and multiple assassination attempts.
A Federal Reserve Primer
The Federal Reserve describes itself as “the central bank of the United States [which] provides the nation … a safe, flexible and stable monetary and financial system.” The Fed says it is “an independent entity within government” which is “not ‘owned’ by anyone and … not a private, profit-making institution.” However, each of 12 Fed regional banks is organized as a private corporation which sells shares to its member banks in proportion to the member’s total assets. Owners of those shares are paid dividends at the rate of six percent annually.
Members of the Federal Reserve Bank of New York are the big international banks of Wall Street, so the New York Fed dwarfs in power and influence all other segments of the Fed, including the Board and Federal Open Market Committee. The New York Fed is the operating arm of the Fed, conducting all market operations. The New York Fed’s actions are rubber-stamped by the FOMC.
The Fed claims its activities are subjected to “numerous reviews” by the Government Accountability Office, and that the Office of Inspector General selects an outside auditor to perform annual audits of its financial statements and compliance with laws. The OIG’s audits and reports, once completed, are listed in the Fed’s annual report – not subjected to public scrutiny. All this is done in the guise of assuring the Fed’s operational secrecy and its independence from political influence. The process nicely conceals issues from timely review by supervening forces, including Congress and the public. The Fed chairman is direct in telling Congress no outside audit will be permitted.
How the Fed Steals Your Capital
With these pro forma disclosures made, where does this leave Americans and dollar-users worldwide under the Fed’s tender mercies? In a few words, users of the Fed’s currency have the value of their saved capital stolen by this central bank for the unjust enrichment of its owners and cronies.
How does this theft of capital occur? As this question seems to have escaped detection by most observers and the financial press for 40-plus years, this brief explanation may be worth your while. Until 1971, the dollar had a defined value of $35 per ounce of gold, backed by U. S. gold reserves which would be exchanged for dollars if the holder believed dollars were worth less. Since then, the Fed has issued currency without assets to support its value and without any obligation to maintain a stable value. Now the dollar is merely a “note” from the Fed promising a dollar’s value, which may be presumed delivered as the paper dollar itself.
Despite the dollar’s lack of intrinsic or stated value, Congress requires by law that it be accepted as legal tender in payment of all debts, public and private. In that circumstance, people have delivered products and services with real value in exchange for dollars. Any accumulated capital saved in the form of dollars is, therefore, exposed to theft by actions of the Fed that extract value from dollars.
What Fed actions might those be? Consider quantitative easing, for example. In August, 2008, the entire monetary base created by the Fed amounted to about $845 billion. Today, seven years later, the monetary base is roughly five times larger, while economic production has shrunk in real terms. The additional roughly $3.5 trillion created by the Fed gained its value – not out of thin air – from the value of dollars already earned and saved in America and around the world.
The transfer of value – the theft of value – occurs silently and instantaneously by the fact that all dollars are fungible. Each has the same value, no matter when created. All dollars together have total value no greater than all assets, goods and services available in exchange for them. Each new dollar created makes each other dollar worth proportionally less (assuming zero economic growth).
Fractional Banking Multiplier Effect
Recall that commercial banks in western civilization engage in practices called “fractional banking.” Each bank customarily lends about ten times the number of dollars deposited by its customers plus the bank's invested capital. Wall Street banks are known to invest or lend even greater multiples of the dollars on their books. By doing this, the banks multiply further the money creation engaged in by the Fed. Thus, we may assume the Fed’s monetary base of $845 billion in 2008 was multiplied about ten-fold by private bank lending to roughly $8.5 trillion. Today’s monetary base of $4.4 trillion permits a leap to $44 trillion.
This monstrous growth in amount of currency is out of all proportion to the measly economic growth rate claimed by the U. S. government. Real inflation rates much higher than admitted by the Fed mean real production has shrunk about five percent annually since 2009. All the new dollars created by the Fed since 2008 have gained their value, not from new production, but by sucking the value earned and stored in capital accumulated by others through 2007. In round terms, five times as many dollars now have the same (or less) total purchasing power as dollars held in 2008. So each 2015 dollar now has the purchasing power of about 20 cents of the 2008 dollar.
Much of this so-called inflation is not yet fully apparent. The Fed as regulator of banks has prevented commercial banks from lending to main street business, putting bank reserves at far higher levels than any time in history. Nevertheless, a severe loss of capital value by holders of dollars is as much a reality as if the federal government had taxed the capital and taken a substantial portion of it since 2008. But this taking of about 80 cents of every dollar in capital is by inflationary actions of the Fed, a private central bank, not by the U. S. Treasury, and is only the public face of the Fed’s corrupt theft of capital.
$45 Billion Daily for Undelivered Treasuries
The Fed’s Zero Interest Rate Policy enables the international banks of Wall Street to borrow funds overnight at essentially no cost. With a regulatory green light from the Fed, the “Too Big To Fail” banks have seized this free financing to grow their assets 46% bigger than 2008. This dramatic expansion by the TBTF’s was accommodated by the 2010 Dodd-Frank banking “reform” law permitting nationwide roll-out. ZIRP took over from the 2008 big bank bailout of $700 billion provided by Congress and the Bush Administration.
In September, 2015, both ZIRP and the TBTF’s expansion are ongoing with no end in sight. In essence, widows, orphans, workers and other savers across the country forfeit their reasonable interest income from savings so TBTF banks get free financing from reserves held at the Fed. But even this is not the most blatant heist of great sums of capital by the Fed’s sponsors.
In Chapter 16 of The Fruits of Graft, I reported that primary dealers in Treasury securities were failing to deliver those securities to buyers who paid for them, and that these failures-to-deliver were running at about $2 trillion during September, 2008. In other words, the primary dealers (Goldman Sachs, Morgan Stanley, J. P. Morgan Chase and Citigroup) were naked short selling Treasury securities.
On September 8, 2015, Jim Willie, the astute and ubiquitous editor of the Hat Trick Letter, reported that the primary dealers are naked short selling Treasury securities presently at the rate of $45 billion daily, or about $1 trillion monthly. The Fed is the only buyer now in the market for Treasury securities at that scale. Thus, the Fed is creating and transferring $45 billion daily to the primary dealers, while undoubtedly knowing those dealers are not delivering the Treasury securities. Is this truly “free money,” or plain and simple embezzlement?
One effect of this conduct by the Fed enables the primary dealers to create quickly an avenue to profit immensely from an eventual crash of Treasury securities. Such a crash is made virtually inevitable by the Fed’s profligate conduct in monetization of Treasury debt. But the essence of what the Fed is doing is this: it sucks value out of everyman’s dollar savings and gives it to its friends, cronies and owners – by the billions of dollars daily.
Two Easy Conclusions
of the Federal Reserve, especially the New York Fed, and of the primary
dealers in Treasuries, ought to be arrested, indicted, tried and
imprisoned for the rest of their natural lives. Those who, at this late
date, have continued to speak hushed and respectful discourse about Fed
policies and practices might seek to atone by locking themselves in
stockades of village squares from now until winter sets in. ~
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