The Fed, And Why It Stinks (Part One)

Trying to describe how the Federal Reserve System works in 700 words is darned nigh impossible. So, I think (with your permission) I’ll try simplifying it as much as is possible. I’ll take a couple of days to give you an idea of how this might have gotten out of hand. There are great sources from Wikipedia on up for you to do your own research in this matter.

Have you ever had one of those rubber bands that’s been stretched over a long period of time and then left out in the sun to degrade? That describes your dollar today. It’s fragile, has questionable integrity in the world market and you don’t know how long it’ll be until it crumbles and dies. Does anybody else feel the elasticity of the currency has gotten as limp and stretched out as it can get?

1913. It was the age of enlightenment (?). One wonders. Socialism was in its childhood. Progressive Political Theory flourished after being developed as an off-shoot of Marx’s 1847 Social Theory with Teddy Roosevelt and Woodrow Wilson proclaiming the Presidency was more a thundering mandate than electoral fact. They a plurality of votes cast; not a majority of voters queried. The difference between Marxist Theory and Wilson was his patrician paternalism. He believed the President should follow social programs for the protection of the populace as long as it was directed by those knowing best how to direct the herd; such as he.

Allegedly Congress tried keeping politics out of banking. But because bankers couldn’t keep their greedy fingers out of the goodies there were many Bank Panics until 1907. This forced Congress to take a look at the lack of direction and oversight offered by the system at that time.

The Federal Reserve System became an original act committed against the American people. It was born as a result of the Federal Reserve Act of 1913. Its proper definition is: An Act to provide for the establishment of Federal Reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.

There were to be 15 Regional Districts providing readily available cash reserves for issuance. This allowed the economy to “expand and contract” under differing market stresses. The Fed (as it came to be known) was expected to lend money to financially “at risk” banks, print money and act in the government’s interests concerning fiscal issues. This essentially created a new privately based Central Banking System for America. It replaced the one outlasting its charter leaving the country unprotected for nearly eighty years. As things worsened greater control was given to politically loyal operatives (Governors) running The Fed until the Wall Street Crash of 1929

Herbert Hoover issued worthless and therefore regularly ignored statements saying things would get better with time. (Sound familiar?) None of this helped the people. Their depression and fear deepened. Businesses failed or start-up businesses never got off the ground; unemployment soared.

Enter FDR. FDR closed ALL banks for four days. Wall Street was closed. Then he extended the bank closure for another three days, forcing Americans to theorize something big and hopefully beneficial was taking place. When he reopened the banks for business, he’d pushed the Emergency Banking Act of 1933 through Congress. With other provisions and commitments from The Fed, he restored a belief in a banking system bolstered by unlimited cash reserves available to banks. The Federal Deposit Insurance Corporation (FDIC) was formed. Over two-thirds of the money withdrawn from banks was returned almost immediately. Wall Street reflected their approval with an increase of 15.3% in trading and the economy reflected a greater hope in the system.

After the Wall Street Crash and his saving America from the newly born Great Depression, Franklin Roosevelt in his patrician paternalism decided he’d cut government spending programs. Keynes’ followers felt this killed the growth; others blamed the Fed for issuing too much worthless cash and others still, said they cut the money supply too much. Whatever, it drove the economy into a major recession. This suggests The Fed might not be where the answers are; couched in academic theory and dispensed from the barrel of a government gun rejecting all other thoughts, theories and possibilities.

(More to come)

Thanks for listening.



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