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09/28/2007 - 5:35pm

Abolish The Federal Reserve


In a post a couple of months ago, I explained the relationship between the Income Tax and the Federal Reserve, and provided a brief explanation of how the Federal Reserve works. First, the name "Federal Reserve" is completely misleading. It is neither federal, nor is it a reserve. People think of the Federal Reserve as a government agency charged with stabilizing the economy, and they hold all of our gold in Fort Knox. Unfortunately, neither of these is true, and the vast majority of people know nothing of the Federal Reserve. It is no more federal than Federal Express.

Prior to 1913, the country's money was made of gold and silver, as dictated by the US Constitution. People didn't always carry around heavy metals, though. Many times, they deposited them at their bank, where they would receive "bank notes". People would often trade these bank notes (the same way we trade Federal Reserve notes today), and they could always go to the bank to claim their gold by turning in the notes.

When the Federal Reserve was created in 1913, we essentially were no longer backed by gold or silver (true, we didn't officially cut ties with the gold standard until 1971, but between 1913 and 1971, the government arbitrarily set the price of gold, so it's the same thing as being backed by nothing). The Federal Reserve, a cartel of private banks (not a government agency) prints dollars and dispenses them into circulation. Every time more money is printed, we see inflation. Historically, over the past 70 years or so, inflation has averaged around 4%, and people seem to accept this as good.

Here's the first problem. The inflation that we see is more accurately described as "monetary inflation". It is caused when the price of goods and services go up because there is more money in circulation, not because the value has actually increased. In economics, real inflation exists because either the demand for a good has increased or the supply has decreased. If I have five widgets to sell, but six people want to purchase them, my price will go up until one of the six no longer wants to purchase them, but not so high that that I can't sell all of them. This is real inflation. But in our economy, we see prices increasing without an increase in value. This is because the value of the currency is decreasing. In a sound money system backed by gold and silver, we would have a 0% inflation rate. Prices would fluctuate only if the supply or demand fluctuated.

The Federal Reserve prints money with no backing, loans it to the government, which them spends it. As it enters the market, the market becomes aware of its existence and prices inflate because there is more money. Which leads to the inevitable conclusion that monetary inflation is a stealth (hidden) tax. If you put $1,000 into savings, it will be worth less than $1,000 in the future when you want to spend it, just as if it had been taxed directly. The longer you save it, the less it's worth.

An easy way to measure inflation is to measure the dollar against something of consistent value, like gold. The price of gold changes, but the value stays the same. It's not the value of gold that's changing, it's the value of the currency in which it's being measure. If the price of gold goes up, it's not because gold is worth more, it's because the measuring stick (like the dollar) has gone down. Monetary inflation is the measure of the decrease of the value of currency, so an accurate way to measure this is to put the currency against the price of gold over time.

Earlier, I mentioned that the inflation rate over the past 70 years has been about 4%. However, the inflation rate over the past five years has been significantly higher, and this can be seen as the cost of gold has increased dramatically. When the dots are connected, it's easy to see why. We are spending so much money overseas on unjust and costly (both in terms of dollars and lives) wars, but there has been no tax increase to offset the expenditure. The Federal Reserve is printing the money to fund the war. The increase in money supply can be measured by the increase in the cost of gold, which reveals how weak the dollar has been recently.

In September of 2002, an ounce of gold was priced at $324. Today, that same ounce of gold is priced at $724. This means that our dollars are worth less than half of what they were worth just five years ago. That doesn't seem like 4% inflation to me. And this can be easily seen as increasing costs, such as tuition, health care, and especially housing.

Ten years ago, we always joked about the Canadian dollar, since it was worth only about $0.65 US. Today, the joke's on us, because as of a few days ago, the Canadian dollar is now worth more than the US dollar.

It is imperative that we abolish the Federal Reserve and the associated Income Tax, and return to sound money. Our economy will have to make this change eventually, and it's just a matter of whether we want to do it the easy way (i.e. voluntarily), or the hard way.

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Posted by: Nick Coons
09/28/2007 6:28pm

There are some other key points worthy of noting that I didn't think about when posting this article. The Federal Reserve is directly responsible for the Great Depression of the 1930s (http://www.lewrockwell.com/walker/walker22.html).

If you're interested in learning more about how the Federal Reserve works and its history (because it is a rather complex beast), read G. Edward Griffin's "The Creature From Jekyll Island", 624 pages I think.

Virtually all monetary problems can be linked back to the Federal Reserve, such as the inability to be able to afford health care, or the increasing gap between the middle class and the wealthy.

Posted by: Ron
10/17/2008 8:59am

Abolish the Federal Reserve Now – Sign & Promote the Petition

Many investors and concerned citizens around the world are showing their outrage at what the Federal Reserve has done to the American economy with their easy money policies which caused the credit & real estate bubble and subsequent global financial meltdown.

Join the thousands who are signing & commenting on the Abolish the Federal Reserve Petition at http://www.petitiononline.com/fed/petition.html

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