End The Fed

Apart from exercising dangerous fiscal policy within the United States, there is a further problem with the Federal Reserve. The fact that our currency is fiat and Central bank-controlled makes it easier for the government to move towards the creation of the Amero.

The Amero is a proposed currency that would function in North America the way that the Euro works in Europe. It would replace the money systems in Mexico, Canada, and the United States with one, fiat currency. An even larger central bank would control this currency, and it would be under less control, because it would exist independently of three nations rather than within the framework of one. This would violate our economic sovereignty and further damage our standard of living. This is one step in the direction of establishing a North American Union, a plan that would effectively rob us of our national sovereignty and independence.

In 1933, the President Franklin Delano Roosevelt issued Executive Order 6102. This was a mandate that confiscated all private gold from the public. As an executive order, it did not go before Congress. Such a seizure is incredibly unconstitutional under the 4th Amendment, and yet he was able to force it upon the American People. He made this order with the advice of the Federal Reserve, and he effectively robbed America of what little wealth it had left. The effort was supposed to be for "economic recovery", but the country continued to languish in an all-consuming economic depression throughout that decade.

This is not incredibly relevant to the discussion at hand, but I feel that it is important to mention because it shows that our government is capable of making some terrible and unlawful economic moves. Do we really want them exercising total control of our currency?

So what about Fort Knox? If our nation has a fiat currency unjustly and incompetently controlled by the Federal Reserve, why does the government keep a massive reserve of gold in the army base at Fort Knox? Is there really any gold in there at all? There really is no way for the average citizen to know. There hasn’t been an independent audit of the materials at Fort Knox in decades. The mint claims to have 147.3 million troy ounces of gold, but this has not been independently verified. The public has a large stake in this, mainly because a large amount of the gold supposedly held by Fort Knox came directly from the unconstitutional seizure of all privately-owned gold in the 1930’s. Increased transparency with Fort Knox is essential if we are to ever return to the gold standard, because we need to make sure that we have the gold reserves to maintain economic stability.

I have said before that the Federal Reserve has presided over the one of the largest inflationary periods in our nation’s history. Why is that? It is partially because of their mismanagement of our fiat money supply (I talked about this in a previous blogpost). But there is one practice that leads to most of the inflation in our economy. The Federal Reserve represents this practice at its most basic level. Fractional Reserve lending is undermining our dollar.

It begins with the Federal Reserve. When they decide they wish to expand the money supply, they go to the open market and purchase an asset, usually U.S. Government securities. The money they used to pay the security firm comes straight out of thin air, because there exists no commodity upon which to base our currency. It is a transfer from the Central Bank to the bank of the firm that sold the asset, usually in the form of a check. Suddenly, the money supply is increased by however much it cost to purchase the securities. But the inflation doesn’t stop there.

The bank that received the “money” now adds it to its reserves, and it can now extend a more money in the form of loans. Let’s say it was $10,000,000. Banks are only required to keep 10% of their depositors’ funds in reserve, so they could potentially loan out an additional $100,000,000 based on this addition to their reserves.

This goes on every day. It is no wonder that our currency is so devalued.

For those that do not know, I will now provide an explanation of fractional-reserve banking. This is important because it is central to the operation of our economy. It is the system that the Federal Reserve exists to maintain. We have become so thoroughly dependent on it that most of us no longer question the wisdom of using it. It is, however, the source of some serious economic problems. This blogpost, however, will be limited to the nature of the system.

Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve and lend out the rest. This means that at any given time, a bank does not have the cash reserves to pay every accountholder the full value of their account. This practice arose over 200 years ago with goldsmiths. Because they often possessed large vaults, they began to make agreements with other people to store their gold. In exchange, the goldsmith would give the “depositor” a receipt redeemable in gold. That was the birth of paper money.

Because it never seemed to happen that everyone would try to collect their gold at the same time, the goldsmiths decided to loan the gold they had at hand out to others at interest. This expanded the money supply, and it allowed the goldsmiths to pay depositors interest for depositing with them. Thus, the model for our current system of banking was born.

There is a distinct difference however. We no longer use gold as the basis for lending. The Federal Reserve’s worthless paper money is the basis for bank-lending, and this creates problems.

For those who don’t know, a “gold standard” (as it applies to money) is a system of currency wherein all paper money in a nation’s economy represents a pre-set quantity of gold. This means that while cash can be used as a medium of exchange, its value it is not inherent. Its value comes from the gold it represents. The foundational premise of this system is that gold has inherent value in the minds of humanity. (Ultimately, any money system depends on the people ascribing value to some commodity or another, whether it be gold, silver, paper, seashells, etc.) The paper money itself can be freely exchanged for gold. Usually, private banks or the government manage the gold supply.

This system arose hundreds of years ago when gold itself was used as a tool of exchange. It was inconvenient and dangerous to carry around or try to keep secure large amounts of personal gold, so it became necessary to entrust a third party (usually a goldsmith, the producer of gold currency) with the job of keeping your gold safe. In exchange for your gold, the “banker” would give you a receipt redeemable for your gold at any time. Because it was safer and easier to exchange these papers in the marketplace than it was to deal in actual gold, the money system gradually shifted into the one I described above.

Strict adherence to the gold standard will create a relatively stable currency not dependent on credit or prone to inflation. I will explain this is later blogposts. Manipulation of this system, however, eventually led to the dangerous concept of fractional reserve lending, which led to the formation of the Federal Reserve and the subsequent abolition of the gold standard. This, too, I will discuss in the future. If you have any questions or corrections, please tell me.

The U.S. Dollar is a rectangular piece of paper. That is all. We accept it in exchange for goods and services only with the assumption that we will be able to use to acquire other goods and services. There exists a general understanding that the dollar can be used to expedite trade throughout our economy

And yet, the dollar itself is worth only the paper it is printed on (a sum considerably less than one actual dollar). The buying power of the dollar is controlled by the amount of actual dollars in the market. That is the heart of inflation – the more paper money in circulation, the less it is worth. In this country, the entity that controls the supply of money is the Federal Reserve.

That places the power to control the lives and fortunes of all Americans into the hands of an autonomous agency that acts in its own self-interest. Half of Fed leadership consists of an appointed (not elected) Board of Governors, and the other half are private bankers. So far, they haven’t done a great job. Since its inception in 1913, the Fed has ruled over a massive inflationary trend. $1.00 today is worth approximately $24.00 in 1913.

If the power to regulate the value of money were taken away from people and instead vested in a stable commodity (say, gold), we would have a much more stable, less inflated currency.