Monday, April 12, 2010

How Washington Really Works, Part 4


Of three iron triangles of power I describe in this five-part series, this one is the most complicated. That's because not one person in a thousand knows how the Federal Reserve System (Fed) works. For that reason, this installment is mainly about the Federal Reserve System.
Each of the twelve branches of the Fed is called a Federal Reserve Bank. That’s a misnomer, because the Fed is not federal in the sense of being part of the federal government; it has no reserves, and the Fed isn't really a bank. The U.S. Constitution grants Congress the power to “coin money,” but, in 1913, Congress presumed to pass that legal power to a banking cartel and called it the Federal Reserve System.
The Fed has the power to create paper currency out of thin air (not backed by anything of value) and lend it to the U.S. Treasury. This paper currency is, in fact, certificates of debt (promissory notes), with the promise that the American taxpayer will repay the debt.
If paper currency is not backed by anything of value, from where does it get its value? It gets it from the value of paper currency already in circulation. Let's say you have $100 in your wallet out of, say, $10 trillion in circulation; and the Fed prints another $10 trillion and puts it into circulation. Because there is twice as much paper currency to pay for the same amount of goods and services, the $100 in your wallet is now worth only half what it was worth before.
You lose money twice: once when Congress borrows the money for you to repay; and a second time, when the value of the currency in your wallet drops. It's as though a thief has taken $50 out of your wallet and left you with an IOU stating that you—not the thief—will have to “repay” the debt “owed” to the thief. (Think about that the next time you think about the $multi-trillion bailouts.)
Look at the left side of the triangle above. The taxpayer pays interest for borrowing something that had no value at the time the Fed loaned it to the U.S. government.
During the War Between the States, Abraham Lincoln refused to finance the war on borrowed money. There was no Fed at the time, of course, but Lincoln recognized that fractional lending and the use of promissory notes as “paper money” amounted to the kind of double taxation I've just described.
Instead, the federal government rather than the bankers issued its own paper currency. This inflation of the currency was a form of invisible tax, in that it raised money by reducing the value of currency already in circulation. Nonetheless, there was no debt for the taxpayers to repay. Here's how Lincoln described his policy:
“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.”
- Abraham Lincoln
The following are from two other Lincoln quotes: "I have two great enemies, the southern army in front of me and the financial institutions, in the rear. Of the two, the one in the rear is the greatest enemy..... I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands, and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war.” Abraham Lincoln- In a letter written to William Elkin
As strange as it seems, the Federal Reserve has never been audited in its entire 97-year history. Establishment shills have consistently beaten back attempts to make the Fed accountable to the American people, but this may soon change. On a bi-partisan 43-26 vote, the House Finance Committee approved HR1207—a bill to audit the Fed. The House passed HR1207 (known as S604 in the Senate) by an overwhelming margin.
Did your congressman vote to make the Fed accountable to the American people? Or is he beholden to powerful special interests? Click here and find out.

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