Our contract with the Devil....er, I mean the FED
Mar. 18, 2008
Money. It’s elusive. It’s mysterious. It always leaves you wanting more. What is it? What is this thing that drives our rampaging economy all over the planet? How is it made? And what is all this garbage about the “national debt”? What’s that all about? The answers are likely to first surprise, then horrify you.
A lot of people think the government makes money and that’s where we get it from. A few people still think their money is backed by gold. Most people still think the United States government still has gold. All of these people are wrong.
The government gets money from the Federal Reserve, which, while enacted by federal legislation, is not itself a government body. The FED does not submit in any way to mandates from any branch of the government. The president appoints the guy in charge, but he is paid by the private banks that comprise the FED. While the government has absolutely no way to make the FED do anything, it does theoretically have the ultimate veto power -that of abolishing the FED altogether -but that creates a problem that the politicians would rather not deal with. You see, as it is, when the economy gets too far in the pits, they have a scapegoat. The FED did it. They made the interest rates so high! They are the ones refusing to make more money! Additionally, in this day and age, the FED effectively monitors and controls the entire world’s economy (reference the mass bailout of third-world countries in the 80s). So any way you cut it, the FED is here and they’re here to stay, whether Congress likes it or not. If all these foreign countries go bankrupt, then all the U.S. banks that are lending them all this money will go bankrupt too; then POOF! No more U.S. economy. We’d be praying for the prosperity of the Great Depression.
The FED has been slandered by many in its near-100 year history, but often for the wrong reasons. The real reason, oddly enough, is right in front of our faces. The FED issues out all (except for coins -about 3 percent of all money) monetary units (Federal Reserve Notes) at a rate of interest. Do you yet see the inherent fallacy? I go to the FED and they let me borrow 100 bucks at 10 percent interest. After a year, I go to pay it back, but now it’s $110.00. Where is the other 10 bucks coming from? Nowhere if the FED doesn’t make it. And if the FED makes it, there’s going to be another interest charge for that money too. This is exactly what the government does when it gets money from the FED. It borrows the money and spends it, but when it comes due there isn’t enough money to repay! The other avenue is the private one, where the FED via the “Discount Window” issues money to banks, again at an interest rate. The banks themselves also create money at interest in this way via “fractional monetary expansion”, but we will avoid these complications for the moment and stick with the FED. In this case, the FED issues money to the banks, and the banks in turn introduce it into the economy via loans and other investments. At interest. But here again, no one made the interest money. It never existed. If it comes into existence it comes with an interest rate of its own. Are we on the same page yet? This is why the number of bankruptcies over time steadily increases. This is why businesses over time steadily consolidate into more and more centralized structures, putting would be entrepreneurs out of business and sending them into the FED’s workplace. And this is largely what causes astronomical national debt.
Our government spends too much to be sure. Endless programs, endless red tape, endless bureaucracy. Anyone who’s ever read anything I’ve written likely gets the idea. However, regardless of the level of government spending there will still always be an endless amount of debt due to this imaginary interest money. Over the last several decades, the magic of compound interest has taken effect, and the small increases are now very large ones. We attribute it to over-funding. Partially. But the biggest expense is the unpayable interest rates to the FED. But what does that mean for us? Those numbers have been astronomical for a while now and it’s not really affecting us all that much, right? Right. That’s what they said just before the Great Depression too. The numbers are now getting close enough that a few people are starting to see the imminent disaster on the horizon. Eventually, there won’t be enough money in existence to cover even one year’s worth of interest. It’s inevitable. Then what? Then (or likely way before) the solvency of the government will come into question on a legitimate and global scale. Should such a thing happen, not only the United States economy will fail, but, just as in the 30s, a domino effect will ripple across the globe as nation after nation goes into effective bankruptcy. These sorts of things are not gradual in the obvious sense. If they were they would never happen. This is the ultimate danger and promise of un-payable national debt.
My diagnosis may appear grim, and you may be obliged to ignore it. Fine. But you can’t ignore the realities of our relationship with the Federal Reserve Note. They make all the money and charge interest for it, so there is never enough money in existence to pay back what they let us borrow. Never. The debt can only rise. If my outlook seems grim, what is the correct one? If I am wrong, what is the outcome of this scenario?
I am one of the oldest of a generation pop-culture lovingly terms “Generation X”. When I was younger, I thought that was the coolest thing ever. “Generation X….mysterious, dynamic, unpredictable” -it was my theory that we in fact were the best labeled generation in the history of labeling generations. Now I have a different theory. An equation: a/b = x, where a=the most possible money, b=the fewest possible hands, and x=how long it will take. It’s not a label, it’s a target.
If you want to read more about all this, I’d suggest two books. First, a rather short, easy read entitled “Debt Virus”, by Jacques S. Jalkaran, and the second a more lengthy historical account of the FED, “Secrets of the Temple: How the Federal Reserve Runs the Country", by William Greider.