Who does the US money belong to?
The United States is the only state in the world destitute of the right to issue its own currency. The role of central bank is carried out by theFederal Reserve System – a joint stock company created by 12 Federal Reserve Banks created in their turn by commercial banks on a territorial basis.
The state has no money. The government issues bonds to receive its “national currency”, the Federal Reserve System prints notes and gives it to the state by buying its bonds. Then the government buys out the bonds and the money returns to the Federal Reserve with interest rates. It makes inflation, or the difference between cash and fixed-rate bonds, the main source of the Federal Reserve’s income.
Suppose it costs 10 cents to issue a $100 bill, then the inflation tax is $99,90. Acting as a private bank the Federal Reserve gets income from notes sold to the government, as well as from interest payments on the bonds of the Treasury and payment transactions, deposits and transactions on the securities market.
According to the Federal Reserve Act, the Federal Reserve System is a state structure with private components, comprising the presidentially appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks that get profit from safety stock, fixed income shares issued by Federal Reserve Banks in exchange for contributed reserve capital, and various advisory councils.
The government’s influence on the Federal Reserve System is limited for a number of reasons. First, the governors are assigned for a term of 14 years with the right for extension. Let me note, the President is elected for 4 years, the tenure is limited to 8 years. As they say presidents come and go, the Federal Reserve governors stay.
Alan Greenspan, former chairman of the board of the Federal Reserve System, held the position for 19 years, incumbent chairman Ben Bernanke holds his office since 2006, he started under another president and staying in the position through the next president’s second term. It’s the Federal Reserve System, not the White House, who holds real power. Second, the Federal Reserve has final authority over notes authenticity. It makes possible unchecked emission and allows to declare any notes fake, even if they are issued by the Federal Reserve itself.
Finally, the most interesting thing about it. The System acts as an emission center independent from the government to prevent emissions to serve short-term interests of the US government, paying for budget deficit, for instance. In other words the purpose is to prevent the government from issuing currency and implementing its own fiscal policy, independent from banks.
The art to generate crisis
If real economy gains from selling manufactured products, banks do it by creating debts. The deeper is the US in debt, the bigger is the profit of the Federal Reserve. For instance, in 2006 the Federal Reserve’s net profit was $34, 2 billion, it went up to $81,7 billion in 2010 and went down by 6% in 2011 to $77,4 billion. That is, while the whole world was talking about possible collapse of US economy, the Federal Banks used the crisis to increase the profit that rose 2,38 times.
The crisis, artificially created in 1907, gave birth to the Federal Reserve System that regularly provokes economic downturns. Many US economists blame it for the crises in 1948-1949, 1953-1954, 1957-1958, 1960-1961, 1969-1971 and 1973-1975.
The 2007 mortgage crisis was a direct result of the Federal Reserve’s policy bringing down interest rates to zero. Cheap liquidity literally flooded the United States, the mortgage credits were granted to people without income, under the pledge of the assets to be built in future, no insurance was required. As a result the housing construction tempo grew by two-digit numbers. The mortgage credits went up from 63% in 1995 to 98% in 2005. Anyone, who has any idea of what economics is, understands the pyramid was to go down.
The world knew about risky experiments the Federal Reserve made US people go through when the US mortgage crisis gradually transformed into the global financial crisis, the one affecting us even until now. The stock exchange crisis of 2000 is less known, though it led to a number of suicides among ordinary Americans who lost all their fortunes in stock exchange speculations.
The Gramm–Leach–Bliley Act, also known as the Financial Services Modernization Act, was passed in November 1999 upon the initiative of Alan Greenspan, then Federal Reserve Chairman, to alleviate the pressure of inflation upon the dollar (1). It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking, securities and insurance companies that prohibited any institution from acting as a combination of an investment bank, a commercial bank and an insurance company.
The bonds starting price was no longer declared by an issuer or his bank, it was defined by stock exchange trading. Thus, banks could no longer “blow bubbles” guaranteeing the shares liquidity and other obligations of private companies. In 1999 the ban was cancelled making US companies share prices go up far beyond their real value.
Financial agents immediately used the reopened opportunities for stock exchanges speculations resorting to new technology of high frequency trading. HTF technology allows traders make immediate use of enormous volumes of market information, make enormous number of deals in a day, open short time positions (up to a few seconds), fix incomes as soon as the first insignificant fluctuations of treasure bonds take place.
The period since 1999 to spring 2000 was the moment of glory for HFT companies, their capitalization immediately increased dozens of billion dollars thanks to growing number of bank deposits. In a blink of an eye thousands of high frequency dot.coms appeared for on-line share trading. In a year it all went back to where it had been before: the Internet bubble went down with a bang making millions of Americans lose their fortunes.
It’s not the whole story. The HFT technology has become a real weapon making possible to bring down the share prices of any company or stock exchange. For instance. On May 6, 2010 $862 billion evaporated in twenty minutes. There were alternative means of payment created for stock operations, for instance, Internet banking, anonymous plastic cards, virtual accounts etc, produced by private issuers. It increased uncontrolled virtual money flows and let make “zeroize” the accounts of those who seek quick benefit from stock exchange operations.
The minority investors had no chance to gain profit thanks to on-line trading: stock exchanges let the “chosen” clients get introduced to the stock exchange traders applications accumulated at the common terminal before others did. Goldman Sachs, Morgan and a dozen of other leading banks were the main actors of high frequency trading with 70% of daily HFT turn over. It’s easy enough to guess who the “chosen clients” were.
At first glance on-line deals undermine the US economy and credibility of “official” dollar issued by the Federal Reserve System, something that looks to be unacceptable for it. Not if you remember the names of trader-banks that are FRS investors and belong to Federal Reserve top managers. Aside from that, the Federal Reserve created incentives to transfer huge amounts of free floating money from currency market to stock exchange. This way actually the whole “inflation shed” fell on the dollars used to buy IT companies shares.
Debts for country, profits for banks
The US national idea is a life of credit and debt. The US GDP is $14 trillion, 20% of global GDP, the yearly consumption is twice as large making up 40% of what is consumed globally.
The US debt limit has gone up around one hundred times since 1940. The last time the Senate raised the debt ceiling to $ 16,7 trillion on August 2, 2011, 12 hours prior to possible default. On December 17, 2012 the debt went up to $16,382 trillion. Before that, on August 3, 2011, the US state debt exceeded the GDP.
By far, it’s not the whole debt. The debts of states, private companies, federal health and pension insurance, unemployment benefits, the household debts etc., all in all it makes it run up to around $115 trillion, or $4-5 trillion annually to pay off interest rates. There is an exponential debt growth (2).
Before cash flows had resulted in economic growth, but the effectiveness of debt growth has been down recently. It may boost the state debt to bolster moderate economic activities (3).
As it has already been mentioned, one of the FRS functions is to prevent short-term money emissions by the state. In reality private FRS investors don’t stand in the way of government’s voluntary initiatives, to the contrary they issue dollars beyond any account or control to serve their private interests.
The audit, conducted in 2012 for the first time in the FRS history, showed that during and after the 2008 crisis the private corporation clandestinely emitted and gave out $16 trillion to “friendly” banks. For instance, the following banks received the following sums: Goldman Sachs – $814 billion, Merrill Lynch – $2 trillion, City Group – $2,5 trillion, Morgan Stanley – $2 trillion, the Bank of America – $1,3 trillion, the Royal Bank of Scotland and Deutsche Bank each got $500 billion. What attracts attention is the fact that foreign banks are listed among the recipients, something strictly forbidden by US law.
Uncontrolled emission may not only incite galloping inflation inside the United States, but also result in the dollar losing its status of world reserve currency. But it’s the wanton, irresponsible behavior of FRS that poses the main threat to America.
It hands out the dollars without any back up the way it likes plunging the state deeper in debt, the very same state that is and will be liable to the creditors from China, Japan, Russia and the European Union with all the property under pledge. Actually, the country belongs neither to the government, nor the people because the debt has many times exceeded the country’s national wealth.
Americans vs FRS: the history of struggle
From the very first day the fraudulent scams of the Federal Reserve System appeared the Americans realized it was risky to delegate the vital state functions to the private banking cartel.
In 1923, Representative Charles A. Lindbergh, a Republican from Minnesota stated. “The financial system has been turned over to the Federal Reserve Board. That board administers the finance system by authority of a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money”.
Louis Thomas McFadden was a Republican member of the U.S. House of Representatives from Pennsylvania, who served as Chairman of the United States House Committee on Banking and Currency.
In 1932 he said, “We have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our Government. It has done this through the corrupt practices of the moneyed vultures who control it.”
Dr. Larry Bates, a nationally recognized expert on political systems, said “The Federal Reserve is more powerful than the Federal Government. It is more powerful than the President, the congress, the courts… The Federal reserve determines what a persons car payment is going to be, what their house payment is going to be and whether or not they have a job or not. I submit to you that is total control. The Federal Reserve is the largest single creditor of the United States. What does proverbs tell us? The borrower is subservient to the lender.”
The founding fathers of American democracy saw potential threats coming from the banking system. James Madison, an author of the Constitution, said, “History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it’s issuance.”
For many years attacking the Federal Reserve System was the best way to spoil one’s career. The institution was a favorite son of conspirologists. The first success was achieved in 2012, when the House of Representatives supported the Federal Reserve Audit bill presented by Representative Ron Paul (R-Texas). It passed with 327 yes against 98 no votes.
The bill envisaged full audit, including making precise if the FRS status was legal under the constitutional authority. A crisis undermining the very viability of the state was needed to make the Congress take the action.
Give the dollar to people!
Thomas Jefferson said, “The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction… I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity… is but swindling futurity on a large scale.” The words are the recipe for solving the contemporary economic problems of the USA.
The idea of FRS nationalization belongs to Democratic Representative Dennis Kucinich, who opposed Obama as a candidate for the Democratic nomination for President of the United States. He is the author of the National Emergency Employment Defense bill.
According to him, the government should reclaim the power to originate money into its hands by reestablishing the constitutional right vested into the Federal budget. It should invest money into the creation of working places. The investment means the restoration of America – building roads, bridges, sewage systems, education, colleges and hospitals. The change in monetary policy can bring 7 million people back to work.
The nationalization is needed indeed. No matter the FRS cheerful reports on the revitalization of labor market, the real situation is getting worse. According to informal estimations, the unemployment rate is 15%. The full time employment has gone down by 6 million (- 4,9%), part-time employment has gone up by 2,5 million (+11,2%).
The number of employed over 55 years old has gone up by 3,9 , while the employment among the 25-54 year olds has dwindled by 862 thousand people in the period of July 2009 – October 2012. Since January 2008 9,6 million people have become economically inactive. 500 thousand Americans were left without unemployment benefit since the start of 2012. 2 million more will be left without this source of income till the end of 2012.
Social insecurity and impoverishment in the USA strikes imagination. Average well-being has gone down by 40% in 2007-2010. 48% of Americans are citizens with “low income”. 57% of children live in poor or low income families. 20% of grown up Americans get a salary that makes them poor. 41 % of employed face difficulties while paying for medical services. 1 out of 7 elderly live under the poverty line. The number of homeless children today is 33% more than in 2007.
At the same time the income of top managers in big companies has grown by 36,5% during the last 12 months. The assets of the six biggest US banks have increased by 39% in September 30, 2006 to September 30, 2011. The well-being gap between a rich and an average family has widened 2,3 times in the last 50 years. In 1962 1% of the most well to do Americans were 125 times richer than all the average families of the nation. By 2010 the figure became 288.
* * *
The US has become a hostage to greedy FRS bankers who see the state exclusively as a springboard for financial domination. If supporting the state is no longer profitable – there will be other springboards. That’s why getting back the control over the currency is an issue of national survival…
The law is on the side of American people. The Federal Reserve System may be destitute of authority by Congress if it adopts a corresponding act or in case the Reserve violates the 1913 Federal Reserve Act. All the more, the article 1, section 8 states the US Congress is the only body that has the authority to print money.
Olga SHEDROVA | Strategic Culture Foundation