The Federal Reserve Fiasco
what must be done

ince I've identified the scam involved in the Federal Reserve System, it is appropriate that I should propose some sort of "solution". The solution is, of course, a prolonged depression similar to what there was in the 30s. One must say this without flinching for there is no other way to correct an economic problem other than to eat the consequences. These consequences have been building up for decades so ... we have only two realistic choices ...

These are ... to face the problem squarely and put a stop to it now, accepting the resulting "inconvenience" ... or ... we can "defer" it to the next generation, i.e. postpone the inevitable and thereby make it worse (as this issue compounds itself quarterly ;o)

Or course, we shall choose the second option as those before us have always done. It's a game of musical chairs. When the problem finally runs its course as it will ... the last man standing will have no where to go and will thus be caught holding the bag (a bag full of counterfeit notes) which he will accept and promptly hand to his five year old son saying, "Here, son, is your inheritance.".

This will result in wholesale rioting, a total breakdown in law (no one will have any respect for it anymore - and they will be right) ... followed by a military "quelling of disorder" and a "new beginning" for the country (as the poiticians will say) ... and the people will accept it because they will have bayonets at their backs held by soldiers who know the "something" must be done and they don't know what it is. The newly enlightened politicians will then institute a brand new counterfeiting scheme which will make them look good once again ... in the short term. An the people will pick up the pieces as best they can in a somewhat more agrarian-type civilization.

It all started with good intentions

The primary reason for the counterfeiting scheme was to stabilize the business cycle. Those of you who observed the dotcom fizzle may understand the boom and bust cycle having seen it. Even though many cooler heads saw that the bubble was going to burst soon enough ... and they said so publicly many times ... and most people believed them ... They didn't act on that knowledge. Rather, they stayed in the bubble with their cash because they believed that there was still money to be made. They didn't lose their money blindly. Their eyes were wide open even as they were losing their shirts.

It works like this.

Some people have a reasonable idea and start making money with that idea. I mean here "making" money as in "producing some goods or services" that other people are willing to pay for. As they prosper, others, who believe money will come to them too if they but do the same thing, jump in and proceed to make money too by imitating ... thus transferring funds to their accounts with little or no effort on their part ... just copying the actions of their betters without really understanding what they are doing. Their intentions are different. They want money as an end in itself ... whereas the primary money makers wanted to make money as a measure of their objective value to civilization, i.e. they wanted wealth in exchange for real values as a moral validation of their actions (a proof). The difference is quite profound philosophically speaking. The former are simply conmen, the original money makers are the real pillars of society. The conmen are not too bright and will do the deer thing when the truck is headed for them at night in the middle of the road. They don't know when to quit. They extend the business cycle by not getting out of the market and cooling it off.

If civilization were completely in the hands of its most rational people, there would be no business cycle because they would "damp it out" and keep the economy going smoothly. But it can't be done that way because who can define (legally, ethically and morally) what is "rational" in the business setting? So, we're stuck with some sort of business cycle ... up and down and up and down ... periodically ... with some really big or small bumps caused by ...

Government Intervention

At some point, economists realized that perhaps an organized intervention could smooth the economic waters permanently. And so they schooled the clueless pols in their necromantic arts.

What they were to do is ... pump more money into the economy when a dip in the business cycle occurred (or slightly before one occurred if their crystal ball was working properly). "This should damp out the lows in the business cycle" - says they. And so it did. No more depressions ... just the calm sea. Dead in the water at last!

There is a long term problem however. To be perfectly calm required that something be done about the economic "ups" as well as the downs. But, it's not politically acceptable to stop an upsurging economy. That is ... an increase the money supply makes people think they have more money (temporarily) and therefore they spend more and the economy gets going again ... so, decrease the money supply and people will think they have less and will spend less and the economy will cool. But you can't do that. Deflation is the only four letter word in economics. It's ... just ... not ... acceptable.

So, what we get instead is inflation to get the economy going and a little less inflation to rein it in. There is always an increase in the money supply ... it's just a question of how much ... less or more?

It is then easy to see what the big problem will be. The money-supply sea is rising due to artificial global warming of the economy. At some point, we shall be inundated. If a severe storm blows, the levees will not hold. You will lose your shirt as the tsunami rolls over you ... and your house ... and your car ... and your job ... and perhaps your family members.

What can be done?

I suspect that nothing can be done to prevent large scale damage. Whatever I propose will just cause an outbreak in some other place resulting in the feared debacle anyway. But, I give it my best shot. To do anything at all would require first, your acceptance of the inevitability of the thing as well as your understanding that it will be worse the longer we do nothing ... and, most of all ... your willingness to accept responsibility for fixing what others have screwed up in previous decades.

Firstly, ... I propose to renege on the interest paid on the national debt. That is, we shall no longer pay any further interest on treasury bills or savings bonds or any other federal debt instruments. These would be redeemable for cash at their present accrued value and no more. Thus, we exchange them for true counterfeit bills.

Secondly, ... The interest on all credit card debt would be 0%. You would still have to pay back the money but without any interest. You would have to pay one or two dollars as a processing fee each month (maybe 50 cents).

Thirdly, ... You would still have to pay interest on your house or car loan because these are not part of the government's accounting scheme. The credit cards are part of that scheme. The government wants you to go into debt spending so that the economy will continue to heat up ... get it? So, the credit card system is history. You won't be able to charge anything anymore. You can use your debit card though. As long as you have money, you can buy something. If not ... then no ... unless the bank will give you a legitimate loan based on a rational banking system ... or ... if a retailer is willing to let you pay on time with interest at his own risk ... (he won't).

Lastly, ... we go back to the gold standard wherein every paper (or electronic) bill is backed by some amount of actual gold however small. And no banks would be able to loan out more than they had in deposits ... and ... The reserve requirement for a bank would be some fraction of what it had on deposit as represented by actual (real) gold in the federal reserve vault.

I don't personally like the gold standard. I'd rather fix the money supply and then just keep that number pretty much permanent ... but ... therein lies the temptation to screw around with the money supply.

Will this solve the problem?

Probably not. Other problems will pop up. For instance, since you won't have a credit card anymore, when you get into financial trouble (like a fairly large doctor bill) you won't have anything to fall back on. The credit card has become our bank account ... a negative banking system ... just as my wallet has become a holder for debit slips instead of cash (but at least I have money to cover the debits).

Other bad things will happen. The economy will slow or stall entirely, putting people out of work. They will say, "He's the cause of our suffering! Kill him!" ("he" is the guy who pulled the plug on the present system). But, as I said, people will just want to continue on the present course no matter what and try to pass the problem off to their children or maybe their grandchildren (that's the big hope - that it will come to pass after they are gone and can't be held accountable).

I had a dream once ... I was living in a tree house (the only tree on a broad plain which slanted slightly upward ... terminating, off in the distance a mile or so away, at a great cliff). Beneath me there were hordes of people squeezed tightly together all moving slowly toward that cliff. I could climb down from my tree and walk on the heads and shoulders of the people headed for the cliff but they didn't notice me even if I kicked them in the head or face. It didn't matter. Did you ever look into the eyes of a longhorn bull? The eyes are dead of intelligence ... it's just that animal stare ... dead to thought. That was the look of these "people". Well, needless to say, they just kept on movin' (keep them dogees movin', aho!). Sometimes I would try to pull a person out who had a little something more than the "longhorn look" but they were pressed in too tightly. Well, I thought, it won't hurt too much when he goes over ... he's almost fully anesthetized ... not by ignorance (the inability to see) but rather by the refusal to see ... STUPIDITY.

original Federal Reserve page is here

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