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Take My Credit, Please!

8 October 2008 Comments Written by: Ethan Faryna
The components of the US money supply, express...

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What a mess.  Credit crunch, credit collapse, credit crisis, call it what you will but it is just a royal screwing over of the American people.  The talking heads on TV have convinced most people that the financial disaster we are experiencing is all about housing, corruption, or greedy Wall Street bankers.  They are partly right in that it took a collapse in housing to wake some people up to the events unfolding.  Isn’t it amazing how in a years time we go from downturn to slump to full blown crisis.  But housing didn’t cause this crisis, it was merely a symptom.  What really caused this was an ignorant congress and a complacent populace.

What most people don’t seem to be seeing is the giant cancer that is growing by the billions of dollars everyday.  They miss it because, for the overwhelming majority of us, it has always been there and we know nothing else.  Yes, I am talking about the Federal Reserve System.

How can we expect not to have a collapse when we have caged our economy with a system of debt?  Every dollar in existence is a Federal Reserve Note.  These notes came about when the Federal Reserve Board printed them or entered them into a book and used them to purchase government debt on the open market.  Well, at least that’s what they used to do.  Yesterday brought word that they will now be purchasing corporate debt.  All of this debt actually creates the illusion of more money and wealth because it is not money that anyone actually has.  This in turn pushes up prices until the dollar reaches an equilibrium with supply and demand.  But once this point is reached in a debt based monetary system, like the one we have, prices start falling because the dollars begin to disappear.  You see, when people become strapped for cash and their credit is tapped out they start cutting back and paying down their debt.  So you have fewer purchases and less money in circulation.  This is the dreaded deflationary death spiral.  Businesses have no choice but to cut back on expenses, and that means labor.  The only way out is to let the debts be repaid and let prices reach a new equilibrium with the true money supply.

In comes the Fed, to the rescue?  The Fed has  thrown billions and trillions of dollars at this problem in an attempt to keep prices up.  We are seeing a time when people are cutting back and now the Fed is offering loans directly to corporations.  This is a huge disaster.  It doesn’t matter how much money the Fed creates, it will do nothing but make it all the worse.  People will not borrow if they have no means of repaying, nor will banks lend to them–at least not now, a couple months ago they were blissfully ignorant.  People will not spend if they are already broke.  Banks cannot force people to borrow money and businesses cannot force them to buy products.  Right now deflation is taking hold. The worst part of it all, just when things finally calm down, prices start to stabilize and people get back to work, the money supply will start going in the complete opposite direction.  All of the money that is currently being “injected” into the system will then start to feed a new inflationary trend bringing with it skyrocketing prices.  I wouldn’t be surprised if “Helicopter” Ben Bernanke, President of the Federal Reserve Board of Governors, lived up to his moniker and started dropping bales of hundred dollar bills from the sky. After all, it is his mission to protect the US dollar.  This is what happens to us when we have a board of unelected officials controlling our nation’s money supply.

WASHINGTON - MARCH 30: Federal Reserve Chairman Ben Bernanke delvers remarks during the Federal Reserve System community Affairs Conference March 30, 2007 in Washington, DC. Bernanke's speech was titled "The Community Reinvestment Act: Its Evolution and New Challenges." (Photo by Chip Somodevilla/Getty Images) *** Local Caption *** Ben Bernanke

Image by Getty Images via Daylife

The problem is not housing. The problem is a debt based monetary system that creates a roller coaster ride of prices.  What we need is a debt free monetary system designed by people who knew what they were talking about.  I doubt anyone reading this will be surprised, but that system was actually written into our Constitution by the founding fathers.  Read Article I sections 8 and 10.  Actually, read the whole thing while you’re at it.  Most people don’t know this but The Constitution is still used in some parts of the United States, even today.  Maybe if we were all a little more familiar with it perhaps there would not have been a crisis.  And just for good measure visit EndTheFed.us and maybe we can finally get rid of this cancer.

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Viewing 31 Comments

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    I couldn't agree more, Ethan. It's clearly not a 'liquidity crisis'. There is way to much liquidity out there and increasing the money supply more certainly isn't going to help. We need to end the Fed now and put Paulson behind bars, too.
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    Can't agree with you more! How much more has to happen before people wake up and realize this country still has a Constitution.
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    Free speech may not be dead in America, but it sure is on riseupRochester.org. My comments on the board that is lamenting the death of free speech are being censored for being different than that of the moderator. I'm going to submit my thoughts on this subject (and on what is clearly a sham of a website in general) to the D&C, and get their opinion...
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    This makes me so mad--the talking heads are just trying to divide us Americans--especially the ones that blame it on people not paying their credit cards...

    Then during the debates McCain and Obama prance around like they are saying something different from one another. "Shore up the economy!"
    No, "Jobs!" No, "End the greed and corruption on Wall Street!" They are all just catch phrases.

    Notice how the news of the Fed cutting the rate made the situation worse, and it has continued to get worse.
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    If a job was created for every time a politician said "shore up jobs" we'd have a great economy. What does that phrase even mean? What could a president really do? Save us all...
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    Come with me to buffalo, ny on November 22nd to protest the fed!
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    Yeah I'd like to do that, maybe we could organize everyone to go along with the other meet-up groups in the area.
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    Free speech may not be dead in America, but it sure is on riseupRochester.org. My comments on the board that is lamenting the death of free speech are being censored for being different than that of the moderator. I'm going to submit my thoughts on this subject (and on what is clearly a sham of a website in general) to the D&C, and get their opinion...
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    Yes, yes, down with the Fed. How dare you attempt to stabilize our financial system and smooth out business cycles. How dare you allow a banking system to exist and support the value of our currency.

    Fed, you are so evil. I wish you would die. Then I wouldn't have any place to borrow money, or store my money, or even a place to get money. I would just produce goods, carry them in sacks, and barter them for food when I get hungry.

    Oh Fed, has it come to this? Creating money to relieve reserve requirement to allow banks to continue daily operations? How dare you think of the common man and allow them to continue using their ATMs. How dare you allow people to continue accessing their checking and savings accounts. Why don't you close shop and wipe out everyone's bank accounts?

    What bastards, those Feds.
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    This comment proves you have no idea what a central bank is. (Hint, you can't set up a checking account there.)
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    Without a central bank, you would not have anything associated with a bank, since you would have no system in which to store and manage fed notes.
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    You don't seem to consider any alternatives with the usage of money. Currency is great to use but if it is monopolized by concentrated power then it is bad for the public. Currency is strong if the people can issue it and use it for their advantage as value. Also banks do not let people set their standards of how to use their money. If I can remember you are the same person to say that I am against investment. Absolutely not. I am against powers like central banks monopolizing the money supply and if you do not believe me just look at the dollar that you have now. Also look at www.federalreserve.gov. Look into fractional reserving. Money is a matter of ownership. If you do not own the money that you have because it is used as an interest bearing debt to a central bank then how can it be of value at all? This is the theme of the movie money as debt and of our founding fathers as well. Benjamin Franklin wanted America to be free of international banking control. If you own the money supply do you have to pay anyone for interest or debt? No!
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    the value of our currency has went down 95% or more!
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    It is interesting that you mention the smoothing out of the business cycle as a reason for the Federal Reserve because the Fed is actually the creator of the business cycle. By setting interest rates and not allowing a free market in interest rates, they tie all business to the same credit cycle. They create the up and down by raising and lowering interest rates. Do you believe it is just a coincidence that our most recent boom came after Alan Greenspan lowered interest rates to 1% and then the system began to collapse as he and then Ben Bernanke started raising rates again? Ben Bernanke himself admitted that inflation is a tax and that he controls it. This is the very reason it was written into the constitution that only gold and silver be legal tender.

    The Fed creates a situation in which it is more beneficial to spend than to save. Then in hard times there are no savings to fall back on. Is it a coincidence that we have the highest level of personal, business, and government debt that the world has ever seen?

    It is also interesting that you mention the Fed maintaining the value of our currency. Let me ask you this, Why do you want Fed notes? Federal Reserve Notes have no true value. The value of the note is arbitrarily set by Fed policy resulting in the near constant destruction of its value. What you could buy for $1 in 1913, the year the Federal Reserve was created, would cost you $22.10 today. Stated in another way, $1 today is worth 4.5 cents from 1913, or a lose in value of 95.5%. So I'll ask you, is the Fed doing a good job of protecting the value of the dollar?
    And lets not forget that this figure comes from the government itself http://data.bls.gov/cgi-bin/cpicalc.pl so it is most likely that the value has declined even further.

    A central bank is not required to have a banking system. Banking actually began with the gold trade. Holders of gold wanted safe places to store their wealth so the assayers would store it for them. Our own economic system began without a Central Bank and is actually written into the Constitution to that effect. The fact is, there is no need for a central bank to control the money supply. We could have commodity backed money or even fiat money without a central bank.

    I completely understand your confusion on this topic. Most people have no idea what a central bank actually does, but perhaps you should educate yourself on the subject. Here are a couple videos to enlighten you. Once you have a better understanding of what a central bank actually does, I would be happy to debate you.
    How the Federal Reserve Created the US Recession (5 min)
    Money, Banking and the Federal Reserve(41 min)
    FIAT EMPIRE - Why the Federal Reserve Violates the U.S. Constitution (59 min)
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    1) Don't patronize me you pompous ass.

    2) I can link you to death too, with real, relevant links. Sorry, no video. I hope you can read.

    3) http://www.econlib.org/library/Enc/GoldStandard...
    Two points:
    a) Gold standard creates unstable economies:
    "The fixed exchange rate also caused both monetary and nonmonetary (real) shocks to be transmitted via flows of gold and capital between countries. Therefore, a shock in one country affected the domestic money supply, expenditure, price level, and real income in another country."

    b) Gold is inefficient:
    "Milton Friedman estimated the cost of maintaining a full gold coin standard for the United States in 1960 to be more than 2.5 percent of GNP. In 2005, this cost would have been about $300 billion."

    4) " Is it a coincidence that we have the highest level of personal, business, and government debt that the world has ever seen? " Answer: "Yes"

    The Fed is not the only central banking system. Your "fact" does not support your conclusion unless the US had the only central banking system.

    5) "What you could buy for $1 in 1913, the year the Federal Reserve was created, would cost you $22.10 today. Stated in another way, $1 today is worth 4.5 cents from 1913, or a lose in value of 95.5%."
    Welcome to the basic notion of finance. A dollar today is worth more than a dollar tomorrow. Always and throughout the universe, this is true. Hell, substitute a gold brick for dollar. A gold brick today is worth more than the same gold brick in a year. Don't believe me? Give me a gold brick. I'll give it back to you next year.

    6) Origin of banking. You are wrong.
    http://projects.exeter.ac.uk/RDavies/arian/orig...
    "The invention of banking preceded that of coinage. Banking originated in Ancient Mesopotamia where the royal palaces and temples provided secure places for the safe-keeping of grain and other commodities. Receipts came to be used for transfers not only to the original depositors but also to third parties. Eventually private houses in Mesopotamia also got involved in these banking operations and laws regulating them were included in the code of Hammurabi."

    Or Wiki (http://en.wikipedia.org/wiki/Banker#Origin_of_t...
    The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Florentines bankers, who used to make their transactions above a desk covered by a green tablecloth. However, there are traces of banking activity even in ancient times.

    "In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Rome—that of the Imperial Mint."

    7) The purpose of money is to provide an efficient means of exchange without bartering. If we can't start with that basic notion, then this discussion is pointless.

    8) I completely understand your need to be right. You're not.
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    1) I wasn't patronizing you. I was inviting you to examine the Federal Reserve. You attempted to make the case for the Federal Reserve through sarcasm. I was simply stating all of the ways in which the Federal Reserve does not fulfill it's mission.

    2) Any links I posted were only to give you information. I was not attempting to kill you.

    3)a) Many of these so called "shocks" can be attributed to those countries having spent there wealth. Thus the necessarily lose there gold (the representation of wealth).
    How about a quote directly from your link:
    "It was also a period of unprecedented economic growth with relatively free trade in goods, labor, and capital."
    "The gold standard broke down during World War I, as major belligerents resorted to inflationary finance, and was briefly reinstated from 1925 to 1931 as the Gold Exchange Standard. Under this standard, countries could hold gold or dollars or pounds as reserves, except for the United States and the United Kingdom, which held reserves only in gold. This version broke down in 1931 following Britain’s departure from gold in the face of massive gold and capital outflows."
    Read that last sentence as, Britain spent all of their money and then decided it would be easier to print it instead of keeping it tied to gold.

    Please don't get mad, this is just what I read from the link you sent me.

    b) I understand that Friedman was not fond of a Gold standard, but he was much more set against the Federal Reserve. But let’s examine the quote as fact. It may well cost 2.5% of GNP but it currently costs at least 2% of the value of all dollars in existence to maintain a Federal Reserve System. How much is that? I don't know, no one knows for sure.

    4) I don't understand your reply. How could it be a coincidence? Ask your self where this debt has it's origins and you might well find the answer to be Federal Reserve policy.

    5) "A dollar today is worth more than a dollar tomorrow." You are absolutely correct on this point and the reason is inflation. However you are completely wrong about gold. It has maintained is value relative to other goods and commodities for centuries. I would gladly loan you a bar of gold today for return of it in a year, if I knew you were good for it. By the way the "dollar today is worth more than a dollar tomorrow" thing has more to do with the time value of money and investment returns than anything else. The Federal Reserve could after all follow its mission and keep the value of the dollar stable and inflation would be no concern and I would be delighted.

    6) This is exactly what I was talking about. Money was tied to the commodities that were being stored, not to the printing of fiat money. Each receipt was tied to a physical thing that had come about through someone’s labor. This is what real wealth is. The receipts allowed for easy exchanges. This is exactly the purpose of the gold standard and its origins. The origin of the word bank has nothing to do with our conversation, but I do like your first link, it is exactly what I was talking about in a more general sense.

    7) I agree. But now you have to ask yourself what you are exchanging. When you a