Fed up? Fed out!

Today, I’m going to explain the Federal Reserve System. Hey, where ya goin’?

First: It’s not really federal. Nor are there reserves. (Not many, anyway.) It is a system, however. (Well, a scam, actually, but those behind the 1913 Federal Reserve Act that birthed the Fed bypassed that identifier, for some reason.)

And, prey (that’s you), who backed the act?

Oh, just everyday folks with names like Rockefeller, J.P. Morgan and Rothschild who, a century ago, joined forces to saddle the U.S. with a central bank that, naturally, they’d control, in turn giving them control over the country’s money supply.

Alas! If only our nation’s framers had been smart enough to anticipate a ploy like this and thus guard against it in the Constitution.

Um, turns out they were. Fresh off the colonies’ disastrous experiences with non-stop printing presses churning out worthless currency both before and during the revolution, the founding fathers made sure to constitutionally preclude both Congress and the states from issuing “bills of credit.” In other words, paper money. Silver and/or gold-backed coinage was to be the name of the game.

Creating the Fed, which comprises twelve private banks spread regionally throughout the U.S., was an end run around that, with the sleight-of-hand working this way: Congress authorizes interest-bearing IOUs (bonds and notes) to be sold to the Fed, which in turn gives Congress oodles of paper money created from thin air and backed by nothing, an amazing alchemical process authorized by, well, Congress.

Though a dozen banks are involved in the con, er, system, the head bank is and always has been the Fed’s New York branch. (Isn’t it a remarkable coincidence it was mainly the obscenely wealthy Big Apple banking interests that pushed the Fed’s creation in the first place?)

It’s obvious what’s in it for the bankers, but how about Congress? Well, our “representatives” get money whenever they want for whatever they want. This comes in handy for buying votes back home, uh, I mean, for serving their constituents, like agribusiness, Big Pharma, weapons manufacturers, etc. Oh, and also those in the banking industry who, if they screw up the economy by being greedy little pigheads, can be duly punished by being given trillions more faux dough scot-free by, who else?, Congress.

Let’s hope this never happens.

Interest off bonds isn’t the only perk for the Fed (or bankers in general). But don’t even get me started on fractional-reserve banking. Otherwise I’d have to tell you how a few folks with a soft spot for things like usury will get a charter, start a bank, take deposits and then start loaning “money” at a nine-to-one ratio based on the total of those deposits (now redefined as “reserves,” ninety percent of which are dubbed “excess” and thus, abracadabra, available for lending). That’s right: they’re now loaning dollars that don’t exist. A few strokes on the ol’ keyboard and, voila, instant money!

It gets better. Once those loans are repaid and come back to the bank as deposits in other accounts, then that money is used as the basis to issue more nine-to-one loans. And so on. Can you say “pyramid scheme,” boys and girls? This is why what bankers fear most are bank runs, when lots of customers at one time are audacious enough to actually demand their account balances in cash, money that is nowhere to be found because the vast majority of it exists only in electronic ledgers. This is the very moment the magic of making money from nothing disappears — shazam! — and the locks and chains on bank doors materialize — sa-lam! — overnight.

Of course, those who created the Fed devised an ingenious way to guard against runs. It’s called the “lender of last resort.” Know who that is? It’s you!

This brainstorm was one of the main reasons for establishing the Fed in the first place. The rich and powerful bankers, tired of pesky competition from other banks and the distasteful specter of having to pay for good avarice gone bad, decided it would be much better to institutionalize an ironclad way to protect their profits. It took a few years and some political chicanery, but with a complicit president and a duped Congress (oh why does this sound so familiar?), they finally hit the jackpot by legislatively securing the mechanism by which they could place the taxpayer squarely on the hook, I’m sorry, more strongly underpin the economy.

Aren’t you thrilled to know you’re the one lending fabulously wealthy individuals even more money to tank the economy and put you out of a job? Just asking.

But how, exactly, during these times when things are a little tight and you’re considering the pragmatism of fattening up Fido, do you lend any money at all, let alone trillions? Why, through the insidious tax called inflation, of course. See, once the government, hand-in-hand with the Fed, goes nuts and sells bonds by the trainloads thereby resulting in untold un-backed dollars being pumped into the economy, inflation kicks in and the less those dollars are worth. If this is not apparent now, perhaps it will come to mind the next time you hook the oxen up to your cash-laden trailer to go buy a loaf of bread.

So, if the dollar has nothing to support it (and it doesn’t), just what keeps this fiat money afloat? Two things: a) our unshakeable, bedrock confidence in it (uh-huh) and b) because we have to. “Legal tender” laws ensure, under threat of imprisonment, that we’ll use dollars whether we like it or not.

When the government does something like this (puts money into circulation without backing), it’s called “monetary policy.” If we do it, it’s called “counterfeiting.”

OK, that’s enough misery for now. Who needs more gloom and doom anyway, especially these dire days? There is one possible silver lining, however, to the disaster that is our current economy: If enough pain manifests, perhaps a clamor will arise to throw the Fed and its worthless, debt-based system out on its money-changing ear, thereby precipitating a return to real money, backed by gold and silver, as codified by this country’s founders. A long shot, true, but stranger things have happened. For instance, who ever thought the Bush administration would actually leave the White House? (Now if we could just get Dick Cheney to go back to his home planet…)

by Mark Drolette