Counter Economics

What would you do if you learned that your government had outsourced its central banking function to a private company? Furthermore that this company had only a loose affiliation to the government, and that the government have very little oversight into this entity both in terms of controlling its behavior and being able to see what this private company was doing. Would it surprise you to learn that, if you are a US citizen, that your government already has done this and actually there is nothing new in that privatizing the central bank was performed back in 1913.

What Does a Central Bank Do?

A central bank does a number of important things, but the most central to its role are the following:

• Creating money
• Controlling the money supply
• Setting interest rates (this is done through what is called the Federal Funds Rate – which is the rate they loan money to banks)
• Loaning money to banks

The central banking function is considered both one of the most important roles of government, as well as one its greatest powers. What is most unusual is that any government would give up this right to a third party, and how this happened, and the fact that it did happen tells us a lot about in effect who is running the country. That is, any government that can be persuaded to sign over its right to the central banking function, may indicate that the government may not be as powerful as one would presume that a government ordinarily is.

How Does the Fed Create Money?

The first idea to dispense with to understand this concept is paper money. Paper money is a physical representation of money, but it is less and less important as transactions are increasingly electronic. Therefore, money is increasingly accounting entries. Of the money that you have, unless you are a rare coin collector or a goldbug (someone who hoards gold), the vast majority of your money is a ledger entry at the bank of your choice. This ledger entry is supported by only a small fraction of reserves as your bank. The bank has the right to do this because  they have been deputized by the government to do so.

Now if the Fed wants to increase the money supply, they have a number of mechanisms they can do so. First they can reduce the federal funds rate, which is stimulative (causing more banks to borrow). Second, they can offer to make more loads to banks. Roughly speaking, for every $1 a bank receives, it can loan out $10 (called fractional reserve banking). Where does the Fed get this money from? Well, that is the thing, and why the Fed is so powerful. They can create money from air. They have been given this power by the government.

The Fed is nothing more than an organization that is a front for large banking interests. This is in the same way that the Cato Institute or Hoover Institute are fronts for large business and defense interests. The Fed is not only an example of a privatized central bank, many of the owners of the Fed are not even US banks. Controlling banks include a number of banks in Europe.

1. Rothschild Bank of London
2. Warburg Bank of Hamburg
3. Chase Manhattan Bank of New York
4. Warburg Bank of Amsterdam
5. Rothschild Bank of Berlin
6. Lehman Brothers of New York
7. Lazard Brothers of Paris
8. Kuhn Loeb Bank of New York
9. Goldman Sachs of New York
10. Israel Moses Seif Banks of Italy

We don’t like using the term “international banking cartel.” However, we are not aware of any other similarly important government function that is both privatized and also owned by foreign firms. This would be like learning that the Pentagon has as one of its member companies, companies in Fiji or Russia, or that the State Department is taking orders from the Illuminati. We can only conclude that central banking must not be as important as we thought it was!

Why a Private Fed?

Understanding how powerful the Fed is question arises as to why it is in private hands. And in fact, there are a number of experts in this field who believe that the current privatized Fed is unconstitutional and therefore illegal. We have been waiting for a lawsuit to be brought to the Supreme Court to test the constitutional validity of the Fed, but none have been forthcoming that we are aware of.

The Fed website seems to pretend that it serves a public interest function. They have tips for avoiding foreclosure scams. However, there is an inconsistency in their behavior. In the late 1990s when approached by the District Attorney of Cleveland about lending abuses by their member banks to low income households, they did absolutely nothing. The Fed behaves in ways that promote the interests of banks. Their public interest function is not apparent.

Who’s Interests Does the Fed Represent?

This issue of who’s interests the Fed represents is a critical one. There is evidence provided by cepr.net that in the early days of the current financial crisis that Fed Chairman Bernanke actively exacerbated the financial crisis through reducing liquidity through reducing its purchases of commercial paper. The reason this was done is that because the major banks were insolvent, and under federal law would have gone into receivership, and this would have caused the management of these banks to be removed. When one sees that one of the Fed’s owning banks is Goldman Sacks, and the Treasury Secretary at the time was the former CEO of Godlman Sacks, its not hard to see where the term “thick as theives” came from.

Paulson and Bernanke had the same employer….but its not the employer you think. Its actually Goldman Sacks and other controlling banks of the Fed. This is utterly masterful, both men pretending to work for the US government, when in fact that work for the banks that own the Fed. The banks control both the Fed and the Treasury. Because of this control of both of the major finanical branches of the US, they have the ability to collude in order to rig financial markets. For this reason it is not surprising that the bailout has been so bank friendly.

As for Bernanke, its important to point out that he lies for a living. He pretends that he works for the government when he does not. He may have a PhD in economics, but he is no longer an economist. He is now a professional actor, and he has only one role, he is paid to serially misrepresenting himself through his role as Fed Chairman.

What that major banks wanted, and what Bernanke wanted as he represents those interests, was a major bailout of the banks my taxpayers. This bailout would allow what are essentially his friends or his board of directors to maintain their management positions at these banks.

Conclusion

At last tally over $1.2 trillion has been loaned out from the Fed to banks, and that is actually an old figure. When asked about this in a congressional hearing, a representative of the Fed stated that they did not have the “specific list of banks” that received money (in fact, they did not name a single bank). The answer given was that they did not like to publicize this list as it could cause banks to be less likely to borrow from them. What should be remembered is that this is not technically the Fed’s $1.2 trillion. They have only been deputized to create this money by the US government, and without the US government, the Fed is nothing. However, what appears to be the case is that the Fed does not only not report to the US government, but they do not owe the government any accounting of where or to whom the money that they loan goes. That is a serious problem that needs significant investigation. Ron Paul seems to be one of the few congressmen who have had a long term interest in this topic.

In this excellent video by the Real News, a Fed representative refuses to provide specific banks that at least $2 trillion have gone to. Not being a government organization, they are actually not required by law to answer questions of any detail from Congress. That is why their testimony in front of Congress is primarily a dog and pony show.

Quote on this topic from Thomas Jefferson

“I believe that banking institutions are more dangerous to our
liberties than standing armies. If the American people ever allow
private banks to control the issue of their currency, first by
inflation, then by deflation, the banks and corporations that will grow
up around [the banks] will deprive the people of all property until
their children wake-up homeless on the continent their fathers
conquered. The issuing power should be taken from the banks and
restored to the people, to whom it properly belongs.”

References

http://en.wikipedia.org/wiki/Federal_Reserve_Act

http://www.geocities.com/CapitolHill/Senate/3616/flaherty3.html

http://land.netonecom.net/tlp/ref/federal_reserve.shtml

How the Federal Reserve complete failed in its duty to manage the credit and money supply of the US economy during the boom years.

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/systematic-risk-regulators-and-the-power-of-arithmetic/