Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

The Fed Scam: An Example of Confusion

admin by admin
March 9, 2014
in Uncategorized
0
0
SHARES
11
VIEWS
Share on FacebookShare on Twitter

Written by John Lounsbury

The Documentary of the Week just published is a confounding mixture of fact, misrepresentation and opinions some of which are sound (based on facts) and others are, well, just opinions. The video presentation is also missing any suggested actions to be considered (other than suggesting the viewer should buy gold and silver which is the sponsor’s business). This was originally to be an accompanying discussion of the video. It simply got too long for that and is posted separately here.

fed-bldg-380x180

Some (but not all) of the probelms I have with the presentation are addressed individually in the following.

1.  How Money and Banking Works

Loans are not created by lending a fraction of deposits as represented in the video. This idea comes from an outdated concept called the loanable funds theory of banking. While it is still used in basic economics courses (as a model), it bears no relationship to the way banking actually works. Bank loans are created based on assets as security (a house, a car, a business, future earnings, etc.) and the money so lent becomes bank deposits. Thus, in the real world of money and banking, loans create deposits, not the reverse process.

As to the application of the loanable funds model, Prof. Gary Evans, Harvey Mudd College at the end of Chapter 3 of his unpublished book:

These examples offer an introductory exposure to the loanable funds model. The model can generally be applied for at least introductory analysis anywhere the issue of interest rate determination arises.

A footnote in the same Chapter 3 explains that the actual operations of the Federal Reserve are too complicated to include in the discussion of the loanable funds model:

3The mechanics of Federal Reserve policy and open market operations are too complex to describe here. Students will normally see an explanation of Federal Reserve policy in some other segment of a macroeconomics course. It must simply be accepted as a matter of faith here that the Federal Reserve System can, at will, increase the supply of credit in the U.S. economy.

The confusion about how money and banking actually operates is not isolated to this video; examples of leading economists mistakenly using the model to represent the real world occur all too often.

2.  Monetary System Problems Need Monetary System Solutions

The process described in the video clearly shows the problem with the current system. The system provides private banking as a middleman in money creation for government operations. The condemnation of banks for siphoning money from the real economy is correct in my opinion. However, a solution is not presented in this video. Notice that the presentation is by “Gold, Silver and Mike Murphy”. Sponsoring web sites are selling gold and silver coins. The invitation is made to join a discussion on how to create a better monetary system.  I have not yet found such a discussion in any of the sites visited thus far.   Perhaps I need to watch more of the videos?

This particular video may be primarily an attempt to use education, albeit somewhat confused, to sell gold and silver. What is needed is a discussion of alternative monetary systems. I do not not feel that necessarily should be restricted to systems backed by gold, silver or any other commodity. This video does not offer any specific suggestions about what should be done so I am confused about what discussion the presentation is trying to start.

3.  Who Owns the Federal Reserve Bank of the United States?

The video maintains that the Federal Reserve Bank is a private corporation and cites the fact that it has shareholders (banks) in the private sector. It points out that the Fed pays a dividend to these shareholders at the rate of 6%. The video does not tell us what the cash value of the dividends is. The video does not describe what are the “earnings” for the Federal Reserve; nor does it account for where the earnings go.

First, the 6% dividends are paid on the paid-in stock value of the Federal Reserve to the member bank stockholders. In 2011 that total value of the paid-in stock was $26.3 billion. The 6% dividend amounted to $1.58 billion. After expenses and dividends, the balance of earnings is paid by statute to the U.S. Treasury. In 2011 this amounted to $75.4 billion (almost 48 times as much as to the banks). From 1914 through 2011 the following accumulated totals have been reported by the Fed: Net expenses, $81.3 billion; dividends paid, $44.1 billion; and earnings returned to the U.S. Treasury $886.5 billion, of which $842.3 billion was return of interest paid by the government on Treasury securities owned by the Fed.

GEI News reported the figures for Fed operations in 2013 on 11 January 2014 and displayed the following graph:

With the 2012 and 2013 payments added, the Fed has paid the U.S. government more than $1 trillion over its history and the bank stockholders have received less than $50 billion.

The question of who owns the Federal Reserve is still an open question and is not an open and shut case as the video would have you believe.  I have argued that the best characterization would be it operates as government sub-contractor.  That characterization has not been supported by most.  Others want it either to be identified as part of the government or as a private corporation.  The majority of those we have interacted with have taken the position that the Fed is part of the government.  I’m sticking with the little supported subcontractor characterization.

The numbers presented here are all readily available in the Federal Reserve Annual Reports.

An interesting and quite unbiased discussion of Who owns and controls the Federal Reserve is available at USA Gold.com

4.  Comments at The Hidden Secret of Money

It is clear that most of the commenters know only what the video has told them and do not have an inkling of the aspects of money and banking that the video has omitted or misrepresented. It is also clear that some commenters are sold on the value of buying gold and silver, which is the motive of production of this video I have inferred. This is obviously an effective sales presentation. I would ask those so convinced to buy gold and silver the following question: If you think the sellers believe what they are telling you, why are they accepting your worthless money for their gold and silver? Just to get a small sales commission paid in the same worthless currency? A few commenters on YouTube are a little more contentious than on the originating site and some ask this question.

5.  Is Printing Money Unconstitutional?

The video claims that the creation of currency by the U.S. government in any other form than coins of gold or silver in the amount of the coin value is unconstitutional.  All standing rulings by the U.S. Supreme Court (SCOTUS) have found that paper money is constitutional and there is no standing ruling that any relationship to gold or silver is required by the constitution.  There was a ruling by a shorthanded SCOTUS in 1870 that declared unconstitutional the issuance of fiat greenbacks by the Lincoln administration during the Civil War.  That ruling was overturned the following year by a fully staffed court and that has not been changed by subsequent rulings.

So how can the video site a quotation about money only being gold or silver? The quote you see in the video is from the first paragraph of Article I Section 10 which reads in total:

No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

This relates to the powers of the states. The video totally ignores that and leaves the impression that it applies to the federal government.  The use of the words is pure and simple a slight-of-hand.

The video failed to present the section of the constitution that deals with the power of the federal government, which is Article I Section 8; it specifically includes in the list of enumerated responsibilities:

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

The SCOTUS (previous link) has established that the verb “coin” applies to the creation of money in any form, be it metallic or paper. Presumably a logical extension would be that the government could also use plastic, wood chips, sea shells or any other material it selected on which to “stamp” or “print” the assigned value.  An aside, only the federal government is authorized by the constitution to do this, for the very next enumerated responsibility after the one above is:

To provide for the punishment of counterfeiting the securities and current coin of the United States;

Summary

The misrepresentations made by the video in regard to creation of money are enough to dismiss the entire presentation as a fraud.  However, the guile of the video is that it is an artful mixture of real facts and sound opinions, along with misrepresentations and unsound opinions. Econintersect considered carefully before posting this video but decided to test the ability of our readers to discern truth from fiction. Therefore it is presented along with my lengthy disclaimer written here.

The video correctly identifies the debt-slavery relationships of our current monetary system.  However, the presentation does not present an alternative.  There are other videos in the series at The Hidden Secret of Money website and alternatives may be discussed in some of them.

It is my opinion that the current monetary system, which has the U.S. government paying interest to use U.S. currency, is not an efficient system for the economy as a whole.  It is a very efficient system for private banking interests to siphon money out of the real economy of goods and services.  But what value does that offer the economic welfare of all that is not banking?  If the argument is that it is a management process for regulation of the currency needed by the economy then that process is a considerable failure.

In view of the decline in the relative purchasing value of the dollar over the last 100 years, the American people should demand a return of all money made by the banks for operations dealing with the creation of money using the “faith and credit” of the U.S. government.  The claim for a refund would be “failure to perform”.

Since that is not a feasible option, my next best option is to modify the money creation system so the banks create money for the private sector based on the credit worthiness of those who seek private financing, and public expenditures should be made with money created directly by the government. The value of the dollar should be protected by sufficient taxation to remove money in excess of that needed to maintain a fully operational economy with limited inflation. In such a system, excessive credit issuance by banks that created inflation in any area (cost of living, commodities, assets, etc.) could be counteracted by a combination of reduced government spending and/or increased taxation.

Such a system would put banks in a position where any could fail without destroying the economy and the unholy alliance of government backing TBTF (too big to fail) banks would be ended.

There are many operational details to be pinned down in the separation I have proposed. Even opening the discussion would be strongly opposed by the banking sector because their lucrative monopoly on creating government backed money would be over. They would have to compete to provide needed services rather than have a guaranteed cut from every government operation. One avenue to follow would be to transform the Federal Reserve into the role of a public bank, as has been discussed previously (here, here, here and here).

An oversimplified summary slogan would be: Private money for private enterprise and public money for public operations.

Now go back and enjoy the video, or if you have watched it once, watch it again.


Previous Post

Documentary of the Week: The Fed Scam

Next Post

The Week Ahead: Evaluating Risk and Reward for Stocks

Related Posts

Bitcoin Flirts With $24K, How High Will It Go?
Economics

Bitcoin Flirts With $24K, How High Will It Go?

by John Wanguba
February 3, 2023
Venezuela's PDVSA Toughens Oil Prepayment Terms
Business

Venezuela’s PDVSA Toughens Oil Prepayment Terms

by John Wanguba
February 2, 2023
German Economy Unexpectedly Contracts In Q4, Renewing Recession Fears
Economics

German Economy Unexpectedly Contracts In Q4, Renewing Recession Fears

by John Wanguba
February 2, 2023
Judge Dismisses Proposed Class-Action Suit Claiming Coinbase Securities Sales
Business

Judge Dismisses Proposed Class-Action Suit Claiming Coinbase Securities Sales

by John Wanguba
February 2, 2023
Aesop Targeted In $2bn Bidding War Between French Groups
Business

Aesop Targeted In $2bn Bidding War Between French Groups

by John Wanguba
February 1, 2023
Next Post

The Week Ahead: Evaluating Risk and Reward for Stocks

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins banking banks Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business China crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi Elon Musk ETH Ethereum Europe finance FTX inflation investment market analysis markets Metaverse mining NFT nonfungible tokens oil market price analysis recession regulation Russia technology Tesla the UK the US Twitter

Archives

  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Bitcoin Flirts With $24K, How High Will It Go?
  • Venezuela’s PDVSA Toughens Oil Prepayment Terms
  • German Economy Unexpectedly Contracts In Q4, Renewing Recession Fears

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish