by Shah Gilani, Money Morning
Special Report from Money Morning
The U.S. Federal Reserve’s promised to be the support pillar that holds up America’s capital markets.
And it’s promised to hold up the economy no matter how bad things get.
Too bad the price America’s paying – our way of life – is too high.
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Here’s the short story of how the Fed hijacked free markets and ushered in socialism – and how to win our freedom back…
The Federal Reserve System Is a “Racket”
It was and is an unnecessary-but-accepted scheme foisted upon America with the help of a duped and duplicitous Congress back in 1913.
After the infamous “Panic of 1907” that almost bankrupted the biggest banks in the United States, the most powerful bankers in the world at the time secretly designed a private central bank they’d own and control to backstop all their banks so they’d never face insolvency again.
In return for privatizing the currency of the United States, the system would lend the government money by buying any debt issued by the government, so politicians could spend what they wanted and run up deficits, if need be, to placate the citizenry and garner votes.
Of course, the bankers’ system gave them the power, since they owned and issued America’s money, to provide as much money to their constituent banks as they wanted… to lend out as much money to make interest on as they wanted… and to backstop them when their greed pushed them to insolvency.
Back in 1913, because of the Panic of 1907 and other good reasons, banks weren’t trusted. So, getting a bank scheme that would give bankers the keys to the country to pass Congress was seemingly impossible. That’s why there was no mention of “bank” in the new central bank legislation.
America’s new private central bank was going to be a Federal Reserve System. “Federal” because it sounded like a government entity or branch of the government. “Reserve” because it implies safety. And “System” because no one would ever trust a bank.
The Federal Reserve Act was greased through Congress and signed into law by President Woodrow Wilson, whom the bankers helped get elected, on Christmas Eve of 1913.
Fast-Forward to Modern History
There’s a lot of frightening and freaky Fed history in between, but I said I’d make this a short story.
The Fed, because it had been masterfully manipulating interest rates for years under the false prophet – or Maestro, as he was called – Alan Greenspan, saw fit to manipulate rates lower for longer heading into the feared turn of the millennium (1999 to 2000). Then he continued lower for longer when the tech wreck hit, and lower for longer still after that because he thought that would be his legacy.
The cumulative rounds of low and long were eventually enough to let the subprime mortgage machine eat America alive.
We know what happened then.
The banks that drove themselves to insolvency had to be rescued – or at least the TBTF banks were.
Thank goodness we have the Federal Reserve! everyone cried, not realizing the Fed “firemen” who rescued the banks started the fire in the first place.
People forget.
Then, to save the country and their constituent banks from the Great Recession, the Fed kept rates lower for longer yet again.
All the dead wood that should have been cleared from the economy kept piling up. This included zombie companies being kept alive by leveraged loans that were packaged into more junk, as well as other structured products that kept useless companies alive.
Meanwhile, the banks looked good and safe – that is, until the coronavirus crisis hit, or more specifically, just before the virus struck. That’s when it was discovered there was no liquidity in the fed funds market and the Fed had to step in again to help its biggest banks.
Then the virus really hit.
The stock market tumbled, and the capital markets panicked.
Enter the Fed
Like Superman to the rescue, before they were called to the crisis, the Fed takes over the capital markets by promising it will buy anything and everything, including corporate bonds, and munis, and ETFs, and CLOs and, like I said, anything and everything.
And equity markets rose, with a vengeance.
And the capital markets stabilized.
And the government said they’d do their part if the Fed backed them.
And out of nowhere, without any debate, we have instant MMP; not MMT – Modern Monetary Theory – but MMP – Modern Monetary Policy.
Now we know there’s no end to what the Fed can buy.
Now we know with the flip of a digital switch, there’s trillions of dollars wherever it’s needed.
Now we know the Fed can make universal healthcare happen.
Now we know the Fed can erase student loan debt and make education for everyone free.
Now we know the Fed can make universal basic income a reality.
How do we know? Because we have universal basic income – it’s already started. Try putting that back in the can with 40 million Americans unemployed.
We’ve turned socialist, and no one’s talking about it.
Our capitalist democracy is gone.
There is no free market, no price discovery, no creative destruction.
There’s only the Fed and the slide into socialism.
If there was no Fed manipulating the economy and capital markets for the benefit of its banks and bankers, the banks that rule us would have been turned into utilities, which is what they should be, which is what their function in society is.
But banks rule, and now their master has us under its total spell.
Thank goodness they’re here to save us.
No election necessary. No vote by mail required.
We’re socialists now. It’s already happened.
If we want to undo it and save our way of life, we better dismantle the Fed, take our money supply back, “utilitize” the banks, and free our economy and citizenry from the yoke of misery and socialism.
It’s not the coronavirus we have to fear, it’s the Fed itself.
