On December 23, 2013, the Federal Reserve System will celebrate 100 years of centralized banking and printing funny money. The creation of the Fed marked the beginning of America’s rampant inflation rate. For the first 125 years of American independence, inflation of any significance did not occur. What $1.00 purchased in 1789 could be had for a very reasonable $1.08 by 1913. Measure that against what it costs today for the same amount of goods; roughly $25.00. This means the current value of today’s dollar is about .04 cents of what it was in 1913.
Ostensibly, the Federal Reserve System was put in place to prevent “bank panic,” stabilize the dollar and resist inflation. Democrat President Woodrow Wilson was convinced that “central planning” by the federal government could replace incremental market forces. He’d been influenced by a work of fiction called Phillip Dru: The Administrator, which glorified intrusive governmental intervention into every aspect of American life. In it, Colonel House – the book’s author and “adviser” to President Wilson – weaves a tale of “enlightened” central planning as a means to achieve “social justice.” So Wilson believed a Federal Reserve System would end poverty and cure all manner of imagined market woes. In a novel, even the most implausible concepts don’t have to be impossible.
It is important to note that the Great Depression did not happen until nearly two decades after the Federal Reserve System came to be. Socialist thinkers and Keynesian economists seem to believe that Capitalism itself was responsible for the market collapse. An interesting position to hold, considering that the 1929 stock market crash happened 15 years into the Fed’s command & control doctrine. The very same policies which were put into practice as a means to eliminate even the possibility of anything like that occurring can be directly linked to the Crash. They are also responsible for the Great Depression lasting 15 years longer that it should have. America should remember that, as the nation celebrates 100 years of the Federal Reserve System pumping trillions in virtually counterfeit funny money, into the economy.
The terms “banknote” and “demand note” describe documents issued and guaranteed by a private bank, delineating its obligation to pay the bearer a “dollar” of gold on demand. The term dollar didn’t start out as a monetary value; it was a physical measurement of weight, like a Troy Ounce or a British Pound. The private banks which issued demand notes could only stay in business if they were able to honor those obligations. The integrity, intelligence and dependability of a bank’s management would determine if a bank was a success or failure. Bank panics could sink a bank which was run improperly, but they had little to no effect on most institutions.
Private banks would also transfer funds and debt instruments between other private banks, across the nation. Which meant they all had a serious need to remain honest and trustworthy, as members of the American private banking industry. Self-regulation works very well in privately held industries, because the people ultimately responsible for the industry’s continued success, work tirelessly to ensure it.
The Federal Reserve System suffers no such obligations. It has no competitors, no industry peers and allows no audits of its inner workings. Instead of private banks acting with enlightened self-interest, America is now saddled with a largely unaccountable, mostly invisible system. It manipulates the supply of money, rates of interest and acceptable practices; it operates on the concept that gurus, soothsayers and “experts” work some form of financial mysticism. The open operation of market forces are no longer allowed to determine the dollar’s value and supply.
The American dollar is no longer real; it isn’t backed by specific quantities of gold or silver any more. Instead, American dollars are only worth the promises of additional debt; multiples of trillions incurred by faceless bureaucrats and irresponsible politicians. The general public is lead to believe the Federal Reserve System is working in America’s best interests, then encouraged to celebrate it printing funny money out of thin air for the past century.
Editorial by Ben Gaul