The
Fed has been hijacked
It is preposterous to suggest that the Fed, as it exists today, has come about through evolution rather than revolution. In fact, the change has involved nothing less than the overthrowing of the U.S. Constitution making it incumbent upon the federal government to establish the U.S. Mint and to keep it open for the free and unlimited coinage of gold and silver by the people. In this way the Constitution has delegated the power of creating money directly to the people. It is this power that, as a result of the revolution, is now usurped by the Fed. As all usurpers, the Fed is a law unto itself that tolerates no restriction on its power. The question who really owns the Fed, no less than the question who really owns the gold confiscated from the people in 1933 and now held at Fort Knox, with gold certificates against it held by the Fed, is a red herring. The Fed is nominally owned by its member banks, but its modus operandi betrays the truth. After the gold standard was destroyed by the U.S. government, the Fed has been hijacked by a clique that runs it without any regard to ownership, the Constitution, the law or, for that matter, to the vital interests of the American people. Who Gets the Loot? I shall justify this outrageous claim by discussing the real question how the earnings of the Federal Reserve banks are disposed in violation of the law. The Federal Reserve Act, Section 7 (as amended, June 16, 1933) mandates that the net earnings of each Federal Reserve bank be paid into the surplus account of that bank. Note that this provision does not add to the profits of the member banks, which is limited by law to 6 percent per annum of the value of their paid up stock. It merely strengthens the capital structure of the Federal Reserve banks and, therefore, increases their capacity to serve commerce, industry, and agriculture. The law as it stands does not allow the U.S. Treasury to participate in the earnings of the Federal Reserve banks. Yet in 1947 Fed Chairman Marriner Eccles set a precedent, establishing a practice that has continued year after year down to this day, to hand over 90 percent of net earnings to the U.S. Treasury. Instead of presenting to Congress a proposal for amendment of the Federal Reserve Act, as proper procedure required, Chairman Eccles decided to violate the law and to dissipate the earnings of the Federal Reserve banks. An ethical issue makes this official violation of the law particularly significant. The bulk of the Federal Reserve banks’ assets, contrary to the original intention to run the Fed as a commercial paper system, are Treasury bonds. The bulk of their earnings are interest income derived from Treasury bonds. Most of these interest payments are quietly and illegally refunded to the Treasury. Thus the assets backing Federal Reserve notes are, for the most part, non-interest-bearing Treasury bonds or “strips”, the value of which is grossly overstated in the balance sheet. The interposition of the Fed between the U.S. Treasury and the public in the money-creating process is a sham. The “open market operations” of the Fed is a sham. The dollar is being created in violation of the law, by pure fiat, at the whim of appointed officials arrogating unlimited power to themselves; this in a republic where government is supposed to be based on limited and enumerated powers. The roundabout nature of the dollar-creating process serves the purpose of fooling people. The Fed could very well be abolished, and the U.S. Treasury could issue fiat dollars directly, reducing the budget deficit of the federal government in the process. If it doesn’t, it is because it wants to pull the wool over the eyes of the public. It wants to maintain the pretense that a central bank independent of the government does the issuing as dictated by market forces. Hereby the true fiat nature of the dollar is revealed. Only simpletons believe that there are solid assets backing the dollar. A Tale of Twelve Shills The bond market has been turned into a casino. The gamblers are bond speculators, including all the major banks. The manager of the casino has hired twelve “shills” who play and win big at the gaming tables in order to perk up gambling spirit and to keep it high. At the end of the day the shills must return their winnings to the owner of the casino. These shills are none other than the twelve Federal Reserve banks. The value of Treasury bonds is maintained through fraud. Today nobody in his right mind would hold his savings in bonds, as was the case before 1913 when the rate of interest and bond prices were stable and, hence, bond speculation was non-existent. Thus the logical basis of the value of bonds has been shattered. In the present environment the value of Treasury bonds is maintained by virtue of letting them serve as chips at the casino. People have to buy them if they want to play. As more and more chips are issued, the shills must become more and more active to prevent gambling spirit from sagging. The fraud of pretending that Treasury bonds have any real value at all, and that the destiny of the underlying debt is to be paid, is exposed. If it wasn’t for the $100 trillion derivatives markets in bond futures and options, Treasury bonds would become worthless, and so would the dollar. These derivatives markets must spin ever faster in order to keep the value of Treasury bonds from collapsing. The shills can postpone the day of reckoning but cannot avoid it. Messrs. Greenspan and Bernanke could be reckless in using the printing press, as they have publicly said that they would do, but that should only make the dénouement, whenever it came, even more horrible. ©Antal
E. Fekete |
The Federal Reserve
System (Fed), the guardian and advocate of the regime of the irredeemable
dollar, is very different from the Fed as it was created by Congress
in 1913 at a time when no sane man would have questioned the legitimacy
or even the indispensability of the gold standard. The Fed was
set up to provide an elastic currency for the United States that
flowed and ebbed together with commerce, industry, and agriculture
which, according to Adam Smith’s “Real Bills Doctrine”, was fully
compatible with a gold standard. The Fed was conceived as a commercial
paper system. Assets balancing the note and deposit liabilities
of the Federal Reserve banks were supposed to be no less than 35
percent gold, with real bills (also known as self-liquidating bills
of exchange) making up the rest. Treasury bonds could only be held
in the asset portfolio if a penalty tax was paid, which provided
a powerful incentive to replace them with real bills at the first
opportunity. The alternative was, horribile dictu, the contraction
of credit.