I’m writing this post in hopes of educating you more about what the Federal Reserve is, what it’s done to our economy, and what it will do to it in the coming years. For many, the Federal Reserve is assumed to be some governmental body that makes sure the country’s economy runs smoothly. Mentions of it in headlines usually arouse little to no attention from the general public. This is by design. Should the American people learn more about it, they’d certainly be demanding some changes. The impact the Fed has versus what is known about it is hugely inverse. Thus I find it critical to privy those in my network to more than a pedestrian understanding. Why? Because we are currently undergoing the largest upward transfer of wealth in human history. Who benefits? The ruling and elite classes that have engorged themselves since the country’s inception. Who gets pinched? The average American who just wishes to live a decent life and provide for themselves and their family.
What is the Federal Reserve?
The Federal Reserve is the central bank of the United States. It was penned into existence by Woodrow Wilson in 1913 via the Federal Reserve Act. The concept of the Federal Reserve wasn’t new at the time. For decades, Federalists (people who wanted a powerful, centralized government) supported its existence. Naturally, they would also want a centralized control on the country’s economy. Anti-Federalists (people who wanted a weaker, decentralized government), on the other hand, saw it as a huge threat to the sovereignty of the people and a massive overstatement of Federal powers. Said to have birthed after the Panic of 1907, where the stock market dropped over 50% in three weeks and induced a recession, the Fed was the supposed answer to the money woes of the nation. The recession lasted over a year. In response, Congress created a commission to investigate and ideate legislation to prevent further banking and market panics. Leading this commission was Republican Senator, Nelson Aldrich. After about two years of little to no progress, Aldrich went somewhat rogue to make headway. His accelerated approach was to gather high-powered bankers and politicians clandestinely on Jekyll Island, Georgia to come up with a solution. In attendance were some of the world’s richest men. What better way to help the average American worker living on a few dollars a day than to convene some of the most cut-throat and powerful men in the country to address governmental policy? Knowing the public had an inherent distrust in centralized power, the group thought it wise to have a solution that would appear decentralized, but was inherently one national entity. In 1912, Aldrich put forth the plan to the United States Senate. In 1913, the Federal Reserve Act was penned into existence by Woodrow Wilson. All of this was done without consent from the American public as it was done behind closed doors and propagandized by the corporate press to be nothing but a positive thing.
Quick-facts about the Fed
- The Federal Reserve is a private entity. It is not a government agency like the police, National Park system, or military.
- It is the central bank of the United States.
- The Fed can’t be audited and is not subject to the Freedom of Information Act. American citizens know very, very little about the actions the Fed takes outside of what is made public.
- Since its creation in 1913, the dollar has lost nearly 96% of its value.
- The first Great Depression happened within two decades of its inception.
- The Fed has the ability to mint dollars without the consent of the public who uses it.
I bet this information is new to you. It was for me. It’s a bit alarming, no?
The Dangers of the Fed
There is a term in economics referred to as the Cantillon Effect. Described by the American Institute of Economic Research, the Cantillon Effect is “the change in relative prices resulting from a change in money supply. The change in relative prices occurs because the change in money supply has a specific injection point and therefore a specific flow path through the economy.” As the Fed mints new notes and adjusts the rates at which banks can loan money to each other, the Cantillon Effect is most prominent. As the definition states, there is a specific flow through the economy. The beginning of the flow often begins with the banks and the end being you and I–the general public. The beginning of this flow holds the most value with each progressive step losing more and more value.
Side note and feel free to skip: This is a perfect example of how we do not have a truly free market/capitalist economy. Instead, we have crony capitalism and semi-socialism where corporations and special interest groups can lure hard-earned tax dollars from State “public servants” to their wallets instead of being allowed to fail like most other businesses. Rather than allow businesses to fail–which then only allows the fittest and most ideal businesses to survive–the State artificially allows them to survive. Think of it like someone who has been 500lbs their entire adult life and has a failing heart. Instead of going on a diet and exercising, this person continues to consume an unhealthy diet and live a sedentary lifestyle. They know the risks but refuse to change. Due to years of neglect, their heart has become overtaxed and is due to fail. Instead of letting this person succumb to their life’s poor decisions, they receive an artificial heart to keep them alive. Unfazed and unwilling to change by the ordeal, the person proceeds to not change a thing about their diet. They continue on their downward spiral and will most likely encounter a worse crisis down the road. One certainlty awaits: cataclysm.
Why would new money creation not immediately impact dollar value? Well, whenever however -illions of dollars are newly minted, the effect of their creation is not immediately felt by the market. For a brief amount of time, the banks receive more dollars at the current dollar value. They are able to loan this money out for less and earn more in the future. As this money is transacted in the market, the overall value of the dollar declines.
Why is this problematic? Because we have a non-democratic, State-appointed entity that greatly affects the value of the dollar. What does this do to you and I? It undermines the dollars we worked hard for. Imagine working your ass off for years to make a stable living and have some investments you hope to cash out on in the future. You’ve spent hours of your day doing something you dislike for people you dislike in order to secure a future for you and your family only to have the wealth you’ve amassed mysteriously lose its value. Let’s not forget that at least an hour a day is spent working for the government via taxes, too. This is why the Federal Reserve is a threat to the average American. Under the auspice of “keeping the economy well”, the Fed can empty your wallet and in the same brush benefit the massively wealthy. In effect, the rich benefit while you and I watch our dollars devalue every day.
The Cantillon Effect benefits the ultra-wealthy, State-connected while diminishing the spending and saving power of the average American. Outside of now cheapening your cash reserve, any debts you have now become heavier. After the artificial injection of minted-money into the economy, the dollar inflates. This creates more “expensive” goods. If milk used to be $4 a gallon, perhaps now it becomes $5. This seems nominal, but through the course of your life, every single thing you purchase now requires more dollars to meet the value they once had. So as you’re having to spend more dollars to get the same goods, any debt you have now becomes harder to afford. Yes, the debt amount doesn’t change (if it’s a federal loan), but as more of your dollars have to go elsewhere, less of them can touch your principal. Who does that benefit? The banks, the banks, the banks.
- The State prints -illions of dollars and loans it to banks or other corporations. This influx of supply decreases the scarcity and thus value of the dollar. The capital you’ve amassed over your life is now worth less. To counter the devaluation, goods must increase in price to maintain the former value.
- Because your capital is worth less, and goods and services are worth more, you have less power to pay your debts. Thus, you are cast deeper into a financial hole that’s more difficult to climb out of.
As your hole has now become deeper and your shovel smaller, the corporate banks engorge themselves on your debt. Fucked up, huh?
Fractional Reserve Banking and the Cycle of Over-Lending
If you’ve read to this point, I commend you. You’re more interested in what’s truly going on and how it’s affecting your sovereignty than the average person who is content to live with their fingers in their ears and be passive participants in a broken system. We’ve covered the Federal Reserve and its effect on the economy. Now, let’s talk about their partners in crime: banks.
Do you remember in 2008 when Obama bailed out wall street? All that hope and change went mostly to the mega-corporations and the super-wealthy and not to you or me. One of the reasons banks had to be bailed out was because of a banking practice called “fractional reserve banking”. As defined by Investopedia, “Fractional reserve banking is a system in which only a fraction of bank deposits are backed by actual cash on hand and available for withdrawal. This is done to theoretically expand the economy by freeing capital for lending.”
Sounds nice, right? Done to theoretically expand the economy, huh? Such feigned altruism is typical of practices used to enrich the corporate banks. What the fractional reserve practice allows banks to do is to retain only around 10% of the money that they lend out. For example, if your bank account shows $100,000. There is actually only about $10,000 in cash actually held by the bank. This means banks are so confident that loans will be repaid and that customers won’t call their cash back at once, that they gamble on 90% of their deposits. I think you can imagine the fear that would strike Chase Bank if all of its customers went to withdraw their cash one day. The bank wouldn’t be able to pay. They don’t have the liquidity. The money they make you think you have isn’t truly there. Why would they be so brazen in their operations to utilize such practices? Partly because the Federal Reserve sets the interest rates in which banks are allowed to lend to each other. This is so that banks can maintain liquidity and appease regulations. As the Fed lowers and raises interest rates, the aforementioned liquidity is affected greatly. When the Fed set interest rates to 0%, they inherently provided free loans between banks who can be much more brazen with their lending. Because of this and the fact that the State insures accounts of up to $100,000, the banks can become much more risk-prone. This is most evident in the 2007/2008 recession caused by banks making bad loans to people who couldn’t really afford them. Who made out during that financial crisis? The banks! They were bailed out by the State while all those people who lost their homes were told to pound sand. This practice of over-lending enabled by the Federal Reserve caused one of the worst financial mishaps in our nation’s history.
You’d think banks would’ve learned their lesson. They didn’t. They didn’t have to. They were bailed out by the government. Why would they change a thing? If the government will come in and just print new money, why not stay the reckless course? This is where we are today. “Republican” president, Donald Trump, oversaw the most money ever printed.
The Dollar’s Decline
In the year 2022 alone, almost 20% of all U.S. dollars were created.
Let’s reflect on that for a bit.
In one year.
Imagine if a meteorite impacted Earth and increased the world’s diamond supply by 22%. Diamonds would become less scarce and less precious because of that. The same concept applies to the dollar.
Remember that I mentioned earlier about how the working class’ capital is being stripped of its value. You can certainly imagine that creating 22% of all U.S. dollars in a single year doesn’t help and is downright threatening to the security of millions of people. The fallout won’t be felt just yet. We may be able to kick the can down the road a bit more before finally falling off the cliff.
Runaway inflation may not be too far away. For example, Venezuelan cash has become so worthless due to inflation, that now the bills serve more purpose as crafts. Imagine a street corner in your neighborhood where a man trades Ben Franklin $100 bill necklaces for food. It’s not too far-fetched to imagine if the dollar’s value collapses.
If this horrifies you, good. It should. It horrifies me. I imagine you’ve lived your life responsibly. You’ve saved money, you’ve followed the rules, and you’ve really tried to secure a financial future only to have it ripped away by irresponsible fiscal practice and greedy corporatists. The tens of thousands of hours you’ve spent toiling to earn money have inherently become less valuable.
The dollar is the world reserve currency. What makes currency ideal for such a title? It’s reliable, safe, and consistent. Up until now, that has been the case. Even though the dollar has shed 96% of its value since the Fed came to exist in 1913, the dollar’s reliability allows us Americans to have a prime place in the world–for now. With the dollar no longer being backed by gold, it is now backed by coercing foreign nations, the largest and most violence-capable military on the planet, and the assumption that America is the world’s most dominant force. Now that 22% of dollars have flooded the world economy, what will that do the stability of its title of reserve currency? See, the dollar was a great option to use as tender in loans. If you loaned out $100,000,000 with an interest rate of 5%, you would most likely receive $105,000,000 at the end of the loan’s term. What’s probable now is that if you loaned the same amount, you would lose money on the loan as now the repaid amount would be less valuable than it was. Any rational person would empathize with any company or country that opted out of this. It’s common sense. As more stable currencies in the world emerge, what’s the incentive to rely on the dollar–especially when the whole world sees that the Fed can simply mint 22% of it whenever it wants? That’s far too much risk to loan massive sums of money. If this realization seizes the world’s economy, then surely the dollar’s former title of world reserve currency won’t last.
With this post I hope to instill in you an understanding of why the Federal Reserve is a threat to your financial future and why the dollar may be doomed. I don't mean to fear monger, but when fear is justified, it is a powerful thing. You may be asking yourself what you can do. Honestly, probably not much. You can put your money in gold, bitcoin, or forex, but your world is consumed by the dollar. We’re so far down the power chain that our individual attempts to infiltrate the top would be like a mosquito trying to enter a submerged submarine at maximum depth. However, that doesn’t mean there isn’t anything to be done. Use this information to inform your family and friends. Use it to inform your investments. Use it to inform the way you vote. The only way things can change is that we have radical reform and transparency from the top down. It’s wishful thinking, but if the real crisis hits, I want to be able to prepare for it and not be blindsided.