"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Friday, November 5, 2010

The Federal Reserve Wages Financial War Against The World And The American People

Make no mistake about it.  Even though Federal Reserve Chairman Ben Bernanke is appointed by the US President, and needs confirmation from the US Congress, he leads a PRIVATE BANK.  The Federal Reserve is not Federal in any way.  It is called "Federal" because its banking founders, in 1913, understood that the American people would be against a private bank controlling their money.  Basically, they lied to the American people.

President Andrew Jackson

A little history here: America's second attempt at central banking was quashed when then American President, Andrew Jackson, rescinded that bank's charter.  It was a messy political affair, yet President Jackson won the battle.  He has been quoted as saying:

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves."

What President Andrew Jackson described, the socialization of losses, and the privatization of profits is exactly what is happening today.  And Jackson points out that yes, the Central Bank benefits some families, but at the expense of the majority.  It was truly an elite banking system that parastically fed on the rest of the nation.  Sounds familiar?

The Federal Reserve is America's third attempt at central Banking.  It is barely 100 years old, and during that timeframe, it has devalued the dollar over 90%.  So who owns the Federal Reserve?  The companies that own shares in it - the Commercial Banks.  Is that not a built-in inherent conflict the system posseses? 

And as I pointed out in another post, using economists Michael Hudson's observation of the end of the gold standard, Bretton Woods: "But replacing gold – a pure asset – with dollar-denominated U.S. Treasury debt transformed the global financial system. It became debt-based, not asset-based. "

As the system became debt based, it distorted the global economy by benefitting the one industry that thrives on the creation of debt: The Banking Sector.  When this new debt backed system was adopted, the world, especially the oil producing Arabs, were not happy.  Inflation grew rampant.  Then in the 1970s, Chairman of the Federal Reserve Paul Volker jacked up interest rates to fight inflation, destroying President Carter's presidency in the process.  Eventually, the new dollar based system became accepted, and at the suggestion of Milton Friedman earlier that decade, a system of free floating currencies developed.  The world had left its financial anchor - gold, and became full of debt based paper traded on "casino" markets.

But something else affected the value of money that economists do not consider - especially quantity of money theory Friedmanites.  Technology and the offshoring of manufacturing by the West created a process that actually fought inflation much better than Volker could have.  Innovations in technology made food cheap, as well as the "cheap food policy" under Nixon, which created a system of subsidizing agriculture - especially corn.  Offshoring also kept costs low, though it destroyed America's manufacturing base, so that day to day purchases of goods took a lower portion of the average American's disposable income.

Thus technological innovation and offshoring created a new phenomena - price deflation.  So where did the inflation go in this new debt backed paper system?  It went to the stock market, it went to real estate, basically, the western economies were able to "steer" inflation into things that we considered "wealth creation."  As many countries in the West de-industrialized, their economies took on a greater Ponzi/Pyramid Scheme element.

It was no longer about producing things, but valuing things.  And what can you do with something whose value constnatly increases with inflation?  You can leverage it.  You slap on debt, for example, a mortgage, or you draw on a margin account, and you speculate.  And as the debt system grew, so too did the valuations.  It was a vicious cycle.  This was true inflation, even though we all believed it was wealth creation.  We became arrogant.  We believed in a permanent plateau of prosperity.   Basking in the sunlight of victory post USSR, we truly believed this was the end of history and good times would last forever. 

But Ponzi/Pyramid schemes do not last forever.  They always end, and when they do, it is a spectacular collapse.  It is spectacular because no one really appreciates just how big a Ponzi/Pyramid scheme gets until it collapses.

And thus, what Ben Bernanke is doing is maintaining this debt based Ponzi/Pyramid.  He is desperately trying to keep asset valuations from collapsing, and along with those valuations, all the debt that was created to spur "wealth."  Thus, he is maintaing the current banking status quo.  He is working for his masters - the true owners of the Federal Reserve, the Commercial Banks.

And in the process, Ben Bernanke is creating the world's largest carry trade.  One of historic proportions that threatens to envelop the emerging markets world with bubbles that will not just pop, but explode.  As for the EU, the devalued dollar will hit the EU just as they are trying to export their way out of recession.  They will not be able to compete as their currency maintains a higher value than the dollar, and their self inflicted austerity measures will fuel a deflationary depression.  And what of the American people?  The American middle class will be wiped out as Andrew Jackson predicted, for the benefit of a minority.

Ben Bernanke and the banks that own him, just waged war on 99.9% of the world's population.  But there is irony here.  The Republican victory last Tuesday had an unintended affect, a freak accident of history.  Congressman Ron Paul, whom I have great admiration for, as ranking  Republican member of the Subcommittee on Domestic Monetary Policy and Technology on the Financial Services, which oversees the Federal Reserve, will likely become the new chairman of the subcommitte.  Yes, this is the same Ron Paul that pushed for an audit of the Federal Reserve.  Will his fellow Republicans vote for him?  That's when we know how much the Banking System controls the US Congress.

For those that are not familair with Congressman Ron Paul, here is a video.  Ask yourself how many politicians speak as honestly as he does in this video:

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