Archive for December, 2012

So, what is ‘central banking’? What does it have to do with us? Also, why isn’t united capitalized? I’ll start with the grammatical question. When you are talking about the United States of America, you are talking about the union in its entirety as a single entity. However, unbeknownst to most people, it is not a single entity. It is a union of several entities known as sovereign States(nations). So, the united States is referencing the individual States as a unified force or group, a union.

For me, personally, the entity known as the United States of America no longer exists in a legitimate manner as created by the Constitution. It is a corporation, a business that seeks nothing more than to profit its shareholders. Of course, we’ll talk about this, the business of America and its shareholders, at another point. So, the assuming the U.S.A. is a faux entity acting in the stead of a de jure government, I am not talking about them. I am talking about us, our communities, our States, our union. Thus, the united(union of the) States of America.

So, what is central banking and what does it have to do with us? Central banking may sound like an efficient form of banking. A sort of banking system with which we can unify all banking activities, regulations, standards, etc. However, it has nothing to do with centralizing the banking system of an area, region, country, etc. It is a term used to describe a system of creating and distributing currency. Central banking is a system in which a bank, the central bank, lends currency to a nation thereby supplying the nation’s currency. This idea is not new and it is not something exclusively from ancient times. It was around before the Revolutionary War and we still use it today. However, we haven’t always had a central bank. So, time for some history.

Some may argue and refute this point to no small degree, why they would, I have no idea, but they will. The point being that the reason for the colonies cry for independence had less to do with taxation and more to do with their own power to issue currency based on their gold and silver reserves being stripped by Parliament who, by request of the Bank of England(who was owed a great deal by England) and the colonies were forced to pay taxes in gold and silver and currency was to be issued by the banks instead of by the governments of the colonies.

To support this point, we can look at the Constitution. In it it gives the power to print currency to Congress(a direct representation of the People as understood by the Constitution). It also gives Congress the power to tax within certain requirements and prohibitions. If our issue with taxes were the largest reason for the war, why allow for taxation at all?

Of course, this is a juvenile way to look at it, but there has always been far less controversy over taxation in this union than over the banks. Further, the fact that the fledgling republic(a land ruled by the law) created a lawful document laying the foundation for all other laws(the supreme law of the land) that specifically puts the power of issuance of currency in the hands of Congress(the people) rather than adopting a central bank as nearly every other “successful” nation had says that, at the least, central banking was something to be avoided by those who led the war and created the union we have today.That didn’t stop central banking from reaching our shores. Not once, not just twice but three times, now, we have had a central bank.

The First Central Bank: 1791, the First Bank of the United States was created after brokering a deal with the South that the national capitol would be moved to Potomac from New York. However, this ‘central bank’ was limited in comparison with today’s or even the central banks in other nations at the time. It produced no more than 20% of the currency used in the States and after its 20 year Charter expired and was not renewed by Congress. A charter is a document that legitimizes the creation of a corporation in some form(cities, universities, businesses, etc.) and has an expiration date at which time the issuing legislative body must determine whether to renew or not.

The Second Central Bank: Essentially no different than the first, The Second Bank of the United States expanded across the nation but met its end when Andrew Jackson vehemently refused to renew the charter. On his tombstone are the words, “I killed the bank.”

The Third Central Bank: The third central bank still exists today. It is important to understand that none of these banks, including the current incarnation, are government agencies or controlled. They are private banks with the purpose of creating profit for its shareholders. The Federal Reserve is considered to have been created out of a need to stabilize the economy and avert and avoid bank scares and market crashes through mathematical control of inflation. In 1913 a bill was introduced to Congress that took the power to print currency out of the hands of Congress and therefore accountable to the American People and gave it to a private bank that was owned and ran by the same banking elite that have controlled the central banks of Europe for generations, even back to the banks that the Colonies rallied against in 1776.

The Federal Reserve Act allowed for the creation of a central bank that would control the issuance of currency, interest rates, etc. The reasoning was, as mentioned above, to have a central bank that could avert economic and financial disasters by controlling finances, determining how much currency to create and by creating an ‘elastic’ currency also know as a ‘fiat’ currency which is a currency that has value not necessarily because it represents any real asset such as gold but because it is said to have value.

Interestingly, this system not only has failed to avert the market crashes that led to the Great Depression or the more recent Great ‘Recession’ that we have been experiencing for the last few years.

Alright, so what’s the point? Well, aside from the fact that this country was created in an attempt to avoid financial control by banks and the fact that we have twice allowed a central bank to die in this country at the end of their charters, the point is to know that our money is not created, owned or controlled by the government, even were it a de jure government. More than that, it is to know that the bills and coins you work so hard for are not backed by any thing of value. There is nothing to back it up. Initially, our currency was backed by gold and silver, tangible goods that could be used to barter for other goods and services in and of themselves. Objects that have inherent worth due to rarity, mobility, difficulty in obtaining, etc. Today, our currency is nothing but paper, a reproducible object that is not rare nor difficult to create. I am going to tangent for a moment before finishing this.

Imagine, if you will, this scenario:

In 1907, banking interests with ties to the newspapers make a public comment that two important banks are about to be bankrupt. In turn, investors and those with money in those banks or the banks that are financed by those two banks pull all their money out of the banks. This ultimately results in actual bankruptcy for those banks. The banking interests that made the comments then go and buy out the banks that have gone broke, increasing their share of control over the banking community in America.

Several years later, in 1913, the Federal Reserve Act is signed into law, consolidating the banking elite’s interests and given them power over the currency of an entire nation. Not even a year later, the Great War begins and those banks finance both sides of the war, even after the States enter the war following the sinking of the Lusitania.

The Federal Reserve bank begins loaning U.S. currency to the government(read people) at interest. (Imagine borrowing a dollar from the bank. You now owe the bank $1 plus the interest, let’s say $.05. You only make $1 a month so now you owe $.05 but need money to live for the next month, you borrow another dollar, now you owe $1.11. Since you never can get more money than you borrow, you can never pay the interest.) They are also charged with safeguarding the gold of the nation. During the war, the Fed increases the money supply.

In 1920, they recalled their loans and shrank the money supply. This coincides with the bank runs in 1920. During the 20’s, the money supply is increased again, margin loans are introduced and the ‘roaring 20’s’ began. In 1929, the banking interests leave the stock market, coinciding with the en masse recall of margin loans leading to the Great Depression.

Instead of increasing the money supply to buffer the market falls, the Fed contracts the amount of cash in supply.

In 1933, FDR releases an executive order threatening imprisonment to any who refused to turn in their gold bullion. After this, the gold standard is removed leaving only the paper currency and the debt incurred in its creation to give it value.

In essence, just at this point, what you have is a bank that determines how much money a nation is allowed, not based on their valued assets(gold, silver, etc.) but based on mathematical determinations supposed, but never shown, to be in the interest of the nation’s best interest. It loans this currency with interest attached. Not only this, but this bank is controlled by those who also control the currencies of Europe. It also is the bank that holds onto the nation’s gold though gold is no longer what is used to give currency its value.

Finally, this bank that has the power to withhold our currency, loans us our currency, holds all our gold(tangible value), that is controlled by businessmen interested in making profits rather than public servants charged with obeying laws and public needs, a bank given the ability to have its own police force, the bank that failed numerous times during its existence to avert the disasters it was created to avert, is not subject to any oversight by the government and, subsequently, to any oversight by the very people who own the gold they hold and who truly hold the power to print the currency they borrow. No audits, no transparency.

Just imagine if that were the case.