Perhaps the biggest little known fact regarding our government is that the Federal Reserve is, in fact, anything but a government agency. The Federal Reserve Act was passed by Congress in 1913 in response to the Panic of 1907 after major banks such as JP Morgan and Chase, Wells Fargo, Citigroup, Goldman Sachs, and Bank of America pressured the U.S Federal Government to address the strucutal weakness of banking in the U.S prior to the Panic of 1907. What was conceived was anything but the ideal remedy to address the problem. The Federal Reserve is really a group of Twelve privately owned regional banks that operate in conjuction with with the Federal Open Market Committee and the Federal Reserve Board appointed by the president. This private central bank that operates outside the U.S Department of Treasury, creates the currency that we use. Not only does this create severe, fundamental economic problems, but it is unconstitutional. Only the full nationalization of the Federal Reserve and banking in the U.S will solve our fundamental economic problems while staying in line with the constitution.
Article 1 Section 8 of the Constitution of the United States specifically states that the power to coin U.S currency resides with only the U.S Federal Government. Not one sentence of the Constiution ever mentions a privatley owned central bank having the authority to coin U.S currency. This power of Congress was upheld in the landmark 1819 Supreme Court Decesion of McCulloch vs. Maryland. The state of Maryland had attempted to impede the functions of the Second Bank of the United States (which functioned as the central bank of the U.S until 1839, however, 80% of it’s capital belonged to the federal government) by imposing a tax on all bank notes not chartered in Maryland. The Supreme Court had ruled that Maryland had violated the Necessary and Proper Clause of the Constitution (Article 1, Section 8, Clause 18) which grants Congress the right to carry foregoing powers (powers mentioned in Article 1, Section 8 of the Constitution that are granted to Congress). One of these foregoing powers is the authority to issue currency, thus meaning that the sole power to issue currency was in the hands of the Second Bank of the United States, not the state of Maryland. When this Supreme Court decesion is taken into account with what the Constitution actually says, the privatley owned Federal Reserve is unconstitutional because it prevents Congress from properly executing their foregoing powers, which include the issuing of currency. However, if the Federal Reserve were nationalized much like the Second Bank of the United States, it would be constitutional because the power to issue currency would, in effect, be back in the hands of Congress like the Constitution had intended.
Some say that the root of our economic problems are a direct result of the Federal Reserve, and these people may not be too far from the truth. A little research shows that Federal Reserve has the U.S government falling to it’s knees simply because of the way the Federal Reserve actually functions. The Federal Reserve prints currency at the request of the U.S Department of Treasury. However, this currency is issued with interest, forcing the U.S government to, in effect, “buy” this currency with government bonds. What this means is that every single dollar you and I have in our wallet is effectivley attached with debt to the Federal Reserve and, since the Federal Reserve prints our currency, the U.S government is in a perpetual cycle of debt since the only action the Federal Government can take within the structure of the Federal Reserve is to print more money. It’s no suprise that the U.S Federal government’s public debt at to the Federal Reserve stands at $4.8 trillion dollars while a recent study done even claimed that 100% of all revenue gained from the Federal income tax went to the Federal Reserve, efficetivley meaning that not a single penny of our tax dollars went to actually paying for our government spending. There is no other way to say this; we are the Federal Reserve’s bitch. Something must be done.
Despite the scary facts regarding the Federal Reserve, the debate in Congress regarding the Federal Reserve is silent, with only Texas Congressman Ron Paul even mentioning the issue. Libertarians and Socialists alike agree that something must be done about the Federal Reserve, although Republicans and Democrats remain silent on the issue, with Romney and Obama not even bringing up the issue at all during the debates. Libertarians and Socialists have two completley different points of views regarding what to do with the Federal Reserve, but they both generally agree that we should literally go in there with a bottle of kerosine and a few matches and destroy the government bonds that the Federal Reserve currently holds. However, Libertarians and Socialists go in completley different directions from there.Libertarians advocate for the complete abolishment of the Federal Reserve. Since the debt to the Federal Reserve would be completley eliminated, they propose reducing the Federal Income tax to 0%, as Libertarians believe that you could simply print money to pay for that government spending, completley ingnoring the concept of inflation. They would then pay down the rest of the public debt by issuing these interest free bank notes, thus eliminating the deficit. Yet what Libertarians fail to see is that they would have to completley withdraw the U.S from the world market while imposing tariffs on imported goods, something that is simply inconceivable in this age of globalization and economic interdependence. The only other alternative for Libertarians would be to return us to the gold standard in order to keep us in the global market. However, a return to the gold standard would mean that, in a world with a 0% Federal Income tax after abolishing the Federal Reserve, would cause infaltion levels similiar to those experiencied in the Weimar Germany after World War I since the amount of currency printed would exceed the actual value of gold the currency would be based off. Personally, I would rather be the Federal Reserve’s bitch. The other option put foward by Socialists is to nationalize the Federal Reserve and the rest of the banking system in the U.S. Once nationalized, the debt to the Federal Reserve would be forgiven and the power to issue currency would once again be back in the hands of Congress, just like the Constitution intended. Once nationalized, banks would be forced to sell of all the assets they hold and would be reduced to nothing more than saving and loaning institutions, eliminating the profit motive that got us into this mess in the first place. Next, impose low interest rates on loans and caps on how high and low the prices of goods can be. After that, impose the progressive income tax I laid out in my last article Using Macroeconomics against Conservatives and Libertarians to pay for increased government and welfare spending as well as my policies regarding ending the drug war and cutting military spending and you will see the budget deficit get eliminated, poverty reduced to 0%, and unemployment drop just like Sweden and Norway. After all, it’s no suprise that the policies that I’m advocating for are the exact same policies implemented in Sweden in 1992. Damn their 0% poverty rate. That folks is how you fix the economy in the eyes of an 18-year old.