102 years ago the biggest pyramid scheme in the history of mankind –the Federal Reserve System – was created
On 23 December 1913, the U.S. Congress passed the Federal Reserve Act, which established one of the most odious systems ever. Today it lies at the heart of the global financial system and dominates it to a great extent. For over a hundred years, the idea has become so deep-rooted, that most people don’t even wonder why a Russian (Chinese, British, Brazilian, what you have) person’s everyday life has to depend on a private body that prints money for the U.S. government. And how come for these hundred years the whole world has been witnessing a worldscale scam?
No, there's no mistake in calling the Fed a private body. You may not believe it, but the USA does live off private funds. We’ll admit it hasn't always been the case: it is only at the third attempt when bankers managed to get Americans hooked on private money. During the 19th century, two Central banks were created and then shut down, ensuring the government’s control over monetary emission for eighty years.
Eventually, private funds won, and, oddly enough, it was a crisis that hastened the victory. During the Panic of 1907, financier J.P. Morgan purchased a number of trust companies on the verge of bankruptcy, consequently building a reputation of the savior of the U.S. economy. Nobody minded much when he called for a major financial reform. His friend Nelson W. Aldrich – by the way, father-in-law of oil tycoon John D. Rockefeller, Jr – was entrusted with designing the reform. Along with him, a number of influential bankers and the Treasury representatives were working on the project.
The main point of the Act was to establish the National Reserve Association which would be governed by the board of directors appointed among bankers. This organization would be granted enormous power: from monetary emission to the right of giving bride loans to member banks. As a result, richest banking families invented, in fact, a huge printing press which they could use as they wished. This, however, wasn’t enough – originally, the Association was going to be granted the status of a tax agent with the right to collect taxes from the population and businesses.
The Congress met such a cheeky attempt to privatize the country’s financial sector with a sharp rebuff. But in spite of both Republicans and Democrats booing the idea, the banking lobby tweaked the bill and presented it as the Federal Reserve Act to President Woodrow Wilson who wasn’t much of a finance guru. That’s how the Fed was created. It was composed of 12 Federal Reserve Banks and controlled by the presidentially appointed Board of Governors. The Fed’s objective was bank insurance against a banking crisis. For that purpose, the organization was endowed with the right to print money.
© LM Otero/AP
On the wave of endless debt
The designed scheme proved to be simple: member banks printed money and the U.S. government issued treasuries. Then the state exchanged these treasuries for money, emitted by private banks, to spend it on a budget basis, for instance. It’s still the case now, the only difference being money is not always emitted, but virtually added to the Federal Reserve Deposits.
The Fed is entitled to provide loans to both the Treasure and private banks – doing so at its absolute discretion and without the President’s or the Congress’s approval. According to reports, the Fed emitted about $16.1 trillion for member banks during the financial crisis of 2008-09. After a news leak, then Chair of the Federal Reserve Board of Governors Ben Shalom Bernanke stated that the Fed is not a state institution, hence it is not accountable to Americans for its loan policy.
Bernanke, who was Chair of the Federal Reserve until 2014 (succeeded by Janet Yellen, who has been Chair up to now) is rather a remarkable person. Suffice it to say, he was nicknamed as “Helicopter Ben” after having stated that a “helicopter drop” of money would help fight deflation.
Every little bit helps
It’s no wonder that this scheme resulted mainly in a steady increase of the U.S. national debt. In 1914, one year after the Fed was established, the national debt totalled $2.9 billion. For a hundred years, it multiplied five thousand times and reached $18 350 trillion as of August 2015. Merely the debt service cost is more than $450 billion.
But who cares if you can always print what you want? The simple idea of exchanging paper for paper has proved to be a perfect solution to virtually all problems, including foreign debt servicing. “The United States can pay any debt it has because we can always print money to do that”, said Alan Greenspan, Bernanke’s predecessor as Chair.
Under these circumstances, it’s obvious that nothing backs the U.S. dollar: it’s not even public money, it’s a debt “security” which the U.S. government receives from a mom-and-pop store and circulates in the country. On the other hand, if it was only done within the U.S., this pyramid scheme would collapse long ago: no economic growth or natural resources can bear the burden of such a parasite. But the U.S. economy is closely related to the world’s, and, most importantly, the U.S. dollar is global economy's reserve currency. As a result of it, greenbacks freely flow from the U.S. in exchange for raw material, energy supply and employees from all around the world. At a rough estimate, over the course of the last five years, the U.S. has invested in global economy $2.75 trillion (sic!), which the Fed made, as the saying goes, out of thin air.
The government of Russia, unfortunately, couldn’t escape the fate of a typical U.S. treasury holder: according to recent figures, Russia holds U.S. debt securities amounting to $81.7 billion, which makes it the 16th largest foreign holder of the U.S. debt.
To a new crisis and beyond?
Over recent years, however, the dollar/treasure link is threatened. The U.S. has already lost prerequisites for economic supremacy: production is en masse brought outside the country, the U.S. couldn’t establish a lead in technological development over the EU and even Russia, as its allies from all around the world pursue their own policies more and more firmly.
The U.S. government’s behaviour is one more sign of a looming crisis. Washington gave up principles of the trading system which it stuck to for the last seventy to capture new markets and export currency. Instead of developing WTO, the U.S. set to creating new free-trade zones, only allowing membership to chosen allies. The Federal Reserve’s demise is imminent. It’s only a matter of time – and it’s getting harder and harder to beat around the bush.
A tricky thing about the Federal Reserve is that, drowning, it will drag down half the world with itself. A devaluation of the U.S. dollar will cause damage to dozens of states and many millions of their citizens who hold dollar savings accounts. That’s the reason nobody in the last hundred years has taken guts to nail the Fed to the counter: there’s nobody to expose the scam when everyone’s involved.
We happened to be accomplices – willing or not – to this crime. The only thing we can do is not to feed this monstrous system with our honest – and real – money.