Tag Archives: Federal Reserve

No Sign Congress Wants to Go Back to Work

If anyone at all harbored any hope that the U.S. Congress would go back to work after Special Counsel Robert Mueller issued his report on “Russian Collusion” stating there was none, those unfortunate hopeful folks need to abandon all optimism and go back to just shelling out tax money.

After nearly two years and approximately $30 million in expenses incurred by the Mueller investigation, Congress and the public got to see a redacted version of the Mueller Report in April 2019 – and a new round of pulling of hair and rending of garments commenced. The Democrat majority in the House of Representatives renewed its cry for more investigations and possible impeachment of the President. They want to look into his tax returns and his private real estate deals. They want to investigate who paid for his inaugural event, and why he is calling for changes in the U.S. Census.

Monopoly OligarchCertainly, we the people want Congress to root out corruption, and the fall from grace of many who Mueller dispatched into the arms of the judicial system might have been worthwhile. But, was this mere collateral damage within a higher agenda? Is it time for every voter and taxpayer to ask whether there is a higher agenda and what that agenda might be? Might such a higher agenda be the innocent belief that Donald Trump threatens the venues that government uses to take care of us? Or might the higher agenda be that of oligarchs who do not wish to relinquish control of government venues in charge of funneling wealth?

The innocents truly believe government can better their lives by providing free stuff. They ignore the fact that there is no such thing as free stuff. Take education that became unaffordable to the average American college aspirant when predictably colleges raised tuition in order to capture the largess offered by taxpayer-funded student loans.

On the other hand, oligarchs know exactly what they are doing by encouraging endless printing of fiat money. Think your rent is so high you barely can keep a roof over your family’s head? Look at all the practically free money created by rock bottom interest rates that end up parked in real estate that remains vacant for decades. Think your city is full of techies that can afford to price you out of purchasing a home? Look again at all the fiat money floating around that needs to be parked somewhere, and tech companies are as good a parking space right now as anything else. By the way, this scenario is not the result of capitalism, but the result of policies such as those established by the Federal Reserve (low interest rates) and your government at work (endless spending on entitlements and forever wars).

Voters and taxpayers might want to consider the invisible strings pulling the visible puppets that are so intent on avoiding change at all cost.

Why Wage Earners Live on Debt

You keep hearing about free college, free healthcare, and “affordable” housing. Some of which, you might already be getting. But you are still living on credit card debt. Of course there is an infinite number of reasons why anyone might be living on debt or from paycheck-to-paycheck. There is, however, one reason that is shared with a great number of people: stagnant workers’ wages.

Although our grandparents may have lived relatively comfortably on a job that paid them $3 an hour, today we struggle at $15 an hour. That’s because our wages have not kept up with the cost of living. Our wages have been stagnant in relation to what we can purchase with them. Why is that? Depends on whom you ask.

Here is the usual list of reason for stagnant wages:

* Global competition – U.S. wage earners must compete with lower-wage workers outside the U.S.

* Automation – Employers search for the least costly options that will provide the same results for their companies. If cost of human labor raises above the cost of robots, employers will opt for robots.

* Decline in union membership – During our grandparents’ time union membership was around 30% of workers. Today union membership is around 10.5%.

Here is one reason that pundits do not like to talk about:
Wage stagnation and productivity

What’s the most important date on the chart above? 1971 – the year Nixon closed the “gold window.” It was in this year that the US dollar officially become completely fiat. We could no longer exchange our paper money for gold.  Income Inequality and the End of the Gold Standard, SchiffGold, March 2015.

President Richard Nixon drove the final nail on the coffin of the U.S. gold standard in 1971, thereby unleashing the creation of money backed by nothing.  Here is the cascading of events:

* What we call money these days is also popularly called fiat money, funny money, money out of thin air, and debauched currency.

* This kind of money is created at will by the U.S. Treasury when it prints dollar bills. It is also created by banks when they loan out funds to the general population. The balance in your account at your bank represents an IOU the bank issues to you, since your money is not sitting in some vault marked with your name, but has been lent out to other consumers holding mortgages and other loans.

* The amount of funny money in circulation is controlled by the U.S. central bank, the Federal Reserve. The Fed does this mainly by mandating what level of capital banks need to have on reserve (high level of reserves means less money available to lend out, thus less money created), and by manipulating interest rates (high interest rates produce fewer loans.

* Since around 2008, the Federal Reserve has kept interest rates at near zero. Consumers and businesses have taken advantage of the cheap money, and borrowed.

* Consumers incurred considerable credit card, mortgage, and student loan debt.

* Businesses took advantage of the cheap money to build monopolies. They bought out competitors with cheap borrowed funds. Businesses also learned that they no longer depended on their workers to produce money – if they wanted money for capital investment or other big thing, they just borrowed cheap money.

* As workers became redundant, their wages did not raise in relation to their productivity.

* In the absence of wages that keep up with rising prices, workers rely on debt.

Stacy Herbert reporting on Keiser Report

In this episode of the Keiser Report, Max and Stacy discuss how US workers stopped being compensated for their increased productivity only once the US went off the gold standard and there was no longer any honest way to gauge value.  Something happened in 1971  March 2, 2019.

Addendum:

So, where is money in the economy that used to go workers now going? It is going to investors, those whose income does not depend on wages. Low interest rates encourage those with some money not needed for basic living to buy stocks and other investment assets, thus increasing the prices of such assets. As the prices of assets raise so do the net worth of investors.

It is a commonly held belief that the Fed’s low interest rates have been responsible for inflating stock market values. Because people with more wealth tend to own more stock, to the extent that the Fed has been the cause of higher stock prices, it has worsened wealth inequality. Similarly, low interest rates have meant low borrowing costs for large corporations with direct access to capital markets (through corporate bonds). This cheap money helps to boost corporate profits which, again, flow mostly to the wealthy.  How the Fed;s Low Interest Rates are Increasing Inequality, Forbes, May 2015.

How the U.S. Debt Affects You

$20 Gold Coin
Real Money: 1907 $20 gold coin

Fiat money, that is money without intrinsic value, is a fascinating topic. Only money backed by a commodity that has intrinsic value, such as gold and silver, can be said to be of value. Such money is redeemable in gold or silver, and its quantity in circulation is limited by the amount of gold of silver available.

The money we use today has only government’s say so that it is of “value.” It is not redeemable in anything. Its quantity is at the will of the Federal Reserve, who has control of the money supply via its power to create credit with interest rates and reserve requirements.

Pictured above on the left is a $20 United States Bank Note, which was redeemable in gold until 1971; that can be considered real money.  On the right is a $20 Federal Reserve Note, backed by the “full faith and credit” of the federal government.  Good luck hoping it will maintain any “value.”

An associate of the Just Vote No Blog editor considers the topic of fiat money the most important one of our day, and provided some insights used by JVN in this article.

Money 101

The U.S. Constitution has two authorities on “money” (Article 1, Section 8):

* To coin money and regulate the value thereof.

During Colonial days gold and silver were considered “money”.  Money was a commodity. “Setting the value thereof” is like making sure a pound is a pound so people can buy the same pound of coffee, for example. A dollar is a dollar is a dollar. This is not the case today. As Consumer Price Index fluctuations show, a dollar today may not buy the same amount of goods as a dollar tomorrow.

* To borrow money on the credit of the United States.

This is the arrangement under which we operate today. There is no actual “money” with intrinsic value in circulation. We are operating under a credit/debit system which is a system of accounts. Under this system, money and debt can be created at will to finance government operations, provide for public assistance, maintain the armed forces, and pay for any other function government decides to undertake. Near-zero interest rates allow for servicing the debt.

Outcomes

All actions, including implementation of government policies, have outcomes or consequences – good and bad. The U.S. monetary/financial model characterized by liberal use of borrowing and the existence of a central bank (the Federal Reserve Bank) is no different. Let’s pick some outcomes at random:

* The Federal Reserve System through debt-issued currency, manipulation of interest rates and steady inflation allows our wealth to be eroded without us even realizing. When government increases money in circulation, consumers will likely use it to purchase additional items they would not have normally bought. Often the supply of goods does not keep up with the increased demand, resulting in a rise in prices. So, if you needed $20 to buy your lunch, now you need $25 or $30. If you were confident your bank savings would help you through a financial setback, you might not be now.

* A central bank’s control of interest rates and bank reserve requirements allow for manipulation of people’s behavior. Near-zero interest rates form the habit of living on credit – why worry about saving or having any cash to pay one’s living expenses or obligations? Cash is anonymous, but credit is not. When you buy with credit, businesses inventory and catalog you, not only so they can stay in touch and collect the debt, but also so that they can try to sell you even more stuff.

* The current U.S. debt was about $21 trillion in March 2018 — the largest sovereign debt in the world for a single country. Debt is necessary to run a country when revenues such as taxes and fees are not sufficient to cover expenses. As debt approaches unsustainable limits, it is logical for government to ensure that every citizen pays his/her “fair share” of taxes. That includes encouraging traceable payments systems. So, it is not only businesses that want you to move towards a “cashless society” so you can be watched. 

The Fading Free Society

We cannot preserve our liberty if we cannot maintain our purchasing power and stay solvent as people, as a state and as a nation. We need to focus on the issue of fiat money, and the associated issues of central planning and debt. The Founding Fathers were forced to do so when faced with enormous war debts and worthless currency. Their solution was to include in the U.S. Constitution Article I Section 10, which prevents states from making “any Thing but gold and silver Coin a Tender in Payment of Debts.” But the U.S. Congress was granted power the “to borrow money on credit.” We the People need to be more mindful of that credit card.

Recommended Lecture on the Federal Reserve

Economics Lecture: The Historical Case Against the Federal Reserve – Regulatory Origins of American Banking and Financial Instability Before 1914

Monday, June 25, 2018   7:00 – 10:00 pm
Community Room (located behind the station building)
Richmond Police Station (between Geary Blvd. and Anza St.)
461 – 6th Avenue, San Francisco, California

Hosted by Golden Gate Liberty Revolution Meetup (fka the Ron Paul Meetup).  GGLR holds its meetings on the 4th Monday of the month. Meetings are free and open to the public.

After-meeting socials are around 10:00 pm at Overtime Sports Bar & Restaurant, 4134 Geary Blvd, San Francisco.

Details contributed by lecture presenter Chris Silber:

The Federal Reserve has received renewed criticism and scrutiny in the decade since the global financial crisis. Yet the Fed has large and powerful lobbies of apologists among the mainstream press, academics, and policymakers who have argued without the Fed the U.S. banking system would return to the more frequent and disruptive financial crises of the pre-Fed era.

While it’s true that the U.S suffered from frequent banking panics throughout the 19th century, was the absence of a central bank really the cause? And if so, why then during the same period did countries like Canada and Scotland experience remarkable financial stability without a central bank? Were in fact pernicious state and federal regulations the real source of the U.S. banking system’s fragility? And if so shouldn’t Fed apologists in academia and the mainstream press know better?

Chris Silber will discuss the regulatory history of U.S. banking including the real causes of frequent financial crises during the period: restrictive unit banking laws, America’s antebellum central banks, and the post-Civil War National Banking System. The similarly unstable English and contrasting sound Canadian and Scottish systems will also be examined.

Chris Silber previously presented at GGLR Meetup lectures on monetary history, business cycles, and the Great Depression.

RSVP: Golden Gate Liberty Revolution Meetup