Central Banks & Money Market Manipulation
Update: After reading Alan Greenspan's book I realize that not all central bankers are bad, but I still believe there are a lot of dirty people in international banking.
Even markets that seem like they should be somewhat honest and forthright are not. Consider the Federal Reserve - a deceptively named private bank which holds a monopoly over currency supplies in spite of likely having no actual reserves. All the evils of a corporation heavily exist in a privatized for profit central bank. Some of the past US central bankers, seeking to keep their power, have stated things like:
Nothing but widespread suffering will produce any effect on the congress...Our only safety is pursuing a course of steady restriction - and I have no doubt that such a course will ultimately lead to restoration of the currency and a recharter of the bank. - Nicholas Biddle.
Shortly after Nicholas plunged the US economy into a deep depression he was caught making comments like the above in public. Back then the media was far more honest (ie: less sold out and owned by bankers) than the current media, and Andrew Jackson won enough support to pay off the bank and prevent it from being rechartered. Shortly afterward there was an assassination attempt on Jackson's life. The assassin bragged that rich bankers from Europe put him up to the test and promised to protect him if he were caught.
After President Garfield spoke out against private bankers he was assassinated.
The civil war may have also been largely caused by powerful bankers from Europe. Slavery was not a major issue prior to the war according to Lincoln. Lincoln, who opposed a privately owned central bank, was assassinated only 5 days after Lee surrendered to Grant.
After the civil war the US was quite prosperous, but powerful bankers pushed congress to contract the money supply
1866 - 1.8 billion in circulation - $50.46 per capita
1867 - 1.3 - $44
1876 - 0.6 - $14.6
1886 - 0.4 - $6.67
The tightening of the money supply caused deep depression.
Through cycling interest rates and money supplies central banks can create false markets then extract the profit from the work of others when they re-tighten the monetary supply. The boom bust business cycle is used for central banks to exploit profits from citizens and companies alike. The bankers in the Federal Reserve more-less have insider info on how to bet for or against sectors of the economy (on top of having a 100% profit margin plus interest on the central bank credits to the government).
The Federal Reserve pays for government bonds by the issuance of electronic credits based literally on nothing. How pathetically inept is the US government to allow an arbitrary 3rd party to have 100% + profit margins on creating the currency needed to run that government?
England was at war for 56 of the first 119 years after the bank of England was created. Many banks finance both sides of a war. Many times the loans are placed with the guarantee that the winner will pay the debts of the loser.
Nathan Rothschild had started selling English stocks and bonds after the defeat of Napoleon to misdirect the market while he secretly started buying assets at a fraction of the price. As Napoleon Bonaparte stated:
The hand that gives is above the hand that takes. money has no motherland; financiers are without patriotism and without decency: their sole object is gain.
Ernest Seyd admitted that in 1872 he was set to bribe US congressmen to demonetize silver. By 1873 gold was the only accepted form of coin money in the US. Since gold was quite scarce and monopolized, putting America on the gold standard allowed the owners of gold to manipulate the markets.
In 1933 private ownership of gold in the US was confiscated by the government (for the price of $20.66 an ounce). After most gold was turned in the price per ounce was raised to $35, but only foreigners could sell gold at the new higher price. Then over the years gold was likely smuggled out of Fort Knox to wealthy foreigners associated with international bankers at cheap prices. In 1982 Regan commissioned a group to study the feasibility of going back to a gold standard. They reported that the US treasury had no gold at the time. This is a perfect example of why true patriots chose to fight or ignore bad laws.
In 1891 the American Bankers Associate sent out a memo stating that on September 1st 1894 they would cause a deep depression to seize assets at pennies on the dollars. And it happened.
There has been a nongovernment ran US central bank at least 4 times. In 1913 the current one was put in place. WWI occurred a year after the federal reserve was created. Within the first 25 years of its existence the Federal Reserve caused 3 major economic downturns, including the great depression.
In April of 1929, Paul Warburg, the father of the Federal Reserve, sent out a secret memo to friends stating that "a collapse and nationwide depression was certain." In August of 29 the fed began to tighten money. Rockefeller, JP Morgan, and others just happened to be lucky in getting out of the stock market in 1929. On October 24th, 1929 big New York bankers called in their 24 hour broker call loans. That day was known as black Thursday.
After the crash, instead of lowering interest rates the fed continued to contract the money supply by 1/3 from 1929 to 1933. While America was suffering in depression 10s of billions of US dollars were sucked out of the US economy to prop up Germany (which had assets largely owned by international bankers that bought them for next to nothing after WWI).
All the above obvious market manipulation shows that privately owned central banks do not breed any sort of stability (and in fact just the opposite), which shows just how useless they are.
Money is not a finite commodity but a means to barter. Since I was a little kid I went back to the town that I grew up in and noticed so many payday loan stores that never existed when I was a kid. Why are all of these scammy loan businesses popping up?
If you want to learn more about the economic fraud that is the Federal Reserve (and if the 16th amendment may even be illegal) check out The Money Masters - where many of the above points came from - (also on Google Video here and here).
The US is now in a persistent war that will most likely only end when economic incentive for it goes away or the public cares enough to force the powers that be to end it.
How pathetically inept is the US government to allow an arbitrary 3rd party to have 100% + profit margins on creating the currency needed to run that government? Why are so many countries and individuals living in a state of persistent debt to arbitrary sources when money is not a finite commodity but just a means for barter? Money is usually created from nothing and based on nothing by arbitrary for profit companies.
Shouldn't the debt of most men be to their children more than to a few opulent sleazeballs who arbitrarily inherited a large portion of the world's wealth based on voodoo economics?
"Let me issue and control a nation's money and I care not who writes the laws." - Mayer Amschel Rothschild
This is probably quite an absurd post for an SEO blog, but it is just a reminder that markets can sway at any given time, and even allegedly valuable and trustworthy standards of value are heavily manipulated and can erode quickly. Smart business owners make their businesses fluid enough to be able to ebb and flow with large powerful market forces.
Comments
first of all, here:
http://en.wikipedia.org/wiki/Executive_Order_11110
Second of all, fractional reserve banking involves having a reserve of some asset to counterweight the inflation of the issuance of whatever currency is being circulated. Worldwide, the US dollar is considered the "reserve", so in essence there is no such thing as a fractional reserve especially when the reserve currency has no reserves. What reserves does the dollar have to limit government debts? None.
"The Fed is generally concerned with controlling inflation, and, to an extent, unemployment. This is accomplished by modulating the supply of money in circulation"
Perfect Keynesian viewpoint on the matter, although it's completely absurd. His most famous work is The General Theory of Employment, Interest, and Money and has been debunked a million times.
The Fed causes the inflation, and tries to control the inflation it causes. They cause the so called "business cycle" everyone parrots about. It's their expansion and retraction of credit that is the cause of economic woes, not the solution to it.
Are we so completely soaked in propaganda that we cannot see the facts?
The Fed is a scam.. It by no means remits its profits to the treasury. on paper it returns a few billion here and there but it keeps 100s of billions a year.
THE INCOME TAX WAS CREATED SIMPLY TO PAY INTEREST TO THE FED. UNDER THE CURRENT SYSTEM THERE IS NO WAY FOR THE COUNTRY TO PAY OFF ITS DEBT.
BUT IF YOU GET RID OF THE FED YOU CAN GET RID OF THE INCOME TAX AND PAY OFF THE COUNTRYS DEBT.
THE TRUTH IS BIZARRE. LEARN IT.
GOOD TOPIC TO BRING UP'
Most US banks loan out far more money than the sum they have deposited in their accounts...that is where the term fractional reserve (as I am using it) comes from.
But you are correct about the lack of overall reserve, the Federal Reserve already bilked the US government and citizens out of most of their gold.
Another interesting point worth noting is to see if there are any ties to petrodollars and the access of evil.
Aaron, have you heard of the recently-released movie called "America: From Freedom to Fascism?"
If you liked The Money Masters, you'll really dig this. I haven't seen it yet, as it only screened in five cities on it's late-July opening.
People at Cannes loved it. Others are calling it the "most important US film ever."
Hype aside, the film brings up some very important issues. I'm tired of people calling these ideas "conspiratory" like we're chasing myths.
There is some super-shadiness going on, and we all know it. Happy to know that someone I respect professionally is AWAKE.
Cheers!
Aaron, thank-you so much for this post. Please continue to post items like this that show the amount of manipulation that exists in the US government (and sadly my government too).
I want to point out, however, that this type of manipulation will always exist when people refuse to take matters into their own hands and instead elect a government that will "take care of them". The entire reason populations are able to be manipulated so easily is because the vast majority of people simply don't care.
The Bank of England is a privately owned central bank folks. Actually, it was the first!
However there are other fundamental issues at work here
1. Fiat Currency Systems
These fail. Throughout the history of mankind dating back to ROME, all fiat currency systems have failed, it is simply a question of when.
The control of this failure and hence the prosperity of the masses is in the private hands.
The FED system is a fiat currency system (though not alone) and it will fail and when it does, the masses will suffer bitterly. However the bankers will be fine.
2. Ask yourself who/what funds war?
Banks. War is good for business, and if there was no war, there would be a lot less banking to do. This has been the case throughout most of history whether via 'official banks' or money lenders.
Bravo to you for talking about this subject, Aaron. If more people spoke the truth we might see some real changes for the better. You have my respect for discussing this in public. Don't let the inevitable flack you'll catch from the economically ignorant discourage you.
The Fed is a racket. A good anti-Fed site is http://www.mises.org.
I've been reading on the subject lately too. It's so absurd that it is hard to fully grasp (or impossible).
I'm reading "Red Symphony" right now (http://users.cyberone.com.au/myers/red-symphony.html), which I find immersely interesting, although it may be fabricated to some extent.
There's also a "video script" of The Money Masters there. (http://users.cyberone.com.au/myers/money-masters.html)
Someone beat me to Von Mises. but I agree its a good site-- unfortunately, even as an ecom major we never studied any of Mises work in america.
yeah, funny, i've been reading more about the Fed recently also..one interesting thing i've picked up is regarding our national debt. people have a knee jerk reaction when they hear about what our national debt is up to (and then start yelling about contracting money supply to pay it off).
when we compare ourselves with other european economies, we are actually doing ok (in terms of debt). our ratio of national debt to GDP is around 64%. Compare that to Japan with a Debt to GDP ratio of 158%, Germany at 67%, France at 66% and the UK at 43% (Src: CIA Factbook) and I think you will see that all these reactions are typically overblown.
If you want another shocker, try investigating the price increases in gasoline (hint: Exon and OPEC are raking in the cash, but they aren't setting the prices)
http://www.eia.doe.gov/
I'm no economics major, but isn't the problem here not the Fed, but rather the fact that the Fed has a monopoly? Because it has a monopoly, which is protected by law and so can't be challenged, it can do al the things that you just said. If it were a competitive market, that wouldn't be able to happen.
I AM an economics major, and I found this post to be woefully disappointing. Of course I don't claim to defend the actions of all, or any particular central bankers or reserve chairmen. However, having learned a great deal from your past blog posts, and the site in general, and generally being a fan of this site, I still have the following to say about this post:
-Wildly off-topic, blatant, intentionally inflammatory linkbait
-Factually and historically selective, frequently inaccurate, tremendously biased
-Essentially pointless
The Fed does not have a monopoly on issuing currency, there is no law preventing other issuances of currency in the US, and in fact some individuals have taken advantage of this and issued their own currency.
The Fed is generally concerned with controlling inflation, and, to an extent, unemployment. This is accomplished by modulating the supply of money in circulation.
-The gold standard has many domestic advantages, but was dropped to alleviate problems with international currency exchange and trade. In fact the gold standard has been partially blamed for the international spread of the great depression.
Most of the "evidence" in this "article" are citations of correlated events, namely the co-existence of or contemporaneous wars, assasinations, and central banking events. These don't prove anything and you know it.
It's certainly valid to level criticism at any institution with the amount of power the Fed wields. However, please save the conspiracy theories and anti-establishment polemics for forums where people don't expect to find useful information.
Personally, I'd like an explanation for this extremely abberant post, but I don't know if I'll get one.
When we go into the history of mankind, there lies the bigest crime against mankind.They criminaly created slavery and criminal philosophies giving it morality and laws which were anti human.This was the start of crime against whole mankind for a period till the mankind address it and removes the criminality.In these modren times we have to fight for the freedom of every individual's private labour should be the property of that individual.Let individual's labour be the property of that individual.This step will eliminate all the crimes against mankind including wars and prosperity through slavery of mankind.This is the only path and only option left to the mankind to attain real freedom and real prosperity based on human principeles..Hafeez
You might do well to do your research a little more.
Facts: Yes, the Federal Reserve banks are privately owned, but they are controlled by the publically-appointed Board of Governors. The Federal Reserve banks merely execute the monetary policy choices made by the Board. In addition, nearly all the interest the Federal Reserve collects on government bonds is rebated to the Treasury each year, so the government does not pay any net interest to the Fed.
Facts: No foreigners own any part of the Fed. Each Federal Reserve bank is owned exclusively by the participating commercial banks and S&Ls operating within the Federal Reserve bank's district. Individuals and non-bank firms, be they foreign or domestic, are not permitted by law to own any shares of a Federal Reserve bank. Moreover, monetary policy is controlled by the publically-appointed Board of Governors, not by the Federal Reserve banks.
Fact: Independent accounting firms conduct full financial audits of the Federal Reserve banks and the Board of Governors every year. The Fed is also subject to certain types of audits from the Government Accounting Office.
Facts: The Federal Reserve rebates its net earnings to the Treasury every year. Consequently, the interest the Treasury pays to the Fed is returned, so the money borrowed from the Fed has no net interest obligation for the Treasury. The government could print its own currency independent of the Fed, but there would be no effective safeguards against abuse of this power for political gain.
Facts: The Federal Reserve banks have only a small share of the total national debt (about 7%). Therefore, only a small share of the interest on the debt goes to the Fed. Regardless, the Fed rebates that interest to the Treasury every year, so the debt held by the Fed carries no net interest obligation for the government. In addition, it is Congress, not the Federal Reserve, who is responsible for the federal budget and the national debt.
Facts: Kennedy wrote E.O. 11,110 to phase out silver certificate currency, not to issue more of it. Records show Kennedy and the Federal Reserve were almost always in agreement on policy matters. He even signed legislation to give the Fed more authority to issue currency.
Facts: McFadden was incorrect regarding the Fed costing the government money. However, later economic analysis agrees with him that Federal Reserve policy blunders had a substantial role in causing the Depression. However, his implication that this was done deliberately has no basis in fact. Moreover, for a dozen years prior to his rant, McFadden had been the chairman of the House subcommittee that oversaw the Federal Reserve. Why didn't he do anything to reform or abolish the Fed while he had the chance?
Facts: The banking system is indeed able to create money with a mere computer keystroke. However, a bank's ability to create money is tied directly to the amount of reserves customers have deposited there. A bank must pay a competitive interest rate on those deposits to keep them from leaving to other banks. This interest expense alone is a substantial portion of a bank's operating costs and is de facto proof a bank cannot costlessly create money.
Fact: The term 'lawful money' does not refer to gold or silver coin, but to types of money which the government would permit banks to use when tabulating their reserves. These types of money included, but were not limited to, gold and silver coin.
Thanks zach.
I have been getting absurd amounts of "so what do you think about topic x" comments, so I decided to post a random "what I think about topic y" post. In the future when people ask me about my opinion on ridiculous stuff I may occasionally link to this post.
Obviously I knew some people would think this post is ridiculous. But I think the post is no less ridiculous than most people being arbitrarily born into debt (and most countries being in arbitrary debt).
Wipe clear all the facts, figures, numbers, quotes, etc. Why must most people be in debt just to live?
Odd that they deeply cut the currency in circulation during the great depression then, eh? Seems like the wrong thing to do.
Fact ;) ... In most countries that "direct" relationship is not 1 to 1, is it? Most banks practice fractional-reserve banking.
Surely not earnings its members make due to highly profitable insider information.
Even if THAT instance was not deliberate, it was at best cause by incompetence and too much power in the hands of a few people. AND past central bankers have went on record stating they would try to destroy the economy if it was necessary to keep their position of power.
Who controls the interest rate on that debt? And why would Mayer Amschel Rothschild say "Let me issue and control a nation's money and I care not who writes the laws."?
Thank you, Aaron
There is a great need to discuss this topic. Maybe if our "representatives" and mainstream press did a better job of discussing it, there would be less need to discuss it here.
I've seen the Money Masters and it is amazing. I would rather not have to be concerned with economics because A) it detracts from my productivity as a geek, and B) I am not obsessed with money. Unfortunately, this is not a problem that's going to take care of itself, at least not in a way that's going to be very good for the general public.
I'm not an economist either, but let me say this: a politically-compromised economist is no more useful than a politically-compromised environmental scientist. These are the folks who championed the S&L mergers (BCC,Silverado), energy deregulation (Enron), banking and investment deregulation (Merril Lynch).
If you have a problem with millions of "ordinary" Americans losing their retirements, please - remember the source. Remember the beneficiaries - including Neil Bush, President of the Silverado Bank and John McCain of "the Keating Five".
If you're new to business and want to succeed, understanding the "business cycle" and monetary policy is crucial.
I was not just stating that the federal reserve was shady, but the concept of private central for profit banks is quite shady. I believe they already exist in many (probably all) of the countries you mentioned. Attempts to make one unified one ie: The World Bank is super shady.
When you look at just the numbers you miss the point.
Any value added service that is provided by a privatized central bank could be added by a bank that was part of the government (and thus would be more loyal to the goals of that government and its people than profit). It also
When the economy goes south wealth is neither created nor destroyed, simply consolidated. And central bankers have on many occasions abused their positions to accumulate wealth at the expense of others.
The comment above about the public approving the Federal Reserve board members is quite a joke since that is an indirect vote the public does not play a part in, fed board members have a long term (14 years I believe), and a potential board member would most likely need to have a mile long criminal rap sheet to be turned down.
Aaron, "people" as in individual persons are not born into debt because the nation (federal government) owes money to other nations. While the level of debt can affect the economy, and consequently individuals, the effect is much more complex, than a person having to take dollars, 1:1, out of pocket, to pay down the national debt and filters through fiscal and monetary policy.
Furthermore, the fact that banks hold fractional reserves is frankly not a problem, and complaining about it as though it were some kind of vast conspiratorial scam betrays a misunderstanding of the issue. In fact, this practice should benefit society by allowing the bank to efficiently lend money to more people, allowing more businesses and individuals to get loans at lower interest rates than would be possible if fractional reserves were disallowed.
Lastly, it's not entirely spurious to criticize the methods and decisions involved in choosing Fed board members and chairmen. Democracy rules, right? And 14 years is a hell of a long time for such an important job.
Consider the alternative, though - if these officials were elected in a general election, the results would probably be poor unless the populace could be made to understand some economics. I doubt many people are eager to crack open a Macro 101 book before watching a political speech.
Also, a long term might not be a bad idea. If the terms were short - 2 to 4 years, since the chairman is presidentially appointed, the "captain of the economic ship" could be shifted more arbitrarily, according to political whim and convenience.
Believe me when I say that having uncertainty attached to the post of Federal Reserve Chairman is a bad idea. And if you're worried about people looting and plundering our economy over 14 years, imagine what would happen if these people had no incentive to take good care of the economy longer than 2 or 4 years.
From your point of view, they would overheat the economy, cutting interest rates to boost employment beyond the natural level at an unsustainable rate, then at the end of their short term, sit back and rake in the dough from their "insider information" as the abused money supply goes through rapid inflation and the public experiences high unemployment.
I think you also put vastly too much faith in the government. If the executive branch, for example, controlled the military as well as interest rates, education, healthcare, etc., don't you think that coruption would get worse, and not better? You're free to disagree here, but in my opinion consolidation of political power is a dangerous thing beyond a very limited basis. As for the idea of the government being aligned with the goals of the people, that's another can of worms which will not even be taken off the shelf for now.
Quick sidenote, you are right that economic policy was mishandled at the time of the great depression, in more ways than one. My understanding is that this was a symptom more of political stubborness, ignorance, faulty theory and international non-cooperation than some "shady" conspiracy designed to intentionally keep the economy in the toilet. It's easier to make money when the market goes up, not down.
P.S. "would not consolidate a large source of power into a few profit driven opulent people." This sentence describes almost every institution in the united states, taken in the right context, and I don't think this idea should be used to attack the concept of a central bank.
Releasing a bunch of money into the economy in the 1930's would have created inflationary pressures beyond belief. Take a look at Japan they had negative interest rates (based on real rates of return) and they still didnt come out of their economic slump.
It is good to see people questioning our government but I think it is prudent to make sure your claims are well researched and I dont believe they have been in this case.
Nice post Aaron. You might have come across this excellent book by Murray N. Rothbard called the Mystery of Banking. Its downloadable as a PDF from here:
http://www.mises.org/mysteryofbanking/mysteryofbanking.pdf
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