The Origins of the Fed

By Ron Paul

 

The Federal Reserve cartelizes the banking industry, allowing individual banks to inflate together, earning them and the government enormous profits, while making sure that they are never held accountable for their fraudulent practices.

 

The Federal Reserve Cartelizes the Banking Industry

Here's how we got saddled with this monstrosity: In the early 1900s — during the so-called Progressive Era — the US government began a radical program of intervention into the economy. Pundits hailed this as fostering a new "spirit of cooperation" between business and government. In fact, the new system was a precursor of socialism and fascism.

 

Government-business cooperation took several forms, all of which conferred special privileges on favored firms, insulating them from the competition of the free market. Individual businesses and whole industries lobbied and bribed government officials for laws that benefited them at the expense of the consumer, and the whole operation was sold to the public as antimonopoly measures. This illegitimate and unconstitutional process happened time and time again, and government intervention became a permanent part of manufacturing, railroads, agriculture, and many other industries in the United States.

 

This was the era when the US free market received a beating, and, for lovers of liberty, its effect was much worse than the New Deal's.

 

In the free market, opportunity is granted to all and privilege to none. Laws affect… (Read more)

 

Source: Mises.org

Obama Administration Releases October Housing Scorecard

WASHINGTON - The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury have released the October edition of the Obama Administration's Housing Scorecard – a comprehensive report on the nation’s housing market. The latest housing data offer continued mixed signals as new home sales rose compared to August, but were still slightly down from the prior year. Mortgage defaults and foreclosure sales continued a downward trend as more homeowners were able to secure mortgage relief. However, foreclosure completions ticked slightly upward in September after months of decline.

 

Also, beginning this month the Housing Scorecard will capture data on the Administration’s Home Affordable Refinance Program (HARP). The Federal Housing Finance Agency recently announced efforts to ease refinance guidelines for homeowners. The full report is available online at www.hud.gov/scorecard.

 

HUD Assistant Secretary Raphael Bostic said “The housing data in this month’s Scorecard illustrate how complex the market is and why the Obama Administration has chosen a variety of approaches to help spur recovery. Last month we saw a continued fall in mortgage defaults, due in part to our foreclosure prevention programs reaching more borrowers upstream in the process.  And in the last quarter, a million more homeowners refinanced their loans under some of the lowest interest rates in history. But despite these signs of progress, we have much more work to do to reach the many households who still face trouble and to help the market recover. To help responsible homeowners, we have to make it easier for people to refinance at interest rates that are now near 4% – putting hundreds of dollars in real savings back in their pockets each month, and giving a boost to our fragile economy.”

 

"The Administration's programs continue to provide some of the most sustainable assistance available to tens of thousands of struggling homeowners every month," said Treasury Assistant Secretary for Financial Stability Tim Massad.  "The standards we have set are changing the industry and indirectly helping millions of additional families."

 

The October Housing Scorecard features key data on the health of the housing market and the impact of the Administration’s foreclosure prevention programs, including:

•The Administration’s recovery efforts continue to help millions of families deal with the worst economic crisis since the Great Depression.  More than 5.3 million modification arrangements were started between April 2009 and the end of September 2011 – including more than 1.7 million HAMP trial modification starts, more than 1,064,000 FHA loss mitigation and early delinquency interventions, and more than 2.5 million proprietary modifications under HOPE Now.  Many of these modifications are a direct result of the standards and processes the Administration’s programs have established. While some homeowners may have received help from more than one program, the total number of agreements offered continues to more than double the number of foreclosure completions for the same period (2.3 million). More than 850,000 homeowners have received a HAMP permanent modification to date, with a median payment reduction of over $520 each month.

•Even as new delinquencies continue to fall, eligible homeowners entering HAMP have a high likelihood of earning a permanent modification and realizing long-term success. Eighty percent of eligible homeowners entering a HAMP trial modification since June 1, 2010 received a permanent modification, with an average trial period of 3.5 months. After six months in the program, more than 94 percent of homeowners remain in their HAMP permanent modification. Homeowners in HAMP permanent modifications have saved an estimated $8.8 billion to date.

Rothbard Revises the History of the Great Depression

By Paul Johnson

 

The Wall Street collapse of September–October 1929 and the Great Depression which followed it were among the most important events of the 20th century. They made the Second World War possible, though not inevitable, and by undermining confidence in the efficacy of the market and the capitalist system, they helped to explain why the absurdly inefficient and murderous system of Soviet communism survived for so long. Indeed it could be argued that the ultimate emotional and intellectual consequences of the Great Depression were not finally erased from the mind of humanity until the end of 1980s, when the Soviet collectivist alternative to capitalism crumbled in hopeless ruin and the entire world accepted there was no substitute for the market.

 

Granted the importance of these events, then, the failure of historians to explain either their magnitude or duration is one of the great mysteries of modern historiography. The Wall Street plunge itself was not remarkable, at any rate to begin with. The United States economy had expanded rapidly since the last downturn in 1920, latterly with the inflationary assistance of the bankers and the federal government. So a correction was due, indeed overdue. The economy in fact ceased to expand in June, and it was inevitable that this change in the real economy would be reflected in the stock market.

 

The bull market effectively came to an end on September 3, 1929, immediately the shrewder operators returned from vacation and looked hard… (Read the full article)

 

Source: Mises.org

“Buy American Only?” A Letter From a Concerned Citizen, part 2

By Zach Foster
Responding to a letter from a concerned citizen
Continued from Part 1

Bailouts

This gets me to the subject of bailouts.  The big bailouts that took place in 2008 and 2009 completely outraged the majority of the American people.  These bailouts were also a crime against the free market and against capitalism.  The whole concept of pure, untainted free market capitalism is that a business has to work hard to compete with other businesses and provide its goods and services at the best quality and lowest price.  This is one reason why McDonalds and Taco Bell, who have very low-priced value menus with a wide variety of choices, have done a lot better than other higher-priced fast food chains who have had to close down many locations.  This is also why Borders, who didn’t cater to the consumer demand for e-reader books (Kindle, Nook, iPad, etc.), is going out of business, whereas Barnes and Noble, who did cater to that demand, is still in business, and why Honda and Toyota’s low-priced, superior quality cars are outselling Ford while General Motors had to be bailed out.

Businesses that fail need to be allowed to fail once and for all, which weeds out the bad elements of industry and allows room for new contenders (small and medium-sized businesses or new entrepreneurs) to try their luck at meeting the un-met consumer demands.  When big businesses fail and lay off their workers, these new contenders will be the ones to hire the laid off working people, and if the new blood meets consumer demand, then they will succeed.

Thomas Woods, the author of The Politically Incorrect Guide to American History, wrote a fantastic book called Meltdown, which analyzes the Great Depression, the current recession, and vindicates free market capitalism from the lies of the statists and interventionists.  The truth is that when the federal government bailed out all those failed banks in 08-09, as well as parts of the auto and housing industry, they gave these failed businesses a “second chance” which will only postpone another inevitable collapse.  This is like an angry and heartbroken wife, whose husband was cheating on her, giving that husband a “second chance” in which he doesn’t have to shape up but instead can keep cheating on her until he gets caught again.

The Fed

These bailouts, which only punished the American people and the big and small businesses who were doing the right thing, and rewarded the failure of the businesses who were doing the wrong thing.  These bailouts were financed by the Federal Reserve System, which is a quasi-government organization that is basically in charge of big banks (Wells Fargo, Chase, Citibank, etc.) and financial organizations (AIG, Fannie Mae and Freddie Mac, etc.).  Banks are businesses, not storage lockers for money, and rather than letting these businesses try to figure out how to meet the demands of their clients, the Federal Reserve tells them how much to hold in the vaults, how much to lend, and how much to invest.  The Federal Reserve also has the power to print as much money as it wants, which is obviously bad because the more money that is being printed means inflation goes up.

Before the Federal Reserve, there was a U.S. Central bank which was on a gold standard.  The gold standard means that every paper dollar printed needs to have an actual gold dollar that exists somewhere in a bank.  Gold is real money and paper is just an I.O.U.  This was alright though, because with real gold backing up the I.O.U., people had faith in the paper, and they used it for everyday buying and selling.  Even if the central bank used a fractional gold reserve (for every gold dollar there is, they print two or three or four), there was at least SOMETHING partially backing up the paper money.  Nowadays more and more paper money is printed with nothing to back it up other than the “good credit of the United States.”

When the Federal Reserve was created in 1913 by J.P. Morgan, John Rockefeller, and a few government employees and politicians that were in their pockets, it was created with the intent to expand the money supply (inflation) and bail out particular businesses and industries which Morgan and Rockefeller were conveniently invested in.  The Fed essentially became the new central bank and began to coerce banks into doing whatever it ordered.  It also began printing more and more money to pay for expensive and Unconstitutional government grants, loans, bailouts, and other programs.  It is because of the evils of the Fed that inflation is so high (prices are so high) and the dollar is almost worthless.  The gold standard has been abandoned and the Fed will continue to manipulate banks and financial institutions and kill our dollar.  The only way to reverse this is to reinstate the Gold Standard and abolish the Federal Reserve.

To sum up the above points I made: 1) Government interventions, including those in the form of tariffs, are very bad for business, workers, and the whole economy.  2)  The free market is about competition and consumer sovereignty.  Don’t necessarily buy American—buy what’s best.  3)  Bailouts are anti-capitalistic and the only way to stop this is to bring back the Gold Standard and end the Fed.

The Contender

Finally, in your email to me you mentioned that in all your readings, you found no one with real solutions or sufficient character and a backbone.  I can honestly say to you that there is a hardworking group of people who are engaged in a grass roots effort to support an honest and hardworking man who is painfully aware not only of the REAL problems that are hurting the working class, but of real solutions to those problems.  This man of course is Ron Paul, who is an outspoken Austrian school economist who has been able to pinpoint problems and their remedies.  He is the only Republican contender who has tackled these issues, regardless of how unpopular the truth was, and remained unwavering in his position.  If you’ve heard of him but have found cause to distrust him, I beg you to reconsider and see what he has to say.

He has three very popular books out (among many others he’s written) which have changed the minds of many Americans.  There is The Revolution: A Manifesto, in which he outlines his political platform and uses the Constitution, American and world history, and the guidance of the Founding Fathers to back up his platform.  In the book End the Fed he makes the case and the plan for abolishing the Federal Reserve System and reviving the value of our hard-earned money.  In his latest book, Liberty Defined, he provides ideas for Constitutional solutions to various political, fiscal, and social ills that are plaguing our society.  I certainly hope my short explanation provided you with some meaningful answers, or at least provoked your thinking and ore beliefs.  I truly hope you also take into consideration the reading I recommended to you, which surely changed my thinking and strengthened my beliefs.  God be with you, my friend.

The above image used is in the public domain and was obtained from Wikimedia Commons.

Hubris Leads to Depression

By Doug French

Grasping for reasons why his multiple QEs and Fed balance-sheet-bursting policies haven't spurred economic activity, Dr. Bernanke posited a new diagnosis last week in Minneapolis. "Consumers are depressed beyond reason or expectation," the New York Times paraphrased the Fed chief as saying.

Even though unemployment is high, price inflation is up, home values are down, and many people are deep in hock, Bernanke thinks the funk that average folks are in is too deep. "Households seem exceptionally cautious," Bernanke said. "Indeed, readings on consumer confidence have fallen substantially in recent months as people have become more pessimistic about both economic conditions and their own financial prospects."

Bernanke described the business sector of the economy as "more upbeat." Exporters have benefited from a weak dollar, and investment in equipment and software has increased. What the Fed chair didn't say was that since the second quarter of 2009, "Spending on equipment and software has risen 25.6 percent in the last seven quarters, while companies' aggregate spending on employees has risen only 2.2 percent," as New York Times economics reporter Catherine Rampell explained recently.

Rampell points out that the gap between hiring and capital spending is wider than any other post-recession recovery and puts her finger on the reason. "One reason hiring has been so sluggish is that… (Read the full article)

Source: Mises.org

“Buy American Only?” A Letter From a Concerned Citizen

By Zach Foster

This article is also featured on the Political Spectrum

Dear [friend], thank you so much for writing to me with your concerns.  I happen to share your deep concern for the fate of working class America, especially since the recession (which I justifiably call the Second Great Depression) has fallen the hardest on the backs of the working poor and the middle classes.

I'm also concerned with the fact that so many of our products come from China and other overseas producers.  Unfortunately, this is not necessarily the fault of American producers but rather that of government intervention in the economy.

What I'm about to say to you might seem a little crazy, but I urge you to bear with me.

The Myth of Protecting American Industry

Buying American products alone will do nothing to restore our economy, nor will it bring production and jobs back to the country.  Instead, what this does is actually raise prices and diminish the quality of domestic products, since producers now know that they have American buyers captive and no longer need to make the best products; they know that the law is on their side.

When I say that I'm all for free market capitalism, it means that the market needs to be truly free and unrestrained in order for consumer sovereignty to take place.  By consumer sovereignty, I refer to the old notion that "the consumer is king" or "the customer is always right", and according to this ideology, producers who want to get rich know that the only HONEST way to do this is to produce the BEST QUALITY goods at the LOWEST COST and sell them at the lowest possible price.  This is how hard-working Americans have been getting rich for centuries.

Unfortunately, there are those who have found easy ways to get rich through the evils of government intervention.  I’ll explain this momentarily.

There have been periods in American history where there were high tariffs on imported goods (and some of these taxes still exist) which were meant to improve conditions for American businesses and consumers, but instead made things worse.  The free market is all about competition, and tariffs are essentially meant to kill competition.  Not only do tariffs on imports cause many American producers to lose their incentive to produce high quality goods at low prices (because without the competition they know they have their consumers by the throat), but often times foreign countries retaliate.  Because our high taxes make it harder for them to sell their countries’ products in America, they in turn set super high tariffs to punish American producers.  Therefore, the quality of goods produced at home goes down, the prices of those low-quality goods goes up, and the quality of foreign goods which are often good quality is now super high.

Interventionism

This happened during the Great Depression, and both the Hoover and Roosevelt administrations have blood on their hands.  Both administrations, among many other anti-free market crimes, dramatically raised tariffs on foreign goods under the myth that it would boost American industry.  They also set minimum wage laws that were meant to protect incomes.  Well, guess what the tariffs DIDN’T do for our economy and job creation, and guess how foreign countries reacted to them.  Regarding the minimum wage laws, they made production more expensive and unmaintainable for producers, so instead of only having some pay cuts, they ended up having to lay off workers or just went under completely, thus laying off all workers.  Furthermore, small and medium-sized employers were no longer able to afford to hire people because they couldn’t pay X dollars per hour.  Removing the regulations and interventionist measures that strangle industry will ultimately make it less expensive to create jobs in America, and jobs will migrate back from the third world.

Because of the government stepping in to be the hero, business growth is stunted, and that stunted growth also stunted job creation, and things are more expensive for everyone.  Many big businesses will send lobbyists to the federal government because most of this is EXACTLY what they want.  They want to be able to charge higher prices for cheaply produced goods, and they want no foreign competition, especially not from foreigners who are probably making things better and selling them cheaper.  The one thing these greedy businesses DON’T see is that, while they’ll make a profit from their captive consumers in the short run, everyone gets poor in the long run and these businesses fail and end up having to be bailed out by the federal government. This is not what the free market ever intended.

For more on the evils of regulation, you can check out Frederic Bastiat’s book The Law, which talks about how government intervention and regulation empowers the two main forms of plunder: stupid greed and false philanthropy.  The producers getting lazy on the quality of their products because people can only afford to buy American falls under stupid greed.  The regulations and minimum wage laws and “job creation” bills, “consumer protection” bills, etc., fall under false philanthropy.  You can also see chapter 18 of Jeffery Tucker’s book Bourbon For Breakfast (chapter titled “How Free is the Free Market?”).  I also HIGHLY recommend chapters 1 and 2 of Kel Kelly’s book The Case For Legalizing Capitalism, which fully explain the consequences of government intervention on stateside producers as well as international trade (and this book is a lot of fun to read and easy to understand).  All three books can be downloaded in full and for free at Mises.org/books.

Continued in part 2: Bailouts, the Federal Reserve, and the Contender

No, Your Money Isn't Safe

By Zach Foster
Best read with companion article No, We're Still Not Protected

The companion article stated:

"The truth is that, while there are a few more restrictions on what the clowns on Wall Street can do, Americans are not better off than they were a year ago before the magical everything-proof shield was signed into law.  Banking is still highly unstable in the country, and the banks still exist as entities only because they were artificially revived in the form of massive bailouts.  All across the political spectrum, Americans are angry that the massive bailouts ever happened, and they haven’t forgotten that this bailout, spearheaded by Treasury Secretary Tim Geithner (who was present at the appointment ceremony for the head of the CFPB), happened under President Obama’s watch and he failed to take action against it."

Banking will never be stable in America until the Federal Reserve, whose hands are in every cookie jar, from Chase and Wells Fargo to your community bank, is fully audited and eventually dissolved, and the farce of fractional reserve banking is done away with.

Fractional reserve banking is one of the key factors causing the Great Depression.  Many people don’t know this, but the amount of money printed on their bank account statement is NOT the amount of money that exists in their community bank vault.  The standard reserve requirement for larger banks set by the Federal Reserve is ten percent,[1] meaning out of every hundred dollars a person saves in the bank, only ten of those dollars actually have to exist in a vault.  This system is a bridge of thin ice, since theoretically only ten percent of a bank’s customers need to take out all of their money in order for the bank to run out of money and close down (the true meaning of bankruptcy).

Economist Murray Rothbard makes a compelling case that fractional reserve banking goes hand-in-hand with inflation,[2] since the only way to account for the ninety percent of a bank’s money that doesn’t exist is to hastily print paper money, and printing more money further devalues the American dollar (this is exactly why America needs to return to the gold standard[3]).

The image used is artwork by the author.  It was compiled from various images from Wikimedia Commons as well as text added by the author.

---

[1] http://www.federalreserve.gov/monetarypolicy/reservereq.htm

[2] Rothbard, Murray. “Take Money Back.”

[3] Paul, Ron. Gold, Peace, and Prosperity.  The Foundation for Rational Economics and Education. Pp. 31-32, 39

Video: President Obama Nominates Richard Cordray to Lead Consumer Financial Protection Bureau

By Nikki Sutton

Today President Obama took a big step forward in his goal to strengthen the economy and strengthen the middle class with the nomination of Richard Cordray as Director of the Consumer Financial Protection Bureau.

It has been one year since President Obama passed financial reform to help tackle the problems that created the financial crisis that pulled the economy into the worst recession we've seen since the Great Depression, As the President described today, the law did three things, "First, it made taxpayer-funded bailouts illegal, so taxpayers don’t have to foot the bill if a big bank goes under. Second, it said to Wall Street firms, you can’t take the same kind of reckless risks that led to the crisis. And third, it put in place the strongest consumer protections in history."

As part of financial reform, President Obama tasked one consumer watchdog with "looking out for regular people in the financial system."  The President got the idea from Elizabeth Warren:  

“And that’s why I asked Elizabeth Warren to set up this new bureau.  Over the past year she has done an extraordinary job.  Already, the agency is starting to do a whole bunch of things that are going to be important for consumers -- making sure loan contracts and credit card terms are simpler and written in plain English.  Already, thanks to the leadership of the bureau, we’re seeing men and women in uniform who are getting more protections against fraud and deception when it comes to financial practices. And as part of her charge, I asked Elizabeth to find the best possible choice for director of the bureau.

Richard was one of the first people that Elizabeth recruited, and he’s helped stand up the bureau’s enforcement division over the past six months.  I should also point out that he took this job –- which meant being away from his wife and 12-year-old twins back in Ohio –- because he believed so deeply in the mission of the bureau.  Prior to this, as Ohio’s attorney general, Rich helped recover billions of dollars in things like pension funds on behalf of retirees, and stepped up the state’s efforts against unscrupulous lending practices.  He’s also served as Ohio’s treasurer and has successfully worked with people across the ideological spectrum  -– Democrats and Republicans, banks and consumer advocates.

Now, last but not least, back in the ‘80s, Richard was also a five-time Jeopardy champion -- and a semi-finalist in the Tournament of Champions.  Not too shabby.  That’s why all his confirmation -- all his answers at his confirmation hearings will be in the form of a question.  That’s a joke.”

The President also spoke about the tens of millions of dollars lobbyists and lawyers have spent this year to try to weaken the laws to protect consumers and undo progress:

“The fact is the financial crisis and the recession were not the result of normal economic cycles or just a run of bad luck.  They were abuses and there was a lack of smart regulations.  So we’re not just going to shrug our shoulders and hope it doesn’t happen again.  We’re not going to go back to the status quo where consumers couldn’t count on getting protections that they deserved.  We’re not going to go back to a time when our whole economy was vulnerable to a massive financial crisis.  That’s why reform matters.  That’s why this bureau matters.  I will fight any efforts to repeal or undermine the important changes that we passed.  And we are going to stand up this bureau and make sure it is doing the right thing for middle-class families all across the country.

Middle-class families and seniors don’t have teams of lawyers from blue-chip law firms.  They can’t afford to hire a lobbyist to look out for their interests.  But they deserve to be treated honestly.  They deserve a basic measure of protection against abuse.  They shouldn’t have to be a corporate lawyer in order to be able to read something they’re signing to take out a mortgage or to get a credit card.  They ought to be free to make informed decisions, to buy a home or open a credit card or take out a student loan, and they should have confidence that they’re not being swindled.  And that’s what this consumer bureau will achieve.”

Standing Up on Behalf of Consumers

A year ago, in the wake of the financial crisis that pulled the economy into the worst recession we've seen since the Great Depression, President Obama passed financial reform to help tackle the problems that led us into the recession in the first place. 

As the President described today, the law did three things: "First, it made taxpayer-funded bailouts illegal, so taxpayers don’t have to foot the bill if a big bank goes under.  Second, it said to Wall Street firms, you can’t take the same kind of reckless risks that led to the crisis.  And third, it put in place the strongest consumer protections in history."

As part of financial reform, President Obama put one consumer watchdog, the Consumer Financial Protection Bureau, in charge with the sole task of "looking out for regular people in the financial system." 

The President got the idea from Elizabeth Warren, who has spent the past year setting up the bureau and starting the process of setting up protections for consumers – like making sure loan contracts and credit card terms are simpler and written in plain English and ensuring men and women in uniform are protected against fraud and deception in financial practices.

Today, President Obama nominated Richard Cordray as Director of the Consumer Financial Protection Bureau. In his remarks, the President spoke about the tens of millions of dollars lobbyists and lawyers have spent this year trying to undo progress by weakening the laws that protect consumers:

“The fact is the financial crisis and the recession were not the result of normal economic cycles or just a run of bad luck. They were abuses and there was a lack of smart regulations. So we’re not just going to shrug our shoulders and hope it doesn’t happen again. We’re not going to go back to the status quo where consumers couldn’t count on getting protections that they deserved. We’re not going to go back to a time when our whole economy was vulnerable to a massive financial crisis. That’s why reform matters. That’s why this bureau matters. I will fight any efforts to repeal or undermine the important changes that we passed. And we are going to stand up this bureau and make sure it is doing the right thing for middle-class families all across the country.

Middle-class families and seniors don’t have teams of lawyers from blue-chip law firms. They can’t afford to hire a lobbyist to look out for their interests. But they deserve to be treated honestly. They deserve a basic measure of protection against abuse. They shouldn’t have to be a corporate lawyer in order to be able to read something they’re signing to take out a mortgage or to get a credit card. They ought to be free to make informed decisions, to buy a home or open a credit card or take out a student loan, and they should have confidence that they’re not being swindled. And that’s what this consumer bureau will achieve.”

Also, in case you missed it, today Elizabeth Warren published an op-ed endorsing Richard Cordray’s nomination and discussing the Consumer Financial Protection Bureau’s transition this week to a real, live agency with the authority to write rules and supervise the activities of America’s largest banks.