Monetary Policy

The U.S. monetary policy is greatly responsible for the financial crisis that has befallen most of the world markets. Different “bubbles”, areas of finance that are artificially boosted through dishonest means, burst for different reasons but the underlying factor is fiat money, money that has no real value or commodity backing, such as gold or silver. In the U.S., the Federal Reserve is the PRIVATE central bank that prints the fiat money dollars that you have in your pocket.

It is very important that you understand that the Fed is PRIVATE, not a government-owned entity. There is presently no oversight or auditing body associated with the Fed and that is the way they like it. Because it is a private entity, it operates like any other business; making financial deals with other central banks around the world and this wouldn’t be a problem, except for one very important fact: For every dollar that the Fed prints for the U.S., that is considered a loan which we taxpayers pay the interest on. The rate that we borrow these dollars is, in late 2012, 42 cents of every dollar. Yes, that’s 42% of every dollar that is printed for the U.S.! So, effectively, every dollar that is printed is only worth 58 cents right out off the printing press. (NOTE: While the Fed does print physical dollars, most of the “printing” is done digitally, buy putting in a number and pressing “Enter” and that amount is now “printed” and in circulation for banks to borrow and loan on. More about that later.)

Present monetary policy follows the Keynesian theory of economics which, to make it very simple, says that you have to spend to stimulate an economy, even if you have to go into massive debt to support that spending. The von Mises theory of economics works more like most of us run our personal finances; you spend what you have and only borrow if you have the means, and the intentions, of paying it back. The Fed provides funding to the banks, which, in turn, loan to businesses, individuals and even countries for whatever those entities may require. Whether a restaurant is looking to buy a new kitchen appliance or a country is looking to expand its infrastructure, banks are where people go for funding. Banks, as some of you might know, presently borrow money from the Fed at very close to 0% interest and then lend it to their customers in an innumerable range of interest rates that are limited only by the creativity of the lender and the willingness of the borrower. Knowing this will shed light on the fact that most banks won’t lend low interest money to home owners. The main reason being that 3% profit on money they could invest elsewhere is not in their best interest. They would much rather lend at 22% on a credit card; now we’re talking real money!

So the banks are lending to a chosen few; what are they doing with the money? The Glass-Steagall Act, which was repealed in 1999,  did not allow commercial banks to mingle money with investment banks; they were separate entities, by law. With Glass-Steagall repealed, “The Big Six” banks (Chase, Bank of America, Wells Fargo, Citibank, Morgan Stanley and Goldman-Sachs) took the opportunity to merge their investment branches with their commercial “standard” banking interests in late 2008. What this allowed for was the huge bailout, under the name of the Troubled Asset Relief Fund (TARP) in 2009. This $800 million legislation was originally sold to the Congress as a way to put actual cash money into the hands of homeowners that had issues making loan payments, as well as providing a process to reduce the principal on the millions of housed that were devalued by the housing crash of 2008. What actually happened was that the Big Six ended up getting over $7 trillion of bailout funds from the Federal Reserve. The Fed also bailed out foreign banks that were heavily invested in the mortgage bubble and were in serious financial trouble as a result. Barclays (UK), Societe Generale (FR), Deusche Bank (Germany) and UBS (Scotland) received billions of dollars so that the U.S. banks they are indebted to get paid back.

In addition to the ability for banks to merge questionable entities, how much the banks are required to hold at any one time has changed markedly over the years. Banks used to have to have $1 in reserve for every $3 loaned. Presently, they are allowed $1 for every $10, or a 1:10 ratio. This is actually a cut from the early 2000’s where banks were leveraging at 1:20, 1:30 and even 1:50, which is one of the ways the banks got themselves into trouble in 2008 with the mortgage crisis.

With all of this debt being generated, who is making money? The Big Six. And who pays all the interest on all this bailout money? The U.S. taxpayer. In fact, the revenue generated from taxing the Common Citizen doesn’t even pay the interest on the now-massive $16 trillion-and-counting debt. And, with the Fed printing more money, the dollar is devaluing more and more, making it worth less (worthless?) and commodities, like gas, food, and housing, more expensive.

All of this comes back to us, the Common Citizen. Massive amounts of wealth transfer, from those that work for their paycheck to those that do not. In this case, I’m talking about the banksters (bankers + gangsters = banksters; thank you Gerald Celente!) and the politicians that submit to the lure of big money paid to them in the form of campaign contributions (bribery). Lots of back-scratchin’ goin’ on, for sure.

What can YOU do? Learn the terms associated with economics. Read or listen to Bloomberg or other financial news services. Find a subject that directly affects you (mortgage rates, devaluation of the dollar, inflation, etc.) and become an expert on the subject. Then, write your letter, make your phone call, or ask the hard questions at a local town hall meeting. Hold your elected representatives accountable. Run for office yourself. There is a lot one can do but when we all do something, the collective will reap the rewards.