The Federal Reserve – Part III – The Takeover
FDR’ Speech on the Banking Crisis March 12, 1933
Roosevelt established the FDIC in 1933 assuring people it was safer to keep their money in a reopened bank than under the mattress. Then on August 23,1935, Congress approved legislation that had a major impact on the Federal Reserve Banks, theBanking Act of 1935. This Act structurally altered forever the entire concept behind the Federal Reserve whereas its purpose originally was to provide stability with respect to internal capital flows in addition to a regulatory clearing house for the banks. Each branch maintained its separate interest rate to attract capital to a region or to deflect it to prevent another Panic of 1907 when cash flowed from the East to the West because of the San Francisco Earthquake of 1906.
This is where the Open Market Committee was established and national monetary and credit policies were determined in Washington and this would gradually become the new political-economy and Laissez-faire was now officially dead.
As World War II approached, politics took control of the Fed. Once again the Fed was ordered to support US government bonds at par. This decree was not lifted until 1951. The Fed remained fairly independent thereafter until the Vietnam War. Politicians viewed its authority to increase the money supply on an elastic basis meant that inflation was their problem, not Congress’. Politicians began to spend whatever they wanted to win election and criticized the Fed if inflation appeared when they had no control over the fiscal spending of Congress.
The entire Bretton Woods system of fixed exchange rates backed by gold pegged permanently to $35 was stupid and a became a nightmare. The military establishment that Eisenhower warned about upon leaving office wanted to rule the world. It was the Presidential Debate of 1960 between Kennedy and Nixon that set off the first Gold Panic. Kennedy correctly addressed the decline in the value of the dollar. He stated that the US could stop the decline anytime it desired. All they had to do was stop expanding the military around the world.
The fiscal mismanagement of Congress continued and finally on June 4th, 1963, Kennedy signedExecutive Order 11110 which dealt with the problem that silver was rising in price and therefore it could no longer be used for a monetary instrument given the Bretton Woods fixed rate ideas. This is why there can be no standard because everything with time fluctuates. The Treasury was under order to maintain the fixed rate of silver and there was a tax placed on trading in silver back in the Great Depression in 1937. Kennedy was authorizing the Treasury to issue notes ONLY if needed for the transition in the elimination of silver from the monetary system. It has nothing to do with stripping the authority of the Federal Reserve to issue notes.
The collapse of Bretton Woods was underway. It became self-evident with the Crash of 1966. The stock market fell 26.5% in about 8.6 months, but so did collectibles and other investments for the bearishness on the dollar reached excessive levels. Then the market recovered reaching back to the former highs in 1968. The decline resumed and the market fell for about 17.2 months into May of 1970.
Bretton Woods was collapsing in slow motion. From the first gold panic in 1960, 11 years later the world financial system collapsed. It was 8.6 years from the Kennedy decision to abandon silver. Richard Nixon who had debated Kennedy in 1960, was forced to close the Gold Window on August 15th, 1971. It was Nixon who set in motion the withdraw from Vietnam. He opened China in hopes of putting pressure on Vietnam to reach a settlement, but that failed. Nixon knew, it was the military establishment that undermined the economy.
Of course European politics was the polar opposite of the USA. There, a stronger currency proved they were doing a good job on rebuilding the economy post-war. The French and the Swiss were the leading the charge to demand gold for dollars. The French had visions of conquering the financial world and dethroning the dollar to grasp that golden wreath of victory snatched from the hands of Napoleon.
The 1970s was all about trying to fight inflation caused by the decline in the purchasing power of the dollar. German cars had more than doubled in value through the 1970s. Gold had risen to $875 on January 21st, 1980. Volcker took charge of the Fed and used gold as his sign of success at first, but then abandoned that as any guidance. He raised rates into March of 1981 taking the discount rate to 14%. When the inflation broke and the dollar then soared to record highs going into 1985, rates had declined back to 8%. This would set that stage to the dramatic escalation in the national debt for it stood at almost $1 trillion in 1982 and reached almost $6 trillion by 1999.
Voclker’s battle with inflation set in motion the major factor of inflation – government spending. The Federal Reserve was stripped of any real power to manipulate the economy for they lacked any control over the fiscal spending of Congress The attempt to raise interest rates to fight inflation, send the national debt soaring and the proportion of interest costs sky-rocketed and eventually reached about 70%. The whole idea of socialism to benefit the people was inverted to benefit the bond holders. Then the movement to return to a gold standard was unleashed, which would have been a huge benefit to bondholders and strip-mining the people of whatever liberty and assets they managed to earn. The bondholders would have profited tremendously.
As we look at the Post 1981 Era, what becomes strikingly obvious is that the bankers then do a reverse takeover of government aiming not just at the Federal Reserve, but at the whole enchilada.
COMMENT from Retired Police Chief
COMMENT:
Mr. Armstrong,
Many cops do not think beyond a violation of a law to see the bigger picture of what is really going on, they buy into whatever reason is given for a new program, or they like the government bodies they serve see a cash stream that they think they can use as well; directly or indirectly. Programs like this are often billed to “save our children”, or some other platitude, and you obviously don’t care about people’s safety if you don’t support red light cameras. I found myself very lonely on this issue among Police Chiefs since most seemed to support it, but successfully fought it off at least until I retired. For what it’s worth, I think you are 100% correct and I am so tired of political correctness, pretense, and stating something is that isn’t. Here is a good article that talks about most of what the revenue is mostly from on these cameras.http://www.motorists.org/red-light-cameras/right-turn-on-red I think the Texas legislature is about to get rid of these though this session.
There are other ways to protect motorist at intersections other than cameras but unfortunately they don’t generate revenue, but, if safety were the true motive at a truly unsafe intersection it would be done. Delayed timing cycles (red in all directions briefly extended) would prevent a lot of accidents that are caused by someone truly blowing through the intersection but when I have suggested such, I was promptly told it would significantly delay traffic flow so it wouldn’t happen. So I guess lifesaving safety isn’t worth our attention if it slows us down any. You could also put a traffic cop at the worst locations but most don’t want to do that either because it cost the city probably as much or more money than the fine revenue would generate.
Trust me I get it as do you. The minute they put a profit motive for a private company regarding the enforcement or non-enforcement of laws, the system became corrupt; similar to what is occurring with privatized prisons/jails in this country. Corporations/business have no place in the criminal justice system where they profit from some type of charges being filed, doing so only corrupts it further.
Sincerely,
Joe
REPLY: As soon as you provide a monetary incentive to those in government, the game is corrupted. I have an English drivers license I obtained in 1985 when I lived in London. I paid about $10 and it expires about 2020. Now government has figured out to renew licenses every few years. Why? All you do is send money. There is no check to see if you are qualified other than can you pay. It is all about money – that’s the name of the game.
Fractional Banking & China
You can really start to feel 2015.75 coming. This is going to be a harder fall than 2007-2009 for outside the USA we are in a declining mode since 2007, which should bottom by 2020. This is a DEBT CRISIS not a bubble in stocks or commodities thins time.
As of tomorrow morning, the central bank of China has cut its reserve ration by 1%. So fractional banking is being increased to confront the problems we truly face. When the US economy turns down, this is not going to be a pretty sight.
We are trying to get a bigger venue for the European World Economic Conference. The 2011 conference we had to turn down over 300 people for the room maxed out at 300+. This conference the demand is skyrocketing so this too is clearly a sign of the times we are facing. This will undoubtedly be the largest professional gathering at any financial conference probably in history.
We are pushing very hard and have expanded our view to Berlin, Frankfurt, and Munich trying to find a venue that can accommodate our clients including rooms.
We will let everyone know ASAP.