How the Fed Prints Money Out of Thin Air
How Bad Will the Economy Get? Really, Really Bad
William Greider in The Nation (posted on AlterNet July 17) wrote: “The current crisis has blown the central bank's cover. Many in Congress are alarmed, demanding greater transparency. More than 250 House members are seeking an independent audit of Fed accounts. House Speaker Nancy Pelosi observed that the Fed seems to be poaching on Congressional functions -- handing out public money without the bother of public decision-making." My friend Tom Greco, whose new book is The End of Money and the Future of Civilization, explained this more fully at AlterNet, July 14, 2009 click here , abridged by one third below. Further, Greco recalls the origin of the financial debacle -- speculation in land. The total solution still must include putting Earth back into the commons, which we can do via geonomics, by shifting taxes and subsidies to liberate labor while sharing the money we spend on the nature we use.
By Thomas Greco, Jr.Historically, every financial and economic crisis has been used to further centralize power and concentrate wealth. This one is no different, and in fact the moves being promoted by the Obama administration and the central banks of the Western powers will take the whole world to the pinnacle of financial despotism -- unless enough people wake up and claim their own "money power.”
In recent months, the Fed has expanded its "assets" from about $800 billion to more than $2,000 billion. Those so-called assets are securities it bought from financial institutions and loans made to central banks in other countries. But the Fed refuses to name the specific recipients of those funds, while admitting that by doing so they are manipulating the value of the US dollar on foreign exchange markets. (see: Congressman Alan Grayson Grills Fed Vice Chair Donald Kohn.)
Where does the Fed get the money to buy those "assets" or to make those loans? Quite simply, it creates the money. Unlike any other economic entity, the Fed has the power to create Federal Reserve dollars by effectively writing a check against zero funds. This is the function known as "Open Market Operations."
Despite unprecedented inflation of the money supply, we still have economic depression. How?
It is a matter of where the money is going. While the federal government spends lavishly to maintain global empire, and bails out banks to try to keep them afloat, the private productive sector is being starved for credit. As a result, businesses are bankrupting; more people are losing their jobs and their incomes.
There is also the matter of the real estate bubble. Now government assumes those "toxic" loans. Meanwhile, mortgages are being foreclosed at an unprecedented scale.
Ultimately, such abusive issuance of political money shows up as rising prices. When will the price effects of hyper-inflation kick in? What can ordinary people do to protect themselves from monetary and legislative abuses?
Already there are rumblings. China, the OPEC countries, and others that have been buying massive amounts of U.S. government bonds are making bilateral and multilateral trade agreements that bypass the use of the dollar for international trade. When the dollar loses its status as the global reserve currency, imports of energy and other necessities will become more expensive. The U.S.’s massive trade deficits will not be sustained.
We cannot rely upon the government to act in the best interests of the people. President Obama has moved to give the Federal Reserve even more power. According to a June 18 article in the Wall Street Journal, "The central bank would win power to monitor risks across the financial system, and sweeping authority to examine any firm that could threaten financial stability, even if the Fed wouldn't normally supervise the institution." The Bush administration floated the same idea as a trial balloon, allowing the Fed “to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system."
A recent Reuters article is critical of Obama's move because of the Fed's lack of accountability. It is a plan that seeks to preserve at all costs the credit monopoly that exists under the central banking regime and to perpetuate the looting of the economy by monetization of federal government debts and other ultimately worthless "assets."
During the Great Depression, President Franking Roosevelt, upon taking office in 1933, declared a "bank holiday." He ordered all banks to close. Many of those banks never reopened and many people lost their savings. He also demanded that all Americans turn in their gold holdings in return for paper currency, which was one of the biggest robberies in history up to that time. Some are predicting government will deny people of access to their savings, as was done in Argentina in 2002.
Fortunately there is a way out -- cashless trading. It involves a process of direct credit clearing among associated buyers and sellers. During the Great Depression the entrepreneurial middle class in Switzerland organized themselves into the WIR Economic Circle Cooperative. After 75 years, the WIR clearing circle continues to thrive with more than 60,000 member businesses trading the equivalent of about US$1.3 billion per year.
The past four decades have seen the emergence of a new industry comprised of commercial trade exchanges, sometimes called "barter" exchanges, that act as "third part record keepers" enabling the same sort of direct credit clearing for thousands of businesses in cities around the world. Efforts at the grassroots by social entrepreneurs to localize exchange and finance have been similarly widespread in many communities over the past twenty-five years.
We need not wait for proper reform the money and banking system. We can exchange of goods and services sans cash. As these systems continue to improve, proliferate, and scale up, they offer a better economy for all.
When the cheerleaders are worried, shouldn’t you be?
Before It's Too Late, Is the Entire Debt Strategy Flawed?
Who should control the money supply?
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