Fed up? Fed out!

A modest proposal for a return to metal-backed moneyToday, I’ll explain the Federal Reserve System.

Mark Drolette is an ex-ex-pat back in Sac, loving every minute of it (well,except for the Not-So-Great Depression part)

First, it’s not really federal. And there aren’t (many) reserves. It is a system, however, that was birthed after the Federal Reserve Act passed in 1913.

And, pray tell, who backed the act?

Folks with names like Rockefeller, Morgan and Rothschild, who collaborated to devise a central bank they’d control, thereby giving them control over America’s money. Alas! If only the Founding Fathers had anticipated such chicanery.

Uh, wait. They did. Fresh off the colonies’ disastrous experiences with nonstop presses printing worthless currency before and during the revolution, they constitutionally precluded Congress and the states from issuing “bills of credit” (paper money). Silver- and/or gold-backed coinage was the aim.

Creating the Fed—which comprises 12 private banks spread throughout the United States—produced this end run: Congress exchanges interest-bearing IOUs (bonds and notes) with the Fed for paper money created from nothing and backed by, well, nothing.

The advantage for bankers is obvious. And for Congress? Members attempt to get money from the Fed whenever, for whatever, in order to buy votes back home and serve valued constituents, such as agribusiness, pharmaceutical companies, weapons manufacturers. Oh, and bankers, too, who, if they harpoon the economy by being greedy pigheads, are punished by being given trillions more faux-dough by, yep, Congress.

Let’s hope this never happens.

Bond/note interest isn’t the only perk for the Fed (or other bankers). Take fractional-reserve banking (please), which allows folks fond of things like usury to get a charter, start a bank, take deposits and then loan “money” at a 9-to-1 ratio based on said deposits’ total.

It gets better. Repaid loans that return as deposits in other accounts become the basis for new 9-to-1 loans. Etc. Can you say “pyramid scheme”? That’s why bankers fear bank runs, when many customers at once audaciously demand their balances in cash, money that’s not available because it mostly only exists electronically. Suddenly, the magic of making money from nothing disappears—shazam!—and chains on bank doors materialize—sa-lam!—overnight.

The Fed’s creators devised a safeguard against runs: the “lender of last resort.” That’s you! The Fed legislatively ensured taxpayers cover soured bets.

But how, during these tight times when you’re considering the pragmatism of fattening Fido, do you lend any money, let alone trillions? Inflation! Once the government sells myriad bonds, prices skyrocket and the dollar plummets. If not apparent now, it may be when you next hook the oxen to your cash-laden trailer to purchase groceries.

If enough pain manifests, perhaps a clamor will arise to behead the Fed, thereby precipitating a return to constitutionally mandated, precious metal-backed money. A long shot, true, but then, who ever thought the Bushies would leave? Now, if we could just get Dick Cheney’s home planet to take him back …