Life With the Federal Reserve

Throughout my lifetime, I have been witness to a battle of economic ideas: communism vs. capitalism; socialism vs. the free market; Keynesian economics vs. unbridled capitalism. All too often the battle of ideas turned bloody and millions of people died.

My own grandparents came to this country because they believed in the promise of American opportunity. Their optimism appeared to be reinforced by the collapse of the Soviet Union when free market capitalism allegedly won the day. (Really the Soviets went bust trying to outspend the US on mutual assured destruction). The US charged ahead into the information age, another vindication of the vitality of free capitalism.

The idea of the American dream has suffered from a dose a reality in recent years. Research reveals that that those that have money, overwhelmingly, end up with even more.

Even education doesn’t guarantee a seat at the table. A tiny, tiny minority hit the economic jackpot and the rest of us slog, losing ground during GOP administrations and fighting our way back during better times. Bush’s management of the economy has painted this picture even more starkly on the American landscape.

What I've failed to realize, even as a news junkie, is that the deck is stacked from the ground up. Recently a friend (a CPA) lifted the veil from my eyes with a 15 minute primer on how the Federal Reserve controls the economy. What Americans labor under is a feudal system masquerading as a free market economy. Our economy is a a miracle of the free market but a carefully managed system run for the benefit of the all ready wealthy. Like the Land Barons of old, we labor in landlord's fields in exchange for protection from his enemies. The goal of the economic system is to enhance and preserve privilege.

The Federal Reserve controls the US money supply and short-term interest rates. In other words, they decide who gets money and how much it’s going to cost them. Game over.
The Federal Reserve is not part of the federal government. Their meetings are held in secret. They have resisted publishing their minutes for nearly a century. It is a scandal waiting for a journalist.

US currency has no intrinsic value. It is created, literally, by typing in some figures on a Federal Reserve computer and is made to disappear in a number of equally ephemeral ways.
The favorite modus opperendi is to create a bubble from which huge amounts of unearned income can be generated and funneled into the pockets of the plutocracy. The Bank start pushing cash out to the latest, greatest thing; the internet the last decade and unsecured real estate loans (the sub-prime debacle) this decade and Voila! mail box money for the wealthy pours in.

When the cream has been skimmed, the “ricos” start to unload their soon-to-be-shrinking assets on those that have been left behind. As the real estate market collapses, notice the great numbers of cable TV shows that tout building wealth by buying and selling real estate. In the last two months, the seemingly invulnerable Seattle housing market moved from a median home price of $500,000 to $380,000. All the while Fortune Magazine is singing about the glories of investing in bullet proof Seattle real estate market.

When buyers, stuck with too much mortgage or an adjustable rate that is going through the roof, search for new loans, they find the money supply is dries up. There are no more windfall profits to be made, so it’s time for the "owners" to move on. The banks will end up with at lot of houses and the wealth they represented will go down a rat hole. Just ask the investors who got burned during the dot.com bubble. The wreckage that ensues from this sort economic management is none of their concern.

My friend said he has counseled his children to seek work within the latest bubble, even if it means changing careers and taking a lesser job. He believes they will fare better moving with the money. Perhaps he’s right yet it seems sad thing to tell young people.

The good news is that such a managed economy is unlikely to collapse. The bad news is that the 98.5% of Americans, who create the wealth fail the wealthy pocket, fail to benefit and often suffer under such a system.
No nation with our distribution of wealth has avoided a revolution. No nation with a shrinking middle class prospers.

The arrogance of the Bush years has served to expose the ugly underbelly of a system that shouldn’t be. The Federal Reserve Bank was established in 1911, effectively removing the ability of the government of, by and for the people to control their economic environment for a century. Like a diseased appendix that saps the strength of the entire body, it’s past time for surgical removal.

Carol DW