The United States Should Abolish the Federal Reserve

I appreciate his perspective and will address his points specifically in the next round as was agreed in the structure. ThesisThe Federal Reserve should be abolished for many reasons, and I do not intend to outline all of them here because that could take a book's worth of pages. I intend to cover three main areas in which the Federal Reserve causes more harm than good. First the Federal Reserve wields an immense amount of power and has no oversight. Secondly the Federal Reserve intensifies and prolongs the business cycle, also known as the boom and bust cycle. Finally the Federal Reserve actually devalues our currency. For these reasons, which I will examine in the body of my argument, the Federal Reserve should be abolished. ArgumentC1. The Federal Reserve wields an immense amount of power and has no oversight. The Federal Reserve was created in 1913 during the Progressive Era when the Income Tax and many new government institutions were created. Businesses in this time period were obsessed with forming cartels as a way to ensure profits for a select few while socializing any losses they would incur. The Banks of the time were no exception and were looking for a way to have a "lender of last resort" to bail them out in times of crisis. Since the Civil War the government worked tirelessly to defend the gold standard. This was troublesome for the banks because it prevented their ability to expand credit without limit. Gold was stable, from 1833-1913 the price of gold was almost constant, fluctuating between $18.90 and $18.98 per troy ounce. [1] Because of this reason, gold functioned like a regulator of the banking industry because it made the risks real for the banks, it prevented them from expanding credit beyond reasonable limits. If a bank faced bankruptcy it had nowhere to turn so its lending practices had to be responsible. The fact of the matter is that by having the central bank as a "lender of last resort" while also having them manage the interest rates means that the banking industry can profit off of the expansion of credit through loans and then when the bubble eventually bursts they can get bailed out by the Fed, socializing their losses. In November of 1910 high ranking members of banking's elite met at the Jekyll Island Club off the coast of Georgia with Nelson Aldrich, a close friend of John D Rockefeller to discuss this new central bank, discussion that led to the Federal Reserve. [2] To clarify, the men who drew up this plan were 2 related to JP Morgan, 2 related to Rockefeller, 1 from an incredibly influential investment firm Kuhn, Loeb and Co and one economist. The beginning of the Fed was powerful bankers, powerful government backers and an economist to give a veneer of legitimacy of their work to centralize the monetary system of the United States. These corrupt beginnings lead into this very day where there is absolutely no oversight for the Federal Reserve. It answers to no one, not even congress. Timothy Geithner, former Federal Reserve Bank of New York president, is now president of Warburg Pincus, an investment firm on Wall Street. Former Fed chairman Ben Bernanke now works for Citadel, a hedge fund. Money is the most important tool of a civilization and it can cause them to rise and fall. We have entrusted ours with a shadowy quasi-public organization that serves the big banks at the expense of the people. They have the ability to print money at will, and manipulate the interest rate making credit cheap to fuel runaway expansions of credit. All of this power and no oversight. This is a dangerous combination and the people of the United States currently have little control over the organization's actions. C2. The Federal Reserve fuels the Business Cycle. Recent memory shows us that a boom of investment can cause disastrous consequences, especially if the areas of investment are risky. The “Great Recession” had caused the second highest unemployment rate (10%) and the highest long term unemployment rate (4.4%) of all recessions since 1948. [7] The business cycle, or boom and bust cycle, is greatly influenced by the availability of credit and money. In the most general terms the business cycle is generated by an unsustainable and excessive expansion of credit to business and individuals by the banking system. [8] This creation of credit makes it appear as though loanable funds have increased because of increased savings which isn't the case, it is newly created money and credit. This incentivizes longer term and higher risk investments. The Federal Reserve has a huge role to play in the business cycle as it is the central clearinghouse for money, it sets interest rates, and it governs monetary policy. It does not cause the business cycle, it intensifies it by lengthening the amount of time that fractional reserve banks can continue credit expansion. It essentially makes our lives worse by increasing the pain of market corrections by artificially increasing the size of the bubble before it bursts and expanding it from isolated bubbles to system wide bubbles. When interest rates were low banks lent money to any person for the purpose of buying houses. These are called subprime mortgages. Because credit was cheap, housing prices soared. The majority of subprime mortgages were adjustable rate mortgages, meaning the interest was variable. As interest rates rose so did foreclosures. Despite only accounting for 6.8% of all mortgages outstanding in the third quarter of 2007, ARM’s accounted for 43% of all foreclosures. [10] As homes were repossessed the inventory of homes became greater than the demand and housing prices dropped, making it impossible for those struggling to pay their ARM’s to refinance at a lower rate, intensifying the crisis. By May of 2008 25% of adjustable rate mortgages were 90 days delinquent. The housing crisis, fueled by cheap credit, was the main cause of the “Great Recession. ” Other causes were the massive increase in consumer debt, commodity price gains and overproduction coupled with low demand. All of these causes are directly related to the business cycle and the Federal Reserve. C3. The Federal Reserve devalues the US Dollar. The Federal Reserve has the power to print money and control the supply of money to the fractional reserve banking system beneath it. Some might argue that this is a necessary function of Government, they would be wrong. Money is incredibly powerful because it makes up one half of every transaction in an economy. The fact that our money is built on paper is a problem in and of itself. Many great minds before us have criticized the role of a central bank and of paper money. Thomas Paine, whose pamphlet Common Sense was instrumental in spurring the country to revolution, had the following to say about paper money: “As to the assumed authority of any assembly in making paper money . .. a legal tender, or . .. a compulsive payment, it is a most presumptuous attempt at arbitrary power. There can be no such power in a republican government: the people have no freedom—and property no security—where this practice can be acted. ”[3] Thomas Jefferson famously opposed a national bank, claiming that the constitution does not grant the government the ability to establish one. The fact that this organization which is not technically a government organization has a printing press is tantamount to counterfeiting. See Ben Bernanke's comments about using the printing press: "The U. S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U. S. dollars as it wishes at essentially no cost. By increasing the number of U. S. dollars in circulation, or even by credibly threatening to do so, the U. S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. "[9] Every dollar they print makes every dollar in your pocket worth less. There are a total of three crimes specifically mentioned in the Constitution. Piracy, Treason and Counterfeiting. [4] To the founding fathers counterfeiting was enough of a crime to be called out in the most important document in American history. Since 1913 when the Federal Reserve was founded the US Dollar has lost 96% of its value. [5] In the current political world there are calls for an increase in the minimum wage to something liveable. In 1964 the minimum wage was $1.25 an hour. Five quarters. If you took five 1964 quarters today they would be worth $13.80. [6] The money is broken because of the reckless monetary policy of the US Government and the Federal Reserve. Take note of the graph above. Since April 2007 the monetary base (BASE), or the sum total of all currency circulating and in bank vaults increased from $847 billion to it's current level of $3.996 trillion. This is troubling because the majority of this money is sitting in bank vaults waiting to be lent out. If the money is lent out we could see massive price increases and runaway inflation. An organization that is this reckless should not be trusted with our money. Sources[1]. http://www.nma.org...[2]http://www.bloombergview.com... [3]The Complete Writings of Thomas Paine, Philip Foner, ed. (New York: Citadel Press, 1945), pp. 405ff. [4]. http://www.heritage.org... [5]. http://goo.gl...[7]http://www.bls.gov...[8]http://www.econlib.org... III,Ch.19[9]Remarks by Governor Ben S. Bernanke before the National Economists Club, Washington, D. C. , November 21, 2002. [10]. https://goo.gl...;