Saturday, December 25, 2010

Ownership of the Federal Reserve Bank

An anonymous poster asked me about the ownership of the Federal Reserve Bank and without doing a lot of research I found an interesting post by Professor Edward Flaherty of the University of Charleston.  Flaherty debunks the claim that foreigners or the Rothschilds control the Fed. That is silly.  But equally silly is Flaherty's claim in the following sentence:

"The New York Federal Reserve district contains over 1,000 member banks, so it is highly unlikely that even the largest and most powerful banks would be able to coerce so many smaller ones to vote in a particular manner. To control the vote of a majority of member banks would mean acquiring a controlling interest in about 500 member banks of the New York district. Such an expenditure would require an outlay in the hundreds of billions of dollars. Surely there is a cheaper path to global domination."

While coercion is a loaded term, Flaherty displays a lack of understanding of basic political and interest group processes.  Typically, democratic processes yield a small number of controlling or influential parties.  Robert Michels first called this process the iron law of oligarchy in a book on political parties (specifically the Socialist Party of Germany, which at the time was considered highly democratic) and it has been examined by Mancur Olson on the public policy level in his book Rise and Decline of Nations.  

While it is silly to claim that the Rothschilds or some cabal of Jewish or British bankers controls the Fed, it is equally silly to claim that the big money center banks do not influence monetary policy.  Since 2008 we have witnessed Goldman Sachs largely dictate national spending policies.  Flaherty's claim that ordinary political processes do not apply and that the large banks lack influence on the nation's monetary policy, given the trillions of dollars just printed and handed to them, is wrong. 

Monetary policy favors the commercial banks and by definition the big commercial banks get the most juice from the Fed's monetary expansion.  That doesn't mean that there's a conspiracy of international bankers, Jewish, British or otherwise, nor does it mean that there is a a conspiracy of big US banks.  It just means that money center banks control a disproportionate share of a monetary system that is designed to subsidize banks in general. The bigger banks benefit more than do the smaller banks, and they do more damage because they tend to be more speculative. The Mexican and Latin American debt crisis; the Hunt silver speculation; Enron; Long Term Capital Management; and the sub-prime crisis as well as the century old merger mania that has reduced American business's creativity are all due to the money center banks.

The banks and financial interests benefit and you lose. That is built into the system that American voters have supported.  If you insist on voting for one of the two major parties every time, you are supporting the system.  Voters have themselves to blame, not a conspiracy. 

If the Constituion Were Drafted Today, What Would Be Americans' Chief Political Value?

If the Constitution were drafted today, I doubt it would look much like the document drafted in  1787.   Back then, the rule of the federal government was limited; just a small tax on whiskey led to an armed revolt in Pennsylvania in 1791; states collected religious taxes; the majority of the elected elite believed in federalism and states' rights; and a large percentage of Americans opposed a central bank.  Today, some of these ideas are being renewed, but Progressivism, socialism and state power have become the dominant values of a nation devoted first and foremost to financial interests and the privileges of Wall Street.

If the Constitution were drafted today, and were it to reflect the average American's beliefs, it would first and foremost require a two party system, with both parties committed to big government and to logrolling of special interests' economic benefiits.  Rights to property would be subjected to the right of the two parties to steal and murder on behalf of the financial and corporate community. All economic transactions would be required to subsidize Americans' greatest goods:  General Motors, Goldman Sachs, George Soros and Paul Pelosi.

Most important among Americans' political values is the prominence of two nearly identical political parties, both strongly committed to theft and violence.  The unlimited rights of eminent domain; government's right to mismanage the nation's wealth; the president's right to wiretap; and the harm that freedom of speech might do to Congress and to corporate interests would be important elements, as would the right of the Supreme Court to compel you to be an atheist and to give your land to inept developers and the two parties.

Thursday, December 23, 2010

Federal Reserve on Ice

I just submitted this column to the Lincoln Eagle, which is scheduled to go online within a few months. Mike Marnell's circulation, currently around 13,000, is close to the Kingston Freeman's daily circulation of around 16,000.  Of course, the Lincoln Eagle only comes out monthly.

Federal Reserve on Ice

Mitchell Langbert, Ph.D.*

Several readers have commented. No issue is more urgent or of greater importance to you.  It is more important than the price of your car insurance or your annual salary increase.  The issue is simple.  But people find it confusing because they can’t believe it. To use a high school vocabulary word, they are incredulous

The Wall Street-owned Democratic Party media, from NBC to MSNBC to CNN to the Kingston Freeman, do not discuss it.  Congressman Maurice Hinchey recently voted to bury information about it by preventing its audit.  But, yes Virginia, the Federal Reserve Bank (the Fed) is bigger and better than Santa Claus.  It creates money out of thin air. And no, the goods and services of the American economy DO NOT back the Fed-created money.  Nor do the full faith and credit of the American people.  The money you use is Fed-created money printed on paper and notated in banks. Your dollars are backed by…nothing. 

If the international community stops believing in the dollar, it will be worthless.  If the American public loses faith in it, it will be worthless.  The recent rise in the price of gold from $250 an ounce in 2000 to $1400 an ounce recently, nearly a 600 percent increase, is evidence that some investors anticipate a dollar collapse.  This could harm you. If it happens, it will be because of socialist big government, because of the Fed, because of the Democrats and because of the Republicans. The two party system is a one party system that responds in unison to the interests who benefit from the Fed.

In 2005 there were $1.4 trillion in US checking accounts and cash.  Today there are over $2 trillion in Fed-owned deposits.  The Fed increased its own deposits and cash from about $800 billion three years ago to over $2 trillion today.  It did this by creating the dollars it holds out of thin air. And the Fed announced that it is counterfeiting another $600 billion in the near future.

Commercial banks have the power to create still more money, also out of thin air, through lending.  Thus, the money supply might triple within a few years.  That could mean your pension and savings accounts will be worth less. A lot less. Their value will have been diverted to Wall Street and commercial banking interests.  Your congressman, Maurice Hinchey, voted to cover up the Fed’s operations by voting against Ron Paul’s Audit-the-Fed Bill.  No greater subsidy to the super-rich exists, and Congressman Hinchey is on board.  Special interests have no greater means of exploiting you, and Congressman Hinchey has voted to facilitate your exploitation.

The Wall Street-owned media, which is called “liberal” but is better called corporatist or Whig, pretends that the Fed is too complex for you to understand.  Nothing could be further from the truth.  In the 19th century the opposition to the "Fed" came from ordinary working Americans, just like you and me. 

The way the monetary system is set up is easy to understand.  The Federal Reserve Bank, the regulator of the banking system, is a private concern that the banks own.  It is empowered to create money out of thin air.  All greenback dollars, the dollars you hold, are artificial Fed reserves or derived from bank loans based on Fed reserves.  The gold in Fort Knox does not back them. The US public does not back them. The US economy does not back them.  The US government does not back them. Nothing backs them.  

Purchasing Treasury bonds from banks like Citibank, the Fed deposits dollars it creates out of thin air.  The assets it has traditionally chosen are Treasury bonds, but they could purchase other assets.  Dollars are called “Federal Reserve Notes”, which implies that they are debt, but the notes are only redeemable in other Fed Notes.  It is as though you had the right to pay for your house and car with loans that you had the right to repay with further loans and that people were legally required to accept your IOUs, which you only had to repay with further IOUs. If you could do that, you would have a holiday.  Since it is January, it would be a holiday on ice.  Wall Street has been having a holiday on ice since the winter of 1932, at your expense.

The Fed has no incentive to be even-handed or fair. Its owners, large commercial banks, have every incentive to expand the money supply because they benefit from more dollars, which they lend at interest, largely to Wall Street.  More accurately, for every dollar that the Fed creates, the banking system can lend up to $10.  It does this by using Fed-created dollars as loan reserves over and over.  The Fed creates a dollar by purchasing a Treasury bond from a New York City bank.  The bank uses the dollar by lending out 90 cents of the dollar to a borrower.  The borrower deposits the 90 cents in his bank. The borrower’s bank lends out 81 cents, using the same reserves a second time.  The second borrower deposits the 81 cents in his third bank. The third bank lends out 73 cents based on the same reserves to a fourth borrower, etc.  In the end, the banking system can create up to ten times the amount of money that the Fed creates.  In practice, the banking system approximately lends out less than double the Fed deposits.  Recently the Fed massively expanded reserves.  The expansion will not cause innovation, quality improvement or higher productivity.  Inflation will result as it has since the 1930s.

The people who get first dibs on the Fed’s fresh counterfeit benefit most.  These are the following: (1) commercial banks; (2) Wall Street and hedge funds; (3) managers of big business, which has easy credit access; (4) stock and bond holders (5) government (6) defense and other government suppliers; and (7) real estate-related interests.

The people whom the Fed hurts include those who are retired and are on pensions or other fixed incomes; private sector workers not in finance or real estate who live off wages; those who do not rely on welfare or other government programs; those who save; and those who aim to get ahead through innovation rather than asset manipulation or speculation.

The real hourly wage has hardly increased since 1971, when Richard Nixon abolished the gold standard.  In the 19th century and until 1971, when there were elements of the gold standard remaining, it used to increase two percent per year. Now it increases two percent in forty years.  Government’s massive expansion could not have occurred without the Fed.  Hence, greedy government officials, congressmen like Maurice Hinchey, the Wall Street-owned Democratic Party media, government employees and bankers have waxed rich on your dime.

*Mitchell Langbert is associate professor at Brooklyn College. He blogs at

Wednesday, December 22, 2010

Tea Party Commitment Tactics

The Tea Party is showing greater guts and glory than I anticipated.  But we are in the first inning and the score is 4 to 3 in the Republicrats' favor.  We have elected candidates, taken control of the House and stopped the spending bill, but the the Republicrats passed the health care act, buried Ron Paul's audit-the-Fed bill, passed the pork-laden tax bill, and still push for candidates like Rick Lazio.

It is going to be an uphill battle.

One way to view the battle is as a negotiation.  The Tea Party is negotiating with the Republicrats, the two-headed hydra of the Democrats and Lazio Republicans.  This negotiation is win-lose, which implies a negotiation style that experts call "distributive."  It is distributive because the Democrats and the big government Republicans are thieves, and in the prevention of theft the Tea Party deprives the Rick Lazios, the Democratic Party and the interest groups that support them of their stolen wealth.  There is no gain to  the Republicrats from freedom except over many decades.  The six-figure-income school teacher and the eight-figure-income investment banker see little value in liberty because their out-sized, stolen pay checks are far more valuable to them in their ignorance and greed. 

Distributive bargaining requires hard bargaining. It involves bluffs; gambits; opening offers; counter-offers and manipulative tactics. One of the key ploys in distributive negotiation is commitment.  Roy J. Lewicki, David M. Saunders, and Bruce Barry (LSB) write textbooks on negotiation, and Essentials of Negotiation is the smaller version of their book .   They point out that by making a commitment the negotiator signals what the final action will be if negotiations fail.  The other side often views commitments as threats. Commitments can involve if-then statements with a high degree of specificity.  "If the health care act is not repealed, then we will vote for an alternative party," for instance.

Commitments contain the risk of fixing a position that might change with circumstances or additional information. In a political movement, such a situation is common.  Tea Parties need to combine a degree of flexibility with their commitments.  But we are far from worrying about a change in the fundamental circumstances facing the nation.  The United States is in decline because of the federal, state and local governments; the special interests; and the two political parties.  Steps to reverse the decline would include repeal of law and regulation such as the health care act; elimination of the Supreme Court's legislative powers; abolition of various government agencies such as the Departments of Education and Energy; and the abolition of the Fed, which would be the single biggest step toward rationalization of the American economy.

LSB write (I'm keying off pages 46 to 49 of their textbook) that commitments involve finality; specificity; and consequences.  Public statements enhance the commitment's potency.  Tactics to enhance the strength of commitments would include alliances with outside bases (e.g., alliances among various political movements); emphasizing commitment verbally; and making preparations to carry out a threat.  One can visualize two nations in a conflict. Should one begin mobilizing its army, the meaning is clear.  Demonstrations are a form of mobilization.  Civil disobedience is an effective tactic that will move public opinion in the TP's favor and carries enough of a hint of the possibility of further steps to make a point.

The Tea Party needs to continually refresh its commitment to the interests that underlie its positions.  These interests are liberty and the prevention of the sick violence inherent in socialism.

Tuesday, December 21, 2010

Michael C. O'Donnell's Church & State Blog

My colleague on the staff of Kingston, NY's Lincoln Eagle, which is going online soon and is looking for correspondents around the country, including in the Land of Lincoln (hint: Mairi, Jim), Michael C. O'Donnell writes excellent articles each month.  His Website, Church and State, is at  O'Donnell blogs from a libertarian Catholic perspective  On his site, O'Donnell quotes Archbishop Timothy M. Dolan, who likens abortion to slavery, as well as Cardinal Egan, who shows a picture of a 20-week-old fetus that looks suspiciously like a human being.  So much for the abortion-is-not-murder argument.  O'Donnell links to Egan's article:

"Adolf Hitler convinced himself and his subjects that Jews and homosexuals were other than human beings. Joseph Stalin did the same as regards Cossacks and Russian aristocrats. And this despite the fact that Hitler and his subjects had seen both Jews and homosexuals with their own eyes, and Stalin and his subjects had seen both Cossacks and Russian aristocrats with theirs."

Philosophical arguments that posit the morality of abortion are linked to those that posit the morality of murder, as are arguments for socialism.   

O'Donnell argues that "federal, state and local elected officials have lost their moral legitimacy and authority to serve."  That is why I am asking Mr. O'Donnell to be the third member of the Secession Party. Mike Marnell, The Lincoln Eagle's publisherwhich published the SP's manifesto this month, was first, followed by his brother Mark.  I am working on Glenda McGee, but I'm afraid the SP is turning into an Irish mafia.  I'll ask Russell Schindler of Kingston, NY, to join although I'm not sure that totalitarian socialists are interested.  Schindler would make a good attorney for the SP, though.

O'Donnell takes on the looting of the Social Security trust fund and the federal government's inability to maintain a stable money supply. In a recent article in The Lincoln Eagle O'Donnell points out that it is perfectly legal to drive without a license and shows that federal law, which does not require non-commercial licenses, supersedes state laws. According to Marnell, O'Donnell has beaten driving without a license charges ten times in local courts.

Sunday, December 19, 2010

No Tax Compromise and the Demon Democracy

Pamela Odell forwarded this petition to oppose the tax compromise.  The Tea Party's success with the  recent spending bill is a delightful surprise. But it has a long way to go. 

Democracy leads to the increasing power of special interests and so its own implosion. Those adept at manipulating the system, from George Soros to the teachers' unions to commercial banking to the pharmaceutical industry to the auto industry, have economic advantages that ensure their imposition of their ends on the majority of Americans.  Hence, democracy is anti-democratic. Like the demon whiskey, one drink leads to good results but too much leads to a hangover.  As Progressivism has proceeded in excessive indulgence in democracy it has motivated increasing numbers of Americans to join the special interests that dominate society, to participate in the tyrannical minority.  Universities that do not educate; public schools that focus on indoctrination rather than education; an investment community that pockets massive wealth at public expense; a pharmaceutical industry that markets slight variations on snake oil all have a louder voice in a democracy than do "the people."  As a result, pointless government programs and regulations expand; massive amounts of wealth are transferred to Wall Street; the legal system becomes a source of allocating government largess; and America as a nation goes into decline.

When the nation worked on republican principles  it was successful.  Thus, the direct election of senators; the Supreme Court's "living constitution" doctrine; the Federal Reserve Bank; and the erosion of states' rights have contributed to America's decline; to income inequality;  to declining opportunities for America's young people; to the extinguishing of liberty.

There are positive ways to market freedom and republicanism. School vouchers; greater income equality through abolition of the Fed; greater public voice through the "less is more" philosophy of republicanism; and states' rights reformulate failed conservatism.