Not naming names (YOU know who you are. . . .), but some people have accused the
Federal Reserve of being the source of many of our economic ills. While that might be the case, it can also be
the source of the cure. Of course, the
real problem is how the institution is misused, not the institution itself, but
if you haven’t gotten that straight by now, well, just assume it’s the case and
read on.
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| Manufacturing the symbols of money. |
To explain, the central bank is
government’s main instrumentality for controlling the costs and volume of new
credit and money extended through the commercial banking system. The Federal Reserve can play a pivotal role in
restructuring the future ownership patterns of the economy and stimulating
non-inflationary private sector growth, while leaving the actual allocation of
credit in the hands of commercial bankers.
No other institution has the control
over money, credit, and interest rates as that exercised by the Federal
Reserve, particularly in the person of the Chairman of the Federal Reserve
Board of Governors. The Federal
Reserve Chairman’s enormous influence over the economy is a fact reported in
many studies of the Federal Reserve, most graphically in the best-selling book
by William Greider, Secrets of the Temple: How the Federal Reserve Runs the
Country.
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| Main Street versus Wall Street |
Although his orientation was based on
the currency principle of mainstream economics and not the banking principle of
embodied in binary economics, Greider confirmed what Louis Kelso and others
have observed for years: the Federal Reserve uses its money-creation powers in
ways that favor Wall Street over Main Street. This is not due to evil
motivations, as much as from the paradigm from which most economists view the
world and shape their policies.
The processes of creating money and
credit and controlling interest rates are little understood by the American
people, and hardly more by the Congressional committees to which the Federal
Reserve reports. Hence, the activities of the Federal Reserve remain a mystery
and its money-making powers remain an untapped source for creating more rapid,
non-inflationary growth and much more widespread capital incomes for more
Americans.
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| A Treasury Note of 1890, backed by debt to purchase silver. |
The monetary proposals we’ve covered
many times on this blog are fully consistent with the original intent of the
Federal Reserve Act: to provide an adequate, elastic, and stable asset-backed
reserve currency and foster private sector growth while retiring the national
debt that backed the United States Notes (“Greenbacks”), the National Bank
Notes, and the Treasury Notes of 1890. These proposals would allow our country
to take full advantage of the immense potential of a properly designed central
banking system and an elastic, asset-backed reserve currency.
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| Reconciled Capital and Labor |
They would also restore a more healthy
balance between Main Street and Wall Street, and between the non-rich and the
already rich. The proposed reforms would shift the focus of the Federal Reserve
from support of public sector growth and from indifference to non-productive
uses of credit, to support of more vigorous private sector growth, the favoring
of productive uses of credit, and broadened citizen access to capital credit.
Most important, the proposed new boost
to expanded capital ownership for private sector workers and other citizens
would not be constrained by Congressional balanced budget restrictions. It
would involve no new tax expenditures or subsidies. Nor would it rely on
existing pools of domestic or foreign wealth accumulations. It would be “A
Proposal to Free Economic Growth From the Slavery of [Past] Savings” — a shift to what Kelso called “pure
credit.”