Many people think that economic booms and recessions just happen. They may have some awareness that the interest rate setting of the Federal Reserve has something to do with it, but the concept of the artificial production of booms and recessions by the Fed seems alien to them. Perhaps they have just never heard about this, or perhaps they have just dismissed it.
However the fact is that this indeed seems to be the case. The question of exactly why the Federal Reserve partakes in this kind of cyclical manipulation of the US financial system is a bit more complex. To understand this a bit better we need to look more closely at the Federal Reserve, how it originated, what it is exactly, and what its powers and motivations are.
The History of the Federal Reserve
Central banking in the United States has had a series of stops and starts. In 1791 the First Bank of the United States was established, ratified by Washington at the urging of Alexander Hamilton. Its charter was for 20 years. James Madison and Thomas Jefferson were strongly opposed to the bank’s establishment, believing that centralized banking separate from the U.S. government would give the institution far too much power over the nation’s economic well being and affairs. Nevertheless the bank was established and existed until its charter ran out in 1811.
In 1816, though he had opposed the previous bank, James Madison gave the go ahead for the Second Bank of the United States. It again had a 20 year charter, making it up for renewal in 1836. Andrew Jackson was running for reelection in 1832 and was deadly opposed, as were his supporters, to the bank. A large part of his campaign was based on his promise to kill the Second Bank of the United States, which he indeed did. The bank’s charter was not renewed and though it attempted to continue as an ordinary private concern, it went bankrupt a short time after this.
The Federal Reserve Bank, the nation’s third central bank, was established in 1913 by congressional vote (while many members of congress were absent due to the Christmas holiday), and and the bill responsible for its creation was signed by president Woodrow Wilson. Its purported function was to manage, control and stabilize the monetary flow and economic conditions in the United States. There are many, however, who believe that its real goals were and are not so responsible and public minded.
The Federal Reserve is not a government institution but a private bank, this is another fact little known to many people (though it is coming more and more into public consciousness). Though it claims to have some sort of different status from ordinary banks in the private sector, besides its obvious powers to basically make money out of thin air and to control rates of interest, there is little to fundamentally differentiate it from any other private enterprise. As such it exists mainly to enrich its own interests rather than serve the American people as it claims.
And here we come to the problem with the bank, and the reason many presidents and government officials have historically been opposed to central banking in general: as soon as you have a private, for profit corporation in charge of the money supply of an entire nation, you have a situation that is ripe for all kinds of corruption and mismanagement.
Therefore various individuals and parties in our government have fought a long and recurring battle to abolish these potentially corrupt and self interested institutions. However, other government officials who were allied with large scale bankers have wanted these banks to exist either in exchange for political support or because of actual financial ties with the institutions. Thus, the Federal Reserve has managed to gain the position it now occupies.
The Federal Reserve is a centralized bank with 12 branch banks in districts around the U.S. These satellite FEDs in turn have member banks in the regions in which they are established. The essential reason there is so much legitimate concern about this system is because it is primarily interest/debt based. The FED has the power, established in the original mostly secretly penned Federal Reserve Act of 1913, to create and lend as much money as it wishes without the oversee of the Federal Government.
It can also set and adjust the interest rates on this lent money as it wishes, thus controlling its availability and flow. The FED is a lending institution, and it lends to ordinary banks and to the federal government at interest. This can only mean one thing, an ever mounting debt that banks, other lending institutions, the federal government, and finally U.S. citizens will find harder and harder to pay back.
When one takes the long view, the system is quite absurd. Since the source of the money supply, The Federal Reserve, lends money at interest rather than simply circulating it, a debt cycle that is self perpetuating is created. Those in charge of the FED are well aware of this, and many believe that they keep it going in order to perpetuate its stranglehold on governments and world affairs. In looking at the boom and bust cycles that punctuate the history of central banking (indeed not just in the US but globally), it’s hard to come to any other conclusion.
How the Federal Reserve Creates Artificial Booms and Recessions
The Federal Reserve creates artificial booms and recessions, for its own ends, in the following way: they lower interest rates to levels below what are necessary, encouraging people and businesses to borrow and to make speculative, optimistic investments.
Times seem to be good until the bubble bursts, the investments are not sustainable, demand goes down, the investments lose their worth, and the banks cannot recoup the money they have lent. The FED may attempt to keep the artificial boom going even longer by printing more money (technically the US Treasury actually prints the currency, but this is completely at the discretion of the FED) so that there is a temporary surplus, and lending and borrowing seem to recover.
But this intentional inflation strategy can only go so far and eventually an even larger collapse ensues. Banks themselves are unable to maintain stability, not to mention the average consumer, who now has greater debt and can no longer borrow easily. Prices often rise as businesses try to fund the costs of production without increasing their borrowing.
Claiming to assist banks to recoup their losses, the FED raises interest rates, discouraging borrowing among all except the wealthy. One might think that the Federal Reserve itself gets hit by the bursting of the bubble, but the net effect of the entire cycle is to increase the power of the FED to appropriate what it wishes for itself and increase its hold on the economy. In the name of bailouts it assists large corporations it favors and can concentrate wealth in the hands of a small elite.
To put it bluntly, the whole thing is an inside job, at least in the view of critics of the system, and it is hard to argue with this conclusion when one looks at the facts. The Federal Reserve is not working in the interests of stabilizing the economy, but rather managing boom and bust cycles to consolidate its power and to gradually deprive the average citizen of financial freedom, borrowing and buying power, and resources. What’s really at issue here is power to control. Those who have control can make vast amounts of money, and by extension, force entire governments and peoples to do their bidding.
This may seem like something of a nightmare scenario. However, frankly discussing it is the first step toward change. People need to know the stark reality of the fairly ignorant forces at work here. This in itself can initiate a new sort of sociological phase. One in which individuals feel free to both think more realistically (as well as creatively) about their financial endeavors and investments, and in which cooperation on community and state levels in a mutually helpful manner becomes more and more the norm.
Behind all this, if one looks closely, one finds philosophies, ways of thinking, and indeed whole world views. The debt based system is fundamentally an expression of human greed and ignorance. It is a new mind set of realism, egalitarianism, creative solutions, and more enlightened behavior that will ultimately turn everything around.
Learn How to Build Wealth in Less Than 90 Days
Related Articles
Share This Article
