Yes

by Gene Denardo

Created on: April 29, 2009

There is no question that in the best interests of the United States and the American Economy that the Federal Reserve should be carefully dismantled. The recent economic events are primarily a result of the actions of the Federal Reserve and the future can only hold similar scenarios as long as it remains in existence.

The Federal Reserve was created by a Congressional act of law in 1913. It was lobbied into existence by a select group of the wealthiest bankers and industrialists of the time. It has fulfilled its function; to extend and maximize the power and control of the banking industry over the economy. It is time to free the economy from this artificial banking cartel.

Banks must operate competitively for Capital to move freely within the economy. This is impossible as long as the Fed exists. The primary form of Capital that banks compete for is money and there can be no competition when the Fed is constantly creating money from nothing and distributing it at suppressed artificial rates to whoever it sees fit. This is the definition of a "controlled" economy, controlled from the financial sector down, and in no way resembles the "free" economy it so often claims to be.

Instead of direct competition for access to money, banks instead compete for a place in the "lineup" of selected traders that the are bestowed the benefits of the Federal Reserve's money creation powers. What is left then, is simply competition not for the funds themselves, but for the amount of profit they can realize on this guaranteed source of money. This would be analogous to grocery stores competing not for how many apples and oranges they can sell, but for the amount of apples and oranges they are "guaranteed" to sell!

The Federal Reserve exerts its control over the economy by determining the amount of money it will "create" and the base interest rate it will trade that money at. It "creates" money by purchasing securities from its group of "selected" traders. These firms have accounts with the Fed and when they sell a security to the Fed, the Chairman of the Fed simply "credits" their accounts with the amount of the security. Money has been magically created out of nothing and the firm is free to spend or loan it as they will, infusing this new money into the economy.

The corresponding prime interest rate is also set by the Open Market Committee of the Federal Reserve. With this base rate set and the amount of funds available controlled by the issuing and purchasing of Securities, the Federal Reserve attempts to direct and control the financial sector of the economy. This is in direct contrast to the workings of a "free" economy, in which the financial sector must respond to the actions of the productive sector of the economy. With this in mind, there is no mystery why the present recession started within the financial sector and filtered down to the manufacturing sector. Since the inception of the Fed, the financial sector has grown to an overfed buffoon that stumbles around disrupting the economy any time things don't go as it wishes.

If we were without the Federal Reserve System, we might have a more competitive banking system. Without this constant barrage of "new" money created at the flick of a mouse by the Fed, the remaining banks would need to look elsewhere for their Capital. They would need to find this Capital where it is created, in the productive sectors of the economy.

They would also need to look elsewhere to "sell" this money. One of the fundamental causes of the recent recessions is the interbank trading of securities known as derivatives. Derivatives have many forms, but their trading is augmented and often made possible only by below market interest rates enforced by the Fed. Basically they are the swapping of "paper" assets between financial firms, with each firm "increasing" the cost to the next. Profits are created on paper based on the suppressed prime rate. An initial market rate based on competition for money would eliminate many of these "fictitious" securities and the systemic risk that we are all now experiencing and paying for with taxpayer funds.

This market interest rate would for the most part depend on the demand from the manufacturing or producing sectors for funds to be put back into production. The rate would vary on the state of the economy, not on some arbitrary whim of the Board of Governors of the Federal Reserve. The rate would not be based on the latest computer software of the Fed, but what those who use Capital are willing to pay for it. Whether or not they make a sound purchase would determine their economic future and you can bet they are going to put some serious effort into their decision making process. This is the difference between economic freedom protected by a government and economic control imposed by a government. With the Federal Reserve we have the latter.

With the constant creation of "new" money the Federal Reserve is continually eroding the savings and livelihood of every citizen. With each dollar created out of nothing, the dollar you received for your daily labor has less value. With each artificial suppression of interest rates, the dollar you earned has less value to others. This is the "inflation" tax and it will continue as long as we have the Federal Reserve creating money and setting interest rates.

The benefactors of the Fed are the Federal Government, as many of the Securities the Fed purchases are Treasury Securities and the Financial sector. These firms recieve these funds not only at a discounted interest rate, but while the money initially still retains its higher value. The new money does not "lose" its value until its bulk effects are felt in a substantial portion of the economy. Those first to receive it are able to purchase goods at prices that don't yet feel the upward price pressure of the increased quantity of money. Don't worry; by the time the money gets to you, its presence in the economy will have deflated its value and prices will have risen.

We may always experience "booms and busts", but with the elimination of the Fed, the highs and lows will be far less extreme. Economic health will be the result of actions in the productive sector of the economy rather than decisions made in the financial sector. People will still win and lose, although not to the extremes we have seen of late, but recoveries will be much quicker and less painful. Boom times would also be less exciting. The financial sector would shrink in size and become more efficient in the distribution of Capital. Economic freedom is always a good thing!

Learn more about this author, Gene Denardo.
Click here to send this author comments or questions.