As a public cartel, the Federal Reserve
can count on the government to protect it from competition and to shield it
from legal action. The purpose of a cartel is to create above-market
rates of return for its members, in this case the largest commercial
banks. The justification given for cartels is that competition would
thwart the higher standards sought by cartel members. Since the goal of
higher standards is supposed to benefit the public, the public will pay a
high price. In asking if the Federal Reserve has been successful, therefore,
we also need to ask: From whose perspective? Has the Fed made life
better for the general public?
The answer can only be: Are you kidding?
1. The Fed was sold to the public as a means to eliminate recessions
and depressions, which prior to 1913 were called Panics. Recessions
have their origins in fractional reserve banking. Far from eliminating
this practice, central banks were created to protect it. Why do they
protect it? Because it provides above-market rates of return during the
inflationary boom the Fed creates.
2. One of the Fed's stated goals is to preserve price stability.
In seemingly innocuous increments, the Fed has debased the dollar with
reckless abandon while telling us this is the path it must follow to assure
prosperity and full employment. In the 1880s, the U.S. experienced one
of the most prosperous periods in mankind's history, while the dollar actually appreciated in
3. Earlier generations of Americans debated monetary policy, but the
Fed, through its secrecy and mind-numbing obfuscations, has taken monetary
matters out of the arena of public debate. People are more interested
in who will win the Heisman than in the counterfeiting cartel draining their
wealth and making them more dependent on government. Even with Ron Paul exploding on the scene, mention the words "Federal Reserve"
to almost anyone and brace yourself for a blank stare.
4. As society's sole engine of inflation, the money cartel is funding
the creation of a debt-laden super-state over a debt-burdened populace whose
forerunners basked fat and prosperous under a smaller government and no Fed.
5. During the 1920s, as a favor to special interests, including the
Bank of England, the Fed inflated the economy into a crisis that led to the
abandonment of the market's choice of money: gold coins. Leading experts
blame the "mentality of the gold standard" for causing the Great Depression because it "limited the
ability of governments and central banks to respond to adversity."
And what, one should ask, brought on this adversity?
The crisis was not caused by sovereign individuals engaging in voluntary
trade with their preferred choice of money, but by the state-run gold
standard and the banking cartel. The state failed to protect depositors
by failing to uphold contract law.
The public had been persuaded to deposit their gold coins in banks in
exchange for IOUs, which circulated alongside the coins. The banks promised
to redeem their IOUs on demand, a promise they could only keep for relatively
few depositors because most of their reserves were loaned out. In June,
1917, the Fed began the process of
centralizing the public's gold.
The public was being acclimated to using IOUs instead of coins, a
circumstance they would be comfortable with when confiscation arrived.
As Gary North
points out, trust moved from the people to the banks, then from the banks to
the central bank under state protection.
The transfer of trust moves from economics to political sovereignty.
But a system based on political sovereignty is not trustworthy. It has the
ability to cheat, and no agency can bring charges. No agency of appeal
And none exists today as we witness pirates in fine clothes looting
our capital to boost the economy. Since 1933 Americans have been forced
to use "IOU nothings" for money. Such a system produces
winners and losers, with the winners being those who control the money.
The losers are the ones with blank stares.
6. The Fed recently made news when it celebrated the 100th anniversary of its founding at Jekyll
Island, Georgia. Ben Bernanke told the
gathering that "We are committed to our price stability objective. I
have rejected any notion that we are going to raise inflation to a
supra-normal level." Perhaps he really believes his policies won't
reach a "supra-normal" level of inflation. He once believed
the Fed's policies wouldn't cause a housing market meltdown, either.
7. In his myth-shattering account of the
Federal Reserve, G. Edward Griffin wrote this about
the Fed's founding (p. 23):
What emerged [from the secret Jekyll Island meeting of 1910] was a
cartel agreement with five objectives:
- Stop the growing competition from the
nation’s newer banks;
- Obtain a franchise to create money out of
nothing for the purpose of lending;
- Get control of the reserves of all banks so
that the more reckless ones would not be exposed to currency drains and
- Get the taxpayer to pick up the cartel’s
- Convince Congress that the purpose was to
protect the public.
It was realized that the bankers would have to become partners with
the politicians and that the structure of the cartel would have to be a central
bank. The record shows that the Fed has failed to achieve its
[publicly] stated objectives. That is because those were never its true
goals. As a banking cartel, and in terms of the five objectives stated
above, it has been an unqualified success.
If central banks are such pariahs, why do they continue to
exist? Gary North offers this explanation:
The collapse of the Soviet Union brought derisive laughter from
academia, worldwide. The Marxists have never recovered, nor is it likely that
they will. The emperor had no clothes. No similar derisive laughter has
greeted central bankers after their centrally planned disasters have brought
economic devastation to tens of millions. On the contrary, politicians call
for more of the same. The voters are somewhat skeptical, more ready to cry
out, "The emperor has no clothes!" Politicians are not. They know
where their bread is buttered, and with what: fiat money for their political
yes, the Fed has been a success - if you're a Fed insider.
George F. Smith
Read his book : The
Flight of the Barbarous Relic
Visit his website
Read his blog
George F. Smith is the author
of The Flight of the Barbarous Relic, a novel about a renegade Fed chairman
and the editor of Barbarous Relic.com.