The Case Against the Fed

The gold stock of the Fed should be revalued upward so that the gold can pay off all the Fed's liabilities—largely Federal Reserve Notes and Federal Reserve deposits, at 100 cents to the dollar. This means that the gold stock should be revalued such that 260 million gold ounces will be able to pay off $404 billion in Fed liabilities.

A gold-coin standard, coupled with instant liquidation for any bank that fails to meet its contractual obligations, would bring about a free banking system so “hard” and sound, that any problem of inflationary credit or counterfeiting would be minimal.

That role, in fact, is the very purpose of its existence: to cartelize the private commercial banks, and to help them inflate money and credit together, pumping in reserves to the banks, and bailing them out if they get into trouble.

There is only one way to eliminate chronic inflation, as well as the booms and busts brought by that system of inflationary credit: and that is to eliminate the counterfeiting that constitutes and creates that inflation. And the only way to do that is to abolish legalized counterfeiting: that is, to abolish the Federal Reserve System, and return to the gold standard, to a monetary system where a market-produced metal, such as gold, serves as the standard money, and not paper tickets printed by the Federal Reserve.

Of the Federal Reserve assets, except gold, all are easily liquidated. The $345 billion of U.S. government and other federal government agency securities owned by the Fed should be simply and immediately canceled. This act would immediately reduce the taxpayers' liability for the public debt by $345 billion. And indeed, why in the world should taxpayers be taxed by the U.S. Treasury in order to pay interest and principal on bonds held by another arm of the federal government—the Federal Reserve? The taxpayers have to be sweated and looted, merely to preserve the accounting fiction that the Fed is a corporation independent of the federal government.

Thus, the Fed has the well-nigh absolute power to determine the money supply if it so wishes.43 Over the years, the thrust of its operations has been consistently inflationary. For not only has the trend of its reserve requirements on the banks been getting ever lower, but the amount of its amassed U.S. government bonds has consistently increased over the years, thereby imparting a continuing inflationary impetus to the economic system.

The Fed and the banks are not part of the solution to inflation; they are instead part of the problem. In fact, they are the problem

Only by using checks can it expand the money supply by ten-fold; it is the Fed's demand deposits that serve as the base of the pyramiding by the commercial banks. The power to print money, on the other hand, is the essential base in which the Fed pledges to redeem its deposits. The Fed only issues paper money (Federal Reserve Notes) if the public demands cash for its bank accounts and the commercial banks then have to go to the Fed to draw down their deposits. The Fed wants people to use checks rather than cash as far as possible, so that it can generate bank credit inflation at a pace that it can control.

Thus, the major control instrument that the Fed exercises over the banks is “open market operations,” purchases or sale of assets, generally U.S. government bonds.

If the banks have to keep no less than 10 percent of their deposits in the form of reserves, and then the Fed suddenly lowers that ratio to 5 percent, the nation's money supply, that is of bank deposits, will suddenly and very rapidly double. And vice versa if the minimum ratio were suddenly raised to 20 percent; the nation's money supply will be quickly cut in half. Ever since the Fed, after having expanded bank reserves in the 1930s, panicked at the inflationary potential and doubled the minimum reserve requirements to 20 percent in 1938, sending the economy into a tailspin of credit liquidation, the Fed has been very cautious about the degree of its changes in bank reserve requirements. The Fed, ever since that period, has changed bank reserve requirements fairly often, but in very small steps, by fractions of one percent.