object width=”560″ height=”315″>param name=”movie” value=”http://www.youtube.com/v/ehsk-gg9aqg?hl=en_US&version=3&rel=0″>/param>param name=”allowFullScreen” value=”true”>/param>param name=”allowscriptaccess” value=”always”>/param>embed src=”http://www.youtube.com/v/ehsk-gg9aqg?hl=en_US&version=3&rel=0″ type=”application/x-shockwave-flash” width=”560″ height=”315″ allowscriptaccess=”always” allowfullscreen=”true”>/embed>/object>According to the talking heads of mainstream press the economy is slowly recovering and the financial crisis is all but behind us. But we need a reality check. It’s time to stop being naive and start being more discerning. Instead of more false hope, we need the truth as bitter as it might sound… and the truth is, from our local municipalities, to our states to our federal government, we are broke…
How did we get in so much debt?
To outline all the events that lead us to this mess would take a separate article. But here’s a quick summary.
In 1913, Congress passed the “Federal Reserve Act” relinquishing the power to create and control money to the Federal Reserve Corporation, a private company owned and controlled by bankers. Over time, more and more legislation was passed to expand the Federal Reserve’s functions. The FED (short for Federal Reserve) was granted two extremely critical powers: the ability to purchase U.S. treasury securities and capability to manipulate the interest rates. Interest rate manipulation and quantitative easing (pumping money into the economy) by the FED, are the two driving forces behind the boom/bust cycles and economic bubbles.
The FED was supposed to be the guardian of U.S. currency. In reality, it turned out to be a debt and bubble machine, ran for profit by greedy bankers.
Our founding fathers understood the danger of putting the power to control the currency of a nation in the hands of a few individuals in the form of a monopolistic central bank and were vehemently opposed to such a system.
In 1944, as World War II was drawing closer to its end, representatives of 44 allied nations met in Brenton Woods, New Hampshire, where the dollar (backed by gold at $35 per ounce) was accepted as the world reserve currency.
America was granted unprecedented benefits as the issuer of the dollar. However, the gold standard restricted the Federal Reserve from printing money unless it had the gold to backup new currency. Even though this ensured the stability of the dollar and a strong economy, such restrictions would not be tolerated by the Fed for very long.
In 1971, under president Nixon, U.S. moved away from a gold-backed monetary system to a fiat paper debt-based monetary system, which allowed the FED to print dollars out of thin air.
This opened the door for unrestricted spending and borrowing. Once we moved away from a “gold standard” to a “debt-currency system” it was only a matter of time before America transformed from the world’s biggest creditor to the world’s biggest debtor.
If you look at the national debt chart by scrolling up, you can see a direct parallel between the explosion of debt and U.S. switching to fiat currency in 1971. Once the Fed could create dollars out of nothing, it took only a few years for the government debt to gain an exponential climb rate.
Now, on the surface, the Federal Reserve’s ability to print money with no restrictions might sound great since you can just create new currency on demand… but it carries with it two very grave consequences that we’re paying for now.
The first consequence is inflation. Each time the FED issues new dollars, it increases the money supply, which in turn diminishes the value of the rest of the dollars already in circulation. Basically, that means the more dollars are printed, the less they are worth. As the inflation rises, so do the prices and cost of living. Inflation also encourages spending and debt, and discourages saving and capital formation. In the long run, currency inflation wipes out the wealth of the middle class and wrecks the economy. By the way, the dollar has lost 95% of its value since the Federal Reserve took over in 1913.
The second consequence is that we (the people) go into debt every time new money is created. When the government needs extra money, beyond what it collects in taxes, it issues U.S. treasury bonds, which are interest-bearing IOUs guaranteed by the government. These bonds are exchanged with the Federal Reserve for currency. This process is called “monetizing the debt”, hence “debt-currency” system. The Federal Reserve collects the interest and the tax payers collect the debt. The bankers prosper and people get enslaved.
Besides debasing the dollar and binding America into debt, the Fed manipulates the interest rates, overriding market self regulation. These manipulations create bubbles resulting in devastating consequences for the economy and the average American.
President Andrew Jackson refused to renew the charter (a grant of monopoly) of the Second Bank of the United States. In 1836 Jackson said to the bankers trying to persuade him to renew their charter (so they could continue their harmful monopoly)
“You are a den of vipers. I intend to rout you out and by the Eternal God I will rout you out. If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning.”
-– Andrew Jackson, 7th President of the United States
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