The dollar's troubled past

Just to illustrate what the existence of the Federal Reserve and our system of fractional banking, let me do some math for you.

In 1913 the Federal Reserve Act was signed, and our money became bound to the will of the bankers. A single dollar in 1913 is the equivalent of $21.54 based on the national average inflation since then. That's a 95.4% reduction in purchasing power. To put that in perspective: my annual salary would have been $3115.31 before the government went on its money printing binge. I would be paying $27.86 in 1913 for my apartment. I don't think I really need to continue. This is just sad to watch. Rome collapsed because of their system of artificially expanding the money supply, as did numerous American colonies before they shifted back to gold (little known fact: the colonies experimented with fiat money numerous times, always to find that it ruined their economies and they promptly switched back to gold).

Scary times, indeed.

Some people know what the hell they're talking about

Great post about why we're fucked right now.

Pay especially close attention to the videos at the end. Ron Paul knows what the hell he's talking about. I'm still reading a lot about the Federal Reserve and how exactly things work with it, which was intentionally made complicated to keep people from understanding how big a scam it really is. Keep in mind, the Fed was created by a bunch of bankers on Wall St because there was too much good competition in the banking industry for Wall St to keep its power over the financial sector. This total meltdown of our financial system is almost 100 years in the making.

Another day, another bailout, another set of financiers saved from consequences at our expense

So the government (which of course means you and I) has bailed out AIG. The moral of this story is that if you or I make stupid, bonehead investments because of the potentially high yeild, we can be fucked by the market, but if you are a bank/mortgage lender/insurer/other fianancial institution, you can make all the money you want on high risk/yeild investments and never face the consequences of your risks if they go sour.

If is NOT in the public's best interest to prop up insolvent institutions, like the Fed says it is. This will just lead to another round of malinvestment in the future, more bubbles and busts, more transfer of wealth from us to the already wealthy elite. We need to move toward a monetary policy and system that is stable and protects against John Maynard Keynes' favored system of credit expansion through levereged borrowing that leads nowhere other than inflation. The elite have been manipulating the system for far too long to get the wealth out of our hands, and it's working beautifully. The sad thing is, no one seems to notice or care.

For once it's not Bush's fault

Anyone that starts screaming about how this nice little financial mess we find ourselves in was caused by Bush is an idiot. The seeds of this collapse were sewn in the early post-war era with the creation of the Fed, the FDIC, and the creation of all the Federally insured mortgage companies because 'everyone should be able to own a home'.

The Fed sets the percentage of a bank's deposit that must be held on hand at any time. The rest of the money may be lent out for the bank to earn interest on. Because banks, and other Federally insured operations, have the insurance of the FDIC they are protected if they become insolvent. Now, these financial institutions all pay the same rates to the FDIC for this insurance regardless of their performance or risks. This allows banks to be as reckless as they want with how they loan their money out, as they will be covered by this insurance if they fuck up. So what you have is no discouragement to these people to make lots of risky investments that have the potential for high returns. As many other mortgage brokerages did in recent decades, they made a habit of giving out very risky mortgages that would lead to really good returns if there was no default on the account. Because of this, housing prices were artificially inflated which led to riskier loans and so on.

Fast forward to today, where all these risky investments are going south. Now everyone looks for the Fed to bail them out. Keep in mind that the FDIC only has enough money on hand to cover $50 Billion of the $1 Trillion of insured assets. So the government is subsidizing restructured mortgages for people (tax-payer dollars), nationalized Freddie and Fannie which shifts liability for these companies to the taxpayers, the FDIC pays out for the insured accounts, and the Fed has to come to the rescue when all else fails to keep these companies solvent. That usually means the Fed (the "Lender of Last Resort") allows the insolvent bank/firm to offer tax-free bonds, which the Fed then buys with newly printed money (inflation). Through all of this, the people that suffer are investors and tax-payers, while the owners of the banks/firms are shielded from too much, if any, loss. And this is happening across the board in all financial industries right now.

The one sane proposal I have seen to remedy the horrible way our system is setup is to make payment into the FDIC insurance protection fund entirely based on the firm's risks in their investments. You pay more if you perform more risky lending. It would probably be the simplest way of regulating the whole thing.

Then of course there's the issue of continuing to support the Federal Reserve, an entity that does not answer to Congress but prints money at its leisure. (Note: It is unconstitutional for anyone but Congress to coin money) However, the issue of central banking and the crooks that created the idea is for another day.