100 Years Is Enough: Time to Make the Fed a Public Utility

 

Guest post by Ellen Brown.

December 23rd, 2013, marks the 100th anniversary of the Federal Reserve, warranting a review of its performance.  Has it achieved the purposes for which it was designed?

The answer depends on whose purposes we are talking about.  For the banks, the Fed has served quite well.  For the laboring masses whose populist movement prompted it, not much has changed in a century.

Thwarting Populist Demands

The Federal Reserve Act was passed in 1913 in response to a wave of bank crises, which had hit on average every six years over a period of 80 years. The resulting economic depressions triggered a populist movement for monetary reform in the 1890s.  Mary Ellen Lease, an early populist leader, said in a fiery speech that could have been written today:

Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master. . . . Money rules . . . .Our laws are the output of a system which clothes rascals in robes and honesty in rags. The parties lie to us and the political speakers mislead us. . . .

We want money, land and transportation. We want the abolition of the National Banks, and we want the power to make loans direct from the government. We want the foreclosure system wiped out.

That was what they wanted, but the Federal Reserve Act that they got was not what the populists had fought for, or what their leader William Jennings Bryan thought he was approving when he voted for it in 1913. In the stirring speech that won him the Democratic presidential nomination in 1896, Bryan insisted:

[We] believe that the right to coin money and issue money is a function of government. . . . Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson . . . and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business.

He concluded with this famous outcry against the restrictive gold standard:

You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.

What Bryan and the populists sought was a national currency issued debt-free and interest-free by the government, on the model of Lincoln’s Greenbacks. What the American people got was a money supply created by private banks as credit (or debt) lent to the government and the people at interest. Although the national money supply would be printed by the U.S. Bureau of Engraving and Printing, it would be issued by the “bankers’ bank,” the Federal Reserve. The Fed is composed of twelve branches, all of which are 100 percent owned by the banks in their districts. Until 1935, these branches could each independently issue paper dollars for the cost of printing them, and could lend them at interest.

1929: The Fed Triggers the Worst Bank Run in History

The new system was supposed to prevent bank runs, but it clearly failed in that endeavor. In 1929, the United States experienced the worst bank run in its history.

The New York Fed had been pouring newly-created money into New York banks, which then lent it to stock speculators. When the New York Fed heard that the Federal Reserve Board of Governors had held an all-night meeting discussing this risky situation, the flood of speculative funding was retracted, precipitating the 1929 stock market crash.

At that time, paper dollars were freely redeemable in gold; but banks were required to keep sufficient gold to cover only 40 percent of their deposits. When panicked bank customers rushed to cash in their dollars, gold reserves shrank. Loans then had to be recalled to maintain the 40 percent requirement, collapsing the money supply.

The result was widespread unemployment and loss of homes and savings, similar to that seen today. In a scathing indictment before Congress in 1934, Representative Louis McFadden blamed the Federal Reserve. He said:

Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks . . . .

The depredations and iniquities of the Fed has cost enough money to pay the National debt several times over. . . .

Some people think that the Federal Reserve Banks are United  States  Government  institutions.  They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.

These twelve private credit monopolies were deceitfully and disloyally foisted upon this Country by the bankers who came here from Europe and repaid us our hospitality by undermining our American institutions.

Freed from the Bankers’ “Cross of Gold”

To stop the collapse of the money supply, in 1933 Roosevelt took the dollar off the gold standard within the United States. The gold standard had prevailed since the founding of the country, and the move was highly controversial. Critics viewed it as a crime. But proponents saw it as finally allowing the country to be economically sovereign.

This more benign view was taken by Beardsley Ruml, Chairman of the Federal Reserve Bank of New York, in a presentation before the American Bar Association in 1945. He said the government was now at liberty to spend as needed to meet its budget, drawing on credit issued by its own central bank. It could do this until price inflation indicated a weakened purchasing power of the currency. Then, and only then, would the government need to levy taxes—not to fund the budget but to counteract inflation by contracting the money supply. The principal purpose of taxes, said Ruml, was “the maintenance of a dollar which has stable purchasing power over the years. Sometimes this purpose is stated as ‘the avoidance of inflation.’”

It was a remarkable realization. The government could be funded without taxes, by drawing on credit from its own central bank. Since there was no longer a need for gold to cover the loan, the central bank would not have to borrow. It could just create the money on its books. Only when prices rose across the board, signaling an excess of money in the money supply, would the government need to tax—not to fund the government but simply to keep supply (goods and services) in balance with demand (money).

Ruml’s vision is echoed today in the school of economic thought called Modern Monetary Theory (MMT). But after Roosevelt’s demise, it was not pursued. The U.S. government continued to fund itself with taxes; and when it failed to recover enough to pay its bills, it continued to borrow, putting itself in debt.

The Fed Agrees to Return the Interest

For its first half century, the Federal Reserve continued to pocket the interest on the money it issued and lent to the government. But in the 1960s, Wright Patman, Chairman of the House Banking and Currency Committee, pushed to have the Fed nationalized. To avoid that result, the Fed quietly agreed to rebate its profits to the U.S. Treasury.

In The Strange Case of Richard Milhous Nixon, published in 1973, Congressman Jerry Voorhis wrote of this concession:

It was done, quite obviously, as acknowledgment that the Federal Reserve Banks were acting on the one hand as a national bank of issue, creating the nation’s money, but on the other hand charging the nation interest on its own credit—which no true national bank of issue could conceivably, or with any show of justice, dare to do.

Rebating the interest to the Treasury was clearly a step in the right direction. But the central bank funded very little of the federal debt. Commercial banks held a large chunk of it; and as Voorhis observed, “[w]here the commercial banks are concerned, there is no such repayment of the people’s money.” Commercial banks did not rebate the interest they collected to the government, said Voorhis, although they also “‘buy’ the bonds with newly created demand deposit entries on their books—nothing more.”

Today the proportion of the federal debt held by the Federal Reserve has shot up, due to repeated rounds of “quantitative easing.” But the majority of the debt is still funded privately at interest, and most of the dollars funding it originated as “bank credit” created on the books of private banks.

Time for a New Populist Movement?

The Treasury’s website reports the amount of interest paid on the national debt each year, going back 26 years. At the end of 2013, the total for the previous 26 years came to about $9 trillion on a federal debt of $17.25 trillion. If the government had been borrowing from its own central bank interest-free during that period, the debt would have been reduced by more than half. And that was just the interest for 26 years. The federal debt has been accumulating ever since 1835, when Andrew Jackson paid it off and vetoed the Second U.S. Bank’s renewal; and all that time it has been accruing interest. If the government had been borrowing from its central bank all along, it might have had no federal debt at all today.

In 1977, Congress gave the Fed a dual mandate, not only to maintain the stability of the currency but to promote full employment.  The Fed got the mandate but not the tools, as discussed in my earlier article here.

It may be time for a new populist movement, one that demands that the power to issue money be returned to the government and the people it represents; and that the Federal Reserve be made a public utility, owned by the people and serving them. The firehose of cheap credit lavished on Wall Street needs to be re-directed to Main Street.

__________________________

Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books including the bestselling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her blog articles are at EllenBrown.com. She is currently running for California State Treasurer on the Green Party ticket.

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  • Tonto

    “It was a remarkable realization. The government could be funded without taxes, by drawing on credit from its own central bank. Since there was no longer a need for gold to cover the loan, the central bank would not have to borrow. It could just create the money on its books. Only when prices rose across the board, signaling an excess of money in the money supply, would the government need to tax […]”

    And there’s the bug, Ellen. “It [the government] could just create the money on its books.”

    There is the perfect prescription for an unquenchable tyranny made of our corrupt Congress. Both stable prices and full employment under your public banking prescription would be subjugated to the very common greed of our corrupt public officials. Yours is the perfect prescription for the most dastardly fascism, because our elected officials are funded by corporate donations. The allegiance of all our elected officials is to the businesses that fill their campaign coffers. Of those businesses, the very largest speak loudest in the halls of Congress.

    Under the current Federal Reserve system, our Republic becomes more fascist when serious economic challenges precipitate the perception that war is on the horizon. This is of necessity. Fascism in a time of war is simply more efficient. Labor strikes have never been allowed to imperil a war effort. The public’s right to know has never been allowed to imperil any war effort. And now, neither will our right to privacy be allowed to imperil any war effort. This is fascism, that has come about as an indirect result of money printing gone mad.

    With government printing the money, and furthermore, without an independent FED, we would have ever-increasing fascism even in stable and relatively peaceful times. Everyone is complaining right now about freedoms being stripped from the American people. This is because there is war on the horizon. Storm clouds appeared more than ten years ago. Economic depression has now engulfed the entire world.

    Look at what is going on with ObamaCare. The government is continuing to throw more and more wasted, inflationary, newly printed money to the corporate interests that continue to try to shove this rapacious piece of (go buy insurance) legislation down the throats of an unwilling populace. The only reason this is possible, is because there is economic depression going on, there is war and a threat of more war. As a result, fascism is on the rise in this country. It’s all about money printing, Ellen.

    No one’s wealth is safe because there is massive money printing going on. No corporation’s wealth is safe, for the same reason. No nation’s wealth is safe either, because all currencies are in flux due to out-of-control money printing caused by the growing isolationism resulting from worldwide economic depression.

    Your prescription for getting rid of the FED and putting the decision about when and how much money to print to fund government whim and fancy would give the world out-of-control money printing forever, enough to destroy the world with endless war and fascism.

    • yoyoyoyoyo

      Calm down sparky. Do you think Ellen is going to arrive here at Washingtons Blog and read your post addressed to her?

      Just go email her Sparky.

      • Tonto

        If you think Ellen does not read the comments here, you’re underestimating human nature. Ellen seeks fame before fortune. She sees herself as a modern day Joan of Arc, literally blessed by God with a prescience and supernatural ability to shape the course of human events.

        Over at Zero hedge, they call Ellen, Ellen Brown the Money Clown.

        I see her more like a female madman standing on the street corner howling out wildly disparate obscenities into the passing wind.

        • Carl_Herman

          Your vile personal remarks, as I’ve stated several times, would have you immediately removed from any professional or academic environment. You would be removed by security at any serious location, and ordered never to step foot again on that property.

          Readers: tonto shows what ad hominem is, and why it’s immediately dismissed as distraction from topics that should be evaluated on their merits.

          The benefit of tonto is to show the quality of counter-arguments we receive.

          Happy Holidays, Scrooge-tonto.

          • Tonto

            Carl, I have no academic aspirations. Academia is tainted. As far as professional environments go, for the majority of my life, I have run my own businesses. It would be me calling security, were security to be called. I do not kowtow to anyone or any thing, unless it is my sweet wife who calls me to dinner.

            I am now retired. I spend my time reading, writing, painting and composing.

            I just posted this amateur Youtube video that features a talking-song that supports Maine’s sometimes controversial, but very effective Republican Governor, Paul LePage, for re-election in 2014. It’s called, Maine is Maine – Re-Elect Paul LePage in 2014

            http://www.youtube.com/watch?v=uJjsoW6hiNE

            Remarkably, I was recently written up in a Bangor Daily News Blog for a painting I painted a few years back of Governor LePage. It’s remarkable, because I am in the far reaches of Northern Maine, which doesn’t get a lot of press in the Bangor paper. Read the comments I got about my art, and read my anticipation of those sorts of comments before they were posted.

            stateandcapitol.bangordailynews.com/2013/12/12/for-just-over-25000-you-can-have-lepage-in-your-living-room-forever/#.UqsevlKN2-Y

            Blog comments are benign. They are not personal attacks, Carl. We are all fighting to influence the more common core of the perception of the truth. Sometimes I win. Sometimes I lose. I never fall flat on my face straddling the finish line, as you no doubt have observed.

            Again, read the comments on the site that writes and talks about my fine painting, Carl. This is the Internet. When in Rome, don’t complain about what the Romans do.

            As for my comments about Ellen Brown, it was not me who coined the term “Money Clown”, as I noted in my post. I only noted it is fitting. It is very fitting anyone who thinks they can take on the existing system because there is a an economic depression going on. Now is not the time, Carl. People are scared. At this point in her career, Ellen Brown is clearly just another delusional, fame-seeking Green Party candidate-dreamer.

            We have Green Party candidates in Maine too. They are a flaky bunch with huge egos, zero political skill and almost no appeal. Ellen Brown’s common ethics are head-in-the-clouds scientific-humanitarianism, exactly like your own. She no doubt read Atlas Shrugged and thought it a truly wonderful take on how to make life better. I read Atlas Shrugged recently ( a few years ago) and I found nothing more than nauseatingly naive political-philosophy garbage.

            While I have not sold my painting of Governor LePage, I have had what I took to be a serious inquiry just recently, despite the ongoing economic depression, from someone who read the Bangor Daily News piece. The raucous comments there dissuaded no one important, unless it was some other aspiring artist with a weak spine.

            If ideas, or art, have merit, that merit will carry the day on the strengths inherent to ones’ ability to express themselves. I pride myself in my ability to express myself, in words, in song and in paint.

            Now, if Ellen Brown really had something to say, and you seem to think she does, then her arguments will stand head and shoulders above anything that could be written in a blog comment about her work.

            So, then… Let the reader be the judge of what they want to believe. And let reality proceed unencumbered by these often-repeated argument-shirking responses like your own. Your responses are most often like the common response meant to question someone’s sanity, i.e., did you forget your meds today? LoL You win no arguments like that, Carl. Most people who read here, are much smarter than you take them for, I think. Or, at least your articles and your comment posts lead me to think that.

            I mean it, Carl. You really do strike me as a Simon Wheeler sort of character. You have no clue, that what you are saying most of the time is incredibly funny in the way you say it, as if you are being serious in the eye of your readers.

            It’s a Midwestern sort of humor, not everyone can appreciate naturally. But if you think about it long enough, you’ll get it. I mean no offense. I just am trying to portray what I see in my mind’s eye when I read your articles and your posts.

            I see a Simon Wheeler sort of character who hasn’t a clue what his audience is thinking.

          • :-D

            And yet we know for a fact mister Tonto, you do get an exhilaration of sorts from the way you write and think. An adrenaline rush and high if you will.

  • Charlie Primero

    Poor people begged big Daddy government to protect them from evil-doers. Rich people then used that government to screw them.

    Today people want more government. Brilliant.

  • gozounlimited

    Privately controlled Fed policy has been hugely destructive for 100 years. It’s a financial weapon of mass destruction.

    Rockefeller/Morgan/Rothschild representatives planned the Federal Reserve System. Three years later, it became the law of the land. Congress acted unconstitutionally. So did Wilson signing FSA into law. Doing so violated the Constitution’s Article I, Section 8. It affords Congress sole power to coin (create) money and regulate the value thereof.

    In 1935, the Supreme Court ruled Congress couldn’t constitutionally delegate its authority to another body or group. Congress and Wilson defrauded the public. They did so by granting Wall Street money creation power. They gave powerful bankers absolute monetary control.

    US and world economies changed. They did so for the worst. Former law professor Woodrow Wilson understood full well what he did. He acted lawlessly anyway. When it was too late to matter, he lied saying:

    ”I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its credit system. Our system of credit is concentrated.”

    “The growth of the nation, therefore, and all our activities are in the hands of a few men.”

    “We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.” http://www.globalresearch.ca/the-federal-reserve-100-years-of-financial-terrorism/5362520

    SO FIX IT!!!!!!!!!!!!!!!!!!!!!!!!!!

    • PointingOutTheObvious

      How does Woodrow Wilson fix it. He’s dead.

      • gozounlimited

        Invoking the dead president excuse?

  • jadan

    Financiers long ago usurped the sovereign money power of the US Government through the agency of the first Secretary of the Treasury, Alexander Hamilton, who had considerable political cache for being George Washington’s good boy. Our monetary system was privatized from the beginning, in other words. And look how well it has worked! The guidance of power hungry and greedy rich men has led us to where we are today, which is in some very dire straights. We’ve been heading here since the beginning through mindless policies of economic rape and rapine. Ellen Brown and other monetary reformers, such as Bill Still, Stephan Zarlenga, et alia, are trying to make change happen to prevent the ultimate bust-up of this stupid monetary system that now controls our lives. We should cheer her on!

  • Rehmat

    Strangely, the event was almost ignored by the Jewish-controlled mainstream media. Instead the media has been quite excited with Barack Obama’s choice of Stanley Fischer, former Governor of the Central Bank of Israel, as vice-Chairman of the Federal Reserve. Fischer is US-Israel dual citizen and Jewish Lobby man. He has been an ardent campaigner for continued $blillions USAID to the Zionist entity.

    Between Janet Yellen, the Jewish Chairwoman of the Federal Reserve and Stanely Fischer, the FED is totally Israelized and will become a powerful new anti-Iran Jewish front.

    http://rehmat1.com/2013/12/31/federal-reserve-century-of-zionist-control-of-us-dollar/