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How the U.S. Treasury Avoided Chronic Deflation by Relinquishing Monetary Control to Wall Street
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The Eurozone today is going into the same deflationary situation that the U.S. did under Jackson’s destruction of the Second Bank, and the post-Civil War budget surpluses that deflated the economy. But whereas the Fed’s creation was designed to inflate the U.S. economy, Europe’s European Central Bank is designed to deflate it — in the interest of commercial banks in both cases.

1. Introduction
Deflation was the main U.S. financial problem prior to 1913. To replace the Treasury conducting its fiscal operations independently from the banking system, New York banks urged more power over public finances and to establish the Federal Reserve to increase the supply of money (a more “elastic” issue) in response to banking needs. Monetary policy since the Great Depression that started in 1929 has aimed at re-inflating the economy after downturns, fueling the post-2001 financial bubble and, since 2008, Quantitative Easing to provide banks with liquidity to support asset prices.

By contrast, Europe’s trauma of hyperinflation after World War I gave Europe’s bankers and bondholders a rationale for gaining power over governments to prevent them from monetizing their budget deficits. The rhetoric of fighting inflation has enabled German and French banks to impose tight money policies and smaller public self-funding than in the United States. On both continents, banks gained power over governments. But in America it was by insisting on more money creation and deficit spending, and in Europe by advocating limits on public money to finance deficits.

For most of the 19th century the U.S. Treasury conducted its monetary and fiscal policy in ways that imposed deflationary pressures on the banking system. President Andrew Jackson (1829-1837) of Democratic Party starved the economy of credit by his war on the Second Bank of the United States and removal of government deposits to sub- treasuries around the nation. His Democratic Party policy was backed by Southern plantation owners opposing Northern industry, seeing that its growth would increase urban industrial demand for food and other consumer goods. This would raise prices for the crops that plantation owners needed to feed their slaves.

The opposition Whig Party (1833-1854), followed by Republicans after 1853, was advocating a policy of recycling tax and land-sale receipts into Northern banks to help fund industrial growth. After the Civil War that started in 1861, the United States pursued a pro-industrial high-tariff policy, but this generated budget surpluses, which deflated the economy and drove prices for gold and other commodities back down to their pre-1861 level. That led to the 1873 crash and a depression until 1896, followed by an even greater crash in 1907.

In the wake of America’s 1907 financial panic, the Aldrich-Vreeland Act of 1908 created a “National Monetary Commission … to inquire into and report to Congress at the earliest date practicable, what changes are necessary or desirable in the monetary system of the United States or in the laws relating to banking and currency …”[1]Aldrich (1910). For more documentary see Warburg (1930). The Commission’s thirty-five monographs provided an exhaustive study of central banking structures and commercial banking policies, laying the groundwork for what in 1913 became the Federal Reserve Act.

Money and banking textbooks typically portray the Act as modernizing the financial system “to correct certain serious shortcomings in the National Bank Act: to provide an elastic currency, efficient clearing, centralized reserves, readily available credit for banks, and unified control of the banking system.”[2]Haines (1961, pp. 554f.) See also p. 153 But David Kinley’s 1910 report (Kinley 1910) shows that the National Banking System had neither responsibility nor ability to steer the nation’s monetary course. Prior to 1913 the Treasury performed these functions, including open market bond purchases to provide the banking system with liquidity. It would be more accurate to view the Federal Reserve as shifting to Wall Street the financial power hitherto concentrated in the hands of the Treasury Secretary in Washington.

From the establishment of the Treasury in 1847 through 1914 the Secretary of the Treasury had held responsibility for regulating the money supply by shifting Treasury deposits among the subtreasuries and the national banks to relieve regional credit stringencies, and by engaging in open market operations to cope with cyclical difficulties. In fact, Kinley (1910) observed, the Treasury had come to perform most of the functions of a central bank:

(1) It issues and redeems paper money – United States and Treasury notes; … (4) it transfers money to move the crops; … (6) it acts as a regulator of the rate of discount by contracting and expanding the currency through its operations upon the deposits in banks and in its own vaults; (7) it keeps the gold reserve of the country.

In 1914 the Federal Reserve System took on these duties, regulating the money supply through open market operations similar to those the Treasury had been conducting since the 1850s to cope with the problems resulting from budget surpluses. The Comptroller of the Currency’s 1907 report noted:

For several years past the revenues of the Government have been largely in excess of expenditures, and there has been a constant problem presented to each successive Secretary of the Treasury as to the best means of replacing in circulation the money which the Government is forced to collect. The method of replacing it by deposit with the banks is probably the only one available and, although it has been handled with unusual skill and ability, is most unsatisfactory, unsystematic, and inefficient. It always is a matter which provokes criticism and complaint. It could be handled with far better results if the Government had under its control a central bank to which all revenues could be paid and through which all disbursements could be made.

The Federal Reserve System dispersed this fiscal management away from Washington. Its twelve regional reserve districts opened the path to abolish the Independent Treasury and its regional subtreasuries in 1921. The main beneficiaries were the leading New York banks. In effect, creation of the Federal Reserve shifted monetary control from Washington to Wall Street – hardly surprising when one looks at the list of attendees at the Jekyll Island meeting of leading bankers in 1910, where J. P. Morgan and Rhode Island Republican Senator Aldrich outlined plans for the Fed (see Griffin, 1994; Chernow, 1997).

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2. Origins of the Independent Treasury in Jackson’s War on the Second Bank of the U.S.
Soon after taking presidential office in 1829, Andrew Jackson tried to coerce the bank’s directors of the Second Bank of the United States to perform certain political favors, starting with replacing Jeremiah Mason as the president of the bank’s branch in Portsmouth, New Hampshire. When the Bank’s directors refused to do this, Jackson turned to state banks to deposit government funds. In 1833, Jackson directed his new appointee as Secretary of the Treasury, William J. Duane, not to replenish these deposits as they were drawn down, but to put them in “pet” state banks run by his political supporters.

Duane refused to comply. Claiming that removing government deposits would disrupt the economy, he urged that the issue be decided by Congress, which already had declared the Bank to be safe. Jackson fired him after only four months, and replaced him with Roger B. Taney, whom Congress refused to confirm (the first rejection of a cabinet nominee in U.S. history). But as acting Treasury Secretary, Taney was able to carry out Jackson’s removal of deposits.

The pro-industrial Whigs accused this bank war of centralizing financial power in the hands of the President and whomever he might appoint as Treasury Secretary. As Calvin Colton accused in his biography of Henry Clay, while Jackson was re-depositing Treasury funds in his pet banks, Secretary of State Martin Van Buren was organizing political patronage via the banking system in his native state of New York:

… the old banks found themselves annoyed by unexpected runs upon them for specie, and … while laboring under these inconveniences, hints were passed to them, that, by appointing such and such directors, they would be relieved. The new banks were of course all furnished with suitable director. In this way, it is averred, that the whole banking system of the state of New York, from one of the bank parlors of Albany, was brought under the sway of the dominant political party, and forced to minister to their occasions.

It cannot be denied, that, of all men in the world, they who had accomplished such an achievement, were best qualified to know the power of banks as political engines, and to declaim against them when it should answer their purpose, as an enormity in the social state. Who was better qualified than Mr. Van Buren, when transferred to the state department at Washington, to give advice to the president of the United States on this subject? “Do you not see, sir, how admirably this system works in the state of New York? We govern the state by the banking system there, and force the banks (alias, the people) to pay all the costs of our party in maintaining our ascendency. You have only to adopt the same system with the bank of the United States, get such directors and presidents of the branches as are most suitable, and gradually bring the parent institution under the same discipline, and the politics of the nation will ever afterward be at command.”[3]Colton (1846, pp. 23f). “It is to be observed, however,” Colton added (p. 26), “that the plan of the subtreasury was not matured, till that of establishing a new national bank in the city of New York, under the control of the partisans of the administration – who, on the principle of the New York state system, before noticed, expected to realize at least a two-million bonus, for private and political objects – had failed.”

The Bank’s fate was sealed when its president, Nicholas Biddle, attempted to compensate for the drawdown of government deposits by a series of speculative business ventures. The Bank’s application for re-charter three years later was revoked. By this time the banking issue had become part of the sectional political conflict between North and South. The Southern slave states advocated monetary deflation for two reasons: to keep the price of cotton low, and hence competitive on world markets; and to thwart northern industrial growth so as to minimize the population voting against extension of slavery. Jackson rewarded the pro-slavery Maryland Democrat Taney by appointing him to the Supreme Court in 1836, where he became notorious for delivering the majority opinion in the 1857 Dred Scott case. His court also declared the Missouri Compromise unconstitutional, opening up the nation’s western territories to slavery. This sectional division colored the Democratic opposition to the Whigs and, after 1853, the Republicans, who advocated protectionism, internal improvements and a national bank.[4]This sectional aspect of U.S. trade and monetary policy is discussed in Hudson (2010).

As for Van Buren, he became Jackson’s Vice President (1833-37) and succeeded him as President (1837-41). His administration started in 1837 with the depression that followed from closing down the Second Bank. Van Buren aggravated the monetary stringency by keeping federal deposits in the independent treasury instead of state banks.

3. Treasury surpluses drain the economy of liquidity
The sale of public lands during Jackson’s second term soared from $4 million in 1833 and $5 million the following year to $15 million in 1835 and $25 million in 1836, producing a large Treasury surplus. Jackson’s extermination of Native Americans cleared a vast territory for slavery in the South and colonization of the West. Most purchases during 1835-36 were made by land speculators, largely with borrowed funds.

The Treasury deposited proceeds from these land sales in state banks, which were assured that the government would not draw them down. New bank credit extended on the basis of these deposits fueled land speculation, which increased federal receipts from these sales by enough to liquidate virtually all the national debt, while maintaining a large cash surplus deposited in state banks.

Much as Whigs had warned, privileged banks were nurtured and bribery was not infrequent. States founded and operated their own banks, issuing notes to finance their budget deficits much as the Treasury would issue greenbacks during the Civil War. This basically corrupt chaos of private and state banking led to Jackson’s Specie Circular of July 1836, requiring all payments for public lands to be made in gold or silver bullion.

This pricked the inflationary bubble of speculative land grabbing. It helped terminate the government’s losses sustained from being obliged to accept worthless banknotes at their face value in payment for public lands, and also helped save the western states from largely non-resident proprietorship. But the Specie Circular also distressed the nation’s industrial finances by leading to widespread bank failures. Van Buren used this to justify his proposal the following year to keep government funds “safely” in subtreasury vaults across the nation.

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4. Democratic versus Whig and Republican monetary policy
A party battle around the constitutionality of the subtreasury scheme set the free-trade Democrats as literal constitutionalists against the Whigs, who were federalist on the tariff and internal improvement issues but sought to “separate the power of the purse from the power of the sword.” The “independent” treasury scheme, they argued, was not true federalism but a form of monarchism (the popular Whig term for Jackson’s presidency) centralizing financial power in the Executive and his appointed bureaucracy. In its place, Whigs advocated using government finances to provide the credit base for northern industry. Whig Presidential candidate Henry Clay’s “American System” advocated protective industrial tariffs, internal improvements and a national bank to fund industry.

Recognizing that deflation would result from the subtreasury scheme, Southern plantation owners sought to support their slaves at a low enough cost to maintain the South’s dominant export position in cotton and tobacco. Creditors on the Northeast Seaboard also supported deflation. The result was a deflationary agrarianism aimed at countering the growth of northern industrial power. “The avowed object of the administration and its advisers,” asserted the protectionist Reverend Calvin Colton, associate and biographer of Henry Clay popularizing economic discussion of his “American System” of a national bank, protective tariffs and internal improvements, “was to suppress the paper medium of the country, and introduce a metallic currency; and the independent or sub-treasury, was to be the means of accomplishing the end, although, as shown by Mr. Clay, it must necessarily fail, and itself establish a paper medium of a most dangerous tendency.”[5]Colton (1846, pp. 49f) The Treasury’s drafts upon its public depositories, Clay argued in 1840, would soon circulate as money, driving state bank notes out of circulation.

There thus existed a sectional polarity to the Democratic-Whig controversy over whether the United States should be characterized by a deflationary monetary system segregating federal finances from the commercial banking sector, or by using government funds as the basis for a national banking system responsive to industrial needs, as was being done in France and Germany.

5. Treasury surpluses necessitate open market bond purchases
“Under the terms of the law establishing the independent treasury,” Kinley describes, “the Government was expected to keep its own money and have no connection with the banking institutions of the country.”[6]Kinley (1910, p. 8) This policy proved impractical. Long before Civil War financing necessitated the National Bank Act to provide a means of recirculating government deposits into the banking system, the growing volume of Treasury finances necessitated compensatory activity following re-establishment of the Independent Treasury in 1847.

The main compensatory Treasury activity was to purchase government bonds from the banks. Thanks to the California gold rush, the Treasury ran its largest surplus yet by 1853, “so that there was a considerable accumulation of money in the treasury. To prevent any stringency that might be caused thereby the Secretary issued a circular, on the 30th of July, offering to buy $5,000,000 worth of 6 per cent bonds. He secured them by paying a premium of 21 per cent.”[7]Kinley (1910, p. 69). For a discussion of Treasury relief by bond purchases see pp. 272- 77, 217-23. This was the beginning of federal open market operations, often hailed by monetary historians as an accidental “discovery” of the Federal Reserve in the 1920s.[8]Burgess (1964, p. 220) asserted: “The real significance of the purchase and sale of Government securities was an almost accidental discovery.” This myth is reiterated in the usual college texts (e.g., Haines, 1961, pp. 567, 573.)

Democratic Treasury Secretary James Guthrie’s used the budget surplus to pay down the national debt from $63 million in 1853 to $25 million in 1857. However, budget surpluses drain monetary resources from the economy. Guthrie’s report of December 1856 observed that the subtreasury might “exercise a fatal control over the currency, the banks, and the trade of the country, and will do so whenever the revenue shall greatly exceed the expenditures.” Furthermore, he noted: “If there had been no public debt, and no means of disbursing this large sum [$45 million since March 1853 by
Treasury bond repurchases] and again giving it to the channels of commerce, the accumulated [sterilized] sum would have acted fatally on the banks and on trade. The only remedy would have been a reduction of the revenue, there being no demand and no reason for increased expenditure.”[9]However, Guthrie opposed a national bank and, as a pro-slave strategist, supported monetary deflation and “hard money” convertible into gold on demand. The Democrats’ opposition to high tariffs and spending on internal improvements would indeed have reduced federal tax revenue.

To avoid the deflationary effects of high tariff duties under the Independent Treasury system, Clay and other protectionists advocated abolition of the subtreasuries and a return to government financial operations such as had characterized the 1816-36 period dominated by the Second Bank of the United States.

When panic broke out in 1857 and dragged many banks under, Republicans (who had replaced the Whigs in 1853) accused the Treasury of having brought it on and contributed to its depth. But Democrats defended the Independent Treasury system by pointing to the safety of government finances achieved by virtue of their having been divorced from the banking system. The Treasury made bond purchases of nearly $5 million in 1858, but federal spending deficits fueled the recovery.

6. Civil War financing needs lead to greenbacks and the National Bank Act
The ultimate break between Republicans and Democrats occurred in 1860 over the slavery question, which threw presidential and congressional power to the Republicans. The outbreak of Civil War increased the government’s financial needs, and effectively ended Treasury “independence” from the banking and private sector.
The new Secretary of the Treasury, Salmon P. Chase, was appointed by Lincoln largely in recognition of his anti-slavery stance. The Civil War quickly derailed the country’s finances. If Chase kept the loans made by the New York banks locked up “in the government vaults in the form of specie … the banks could not keep it as a reserve against their notes.” The problem was that “the Government, under independent treasury law, was obliged to be independent of the banks in the sense that it must not use their notes. If, therefore, the Treasury was to get money to carry on its now extensive operations it must use specie or issue Treasury notes.”[10]Kinley (1910, p. 97). He adds (p. 319): “When the country committed itself to the policy of fiat paper money, its entry into the field of note issue made continued independence of the banks impossible.”

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The Treasury became a bank of issue, monetizing its war debt. Bankers urged Chase to stop issuing greenbacks, which were driving their notes out of circulation and draining their specie. They pressed the Treasury to use their bank notes instead. When he refused to do this, the banks were forced to suspend specie payments in December 1861. “Had the Secretary withdrawn the treasury notes and accepted the bank issues” in lieu of gold, Kinley (1910) observed, “it would have been a departure from the independent treasury law.” Instead, Congress and the Treasury forced suspension by “trying to meet the expenses of the war by loans, with as slight an increase of taxation as possible.”[11]Kinley (1910, pp. 76f).

The deflationary pattern of government finances under the independent treasury law made the National Bank Act a necessity. In order to enable the Treasury to recirculate government funds into the banking system to stabilize the currency and float further national debt, the National Bank Act permitted it to deposit all receipts with the newly chartered national banks as well as with the subtreasuries.[12]Inasmuch as the banks had suspended specie payments, depositing Treasury receipts in coin instead of greenbacks would have returned to the banking system a gold specie value in excess of its paper value. All national bank notes were to be received at par in all parts of the United States in all payments to or by the government, except for customs duties, which legally had to be paid in coin. These actions restored the circular flow of liquidity in the banking-fiscal system, but gold convertibility remained suspended until 1879.

Terminating much of the Treasury’s “independence” from the banking system drew criticism for its “interference.” The Commercial and Financial Chronicle warned in 1868: “The Treasury, so far as being severed from the banks, may now at certain critical periods take away their legal-tender reserves by sale of gold, by sales of bonds, or by drawing down the balances in the national bank depositories.”[13]Kinley (1910, p. 114) This was the gist of criticism of the Treasury through 1914. It was a protest by bankers against government’s power over the banking and financial system. And the main concern was that the Treasury might once again pursue monetary deflation, not inflation.

Over the balance of the 19th century the Treasury helped stabilize the country’s finances by increasing its deposits in national banks (especially those in New York City) in times of credit stringency, and moving its deposits around the country each autumn to provide national banks in the farming districts with the reserve base necessary to finance the harvesting, transportation and sale of crops.

Meanwhile, protective tariffs increased to over half of the federal revenues. The Treasury used the resulting surpluses to buy its bonds from the banking system, severely depleting the stocks of these debt instruments. By 1903, Theodore Roosevelt’s Secretary of the Treasury, Leslie M. Shaw, departed from established policy and accepted “other than United States bonds as security for public deposits, and told the banks that they need not keep a reserve against them.”[14]Kinley (1910, p. 125). By 1908 railway, municipal, county and state bonds supplemented U.S. bonds as legal reserve backing for U.S. Government deposits in the national banks, much as the Federal Reserve would accept real estate mortgages as bank reserves after 2008. For these legal changes see Kinley (1910, pp. 132f). This freed $100 million in credit for New York City banks alone. Four years later, in 1907, the laws were amended to allow the Treasury to deposit customs receipts in the national banks, effectively terminating the distinction between the subtreasuries and national banks as depositories for public funds.

By this time the Treasury’s role had vastly “increased, if not changed in character, by the growth of the fiscal operations of the Government,”[15]Kinley (1910, p. 149). influencing prices “depending on the extent of its absorption, retention and disbursement of money.”[16]Kinley (1910, p. 152). This impact obliged the Secretary of the Treasury to work actively to help stabilize the nation’s finances. “There have been times when the autumnal drain would all have fallen on the banks but for the subtreasury. Two channels were open for the Government to put out its accumulated surplus: the purchase of bonds, which was the usual policy in the autumn for some years before 1890, and making deposits of public money in the banks.” However, the contraction of the government debt had reduced the volume of Treasury bonds outstanding, severely restricting its open market operations.

This problem was aggravated by the federal budget surplus in the fact of an inelastic currency. The quantity of U.S. Notes (greenbacks) was fixed by law. The amount of gold specie depended on foreign trade surpluses and domestic mine output, and the volume of national bank notes was being diminished as the federal debt was retired (since the Treasury bonds were the sole legal backing for these notes). Such rigidities led successive Secretaries to relax the limitations of the Treasury’s law and spirit. “When the power to receive checks and to check against bank deposits is conferred on the Secretary,” Kinley concluded, “then, indeed, the repeal of the independent treasury will hardly be necessary. For the various amendments, made in recent years, which permit the use of the banks for practically all the business of the Government, have already virtually abolished the system.”[17]Kinley (1910, p. 206).

Nonetheless, “the independent treasury system does not have such an automatic connection, so to speak, with business, as to make its operation responsive to the exigencies of the mercantile community.”[18]Kinley (1910, p. 268). In the panic of 1873, “the support of the public purse was tardy, timid, and insufficient.”[19]Kinley (1910, p. 270). Kinley concluded:

“the Secretary of the Treasury is not the proper person to determine these points. He is not in immediate touch with business matters. He must get his information of the situation largely at second hand from bankers and others. He is likely to be less experienced in judging such matters than men whose business it is constantly to watch them and care for them.”

The National Monetary Commission was convened to draw up recommendations for a banking system that would not fall heir to the existing reliance on discretionary Treasury activities. Its ultimate Report, released in January 1912, concluded:
The provision of law under which the Government acts as custodian of its own funds results in irregular withdrawals of money from circulation and bank reserves in periods of excessive Government revenues, and in the return of these funds into circulation only in periods of deficient revenues. Recent efforts to modify the Independent Treasury system by a partial distribution of the public moneys among national banks have resulted, it is charged, in discrimination and favoritism in the treatment of different banks.

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All parties were agreed that the major aim of the new banking act must be to provide greater elasticity to the currency. This was achieved two years later by granting the Federal Reserve System authority to issue its notes against commercial paper, not only government bonds. This made it primarily responsive to business financing needs.

7. Banks argue for more control over Treasury policy
During 1908-13 many political aspects of the Federal Reserve System were fought out between Democrats and Republicans. The Aldrich Bill, an early Republican draft of the
Federal Reserve Act, called for a National Reserve Association to be dominated by bankers. They had used populist rhetoric to urge that government finance be removed from politics by removing discretionary monetary authority from Washington to the greatest extent possible. The Federal Reserve Act set staggered terms for the Federal Reserve Board members (selected by local business and financial leaders, not Washington politicians) so that the President could not “pack the bench” as Jackson had done in 1833 by removing Secretary Duane in favor of Taney.

Democrats sought to maintain some government regulatory oversight by insisting that the Federal Reserve be situated in Washington rather than New York City, and that its board include the Secretary of the Treasury. Pledged against the “Federal Reserve Association,” they won the 1912 elections behind Wilson and thus had the major say in the Federal Reserve’s structure.

Wilson agreed to leave control of the district banks to the local leadership of private banking and business interests, but urged that the system’s national Board of Governors be appointed entirely by the President rather than by the member banks as ultimately was the case. (The Secretary of the Treasury remained an official member of the Board of Governors until 1935, when he was dropped from the board along with the Comptroller of the Currency.) Once the Federal Reserve began its operations, however, Wilson remained strictly aloof from it.

To divorce the banking system from political influence, the Federal Reserve Board’s financial activities were exempt from reliance on Congressional appropriations. Finally, twelve district banks were established, whose bankers and businessmen possessed the balance of power in the early years of Federal Reserve operations, with
New York quickly emerging as the policy-making center. Roosevelt shifted policy making to the Board and its Federal Open Market Committee in 1935, and the Fed remained largely under the thumb of the Treasury until the Accord of 1951 “freed” it from having to keep interest rates low to minimize the Treasury’s borrowing costs.
But apart from the Accord, the trend under the Democratic administrations of John F. Kennedy and Lyndon Johnson was to shift monetary power back toward the Treasury and the President. The Kennedy Administration in the early 1960s saw proposals to revamp the structure of the Federal Reserve by making the terms of the Governors coterminous with that of the President, returning to him the direct authority and control that he possessed prior to 1914, reappointing the Secretary of the Treasury as a permanent member of the Board of Governors, and even replacing the Board of Governors with a single head, as well removing district directors from the regional Federal Reserve Banks. Republicans replied with Milton Friedman’s proposal to remove discretionary “interference” altogether by increasing the money supply at a fixed rate each year.[20]Statements on Proposed Changes in the Federal Reserve System, Federal Reserve Bulletin, March 1964.

Regarding the latter proposal of “automaticity” by establishing a rigidly fixed growth in the money supply, Kinley’s study illustrates that this must soon lead to more active political control to avoid monetary instability. The question is, who will manage financial crises – Wall Street in its own interest, or Washington ostensibly in the public interest favoring debtors more than creditors?

8. Final comments and conclusion
By the 2008 banking crisis there no longer was a partisan political difference between Republicans and Democrats in the United States, or between social democratic and neoliberal parties in Europe. Today’s Federal Reserve has shifted financial and fiscal planning to Wall Street. Presidents of both U.S. parties rely on Wall Street for major political campaign contributions, as do heads of the key Senate and Congressional banking and finance committees. Leaders of both parties appointed Wall Street consultant-lobbyist Alan Greenspan as Federal Reserve Chairman, and promoted New York Federal Reserve President Tim Geithner to Treasury Secretary. In contrast to Jackson’s and Van Buren’s political patronage via banking privilege, the line of control now runs the other way around, from banking to politics.

Since 2008, Wall Street investment banks have obtained much more wealth by capital gains (asset-price gains for real estate, bonds and stocks) and investment fees than from interest. This has led them to press the government for policies to inflate asset sheets more than provide credit for industry. Europe has followed suit. The upshot is that banks both in Europe and America have gained control over government policy to become the main suppliers of the economy’s money and receive public subsidy and favors. Their capture of the government’s financial, regulatory and policy-making institutions has led to a policy bias favoring creditors over debtors. In terms of monetary policy, creditors always have advocated downward commodity prices and wages. But since the 1980s they also have favored debt-leveraged inflation of real estate, stock and bond prices to create “capital” gains via low-interest “soft money” policies.

The European Central Bank’s withdrawal of credit to Greek banks under the Syriza government is reminiscent of Jackson’s war against banks not favorable to his own political control. And the European Central Bank’s support of the largest banks and bondholders at the cost of domestic taxpayers has imposed monetary deflation on Eurozone countries, reminiscent of America’s 19th-century deflation before and after the Civil War.

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Bibliography
Aldrich N. W. 1910. An address by Senator Nelson W. Aldrich before the Economic Club of New York, November 29, 1909, on the work of the National monetary commission, Washington, Government Printing Office
Burgess, W. R. 1964. Reflections on the Early Development of Open Market Policy, Federal Reserve Bank of New York, Monthly Review, vol. 11, 219–26
Chernow, R. 1997. The death of the banker: The decline and fall of the great financial dynasties and the triumph of the small investor, Toronto, Vintage Canada.
Colton C. 1846. The Life and Times of Henry Clay, New York, A. S. Barnes & Co. Griffin G. E. 1994. The Creature from Jekyll Island: A Second Look at the Federal
Reserve, Appleton, American Opinion Publishing
Haines W. 1961. Money, Prices, and Policy, New York, McGraw-Hill
Hudson M. 2010. America’s Protectionist Takeoff, 1815-1914: The Neglected American School of Political Economy, New York, ISLET
Kinley D. 1910. The Independent Treasury System of the United States and its Relations to the Banks of the Country, Washington, Government Printing Office
Warburg P. M. 1930. The Federal Reserve System: Its Origin and Growth, New York, Macmillan

Footnotes

[1] Aldrich (1910). For more documentary see Warburg (1930).

[2] Haines (1961, pp. 554f.) See also p. 153

[3] Colton (1846, pp. 23f). “It is to be observed, however,” Colton added (p. 26), “that the plan of the subtreasury was not matured, till that of establishing a new national bank in the city of New York, under the control of the partisans of the administration – who, on the principle of the New York state system, before noticed, expected to realize at least a two-million bonus, for private and political objects – had failed.”

[4] This sectional aspect of U.S. trade and monetary policy is discussed in Hudson (2010).

[5] Colton (1846, pp. 49f)

[6] Kinley (1910, p. 8)

[7] Kinley (1910, p. 69). For a discussion of Treasury relief by bond purchases see pp. 272- 77, 217-23.

[8] Burgess (1964, p. 220) asserted: “The real significance of the purchase and sale of Government securities was an almost accidental discovery.” This myth is reiterated in the usual college texts (e.g., Haines, 1961, pp. 567, 573.)

[9] However, Guthrie opposed a national bank and, as a pro-slave strategist, supported monetary deflation and “hard money” convertible into gold on demand.

[10] Kinley (1910, p. 97). He adds (p. 319): “When the country committed itself to the policy of fiat paper money, its entry into the field of note issue made continued independence of the banks impossible.”

[11] Kinley (1910, pp. 76f).

[12] Inasmuch as the banks had suspended specie payments, depositing Treasury receipts in coin instead of greenbacks would have returned to the banking system a gold specie value in excess of its paper value.

[13] Kinley (1910, p. 114)

[14] Kinley (1910, p. 125). By 1908 railway, municipal, county and state bonds supplemented U.S. bonds as legal reserve backing for U.S. Government deposits in the national banks, much as the Federal Reserve would accept real estate mortgages as bank reserves after 2008. For these legal changes see Kinley (1910, pp. 132f).

[15] Kinley (1910, p. 149).

[16] Kinley (1910, p. 152).

[17] Kinley (1910, p. 206).

[18] Kinley (1910, p. 268).

[19] Kinley (1910, p. 270).

[20] Statements on Proposed Changes in the Federal Reserve System, Federal Reserve Bulletin, March 1964.

(Republished from Michael-Hudson.com by permission of author or representative)
 
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  1. Ryan says:

    That was really interesting, thanks for writing it up.

  2. One man’s “Avoided Chronic Deflation” is another man’s “created unsustainable growth with unpayable debts”.

    There will be one hell of a fight when the next bust comes. The wiping out of unpayable debts is in the cards as Mr. Hudson knows since there is no alternative. As he said, there is no difference anymore between the Repubs and the Dems. The noise from the TEA Party is just that – noise. The Repubs were a few years later when it came to demanding the punch bowl stay full, but that does not really matter anymore.

    The thing not addressed is that there is no way to go back to the “good old days” no matter who controls the money supply. We have loaded the country with over 300 million mouths to feed and with too many of the mouths there is an idle and unneeded pair of hands. It’s really sad to see people thinking we can solve the problem by adding more mouths. The “growth fairy” is out of pixie dust. Yes, we will have “infrastructure” jobs that will help for a while, but that will be no panacea.

    Interesting times.

  3. Rurik says:

    1. Introduction
    Deflation was the main U.S. financial problem prior to 1913.

    For a hundred years before the imposition of the Fed, the US dollar maintained it’s value. I guess that’s what the author is calling ‘deflation’. Since the imposition of the Fed, the dollar has lost app. 95% of it’s value to inflation.

    Inflation is caused when money is printed. When money is printed, it gives the banksters power not just over the government, but over everything. It allows them to buy politicians and newspapers and academia and publishing houses and use those things in order to consolidate their power even more. Until- like this author mentions, the government becomes subservient to the banks (Jews) and to Wall Street (Jews).

    It’s dishonest to imply that Andrew Jackson was motivated by rank politics when he went after those central banking snakes. Clearly he was motivated by the desire to protect the American people from the nefarious power that central banks give themselves once they control a nations money supply. That is one of the main reasons our founders fought the Revolutionary War, because the crown wanted to force the colonies to use Bank of England notes borrowed at interest for their currency, and the founders were smart enough to know that doing that would enslave their progeny to the British bankers for perpetuity. Something they were not willing to do, even at the cost of their own lives. That is the same reason they fought the War of 1812. Because the Bankers were insistent. The history books will tell you the British fought the War of 1812 to protect the Indians from European expansion. Ask yourself if you believe that.

    Here’s a nice piece that lays it all out:

    http://whatreallyhappened.com/WRHARTICLES/allwarsarebankerwars.php#axzz3qL8KoY5F

    Since the introduction of the Jewish controlled Fed, the banker bought and corrupted politicians of the Western World have foisted fratricidal wars that have slaughtered some 100 million European young men, women and children of Europe in the last century. Often in the most horrific ways; in the frozen trenches of France or the cities of Germany whose doomed denizens were burned alive. None of these wars were necessary. Just like today, those wars were imposed on the people by yesterday’s versions of John McCain and Lindsey Graham. The Churchill’s and FDRs of the last century. All of this, including the problems of massive immigration into Europe and N. America and the moral sewage our youth are marinated in and all the rest of the insanity are a direct consequence of handing over control of our money supply to the world’s greediest men who also happen to have a tenacious and eternal hostility to our civilization and our people due to their unique outlook on life that places them at odds with those not of their tribe. Alas.

    Just some thoughts on the Fed that I think the author left out.

    Either we, the descendants of tens of thousands of years of struggle in Europe and Scandinavia, who’ve created the world’s most sublime civilization and invented human freedom, who, for centuries have heroically fought off the eternal intrusions of invading hoards from Islam and Mongolia and elsewhere, whose ancestors have accomplished things magnificent and ineffable, either we will end the Fed, or as has been pointed out before, the Fed will end us.

    That is our stark choice today.

    (I’m writing this from a Western perspective but the carnage and misery being suffered today in the Middle East and elsewhere are just as much as direct consequence of the power of the Fed as any of the rest I speak of)

    • Replies: @gwynedd1
  4. The author of this article presents the conventional and politically correct version of American history as derived from books and articles that Those In Control deemed worthy of publishing.

    The history of the American banking system can actually be divided into one of two ongoing eras: those in which the Rothschild family and its privately held central bank was in control and made great profits, usually at the expense of Americans, and those eras in which the banking system was being guided by politicians who actually believed that they, as the people’s representatives, should be in control.

    That’s it. It doesn’t have anything really to do with academic theories of economics and banking or economic cycles or whatever. It just the Rothschild versus the patriots. (AKA as the war mongers versus the patriots.)

    If you think that this claim is overblown just consider a few examples: The head of the English branch of the Rothschild bank (and therefore defacto head of the Bank of England) specifically threatened the United States with war if it failed to renew the charter of the privately held central bank of the United States in the early part of the the nineteenth century. (Google it) .When the US government refused to do so, the War of 1812 began..

    Andrew Jackson’s strong opposition to a privately held central bank might well have been a factor in the numerous assassination attempts made against during his presidency. Other presidents foolhardy enough to oppose this bank were also, curiously enough, assassinated. JFK’s attempt to reign in the power of the Federal Reserve might well have been the major factor in his assassination (along with his opposition to the Israelis developing nuclear weapons at Dimona) .

    One of the participants in the infamous meeting of bankers at Jekyll Island that the author of this article mentions and who was a member of the trio that supposedly wrote the details of what became the Federal Reserve Act later admitted that fellow trio member and Rothschild agent Paul Warburg essentially presented a pre-written version of what became The Federal Reserve Act to to him and the other trio member which they simply rubber stamped just as were the other Island attendees did a short time later. The majority of politicians who eventually passed the act voted for it without actually reading it. (Charles Lindbergh’s US House member father was among the few that had actually read it and as a result strongly opposed it). A more current example of this odd political rubber stamping phenomenon was The Patriot Act with its still mysterious and unknown origins.

    Towards the end of his presidency Woodrow Wilson, who had signed the Federal Reserve Act into law and was by then finally able to throw off his Rothschild appointed blackmailers and handlers like Colonel Edward House and arch Zionist Louis Brandeis, admitted that The Federal Reserve Act was a travesty and a blot on his presidency. He probably came to this conclusion after encountering the banking vultures who essentially gained full control of the Versailles Peace Conference and it very lucrative but punishing reparations demands.

    • Agree: Junior
    • Replies: @Wizard of Oz
    , @Da-Mith
  5. Hugo says:

    The Fed dindu nuffin.

  6. Probably, the author is a social democrat who can’t rid himself of the notion that government should provide society with wonderful things via the magic of deficit financing. This means money printing, open market operations, preferred dealer networks, etc.

    Deflation is salutary. It exposes malinvestment, and transfers over-valued assets from spendthrifts to savers. At worst, it impacts everyone equally, as opposed to the purported remedial inflation, which benefits the few, early recipients of new dollars at the expense of the many downstream dollar recipients.

    • Replies: @Anonymous
    , @MarkinLA
  7. joe webb says:

    All of the above including the article is more or less useless, although the article itself at least presents a few historical facts that seem to be correct.

    What any presentation/argument about banking and money should do first is to describe what banking’s functions are. Then, money should be explained. Then fractional banking should be explained, then ‘fiat money’ should be explained. Then the Hard vs. Soft positions on money should be explained.

    Fiscal policy and monetary policy should be explained so that everybody is on the same page.

    As a moderate Keynesian, I accept as useful the basics of Keynesianism. This should also be explained.

    Intellectual positions should be disclosed, per Keynes, Marx, classical economists, and any technical position held by a writer. Hudson seems to be if not obsessed by debt, then heavily influenced by it almost to the point of it being a single-factor analysis. Also, he is largely to be located in a marxist economics position.

    There is an glazing over eyeballs character, to my reading Hudson’s writing. I admit it. Where is the comprehensive position.

    The main reason for my reaction is that there are many conclusions that are not argued, just asserted. Also, the question of the jewish factor seems to distort objectivity. Whether a jew or a gentile is making decisions is not the point, the point is whether the decisions are good for the
    economy as a whole.

    And with respect to the general arguments of Hudson, Debt is only one factor is the operations of an economy. What about everything else?

    As I continue to argue, whether debt is a prime factor or not of our present economic malaise, the main thing is consumer demand extreme weakness. Several or many trillions of debt can go up to money heaven again, and the problem will still be there…no cash in the pockets of workers and middle class people which allows them to buy things and keep the engine running smoothly. Bad debt is mostly a problem for Capital. When those trillions disappear, Capital will just keep on chugging along, driving wages downward thru globalization and imported cheap labor.

    This whole thing reads like a college paper , not a professional piece. AT least the WSJ continues to talk about growth decline and comments on declining wages. They just don’t know what to do about it, given their conventional blinders.

    It is a bit similar to the liberal mindseize-lock-up on immigration whether here or in Europe. They see it coming but continue the same old liberal race equality
    civics lesson, or conventional capitalism lesson, or marxist economics lesson.

    And then some of Right jabbers on about libertarianism, and open borders, etc. Which is just globalism at the social level. We are All Equal, and Equilibrium will be restored thru the invisible hand. Just get Debt right, or just let the market decide, open minds, open borders.

    An Open Mind is an Empty Mind…at this time. Joe Webb

    • Replies: @Rurik
  8. epebble says:

    Though this is a long essay covering 2 centuries of history, I feel there are major flaws in the analysis. Much of the thrust for setting up the FED was the lumpy nature of agrarian economy of the 19th century (lot of capital needed before harvest causing capital shortage; then a sudden surplus of grains needing liquidity). This was exacerbated by the locality of money supply (capital needed in Nebraska and Iowa but available in New York and San Francisco). Thus national liquidity was needed.

    Second omission is the huge difference between the role of dollar before and after WW2. Before WW2, it was primarily an American currency, later it became a global reserve. That changes everything. Suddenly everybody needs USD giving rise to the phenomena of Eurodollar, Petrodollar, huge trade deficits with Japan, then Korea, now China etc. This need for others to hoard USDs to support their currencies from the likes of Soros caused forced implicit devaluation to boost exports that in turn led to loss 0f US industrial base and conversion to service and now financial engineering based economy (along with non/less tradeables like government, DOD contractors, healthcare, education, real estate). As long as we have this curse of reserve currency burden this cycle will continue till it becomes obvious that the reserve currency is worthless. Then it is the story of British Pound all over again. Basically we will face a monitory crisis which is a combination of British Pound like loss of value combined with Japan style no growth/low growth with uncontrolled deficits. Then the rest of the world will move away from USD and US will become a “normal” i.e. “ordinary” country.

  9. Anonymous • Disclaimer says:
    @The Anti-Gnostic

    You support the government providing property rights, don’t you? The government subsidizing the cost of property rights without charging for that cost is a form of deficit financing.

    When you talk about “deflation” and “inflation”, you have to specify. For example, wages have relatively deflated while real estate has relatively inflated. Deflation doesn’t impact everyone equally because assets differ and whether it’s “salutary” or not depends on the kind of political economy and values you prefer. For example, if you prefer a feudal political economy, then the deflation of labor wages relative to land and the consequent transfer of wealth from labor to landlords and large asset holders would be regarded as positive. If on the other hand you prefer a more yeomanry/middle class oriented political economy, then the deflation of labor wages relative to land would be regarded as a negative.

    • Replies: @The Anti-Gnostic
  10. @rabbitbait

    I wondered where to start testing this fantasy for a touch of realism so, when advised “Google it” in reference to the suggestion that the new young London but internationally connected banker down from Manchester, Nathan Rothschild, was de facto head of the Bank of England and effectually ordered the British government to make war on the US to preserve his banking interests I did Google “rothschild 1812 war” and I got pages of the sado-masochistic wet dreams that many sad anti-semites build on the Rothschild name. But at the top was a reference to an article in http://www.businessinsider.com.au which calmly showed that, while the Rothschilds did well out of that war and many others for which they sometimes provided financial services to both sides, the war had several thoroughly British causes with nothing to do with the Rothschild interests in the Bank of America (as I think the bank was called: the Second Bank of America that was attacked by Pres Jackson was founded in 1816). The most absurd idea was that Alexander Hamilton who died poor was controlled by the Rothschilds.

    • Replies: @Junior
  11. @Anonymous

    I pay taxes and filing fees to support the courts and cops who are supposed to protect property rights. Deficit financing is passing the cost of government benefits to future taxpayers, who don’t vote in present elections.

    Inflation and deflation are properly understood as monetary phenomena. Price increases and decreases are not inflation or deflation, per se.

    The money supply and public debt increase perennially and interest rates are kept low with the central bank/preferred dealers as the buyers and sellers of last resort. You can see the political economy that has resulted.

    • Replies: @Anonymous
  12. Rurik says:
    @joe webb

    All of the above including the article is more or less useless, …

    What any presentation/argument about banking and money should do first is to describe what banking’s functions are. Then, money should be explained. Then fractional banking should be explained, then ‘fiat money’ should be explained. Then the Hard vs. Soft positions on money should be explained.

    OK then, did you do that? I read your entire comment and yet it seems your comment too was useless based on your own criteria.

    If the people who come here don’t yet know what fiat currency is, then I doubt they’re reading articles like this. Certainly Kim Kardashian has said something far more critical to their lives.

    But I’ll try to help out nevertheless. Money was invented when people discovered that it worked better than carrying around heavy precious metal and other things of value that were cumbersome. Money is a convenient alternative as a fixed store of value. The problem is it’s often made of paper and it’s value and cost (interest rate) are arbitrarily decided by men (fiat currency), so it’s far easier to counterfeit than gold or silver or sea shells. And the temptation gets to be too great. An example of this is what they call Quantitative Easing today (printing money), and it leads to inflation .This is one of the brouhahas between economists like the ‘Austrians’ who believe in ‘sound money’ vs. the ‘Keynesians’ who prefer a more flexible approach. Both sides have their merits, but I tend toward the Austrians because of what I like to call “human nature”.

    Whether a jew or a gentile is making decisions is not the point, the point is whether the decisions are good for the
    economy as a whole.

    With all due respect, this has to be one of the more foolish things I’ve read here.

    I’ll try to make this simple. If you reduce our economy to a Monopoly game, and think of the central bank as the person who hands out the money at the beginning- and everybody gets the same amount, that’s sort of what the founders had in mind when they made it a tenant of the Constitution that congress would issue the currency, thereby insuring that no individual or group of private individuals (bankers) would have such power. Because if you give one player at the Monopoly board the right to hand out money to other players and to himself when ever it was “expedient” in his view, for ‘the sake of the game’ (economy), then I don’t have to tell you what would happen. He would always win, wouldn’t he? Or he’d certainly be able to pick the winners and the losers every single time- if he didn’t want to make it too obvious and win every game, thereby increasing the suspicion among the other players that something just might be rigged in the game. That’s why the founders made it the explicit law of the land that “The Congress shall have power … to coin money, regulate the value thereof..”. And it worked for a long time, ensuring a burgeoning economy and relative prosperity to the American people. There were glitches, but as a rule the economy prospered and the people thrived.

    Then came the Wilson regime and the scheming at Jekyll Island and the foisting of a privately owned central bank to have control over American’s money supply. And in no time this country was in wars in Europe, we were treated to the Great Depression- as the Fed blew a bubble in the economy in the “roaring twenties” and then pulled the rug out, so that now they, with all the money they needed, could buy up everything in sight at pennies on the dollar. That’s what they do. I won’t provide all the quotes on this, but there are plenty. So, since the Treasury and consequently the federal government and America’s economy are now in the control of Jewish bankers, guess what happens, they get to pick who wins the monopoly game. They get to decide that the US goes to war on England’s side because of some obscure Balfour Declaration that hands over Palestine to the Jews. They get to buy up Germany after the war and put the levers of German society in Jewish hands. They get to foist yet another war on Germany when the German people rise up under the crushing fist of by now a recognized powerhouse of “International Jewish bankers”. They get to pick the winners and losers. Soon they’re terrorizing the Arabs from their villages in the Middle East to a deafening silence from Europe and America, as the politicians of the world know who has the power to hand some of that monopoly (Fed created fiat currency) to influence entire governments and threaten entre economies.

    The Jews are humans like the rest of us. They seek self interest like the rest of us, but by handing over control of America’s money supply to Jewish bankers we’ve handed over control of our economy and the unaccountable ability of a few men to determine the fates of countries. It’s a power they can not resist using, and use it they do. To pretend that it matters not “whether a Jew or a Gentile is making decisions” is to ignore human nature completely and pretend that there’s no such thing as tribalism (especially Jewish tribalism, something they are rather renowned for)

    Banking and economics are not ethereal contrivances of a priestly class who are seeking after the good of all. Not hardly. They are very real, (if often behind the scenes) all too human endeavors that decide the fates of nations and peoples far more so than do the politicians whose faces we see on the televisions. We would do well to pay more attention to how all of this works and more importantly, who is behind the levers of power, than is generally known. IMHO

    As an aside, this is not my field of expertise. I never liked economics and the last thing in this world I would be is an accountant or economist. But because I like to know how things work and the why of seemingly insane trajectories in the world today, I’ve been forced to seek out the Eye of Mordor to the world’s madness. And the rabbit hole always leads to the same stark ground zero of the crime; the Federal Reserve Bank. It’s the reason England committed suicide in the last century. It was NY bankers that funded Trotsky and Lenin and foisted communist madness on the world. It’s why my government is fast destroying the American middle class and waging illegal wars all over the globe. It was none other than the Fed who pumped up the sub-prime bubble before the crash of 2008 by making money cheap and available at massive margins to their cohorts on Wall Street; basically doing the very opposite of what their charter calls on them to do, i.e. protect the value of the dollar. It is the reason no bankers are held responsible for their myriad frauds and uber-criminality and why it will all happen again. So I’ve learned to care very little for the kinds of esoteric sounding rhetoric of shills like Krugman or the guy who wrote this article. Because it isn’t just a few points on the interest rate that is being decided at the Fed. It is whether or not another 911 must be done in order for those men to realize their most depraved expression of power on the real world and its people. The continuation of WWI was a consequence of the power of the Fed. The advent of WWII and all of its horrors were a consequence of the power of the Fed. The way this century is starting to look more and more like the last one, is, yep, you guessed it, all a consequence of allowing a few men to control the world’s money supply and print a few trillion when it suits them to hand over to a player here or there who they want at their whim on any given day to be the winner of the global monopoly game.

    I’ll end this with a great clip from a movie

  13. joe webb says:
    @Rurik

    more nonsense like I hear around White Nationalist circles. Fortunately the top WN guys like myself, don’t go in for this kind of nonsense either.

    Plus, of course, it is just more ad hominemism. Most of the guys commenting here are just plain cussed. They got the Columbus complex. gotta discover it themselves. Or, they read the story of Jekyl Island and The Jews and get worked up.

    Fiat money is nonsense, by the way, except when Castro or Mugabe declares x, y, or z.

    Then, of course , we get instructed by a movie, probably written by a jew, to keep the goyem runnin’ around.

    Joe Webb

    • Replies: @Rurik
  14. MarkinLA says:
    @The Anti-Gnostic

    As long as the economy is about 80% debt and 20% real net worth as we have now, deflation will always be considered a problem by the elite.

  15. Rurik says:
    @joe webb

    more nonsense like I hear around White Nationalist circles. Fortunately the top WN guys like myself, don’t go in for this kind of nonsense either.

    With the remarkable level of stupidity you brazenly display, you must be some kind of controlled opposition to make these so-called WN ‘guys like yourself’ look like donkeys at best.

    Kudos

  16. gwynedd1 says:
    @Rurik

    I think perhaps you still do not fully understand the situation. Austrian economists not only admit, but actively complain these reserve banks easily fund war industries. This is exactly what occurred with Germany which was really a country with no gold standard attacking other countries on a gold standard , forcing everyone else to follow suit and abandon it. So how does one keep international banking cartels from finding an attack dog like this? They will find a way to cause industrial depressions , even with gold standards etc. They have in fact already done this. Then they can find any industrial state they like, finance its politicians and create the money miracle.

    How does one solve this problem?

    Worse is the no man’s land we are in. One way is to make a money system so simple even a 5th grader can understand it. A simple chartalist system is easy to understand. Instead we have a deliberately complex one. It evades democracy with the stupefaction principle. We have already tried the former and failed.

    But then it is also a dangerous experiment . Can such a people like us be trusted to have a money power like this?

    • Replies: @Rurik
  17. the point is whether the decisions are good for the economy as a whole.

    The economy as a whole consists of both spenders and savers. Spenders tend to be consumers and savers tend to be producers. The ultimate question is which type we want to favor. A corollary question is whether these attributes have anything to do with biological differences between the types and if policies would only affect a narrow range of behavior.

    For decades policies have favored spenders and punished savers to the extent that they have diminished the relative number of savers. This is supposed to have been good for the “economy as a whole”.

    Time will tell.

  18. @Rurik

    It was none other than the Fed who pumped up the sub-prime bubble before the crash of 2008 by making money cheap and available at massive margins to their cohorts on Wall Street; basically doing the very opposite of what their charter calls on them to do, i.e. protect the value of the dollar.

    You need to study the history of the Fed a little more. The Humphrey-Hawkins Act gave the Fed a “dual mandate”. The second mandate is dressed up in a lot of rhetoric, but basically it is to keep “stimulating” the economy.

    Jews are far from being the only people who have been clamoring for easy money all through the history of this nation. Easy money has been mother’s milk to the Democrats since the convention of 1896 and Bryan’s “Cross of Gold” speech. Bryan’s main support came from farmers in the South and Midwest and it was the campaign of ’96 that expanded the Democrats appeal.

    • Replies: @Rurik
  19. Anonymous • Disclaimer says:
    @The Anti-Gnostic

    Various taxes primarily on economic activity (income, sales, payroll, capital gains, etc.) are paid to subsidize property rights protection. There is essentially no taxation commensurate with property rights protection.

    Your contention that inflation and deflation are monetary implies that they are changes in the value of one particular asset, money, relative to other assets. So it does imply price changes by definition.

    The political economy we’ve had is one in which labor wages, industrial and manufactured goods prices, have deflated while financial assets and real estate have inflated. It’s an exaggerated form of a political economy in which the monetary asset inflates.

  20. Junior [AKA "Jr."] says:
    @Wizard of Oz

    I think that cryptoshine is spot on. I encourage you to watch a couple of movies like “The Money Masters” and “The Secret of Oz” by Bill Still if you haven’t already seen them. I think that you’ll especially like the latter because of your handle of Wizard of Oz. While I don’t agree with Mr. Still’s solutions because I’m not sure that they would work, I think that his movies give a much needed alternate perspective to the one that our history books and the media give of the FED and how it came to be. My favorite movie though, which deals with the Banking Cartels and the one that I would watch first because it gives a better overall view in my opinion, is “UROKO: The True History of the Banking Cartels and the Federal Reserve”. I’m not sure who made the movie UROKO but it’s definitely worth watching. I’ve attached links to the three below.

    Here’s a link to The Money Masters. It’s DEFINITELY long but some great information:
    https://www.youtube.com/watch?v=51CvlMEtf1A

    Here’s a link to The Secret of Oz:
    https://www.youtube.com/watch?v=46YbXEc64d8

    Here’s a link to UROKO – The True History of the Banking Cartels and the Federal Reserve:

    https://www.youtube.com/watch?v=bNCsH92ZeM0

  21. Rurik says:
    @gwynedd1

    Hello gwynedd1,

    This is exactly what occurred with Germany which was really a country with no gold standard attacking other countries on a gold standard , forcing everyone else to follow suit and abandon it.

    Um, what are you talking about? Germany attacking Poland because Poland had a gold standard? Really?

    Have you ever heard of ‘the Polish corridor’?

    Can such a people like us be trusted to have a money power like this?

    are you suggesting that congress is too Philistine to handle the complexities of money? That we need the people at Goldman Sachs to do it for us because we’re just too lowbrow?

  22. Rurik says:
    @another fred

    The second mandate is dressed up in a lot of rhetoric, but basically it is to keep “stimulating” the economy.

    Yea I know. That’s what they’re doing when they hand their bankster buddies money for free (at zero interest) that they can loan out at interest and make a killing on the tax-slave’s back.

    Jews are far from being the only people who have been clamoring for easy money all through the history of this nation

    no doubt. I don’t think I ever said Jews were the only ones who wanted easy money. But Jews (overwhelmingly) own and control the Fed, and so the goyem are forced to do things their way if they want that free, easy money.

    And be careful, because there is a (deliberately instilled) kneejerk Pavlovian response to automatically equate any criticism of some Jews and extrapolate that to mean “all Jews and nothing but Jews!”, which is absurd. Most Jews live lives like the rest of us, working and paying taxes and are good people. (duh, why must I always point out the obvious). And there are legions of gentiles at the Federal Reserve trough with their greedy maws in the slop. No doubt. But because of the few Jews who do own and control the Fed, (yes, like Rothschild, it’s true) it gives the Jewish collective id an edge over the rest of us. How many Hollywood movies have you seen that show the (Jewish) NKVD butchering and genociding tens of millions of Christians in the 1930s? None? Vs. how many Holocaust movies? One per day?

  23. Da-Mith says:
    @rabbitbait

    I agree with you crytpo.. I thought the article was a total crock of shit. I am extremely disappointed at finding this kind of trash on this site. Mr Unz…wake up to yourself. If anyone wants to know about our ponzi money system…please research and understand “Fractional Reserve Banking”

  24. annamaria says:
    @Rurik

    Thank you for the great clip.

    And here is a short summary, for the laypeople, of where we are right now as western civilization:
    “The last financial crisis (2007-9) turbo-blasted the [financial] sector into a new fantastic growth phase. Not only was Haute Finance bailed out, it also insidiously attached itself more fully to states – and wrested guarantees and protection from these governments, their taxpayers and their central banks.
    And while this particular group of capitalists may worship at the shrine of Adam Smith and Ayn Rand, they nevertheless demand and expect taxpayer-funded guarantees and protection from the discipline and losses imposed by market forces.
    Despite its detachment from the “real” economy of production, the global finance sector has succeeded in capturing, effectively looting and then subordinating governments and their taxpayers to the interests of financiers. Bankers and financiers now effectively control the public utility that is our monetary system. They can gamble and speculate on global markets without fear of losses or the fear of being disciplined by ‘the invisible hand’. They know their institutions are Too Systemic, or Too Big To Fail.”
    https://www.opendemocracy.net/ann-pettifor/is-capitalism-mutating-into-infotech-utopia

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