Chris Yuhas Blog: True Economics and Politics

Strip the Federal Reserve of all powers using The Free Competition in Currency Act of 2009

Posted in Economics by Christopher Yuhas on February 24, 2010

The best way to destroy the capitalist system is to debauch the currency. – Vladimir Lenin

A chilling revelation from a person who succeeded in destroying free markets and liberty in his own country. Any prudent individual who believes in the economic liberty that capitalism provides, would do everything to stop this. Even if you did not believe in capitalism, I’ve never heard of the thunderous roar from any man or woman that enjoys to make the same amount of wages while losing purchasing power.

Lets put the Federal Reserve in perspective and in very simple terms. The Federal Reserve is like a national bartender serving only one brand of Beer while making all others brands of beer illegal. Here is the scenario. The Federal Reserve Bar only has enough beer to serve 20 customers. But every year since 1969 there have been more than 20 customers looking for Federal Reserve Beer. Since there is no other beer that may be served the Federal Reserve, adds water, dilutes the beer supply, thus reducing the potency, and provides for all the guests that show up after that maximum of 20 have been served. Each guest now gets the same volume of Federal Reserve Beer, however, diluted to the point where you may now call it non-alcoholic. That’s the Federal Reserves power over our money supply in a nutshell.

Now with a simplified explanation of their monopolistic position over the American currency, how do they create the money which dilutes wealth? The Federal Reserve has three tools in which they manipulate the money supply.

  1. Open Market Operations. Open Market operations are purchases or sales of US Treasuries by the FOMC (Federal Open Market Committee) of the Federal Reserve. When the Federal Reserve purchases treasuries, they simply deposit money into the seller’s bank account and voila, money created in the banking system. When they sell treasuries they take payment of from buyers which reduces money in the banking system. Thus “printing” money out of thin air.
  2. Discount Rate. The discount window loan is where banks go to borrow money from the Federal Reserve when they cannot borrow from any other institution for just about any reason. When the loan is made, the Federal Reserve deposits the loan in the banks account, thus money being created out of thin air, regardless of any guarantee.
  3. Reserve Ratio. The current rate on 50M or over is 10%. That means a banking institution may take a savings deposit of $5,000,000.00 transfer 10% of it to the Federal Reserve, which eventually pumps $50,000,000.00 into the money supply to loan to the public. Thus the member banks themselves creating money out of thin air mostly at interest!

Now lets examine the effect on the monetary system when currencies are allowed to compete, and given full convertibility in depository institutions, even allowing the Federal Reserve to continue to do everything it does with the exception of forcing the public, through Legal Tender Laws, to use its brand of currency.

  1. Open Market Operations. The Federal Reserve begins to purchase treasuries thus increasing the money supply. Those in a free currency system, may now convert their Federal Reserve Notes (incorrectly called Dollars) to whatever currency they wish in their depository institution; possibly a new gold backed currency, possibly a new silver backed currency, the Yen, the Yuan, or any other. This in turn increases the supply of the Federal Reserve Notes from lack of confidence and the person who converted their notes into other currency, and lowers the value of it until the Federal Reserve proves they have a generally acceptable increase of tangible assets or reduces their supply to stabilize its worth.Thus a check and balance on this action of the Federal Reserve.
  2. Discount Rate. People holding Federal Reserve notes in their depository institution see that the Federal Reserve just made a large loan at the discount window to a bank. This loan is deposited in that banks account thus creating money out of thin are. The holders of the Federal Reserve Notes are not confident in the company that the loan was made to because it increased the money supply and their financial troubles might not be solved by the loan, therefore, because of the Freedom of Currency they may convert their Federal Reserve Notes to any other currency with their depository institution. Thus a check and balance on this action of the Federal Reserve.
  3. Reserve Ratios. An institution that receives a $5,000,000.00 deposit now transfers 10% of that money into the Federal Reserve. The system eventually pumps $50,000,000.00 of Federal Reserve Notes in the monetary system. Thus money created out of thin air. From audits of either the Federal Reserve, or the banking institution, the people see that the Federal Reserve has increased the money supply and is now diluting wealth. They may now convert their Federal Reserve Notes at their banking institution into any other currency thus protecting themselves from inflation on that currency. Thus a check and balance on this action of the Federal Reserve.

“They will come to learn in the end, at their own expense, that it is better to endure competition for rich customers than to be invested with monopoly over impoverished customers.” – Frederic Bastiat

To stop the tyranny of inflation we must stop the monopoly of the money supply. Yes the Federal Reserve should be audited, but lets take the real power away from them which is not their secrecy, although the secrecy must be removed to bring criminal charges to those involved with financial tyranny, we must repeal legal tender laws which IS the monopoly of the money supply.

We as Americans were founded to not even give the Government a monopoly of violence, thus the Second Amendment, and even the Declaration of Independence confirms this. Why would we allow the banking institutions to just control another currency just to create a monopoly over it. We must allow private minting of coin, private issuance of currency, and allow foreign currency to use to settle contracts and cut a monopoly right out of the picture.

HR 4248 the Freedom of Currency Act 2009 does just this. It repeals Legal Tender Laws and prevents capital gains on certain coins and bullions. I believe it requires an amendment for depository institutions to allow the convertibility of one currency to another upon demand of the consumer to reduce the delay in the actual convertibility. Surely they may have some transactional fee for doing this, however what’s a processing fee when you have Federal Reserve Notes that lost over 95% of their purchasing power since 1913? End the Fed, by giving us capitalism, which is the freedom of currency!

If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. – Thomas Jefferson

Recommended read:

Denationalisation of Money: The Argument Refined ISBN: 0255362390