| December 23, 2013 | | | | |  | | | Happy Birthday Dear Federal Reserve, Happy Birthday to You! | | | - Aw, they grow up so fast… the Federal Reserve turns one hundred years old!
- The five ways the Feds guilty of the heinous crime of evolution of adaptation...
- Plus, Christopher Westley on one hundred years of the Fed… banker's motivation in creating it… and how the central bank has aided the growth of government to your detriment...
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Last Chance: The Lowest Price We've Ever Offered Expiring Soon It's not "dumb luck" that every closed trade is a winner - 33 trades, 33 winners in 2013. Amber's strategy works. You won't want to miss her 2014 recommendations. Get in now before the price increases at Midnight on December 23rd. | | | | | | | | Peter Coyne, observing the Federal Reserve's hundredth year of existence…
 A centennial is as good a time as any for reflection. It was today, one hundred years ago, that President Woodrow Wilson signed the Federal Reserve Act with four gold pens. What, we wonder, would the Act's sponsor, Senator Carter Glass, think of the Fed as it is today?
"If you read the Federal Reserve Act" Jim Grant, editor of Grant's Interest Observer told a small group of Congressional staffers in 2012, "you are struck, you must be struck, by how little the 21st century model resembles the projected central bank. Actually, the Fed was not to be a central bank, its founders were quite certain about that. It was to be a decentralized system of reserve banking."
"The act projected an institution: 'to provide for the establishment of the Federal Reserve banks, to furnish an elastic currency… to afford means of rediscounting commercial paper… to establish a more effective supervision of banking in the United States and for other purposes.'
"Yeah, right" jabbed Grant. "'For other purposes' was the meat… and we do indeed have these purposes."
Among the responsibilities the Fed lists on its website, but which it wasn't originally responsible for, Grant included:
- Conducting the nation's monetary policy -- which seems like a technicality, but in 1913, there was indeed no monetary policy to conduct. The concept was new.
- The role of supervising and regulating banks and "protecting the credit rights of consumers". Under President Wilson, the Fed had no such rights.
- Third, the clearing of checks, which was done privately at the time.
- Fourth, the Fed's current role sales window for Treasury bonds and custody business on behalf of the Treasury department for foreign central banks. After all, the public debt was insignificant in 1913 and the gold standard quickly settled international payments.
- Last and probably least recognizable if Glass were alive today, is rise of the Fed as "national economic oracle".
For better or worse… the Fed's mission has creeped. "Institutions" Grant explained that day, "either adapt or they fall by the wayside. It will be correctly observed that the United States Navy, to pick a bureaucracy out of the hat, has adapted by deploying aircraft and guided missiles even though John Paul Jones knew nothing about them. Open market operations and econometric modeling would similarly have drawn a blank from the Federal Reserve's legislative fathers including Senator Carter Glass."
More likely, Glass has rolled over in his grave many times. Yet, as the Fed has adapted its mission, so to have investors. It's in that spirit that Addison took this auspicious occasion to make a confession to readers of his Apogee Advisory.
Said Addison, "Confession time: We are not goldbugs."
[gasp!]
We realize, given Addison's books written with Bill Bonner (Empire of Debt and Financial Reckoning Day) not to mention his solo best-seller, The Demise of the Dollar… and the original trade of the decade in 2000 he made -- buy gold, sell stocks… that his confession comes as a shocker. Maybe even betrayal… but the distinction he makes is a subtle one.
"Outstanding goldbug credentials, these" admits Addison. "But we don't count ourselves among the ranks."
"There's a difference," he explained one time on the radio… after being introduced as such, "between being a goldbug and understanding the impact of Federal Reserve policy on the U.S. dollar. Goldbugs are overjoyed to be riding the gold price all the way to $2,000, and they should be. But you can count on it they'll ride the price all the way back down to $1,000."
For sure, we have a soft spot for a gold standard -- as a restraint on the politicos in Washington who spend like drunken sailors and meddle like only the worst do-gooders can.
"But that doesn't mean" Addison qualified, "that we'll adhere to our affection for gold without consideration of our investment angles and time horizons."
More on this in the weeks ahead… For now, we're chomping at the bit to reach the Christmas season's apex. Below, for historical perspective… we feature a telescoped look at the Fed's early years as well as the motives behind it's creation.
Being the good sports we are, we raise a glass and propose a toast. To the Federal Reserve! We wish you, our most favorite semi-governmental institution, a very happy hundredth birthday… with very few, or preferably, no more like it in the future!
Scroll down for "100 Years Ago: Why Bankers Created the Fed"...
[Ed. Note: Keep your eyes trained on this space in the coming weeks. We're going to give you an opportunity to snag a free copy of Jim Bruce's Federal Reserve documentary, Money for Nothing. For what it's worth… it gets our full recommendation and does an excellent job of dispassionately explaining what the Fed is, does and is responsible for. Stay tuned.] | | | | | | | | | Could Obama ban this video? Obama is after even more of your rights. There has been nothing you can do about it. Until now… This video is something Obama likely hopes you NEVER get to see… It could even be the trigger for a wider revolution -- a revolt the establishment fears more than anything. For obvious reasons, I'm not sure how long this video will be available. There are government agencies hellbent on keeping confidential material like this hidden from average Americans. | | | | | | | | The Daily Reckoning Presents…
| | | | 100 Years Ago: Why Bankers Created the Fed | | | | by Christopher Westley | | | The Democratic Party gained prominence in the first half of the nineteenth century as being the party that opposed the Second Bank of the United States. In the process, it tapped into an anti-state sentiment that proved so strong that we wouldn't see another like it until the next century.
Its adversaries were Whig politicians who defended the bank and its ability to grow the government and their own personal fortunes at the same time. They were, in fact, quite open about these arrangements. It was considered standard-operating procedure for Whig representatives to receive monetary compensation for their support of the Bank when leaving Congress. The Whig Daniel Webster even expected annual payments while in Congress. Once he complained to the Bank of the United States President Nicholas Biddle, "I believe my retainer has not been renewed or refreshed as usual. If it be wished that my relation to the Bank should be continued, it may be well to send me my usual retainer."
No wonder these people were often pummeled with canes on the House floor.
It is little wonder that early Democrats garnered such popular support and would demand Andrew Jackson end America's experiment with central banking. Jackson called it "dangerous to the liberty of the American people because it represented a fantastic centralization of economic and political power under private control."
It's hard to believe that guy who said that is now on the $20 bill.
| "The idea that 3D printing is a gimmick, suitable only for hobbyists, looks ever less likely" | Jackson also warned that the Bank of the United States was "a vast electioneering engine" that could "control the Government and change its character." These sentiments were echoed by Roger Taney, Jackson's Treasury Secretary, who talked of the Bank's "corrupting influence" and ability to "influence elections." (The Whigs would later get revenge on this future chief justice when Abraham Lincoln, in response to a written opinion with which he disagreed, issued his arrest warrant.)
But the courtship between the political classes and their cronies would continue in the decades following Lincoln's assassination. Those politically well-connected groups that benefited from early central banking continued to benefit from government finance, especially off of "internal improvements," which is the nineteenth-century term for pork. National banking would appear during the War Between the States, setting in place a banking system in which individual banks would be chartered by the federal government. The government itself would use regulations backed by a new armed U.S. Treasury police force to encourage the banks' inflation and protect them from the market penalties that inflation would otherwise bring them, such as the loss of specie and the occurrence of bank runs.
The boom and bust cycle, explained by the Austrian School of economics in such detail, became worse and worse in the period leading up to 1913. And with the rise of Progressive Era spending on war and welfare, and with the pressure on banks to inflate to finance this activity, the boom and bust cycles worsened even more. If there was one saving grace about this period it would be that banks were forced to internalize their losses. When banks faced runs on their currencies, private financiers would bail them out. But this arrangement didn't last, so when the losses grew, those financiers would secretly organize to reintroduce central banking to America, thus engineering an urgent need for a new "lender of last resort." The result was the Federal Reserve.
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| Bigger than Benghazi, the IRS and the NSA Scandals… Combined? It's shocking stuff. Bigger than anything you might hear on Talk Radio.
A Florida-based computer expert is breaking an incredible story. Perhaps the biggest political story of the next decade.
In short, the last five years of the Democratic Party's agenda could be undone.
Gun control. ObamaCare. Internet sales taxes. All could be rendered irrelevant. Sooner than anyone thought possible before…
For obvious reasons, you likely won't see this story picked up in mainstream media outlets.
Instead, this whistleblower is putting everything he discovered up in a free video.
| | | | | | | | This was the implicit socialization of the banking industry in the United States. People called the Federal Reserve Act the Currency Bill, because it was to create a bureaucracy that would assume the currency-creating duties of member banks.
It was like the Patriot Act, in that both were centralizing bills that were written years in advance by people who were waiting for the appropriate political environment in which to introduce them. It was like our current health care bills, in which cartelized firms in private industry wrote chunks of the legislation behind closed doors long before they were introduced in Congress.
It was unnecessary. If banks were simply held to similar standards as other more efficient industries were held to — the rule of law at the very least — then far fewer fraudulent banks would ever come about. There were market institutions that would penalize those banks that over-issued currencies, brought about bank runs, and financial crises. As Mises would later write:
What is needed to prevent further credit expansion is to place the banking business under the general rules of commercial and civil laws compelling each individual and firm to fulfill all obligations in full compliance with the terms of contract.
The bill was passed fairly easily, in part because the Democrats had a larger majority in both Houses than they do today. There were significant differences that were resolved in conference, with one compromise resulting in the requirement that only 40 percent of the gold reserve back the new currency. So instead of a 1-to-1 relationship between gold and currency issued — a ratio that defined sound market banking since the time of Renaissance Italy — the new Federal Reserve notes would be inflated, by law, at a ratio of 1-to-2.5.
| Central banks always result in feeding those forces that centralize and expand the nation-state. | The bill that was first drawn up at Jekyll Island was signed by Woodrow Wilson in the Oval Office shortly after the Senate approved it. At one point during the signing ceremony, as he reached for a gold pen to finish signing the bill, he jokingly declared "I'm drawing on the gold reserve."
Truer words were never spoken.
Central banks always result in feeding those forces that centralize and expand the nation-state. The Fed's policies in the 1920s, so well documented by Rothbard, would provoke the Great Depression, which, in the end, wrenched political power from cities and state governments to the swampland in Washington. Today people take seriously the claim that there can be a viable federal solution to every problem thanks to the money printed up by the Fed, while each decade has seen a larger proportion of the population become dependent on its inflation.
And yet Andrew Jackson's beliefs about the perniciousness of the Second Bank of the United States are just as applicable to the Federal Reserve today.
Regards,
Christopher Westley
for The Daily Reckoning | | | | | | | | |  Christopher Westley is an associated scholar at the Mises Institute. He teaches in the College of Commerce and Business Administration at Jacksonville State University. | | | | | | | | | BE SURE TO ADD dr@dailyreckoning.com to your address book.
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