How We Got Here, And What To Do About It

You know,

I didn't love the high interest rates that Paul Volker, the 12th Chairman of the Federal Reserve Bank of the USA imposed on us back in the late 70's and early 80's, but I loved that he had the political will and the backing of Carter (and later Reagan) to "get the job done."

The interest rate hikes were long overdue by the time Volker instituted them, and that's what made them so painful. I submit that the alternative -- milder rate hikes over a longer period of time -- would have failed to control the runaway inflation, and the pain/suffering of the poor and downtrodden masses would have been much worse than it was.

In order to explain why I feel so strongly that Volker's actions were necessary then, and are once again necessary today (if we desire to preserve the present, evil money system we have), I need to tell a long-winded story. It starts with this simple table::

Low interest rates => Too much credit.
Too much credit => Too many loans.
Too many loans => Too much debt.
Too much debt => Too much money.*
Too much money => Inflation.
Too much debt => Inflation.
Too many loans => Inflation.
Too much credit => Inflation.
Low interest rates => Inflation.

High interest rates => Less credit.
Less credit => Fewer loans.
Fewer loans => Less debt.
Less debt => Less money.*
Less money => Deflation
Less debt => Deflation
Fewer loans => Deflation
Less credit => Deflation
High interest rates => Deflation.

* The concept of Debt = Money, or, "all money comes from loans," is true, and is key to understanding what the hell is going on in our economy.

These characteristic relationships are always true for a fiat-money, fractional-reserve central banking system like ours.

By dramatically raising interest rates, Volker cooled off the massive, runaway inflation we had that was threatening to move us to hyperinflation and total economic collapse.

The relationship between these characteristics and boom/bust/recession/depression are less simple, because business cycles are influenced not only by the basic inflationary/deflationary mode of the Fed, but also (and largely) by malinvestment.

Malinvestment is caused by government intervention in the form of tax breaks, subsidies or other favored-status actions, and is wildly variable depending upon which dept/branch of the government is subsidizing what particular business/sector of the economy.

We will always have these types of boom/bust cycles with our current, corrupt system, because of the unethical partnership between the Fed and Congress, which was designed in 1910 (and enacted in 1913) to work in the following manner:

Congress directs the Treasury to issue Bonds. Another way to say this is that Congress authorizes a certain debt-ceiling for the USA -- the national debt, and Treasury Bonds are the certificates used to issue that debt to whomever wishes to buy it, hold it and earn the stated interest rate on it over the stated period of time.

Some individuals, pension funds, businesses and foreign governments buy these bonds directly from the Treasury, but the majority are sold to the Federal Reserve Bank of the Unites States of America. In return for these bonds, the Fed writes a check to the Treasury.

The "money" used by the Fed to purchase T-Bills "comes from nowhere."

It is invented, and exists only "on the books" as a promise by the Treasury to "pay it back."

The government then takes the Federal Reserve Checks ("money") they received for their Bonds (T-Bills) and issues checks to customers and dependents, who then deposit them in commercial banks throughout the country. They are classified as "reserves" at this point. Those Bonds initially issued by the Treasury, become the "reserves" that every bank is required to keep on hand in our "fractional reserve" banking system.

The banks then take most of the deposits they now have, make loans with this money, and begin to realize an income stream of interest payments on these loans. Banks are making interest every day on loaned capital that they did NOT have to earn. The loaned money can be traced all the way back to the Bonds that Congress ordered the Treasury to issue -- the national debt.

WE wage-earners and taxpayers pay the national debt through the mechanism of taxation, either directly, or more unethically and immorally, via the hidden tax called inflation.

Inflation is built into this system. It has to exist, in order to constantly keep creating the money that people use to pay interest on their debts.

Congress just "raised the debt ceiling" again last week up to 10.9 Trillion Dollars. This is the "official government-declared" national debt, which you now understand from www.chrismartenson.com Chapter 16 of the Crash Course on Economics, "Fuzzy Numbers," represents only about one-fifth to one-tenth of the real debt that we, our children and our grandchildren MUST pay.

Ironically, since all money is created by the making of loans, then if all debts were to be paid off, all money except that used to pay interest on debt, would disappear. This is true.

This means that our system REQUIRES DEBT in order to have money, and in fact, REQUIRES that this debt NEVER BE PAID BACK, otherwise all money would disappear from whence it came, which means VANISH INTO NOWHERE.

I believe that the REAL reason we have income taxes is as a diversion. The same legislature that established the Federal Reserve also managed the ratification of the Constitutional Amendment (#16) establishing the IRS and the Income Tax. Income taxes are not necessary for the Congress to run government. All they have to do is "raise the debt ceiling," authorizing the creation of more funny-money, and voila! They have all they need. If the American People really, truly understood what their government is doing to them with all this flim-flammery, blood would be running in the streets of Washington DC.

We are paying a HUGE tax, far beyond the paltry amounts that are withheld from our paychecks each week. It is called inflation, and it is built into our system.

If the government were to confiscate every penny of every paycheck of every worker in the USA, it would not be enough to pay back the national debt.

To illustrate how insidious this hidden tax really is, I need only to point out the FACT that today, a Dollar will buy only what FOUR CENTS would buy in 1913.

We don't need another Volker, really. What we NEED is to abolish the Fed, and all FAKE Dollars, and go back to a gold/silver-based money system, where Congress CANNOT create money out of nothing for the purpose of lining its own pockets via political contributions from banks, based on interest payments from you and me, that they did not earn.

Clear as mud?

Thus I conclude that all the political haggling over what party "stands for this," and which candidate "stands for that," is all meaningless crap. NONE of it matters, until we crash the system and start over with something that doesn't depend on corruption for its continued success...