Punchinello’s Chronicles

April 15, 2009

The Central Bank of America

In 1790, Treasury Secretary Alexander Hamilton proposed to the fledgling congress that America should create The First Bank of the United States. This would be a central bank, storing the nation’s money and modeled after the Bank of England. It would be a semi-private organization, not under direct control of the US government. It was the second central bank of America, one of four, with the fourth now called The Federal Reserve. The first was The Bank of North America, and had already failed.

Thomas Jefferson strongly opposed the authorization to form such a bank. His argument wasn’t only that it was unconstitutional. Congress has no right to delegate the nation’s money system to an outside, private organization. Jefferson’s argument went to the very core of what money means to a nation and its citizens.

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 that grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.

A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army. … We must not let our rulers load us with perpetual debt.” – Thomas Jefferson, “Notes on Virginia” 1786, extracted from “Thieves in the Temple,” Andre Michael Eggelletion.

Keep in mind that back at the time, America was mostly agricultural with some light industry. Nobody could imagine the global information systems and inter-continental transportation systems we have today. The America of 1786 would be similar to a small town in the Midwest, to make an analogy.

Hamilton’s argument in favor of a bank that would lend money to the nation was that a national debt is a good thing.
If not excessive, then reasonable borrowing would help expand a growing economy. This sentiment was later argued again by John Maynard Keynes, a Nobel prize winner in economics. “Keynesian” economics became a fundamental part of US economics during the Franklin Roosevelt Administration.

Keynes was a British economist quoted as saying that, “…the best way to destroy the capitalist system is to debauch the currency….” By this, he means creating inflation by printing new, un-backed notes of debt, gradually reducing the stand of living by secretly confiscating the income of the citizens and transferring it to the owners of the central bank that does the confiscating. (The Economic Consequences of Peace, J. M. Keynes, via “Thieves in the Temple”)

There’s some argument as to whether Keynes was a Marxist, or if he was arguing in favor of debt-financing as a way to prevent socialism. Marx argued against capitalism by concluding that when the poor people got angry over the gap between the “haves” and the “have nots,” they would revolt. Then everyone would have an equal share in the economy.

The basic idea behind Keynesian economics is that a government should spend money it doesn’t have in order to prevent cyclical downturns in a free-market economy from upsetting everyone’s standard of living. To get that money, the United States introduced an income tax in 1913, in preparation of handling the money being printed by the soon-to-be-created Federal Reserve.

When you think about it, there’s little difference from you and I using credit cards to temporarily cover our electric bill, food, gas for the car, interest payments on the credit cards, and even our mortgage and tax payments.

There’s only one, little tiny glitch in the logic. What happens if the economic down-turn is SO bad and so prolonged, that we don’t get “back to the way things were?” What happens if you lose your job and can’t pay our increasing credit-card debt? What if you can only cover the interest payments, never paying down the original balance?

Keynesian economics fell out of favor in the 1970s, primarily through arguments by Milton Friedman who argued that a certain level of unemployment is normal. Keynesian economics was designed to produce 100% employment, which was why FDR was so interested in it during the Great Depression.

With the new administration of Barack Obama, Keynesian economics has come back into favor. What’s going to be seriously interesting is that for the first time in history, the average citizen now can do the same thing. With consumer credit cards, anyone can now spend money they don’t have. In theory, if Keynes is right, then nobody will ever be broke or out of work.

All this was made possible by the Federal Reserve bank. That privately owned corporation has the exclusive right to print money. They claim the money is or will be backed by the income tax, taking the real wealth of the citizens and plowing it back into the Federal Reserve.

But who owns the Federal Reserve? Who gets that real wealth, after all the paper money’s been printed and then covered? Who audits the Fed in order to find out how much money is in play?

Nobody knows. It’s a mystery! Not even the United States Congress has the authority to successfully find out what’s going on with the Fed. It’s literally a mystery.

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