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Den of Thieves
Free Report
Den of Thieves
How the Federal Reserve Steals the Wealth of
American Citizens Through a Process of Inflation
By Brett Buchanan
May 13, 2009
If you are reading this report I can safely assume you have some interest
in learning more about this economic crisis and more importantly how it
is we will be affected by it. My own reasons for writing this report are
varied. If I were to narrow it down to the single most important reason
for investing the energy to condense this complex subject into a concise
valuable resource I would have to say it is my desire to share with people
in plain English what I know to be the truth.
Our money, our beloved US dollar in the hands of the central bank that
issues it is in fact the original weapon of mass destruction. When in the
hands of unscrupulous bankers our money can render entire populations
destitute. It can be used to transfer wealth from one economic class to
another, from savers to borrowers, from foreign countries to our own
citizens. It can even be used to steal property. The destructive nature of
our money is on the one hand so difficult to grasp when clouded by the
static of mainstream misrepresentation and misinterpretation, yet so
simple to understand in the end that the mind is repelled upon reaching
that point of knowing the truth. The mind stops dead in its tracks and in
a moment of absolute clarity the disbelieving mind says, “No, this can’t
be. Have we really allowed this to go on?”
Holding money means you owe interest to private bankers and they can
and do steal your wealth without your permission.
Bankers do not collect their interest from you directly but rather
indirectly through the Internal Revenue Service. These interest charges
are paid to the bankers in such a way that not one man in a million
understands their scheme. And most egregiously the central bank that
controls all issuance of our currency can and does impose hidden taxes
on you far beyond what the IRS ever collects from your paycheck. The
Fed does it in such a way that we believe their policies are somehow
brilliant, that with all their Ivy League degrees these men must know
more than we do about money. They must
know how to save our fragile economy from itself through the infinite
mystery that is monetary policy.
I am here to tell you these men of the Fed and the US Treasury are no
smarter than a single one of us. Their Harvard degrees mean only that
they passed indoctrination into their money club, nothing more. Their
brilliance is all a façade. It is all a lie. And I will now prove it.
What Is Money?
All modern money is ‘fiat’ money, meaning that it has no intrinsic value
other than an implied value as bestowed on it by its creator – in the
case of the United States that creator is the Federal Reserve. Fiat
money is backed by nothing but more fiat money. It is not backed by
gold. It is not backed by beaver-skins. It is however propped up by
debt, a concept of which we will explore later in this report.
How does modern money come into existence and how does money
affect prices?
Here we will explore the process by which the Fed controls the money
supply. The overall supply of money has a direct (but lagging) impact on
general prices. This section is not meant to be a technical outline of Fed
operations but rather an overview providing enough information so as to
understand how the Fed’s manipulation of the money supply affects prices
and ultimately your wealth. Below are two examples of how the supply of
money relates to prices.
In this first example let’s assume that all things are constant; the supply of
goods, the supply of labor, demand for goods, the supply of raw materials,
the general population itself, and the supply of money in circulation.
Imagine them all to be in fixed quantities in a perfect harmonious world of
equilibrium. In this scenario there would never be a need to add or
subtract any money from overall supply because the system is in perfect
balance. Under such a reality prices would never change.
Now assume those same factors; supply, labor, demand, materials, and
population were all in flux. Some rising at times, others falling, basically a
fluid situation wherein each factor could at times be working against the
other factors and at times in sync – a truly chaotic market wherein all
things were unpredictable. Now here is the strangest thing about money –
this is a reality you must understand before we continue. It is perhaps the
most important concept to grasp regarding money. The reality is that even
with
all these things in flux the supply of money would never have to change.
As a matter of fact the supply of money remaining fixed would act as the
great equalizer to bring things that had fallen out of sync back into
harmony. Prices would change, but never to the extent that any one
sector of the economy could draw so much money away from the other
sectors so as to drive selective prices up to intolerable levels. In other
words, with only so much money to go around price fluctuations would be
restrained by other money requirements in the economy – there would still
exist balance.
Like our economy, for a ship caught in a raging storm there would exist
the perfect amount of ballast to keep the ship upright and afloat. Add too
much ballast and the ship will list to one side drawing a disproportionate
amount of ballast from the other side until eventually the ship capsizes,
rolls over, and sinks to the bottom. An over-supply of money in an
economy is like a ship overloaded with ballast.
Sadly, the Fed would like us to believe that in a state of chaos where the
basic driving forces of economies; supply, labor, demand, and population
are in a continuous state of flux that they, the Federal Reserve, in their
infinite wisdom can somehow manipulate the supply of money to balance
the chaos. This is utter madness. And the Fed knows it. Manipulating the
supply side of money only adds to the misallocation of resources as newly
created money attempts to settle amidst all the chaos. Hence the
phenomenon of asset bubbles.
Perhaps the most prescient book regarding this crisis as it relates to asset
bubbles and Fed monetary policies is Peter Schiff’s, Crash Proof. I highly
recommend reading this prophetic work.
The two types of money the Fed creates are central bank money and
commercial bank money. Both are loaned into existence.
Central bank money is created when the Fed buys collateral from
commercial banks in exchange for newly created dollars. It is also created
when the Federal Reserve funds our government’s fiscal deficits.
The theory goes that the US Treasury would be able to collect enough in
the way of taxes to pay off those debts. And in paying off those debts the
government is in fact ‘retiring’ the Fed Money that had been created and
added to the money supply when the original debt was issued as collateral
in exchange for the new money. In other words money is loaned into
existence, the debt is retired as the loan is repaid, and the private banker
who funded the deal gets to keep the interest.
The two basic steps to create new money for government purposes are; 1)
Treasury delivers collateral (a promise to pay) to the Fed, 2) the Fed then writes
a check to the Treasury which the Treasury can deposit in its account and begin
using. Once the Treasury begins writing checks for their expenses to defense
contractors, social security recipients, and so on, the money has then entered
the money supply.
In theory, newly created money by way of federal deficit funding would
ultimately be retired from the money supply when the Government
runs a budget surplus and then repays the principal balance owed on
outstanding US Treasury securities. However, we all know our
government does not run budget surpluses therefore it will never retire
its debt.
The second way the Fed creates new money is through the commercial
banking system. While the Fed does not in fact create money directly
through commercial banks as it does in the case of central bank money
to fund government deficits, the Fed does control the framework under
which commercial banks lend new money into existence.
It can be said that the Fed, in tandem with our Government and commercial
banks, creates nothing but debt. They create nothing but a massive extension
of credit on our population and collect interest in the process. Fiat money
when backed by debt is not real money. Real money is gold. When there is a
shortage of real money the end users of money, the common folk, must come
to the banks for an extension of credit. When there is a shortage of real
money, the creators of money can and do anticipate those areas of the
economy where their debt money will pool – as it did in mortgage-backed-
securities. It is in these places where the money creators will congregate and
drive their herd blindly toward the edge of the cliff all the while reaping
gargantuan profits as the herd ironically believes they too are getting rich
when in fact they are getting raped.
Neither the Fed nor the Government possesses the ability to produce income
other than the US Treasury’s ability to collect taxes. On the commercial side,
the Fractional Reserve Banking system is by design a ‘debt paradigm’ or Ponzi
scheme who’s sole aim is to continually leverage against deposits –
a model of which relies on asset values (collateral) continually rising in
order to retire old debts and interest charges.
And if this all weren’t scary enough, we haven’t even touched on the
subject of securitization and Wall Street investment banks. That’s a whole
other story.
If you want to read the most scathing look at the inner-workings of the
Federal Reserve read William Greider’s, Secrets of the Temple – How the
Federal Reserve Runs the Country.
Aside from the two main money creation channels of new central bank
money and fractional reserve commercial bank money the Fed also
regulates money on a more short-term basis. Through a process known as
Open Market Operations the Fed either adds money to the money supply or
removes it on a daily basis.
The problem is that by the time ‘general price signals’ start going off it’s
already too late. Selective areas of the economy, like housing, could have
already drawn disproportionate amounts of money from the rest of the
economy and thus entered a ‘bubble’ mode.
Simply observing the last two bubbles in the US economy, the NASDAQ
and housing bubbles, should tell you the Fed is growing less and less able
to correct their own mistakes. And even when they do step in to reign in
prices they never pull so much money out of supply to retard GDP growth
because without ever-increasing asset values and general production
growth there would not be enough income or equity to retire old debt.
The FOMC does not inject or retract money from the US economy directly,
but rather indirectly through the banking system. Moreover, the FOMC,
through the New York Federal Reserve Bank Trading Desk either adds money
to the money supply or subtracts it by buying or selling US Treasury
Securities in coordination with a select group of banks known as Primary
Dealers.
Every business day at about 9:30am, the New York Federal Reserve Bank's
trading desk announces the day's "temporary open market operation".
These are routine transactions in which the NY Fed buys securities from the
group of "primary dealers" together with an agreement to sell them back at
a later time, the familiar "repo" transaction. This is usually the next day,
but can also be 3, 4, 7 or 15 days later. The effect is to add reserves to the
banking system for that corresponding period, that is, to provide liquidity. If
there is an excess of liquidity, the NY Fed may do "reverse repurchase
agreements", selling securities with an arrangement to buy them back, thus
draining some reserves for the day or 2 or 3 during which the transaction is
in force.
Below are graphic representations of the basic flow of collateral and liquidity
between the New York Fed and Primary Dealers both adding and subtracting
money from the money supply.
One of the most cutting-edge articles I read regarding Fed monetary
policy and how it opened the floodgates to this crisis was a piece by
Aaron Krowne on iTulip that was authored in 2006. It is fairly technical
but even skimming the article will provide incredible insight as to how
the Fed completely mismanaged policy and opened Pandora’s box.
How does inflation benefit the creator of money by taxing the consumer?
To answer this question is to understand the reasons our founding
fathers fought the Revolutionary War.
When a central bank requires new money to pay for whatever
expenditure public or private, bailout or stimulus, or to push whatever
economic button it desires, the central bank simply creates it. Their
new money appears out of thin air. They then have the audacity to
charge the public interest for its use. These interest charges go solely
toward private gain.
It can be said that the power to create money is the power to never
incur any cost. Think about it. If you have the ability to create money
from nothing what do you care how much you need to print to pay for
what you want? For you it’s free money. But for the people who can’t
print their own money they are the ones who will bear your cost. All
real cost is passed on to the consumer of money through an increase
in general prices. This is how new money created from thin air is used
for free by its creator and then absorbed into the economy where the
creators folly is paid for by the end users of money who absorb the
inevitable increase in general prices.
Remember, the creator gets to use its newly created money for
whatever it wants. Price is not an issue. Have you ever wondered why
Congress spends money so foolishly? It simply does not matter to
them because for them money has no value. It comes from nowhere,
at least in the minds of our leaders. In reality fiat money only has
value when it enters the economy. And at that point we must absorb
the new money by accepting a lower divisible value of our existing
money.
When the Fed creates new money they are in essence trying to squeeze
more units into a confined space, or the economy as defined by the
overall quantity of goods and services produced, or Gross Domestic
Product (GDP). The Fed hopes that the increase in money will serve to
expand the economy thereby expanding the ‘confined’ economic space,
or GDP, and offsetting the division of value (dilutive effect) caused by the
new money.
The graphic below depicts the economy as a fixed box. The overall
quantity of goods and services (GDP) sit atop the supply of money acting
as a ceiling (or demand cap) on the divisible value of money. On the left
side, Before Inflation, a balanced amount of money exists in relation to
‘demand’ on GDP. However, After Inflation, more money has been
‘squeezed’ into the economic space within the constraints (or demand
cap) of GDP. Hence, each dollar in circulation must then be divided into
GDP with all the other pre-existing money, hence making all money worth
less and prices seemingly higher.
The paradox of inflation is that old money, money that existed prior to
additional new money being added to the money supply, never regains its
full prior value due to the Fed policy of always expanding money supply
beyond the capacity of GDP to grow enough to offset the monetary
expansion. Based on the Fed’s track record of only focusing on the short-
term, that is to expand money supply to wrangle its way out of economic
slumps, it is mathematically impossible. Once old money is diluted it is
diluted forever. The only question is how much? The only course the Fed
could take to counter the inflationary effects (on prices) of monetary
expansion would be to contract the money supply enough so as to pull
GDP all the way back to its pre-monetary expansion level. However, the
Fed can never do this, as they need an ever-expanding GDP (and money
supply) to retire old debt. If they went against this practice it would
mean to take away from the ‘inflation driven’ wealth of the very banking
system the Fed created. And this is how we got to where we are today.
We’ve learned that by creating money out of thin air (fiat money) there is
no cost to the issuer and first user of new money. Their money is free.
Money is in fact a gift to them. The cost of the gift is only seen when
new money enters the money supply and is put into use by consumers.
It is only then new money reflects the cost of its creation by way of
diminished purchasing power and hence higher prices. This is how
monetary inflation serves the creator. This is the hidden tax of inflation.
We’ve also learned that too much money in the money supply is like too
much ballast on a ship. It can easily list to one side or the other tipping
the scale so to speak causing asset bubbles, erratic price swings, and
distorting entire economies in general – a fact of which the creators of
new money anticipate and capitalize upon.
Finally, we’ve learned that the Federal Reserve in their infinite wisdom is
in fact the cause of inflation and of the general deterioration of the
American standard of living. Thomas Jefferson put it best.
So when I made the claim I would prove the brain trust of the
Federal Reserve and the US Treasury are no smarter than a single
one of us, that proof exists in your ability to see through their
scheme. Evidence that the Federal Reserve system uses the hidden
tax of inflation to usurp the wealth of hard working citizens is
conclusive. To argue any different would be absurd.
They create money from nothing – new fiat money is a free gift to
the first user.
The cost of the gift is paid for by the consumer of money (you and I)
through the hidden tax of higher prices resulting from their monetary
inflation. The gift that keeps on taking…