The Creation of the Federal Reserve System

Big businesses are not necessarily cartels.

Because the Federal Reserve Note's value is continuously devaluing at an artificial rate, the pricing structure is distorted. Therefore you cannot use Federal Reserve Notes to judge the value of gold against the value of other goods and services in the economy.

All you've proven is that the value of gold, in terms of Federal Reserve Notes, fluctuates wildly against other goods and services that are also priced in Federal Reserve Notes. In order to prove that gold fluctuates wildy in value, you have to show the value of gold fluctuating wildy in relation to goods and services that are priced using a gold pricing structure.

So why do we use bank notes whose exact value cannot ever be determined, its speculated value subject to irrational market behavior, and real value undermining the pricing structure?

Gold is not a commodity if it is used as money. The only thing which would affect its value would be the amount of it in circulation relative to the amount of goods and services. Any sort of speculation on its value would change the cost of all goods and services in the economy equally to match.

All you've proven is that the value of gold, in terms of Federal Reserve Notes, fluctuates wildly against other goods and services that are also priced in Federal Reserve Notes. In order to prove that gold fluctuates wildy in value, you have to show the value of gold fluctuating wildy in relation to goods and services that are priced using a gold pricing structure.

Yes it does. You cannot make the claim that "other countries would be using it if it were superior" if those countries are not legally able to use gold as money. It's an invalid claim.

Byzantine Empire used gold as money and they did not experience any business cycles or pricing structure distortions as we see with fiat currency/central banking. They flourished as the center of world commerce for 800 years because of it.

I meant to say that "we don't have that kind of demand for gold right now." Sorry.

No. People are speculating on the value of the dollar becuase Kamikaze Ben injected trillions of dollars into the banking system. The price of food and energy is going up so investors think we are in the early stages of rampant inflation.

The supply of gold in relation to the amount of goods and services hasn't decreased by 3/4. If gold were used as money, the real amount of gold in circulation in relation to goods and services would not be subject to "speculation" the way it is when used only as a commodity. Prices in the economy would directly reflect the real amount of gold in circulation.

Our money may have been backed by gold, but we were never a true gold standard.

Deflation is only bad when it's combined with Keynesian economics. Recessions and Depressions are the products of Keynesian economics. There is not a single example of a recession happening under a true gold standard. Deflation under a gold standard would be minor and automatically correct itself with more gold coming into circulation.

http://www.politicalforum.com/political-opinions-beliefs/172839-fed-caused-great-depression.html

Because it's value would be directly reflected in the pricing structure. You can't speculate on the value of gold if it's value is directly tied to the price of everything in the economy.

No it didn't, the amount of federal reserve notes it could instantaneously purchas was merely the subject of speculation. Speculation is not reflective of real value. It's real value has hardly moved in thousands of years.

Already disproven. See the example above.

It has fluctuated wildly in terms of Federal Reserve Notes, against a pricing structure based off Federal Reserve Notes, both of which are inherently unstable. The Federal Reserve Note is not a good premise for a currency becuase it is eventually going to be reduced to its real value of zero as all fiat currencies eventually are.

It's impossible to measure the real value of gold right now because its value is determined by a free market with a gold pricing structure, neither of which we have. Under those conditions, its real value would be subject to the amount of gold in circulation against the amount of goods and services available. The only way we can measure the value of gold right now is by its instantaneous value in Federal Reserve Notes, which are an inherently unstable method of measuring value. On top of that, since gold is a commodity, it is treated as a commodity and subject to wild speculation. These factors distort the true value of gold against goods and services.

 

How is that baseless? The banks get big because they're allowed to expand the money supply, from dollars that were created out of nothing by the Fed, to make their loans. Bailouts create a moral hazard that sends the signals to big banks that they're likely to be able to get away with reckless lending practices. If absolutely no banks got bailed out, and if banks were not allowed to expand the money supply in the first place, then we would not have to worry about them getting as big because their lending practices would be more honest and less risky.

And Regulations like bailouts, and the Fed being allowed to have control over the money supply, keep them big.

There were still big bank failures and recessions during the time in between.

"All" legislation?

Not all legislation effectively seizes the production and distribution of money and attempts to control prices in the entire economy.

So you're denying the conclusions of Pujo's Congressional Committee investigation, which concluded that J.P. Morgan and Co., First National Bank of New York, National City Bank of New York, Lee, Higginson, and Co. of Boston and New York, and Kidder, Peabody, and Co. of Boston and New York, and Kuhn, Loeb and Co. (ALL backers of the intial Aldrich Plan, most of whom participated in drafting it) made up the money trust?

You don't believe that this money trust, made up of an international independent banking enterprises, coming together in collusion to draft a bill that limited competition amongst themselves, enabled them to monopolize production and distribution of the entire U.S. money supply and attempt to all control prices in the economy, amounts to a cartel?

A link showing interest rates that different banks pay on loans is not an explanation of how the Fed does not have a monopoly over the production and distribution of money and does not attempt to control prices in the economy.

car·tel (noun)

1. an international syndicate, combine, or trust formed especially to regulate prices and output in some field of business.
2. a coalition of political or special-interest groups having a common cause, as to encourage the passage of a certain law.

Synonyms
1. monopoly, merger, combination.

cartel (kɑːˈtɛl) — n

1. Also called: trust a collusive international association of independent enterprises formed to monopolize production and distribution of a product or service, control prices, etc
2. politics an alliance of parties or interests to further common aims

cartel [(kahr- tel )]

An association in which producers of a similar or identical product try to obtain a monopoly over the sale of the product.



Actually, it appears to fit most "normal" definitions of the word "cartel". So you're actually wrong.

Define "cost of borrowing".

No, not like that. The Fed can create money out of thin air, which indirectly influences the rate banks charge on loans. The more money in circulation, the lower interest rates tend to be. A true free market would not have the ability for money to be created out of thin air like that, and thus interest rates would be much more realistic and not distorted by indvidiuals on the Fed Board who cannot possibly predict what an appropriate circulating money supply must be at all points in time.

The Fed is a coalition of its member banks.

Where then does the goverment get the money to continue funding itself?

Actually, I'm the one who brought up Lehman Bros., not you. You didn't show me I was "wrong". You've totally ignored the moral hazard aspect.

 

http://www.politicalforum.com/polit...h-debt-our-fiat-economy-starting-scratch.html

 

I'm not participating in your thread. You've doubtlessly already been embarassed by other members of this forum.

 

Lol, the funniest part of this whole thing is what I'm saying is 100% fact and is exactly how our system works. But regardless, you guys will never believe it.

 

If that were the factor all banks would be the same size.

Depends on the circumstances.

Bailouts aren't regulations.

I thought you said the Fed was a cartel to protect big banks from failing?

Lousy cartel, eh?

I agree that was hyperbole. "A lot of legislation"

That is true.

No. I denied the Fed is a money trust.

Which international banks make up the Fed? Source please.

The Fed sets money policy. Not the banks. Banks have no control over the Fed's money policy decision making body, the FRB and FOMC.

Sure it is. If the Fed fixed prices for banks as you claim all those banks would be offering the same interest rates.

The Fed is not international nor is it a coaliation of political interest groups.

Actually it doesn't at all. So actually you're totally wrong.

Interest rate.

I agree that Fed's policies influence interest rates in the market. That is far different than fixing prices.

The Govt's regulation of automobile influences auto prices. The Govt's regulations of pollutions influences manufacturing prices. The Govt's regulation of workers influences labor prices. The Govt's regulation of the stock market influences stock markets.

Lots of things a government does influences prices. That doesn't make it a cartel.

Nonesense. The Fed is a governmental agency that regulates money policy and supervises banks.

Taxes and loans.

I don't ignore the moral hazard. But it is irrelevant. The moral hazard is a potential consequence of actions, not an argument about whether the Fed is a cartel.

 

Strawman.

Your statement was "none of the money the Fed creates ever sees the light of day in the real economy". This statement is a lie.

http://en.wikipedia.org/wiki/Byzantine_economy

I'm quite certain that page does not have the sum of human knowledge on that topic either. So stop embarassing yourself. You're just making up for the fact that you cannot disprove my claim.

You can't "prove" a subjective opinion.

You've been brainwashed by collectivist nonsense. If you don't think theft is immoral, there is no hope for your nihilistic viewpoint.

 

It's not THE factor, but it's A factor. Some banks are better at managing it more efficiently than others. Another factor is that some of the larger banks, like Goldman Sachs, use the revolving door technique to get influential members in government and on the Federal Reserve Board.

Explain.

Technically you're right, but what I meant was that there are regulations in place which give the Federal Reserve and the government the power to bailout banks.

Those banks that failed were bailed out. The cartel did its job.

I never claimed that the Fed itself a money trust. I said that the Federal Reserve Act was engineered by the Money Trust, and the Federal Reserve was made up of member banks that comprised the Money Trust.

I never claimed that "international banks make up the Fed". I said that the money trust is made up of international independent banking enterprises.

Technically you're right, but it's hopelessly naive to believe that the member banks do not exert a massive influence on the FRB and FOMC's decisions. It's called the revolving door technique. Benjamin Strong was a partner of JP Morgan, and he served as Chairman of the Board. Goldman Sachs uses the revolving door technique with the Fed and key positions of government to exert their influence on the operations of the cartel.

I never claimed the Fed "fixed prices for the banks". I said the Fed's stated objective to stabilize all prices in the economy (effective control). The Fed only controls the interest rates at which banks borrow from each other, as well as their required reserve ratios.

While legally the Fed is not an international syndicate, The Fed was drafted by international bankers. Let's be realistic here.

I would consider Goldman Sachs to be a political special-interest group, along with any other member bank that has political lobbying like GS does.

You have failed to disprove that the Fed is a cartel. You've simply misunderstood the statements I've made, judging by how many times I used the phrase "I never claimed..."

I don't see what relevence this has to my original claim that "as with all cartels, higher prices are passed onto consumers/taxpayers, in this case member banks' losses are passed onto taxpayers in the form of higher prices when they get into trouble."

This has nothing to do with the rate at which banks charge for loans. It has to do with taxpayers paying for bailouts through taxes, debt, and money creation.

Nothing I said in the point you're addressing had anything to do with whether or not the Fed is a cartel. It had to do with the massive influence on the business cycle the Fed has, and why we are in the mess we are in right.

I never claimed that the government is a cartel. I said the government was part of a cartel with the Federal Reserve.

http://en.wikipedia.org/wiki/Federal_Reserve_System

The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks and various advisory councils.[8][9][10]

The Fed is a coalition of private banks.

What happens when the tax revenue is exhausted and nobody is willing to purchase treasury bonds?

It enables the most influential members of the cartel to charge excessively low interest rates, because they will be bailed out. However, the small banks have to watch themselves more closely because they will not get bailed out. They are much more likely to be allowed to fail than the bigger banks, which is how the Fed is able to limit competition among the largest banks.

 

I wouldn't know, I didn't even bother to click on the link. I'm involved with enough conversations right now with you where you're using dishonorable and dishonest debating tactics.

 

Got any proof?

I don't care about the Byzantine Empire and the cost of togas

Obviously you can't either

Really, so inflation is immoral but deflation is not?

What did Krugman say that agrees with you?

Housing is declining

Yes you can buy a bond directly from the Govt. But the private sector accounts for 1% of Treasury purchases directly auctioned off by the Govt. Primary Dealers account for 70% of treasury purchases. Econ 101

Of course not

Who cares, there is more money. If you still have the same amount of money you had in 1913, then I feel sorry for you.

Where is your proof that we are expanding at a faster rate than we are producing?

 

Inflation makes all businesses bigger. Banks are no different.

It may very well be that some companies try to exert pressure on the Fed. That is no different however than any other aspect of the Govt.

Depends on whether the failure was because of bank mismanagement or because of economic circumstances.

The Fed is charged with maintaining the banking structure. In times of panic and fear (like the Great Depression or 200 banks that otherwise were perfectly sound can run into trouble because of the change in the economic conditions, runs, and the like. In this situation, the Fed is charged with bailing out the banking system.

That kind of bailout is not necessarily the same as bailing out a badly managed bank.

That is true, the Fed is charged with maintaining order in the banking system.

Not all of them. And the banks paid back their loans with interest. We thus avoided an unnecessary collapse of the economy because of a temporary crisis situation, that without the Fed, could have far worse.

It was because these things were happening (as the OP article mentions) that the government decided we needed a central bank.

The Fed is made up of a lot of elements, including its policy makers in the FRB and FOMC who are appointed by the president, not member banks.

But if you're not calling the Fed a money trust, OK.

OK. What does that have to do with the Fed being a "cartel"?

What is your evidence of this massive influence.

I agree there is massive corporate influence in all aspects of our Govt. But I haven't seen any evidence its particularly more influential in the case of the Fed.

Arguably less so, because Fed policy makers are not elected, don't rely on campaign money bribery, and serve for 14 year terms.

OK. The Fed's goal of price stability in the overall economy thru money policy is not the same a fixing prices in a particular which a cartel does.

The Fed influences rates bank charge, but does not control them directly.

Lots of laws are drafted by commercial interests. Even if true, so what?

OK. The Fed is not in a coalition with GS.

I've established that the definitions of "cartel" do not fit the Fed.

I don't either. Your original claim was: The dollar is only worth 4% of what it was in 1913. The cost of borrowing is substantially higher.

How much did it cost taxpayers for the Fed to bail out the banking system?

I agree the Fed has influence on the economy, disagree it is the reason we are in the mess we are in.

We are in the mess we are in because of the housing bubble, which speculation drover far higher than could reasonably be attributed to Fed interest rate policy.

I pointed out that the Govt regulates lots of things, like the Fed does. That doesn't make them a cartel.

The members are required by law to pay in capital to the Fed at a rate the Fed sets and participate in the Federal reserve system. The are paid a fixed return (6%) but cannot sell or transfer shares, do not share in profits, and cannot vote for board members.

The system allows the Fed to control the member banks, not the other way around.

Interest rates go up. Or the Fed monetizes the debt and we get inflation.

That is not true. The banks overall were bailed out because of the collapse in the banking system. There is nothing that requires the Fed to bail out a single bank that operates poorly.

 

http://www.marketoracle.co.uk/Article6845.html

Everywere.

 

That shows that bad money policy leads to bad economic results. I don't disagree with that.

How does your link demonstrate that history shows it is false that having the ability to print money will help the economy during times of economic hardship?

I'm sure I can find records of economic calamity with nations that were on a gold standard as well.

 

Yes they are, because they are able to expand the money supply to make their profits. The loans they make in order to collect interest came out of thin air. Businesses cannot expand the money supply in order to make profit, only banks and the Fed can do that.

It may very well be that some companies try to exert pressure on the Fed. That is no different however than any other aspect of the Govt.

That's true, but the initial banks that failed during the GD and in 08 failed because of their mismanagement. Every other bank in the system that wasn't making totally sound loans was forced to walk dangerously close to the edge, in some cases over the edge, due to the domino effect...to the point where the Fed had to step in to bail out some of them.

That is a great example of how the Fed operates as a cartel. It limits competition between its member banks by forcing all of them to get hit with the domino effect of some badly managed banks in the cartel. In turn, it passes those losses onto taxpayers in the form of bailouts or nationalization, so the members of the cartel are not forced to deal with the losses themselves.

At taxpayer expense.

Where did the banks get the money to pay back their loans/interest? Alot of the banks that were bailed out simply paid back their loans/interest with more bailouts. It was merely creative bookkeeping.

Perhaps this is true, but it extracted the wealth from taxpayers to do it. If a collapse of the economy was going to happen, it was becuase it needed to happen. The market has to periodically correct itself from the abuses it takes from the banks and government, flushing out bad debt and unsound banking practices.

Actually, Americans were against the idea of the central bank. They wanted Congress to do something about the "money trust" which was causing the economic chaos of the time. As the OP shows, they secretly drafted the Federal Reserve Act in such a way that it would appear to be created by Congressmen for the benefit of the public, when in fact it was a bill that was engineered by bankers, for bankers in order to limit competition among themselves and pass their losses onto taxpayers.

True regulation would have eliminated the banks' ability to expand the supply of dollars. Their lending practices would be totally sound if they operated at a 100% reserve ratio. Bank failures would be virtually non-existent. Instead, today we have a system which rewards banking mismanagement and passes losses onto taxpayers.

As I've already shown you, the member banks have been using the revolving door technique with the Fed/govt to exert their influence on policy decisions. They also make contributions to presidential campaigns in order to exert their influence on the President to ensure that he appoints the "correct" men for the jobs on the FRB and FOMC.

The cartel agreement was drafted by the Money Trust (which was made up of an international independent banking enterprises that came together in collusion). As with all cartel agreements, it was designed to limit competition amongst themselves, enabled them to monopolize production and distribution (of the entire U.S. money supply in this case) and attempt to control prices (in this case, "stabilize" all prices in the economy). The plan was passed into law under the name "Federal Reserve Act" with the help of some government officials, effectively making the government part of the cartel agreement. The banks benefit because they are able to pass their losses onto taxpayers in the form of bailouts, the government is able to have its debt monetized so that politicians do not have to suffer the embarassment of having to raise taxes when the government cannot generate revenue. It's a cartel.

Well, perhaps not "more" influential than other aspects of our government. But in terms of how influential the Fed is on our economy, their influence effectively ends up being far more massive.

No, but the President who appoints them relies on campaign money bribery from the most influential Fed member banks.

I cannot prove it, but would you be surprised if Bernanke and other members of the FRB and FOMC were accepting bribes from the most influential Fed member banks? Perhaps they wanted Lehman out and took advantage of it when Lehman collapsed by not bailing them out.

It just so happens that this particular cartel has a monopoly over the entire money supply, which means the form of "price fixing" a cartel does, in this case comes in the form of totally controlling ALL prices. It's not direct price fixing per se, but the Fed being in charge of "price stability" is still a form of price control.

True. It has the ability to send false signals (that contradict what the free market is calling for) to the banking system and investors.

My point is that there is outside pressure on the Fed from international banking dynasties, such as the Rothschilds...not just the domestic member banks.

The Fed can't be "in" the coalition, it IS the coalition.

Very difficult to accurately quantize. Right now we are paying higher prices for food and energy, but once the velocity of money picks up, we will have to see what kind of price inflation we experience.

The Fed controls the money supply which influences the interest rates banks charge. In the case of 08, banks were making unsound lending practices because there was enough money available to do it. The Fed also kept the Funds rate too low too long. The Fed has the ability to send false signals to the banking system and investors that contradict what the free market is calling for. How can you not trace the reason we're in this mess back to the Fed? All signs point toward it.

But the Fed started off that bubble. The bubble wouldn't have began in the first place if it wasn't for the false signals the Fed was sending to the banks and investors.

How does that change the fact that the Fed is a coalition of numerous privately owned US member banks?

Monetization of debt is the method by which the government gains purchasing power which didn't exist before. That purchasing power comes in the form of inflation, which taxpayers pay in the form of rising prices.

That's the cartel's way of limiting competition between the banks. They are all forced into dangerous territory when one of the large banks gets into trouble.

 

I know, but the fact that it has the ability, along with the FDIC, creates the moral hazard in the first place.

 

I have shown you that everytime it was used it caused problems. Give me an example of where it worked.

 

You have not. You've have only show a few historical examples of where bad money policy led to bad result.

Most of the developed world has used a fiat currency system for the past 4 decades and it worked fine.

Show me an example of where the gold standard has worked.

 

What you call a moral hazard is IMO a system that provides confidence and safeguards in the system.

To me, a "moral hazard" is a system where a bank failure causes scores of thousands to lose their life savings.

 

Yes. The $20 bill I have in my wallet is proof. Debating with you is a waste of time.

I know you don't, because you don't understand that the free market functions most efficiently according to human nature, not by bureaucratic formula. You've backed yourself into a corner and are throwing a tantrum. Waste of time.

I never claimed to be able to.

Waste of time.

Deflation in a Keynesian economy is the inevitable result of immoral inflation. Deflation and inflation under a gold standard economy are neither immoral nor moral because they are the products of the natural forces of the free market driven by supply and demand. Inflation and Deflation both automatically self-correct to the point of a stable equilibrium under a gold standard. Under a Keynesian System, inflation is deliberate and intentionally done by central economic planners. Because the consequences are destruction of savings, price inflation, debt, and eventually a deflationary cycle resulting (in which prices do not actually come down), that makes inflation under a Keynesian economy IMMORAL.

That we are effectively in a depression. Did you bother watching the video? Did you even click on the link?

You're embarassing yourself and wasting my time. Just give up before you dig yourself any deeper.

That's because housing prices were unrealistically high due to a bubble that was started by the Fed. What's your point?

Where is your source for those numbers?

So you admit that you were wrong in saying that the government doesn't borrow money from the private sector?

You've blatantly contradicted yourself, again. Or do you just not even remember half the sh** you say becuase you're constantly talking out of your ass? Waste of time.

Well then let's just fire up the printing presses and make everyone rich. Who cares what its purchasing power is, there will be more money!

"Sorry poor people, I feel bad for you becuase you don't make enough money. But we're going to destroy the purchasing power of what little savings you had. Next time spend it instead of saving, you greedy bastards."

1. MV=PQ
2. The dollar is only worth 4% of what it was in 1913.

That means we are expanding the money supply at a faster rate than we are producing goods and services.

Basic mathematics. Econ 101. Waste of time.

 

Inflation effectively makes the loans banks and the fixed payments they receive worth effectively less. Inflation doesn't make profits for banks.

Businesses can raise their prices and revenues.

I agree that the line between mismanagement and economic based problem is a fuzzy one. You can certainly argue there was mismanagement in investing in subprimes, based upon the false belief that derivitives had lowered the exposure to loss.

To me, this is another example how deregulation, and allowing banks to expand in to areas beyond their traditional roles into risky investments, enabled industry wide practices that helped lead to the bubble and implosion.

I disagree that the Fed operates as a cartel with banks or that it limits competition.

The Fed's bailout loans were paid back.

Taxpayer money does not go to the Fed.

Operational profit. They make lots of money on interest and fees. They made enough not only to pay the Fed back, up pay nice bonuses.

Again, no tax payer money is used for the Fed. You may be confusing the Govt's Tarp program, though most of those loans were paid back too.

Read the first three paragraphs of your article in the OP. The motivation for the creation of a central bank was the repeated failure of the then existing system to deal with panics like the one in 1907, which certainly wasn't the first.

Fractional banking has existed for 200 years and has been a prime engine of the fantastic economic growth the world has experience. While one can argue that controls and regulations need to be changed to reduce risk, complete elimination of fractional banking would effectively destroy the banking system and be disasterous for the economy. Credit is esssential for prosperity, opportunity, and growth.

That happens in the military and all other regulatory agencies. It would not be surprising to see that some bankers get involved in the FR system. But its policy makers are selected by the Govt, not the banks, and many have non-banking backgrounds.

I disagree it is a cartel or limits competition, for reasons stated. While the Fed can monetarize debt, it is not a free candy situation like you try to portray it. There is a limit by which the Fed can monetarize debt without creating inflation.

 

This is an unsupported assertion for which I see no evidence or basis for, and is contradicted by the way the FRB and FOMC is selected.

As previously stated, I agree that companies have far to much influence in Govt. But this is certainly not isolated to the Fed. It is a problem with the Govt, not the Fed.

It is certainly possible as it is with any Govt representative or agency. But all you've presented is baseless speculation.

That is not a basis for a rational argument.

I disagree that control over the money supply is "price fixing" as meant by the definition of a cartel. Price fixing means fixing prices between competitors in a particular industry, not overall prices in the economy as a whole.

Every Govt agency could do that.

You have presented no evidence for your assertion. Just baseless speculation.

You cannot have a coalition of one entity.

If you cannot quantitize it you have no support or basis for your opinion. Prices increases in the economy is not equivalent to tax payer money going to the Fed.

Again, lots of Govt agencies have control over things that influence prices. Utitlies have far more price control, for example, than the Fed does over banks. That doesn't make them a cartel or trust or mean they control or fix prices among competitors.

I've already explained my position on the Fed's interest rates and the housing bubble. Housing prices went far higher than can be rationally explained by the Fed's lower interest rates in the early 2000s.

While I have acknowledged that the Fed's lower rate had some effect on housing prizes, it is simplistic scapegoating to claim that was the reason for the bubble or even the sole cause of it. Many different reason can be and have been attributed to it, including the practice of securitization of mortgages, use of derivitives to minimize risk, shoddy lending practices with teaser rates and ARMs, a tax code that greatly favors speculative investment over earnings, deregulation of the banking industry that allowed them to expand into nontraditional practices, investors looking for alternative investment opportunities after the stock market bubble, and many even claim it was because of the CRA and fannie/freddie unregulated practices.

Because the Fed controls the banks. It is not a coalition of banks.

The FCC controls the telecommunications companies. It is not a coaltion of telecommunications companies.

The FAA controls the airline industry. It is not a coalition of airline companies.

Etc.

But inflation is the reason why there is a limit to how much the Fed can monetarize. No one wants high inflation.

That has nothing to do with the Fed. The Fed didn't force banks to invest in subprime mortgages and use derivitives or make crappy loans. That was a function of the Govt and the private banks seeking ever higher profits and bonuses.

 

Only marginally. But when you multiply that by the amount of loans a single bank makes in an entire year, especially a large bank, the amount of interest they collect far eclipses any amount of price inflation which would devalue the purchasing power of the interest. The bank performed almost zero labor in order to obtain that purchasing power.

Depends on how you define inflation. Monetary inflation, yes it does enable banks to make profit. Price inflation, no it does not. Price inflation is merely a consequence of expanding the money supply at a greater rate than the production of goods and services.

Businesses do not have the ability to expand the money supply in order to make profit. Only banks can legally do that.

I would say that regulations at the most fundamental level, such as those which prohibit free banking, are to blame for unsound banking practices. Even if you deregulate, the problem is still regulation at the fundamental level: those regulations which enable fractional reserve banking with dollars, while we are bound to the dollar through legal tender laws.

The Fed does not operate as a cartel "with" banks. The Federal Reserve Act is a cartel agreement between its member banks that was passed into law.

In the form of more bailouts and money creation.

I didn't say that taxpayer money goes to the Fed. Monetization of debt increases prices in the econonmy, and taxpayers have to pay those higher prices. In that situation, the Fed essentially gained purchasing power where taxpayers will lose purchasing power. Also, the banks are able to expand the money supply to collect interest, which also causes prices to rise in the economy. That's how taxpayers paid for (and will pay for) the bailouts, once the velocity of money increases and price inflation occurs.

It's already been established that they expand the money supply out of thin air in order to collect their interest. And that doesn't change the fact that the bailouts were paid back with more bailouts.

Where did the government get the money for TARP?

Yes, but the public was alarmed at the ability of the "money trust" to massively influence the economy in such a manner. They did not want a central banking system, they wanted banking reform that was different from the Fed. Had they known that the Fed was drafted by the money trust, it never would have been allowed to pass through Congress.

I wouldn't go as far as to say that it's been a "prime" engine, that would be the free market. Fractional reserve banking is unquestionably to blame for the current mess we're in. Now, I'm not advocating outlawing fractional reserve/fiat banking altogether. I'm advocating legalizing free banking, so that banks can issue competing currencies/notes. Unsound banks will fail and sound banks will survive. Unsound currencies/bank notes will fail, sound ones will survive, and the public will choose to use the most sound ones.

My point is that it's naive to believe that the Fed doesn't operate primarily for the benefit of its member banks, and for the health of the economy second.

 

Of course, a lender always prices in expected inflation. That does not necessarily increase profits to a bank.

How does monetary inflation enable banks to make a profit?

Business have the ability to increase prices.

What is "free banking"?

Disagree with your characterization for reasons stated.

Again, no taxpayer money went to bailout the bank and inflation is not a tax collected by the Fed.

Why doesn't that effect non-tax payers as well? Why is the group tax payers relevant? That suggests that tax money is used for the Fed. It is not.

That hasn't been established at all. The bailouts were not paid back with more bailouts to the banks. What are you referring to?

Tarp is not the Fed, and therefore irrelevant to your assertion the Fed extracted wealth from taxpayers to pay for the bailout.

If that were the case the Fed would have been modified or changed long ago.

Disagree with your opinions. Over expansion of credit in certain situations has caused problems but overall the availability of credit fractional banking provides unquestionably has been an engine of economic growth.

No more so than any other element of the Govt.

What makes them walk close to the edge is "competition". If there was no competition they wouldn't have to "walk close to the edge."

If the Fed expands the money supply too fast you will get high inflation.

 

Goldman Sachs uses the revolving door technique to get its members into key positions of govt and on the Fed. The Fed's largest member banks make political campaign contributions (bribes) to presidential campaigns so that the elected President will make the *correct* decisions regarding appointments to FRB and FOMC positions. That is enough evidence that they have an influence over the Fed's deicisions (but it's not proof )

Well, the Fed is considered an independent government agency. So if it's a problem with government, then by default, that includes the Fed.

I agree that it's speculation, but calling it "baseless" is incorrect. There's plenty of evidence which points in that direction, just not proof.

But the type of monopoloy we're talking about with this particular cartel isn't limited to a single industry which only controls prices of goods and services related to that industry. We're talking about a monopoly over the money supply, and so their method of price control automatically comes in the form of controlling all prices in the entire economy.

Not every govt agency has total control of the money supply. That makes it a totally different ballgame.

Evidence is in the OP's.

"Coalition" is a singular term, describing a single entity which is comprised of entities which make up its component parts. The Fed is a coalition of its member banks.

I never said that it can't be quantized, I said it's very difficult to accurately quantize, like many things in economic theory.

So you're denying that monetization of debt, if done than at a rate faster than the rate at which goods and services are being produced, causes price inflation?

I never said taxpayer money "goes to the Fed".

Taxpayers have to pay price increases, don't they?

The Fed having "price control over banks" is a non-issue, unless we're talking about ways that the Fed limits competition between its member banks. The type of price control the Fed has is total control over all prices in the economy via the money supply.

The Fed fits the definition of a cartel to a tee. Utilities do not.

But the Fed started the bubble in the first place. Just because it couldn't contain the bubble once it got out of hand doens't mean it's not at fault for kickstarting irrational investment behavior. Now I'm not saying it was the sole cause of the bubble getting as big as it did...the bubble got bigger as a result of everything else you listed, which essentially amounted to unsound banking practices (driven by the moral hazard) and government mismanagement.

Banks can choose whether or not to be members of the Federal Reserve System. Telecommunications companies and Airline Companies do not have a choice to be controlled by the FCC and FAA. They are not "members" of the FAA and FCC.

The Fed is a coalition of numerous privately owned U.S. member banks.

Of course nobody wants high inflation, but it's an inevitable consequence of the ability of money to be created out of nothing.

I never said the Fed "forced banks to innvest in subprime mortgages and use derivitives or make crappy loans." I said the Fed forces all members of the cartel to potentially submit to the domino effect if one (or more) banks get into trouble.

 

The point is that the lender did almost zero labor in order to obtain that purchasing power. Via money creation. Purchasing power can only be created by real labor. So that purchasing power had to come from somewhere.

They can expand the money supply, loan that new money, and collect interest on it, without performing any labor.

Increasing prices is not the same thing as expanding the money supply.

http://en.wikipedia.org/wiki/Free_banking

But your reasons do not disprove my assertion that the Federal Reserve exactly matches the definition of a cartel.

Correct, the money to finance TARP was paid through monetization of debt. The money to pay back TARP was paid for through more monetization of debt

I never said that inflation is "a tax collected by the fed".

As I explained, monetization of debt gives the government/banks purchasing power that did not exist before, without performing any labor to create that purchasing power. That purchasing power has to come from somewhere, and it comes in the form of higher prices in the economy.

If you purchase anything in the economy, you pay a sales tax. That makes you a taxpayer.

So you're saying that banks do not expand the money supply in order to make loans/collect interest?

Where did the banks get the money to pay back their bailouts?

Where did the money come from to pay for TARP?

Disproven by the OP's. The people had no idea that the bill was drafted by the money trust.

There is still credit available in a free banking system.

Which is why it cannot be trusted to have the monopoly over the money supply and control prices.

Not true. If they're in a cartel, that means that when one of the gets into trouble, they all will. That way they can efficiently pass the losses of the system onto taxpayers in the form of inflation.

The velocity of money is also a factor. Since the bailouts were paid for through monetization of debt, they will eventually have to be paid for through inflation, once the velocity of money picks up. There are trillions of dollars sitting in the banks right now, and if the velocity of money picks up without the Fed pulling back, you can bet we will see unprecedented rates of inflation.

I have my doubts that they will pull back on it before its too late.