Posts Tagged ‘federal reserve bank’
This is an old piece, but I thought it has powerful information that pertains to the current economic climate.
By Ryan Grim
The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.
This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed’s thrall, the economists missed it, too.
“The Fed has a lock on the economics world,” says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. “There is no room for other views, which I guess is why economists got it so wrong.”
One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past.
The Fed failed to see the housing bubble as it happened, insisting that the rise in housing prices was normal. In 2004, after “flipping” had become a term cops and janitors were using to describe the way to get rich in real estate, then-Federal Reserve Chairman Alan Greenspan said that “a national severe price distortion [is] most unlikely.” A year later, current Chairman Ben Bernanke said that the boom “largely reflect strong economic fundamentals.”
The Fed also failed to sufficiently regulate major financial institutions, with Greenspan — and the dominant economists — believing that the banks would regulate themselves in their own self-interest.
Despite all this, Bernanke has been nominated for a second term by President Obama.
In the field of economics, the chairman remains a much-heralded figure, lauded for reaction to a crisis generated, in the first place, by the Fed itself. Congress is even considering legislation to greatly expand the powers of the Fed to systemically regulate the financial industry.
Paul Krugman, in Sunday’s New York Times magazine, did his own autopsy of economics, asking “How Did Economists Get It So Wrong?” Krugman concludes that “[e]conomics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system.”
So who seduced them?
The Fed did it.
Three Decades of Domination
The Fed has been dominating the profession for about three decades. “For the economics profession that came out of the [second world] war, the Federal Reserve was not a very important place as far as they were concerned, and their views on monetary policy were not framed by a working relationship with the Federal Reserve. So I would date it to maybe the mid-1970s,” says University of Texas economics professor — and Fed critic — James Galbraith. “The generation that I grew up under, which included both Milton Friedman on the right and Jim Tobin on the left, were independent of the Fed. They sent students to the Fed and they influenced the Fed, but there wasn’t a culture of consulting, and it wasn’t the same vast network of professional economists working there.”
But by 1993, when former Fed Chairman Greenspan provided the House banking committee with a breakdown of the number of economists on contract or employed by the Fed, he reported that 189 worked for the board itself and another 171 for the various regional banks. Adding in statisticians, support staff and “officers” — who are generally also economists — the total number came to 730. And then there were the contracts. Over a three-year period ending in October 1994, the Fed awarded 305 contracts to 209 professors worth a total of $3 million.
Just how dominant is the Fed today?
The Federal Reserve’s Board of Governors employs 220 PhD economists and a host of researchers and support staff, according to a Fed spokeswoman. The 12 regional banks employ scores more. (HuffPost placed calls to them but was unable to get exact numbers.) The Fed also doles out millions of dollars in contracts to economists for consulting assignments, papers, presentations, workshops, and that plum gig known as a “visiting scholarship.” A Fed spokeswoman says that exact figures for the number of economists contracted with weren’t available. But, she says, the Federal Reserve spent $389.2 million in 2008 on “monetary and economic policy,” money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009.
That’s a lot of money for a relatively small number of economists. According to the American Economic Association, a total of only 487 economists list “monetary policy, central banking, and the supply of money and credit,” as either their primary or secondary specialty; 310 list “money and interest rates”; and 244 list “macroeconomic policy formation [and] aspects of public finance and general policy.” The National Association of Business Economists tells HuffPost that 611 of its roughly 2,400 members are part of their “Financial Roundtable,” the closest way they can approximate a focus on monetary policy and central banking.
Robert Auerbach, a former investigator with the House banking committee, spent years looking into the workings of the Fed and published much of what he found in the 2008 book, “Deception
and Abuse at the Fed”. A chapter in that book, excerpted here, provided the impetus for this investigation.
Auerbach found that in 1992, roughly 968 members of the AEA designated “domestic monetary and financial theory and institutions” as their primary field, and 717 designated it as their secondary field. Combining his numbers with the current ones from the AEA and NABE, it’s fair to conclude that there are something like 1,000 to 1,500 monetary economists working across the country. Add up the 220 economist jobs at the Board of Governors along with regional bank hires and contracted economists, and the Fed employs or contracts with easily 500 economists at any given time. Add in those who have previously worked for the Fed — or who hope to one day soon — and you’ve accounted for a very significant majority of the field.
Auerbach concludes that the “problems associated with the Fed’s employing or contracting with large numbers of economists” arise “when these economists testify as witnesses at legislative hearings or as experts at judicial proceedings, and when they publish their research and views on Fed policies, including in Fed publications.”
Gatekeepers On The Payroll
The Fed keeps many of the influential editors of prominent academic journals on its payroll. It is common for a journal editor to review submissions dealing with Fed policy while also taking the bank’s money. A HuffPost review of seven top journals found that 84 of the 190 editorial board members were affiliated with the Federal Reserve in one way or another.
“Try to publish an article critical of the Fed with an editor who works for the Fed,” says Galbraith. And the journals, in turn, determine which economists get tenure and what ideas are considered respectable.
The pharmaceutical industry has similarly worked to control key medical journals, but that involves several companies. In the field of economics, it’s just the Fed.
Being on the Fed payroll isn’t just about the money, either. A relationship with the Fed carries prestige; invitations to Fed conferences and offers of visiting scholarships with the bank signal a rising star or an economist who has arrived.
Affiliations with the Fed have become the oxygen of academic life for monetary economists. “It’s very important, if you are tenure track and don’t have tenure, to show that you are valued by the Federal Reserve,” says Jane D’Arista, a Fed critic and an economist with the Political Economy Research Institute at the University of Massachusetts, Amherst.
Robert King, editor in chief of the Journal of Monetary Economics and a visiting scholar at the Richmond Federal Reserve Bank, dismisses the notion that his journal was influenced by its Fed connections. “I think that the suggestion is a silly one, based on my own experience at least,” he wrote in an e-mail. (His full response is at the bottom.)
Galbraith, a Fed critic, has seen the Fed’s influence on academia first hand. He and co-authors Olivier Giovannoni and Ann Russo found that in the year before a presidential election, there is a significantly tighter monetary policy coming from the Fed if a Democrat is in office and a significantly looser policy if a Republican is in office. The effects are both statistically significant, allowing for controls, and economically important.
They submitted a paper with their findings to the Review of Economics and Statistics in 2008, but the paper was rejected. “The editor assigned to it turned out to be a fellow at the Fed and that was after I requested that it not be assigned to someone affiliated with the Fed,” Galbraith says.
Publishing in top journals is, like in any discipline, the key to getting tenure. Indeed, pursuing tenure ironically requires a kind of fealty to the dominant economic ideology that is the precise opposite of the purpose of tenure, which is to protect academics who present oppositional perspectives.
And while most academic disciplines and top-tier journals are controlled by some defining paradigm, in an academic field like poetry, that situation can do no harm other than to, perhaps, a forest of trees. Economics, unfortunately, collides with reality — as it did with the Fed’s incorrect reading of the housing bubble and failure to regulate financial institutions. Neither was a matter of incompetence, but both resulted from the Fed’s unchallenged assumptions about the way the market worked.
Even the late Milton Friedman, whose monetary economic theories heavily influenced Greenspan, was concerned about the stifled nature of the debate. Friedman, in a 1993 letter to Auerbach that the author quotes in his book, argued that the Fed practice was harming objectivity: “I cannot disagree with you that having something like 500 economists is extremely unhealthy. As you say, it is not conducive to independent, objective research. You and I know there has been censorship of the material published. Equally important, the location of the economists in the Federal Reserve has had a significant influence on the kind of research they do, biasing that research toward noncontroversial technical papers on method as opposed to substantive papers on policy and results,” Friedman wrote.
Greenspan told Congress in October 2008 that he was in a state of “shocked disbelief” and that the “whole intellectual edifice” had “collapsed.” House Committee on Oversight and Government Reform Chairman Henry Waxman (D-Calif.) followed up: “In other words, you found that your view of the world, your ideology, was not right, it was not working.”
“Absolutely, precisely,” Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
But, if the intellectual edifice has collapsed, the intellectual infrastructure remains in place. The same economists who provided Greenspan his “very considerable evidence” are still running the journals and still analyzing the world using the same models that were incapable of seeing the credit boom and the coming collapse.
Rosner, the Wall Street analyst who foresaw the crash, says that the Fed’s ideological dominance of the journals hampered his attempt to warn his colleagues about what was to come. Rosner wrote a strikingly prescient paper in 2001 arguing that relaxed lending standards and other factors would lead to a boom in housing prices over the next several years, but that the growth would be highly susceptible to an economic disruption because it was fundamentally unsound.
He expanded on those ideas over the next few years, connecting the dots and concluding that the coming housing collapse would wreak havoc on the collateralized debt obligation (CDO) and mortgage backed securities (MBS) markets, which would have a ripple effect on the rest of the economy. That, of course, is exactly what happened and it took the Fed and the economics field completely by surprise.
“What you’re doing is, actually, in order to get published, having to whittle down or narrow what might otherwise be oppositional or expansionary views,” says Rosner. “The only way you can actually get in a journal is by subscribing to the views of one of the journals.”
When Rosner was casting his paper on CDOs and MBSs about, he knew he needed an academic economist to co-author the paper for a journal to consider it. Seven economists turned him down.
“You don’t believe that markets are efficient?” he says they asked, telling him the paper was “outside the bounds” of what could be published. “I would say ‘Markets are efficient when there’s equal access to information, but that doesn’t exist,’” he recalls.
The CDO and MBS markets froze because, as the housing market crashed, buyers didn’t trust that they had reliable information about them — precisely the case Rosner had been making.
He eventually found a co-author, Joseph Mason, an associate Professor of Finance at Drexel University LeBow College of Business, a senior fellow at the Wharton School, and a visiting scholar at the Federal Deposit Insurance Corporation. But the pair could only land their papers with the conservative Hudson Institute. In February 2007, they published a paper called “How Resilient Are Mortgage Backed Securities to Collateralized Debt Obligation Market Disruptions?” and in May posted another, “How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions.”
Together, the two papers offer a better analysis of what led to the crash than the economic journals have managed to put together – and they were published by a non-PhD before the crisis.
Not As Simple As A Pay-Off
Economist Rob Johnson serves on the UN Commission of Experts on Finance and International Monetary Reform and was a top economist on the Senate banking committee under both a Democratic and Republican chairman. He says that the consulting gigs shouldn’t be looked at “like it’s a payoff, like money. I think it’s more being one of, part of, a club — being respected, invited to the conferences, have a hearing with the chairman, having all the prestige dimensions, as much as a paycheck.”
The Fed’s hiring of so many economists can be looked at in several ways, Johnson says, because the institution does, of course, need talented analysts. “You can look at it from a telescope, either direction. One, you can say well they’re reaching out, they’ve got a big budget and what they’re doing, I’d say, is canvassing as broad a range of talent,” he says. “You might call that the ‘healthy hypothesis.’”
The other hypothesis, he says, “is that they’re essentially using taxpayer money to wrap their arms around everybody that’s a critic and therefore muffle or silence the debate. And I would say that probably both dimensions are operative, in reality.”
To get a mainstream take, HuffPost called monetary economists at random from the list as members of the AEA. “I think there is a pretty good number of professors of economics who want a very limited use of monetary policy and I don’t think that that necessarily has a negative impact on their careers,” said Ahmed Ehsan, reached at the economics department at James Madison University. “It’s quite possible that if they have some new ideas, that might be attractive to the Federal Reserve.”
Ehsan, reflecting on his own career and those of his students, allowed that there is, in fact, something to what the Fed critics are saying. “I don’t think [the Fed has too much influence], but then my area is monetary economics and I know my own professors, who were really well known when I was at Michigan State, my adviser, he ended up at the St. Louis Fed,” he recalls. “He did lots of work. He was a product of the time…so there is some evidence, but it’s not an overwhelming thing.”
There’s definitely prestige in spending a few years at the Fed that can give a boost to an academic career, he added. “It’s one of the better career moves for lots of undergraduate students. It’s very competitive.”
Press officers for the Federal Reserve’s board of governors provided some background information for this article, but declined to make anyone available to comment on its substance.
The Fed’s Intolerance For Dissent
When dissent has arisen, the Fed has dealt with it like any other institution that cherishes homogeneity.
Take the case of Alan Blinder. Though he’s squarely within the mainstream and considered one of the great economic minds of his generation, he lasted a mere year and a half as vice chairman of the Fed, leaving in January 1996.
Rob Johnson, who watched the Blinder ordeal, says Blinder made the mistake of behaving as if the Fed was a place where competing ideas and assumptions were debated. “Sociologically, what was happening was the Fed staff was really afraid of Blinder. At some level, as an applied empirical economist, Alan Blinder is really brilliant,” says Johnson.
In closed-door meetings, Blinder did what so few do: challenged assumptions. “The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this. And Blinder treated it more like an open academic debate when he first got there and he’d come out and say, ‘Well, that’s not true. If you change this assumption and change this assumption and use this kind of assumption you get a completely different result.’ And it just created a stir inside–it was sort of like the whole pipeline of Greenspan-arriving-at-decisions was
It didn’t sit well with Greenspan or his staff. “A lot of senior staff…were pissed off about Blinder — how should we say? — not playing by the customs that they were accustomed to,” Johnson says.
And celebrity is no shield against Fed excommunication. Paul Krugman, in fact, has gotten rough treatment. “I’ve been blackballed from the Fed summer conference at Jackson Hole, which I used to be a regular at, ever since I criticized him,” Krugman said of Greenspan in a 2007 interview with Pacifica Radio’s Democracy Now! “Nobody really wants to cross him.”
An invitation to the annual conference, or some other blessing from the Fed, is a signal to the economic profession that you’re a certified member of the club. Even Krugman seems a bit burned by the slight. “And two years ago,” he said in 2007, “the conference was devoted to a field, new economic geography, that I invented, and I wasn’t invited.”
Three years after the conference, Krugman won a Nobel Prize in 2008 for his work in economic geography.
One Journal, In Detail
The Huffington Post reviewed the mastheads of the American Journal of Economics, the Journal of Economic Perspectives, Journal of Economic Literature, the American Economic Journal: Applied Economics, American Economic Journal: Economic Policy, the Journal of Political Economy and the Journal of Monetary Economics.
HuffPost interns Googled around looking for resumes and otherwise searched for Fed connections for the 190 people on those mastheads. Of the 84 that were affiliated with the Federal Reserve at one point in their careers, 21 were on the Fed payroll even as they served as gatekeepers at prominent journals.
At the Journal of Monetary Economics, every single member of the editorial board is or has been affiliated with the Fed and 14 of the 26 board members are presently on the Fed payroll.
After the top editor, King, comes senior associate editor Marianne Baxter, who has written papers for the Chicago and Minneapolis banks and was a visiting scholar at the Minneapolis bank in ’84, ’85, at the Richmond bank in ’97, and at the board itself in ’87. She was an advisor to the president of the New York bank from ’02-’05. Tim Geithner, now the Treasury Secretary, became president of the New York bank in ’03.
The senior associate editors: Janice C Eberly was a Fed visiting-scholar at Philadelphia (’94), Minneapolis (’97) and the board (’97). Martin Eichenbaum has written several papers for the Fed and is a consultant to the Chicago and Atlanta banks. Sergio Rebelo has written for and was previously a consultant to the board. Stephen Williamson has written for the Cleveland, Minneapolis and Richmond banks, he worked in the Minneapolis bank’s research department from ’85-’87, he’s on the editorial board of the Federal Reserve Bank of St. Louis Review, is the co-organizer of the ’09 St. Louis Federal Reserve Bank annual economic policy conference and the co-organizer of the same bank’s ’08 conference on Money, Credit, and Policy, and has been a visiting scholar at the Richmond bank ever since ’98.
And then there are the associate editors. Klaus Adam is a visiting scholar at the San Francisco bank. Yongsung Chang is a research associate at the Cleveland bank and has been working with the Fed in one position or another since ’01. Mario Crucini was a visiting scholar at the Federal Reserve Bank of New York in ’08 and has been a senior fellow at the Dallas bank since that year. Huberto Ennis is a senior economist at the Federal Reserve Bank of Richmond, a position he’s held since ’00. Jonathan Heathcote is a senior economist at the Minneapolis bank and has been a visiting scholar three times dating back to ’01.
Ricardo Lagos is a visiting scholar at the New York bank, a former senior economist for the Minneapolis bank and a visiting scholar at that bank and Cleveland’s. In fact, he was a visiting scholar at both the Cleveland and New York banks in ’07 and ’08. Edward Nelson was the assistant vice president of the St Louis bank from ’03-’09.
Esteban Rossi-Hansberg was a visiting scholar at the Philadelphia bank from ’05-’09 and similarly served at the Richmond, Minneapolis and New York banks.
Pierre-Daniel Sarte is a senior economist at the Richmond bank, a position he’s held since ’96. Frank Schorfheide has been a visiting scholar at the Philadelphia bank since ’03 and at the New York bank since ’07. He’s done four such stints at the Atlanta bank and scholared for the board in ’03. Alexander Wolman has been a senior economist at the Richmond bank since 1989.
Here is the complete response from King, the journal’s editor in chief: “I think that the suggestion is a silly one, based on my own experience at least. In a 1988 article for AEI later republished in the Federal Reserve Bank of Richmond Review, Marvin Goodfriend (then at FRB Richmond and now at Carnegie Mellon) and I argued that it was very important for the Fed to separate monetary policy decisions (setting of interest rates) and banking policy decisions (loans to banks, via the discount window and otherwise). We argued further that there was little positive case for the Fed to be involved in the latter: broadbased liquidity could always be provided by the former. We also argued that moral hazard was a cost of banking intervention.
“Ben Bernanke understands this distinction well: he and other members of the FOMC have read my perspective and sometimes use exactly this distinction between monetary and banking policies. In difficult times, Bernanke and his fellow FOMC members have chosen to involve the Fed in major financial market interventions, well beyond the traditional banking area, a position that attracts plenty of criticism and support. JME and other economics major journals would certainly publish exciting articles that fell between these two distinct perspectives: no intervention and extensive intervention. An upcoming Carnegie-Rochester conference, with its proceeding published in JME, will host a debate on ‘The Future of Central Banking’.
“You may use only the entire quotation above or no quotation at all.”
Auerbach, shown King’s e-mail, says it’s just this simple: “If you’re on the Fed payroll there’s a conflict of interest.”
UPDATE: Economists have written in weighing in on both sides of the debate. Here are two of them.
Stephen Williamson, the Robert S. Brookings Distinguished Professor in Arts and Sciences at Washington University in St. Louis:
Since you mentioned me in your piece on the Federal Reserve System, I thought I would drop you a note, as you clearly don’t understand the relationship between the Fed and some of the economists on its payroll. I have had a long relationship with the Fed, and with other central banks in the world, including the Bank of Canada. Currently I have an academic position at Washington University in St. Louis, but I am also paid as a consultant to the Federal Reserve Banks of Richmond and St. Louis. In the past, I was a full-time economist at the Bank of Canada and at the Federal Reserve Bank of Minneapolis.
As has perhaps become clearer in the last year, economics and the science of monetary policy is a complicated business, and the Fed needs all the help it can get. The Fed is perhaps surprisingly open to new ideas, and ideas that are sometimes in conflict with the views of its top people. One of the strengths of the Federal Reserve System is that the regional Federal Reserve Banks have a good deal of independence from the Board of Governors in Washington, and this creates a healthy competition in economic ideas within the system. Indeed, some very revolutionary ideas in macroeconomics came out of the intellectual environment at the Federal
Reserve Bank of Minneapolis in the 1970s and 1980s. That intellectual environment included economists who worked full-time for the Fed, and others who were paid consultants to the Fed, but with full-time academic positions. Those economists were often sharply critical of accepted Fed policy, and they certainly never seemed to suffer for it; indeed they were
I have never felt constrained in my interactions with Fed economists (including some Presidents of Federal Reserve Banks). They are curious, and willing to think about new ideas. I am quite willing to bite the hand that feeds me, and have often chewed away quite happily. They keep paying me, so they must be happy about the interaction too.
A former Fed economist disagreed. “I was an economist at the Fed for more than ten years and kept getting in trouble for things I’m proud of. I hear you, loud and clear,” he said, asking not to be quoted by name for, well, the reasons laid out above.
Read the entire article HERE.
By David Galland
June 10, 2011 4:20pm GMT
I just had a conversation with constitutional lawyer and monetary expert Dr. Edwin Vieira. I first became acquainted with Dr. Vieira, who holds four degrees from Harvard and has extensive experience arguing cases before the Supreme Court, at our recent Casey Research Summit in Boca Raton, where he spoke on how far off the constitutional rails the nation has traveled. Here is a summary of what he told me…
Dr. Vieira and I covered a lot of ground in our lengthy conversation, most of it related to the U.S. monetary system – its history, nature, and likely fate. But in between the details and analysis of how it is that the nation’s fiscal and monetary affairs have deteriorated to the current dismal state – and how the global sovereign debt crisis is likely to be resolved – a couple of deeply concerning truths emerged.
Concerning because, taken together, these truths have set the stage for a full-blown police state.
The first of these two truths has to do the nature of today’s money. To set the stage, I present the following excerpt from Dr. Vieira’s paper A Cross of Gold related to the original Federal Reserve Act.
Section 16 of the Act provided that:
Federal reserve notes, to be issued at the discretion of the Federal Reserve Board for the purpose of making advances to Federal reserve banks are hereby authorized. The said notes shall be obligations of the United States, and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in gold on demand at the Treasury Department of the United States, or in gold or lawful money at any Federal reserve bank.
Observe: From the very first, Federal Reserve Notes were denominated “advances” and “obligations”—that is, instruments and evidence of debt. True “money”, however, is the most liquid of all assets, not a debt that might be repudiated, and certainly not a debt that has been serially repudiated.
And if Federal Reserve Notes were from the start to be “redeemed in gold or lawful money”, they obviously were never conceived to be either “gold” or “lawful money”. So, because by definition the only “money” the law recognizes is “lawful money”, by law Federal Reserve Notes were never (and are not now) actual “money” at all, but at best only some sort of substitute for “money”.
The monetary conjurers’ trick has been, slowly, steadily, and stealthily, to reverse this understanding in the public’s mind. That is, to make the substitute pass for the real thing, and then remove the real thing from the operation.
This subterfuge was not overly difficult to put over. After all, in the term “redeemable currency”, which is the noun and which the adjective? When people deal with a “paper currency redeemable in gold”, the natural uninstructed inclination is to treat the paper currency as “money” and the gold as something else. The paper currency, as the saying goes, is merely “backed” by gold—but of course is not itself gold. And because the currency is not itself gold, the money-manipulators can remove the gold “backing” farther and farther into the background, without affecting the nature of the paper as “currency” (at least nominally).
Thus, a “redeemable currency” can be converted into a “contingently redeemable” or “conditionally redeemable” currency, through temporary suspension of specie payments (as happened repeatedly during the Nineteenth Century); and then into a full-fledged “irredeemable currency”, through permanent suspension of specie payments, as with Federal Reserve Notes after 1933 domestically and 1971 internationally.
Yet, to the average citizen (whose most serious liability is mental inertia), even though a paper currency’s promise of redemption has been dishonored, it nonetheless remains “currency”.
Thus one grasps that the so-called “right to redemption” attached to any paper currency is actually a liability, inasmuch as it exposes the holders of that currency to repudiation, because they possess only the paper, not the gold.
Even in the best of times, the holders of redeemable paper currency are not economically and politically independent. Rather, they depend upon the honesty and the competence of the money-managers.
This is why America’s Founding Fathers, realists all, denominated redeemable paper currency as “bills of credit”. They knew that such bills’ values in gold or silver always depended upon the issuers’ credit—that is, ultimately, the issuers’ honesty and ability to manage their financial affairs.
The unavoidable trouble with “bills of credit”, though, is that they can (and usually do) turn out to be “bills of discredit”, when the holders discover that the money-managers are dishonest and incompetent—or worse, as is the situation today, highly competent at dishonesty. Then the holders of the paper currency (if they are sufficiently astute) realize how unwise it is to allow the gold to be held by the very people with the greatest incentive, and the uniquely favorable position and opportunity, to steal it.
But when the money-managers refuse to redeem their currency, what can the holders of that currency do to protect themselves? Well, what were they able to do in 1933 and in 1971? Nothing. If the holders of Federal Reserve Notes had enjoyed an effective, enforceable “right” to the gold that the Federal Reserve System and the Treasury of the United States promised to pay in redemption of those notes—that is, if the currency had been “redeemable” in the only meaningful sense that redemption was absolutely assured as a matter of law and especially fact—the gold seizures of 1933 and 1971 would never have happened.
Thus, the ostensibly “redeemable” character of paper currency of the pre-1933 and pre-1971 type did not protect the holders of that currency. Instead, it turned out to be the very device used to deceive, defraud, divest, and dispossess them of gold—proving in the most palpable manner that a society’s acceptance of “redeemable currency” is the product of confusion and the invitation to inevitable economic and political disaster.
In our conversation, Dr. Vieira ticked off eight specific ways in which the current monetary system is unconstitutional. While I won’t go into the specifics here, the important thing to understand is that, as currently operated, the federal government has managed to manipulate things to avoid any constitutional restrictions on its ability to spend.
This, of course, gives the government free rein to reward favored voting blocs with expensive social programs, buy fleets of limousines, launch expensive overseas adventures, bail out well-connected donors, and otherwise spend the country into ruin.
To understand why this is so important as a precedent to the evolution of fascism, view the matter in reverse by considering how different things would be if the constitutionally mandated requirement that the government’s currency be redeemable in good money – gold or silver – was still enforced. In that case, the government’s ability to spend would be effectively limited by what it collected in revenues. That, in turn, would have greatly curtailed its ability to grow into the bloated juggernaut it has.
In other words, the American ideal of a limited government would have been hard wired.
As it stands, though, exactly the opposite has been allowed to evolve – unchallenged by anyone, including the Supreme Court. Why has the nation’s highest court chosen not to tackle this clear breach of the Constitution?
According to Dr. Vieira, it is likely because if they were to void the current system as being unconstitutional, they would effectively blow apart the U.S. and global economy. But as they have no authority to even suggest an alternative system, they are faced with the reality that while they have the power to do great damage, they have no power to cushion the blow. And so, the Supreme Court does nothing.
As a result, the ability of the federal government to continue its insane spending and rolling out new initiatives designed to win over voters continues with no legal restraints – the latest example being the health-care initiative.
Put another way, in cahoots with the Fed, the federal government is able to wage war, bail out the banks, foster socialism, and otherwise bankrupt the nation – to do whatever it wants – largely thanks to its continued operation of an unconstitutional monetary system.
It Gets Worse…
The second fundamental truth is that the Supreme Court has been a co-conspirator and instrument of the government’s degradation of individual liberty.
Dr. Vieira and I spent a fair amount of time on this topic – of how the nation’s highest court could let stand the egregious excesses of recent decades; the Patriot Act, Guantanamo, institutionalized torture and renditions, domestic spying, eminent-domain abuses, warrantless searches, etc., etc. In his view, there can be only one of two reasons that the Supreme Court has been so accommodating – one is that the justices are incredibly incompetent, and the other is that they are working within the context of an unseen agenda.
Ruling out the first, his final conclusion is that they are operating with an unseen agenda in mind. In his view, that agenda revolves around the rising potential for widespread social unrest emanating from the nationwide monetary Ponzi scheme. Doing its part to prepare, the Supreme Court has been establishing the precedents necessary for the government to cope with that unrest.
Too radical a thought? Returning to Dr. Vieira’s point – ask yourself how else to explain the Supreme Court’s actions. Are they collectively of low intelligence, or otherwise so stupid as to be unable to understand the Constitution? Or do they now view the Constitution and the Bill of Rights as dead letters, freeing them up to respond to the government’s overheated demands for new and previously unimaginable new “emergency” (read “fascist”) powers?
Is there an alternative explanation?
On this general theme, Dr. Vieira correctly points out that, in order for a fascist state to exist does not require the government to actually arrest anyone – but only that they can arrest anyone. Do you think you broke a law over the past week? I can assure you that every one of you dear readers broke a lot of laws. Sure, you may not have realized you were breaking a law – but, as the old saying goes, “Ignorance of the law is no excuse.”
The Stage Is Set
Unrestricted in its growth by any constitutionally mandated limits on its ability to create and manipulate money – the official currency now being nothing more than IOUs redeemable in nothing more tangible than coins made out of base metal alloys with inflated face values – and supported by a Supreme Court that has unequivocally demonstrated a willingness to ignore or sign off on egregious tramplings of the Constitution, the stage is set for the U.S. government to evolve into something far more dangerous on the domestic front.
All it requires now is a triggering event, and it would be naïve to think that such an event won’t occur. Maybe not tomorrow, maybe not this decade – but when it inevitably does, the federal government already has all the precedents it needs to do “whatever it takes.” This absence of legal restrictions on its actions is the very foundation of fascism.
When I asked Dr. Vieira how the nation has progressed on a scale from 1 to 10 towards becoming a police state, with 10 being a full-blown version, he put us currently at about 7.
There really is no investment angle to be derived from this situation – well, at least nothing new. Owning tangible investments that will hold up in the face of a continued currency debasement continues to make sense – but with the caveat that FDR’s unconstitutional gold confiscation of the 1930s was let stand and there is zero reason to think that the accommodating Supreme Court wouldn’t go along with it again. One would hope to see straws in the wind before any moves toward confiscation would begin. Until those straws start flying, the precious metals – as well as other tangibles – belong as part of your portfolio.
And I’d be remiss if I didn’t mention the importance of politically diversifying your life and your money as one of the few steps you can take to avoid the serious risk that comes from being “all in” in a single jurisdiction.
Some readers have berated me for often writing on what might be considered gloomy topics. To which I would respond: If you are sitting in a theater and see a fire breaking out, would you fail to make others aware of it, because you didn’t want to interrupt their entertainment?
Well, we can see a fire blowing up – the kindling for which has been piled up deep by a series of out-of-control governments. Unless and until there is something akin to an “American Spring.” this fire is going to spread and consume even more of the accumulated wealth of the broader public – and maybe worse.
Do what you can to protect yourself and your families – then get on with your life. You may not be able to do much about the bigger-picture trend, but you can certainly take steps on a personal level to mitigate the ill effects.
Hope for the best, plan for the worst… but then live life to the fullest.
Read the entire article HERE.
Got this in the email the other day as a forwarded message. I thought it summed up the current condition of the United States. The government has us believing that to get rid of our debts we must create more, it’s been going on for decades. President Obama stated a few weeks ago that he truly believes that we are going to get out of this debt by spending more. Yet a few days later he said that we must be fiscally responsible. After that he raises the debt ceiling to a record level. Back and forth, I sometimes wonder if he’s just reading what his young speech writer is cranking out on his laptop and not really paying attention to what he is saying.
545 vs. 300,000,000
EVERY CITIZEN NEEDS TO READ THIS AND THINK ABOUT WHAT THIS JOURNALIST HAS SCRIPTED IN THIS MESSAGE. READ IT AND THEN REALLY THINK ABOUT OUR CURRENT POLITICAL DEBACLE.
Charley Reese has been a journalist for 49 years.
By Charlie Reese
Politicians are the only people in the world who create problems and then campaign against them.
Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?
Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?
You and I don’t propose a federal budget. The president does.
You and I don’t have the Constitutional authority to vote on appropriations. The House of Representatives does.
You and I don’t write the tax code, Congress does.
You and I don’t set fiscal policy, Congress does.
You and I don’t control monetary policy, the Federal Reserve Bank does.
One hundred senators, 435 congressmen, one president, and nine Supreme Court justices equates to 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.
I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.
I excluded all the special interests and lobbyists for a sound reason.. They have no legal authority. They have no ability to coerce a senator, a congressman, or a president to do one cotton-picking thing. I don’t care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator’s responsibility to determine how he votes.
Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.
What separates a politician from a normal human being is an excessive amount of gall.. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits.. The president can only propose a budget. He cannot force the Congress to accept it.
It seems inconceivable to me that a nation of 300 million cannot replace 545 people who stand convicted — by present facts — of incompetence and irresponsibility. I can’t think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.
If the tax code is unfair, it’s because they want it unfair.
If the budget is in the red, it’s because they want it in the red ..
If the Army & Marines are in IRAQ , it’s because they want them in IRAQ
If they do not receive social security but are on an elite retirement plan not available to the people, it’s because they want it that way.
There are no insoluble government problems..
Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exists disembodied mystical forces like “the economy,” “inflation,” or “politics” that prevent them from doing what they take an oath to do.
Those 545 people, and they alone, are responsible.
They, and they alone, have the power.
They, and they alone, should be held accountable by the people who are their bosses.
Provided the voters have the gumption to manage their own employees.
We should vote all of them out of office and clean up their mess!
Charlie Reese is a former columnist of the Orlando Sentinel Newspaper.
What you do with this article now that you have read it………. Is up to you.
This might be funny if it weren’t so darned true.
Be sure to read all the way to the end. It’s a reminder of how the little guy in America is treated:
Tax his land,
Tax his bed,
Tax the table
At which he’s fed.
Tax his tractor,
Tax his mule,
Teach him taxes
Are the rule.
Tax his work,
Tax his pay,
He works for peanuts
Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.
Tax his ties,
Tax his shirt,
Tax his work,
Tax his dirt.
Tax his tobacco,
Tax his drink,
Tax him if he
Tries to think..
Tax his cigars,
Tax his beers,
If he cries
Tax his tears.
Tax his car,
Tax his gas,
Find other ways
To tax his ass.
Tax all he has
Then let him know
That you won’t be done
Till he has no dough.
When he screams and hollers;
Then tax him some more,
Tax him till
He’s good and sore.
Then tax his coffin,
Tax his grave,
Tax the sod in
Which he’s laid.
Put these words
Upon his tomb,
Taxes drove me
to my doom…’
When he’s gone,
Do not relax,
It’s time to apply
The inheritance tax.
Accounts Receivable Tax
Building Permit Tax
CDL license Tax
Corporate Income Tax
Dog License Tax
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel Permit Tax
Gasoline Tax (currently 44.75 cents per gallon)
Gross Receipts Tax
Hunting License Tax
IRS Interest Charges IRS Penalties (tax on top of tax)
Marriage License Tax
Personal Property Tax
Real Estate Tax
Service Charge Tax
Social Security Tax
Road Usage Tax
Recreational Vehicle Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone Federal Excise Tax
Telephone Federal Universal Service Fee Tax
Telephone Federal, State and Local Surcharge Taxes
Telephone Minimum Usage Surcharge Tax
Telephone Recurring and Non-recurring Charges Tax
Telephone State and Local Tax
Telephone Usage Charge Tax
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft Registration Tax
Well Permit Tax
Workers Compensation Tax
STILL THINK THIS IS FUNNY? Not one of these taxes existed 100 years ago, and our nation was the most prosperous in the world. We had absolutely no national debt, had the largest middle class in the world, and Mom stayed home to raise the kids.
What in the hell happened? Can you spell ‘politicians?’ And I still have to ‘press 1′ for English!?
This should go around THE USA at least 100 times! YOU can help it get there!
GO AHEAD – - – BE AN AMERICAN!!!