How the Federal Reserve Is Killing America By Shah Gilani

It's maddening. Our economy is stagnating. The divide between haves and have-nots is widening every day. There are fewer and fewer good jobs and careers to be had.

And maybe worst of all, according to a survey by the nonprofit Employee Benefit Research Institute and Greenwald & Associates, about 36% of workers have less than $1,000 in savings and investments that could be used for retirement (not counting their primary residence or defined benefit plans and traditional pensions), and 60% of workers have less than $25,000.

What the heck happened?

The U.S. Federal Reserve System is killing America. It has destroyed the economy. It has undermined savers and retirees. It is even responsible for the corruption in Congress.

We have to kill the Federal Reserve before it kills America for good.

There's nothing in the Constitution about a central bank. There's nothing "free market" about a central bank. There's no reason for a central bank - with omnipotent power over the creation of money and credit, over employment (which is an absolute joke), over the entire economy, and over Congress - to exist. No reason.

Okay, there is one reason...

The Federal Reserve, America's central bank, exists to serve big banks and Wall Street.

There is no other reason for the existence of the Fed. None.

Central banks exist to backstop banks. They were all created by bankers to serve them.

When banks get into financial trouble (for any number of reasons, all of them having to do with their bad management and greed), if there is no backstopping angel with unlimited (completely made up out of thin air) resources to bail them out, they would shut down.

And they should shut down. Sure, there would be losses. Equity owners would lose, creditors would lose, and some depositors would lose money, too, if they aren't covered by FDIC insurance.

But if banks were allowed to fail, given they were each, on their own, insignificant enough to the financial system - to the whole economy - that they could fail without doing economic damage, they should be allowed to fail. Small banks are still allowed to fail based on this exact principle.

But clever bankers, the masters of the biggest banks in any system (in the United States it was a group of the most powerful banks in America and allied banking interests in Europe in 1913), figured something out - and the result has been profound.

They figured out that if they got so big that any one of their failures would result in contagion and undermine the financial system and the economy, then they could convince governments to create central banks to safeguard systems and economies.

The Federal Reserve was legislated into existence in 1913 precisely to backstop America's biggest banks. The history of exactly how the Fed came about and who was involved in the secret meetings at JPMorgan's private island to design the "System" (they didn't use the term bank because they wanted to imply a safety "system" and not raise the ire of the public, who were fearful and skeptical of the big banks that were already running the country) is one of America's greatest cloak-and-dagger stories.

The true tale is laid bare in an extraordinarily well researched and documented book The Creature from Jekyll Island by G. Edward Griffin. Read it.

Without getting into the weeds on how they mechanically do it, it's instructive enough to know what the Federal Reserve does. In a nutshell, all their "regulatory" duties aside, the Fed prints money and gives it to banks.

That's right, the Fed - not the U.S. Treasury - creates dollars. The Treasury actually prints dollars and mints coins, but they only do enough of that to keep a certain amount of currency in circulation. The creation of money comes from the Federal Reserve System.

Look at your dollars, any bills in your wallet. They don't technically belong to the Treasury. They say right up top: "Federal Reserve Note." It's Federal Reserve money. But the Fed doesn't have to have the Treasury print money to give it to banks. They just credit banks electronically. And, like magic, banks have money when they need it.

They backstop banks, all the too-big-to-fail banks, not littler, less important banks that are allowed to fail because they're not politically important, all the big banks. And they backstop Wall Street speculation.

Banks are speculators, and they are part of what we call "Wall Street." Wall Street makes money by shuffling paper, by playing in and manipulating what are supposed to be free market capital markets. When they over-leverage and their paper-juggling, hot-potato, money-making schemes implode, they would fail (Bear Stearns and Lehman Brothers did, and so did Merrill Lynch and Goldman Sachs and Morgan Stanley and Citigroup, all of them imploded, to one degree or another, in 2008) and be wiped out.

But the Federal Reserve can save any of them, or just those they want to save, and it did just that in 2008. They save their own and let a few institutions be absorbed by bigger institutions so they could become more systemically important. And in doing that the Fed saved the financial system.

Good for them. And good for us, right?

No. The Fed plays god with the financial system. It plays god with the economy. And it rules over Congress and is responsible for our massive debt.

By backstopping banks and Wall Street speculation, the Fed has increased the "financialization" of the American economy. Our economy is more about moving paper assets around to create wealth than it is about producing and manufacturing real goods and services.

That's why the divide between the haves and have-nots is getting wider. If you have financial assets, you've benefited by the Fed's zero interest rate policies (or ZIRP). That's because speculators know the Fed won't let Wall Street down; they won't let markets drop. That's great if you're a financial paper punter.

But, while the Fed has lowered interest rates to zero for banks and speculators to borrow cheaply to leverage up their paper financial assets (in rigged capital markets), those low rates have destroyed savers' pocketbooks. Savers aren't punters. They park their money in fixed-income investments to earn a yield.

Savers have been destroyed by the Fed.

And the deficit? That's the Fed's fault. Congress doesn't have to tax the public to keep spending. The Treasury issues all the bills, notes, and bonds it wants to raise money, and the banks buy most of their paper obligations. Then the Fed buys those bills, notes, and bonds from the banks with the money they "print" electronically. That's why there's no accountability in Congress.

Far worse, the bankers, with their fat profits, lavish money on Congress to get what they want. There's no one in Congress, no one, who doesn't take campaign money one way or another from some financial system player. Wall Street owns Congress and they get their money to buy their puppets from the Fed's backstopping.

There's no need for a Federal Reserve if the TBTF banks are split up into hundreds of regional banks. If no single bank failing would cause contagion, or harm the economy, they should be allowed to fail.

If we want to take back America from the bankers and the Wall Street machinery that soaks up economic capital for their paper-pyramiding wealth-minting factories, and that disadvantages savers, producers, and workers, then we have to kill the Federal Reserve Bank.

More from Shah Gilani: Our country is no longer a free market, capitalist republic. America has devolved into a socialist plutocracy as a result of the "financialization" of the economy. And there's only one way out of this downward spiral...