The Immoral Federal Reserve

0:00It's a great time to be talking about the Fed, right? It's all in the news. Hitherto, I mean, most of the time, all we know about the Fed is it's, you know, it's the name on the bill. It says Federal Reserve note. And otherwise, we're actually not supposed to be too interested in it. I think that's deliberate. It's supposed to be very mysterious, very complicated. This is something other people are handling. We're not supposed to be interested in it. On the other hand, it's, I would argue, an extremely interesting subject because we're being ripped off. I mean, it's a giant rip-off operation and the key reason that the Federal Reserve, which is this federal agency in Washington, its headquarters in Washington, it has subsidiary banks in different cities as one in Atlanta, Cleveland, New York primarily, all other places across the country.

0:52But why it's an immoral operation is it's essentially a giant counterfeiting machine. Now we know if a private crook has got a counterfeiting machine, these days, of course, it's not a printing press. I guess it would be a color copying machine is the way they do it. And if somebody's copying $20 bills and spending those, we all know it's a crime. and why is it a crime because it's diluting the value of other people's $20 bills and making them worth less. So what the private counterfeiter does on a very small retail basis, the Federal Reserve does on a huge international basis with far more damage. So one of the things that happens with the Federal Reserve, by the way this is not an institution that has existed all during American history, 1913, signed into law by Woodrow Wilson, although supported by President Taft before him, it was, the legislation was drawn up in Jekyll Island, Georgia, not that far from here at the private club of J.P. Morgan and we're hearing again the name J.P. Morgan these days, he was the major banker of that era along with John D. Rockefeller Jr. and other representatives of the big banks and they wrote up this, they wrote up the Federal Reserve Act

2:11And the propaganda was that if only we would adopt the Federal Reserve Act, it would prevent the big bankers from doing damage to average Americans. Of course, it was written by the big bankers in order to enrich themselves and enrich their partner of the government. So the Federal Reserve immediately started doing what it was founded to do, that is inflate, printing up money, Literally printing up notes and also expanding bank balances and operating through the either buying or selling Federal Treasury notes in order to enable the government to do all kinds of spending. It would not be otherwise able to do if it simply had to tax or to borrow.

2:56So the first big inflation took place to fund World War I. There was an artificial boom similar to what we've experienced since 9-11, then the inevitable bust. But thank goodness we had a president when the bust came in 1920 and 21, Warren G. Harding, one of my favorite presidents. He's one of the most hated and dist presidents because he did nothing. When The Federal Reserve inflated all during the 1920s. It didn't show up so much in general prices, although prices stayed stable, which is actually always a dangerous sign because in a free market economy, given the vast increase in production that capitalism provides, and without a money supply that's being artificially increased, prices tend to gently decrease. So when prices are not going up, prices are going down.

4:01The stock market boom, Florida land boom, other kinds of boom that took place in the 1920s, and then again, the bust followed. Unfortunately, the president at that time was Herbert Hoover, followed by Franklin Roosevelt, who almost like they had a plan, how can we do everything wrong? How can we do everything that will make sure that instead of being a short, sharp downturn, and then a chance for restored growth and real prosperity, let's do everything we can to lengthen and deepen this and turn it into what became, of course, the Great Depression. It was at least 16 years before we were out of the Great Depression. It was not until after World War II that the prosperity of 1929 began to be recovered. Probably it was This was late, probably not until 1946 and 47 even, so this was a horrendous long period of time, 25% unemployment for some of it, of course a horrible war, I mean a lot of other things took place during those years.

5:07Two of the things that both Herbert Hoover and Franklin Roosevelt attempted to do was to hold up prices, to keep prices from falling, and to bail out failing industries, similar to exactly what's going on today. So because they refused to allow prices to fall, including prices of labor, in the Depression there was a vast deflation, money became more valuable. So everything should cost less in that kind of a situation, including wages, because money bought more, but the Federal Government did everything possible to keep wages high, thus leading to, again, a 25% unemployment rate, a horrific, horrific unemployment rate, bailed out failing industries, keeping businesses that should go out of business, and allowing those capital and labor resources to be used in productive ways.

6:04The business in operation, artificial like that, is destruction of wealth. It doesn't actually help the economy, it hurts the economy, although some people, of course, the owners of that particular firm are very happy to be bailed out. So it took, again, a very long time to get out of that. We had other booms and busts since then. Bad time in the 1970s after President Richard Nixon cut the final tie between the dollar and gold. Ron Paul talks about how this was the one event that got him into politics on August 15th, 1971, when Nixon said that from now on, he didn't put it in these terms, from now on the Federal Reserve can print however much money it wants, can create however much money, there will be no limitation on it.

6:54Before that, there had been some limitation because there was a partial gold standard. He also put price and wage controls on because prices were going up too high. This is a separate subject, but when you put price and wage controls on, you artificially hold down prices and wages that should be going up because at the same time, this is why governments pull that sort of a trick, They're vastly increasing inflation and indeed that's what Richard Nixon did in the 1970s and we had a bad recession, we had double-digit interest rates, double-digit price increases, very, very bad time. That only ended when Paul Volcker, who was the chairman of the Fed in 1980, 79 and 80, and subsequently stopped the inflation.

7:46that, again, was a recession, but we got over it relatively easily. There was another huge monetary influx, thanks to the Federal Reserve, after 9-11. The Bush administration, I guess like any politicians, were terrified of a falling stock market. And so in order to prevent a falling stock market, they turned on the fire hydrant. I mean, the Fed always inflates at one rate or another, but starting after 9-11, just a vast output of new money. And one of the things Ludwig von Mises explained this in 1912 in his Theory of Money and Credit, F. A. Hayek, Murray Rothbard and others building on this, that when a central bank like the Federal Reserve increases the money supply It decreases the value just like a counterfeiting operation of all the other dollars in existence, but it also does something else that's even worse than that.

8:47And I mentioned one other thing it does, it results in a redistribution of wealth so that when the people who get the new money, the newly printed, the newly created money first, the government, big bankers, military industrial complex, government contractors in general and so forth, are able to spend that money before it loses value. of Value, and other people in society, poor people, retired people, rural people is even an interesting difference there, who give the money last. It's where after it's already lost its value. So there's in effect a transfer of wealth from sort of the poorest and most vulnerable sections of society to the richest and most powerful in cahoots with the government. Another reason the Fed is immoral. But the worst thing that when the Federal Reserve What does this sort of fire hydrant operation with new money is it creates the business cycle.

9:40Basically what happens is it holds down the interest rates that businessmen borrow for new projects below the market rate. We saw this since 9-11, very, very low interest rates. We saw it in housing mortgages, people could get it in construction loans, in all sorts of business loans. What this leads to is people making mistakes. They buy houses that really are more than they can afford. They undertake construction projects that look like a great idea at the time, all the condominium buildings in Las Vegas or in Miami or in California, that look like just sure profits. People are gonna be clamoring to move in, but when the bust comes, it turns out these were very, very bad ideas.

10:29And an interesting point of this is the economic damage is done during the boom, not during the bust. It's during the boom when these bad decisions are made and then they're cleaned up during the bust. So once the Federal Reserve has turned on the money hydrant and put out this vast amount of money through the banking system, that's when the damage is done. So the damage has been done, then your choices are either let a sharp, short correction take place that you can then build for the future or to take the Hoover-Roosevelt Road and try to prevent that from happening and therefore make the recession into a long-lasting depression. So right now, this is the situation we're in, and the Democrats and Republicans seem to be dedicated to the idea of not allowing prices to fall, keeping housing prices up, keeping failing industries in existence, whether it's J.P. Morgan, Morgan Stanley Company, whether it's Goldman Sachs, whether it's General Motors, Chrysler, Ford, they're all wanting to get in on the act and be bailed out.

11:41By the way, it looks like they're bailing out everybody but you. Just to let you know that they're not taking over your bad debts and paying them. But all the powerful people connected with the government, they are indeed doing that. So it's a very scary situation right now. Who knows what they're going to do? Ron Paul, I was talking to him this morning and he said he'd gone to a dinner meeting of all the Republican members of the House Banking Committee. and he said for the first time they were all saying, hey, what's happening? You know, what is this? He said normally they're not. They know everything and they're not asking him, but he said the one thing that struck him was that they're all terrified. They're all terrified in Washington. They're terrified about not about you, not about your living standard, not about your family, not about your savings, not about your job.

12:29Terrified, of course, about their own power and their own jobs because this is a very destabilizing situation for the government when it causes this kind of economic train wreck. So what are they doing? Are they letting the short, sharp correction take place? Or are they, again, they're doing the Hoover Roosevelt thing. They're trying to keep up housing prices. They're bailing out failing industries. To keep a Goldman Sachs in business when it should go out of business is, it's a ripoff of the average person. It's a reward to the very wealthy guys who own the firm. And it's the destruction of wealth, the wealth that ought to be being used in a much more effective and productive manner than by the losers who set up these companies and benefited so much from the boom and now want to be saved in the sort of socialism for the rich that the federal government specializes in and of course the Federal Reserve specializes in so here the so in one aspect I would say this looks it looks bleak it looks like they're going to really do more damage to us it looks like

13:35We're all going to be poorer. Inflation is already running by any honest measure or double digits. Any of us who visit a supermarket know that's the case. This talk about 3%, 4%, 5% inflation is ridiculous. It's much higher than that. Maybe it's going to go to what it did in the Nixon administration. Maybe we're going to see 18%, 19%, 20% price increases. That's making us all poorer because our money buys less and less and has many other bad effects too. So that's not good. Will they actually make this a very, very long and deep procession? It's possible. On the bright side of things, and I think there always is a bright side, I mentioned this is a very destabilizing thing for the government. Here they have held themselves out as the, they talk about the people on Wall Street pretending to be masters of the universe.

14:26In Washington D.C. they think they're masters of the universe. They think they can do anything. I think they can wage the magic money wand and cure any problem, but it's not true. And I think that one of the reasons they're terrified is they've always thought the Federal Reserve could always take care of anything. By monetary depreciation, by the destruction of the dollar, by bailing out people, could always fix things, paper over the problem, keep things going, and they'd all still be enjoying their jobs and their power in Washington. This time they're worried. It may be that the Fed can't do it. It may be that this vast bailout, and probably we're talking much more than $700 billion, or talking undoubtedly over a trillion dollars, that we're looking at probably the first trillion dollar federal budget deficit in effect.

15:16so the effects of this are very very bad even aside from from from our own lives it probably means at least potentially means the end of the dollar is the world reserve currency which is a major prop of the the federal government's activities all over the world make make those much more difficult but it also it also undermines legitimacy governments are always very concerned about about Legitimacy, making people feel that they should obey them. Anything that undermines that legitimacy, they very much dislike. So the fact that they're all scrambling around, as Tom Woods mentioned, so 7% of the American people endorse this bailout, and 93% of us think it's a terrible idea, and rightly so.

16:04So here they're about to do something that virtually everybody thinks is a ripoff, and they're right, it is a ripoff, Something that also is not going to work even by their own standards. So they're being undermined. They're very worried. It may make it difficult for them to do exactly what they want to do. It certainly is going to make it impossible for them to do what they think they're going to do in terms of fixing everything. So I guess we've got interesting times ahead. In some sense, Wall Street has seized the Treasury Secretary's office. So under this new bailout bill, the Treasury Secretary, who is a representative of Wall Street, Henry Paulson, former CEO of Goldman Sachs, now using taxpayer money to bail out with many billions of dollars, his former and probably future employer, I don't know how he used to own 500 million dollars of Goldman Sachs stock, does he still? I don't know, but I'm suspicious. So here he is enriching himself, enriching his pals,

17:08and not being able to be questioned by any court in this bill. Nothing the Treasury Secretary does in terms of bailouts can be questioned by any court under any circumstances. And it even gives him power in a sense independent of the President. So it's in effect Wall Street taking over permanently, I guess, the office of the Secretary of the Treasury. Barack Obama said if he were elected President, he would want to keep Henry Paulson on, John, either as Treasury Secretary or as some sort of overseer to continue the bailout into his administration. Barack Obama's biggest donors are from Wall Street. John McCain's biggest donors are from Wall Street. So we've sort of got Wall Street candidate A and Wall Street candidate B.

17:53But I think that, my guess is that their power is going to be massively undermined even though they think they're increasing their power. I think that it's actually going to be undermined and I think it's just a slight crack in the climate of opinion which for so long has been the Federal Reserve can do no wrong, Federal Reserve is wonderful, Federal Reserve is necessary to civilize life, and all the rest of the things that are either explicitly or implicitly taught to us. Federal Reserve is now being undermined in people's minds. It's also engaging in a seizure of regulatory power. They want to take over other regulatory agencies, centralize all regulatory power within the central bank. It's an alarming thing. It's maybe another thing like the Great Society or the New Deal or what Nixon did with ending the gold standard.

18:45It's a tremendously interesting period of history to be living in. But I don't think all the news is bad, I think because they can't do what they want to do. No politician wants to believe that such a thing is economic law. They all think they should be king canoed and be able to order the tide not to come in, but they can't do it. There are economic laws. If A, then B. Certain things follow from certain things they do. They think that by just using the power of the gun or the power of the printing press, they can prevent bad consequences from happening, including bad consequences for themselves, but they can't. So this is a revolutionary moment. People in this country are, I think for the first time, open to hearing about the Fed, about the Treasury, about what's wrong with the whole financial system, which is also based on banks that are inherently bankrupt because of fractional reserves.

19:38Your money's not in the bank. If a significant number of customers go to a bank to try to get their money out, the bank has to close its doors, unless it's bailed out by the Federal Government. So the whole system is very, very shaky. It's revolutionary. Maybe everything is going to go for the worst. I tend to think that's not going to be the case, although they are. The fact that it's absolutely true that we're all going to be poorer. Maybe not some of the people on Wall Street. They'll do very well. But average Americans are going to be poorer. I think we need to know who to blame in this situation. And the villain right at the top of the list is the Central Bank of the United States, the Federal Reserve, now headed by Ben Bernanke, previously headed by Alan Greenspan. And their most recent crimes, the vast monetary inflation that they undertook in response to 9-11.

20:33Thank you very much.