I’ve been wanting to post something like this for quite some time, but I have been way too busy; what with setting up a website, going to college, practicing for SkillsUSA, etc.
To get a general introduction as to why we were screwed 100 years ago, read up on The Federal Reserve. To sum it up here, it is a central monetary institution created back in 1913; it essentially manages all the money in this country. This is accomplished through loans to the federal government and banking institutions, both domestic and foreign. It also maintains economic stability and contains “systematic risk that may arise in financial markets.” It’s a fairly good setup, except for a few flaws. The biggest issue I have with the Federal Reserve is that it’s a private institution. Yeah, you read that correctly. It gives the image of being a governmental institution by being housed in a Roman-style stone building, and it has quite intimate ties to the US government; but it’s still a private institution. M.A. Rothschild sums it up nicely when he says, “Give me control over a nation’s currency and I care not who makes its laws!” In the Federal Reserve Act of 1913, we pretty much handed control of our currency to a private institution of high-level bankers. These guys can then manipulate money to their will, or have large financial institutions like CitiGroup to it for them. The Fed practices the Fractional Reserve” style of banking. In a summary, the bank lends loans and only a little bit of those loans are backed by cash on hand. These loan payments are repaid with cash, so the bank’s money supply grows; which is leverage for making even more and bigger loans. This is why our money is worth less and less as time progresses. The banks essentially create money out of thin air; in when major loan repayments and depositing is going on. In conjunction with fractional reserve banking, the concept of interest brings down the value of the dollar as well. Interest is an addition to the loan payment that ensures banks make a profit. When the government or large banks take out a loan from The Fed, they have to repay the base amount plus interest, which guarantees the government will always be in debt. One of the things Andrew Jackson was proud of was reducing our government’s total debt to only $33,733 ($695544 in 2008). Try doing that today with Social Security, welfare, medicare, and medicaid (notice a pattern there?).
Derivatives act as a catalyst to our national debt (the national and federal debts are totally different). In short, derivatives are a contract for a financial instrument whose wealth is assessed by another asset. So, you can sign a contract with another company and agree that you will be paid the gains or soak up the losses of the company’s stock you signed for. If the stock takes off, you make a gain; and the inverse is true if the stock plummets. Do you see the inherent issue here? Companies no longer have to be responsible with their money. They know if they lose money, the other company takes the heat. This explains the phenomenon with the real estate market. bigger companies went out and contracted derivatives from real estate companies, since there were big gains as the housing market was good. When the government pressured real estate companies to sell homes and make loans to those that were less-than-desirable people (higher credit risk), the real estate market turned into what it is today; foreclosures everywhere. Big companies lost a ton of money along with the real estate companies on this deal since the market lost value, and this nearly destroyed AIG. Of course, AIG had way more derivatives than real estate, but the entire market taking a dive starting after 2007 did not help any.
But, the worst is yet to come. Glenn Beck may be kinda-right and kinda-truthful on some of the issues, but I feel he is spot on with everything financial. The fact is, we do owe billions to many countries and entities (the IMF is the one that scares me the most) The thing he has yet to talk about though is a looming commercial real estate bubble pop. You don’t need to look into real estate all that hard to know that commercial real estate is worth more than residential. As such, if the bubble bursts hard, there will be more of an effect felt; and it’s looking like the bubble is going to burst some time this year. How do I come to this conclusion? By combining the unusually high unemployment with lowered consumer confidence (especially with cars) and ever-increasing strictness with how business can conduct business (more regulations). High unemployment means more people have less money (once their unemployment insurance runs out; and yes, it is an insurance, not an entitlement), less money means less revenue for business owners and stockholders, which means they won’t be able to pay their loans; and such, foreclosures. This will probably be coupled with a dip in the stock market as well, and only the most profitable of corporations will make it out alive.
So, what do I propose? If you’re reading this on the We Are Change Branson website, you will notice that “End the Fed” element on the right of the picture. I support it, but it’s not going to be as easy as flipping a switch. As noted above, we owe a lot of people a lot of money. More money than we can provide in collateral. Even if this country provides all of its able-body workers, we still won’t pay this debt off. So, what do we do? We can wait for other countries to say, “Screw it! Here’s your money back! You don’t owe us a thing!” This may work for smaller countries (and I emphasize may), but we owe billions to China, and trillions to the IMF. Do you think the IMF is going to do that? Me neither. Plus, having all those dollars flow back into the US would fuel hyperinflation, and give us a bad rep; preventing other nations and multi-national corporations’ investment in the dollar. We could open up the floodgates and say, “Alright guys, take the collateral while it’s here!” But, we would lose our country in the process. We could do that North American Union thing that politicians have been talking about for quite some time, but we would lose a bit of sovereignty in the process; not to mention all it would equate to is a shifting the responsibility to pay off the debt. Our neighbors would not be that happy to inherit our debt anyway.
So, what’s left to do? In my opinion, cut the liabilities and focus on paying off our debtors. This is going to piss off a bunch of welfare mommies, unemployment beneficiaries, the Boomer generation, and countless other groups but it’s something we need to do. Now, this won’t be as easy as flipping a switch either. Generations of Americans have come to rely on these liabilities, and would be irritated to not find them there anymore. So, I suggest the government steadily decrease the amount of money given to these departments and tighten the requirements in order to get this assistance. As the amount of money given to liability programs decreases, the payments to those that have our debt would increase. It would be a long, drawn out process, but it would save our image and reinstate confidence in the dollar, something that is long overdue. After paying off these debts, the nation could absolve the Fed and put the monetary control back into the hands of the government, where it’s supposed to serve the people, instead of Wall Street.