1.0... INTRODUCTION

This section presents the "case" to be proven against the Federal Reserve System.

1.1 - WHAT IS WRONG WITH THE FED F. T. Brady 1/10/96

The Federal Reserve monetary policy creates currency as the principal of credit and NEVER creates money to cover the interest payments on ANY of that credit (debt).
Our debt did not receive very much attention until the TOTAL accumulation of debt (PUBLIC AND PRIVATE -- NOT JUST THE STUPID 5 TRILLION PORTION OF FEDERAL BORROWING OVER THE PAST DECADE) reached "noticeable mass."
This entire issue would have stayed under the rug, if the FEDERAL portion of the debt didn't get big enough that ITS interest payments attracted attention.
If we widen our focus, just a bit, to think about the ENTIRE debt, rather than just the Federal portion, the interest payment is not, just, the couple of hundred billion per year that has everyone scared -- it's in the T-R-I-L-L-I-O-N-S per year!
Now -- if the MONEY to pay all of that interest DOES NOT EXIST -- it puts pressure on those, who owe the debt, to raise prices, or cut payrolls, in order to obtain the money to pay the interest.
In other words, in order to survive in this monetary system, debtors must "capture" the principal of someone else's debt, in order to pay the interest on their own debt -- a "negative sum" game in which some MUST lose in order for others to survive!

THE FED MYSTIQUE IS BASED ON FOUR (true or false?) CLAIMS:

* It fights (causes?) inflation;
* It smoothes (causes?) boom & bust business cycles;
* It hastens (slows?) recovery from recessions; and
* It removes politics (accountability?) from monetary policy.

THE REALITIES OF OUR ECONOMY UNDER THE FED:

* Nearly ALL of our money is created, as the principal of a loan, made by a private commercial bank.

* Money is NEVER created to pay for the interest portion, of the money-creation loans.

* The difference between our money supply and our total indebtedness (principal and interest), creates economic pressure, to raise the money, to pay interest on loans, by RAISING PRICES on goods and services.

* Rising prices intensify the economic pressure to find the money, to pay both, the interest on loans, and the higher prices for goods and services.

* The Fed, eventually, "fights inflation" by raising interest rates to "slow down the economy."

* The increased interest rates force the most, vulnerable loans to fail (default), resulting in an exchange of the borrowers collateral values, for extinguishing the loans.

* The pressures created by mounting interest payments, not supported, by an equal amount of money, are relieved by the infusion of repossesed wealth and loan retirement.
The Fed is, once again, aclaimed for its inflation fighting, and the cycle begins anew.

FRB policies produce a never ending cycle of pressure, to raise prices, to recoup a growing shortage of money, to pay the interest on loans; eventually, relieved by the Fed's raising of interest rates, in order to force loan foreclosures.
The loans, thus, liquidated, exchange debt for wealth (confiscated collateral) and temporarily relieve some of the indebtedness pressures that drive price inflation.

THINK OF OUR MONEY SUPPLY AS THE CHAIRS IN A GAME OF "MUSICAL CHAIRS." WHEN THE MUSIC STOPS, (LOANS BECOME DUE) THERE ARE NOT ENOUGH CHAIRS, (MONEY) TO GO AROUND, AND SOME LOSE (THROUGH BANKRUPTCY AND FORECLOSURES).
THIS RELIEVES THE PRESSURE SOMEWHAT, BY RETIRING INTEREST BEARING LOANS AND LIQUIDATING THE COLLATERAL, AS CAPITAL INTO THE ECONOMY.

"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, more sure way of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner in which not one man in a million is able to diagnose."
-- John Maynard Keynes

1.2 PROPOSED ALTERNATIVES TO THE FEDERAL RESERVE

Most discussions, quickly, dismiss any mention of returning to money, backed by a commodity like precious metal. Still, I would like to mention, one very useful aspect of commodity money, afforded by no other system -- market regulation of the money supply.
When money, itself, has the market value of a precious metal, it is automatically mined and minted into circulation, whenever its market price makes it profitable enough, to justify expanded production.
Thus, money production tends to track economic and population growth.
This solves the most difficult problem of fiat money -- how to avoid the almost, immediately, disastrous consequences, of an insufficient money supply (recessions and depressions), and the longer term results of an excessive money supply (inflation).
This advantage is un-important, however, if it can be demonstrated that the money supply can be significantly expanded, without price inflation, as long as, it is created, by spending it into circulation, to fund productivity (such as transportation infrastructure).
-- Contributed Frank T. Brady