WEALTH BY STEALTH

Foreword “The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People by their Property until their Children will wake up homeless on the continent their Fathers conquered.” (Thomas Jefferson 1743-1826). The world economy has been brought to the brink of collapse twice in the last century and both times the United States were the epicenter of the upheavals. One fact connecting both events without a question is America’s financial system under the aegis of the Federal Reserve System, the Central Bank of the country, whose official mission was to prevent exactly such catastrophes. Were these unfortunate mishaps, mere accidents, the result of negligence, ineptitude, or even by design as the unflattering observation by Thomas Jefferson, suggests? How could he possibly issue such an incisive, clairvoyant, and clear warning, speaking about an institution, that came into existence almost nine decades after his death in 1826. Jefferson, of course, spoke of personal experience. He witnessed the struggle of the colonies with their own central banking system firsthand. The fact that England tried to impose its monetary control over the colonies by the hated Bank of England, was vigorously rejected by him and other Founding Fathers as the “last straw” of English hegemony, and became the main cause behind the American Revolutionary War. He also saw the first attempts at instituting a central bank in the opening of the Bank of North America in 1782, which lasted for only three years; a second attempt came with the formation of the First Bank of the United States by Congressional Charter in 1791, which lasted for its charter period of 20 years to also fail; the third attempt chartered the Second Bank of the United States, which lasted again for only 20 years from 1816-1836. All of them failed for reasons explained in the following pages. It was not until 1913, that the U.S. succeeded in establishing a permanent central banking institution, the Federal Reserve System, but despite the long wait they might not have gotten anything better than what they fought so hard and long to avoid. Despite the 200-year time lapse since Jefferson’s comments, there is good reason to give them some thought. The Fed came to life on the promise it would solve the country’s financial and banking problems once and for all. That hope was enshrined in the mandate given the bank by Congress in 1913, and again in 1977: “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.” While the Fed’s mission is clearly laid down for everyone to see, there is a conspicuous absence of a second and equally important provision: definition of a parliamentary control system for monitoring the Fed’s performance. It proved to be a serious congressional slip. In the hundred years of its existence the Fed has been audited only once, and that was only a partial audit at that in 2011 by the Government Accountability Office. In other words, the Fed was free to do what it wanted to do, and not what it was expected to do for the nation. This incredible oversight has given the Fed an undue feeling of independence in setting monetary and financial policies as it sees fit, never mind the congressional mandate. The most visible results are the two devastating economic and financial crises under the 100-year reign of the Fed, the big depression of the 1930s and the financial crisis of 2008. Both shook the global economy to its foundation, with the last one still reverberating through the U.S., despite assurances that it had ended by mid-2009, and Europe mired in the morass of one sovereign debt crisis after another. No one has been assigned responsibility for the devastations, which as a minimum presents a serious violation of good management principles, which demand the power to make decisions to be balanced by full accountability for the results. But, there is no appointed authority to ask questions, nor demand corrective actions, much less insist on personal consequences. This lack is an invitation, indeed a license, for the wheelers and dealers to continue with business as usual. A disturbing realization, and eerily reminiscent of Jefferson’s warnings. The Fed was a most enigmatic organization from the beginning and specific reasons, which explain much about its political power and actions. For one thing, the bank harbors strange similarities to its predecessors which, in their case, ended in a short life for them, but not the Fed. To start with, its ownership is not clear. The only fact known here is that the federal government has no financial share in the institution, not even the twenty percent granted its forerunners. There is also a lot of conjecture about the nationality of the actual shareholders, but no clear-cut documentary evidence.