The Federal Reserve is the Biggest Scam in American History

#1

I believe that the biggest scam in american history is the federal reserve, the federal reserve was made privately in 1913, in that same year they allowed the government to tax pay (income tax) someone that has studied this explained it to me. Prove me wrong.

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#2

A central bank is necessary for any nation with a currency, outside of Ron Paul realms, anyone with a understanding of economics and monetary policy wouldn’t state such statements.

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#3

The Federal Reserve is unironically good.

#4

The Federal Reserve is not “unironically good.” They meddle in affairs too complicated for them to reasonably control, and caused the 2008 crisis. They keep changing incentives that bankers and investors operate on, thus changing outcomes. Imagine being a banker taking in good faith that the Fed will not change interest rates, handing out loans that might take a while to recuperate from, then they increase interest rates once again. Everything comes crashing down.

#5

Having a central bank is not the issue, the fractional lending system is! Nice of you to show your face here after chickening out of a debate from another forum!

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#6

Look at the alternative, congress trying to set interest rates, provide extraordinary stimulus i.e. QE1-3.

Congress cannot agree on the day of the week.

Income taxes were a product of Congress and remains their play toy to adjust, increase, decrease with very political whim.

#7

The Federal Reserve did not cause the financial crisis of 2008, and the Austrian business cycle theory fails to explain the Great Recession.

In Rothbard’s popular pamphlet Economic Depressions: Their Cause and Cure, he points to malinvestments in capital goods by businesses as the fundamental cause of recession:

And there is a third universal fact that a theory of the cycle must account for. Invariably, the booms and busts are much more intense and severe in the “capital goods industries”—the industries making machines and equipment, the ones producing industrial raw materials or constructing industrial plants—than in the industries making consumers’ goods.

But what happens when the rate of interest falls, not because of lower time preferences and higher savings, but from government interference that promotes the expansion of bank credit? What happens is trouble. For businessmen, seeing the rate of interest fall, react as they always would and must to such a change of market signals: They invest more in capital and producers’ goods. Investments, particularly in lengthy and time-consuming projects, which previously looked unprofitable now seem profitable, because of the fall of the interest charge. In short, businessmen react as they would react if savings had genuinely increased: They expand their investment in durable equipment, in capital goods, in industrial raw material, in construction as compared to their direct production of consumer goods.

The problem comes as soon as the workers begin to spend the new bank money that they have received in the form of higher wages. For the time-preferences of the public have not really gotten lower; the public doesn’t want to save more than it has. So the workers set about to consume most of their new income, in short to reestablish the old consumer/saving proportions. This means that they redirect the spending back to the consumer goods industries, and they don’t save and invest enough to buy the newly-produced machines, capital equipment, industrial raw materials, etc. This all reveals itself as a sudden sharp and continuing depression in the producers’ goods industries. Once the consumers reestablished their desired consumption/investment proportions, it is thus revealed that business had invested too much in capital goods and had underinvested in consumer goods.

In a most remarkable passage in Man, Economy, and State , Rothbard says this:

What happens, however, when the increase in investment is not due to a change in time preference and saving, but to credit expansion by the commercial banks? What are the consequences? The new money is loaned to businesses. These businesses, now able to acquire the money at a lower rate of interest, enter the capital goods’ and original factors’ market to bid resources away from the other firms. At any given time, the stock of goods is fixed, and the new money is therefore employed in raising the prices of producers’ goods. The rise in prices of capital goods will be imputed to rises in original factors. The credit expansion reduces the market rate of interest. This means that price differentials are lowered, and lower price differentials raise prices in the highest stages of production, shifting resources to these stages and also increasing the number of stages. As a result, the production structure is lengthened. The borrowing firms are led to believe that enough funds are available to permit them to embark on projects formerly unprofitable. To the extent that the new money is loaned to consumers rather than businesses, the cycle effects discussed in this section do not occur.

This final sentence has profound significance: “to the extent that the new money is loaned to consumers rather than businesses, the cycle effects discussed in this section do not occur.” Which is to basically say, the mechanisms causing recession or depression as postulated by his version of Austrian business cycle theory did not occur if the money is mainly loaned to consumers. Austrian business cycle theory assumes that newly created credit money is mainly loaned out to businesses (causing malinvestments in capital goods), and not to consumers to a significant degree.

In this case, we can already see that Rothbard’s version of the Austrian business cycle theory cannot be a serious explanation of the housing bubble in the 2000s and the financial crisis of 2008. In the housing bubble, loans were made to people who clearly were unlikely to pay them back. Debt was used bid up asset prices in property, allowing yet more debt (via refinancing) for purchasing of commodities (whether durable or non-durable). The Austrian business cycle theory in the form examined above does not explain this process. Another fundamental factor in the crisis of 2008 was the emergence of exotic financial instruments like collateralized debt obligations (CDOs), including asset backed securities and mortgage backed securities. When the housing bubble collapsed, defaults on mortgages rose, causing losses to investment banks and other financial institutions holding mortgage backed securities. The financial crisis of 2008 led to a freezing up of interbank lending and a liquidity crisis, which then went global. The resulting effects spread to the real economy severely exacerbating the United States recession that had already begun in December 2007.

The Austrian business cycle theory in the form examined above with its emphasis on malinvestments in the real capital goods sector is not an even remotely relevant explanation of 2000s boom and bust, and the 2008 global financial crisis.

#8

Weren’t incentives being manipulated via acts of Congress, such as the partial repeal of the Glass-Steagall Act? I have been doing a bit of looking into it, and I retract that the Fed caused it, but they didn’t help it. The Fed seemed to have exacerbated it by having some of the more successful banks beholden to it stagnate at its interest rate to prop up banks that may not have been doing so well.

#9

I remember looking at one point of view that the buildup to the financial crisis was like yeethoven said, loaning out to those who can’t pay it back, with the borrower and lender both knowingly let it continue and wait till the bubble explodes and a domino effect hits the banks, add in the extreme deregulation of Finance sector allowed these financial schemes to emerge, there is a definition in James Fulcher’s Capitalism where he calls it “The financialization of Capitalism”.

#10

There is no one cause for the financial crisis.

The Federal reserve played their part with low interest rates that were in place too long.

Greedy people looking to make a killing on a house.

Appraisers played their part with bad appraisals.

Realtors pushing people to buy houses they could not afford.

The government’s, everyone should own a home.

Congress and their poor laws, the CRA, Glass Steagal, etc.

Sub prime loans.

People using their homes as piggy banks.

The list is endless.

The perfect storm.

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#11

Reminder: if you support Capitalism you must support Marxism, because Capitalism allied with the Soviets and funded various Communist revolutions; and you also support Islam since Capitalism lets Muslims and Central/South Americans invade our lands for the cheap labor they provide.

#12

Who would have thought.

All this time I thought it was a feckless congress that does nothing that allows illegals and fake asylum seekers into the US.

#13

A state bank can do everything a private central bank can. However, the state won’t have to charge itself interest on the money they supply. Therefore, the state doesn’t have to rob income (tax) from citizens to cover annual interest payments.

By the close of 2019, the cost of interest on the national debt will be $390 billion.

Congress can and should issue debt free and interest free currency.