Archive for Thursday, October 1, 2009

Federal Reserve meltdown

October 1, 2009

One year ago this week I wrote about our economy, that our free enterprise system would take care of our investment problem. It would take care of itself only if the government would stay out of it and not step in and buy up the investment companies, the car companies, the real estate market, etc.

After a year of reading and studying financial history, I have learned that the real problem started as far back as 1913 with the Federal Reserve Banking System. The discussion is still going on today that it has nothing to do with free enterprise going amuck, but it had everything to do with the government messing things up by trying to take over. The Federal Reserve in 1913 made money available to increase the markets that only existed on paper and it removed the responsibility of private bankers to loan money. Before 1913 banks pooled their money to make money available for other banks to lend money. When the Federal Reserve started, that put an end to fiscal responsibility. Then the responsibility was on the shoulders of the U.S. Government. The Federal Reserve proved to be the engine of inflation that crippled the nation's economy. Ninety-six years later, in 2009, our dollar is absolutely worthless.

When President Richard Nixon removed the U.S. currency from the Gold Standard, that saved the market from having a meltdown. Since then our value of our money is only worth what the Federal Reserve says it is.

In 1977, Congress passed a Community Reinvestment Act that declared that banks have an "affirmative obligation" to meet the credit needs of the communities in which they are chartered. Things continued to get worse in 1995 when Community Reinvestment Act (CRA) regulations got tougher. Banks were forced to put people into homes that they could not afford. Most of us were busy making a living and did not pay attention to how much the Federal Reserve was taking over our money supply. AIG kept the money meltdown from happening for a long time by offering unregulated insurance contracts known as Credit Default Swaps to European banks. This worked for a long time until AIG went bankrupt AIG had no collateral to back up its loans. It only had to maintain a triple A credit rating.

It wasn't free enterprise that created today's meltdown. It was the government's intervention corrupting the free markets, The Federal Reserve has created the good and the bad in this country in the last 96 years.

Is this the time to re-examine the Federal Reserve?

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