Federal Reserve News

Since I launched this project last month, I've been acquiring books on the subject via the local library and Amazon.com, as well as reviewing books in my own collection on the subject of money and banking. It's been an emotionally traumatic journey in some ways as I work my way through the books. On the one hand, it's very depressing to realize just how serious the Fed problem is and how misunderstood it is even by many who write about it. For instance, I found one particularly depressing comment by Martin Mayer in his book, The Fed. He wrote:

To say that central banks must now seek their objectives through the market rather than through the banks masks the essential change. Securitization, derivatives, worldwide markets, and the vastly increased liquidity of once non-marketable assets (represented in the household world by home equity loans and easy access to margin values of stock market investments) have made the idea of the "quantity" of money a historical curiosity, like the belief in a flat Earth.

The implicit lie in the above passage is that we don't have to worry about the quantity of money anymore, that is really doesn't matter what the quantity is. Nothing could be further from the truth, of course. It's especially sad in this case, because much of Mayer's book is very good and useful. But even (perhaps I should say especially) when the true quantity is hidden from public view, and when commentators state that it is no longer important to consider, the quantity of money actually becomes more important than ever. Increases in quantity wreak havoc on the economy over time, and the more hidden the activity is, the more likely that most people will not be wise to the crime. Murray Rothbard and the other Austrian economists have repeatedly noted the importance of not just the quantity of money but also how it is redistributed by inflators and counterfeiters alike. If Fed experts like Mayer write about the Fed without paying proper attention to the root causes of the damage that the Fed causes, they are (in my opinion) doing a severe disservice to the country.

On the other hand, speaking of Rothbard, even though I know much of his work very well, I had never read his book, The Case Against The Fed, cover to cover before now. This book is a treat! He makes clear the root causes of banking dysfunction. In fact, he's already influenced my approach to our own, online book.

I really liked his analogy of the "chair in storage" for explaining what's wrong with fractional reserve banking. He says, what would happen if you went to someone who ran a storage warehouse and paid him to store your favorite chair there for a time? He gives you a receipt after you make your payment, and you're on your way. Days, weeks, and months pass. Then, you go back to the warehouse, present your receipt, and ask for your chair back. He replies, "I'm sorry, but it's been tough times for our business lately. We loaned out your chair to someone else, and we're still trying to get it back from them. We might not be able to recover it at all, but rest assured we'll get you another chair."

If that happened, you'd call the police on him, because he had no right to lend out your chair. Why, then, do banks believe they have the right to lend out money you entrust to them and pay them a fee to maintain?

It's a fantastic example, and while our society has become so conditioned to the idea that it's okay for banks to lend out money that we entrust to them to store for us that we don't even consider the ramifications of this little quandry anymore at all, it's still instructive. Rothbard even cites the cases in British case law which became the basis for banks to get away with this kind of behavior. More importantly, it becomes a first incremental step in legalized embezzlement that allows more and more steps to be taken by banks over the years, leading up to today when the entire Federal Reserve System is based on legalized embezzlement. Food for thought!

I realize that I'm going to be the one who will have to write most of our online book. However, I'm hoping that some of you will help out in whatever ways you can. I know, for instance, that Digital Bob is doing some research on one of the tentative chapters in our outline, and Maria Folsom just yesterday made a very useful suggestion about an additional chapter regarding alternative currencies in America today. I'm hoping she might decide to do the research and write that chapter for the book. I urge each of you to find just one chapter from the outline (just click the link to the book in the left-hand column to view the entire outline). If each of us does what he or she can reasonably do to help write this book, we can create a final product of which we can all be proud, and which readers will be able to read and understand no matter where they live in the USA or the world at no charge.