Not Worth a Continental
By: Dr. Robert R. Owens
The Federal Reserve System (the Fed) was established in 1913 as one of the cornerstones of the Progressive agenda. They said it was a way to stop the boom and bust cycle which has always been a fixture of capitalist economies. The Fed is America’s third Central Bank. The First and Second Banks of the United States were born out of Alexander Hamilton’s ideas as expressed in his famous Second Report on Public Credit in 1790. The first bank was allowed to expire and the last was ultimately killed by Andrew Jackson in 1833. Jackson believed the Bank had too great an influence politically and economically.
TheUnited Statesgrew to become the greatest industrial power on earth in the next eighty years without a central bank.
Established in 1913, the Federal Reserve is America’s central bank. It is semi-independent/semi-public depending on which role is needed to justify its actions. It is run by a board of seven Governors. These Governors are nominated by the president and confirmed by the Senate. Led by a Chairman who is also appointed by the president and confirmed by the Senate these eight people control a system of twelve Regional Federal Reserve Banks which have numerous branches throughout theUnited States. The Fed can expand or contract the money supply in many ways. They print money both physically and digitally, they set interest rates, they can loosen or tighten the regulations for lending, and they can purchase debt from the Treasury. Most of these measures are neither understood nor noticed by the general public. This helps build and maintain the impression of a mysterious institution behind a curtain pulling levers and pressing buttons secretly controlling the economy. In many ways this impression is correct
Ben Bernanke is the current Chairman of the Federal Reserve. Some believe that this is the most important post in the United States because the Federal Reserve controls our economy through its control of the money supply. Mr. Bernanke acquired the nickname Helicopter Ben from a speech he delivered in 2002 entitled, “Deflation: Making Sure “It” Doesn’t Happen Here.”
In this famous speech he said, “The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand – a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers. Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending–namely, recession, rising unemployment, and financial stress.” This is a well stated summation of the problem of deflation.
As a defense against the ravages of deflation the future Chairman of the Federal Reserve never actually said he would drop money from a helicopter. What he said was, “The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.” Which was coupled by later analysts and pundits with the statement, “A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.”
In the popular imagination this has been shortened into the oft misquoted belief that he said he would get in a helicopter and drop bales of money to combat deflation.
The collapse of the Housing Bubble in 2008 brought the American economy to a standstill and threatened to escalate into a systemic collapse of major banks and other financial institutions. To stop the wheels from coming off the commercial cart the politicians reacted with unusual speed and vigor. George Bush famously said, “I’ve abandoned free market principles to save the free market system” when he advocated and passed the Troubled Asset Relief Program (TARP) which was designed to buy mortgage backed securities in an effort to inject money into the American banking system and thus restart the economy. This 700 Billion dollar fund (later resized to 475 Billion) was eventually used instead to bailout major banks, AIG, and buy GM and Chrysler with only 22 billion ever going to buy toxic assets.
This was followed by President Obama’s stimulus bill which cost another 800 billion and was supposedly designed to kick start the economy by providing jobs. The Congressional Budget Office eventually evaluated that these shovel-ready jobs cost 4.1 million each. But then again as our President later joked, “Shovel-ready was not as shovel-ready as we expected.”
Spending government money to prime the economic pump cannot work. The government doesn’t produce anything. It must either take the money out of the economy through taxation taking from the productive for the benefit of the unproductive or print the money thus causing inflation. All the government can do is redistribute wealth; it does not create it. And when the government is in the business of picking winners and losers we all lose freedom, liberty, and opportunity.
Inflation is a rise in the general level of prices related to an increase in the volume of money and the resulting loss of value of currency. The Progressives didn’t invent inflation. The Obama Administration isn’t the first to resort to inflation to keep the ball rolling without the pain of tax increases. America was born in inflation. During the Revolution one of the greatest problems was how to finance the war. America was effectively blockaded by the massive British fleet and unable to trade with the rest of the world. So the government printed the money they needed, and printed and printed and printed until the money was effectively worthless coining instead of wealth the shameful saying, “Not worth a Continental.” These early ancestors to our dollar were eventually redeemed at 100 to 1.
Helicopter Ben has already overseen two rounds of monetary inflation referred to by the mysterious name of Quantitative Easing (QE) which is a fancy way of saying the Fed floods the banks with money. The staggering size of these have only now begun to come to light showing that since the 2008 collapse the Fed has flushed more than 16 trillion dollars out of the pockets of taxpayers and into the hands of banks and corporations both foreign and domestic designated by the Federal Government as too big to fail. That is more money in four years than the entire national debt which has taken 236 years to accumulate and QE 3 is on the way.
While running for office and telegraphing his distributive goals Mr. Obama said we need to spread the wealth around. Chairman Bernanke has said the government can produce as many U.S. dollars as it wishes at no cost. However, no matter what these two wannabe puppet masters may believe there is no free lunch. In their insolated ivory-tower gated community world they may never have to pay the tab for their misguided attempts to create wealth with the wave of their hand. Those of us who work for a living who live in the world of family budgets will. The money we earn will be worth less and less and less until it is worthless. The money we have saved will lose value day by day. Someday people may not say, “It’s not worth a Continental.” They may instead say, “It’s not worth a dollar.”
The problem with getting older is you can remember when what we now pay at the pump was a car payment, and what we now pay for groceries was a house payment. The central-planers behind the curtain in OZ may tell us there is no inflation, but our eyes and our wallets tell us something else: the truth.
Dr. Owens teaches History, Political Science, and Religion for Southside Virginia Community College. He is the author of the History of the Future @ http://drrobertowens.com © 2011 Robert R. Owens email@example.com Follow Dr. Robert Owens on Facebook or Twitter @ Drrobertowens