Much is made of free enterprise and free trade, but little
attention is given to the central role governments play in the
creation and control of the money supply.
Both during the consideration of legislation by Congress,
and since passage of the Federal Reserve Act in 1913, critics
have charged that turning the nation’s currency over to an
independent federal agency, particularly one that is owned and
controlled by its member banks was not a good idea, and would lead
to the corruption of the value of U.S. currency, and its
transformation into little more than fiat money. By and large,
the critics have been right.
There are twelve regional Federal Reserve banks, each the
central bank for its district. Member banks must own stock in
their central bank, maintain reserves there, and appoint six of
the nine directors to manage their central bank.
Overseeing the system is a seven member Board of Governors
appointed for fourteen year terms by the President.
These governors, together with representatives from the
regional reserve banks, determine the activities of the Federal
Open Market Committee, which buys and sells federal government
securities to expand or contract the reserve funds of the member
In addition, they set the reserve requirements, which
controls the member banks’ ability to extend credit.
Once at 16 2/3 % of deposits, this meant every dollar on
deposit would support five dollars of credit.
They also set the margin requirements for the stock market,
thus having influence over stock market speculation.
Long gone are the dollars backed by gold and silver. U.S.
currency today is truly fial currency, and true to form,
inflation has followed.
Historically, the worse instances of fiat money running amok
have been Germany after World War I and Italy and China in the
inter-war period of the `30s.
Since 19??, when dollars could no longer be redeemed for
silver or gold, inflation in the United States has raised prices
This, combined with an unpayable federal government national
debt of $ ?? trillion, increasing inexorably at a rate of $250-
350 billion annually; and an annual foreign trade deficit of $ ??
billion for a cumulative trade deficit of over $1 trillion since
1980, does not encourage faith in the soundness of the dollar.
Baron Jacob Rothschild of France said that he cared not who
was head of the government as long as he controlled the money
supply, and this power has been relinquished by Congress to the
Federal reserve system and the banking industry.
World monetary authorities impose strict remedial programs
on other countries which have such horrendous fiscal records. It
is not inconeivable that the United States will spend itself into
bankruptcy, forcing the current dollar to be replaced by a “hard”
dollar, with all the ramifications this would have on the
people’s savings and assets.
This has occurred in Brazil (July 1994), with a new “real”
replacing the old cruzeiro.
The U.S. Dow-Jones industrial average is itself a good
indicator of inflation in the United States. In 19??, the year
the dollar became inconvertible, the Dow Jones was ?. Now, ?
years later, it hovers around 3600-3900.
Emphasis on the Dow Jones is a good indication of the
speculative nature of the New York Stock Market. Composed of
only 30 blue chip stocks, it gives no information on the value or
prospects of the tens of thousands of other stocks on the Big
Board, the American Stock Exchange, or NASDAQ.
And in any case, it really just reflects the wishes of those
desiring to buy or sell “blue chip” stocks over a short period of
time, and does not reflect the wishes of the serious investor who
is buying for the long haul.
Compared to the total number of shares outstanding in a
company, the number of shares traded daily is miniscule, and is
pure speculation, not really directly benefitting the capital of
the company whose shares are being traded, and in fact often
putting pressure on the company to become more profitable to
satisfy the expectations of the people who have traded up the
value of its stock.
For example, if a solid company with a quality product and
well-paid employees has 8% earnings and a 6% dividend on a stock
valued at a price/earnings ratio of 15, if the speculators bid
its stock up to twice its current value, the earnings drop to 4%
and dividends to 3%.
Its management is now under pressure to increase the stock’s
long-term potential, and to increase sales and maybe decrease
quality, expenses and wage costs to bring its earnings back up to
8%. This is good for the speculators, but not necessarily good
for the company, its customers, or its employees.
Another flaw to the myth of free trade is the use of
“circuit breakers” by the New York Stock Exchange, which calls
itself the largest free “auction” in the world.
These circuit-breakers are stock exchange rules which
artificially slow trading, and in some stock and commodity
exchanges even limit the range that a price can rise or fall in a