How the Federal Reserve Ruined the U.S. Economy

Oct 22, 2010
Eric Brothers

The Federal Reserve Building in Washington, D.C. - Public Domain

The Federal Reserve is an "independent agency" that determines financial policy and has ruined the economy of the United States.

In a television interview with Jim Lehrer on the PBS News Hour, Alan Greenspan (Chairman of the Federal Reserve for 18 years) was asked: “What is the proper relationship - what should be the proper relationship - between the chairman of the Fed and a president of the United States?”

Here is his answer: “First of all the Federal Reserve [Fed] is an independent agency, and that means basically that there is no other agency of government which can overrule actions that we take. So long as that is in place…then what the relationships are don’t frankly matter.”(1)

The "Federal" Reserve is a group of private banks with no government oversight

Greenspan just plainly stated that the Fed is a private institution that has no supervision or oversight whatsoever. Thus the Federal Reserve System is not “Federal”; it is a cartel of privately-owned banks. And it is to their benefit to destroy the economy of the U.S. How is that possible?

Here’s how it works. The Federal Reserve is in charge of 1) interest rates and 2) money supply.

The government needs money. The Fed loans money to government with interest (for example $100 at 5% interest). The government pays back the $100 but doesn’t have the 5% interest to pay the Fed. Where does the government get the money to pay the interest? It has to borrow more money from the Fed with more interest. This is how the debt compounds. In this manner, the debt will continue to grow and never end. Where does the money and the interest go? To the “Federal Reserve System.”

The Fed can print an endless supply of money because: a) there is no gold standard and b) there is no silver standard. Thus the Fed does not have to limit the amount of money it prints because nothing is backing it. Only the Fed is allowed to create the money supply, not the government. Only the Fed determines the interest rate of money.

How "fractional reserve banking" can turn $100 into $1,000

The Fed engages in “fractional reserve banking,” which allows a bank to “expand the initial deposit of $100 into a maximum of $1,000.” So the Fed can create an extra $900 that it loans to the government with interest - with absolutely nothing backing it! The reserve requirements affect how the Fed's banking system can create transaction deposits. If the reserve requirement is 10%, for example, "a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower writes a check to someone who deposits the $90, the bank receiving the deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000)." (2)

So the Fed created the economic crash by making so much money available at low interest that banks had tons of money to loan people to buy homes and invest in stocks; as stated above, the Fed created this money by loaning it to the US government and charging interest. You see, the Fed is in the business of making money - literally - and nothing else. There is no oversight of the Fed; they are a private institution. The only bottom line important to the Fed is their own. The profit they make goes into the hands of the private banks that own the “Federal Reserve System.”

The Federal Reserve made it too easy for people to get money on credit

The banking crisis, the housing bust, and the crash on Wall Street were all directly -- not indirectly -- caused by the Fed. How? The Fed created the complete economic crash by making so much money available - which is how they get their money, remember? - at very low interest so that banks had tons of money to loan people to buy houses and stocks. The Fed kept interest rates low to “stimulate the economy.” People kept buying houses and “flipping” them. That gave the outward appearance of a housing “boom.” The same took place on Wall Street. Stock prices were inflated because people were buying and buying and pushing up the prices. So, as in the housing market, the stock market was in an apparent “boom.” So what was the role of the banks? The Fed was making the money available for them to loan to people to buy houses and stocks.

Who or what is marked by the media and the American public as the “bad guy”? The “banking industry” is blamed. “Wall Street” is also being blamed for the crash. And “greedy” Americans who can’t afford to buy a home are also blamed. The Fed is the root cause of all of this but no blame is placed at their doorstep. None of this would have happened if the Fed did not make it so easy for people to borrow money. So the Fed is make a ton of money by destroying the American economy, and, in its wake, the world economy. At the Fed continues to make more and more money and charge more and more interest. And nobody is trying to stop what they are doing.