WEBVTT NOTE What Can Be Done? 1 00:00:00.000 --> 00:00:26.000 What can be done? It should by now be all too clear that we cannot rely upon Alan Greenspan or any Federal Reserve Chairman to wage the good fight against the chronic inflation that has wrecked our savings, distorted our currency, levied hidden redistribution of income and wealth, and brought us devastating booms and busts. 2 00:00:26.000 --> 00:00:37.000 Despite the establishment propaganda, Greenspan, the Fed and the private commercial bankers are not the inflation hawks they like to label themselves. 3 00:00:37.000 --> 00:00:47.000 The Fed and the banks are not part of the solution to inflation. They are instead part of the problem. In fact, they are the problem. 4 00:00:47.000 --> 00:00:59.000 The American economy has suffered from chronic inflation and from destructive booms and busts because that inflation has been invariably generated by the Fed itself. 5 00:00:59.000 --> 00:01:15.000 That role, in fact, is the very purpose of its existence, to cartelize the private commercial banks and to help them inflate money and credit together, pumping in reserves to the banks and bailing them out if they get into trouble. 6 00:01:15.000 --> 00:01:29.000 When the Fed was imposed upon the public by the cartel of big banks and their hired economists, they told us that the Fed was needed to provide needed stability to the economic system. 7 00:01:29.000 --> 00:01:40.000 After the Fed was founded during the 1920s, the establishment economists and bankers proclaimed that the American economy was now in a marvelous new era, 8 00:01:40.000 --> 00:01:46.860 An era in which the Fed, employing its modern scientific tools, would stabilize the monetary 9 00:01:46.860 --> 00:01:51.440 system and eliminate any future business cycles. 10 00:01:51.440 --> 00:01:52.960 The result? 11 00:01:52.960 --> 00:02:01.200 It is undeniable that ever since the Fed was visited upon us in 1914, our inflations have 12 00:02:01.200 --> 00:02:07.480 been more intense and our depressions far deeper than ever before. 13 00:02:07.480 --> 00:02:13.160 There is only one way to eliminate chronic inflation, as well as the booms and bust brought 14 00:02:13.160 --> 00:02:16.200 by that system of inflationary credit. 15 00:02:16.200 --> 00:02:22.440 And that is to eliminate the counterfeiting that constitutes and creates that inflation. 16 00:02:22.440 --> 00:02:27.860 And the only way to do that is to abolish legalized counterfeiting. 17 00:02:27.860 --> 00:02:34.000 That is, to abolish the Federal Reserve system and return to the gold standard, to a monetary 18 00:02:34.000 --> 00:02:45.000 A monetary system where a market-produced metal, such as gold, serves as the standard money and not paper tickets printed by the Federal Reserve. 19 00:02:45.000 --> 00:02:53.000 While there is no space here to go into the intricate details of how this could be done, its essential features are clear and simple. 20 00:02:53.000 --> 00:02:59.000 It would be easy to return to gold and to abolish the Federal Reserve and to do so at one stroke. 21 00:02:59.000 --> 00:03:02.000 All we need is the will. 22 00:03:02.000 --> 00:03:24.000 The Federal Reserve is officially a corporation, and the way to abolish it is the way any corporation, certainly any inherently insolvent corporation, such as the Fed, is abolished. Any corporation is eliminated by liquidating its assets and parceling them out pro rata to the corporation's creditors. 23 00:03:24.000 --> 00:03:33.000 Figure 12 presents a simplified portrayal of the assets of the Federal Reserve as of April 6, 1994. 24 00:03:33.000 --> 00:03:38.000 Figure 12, Federal Reserve Assets, April 6, 1994. 25 00:03:38.000 --> 00:03:43.000 Gold, dollars in billions, 11. 26 00:03:43.000 --> 00:03:48.000 U.S. Government and other Federal Securities, 345. 27 00:03:48.000 --> 00:03:53.000 Treasury Currency Outstanding plus SDRs, 30. 28 00:03:53.000 --> 00:04:02.000 Other Fed Assets, 35 Total, $421 Billion 29 00:04:02.000 --> 00:04:08.000 Of the Federal Reserve Assets, except gold, all are easily liquidated. 30 00:04:08.000 --> 00:04:19.000 The $345 Billion of U.S. government and other federal government agency securities owned by the Fed should be simply and immediately cancelled. 31 00:04:19.000 --> 00:04:41.000 This Act would immediately reduce the taxpayers' liability for the public debt by $345 billion, and indeed, why in the world should taxpayers be taxed by the U.S. Treasury in order to pay interest and principal on bonds held by another arm of the Federal Government, the Federal Reserve? 32 00:04:41.000 --> 00:04:51.000 The taxpayers have to be sweated and looted, merely to preserve the accounting fiction that the Fed is a corporation, independent of the Federal Government. 33 00:04:51.000 --> 00:05:02.000 Other Fed assets, whether they be loans to banks or buildings owned by the Fed, can be scrapped as well, although perhaps some of the assets can be salvaged. 34 00:05:02.000 --> 00:05:09.000 Treasury currency, simply old paper money issued by the Treasury, should quickly be cancelled as well. 35 00:05:09.000 --> 00:05:22.000 And SDRs, $8 billion, were a hopeless experiment in world governmental paper that Keynesians had thought would form the basis of a new world fiat paper money. 36 00:05:22.000 --> 00:05:26.000 These, too, should be immediately cancelled. 37 00:05:26.000 --> 00:05:33.000 We are left with the $11 billion of the Fed's only real asset, its gold stock. 38 00:05:33.000 --> 00:05:40.000 That is supposed to back approximately $421 billion in Fed liabilities. 39 00:05:40.000 --> 00:05:50.000 Of the total Fed liabilities, approximately $11 billion is capital, which should be written off and written down with liquidation. 40 00:05:50.000 --> 00:05:56.000 And $6 billion are treasury deposits with the Fed that should be cancelled. 41 00:05:56.000 --> 00:06:06.000 That leaves the Federal Reserve with $11 billion of gold stock to set off against $404 billion in Fed liabilities. 42 00:06:06.000 --> 00:06:16.000 Fortunately for our proposed liquidation process, the $11 billion Fed valuation of its gold stock is wildly phony, 43 00:06:16.000 --> 00:06:24.000 since it is based on the totally arbitrary price of gold at $42.22 an ounce. 44 00:06:24.000 --> 00:06:32.000 The Federal Reserve owns a stock of 260 million ounces of gold. How is it to be valued? 45 00:06:32.000 --> 00:06:46.000 The gold stock of the Fed should be revalued upward so that the gold can pay off all the Fed's liabilities, largely Federal Reserve notes and Federal Reserve deposits, at 100 cents to the dollar. 46 00:06:46.000 --> 00:06:53.680 This means that the gold stock should be revalued such that 260 million gold ounces will be 47 00:06:53.680 --> 00:07:00.580 able to pay off $404 billion in Fed liabilities. 48 00:07:00.580 --> 00:07:07.580 When the United States was on the gold standard before 1933, the gold stock was fixed by definition 49 00:07:07.580 --> 00:07:10.420 at $20 per gold ounce. 50 00:07:10.420 --> 00:07:18.340 The value was fixed at $35 an ounce from 1933 until the end of any vestige of a gold standard 51 00:07:18.340 --> 00:07:20.540 in 1971. 52 00:07:20.540 --> 00:07:27.380 Since 1971, we have been on a totally fiat money, but the gold stock of the Fed has been 53 00:07:27.380 --> 00:07:34.300 arbitrarily valued by U.S. statutes at $42.22 an ounce. 54 00:07:34.300 --> 00:07:39.260 This has been an absurd undervaluation on its face considering that the gold price in 55 00:07:39.260 --> 00:07:47.060 in the world market has been varying from $350 to $380 an ounce in recent years. 56 00:07:47.060 --> 00:07:53.300 At any rate, as we return to the gold standard, the new gold valuation can be whatever is 57 00:07:53.300 --> 00:08:01.460 necessary to allow the Fed's stock of gold to be allocated 100% to all its creditors. 58 00:08:01.460 --> 00:08:05.980 There's nothing sacred about any initial definition of the gold dollar so long as we 59 00:08:05.980 --> 00:08:09.780 We stick to it once we are on the gold standard. 60 00:08:09.780 --> 00:08:18.060 If we wish to revalue gold so that the 260 million gold ounces can pay off 404 billion 61 00:08:18.060 --> 00:08:25.060 dollars in Fed liabilities, then the new fixed value of gold should be set at 404 billion 62 00:08:25.060 --> 00:08:34.940 dollars divided by 260 million ounces or $1,555 per gold ounce. 63 00:08:34.940 --> 00:08:44.200 If we revalue the Fed gold stock at the price of $1,555 per ounce, then its 260 million 64 00:08:44.200 --> 00:08:49.260 ounces will be worth $404 billion. 65 00:08:49.260 --> 00:08:58.660 Or to put it another way, the dollar would then be defined as one 1555th of an ounce. 66 00:08:58.660 --> 00:09:04.300 Once this revaluation takes place, the Fed could and should be liquidated and its gold 67 00:09:04.300 --> 00:09:12.300 If gold stock parceled out, the Federal Reserve notes could be called in in exchange for gold coins minted by the Treasury. 68 00:09:12.300 --> 00:09:18.300 In the meanwhile, the banks' demand deposits at the Fed would be exchanged for gold billion, 69 00:09:18.300 --> 00:09:27.300 which would then be located in the vaults of the banks, with the banks' deposits redeemable to its depositors in gold coin. 70 00:09:27.300 --> 00:09:44.300 In short, at one stroke, the Federal Reserve would be abolished, and the United States and its banks would then be back on the gold standard, with dollars redeemable in gold coins at $1,555 an ounce. 71 00:09:44.300 --> 00:09:50.300 Every bank would then stand, once again as before the Civil War, on its own bottom. 72 00:09:50.300 --> 00:10:00.300 One great advantage of this plan is its simplicity, as well as the minimal change in banking and the money supply that it would require. 73 00:10:00.300 --> 00:10:11.300 Even though the Fed would be abolished and the gold coin standard restored, there would, at this point, be no outliery of fractional reserve banking. 74 00:10:11.300 --> 00:10:14.300 The banks would therefore be left intact. 75 00:10:14.300 --> 00:10:27.300 But with the Federal Reserve and its junior partner, Federal Deposit Insurance, abolished, the banks would at last be on their own, each bank responsible for its own actions. 76 00:10:27.300 --> 00:10:34.300 Some champions of the free market advocate privatizing deposit insurance instead of abolishing it. 77 00:10:34.300 --> 00:10:41.300 As we've seen above, however, fractional reserve bank deposits are in no sense insurable. 78 00:10:41.300 --> 00:10:47.300 How does one insure an inherently insolvent industry? 79 00:10:47.300 --> 00:10:54.300 Indeed, it is no accident that the first collapse of saving and loan deposit insurance schemes in the mid-1980s 80 00:10:54.300 --> 00:11:02.300 took place in the privately run systems of Ohio and Maryland, privatizing governmental functions 81 00:11:02.300 --> 00:11:08.860 Actions, while generally an admirable idea, can become an unreflective and absurd fetish 82 00:11:08.860 --> 00:11:16.180 if the alternative of abolition is neglected. Some government activities, in short, shouldn't 83 00:11:16.180 --> 00:11:23.340 exist at all. Take, for example, the government function prevalent in the old Soviet Union 84 00:11:23.340 --> 00:11:29.460 of putting dissenters into slave labor camps. Presumably, we would want such an activity 85 00:11:29.460 --> 00:11:36.860 not privatized and thereby made more efficient but eliminated altogether. 86 00:11:36.860 --> 00:11:42.060 There would be no lender of last resort, no taxpayer bailout. 87 00:11:42.060 --> 00:11:48.820 On the contrary, at the first sign of balking at redemption of any of its deposits in gold, 88 00:11:48.820 --> 00:11:54.020 any bank would be forced to close its doors immediately and liquidate its assets on behalf 89 00:11:54.020 --> 00:11:55.820 of its depositors. 90 00:11:55.820 --> 00:12:02.460 A gold coin standard coupled with instant liquidation for any bank that fails to meet its contractual 91 00:12:02.460 --> 00:12:09.800 obligations would bring about a free banking system so hard and sound that any problem 92 00:12:09.800 --> 00:12:14.540 of inflationary credit or counterfeiting would be minimal. 93 00:12:14.540 --> 00:12:20.060 It is perhaps a second best solution to the ideal of treating fractional reserve bankers 94 00:12:20.060 --> 00:12:25.340 Bankers as embezzlers, but it would suffice at least as an excellent solution for the 95 00:12:25.340 --> 00:12:31.740 time being, that is, until people are ready to press on to full 100 percent banking.