The Federal Reserve Scam: Playing With Fire

Most of my readers are familiar with the evils of the Federal Reserve and how it is destroying the middle class through inflation. It functions to redistribute the wealth into large corporations and the ruling class. 

This BLOG summarizes key arguments presented in a Mises video "Playing with Fire," which critically examines the role and impact of the Federal Reserve (FED) on the US economy.

The central thesis of the source is that the FED, far from being a stabilizing force, is the primary instigator of economic instability, booms, and busts. It argues that the FED's actions, particularly its ability to create money and manipulate interest rates, benefit specific groups (government, large banks, political elites) at the expense of average citizens and the working class.

The speakers advocate a return to a market-driven monetary system, potentially based on a commodity standard like gold, and calls for the abolition of the FED.

Main Themes and Key Ideas:

1. The Federal Reserve as the Arsonist, Not the Fireman: A core argument is that the FED is not a problem-solver but the creator of the problems it claims to fix. The source explicitly states, "the FED has made the economy more unstable than it was before the Fed. They, the Keeper of the keys of the Magic Kingdom of money would rather you didn't understand they would like to be thought of as the problem solver that shows up and puts out the fire but in fact they're really the arsonist that started the fire to begin with." This metaphor is central to the critique of the FED's role in causing and then responding to economic crises.

2. Money: From Commodity to Fiat: The source traces the evolution of money from historically recognized commodities like gold and silver, which served as a "general medium of exchange" and "common unit of account," to modern fiat currency.

• Commodity Money: For thousands of years, "human civilization settled on gold and silver as the main sources of money." The gold standard is highlighted as a "constraint on government spending" and a system where "people walked around with $20 gold pieces in their PS pocket." It is described as a "functional currency" that prevented "financial disaster."

• Fractional Reserve Banking: Banks emerged as warehouses for gold, issuing certificates. However, the introduction of "fractional Reserve banking," where banks lend out a portion of deposits, is identified as a "monetary original sin." This practice allows banks to "creat[e] new money out of thin air," which "comes with risks," including the possibility of a bank run if "enough depositors could come to the bank requesting the money the bank would come up dry."

• Fiat Money: The shift to a "pure paper money world," or "fiat currency," which "has no intrinsic value," is marked by President Nixon's suspension of the convertibility of the dollar to gold in 1971. This move created "dramatic economic uncertainty," "volatile" foreign exchange markets, "ballooned higher costs," and "job losses," leading to "stagflation." Fiat money's value is described as owing "its value to Habit to confidence in this great country."

1. The FED's Creation and Expanding Power: The Federal Reserve was established in 1913 through the Federal Reserve Act, initially promised to "stabilize the banking system" and act as a "lender of last resort."

• Origins: The FED was created "responding to the pressures of special interest that rose out of the Progressive Era and after years of regional and local banks failing due to fractional Reserve banking."

• Structure: The Act created "12 regional federal reserve banks," which are "corporation[s]," and required national banks to be members. It also established the seven-member "Federal Reserve board," now the Board of Governors, to "manage the system."

• Early Promises vs. Reality: Despite initial promises of stability, the source points to the "crash" that followed, indicating the FED did not prevent financial crises.

• Expansion of Power: Subsequent acts, like the 1933 Banking Act, "set the stage for the everchanging evolution and increasing power of the FED," creating the Federal Open Market Committee (FOMC) to formulate monetary policy, primarily through buying or selling government securities.

• Crisis-Driven Growth: The source argues that "the FED has always used emergencies to expand their powers" and that "each crisis that they cause gives them a chance to grow even more and with each crisis the FED is is gaining more and more power and as they gain more power they intervene more and create even bigger crisis."

Inflation and the Redistribution of Wealth: This fundamentally links the FED's actions to inflation and a systematic transfer of wealth. This is the essence of communism.

• Intentional Inflation: The FED "actually intends to cheapen the value of your money by 2% a year." This is described as "monetary shoplifting."

• Winners and Losers: The FED's creation of money and intervention in the economy creates "winners and losers." "Somebody profits from it and if somebody's profiting from it somebody else is losing by it."

• Who Benefits: "The government is always the winner because when the FED is printing up new money it it means that the government can benefit they're the first spender of the brand new money." Other beneficiaries include "large corporations not small corporations large Banks not small Banks and then the political Elites that sort of control the political system." These groups "are the first spender of the brand new money" and have "the most influence on the FED itself."

• Who Loses: "The average working American and their family unit is who really pays the price uh during the cycle of boom and bust." Younger generations and those on fixed incomes are particularly harmed as "any amount of money that you've accumulated that's not invested or used to buy consumption Goods is going to be losing value in this permanent inflation that we have." The process "redistributes wealth away from the middle class away from Main Street towards Wall Street and Silicon Valley."

Inflation as a Tax: Inflation is labeled as the "real evil tax because it hits the middle class the poor."

1. Financialization and Bubbles: The shift away from the gold standard and the increasing power of the FED are linked to the "financialization of the economy," where finance becomes "not as the means to an end but as an end in itself."

• Explosion of Finance: The "finance insurance and real estate companies that that sector has has exploded especially since we went off the gold standard."

• Dominant Banks as Cartels: "These dominant Wall Street banks are now cartels empowered in that regard by the Federal Reserve itself."

• Creating Bubbles: The source argues the FED actively creates asset bubbles by manipulating interest rates. For example, the "housing bubble" after 2001 was created by "very low interest rates and a lot of moral suasion for people to buy houses." The response to a bursting bubble is often to "create another bubble."

• "Everything Bubble": More recent policies have resulted in an "everything bubble of inflation where prices for a wide range of assets and goods and services were constantly increasing."

  Share Liberty or Death

1. The 2008 Financial Crisis and Unprecedented Interventions: The 2008 crisis is presented as a direct consequence of the FED's actions in creating the housing bubble.

• Crisis Response: The FED responded with "new tools and programs it had not used before," going "deep into previously untouched areas of the economy."

• Bailouts: The FED injected money into the system, including through "partially some tax dollars and some just money printing by the FED to give all these big Banks billions of dollars." This involved buying assets like "mortgage back Securities," which was a change where they were "Brazen about what they were doing open about picking the winners."

• Socializing Losses: These bailouts "socialize the losses so they create a system with the banks of the profits are mine the losses are on you the taxpayer and that's horribly destructive of the whole free market system."

• Too Big to Fail: This intervention reinforced the "too big to fail concept," described as "too big to fail permanently."

1. The COVID-19 Pandemic Response: The pandemic is viewed as another instance where the government and FED used a crisis to expand their power and inflate the currency.

• Crisis Narrative: The "government's message was that the global economy was collapsing due to covid."

• Monetary Accommodation: "The FED accommodated that by basically printing trillions of dollars." The FED "bought everything that wasn't nailed down and indeed took a hammer and stripped some of those Nails away and it was a all purpose all front bailout."

• Continued Intervention: Even after the immediate crisis, the FED "didn't stop they went right on and so now they're lending indirectly to specific companies."

• Blaming the Virus: Most people "associate the recession that we went through at that time with the virus rather than with the fed."

1. Lack of Transparency and Accountability: The source highlights the lack of public understanding and accountability surrounding the FED's operations.

• Obscured Actions: The FED "would rather you didn't understand." Their impact often "goes unexamined."

Political Influence: The FED is described as a "political Central Bank." Politicians "love the FED because it creates what Economist call a fiscal illusion the sort of the promise of something for nothing." They also "use the FED as a Whipping Boy when things go bad."

• Resistance to Audit: Attempts to audit the FED, like those by Ron Paul, faced significant opposition from the banking industry, which "would rally around and send Millions to both political parties in Washington to kill it."

1. Austrian Business Cycle Theory: The source references Austrian economic theory, particularly the work of Ludwig von Mises and Murray Rothbard, to explain the negative consequences of central bank intervention.

• Credit Expansion and Distortions: Austrian theory states that "credit expansion leads to economy-wide distortions," misdirecting resources toward "unsustainable projects," creating "boom and bus cycle."

• Manipulation of the Monetary Unit: Manipulating the unit of account has "adverse consequences."

• Importance of Sound Money: Austrian economists "place a very high priority on money" and the "natural stability of the monetary unit."

• Critique of Central Banking: Mises realized that central banks "in manipulating money and manipulating credit induced this artificial boom and the consequence of that is the economic Bust."

• Rothbard's View: Rothbard expanded on Mises, advocating for "limiting government intervention and abolishing fractional Reserve banking." He argued that "an increase in the money supply does not benefit Society it benefits some at the expense of others."

1. The Threat of a Central Bank Digital Currency (CBDC): The source views a potential FED-controlled digital currency as a significant danger.

• Magnified Power: A CBDC would "magnify 100-fold" the FED's existing power.

Threat to Freedom: It poses a "large threat to American citizens because then they can program these things so that they can neutralize them." This could allow the government to control what people buy or impose penalties for not spending money.

• Window into Your Life: A digital currency would be the "fed's window into your life."

1. The Need for a New System and Abolition of the FED: The source strongly advocates for dismantling the Federal Reserve and returning to a market-based monetary system.

• Ending the FED: The source explicitly states, "we don't need a fed." Murray Rothbard is cited as being "full on in support of ending the FED all alog altogether."

• Market-Based Money: Abolishing the FED would allow for a "money supply that the the market can bear and the market would produce."

• Sound Money: The ideal system is described as "sound money," where people could use "gold, silver, foreign currencies that that they voluntarily agree upon." This is seen as "closely intertwined with the freedom and Independence and responsibility of the citizens."

• Benefits of No FED: A "life without a Fed is constant growth and slowly falling prices which benefits the entire population."

• Taking Away Power: Practical steps suggested include taking away the FED's power to "ever buy anything again" and taking them "completely out of interest rates setting policies" and the "money creation process."

Key Facts and Ideas Supported by Quotes:

• The FED is the "arsonist that started the fire" of economic instability.

• Money was historically "gold and silver," a "constraint on government spending."

• Fractional reserve banking is a "monetary original sin" that creates money "out of thin air."

• The shift to fiat currency created "dramatic economic uncertainty" and "stagflation."

• The FED was created "responding to the pressures of special interest."

• The FED "has always used emergencies to expand their powers."

• The FED "actually intends to cheapen the value of your money by 2% a year," which is "monetary shoplifting."

• The FED's actions create "winners and losers," benefiting the government, large banks, and political elites first.

• Inflation is the "real evil tax because it hits the middle class the poor."

• The FED created the "housing bubble" with "very low interest rates."

• Bailouts "socialize the losses" and are "horribly destructive of the whole free market system."

• The FED accommodated COVID-related spending by "basically printing trillions of dollars."

• Austrian business cycle theory explains how credit expansion leads to "boom and bus cycle."

• Austrian economists emphasize the importance of "sound money" and the "natural stability of the monetary unit."

• A Central Bank Digital Currency is a "large threat to American citizens" and the "fed's window into your life."

• "We don't need a fed."

• A "life without a Fed is constant growth and slowly falling prices."

• The ideal is "sound money," potentially gold or silver, based on voluntary agreement.

Conclusion:

"Playing with Fire" presents a strong and consistent critique of the Federal Reserve, portraying it as a powerful and destructive force in the US economy. It argues that the FED's interventionist policies, particularly its control over money and credit, lead to inflation, economic instability, and a regressive redistribution of wealth.

Drawing on historical analysis and Austrian economic principles, Mises advocates for a radical departure from the current system, calling for the abolition of the FED and a return to a market-based, potentially commodity-backed, monetary system. The potential threat of a Central Bank Digital Currency is also highlighted as a dangerous future development that would further empower the FED and threaten individual freedom.

Subscribe to libertyordeath101.substack.com to listen to our free podcast versions and not miss future posts.

https://buymeacoffee.com/kpealock

Bargain of the century in (almost) free business books and videos: https://www.gorillajoemktg.com

• If you want to escape mental slavery and government propaganda, grab a copy of The Star-Spangled Deception

• Grab a copy of Dirty Laundry: How I Stole $50 Billion in CIA Drug Money, Almost. Read how I once held power of attorney over trillions of dollars in deep state bank accounts worldwide. This money was accrued from CIA drug smuggling, war booty, and government embezzlements. It is why I am on the government’s watch list.

• Grab a copy of Gun Control is a Crime.

• Grab a copy of The Warmongers.

• Grab a copy of Chains of Injustice. Learn how the terrorist IRS, corrupt FBI, and murderous ATF (the axis of evil) destroyed my life and that of others.

• Grab one of my other books at https://book-showcase.com