Great article from Ron Paul on the Greece bailouts and the ongoing mess in Europe.

The spotlight remains on the Greek sovereign debt crisis as the riots continue. The terms of the Greek bailout from the IMF and Eurozone countries remain contentious with citizens on all sides. Europeans hate having their governments throw public money away as much as Americans do. The Greeks are not happy about having their taxes raised while their pensions and salaries are cut. Meanwhile, it is rumored by the Financial Times, AFP and others that Greece may spend more than it saves from austerity measures on arms deals with Germany, France and the US as a potential condition of receiving bailout funds. If true, it is certainly not unprecedented for the global military industrial complex to benefit from deals made by their friends in the central banking community. After all, war is the health of the state. The last thing big government proponents want is for peace to break out in the world.

This free flow of fiat money from around the globe to Greece will not really save Greece as much as it will grant a temporary reprieve to central bankers from the consequences of their mistakes. Sadly, this will come at the expense of the Greek people and taxpayers in Europe and America. Taxpayers are of no consequence to either European or American central bankers. Even the mere desire for complete information on what they are up to in our name is rebuffed, as we saw last week in the Senate with the failure of Senator Vitter’s amendment containing my language to fully audit the fed. The hubris of powerful and secretive central bankers seems to know no bounds.

If someone incurred debts against you as an individual, without your knowledge or consent, you would call it identity theft. You would call your bank for a full accounting of the debts incurred in your name, and after some verification, those debts would be declared invalid and you would not be held responsible for them. Furthermore, if the culprit was found, they would be prosecuted and sent to jail.

Not so with governments and central banks. Governments that are supposed to be of the people and for the people routinely incur debts against the people. Some governments even borrow money to oppress their citizens, and then expect them to pay for their own oppression with interest. With a fiat monetary system, the sky is the limit for how much debt a government can place on the backs of the people.

We have reached the point in the United States where the debt our government has accumulated against us is mathematically impossible to pay off. Harder times, likely due to a wave of hyperinflation, will eventually find its way to our streets and I am fearful of how Americans will react. My hope is that we will come together peacefully and help each other, and that enough of us will be aware that the blame rests securely on the shoulders of the Federal Reserve and the special interests. They should not be looked to for salvation. They should not be given more power. Rather, they should be stripped of the powers that allowed them to create this mess in the first place.

Resistance to public transparency regarding public debts should be denounced in the strongest of terms, and the central bankers that incurred them should be seen as no better than common identity thieves.

http://campaignforliberty.com/article.php?view=863

“The few who understand the system, will either be so interested in its profits, or so dependent on its favors, that there will be no opposition from that class. The great body of people, mentally incapable of comprehending the tremendous advantages, will bear its burden without complaint.”

- Lord Rothschild, European central banker

The below slides are meant to explain fractional reserve banking as simply as possible using pictures.  The below demonstration assumes a reserve requirement of 10%, which is the figure typically given by the banking industry and financial experts.  However, in Part 2 I will demonstrate there there is effectively NO set reserve requirement though the banking system obviously carry some level of cash reserves.
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Ponzi scheme – a fraudulent investment operation that returns assets to the defrauded from assets they previously loaned to the scheme’s operators or assets paid by subsequent newer “investors” rather than from any actual profit earned

While it is (comparatively) well-known that the US dollar, while a currency, is a solely an instrument of credit issued by the Federal Reserve. All holders of dollars – including myself and most readers of this article – are in debt to the Federal Reserve. Now, this debt is really phantom debt, but the key really is printed on each dollar, more properly known as a Federal Reserve Note: “This note is legal tender for all debts, public and private.” (1)

The total federal debt issued was $11.933 trillion dollars at the end of fiscal year 2009 in September per the Treasury Department, an increase of $1.9 trillion from 2008. (page 37/123) This debt will continue to increase every year until the monetary system collapses due (just in part) to the compounding “miracle” of interest rates. Federal debt is bought at auction by primary dealers (Goldman Sachs, JP Morgan Chase, etc.) and “resold” to the FED, which then inflates the money supply by creating new dollars, or “injecting liquidity.” The FED can also “inject liquidity” by purchasing assets, such as toxic mortgage debt or even company stock like AIG or GM. Individual community banks, whether Citibank, Bank of America, or small local banks and credit unions, can also create new dollars with the fractional reserve system, which is can be viewed graphically here. However, a proof I wrote demonstrates that fractional reserve banking broke down years ago, and can be more aptly named as the “no-reserve lending” system.
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“Money is not an invention of the state. It is not the product of a legislative act.” - Carl Menger, 1871

Money is an invention of mankind. Our society refers to the irredeemable scraps of linen and ink as “money,” but in truth the dollar is no such thing. It is merely a currency, a medium of exchange, created by fiat - by government decree and force. The dollar is a phantom I.O.U. note. It is a Ponzi scheme and the central banking system issues new dollar currency whenever it wishes.

Dollars are toxic waste in the literal and fiscal sense. Literally, each dollar bill contains arsenic, cadmium, mercury, thallium, and cyanide and generates dumpster upon dumpster of hazardous waste every day.  Fiscally, the dollar has lost 98.3% of its value as of January 1, 2010 since the creation of the central bank known as the Federal Reserve in 1913. (Note 1) Many Americans are unaware that the electrons and scraps of linen we trade around as currency are mere shadows of sound money.

To see the shadows in our money, we have only to look at it. Look at this old quarter. The one I have is a little worn but it still has a silvery glisten to it and rings when you drop it. Now look at the rim of any current quarter – it is a cheap copper sandwich with a thin plating of nickel on top to make it appear like silver. It makes an annoying tinny sound when you drop it. The quarter was exchangeable in 1916 for about 0.012 troy ounces of gold, or over $13 modern-day dollars. Today it is still exchangeable for over $3 just for its silver content. The modern quarter? The “melt” value of its copper and nickel is worth less than 5 cents.

Golden shadows? Look at a new $1 Sacajawea or presidential series coin. It’s copper with a manganese brass cladding to give it a nice, fake golden shine. The melt value of the metal is about 5 cents. Desperate to introduce them into circulation, the United States Mint accepts credit cards and ships direct for free (well, at taxpayer cost) to your home. [The Mint is trying to replace $1 bills, which costs around 5 cents each to print as they wear out very easily over several years, after which it is shredded and treated as toxic waste.]

When originally introduced as a super-cheap placeholder coin for silver and gold redemptions in 1866, the nickel was made of 3.75 grams of copper and 1.25 grams of nickel. The dollar’s debasement is so horrendous that nickel’s melt value is now higher than its face value of 5 cents.
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How to Double the Money

No matter who you are or what your income, you can retire today. Here’s how:

The Fed recently said it will leave interest rates unchanged at 0.00% to 0.25%. Helicopter Ben believes their is a low danger of inflation due to high unemployment. Let’s pretend for a moment that inflation is not strictly a monetary phenomenon and could simply be defined as “an increase in the money supply.” Don’t worry that the money supply has actually doubled. Just put your faith in Old Ben.

How to Retire Without Money

First, drive/fly/walk/run to your local Federal Reserve Bank, or go straight to the source in Washington, DC. Ask to talk to Ben. Tell him Nick sent you. Tell him that you understand how tough these economic times are, and that you want to do him a favor. Due to the lack of liquidity in the credit market you are going to help out the biggest of all “too-big-to-fail” banks. All he needs to do is give you a $1,000,000,000 loan at 0.00% interest. Heck, if you have bad credit you will even settle for the 0.25% rate.

In the Citi!

Now take your billion and head down to the nearest Citibank. Tell that you would like to make a deposit. I suspect the conversation will go a little like this:

Teller: Hi. Welcome to Citi. How can I help you.

You: I would like to open a savings account.

Teller: Excellent! How much would you like to deposit?

You: (pinky finger held at corner of mouth) One billion dollars!

Teller: Very funny sir.

You: (Show them your Federal Reserve check signed by Ben) Here you go.

Teller: (Mouth agape.) Let me get my manager.

Commercial Break

Living Off the Interest

Just a quick glance at Citi’s current savings account rates shows that their Ultimate Savings Account (which you will certainly qualify for….) pays an annual interest of 1.19%. Which means if you had good credit and got the 0.00% interest loan you are now making $19 million/year on the interest alone, and if you got the 0.25% (cause you had bad credit) you are making a measly $9.4 million. Either way you should be able to retire to the life of luxary.

Doin’ Nothin’, Nothin’ Doin’

While you are sitting on the beach somewhere sipping on an Italian Margarita you may start to wonder at this magic money trick, and how fractional reserve banking and fiat money managed to steal from the poor to give to the wealthy, but put that out of your mind. Instead, think about how cool a trick it is to be able to make money from nothing and to get your chicks for free!

After all, you have just injected a billion dollars liquidity back into the markets into a struggling bank that was really pressed for cash. They can now loan that money out to small business owners at exorbitant rates. The streets will flow with money again. House prices will rise forever. Buffett will buy an entire Railroad!

Don’t worry that you didn’t actually add any real production to the economy. Forget the fact that you didn’t have to work for an honest dollar like the common man. You are a member of the elite now. And when billions of dollars are involved you can afford not to have conscience.

Just remember that the Fed and all the banks they lend to have been getting away with the exact same practice for years now.

We live in times when government and central banks monopolize money and make it next to impossible for viable competing currencies to arise, which can make it difficult to see the possibility of other currency alternatives.

Picture a new village, untouched by current monetary laws. People begin exchanging goods through the process of bartering. This makes it difficult to know what you can buy, because the milkman will only need so many of the pouches that you manufacture. Because bartering can be inefficient, unpredictable, and unreliable, the people decide to represent their goods with something of value. They find copper, silver, and gold nearby, all unique, relatively limited (therefore they hold more value than, say, granite), and quite durable. Thus, they can represent their goods with these valuable metals (and to make it more convenient, paper guarantees to those metals).

Money does not get its value through “force” as some believe. When the people in the village were looking for a more effective way to exchange goods, they were not trying to represent force. They were aiming to represent value through metals that were limited enough to have value, had durability, and could not easily be counterfeit (or inflated).  Currency is never originally brought about by force or through government.

Historically government has gotten involved in currency for one reason: greed. Kings would debase the metals that the market freely used and valued. Kings would inflate and devalue the currency that was once stable when the market was in control. Government could not debase metals, clip coins, and print unsound paper money and expect people to voluntarily accept it, thus force was necessary to make it happen. Legal tender laws forced devalued government money on the people and markets.

It is difficult for government to grow when people demand the money to be backed by hard goods (such as metals). It is difficult for government to expand its presence when the money supply is stable and in the hands of the people. History clearly shows us that when government wants to expand its state or military presence beyond its usual bounds, it cannot do so without control over the nation’s money supply. Without the control of money, government would have to take every cent it needed directly from the people and businesses, an approach that would become very unpopular in a very short amount of time.

This is why governments have always tried to take control and monopolize money. If people are forced to use government money and cannot create a competing currency, they must use the money the government gives them. Government can then indirectly “tax” the people through inflation and devaluation of the currency. This allows government to grow its boundaries and influence without directly feeling the repercussions of a people who see their property forcefully go out the door to the government in the form of taxes. Monetary inflation is a very indirect and gradual process for government to take money from the people. And it can only work if people are forced to accept the debased and often worthless money. As the money supply grows without solid commodity backing, prices begin to rise, impacting poorer citizens the most.

This brings us to the U.S. Some have argued that the Constitution allows the government to pass legal tender laws and control many aspects of monetary policy. However, on close inspection, this power has been greatly abused and misinterpreted. The Constitution states:

Article I, Section 8: The Congress shall have Power…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.

Article I, Section 10: No State shall…coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt.

Congress has the power to coin money, regulate its value, but nowhere does it have the authority to force people to accept that money. Congress can create and regulate its money, but it cannot mandate that people use it through legal tender laws. The states are prohibited from coining money and are required to make only “gold and silver Coin a Tender in Payment of Debt.”

Neither the powers delegated to Congress nor the states give them the authority to shove a currency onto the people. “Legal tender” means tender in the payment of debt. The states are given the duty to be sure that only gold and silver can be legal tender. For legal and juristic purposes, only gold and silver are acceptable in the payments of debt. But this does not give the state the power to dictate the forms of other monetary commodities or economic exchanges that the people and market might come up with. In other words, the state controls the legal use of money in the payment of debt, but neither the state nor Congress has authority over the economic exchanges of money in the marketplace.

The Founders did not give the federal government the ability to monopolize currency and force it on the people. There is no power in the Constitution given to the government to restrict currency production and choice of the people and marketplace. In fact, many competing and private currencies functioned efficiently for a good part of the 1800s. Today, however, we accept legal tender laws as a legitimate role of Congress, when in reality they do nothing but unconstitutionally force a worthless currency on the people.

Consider the basic principles of modern legal tender laws. No government force or mandates would be necessary to encourage people to use a widespread, valuable, and sustainable currency. Legal tender laws and government coercion over money are always used to force a currency that would otherwise be worthless onto the people and marketplace. Imagine if the legal tender laws enacted in the 1960s, forcing people to accept Federal Reserve Notes, were repealed today. Who in their right minds would continue using a currency whose value consistently decreases, is in the control of seven central bankers, and in reality is worth nothing more than the paper on which it is printed?

People will often reply that repealing legal tender laws would lead to the creation of hundreds of private currencies and economic chaos. But remember something. Especially in today’s digital, national, and even global economy, a currency would have to be simple, recognizable, valuable, and widespread to have a chance of surviving in the market. People will naturally encourage and use the currency that holds the most value and brings the greatest amount of ease to transactions. If that is the currency produced by Congress, so be it.

Monetary freedom simply gives people the option of throwing off the restrictive chains of a centrally manipulated, inflated, and drastically devalued currency, the symptoms of a government out of control. Competition in money would force government to stay in line, live within its means (both domestically and overseas), and maintain high levels of sensibility and responsibility. History has visibly painted the picture that without control over money, government’s long-term abilities are only as able as those that the people directly delegate to it. Freedom of money plays a major role in ensuring freedom and representation in government.

“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” — F.A. Hayek

“Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.” — George Washington

“All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation.” — John Adams

“Whoever controls the volume of money in any country is absolute master of all industry and commerce.” — James A. Garfield

“We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people.” — Daniel Webster

The main arguments against capitalism, that I’ve heard, include that it’s an unfair system primarily about greed and taking advantage of your fellow man. Arguments for government intervention and social planning can sound attractive. “Free” education, “free” health care; as the laundry list of “free” items stack up, it sometimes sounds too good to pass up.

The primary problems that I see with government intervention and central planning on all levels is that it assumes that those select few individuals know what’s best for the people, the economy, etc. Capitalism is the only system that “admits”, so to speak, that there is room for improvement outside the control of the government and central planners. Human nature to increase efficiency, get lower prices, and create sustainable living styles cannot be outdone by an interventionist government system.

What we’re going to realize is that a nationalized, subsidized, and fiat money economy is not sustainable. We’ve experienced and tinkered with it for nearly a century, and while the short-term results haven’t been too bad, it simply cannot last. With an inflationary monetary system like we’ve had since 1971, saving is discouraged because it makes no sense to hold dollars when they’re losing value every month. This is the largest fundamental problem with our economy today. It seems that we always have to be spending, that is at the heart of the bailouts and stimulus packages over the past year. Never has it been suggested that people save money and make their own decisions with their money. Whether it be banks or auto businesses, the U.S. has lost the core capitalist principle of individual responsibility and instead has gone the route of letting no one fail.

I’ve heard many times that we’ve had an economy of greed over the past several years. In many ways this is correct, but blaming it on capitalism is not. I believe that our paper money system controlled by the Federal Reserve has encouraged more greed than anything else. When you have a deceitful central bank with an unsound currency, I don’t think there’s a snowball’s chance in hell of that not stimulating greed. Central banks do not hold the citizens’ interest, that is the first thing to remember. With the Fed, we have a central bank who doesn’t even give out the names of the many banks it has loaned trillions of dollars to in a matter of months. With these special, unbalanced interests, it will not impact the economy in a good way. Couple this with a paper money currency enforced by the government which leads to higher prices and a stretched middle class, and you’ve got a recipe for greed and reckless spending to take off. I am not saying that the Fed is the only entity or factor to blame, but merely that it has contributed more than anything else to this unbalanced and unfair economy.

When the greed argument is used to blame capitalism, this often is aimed at “lack of regulation” on Wall Street. With the amount of bickering about too little regulation, you’d think we had a system of anarchy ten years ago. People forget about Enron and the Sarbanes-Oxley Act that came of that scandal. People forget that The Securities and Exchange Commission (SEC) was established in 1934 to prevent corporate abuse on reporting information. Laws and regulations have stacked up for 70+ years, yet bad and stupid things still happen in the world of business. Only now, when something goes wrong, the whole country accepts more regulations and the belief that more money poured into government intervention will suddenly make everything better.

Instead of shareholders being responsible for the business and its accounting practices, the SEC stepped in and essentially led people to believe that it has everything under control. It discourages investors from performing their own research and due diligence. Rather than the SEC, FDIC, and lord knows what other regulatory agencies try to take the place of personal research and responsibility, the destiny of a business must lie with the shareholders and consumers. As we can see from the past hundred years or so, when the government tries to take the place of the invisible hand of supply and demand, it does not solve the problems. It’s foolish to think that the government and central planners can perform a task in a more efficient, smart, and sustainable manner than the individuals of this country.

As the federal government and Federal Reserve have pulled in more responsibility for themselves, taking it from the people, we have embarked on the road to nationalization, big business, and big government. We’ve tried our hand at nationalized education, which has been a horrendous excuse for a public program. Ever since the 1970s the federal government has gotten much more involved with the health care industry and put more control into the drug companies, taking away from the pivotal patient/doctor relationship. In a broader sense, we are quickly moving toward nationalizing industries, both with government and through the government’s favoring of larger corporations.

What I see this as is an attack on localization. I find it silly to believe that we can solve our problems by putting them up on a larger scale, by “modernizing” industries which has always led to the destruction of smaller businesses at the hands of government intervention, and many other ways through government involvement. By discouraging local and community involvement, we have lost the key to what makes an economy great. Strong growth doesn’t mean a thing on its own in the short-term. Rather, it is strong, sustainable, honest growth that capitalism aims to create. I think the easiest, most efficient, and most sustainable way to achieve this is through local economies and community involvement. Whether it be with politics, economics, or business, it is the personal interaction that makes a strong system.

When we nearly force businesses and politics to be done at a national level, it tears away the personal touch that is so essential to a prosperous society. Individual responsibility is much more easily accomplished through a local economy, rather than through a government and corporate-controlled national economy, which is increasingly evident what we have in place today. With politics, it is much simpler and beneficial to bring about change on a local or state level than on the national scale. I think the same goes for a business and economy too. With a strong, involved community, next to nothing is impossible.

The Founding Fathers shared this ideal as they were writing the Constitution and envisioning America. They made it very clear in the Bill of Rights with the 10th Amendment; that issues not given to the federal government or prohibited to the states were to be put in the power of the states or the people:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The federal government was not created to solve every social, economic, and even political problem. The federal government was initially created to be as little involved as possible compared to the states, but today the opposite seems to be true. Rather than give more power to the people and states to make their own decisions and take their own responsibility, that power has been given, like never before, to the federal government. In other words, localization is near being destroyed due to nationalization and a huge federal government overstepping its bounds.

The sooner we realize that individuals, local communities, and states can solve their own problems far better than the federal government, the sooner we will be on the road to recovery, and a prosperous, sustainable economy and society.