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The Problem with the Dollar

© Jake Towne, 2009

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Dishonest Money: The Fall of the Dollar

The purchasing power of the dollar has lost >94% since FDR took America off
the classical gold standard in 1933 through monetary inflation.
The monetary inflation was caused by the FED. They debased the dollar by
creating more and more irredeemable paper dollars.

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Dishonest Money
How to Create $900 from $100
The banking system creates dishonest “money” each
time you deposit money. Here's how it is done, using the
current approximate fractional reserve ratio of 10%.
Step 1)
1000
A depositor deposits $100 at a bank.

Total Reserves: $100 800


Total Loans: $0
Total Money Supply: $100 600

"Give me control of a nation's money 400


and I care not who makes its laws."
200
- Mayer Amschel Rothschild, 1744 -1812,
Leader of the Rothschild Banking Cartel of
Europe 0
Total Deposits Total Loans Total Money Supply

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Dishonest Money
How to Create $900 from $100
Step 2)
The bank holds $10 for its reserves and loans out the other $90 to others.

Total Reserves: $10


Total Loans: $90 1000

Total Money Supply: $100


800
"It is well enough that people of the nation do
not understand our banking and monetary
system, for if they did, I believe there would 600
be a revolution before tomorrow morning."

- Henry Ford 400

200

0
Total Loans
Total Deposits Total Money Supply

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Dishonest Money
How to Create $900 from $100
Step 3)
This $90 is deposited elsewhere. Next, this second bank takes the $90 in
deposits, holds $9 for its reserves, and loans out the other $81.

Total Reserves: $19


Total Loans: $171 1000
Total Money Supply: $190
800
"When an assembly undertakes to issue
paper as money, the whole system of safety 600
and certainty is overturned, and property set
afloat. Paper notes given and taken between
individuals as a promise of payment is one 400
thing, but paper issued by an assembly as
money is another thing. It is like putting an
apparition in the place of a man; it vanishes 200
with looking at it, and nothing remains but the
air."
- Thomas Paine, “Dissertations on Gov't” 0
Total Deposits Total Loans Total Money Supply

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Dishonest Money
How to Create $900 from $100
Step 4)
Step 3 repeats. The third bank takes the $81 as a deposit, holds $8.10 for its
reserves, and then loans out $72.90.

Total Reserves: $27.10


Total Loans: $243.90 1000.00
Total Money Supply: $271
800.00

“The few who understand the system, will 600.00


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 400.00
people, mentally incapable of comprehending
the tremendous advantages, will bear its 200.00
burden without complaint."

- Lord Rothschild 0.00


Total Loans
Total Deposits Total Money Supply

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Dishonest Money
How to Create $900 from $100
Step 5)
The process keeps repeating. The bulk of the money creation is done after 15
repeats, but what is eventually left after 40 or 50 repeats is pretty much:

Total Reserves: $100


Total Loans: $900 1000
Total Money Supply: $1000
800
So within a short period of time, banks
transferring to other banks within the 600
system can CREATE $900 from the initial
$100 deposit.
400
For those hearing the above for the first
time, this process is such NONSENSE that 200
it is a little hard to grasp.
 Source: Federal Reserve Bank of Chicago, “Modern 0
Money Mechanics” (1994) Total Loans
Total Deposits Total Money Supply

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Dishonest Money
FED Open Market Operations
The FED itself also creates or destroys dollars, but they
do not even require deposits.
The Federal Reserve conducts open market operations
by purchasing or selling any type of asset.
In the past the FED mostly bought Treasuries. In the
past several years, the FED has mostly bought company
assets or bad debt, such as AIG's.

"Bankers own the earth. Take it away from


them, but leave them the power to create
money and control credit, and with a flick of a
pen they will create enough to buy it back."

- Josiah Stamp, former President of the Bank


of England

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Dishonest Money
FED Open Market Operations
Here’s what happens when the FED buys Treasuries or other assets

1) The FED’s Open Market Committee (FOMC) decides to expand the nation’s
money supply. They purchase, for example, $100 billion in Treasury bonds.

2) The FED writes a check on itself for $100 billion. [Where did it get the money?
The answer is -- FROM NOWHERE!]
Monetary Supply Expansion: $100 billion

3) This $100 billion FED check then goes to one of the select government bond
dealers (such as JP Morgan Chase or Goldman Sachs) in exchange for the $100
billion in Treasuries.
Monetary Supply Expansion: $100 billion

4) Then the dealer deposits its $100 billion FED check at a commercial bank.
Monetary Supply Expansion: $100 billion

5) Enter the fractional reserve loop. This deposit is very quickly loaned out
repeatedly and grows to $100 billion in deposits and $900 billion in loans.
Monetary Supply Expansion: $1 Trillion

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The FED Causes Depressions (1/4)

"On account of [the Federal Reserve],


we ourselves are in the midst of the
greatest depression we have ever
known. From the Atlantic to the Pacific,
our Country has been ravaged and laid
waste by the evil practices of the Fed and
the interests which control them. At no
time in our history, has the general welfare
of the people been at a lower level or the
minds of the people so full of despair...
They are the victims of the Fed. Their
children are the new slaves of the
auction blocks in the revival of the
institution of human slavery."

- Congressman Louis T. McFadden, Pennsylvania's 15th District


- From the 1934 Congressional Record

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The FED Causes Depressions (2/4)

"Our nation's monetary policy over the past


century is the most despicable hoax ever
committed against the American people
in our history. If I can help the people of
our district understand the utter immorality,
the sheer evil, of this system and how it
restrains the prosperity of our society, we
will and can succeed. With your help, I can
help lead the way with actions that can
save us and our children. This is not a
joke. If our society fails to deal with this,
the abject slavery McFadden warned of,
and drop in living standards will soon be
realized by us all.” Rembrandt's 1626 depiction of Jesus
chasing the Money-changers out of
the temple

- Jake Towne

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The FED Causes Depressions (3/4)

✔ Interest rates represent the present time-value of money.


✔ They serve as a check-valve between the deployment of
capital (and the amount of mal-investments!) for economic
growth and the savings deferred to the future to pay for the
goods and services resulting from the growth.

“Interest is the difference in the


valuation of present goods and
future goods; it is the discount in the
valuation of future goods as against
that of present goods.”

- Ludwig von Mises


American Economist and
Founder of the modern Austrian School

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The FED Causes Depressions (3/4)

✔ The FED decides on and sets the interest rate.



Unlike most of the 19th Century (without the FED) and the early 20th
Century where the different FED regions varied interest rates to
account for regional differences (agricultural Midwest, industrial East
Coast), the modern FED constrains the economy to the same interest
rate.

This is similar to the EU's central bank; not only do they all use the
Euro, but far more importantly, highly industrialized states like
Germany now share the same interest rates as states with very
different economies like Greece and Spain.

"Let me end my talk by abusing slightly my status as


an official representative of the Federal Reserve...
Regarding the Great Depression: You're right, we did
it. We're very sorry.”

- current FED Chairman Ben Bernanke


From his 8 November 2002 remarks

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The FED Causes Depressions (4/4)
Federal Reserve Interest Rate 1995-Apr 2009
Source: http://www.federalreserve.gov/releases/h15/data/Monthly/H15_FF_O.txt
8.0

Bust
Federal Funds Rate % (Monthly Weighted)

7.0

6.0
Bust
5.0

Boom 9/11
4.0
Dot.com's
3.0
Tech stocks Boom Fall 2007:
2.0
Housing Financial Depression
System
Treasury &
1.0 Breakdown
Begins Dollar Crisis
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 The FED's interest rate control combined with the money supply
changes result in the Boom-Bust cycle.
 Booms are periods of credit expansion that central bankers

mostly created themselves, while busts are credit contractions.


 Each “Boom” plants the seeds of the next “Bust” by creating a

multitude of wasteful mal-investments.

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Demand Market Transparency in OTC
“Dark” Derivatives
“Derivatives are Weapons of Mass Destruction!” - Warren Buffet, 2003
So... what are derivatives?
Simplified, the term "derivative" refers to a "derived"
wager, or bet, on the price of something.
Derivatives are financial contracts whose values are
derived from the value of something else, which is termed
the "underlying" asset. The main use of derivatives is to
reduce risk for one party.
Many of today's derivatives are wagering on paper
"assets" that have no intrinsic value (like the interest rate of
a GE corporate bond) rather than tangible goods like wheat
or oil.
 For more details, please read my article “What the Heck Are Derivatives?”
at www.nolanchart.com/article5620.html

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Demand Market Transparency in OTC
“Dark” Derivatives
“Bring Light to Dark Derivatives!” - Jake Towne, 2008

Over-the-counter derivatives are very loosely regulated


and directly traded between two parties.
All values in Trillions of USD, circa 2008
Quite likely, many OTC Source: www.nolanchart.com/article5620.html
derivative contracts are OTC Derivatives

insolvent since corporations


cannot cover in the case of World Equity and Bond Markets

one party defaulting. EXD Derivatives

The crux of the OTC


World Real Estate derivatives issue is its
enormous size relative
Requiring traders to use an World GDP
to rest of the financial
exchange or publish proof of U.S. GDP
system.
solvency should be required of U.S. M2 Money Supply

corporations.
0 100 200 300 400 500 600 700

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Replace the Socialistic Keynesian Government
Status Quo with the Austrian Free Market
Keynesian Economics
The “Money Power” is held by the
Government & Bankers
Government Commands the Economy
Renown for Deficit Spending and
Stealing via Currency Debasement
Redistributes Wealth to the Military-
Industrial Complex, Banking Cartels,
Special Interest Groups & Corporations
Allows and Rationalizes Government
Takeovers of Private Businesses “In the long run, we are all dead.”
May promote “capitalism” and the “free
- Lord John Maynard Keynes
market” in word, but in deed functions as British Economist and
“Crony Capitalism,” “Vulture Capitalism,” the Central Planner
“Corporatocracy” or “Disaster Capitalism”

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Replace the Socialistic Keynesian Government
Status Quo with the Austrian Free Market
Austrian Economics
The People own the “Money Power”
Government Plays No Role in
Economic Planning
Promotes Honest Money & Balanced
Budgets
Highly Rewards those who Create
Wealth and Shares it with All
“All those intent upon Government Does Not Takeover
sabotaging the evolution
towards welfare, peace,
Private Businesses
freedom and democracy, Promotes Free Market Capitalism
loathe gold.” and laissez faire, or “let them be!”
- Ludwig von Mises economics
Founder of the modern
Austrian School

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Source List (1/2)
This is a partial list of the sources used in this work. Place the cursor over
the title to access the link. Here is a LINK to a summary of my writings and
my semi-bibliography.

Armstrong, Martin. 2009. “Financial Panic = Political Change.”


Bastiat, Frederic. 1848. The Law.
Butler, Smedley. 1935. “War is a Racket.”
The Constitution of the United States. 1787-present.
Eisenhower, Dwight. 1961. Farewell Address.
Federal Reserve Bank of Chicago. 1994. Modern Money Mechanics.
Federal Reserve. Federal Funds Rate Data, Monthly 1954-2009.
Fekete, Antal. 2009. “Open the Mint to Gold!”
Hazlitt, Henry. 1946. Economics in One Lesson.
Jefferson, Thomas. 1801. First Inaugural Address.
Marx, Karl. 1848. The Communist Manifesto. See page 21/44 for the planks
McFadden, Louis T. 1934. Remarks in Congress on the Federal Reserve.
Mises Institute. Money, Banking, and the Federal Reserve. 40-min. Video

TowneForCongress.com
Source List (2/2)
Place the cursor over the title to access the link. Here is a LINK to a
summary of my writings and my semi-bibliography.
Reagan, Ronald. 1984. Remarks when accepting the presidential nomination.
Rothbard, Murray. 1990. What Has the Government Done with Our Money?
Towne, Jake. 2009. “America's Military Empire.”
Towne, Jake. 2008. “Bernanke's Great Lie – The “Gold Standard”and the
Great Depression.”
Towne, Jake. 2009. “Thank You for Paying Your Voluntary Income Tax!”
Towne, Jake. 2008. “The Money Matrix – How the FED Works.”
Towne, Jake. 2008. “The Money Matrix – What the Heck Are Derivatives?”
Towne, Jake. 2009. “The Money Matrix – Bring Light to Dark Derivatives”
Towne, Jake. 2009. “Why Obama's Stimulus Plan Will Fail... and a Better
Alternative.”
Washington, George. 1796. Farewell Speech to the People of the United States.
White House Budget FY2009. (FY2010 here.)

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Document Copyright
Copyright © Jake Towne, 2009. Any portion of this presentation that could be
copyrighted is owned by myself and I hereby released it to the public domain. I
grant full permission to use any of the ideas or material within. You may republish
this work. Attribution to myself is appreciated but not required.

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