How the Federal Reserve Is Killing America

Editor's Note: The U.S. Federal Reserve was created in 1913 to provide a safer and more stable monetary and financial system. These days it follows a more sinister mandate, which Shah explored back in 2014. Here's what he found...

It's maddening. The divide between haves and have-nots is widening every day. There are fewer and fewer good jobs and careers to be had.

And maybe worst of all, according to a survey by the nonprofit Employee Benefit Research Institute and Greenwald & Associates, about 36% of workers have less than $1,000 in savings and investments that could be used for retirement (not counting their primary residence or defined benefit plans and traditional pensions), and 60% of workers have less than $25,000.

What the heck happened?

The U.S. Federal Reserve System is killing America. It has destroyed the economy. It has undermined savers and retirees. It is even responsible for the corruption in Congress.

We have to kill the Federal Reserve before it kills America for good.

There's nothing in the Constitution about a central bank. There's nothing "free market" about a central bank. There's no reason for a central bank - with omnipotent power over the creation of money and credit, over employment (which is an absolute joke), over the entire economy, and over Congress - to exist. No reason.

Okay, there is one reason...

The Only Reason the Federal Reserve Exists

federal reserveThe Federal Reserve, America's central bank, exists to serve big banks and Wall Street.

There is no other reason for the existence of the Fed. None.

Central banks exist to backstop banks. They were all created by bankers to serve them.

When banks get into financial trouble (for any number of reasons, all of them having to do with their bad management and greed), if there is no backstopping angel with unlimited (completely made up out of thin air) resources to bail them out, they would shut down.

And they should shut down. Sure, there would be losses. Equity owners would lose, creditors would lose, and some depositors would lose money, too, if they aren't covered by FDIC insurance.

But if banks were allowed to fail, given they were each, on their own, insignificant enough to the financial system - to the whole economy - that they could fail without doing economic damage, they should be allowed to fail. Small banks are still allowed to fail based on this exact principle.

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But clever bankers, the masters of the biggest banks in any system (in the United States it was a group of the most powerful banks in America and allied banking interests in Europe in 1913), figured something out - and the result has been profound.

They figured out that if they got so big that any one of their failures would result in contagion and undermine the financial system and the economy, then they could convince governments to create central banks to safeguard systems and economies.

The Federal Reserve was legislated into existence in 1913 precisely to backstop America's biggest banks. The history of exactly how the Fed came about and who was involved in the secret meetings at J.P. Morgan's private island to design the "System" (they didn't use the term bank because they wanted to imply a safety "system" and not raise the ire of the public, who were fearful and skeptical of the big banks that were already running the country) is one of America's greatest cloak-and-dagger stories.

The true tale is laid bare in an extraordinarily well-researched and documented book "The Creature from Jekyll Island" by G. Edward Griffin. Read it.

Without getting into the weeds on how it mechanically does it, it's instructive enough to know what the Federal Reserve does. In a nutshell, all its "regulatory" duties aside, the Fed prints money and gives it to banks.

That's right, the Fed - not the U.S. Treasury - creates dollars. The Treasury actually prints dollars and mints coins, but it only does enough of that to keep a certain amount of currency in circulation. The creation of money comes from the Federal Reserve System.

Look at your dollars, any of the bills in your wallet. They don't technically belong to the Treasury. They say right up top: "Federal Reserve Note." It's Federal Reserve money. But the Fed doesn't have to have the Treasury print money to give it to banks. It just credits banks electronically. And, like magic, banks have money when they need it.

Here's How the Fed Is Killing America

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It backstops banks, all the too-big-to-fail banks, not littler, less important banks that are allowed to fail because they're not politically important - all the big banks. And it backstops Wall Street speculation.

Banks are speculators, and they are part of what we call "Wall Street." Wall Street makes money by shuffling paper, by playing in and manipulating what are supposed to be free market capital markets. When they over-leverage and their paper-juggling, hot-potato, moneymaking schemes implode, they would fail (Bear Stearns and Lehman Brothers did, and so did Merrill Lynch and Goldman Sachs and Morgan Stanley and Citigroup. All of them imploded, to one degree or another, in 2008) and be wiped out.

But the Federal Reserve can save any of them, or just those it wants to save, and it did just that in 2008. It saved its own and let a few institutions be absorbed by bigger institutions so they could become more systemically important. And in doing that, the Fed saved the financial system.

Good for it. And good for us, right?

No. The Fed plays god with the financial system. It plays god with the economy. And it rules over Congress and is responsible for our massive debt.

By backstopping banks and Wall Street speculation, the Fed has increased the "financialization" of the American economy. Our economy is more about moving paper assets around to create wealth than it is about producing and manufacturing real goods and services.

That's why the divide between the haves and have-nots is getting wider. If you have financial assets, you benefited from the Fed's zero-interest-rate policies (or ZIRP). That's because speculators know the Fed won't let Wall Street down; it won't let markets drop. That's great if you're a financial paper punter.

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But, while the Fed lowered interest rates to zero for banks and speculators to borrow cheaply to leverage up their paper financial assets (in rigged capital markets), those low rates destroyed savers' pocketbooks. Savers aren't punters. They park their money in fixed-income investments to earn a yield.

Savers have been destroyed by the Fed.

And the deficit? That's the Fed's fault. Congress doesn't have to tax the public to keep spending. The Treasury issues all the bills, notes, and bonds it wants to raise money, and the banks buy most of their paper obligations. Then the Fed buys those bills, notes, and bonds from the banks with the money it "prints" electronically. That's why there's no accountability in Congress.

Far worse, the bankers, with their fat profits, lavish money on Congress to get what they want. There's no one in Congress, no one, who doesn't take campaign money one way or another from some financial system player. Wall Street owns Congress and they get their money to buy their puppets from the Fed's backstopping.

There's no need for a Federal Reserve if the TBTF banks are split up into hundreds of regional banks. If no single bank failing would cause contagion, or harm the economy, they should be allowed to fail.

If we want to take back America from the bankers and the Wall Street machinery that soaks up economic capital for their paper-pyramiding, wealth-minting factories, and that disadvantages savers, producers, and workers, then we have to kill the Federal Reserve Bank.

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About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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