For those of you who left the country over spring break, your currency exchanges may have left you with a bit less cash in your pocket than you planned. On the Wednesday prior to break, the Federal Reserve (Fed) announced it was monetizing one-trillion dollars worth of debt in the form of long-term treasury bonds and mortgage securities. This injection of cash into the economy was promoted as a stimulus measure, but many fear this action is a major step towards the devaluation of the dollar.
Despite the major news outlets and Congress being engrossed in the AIG bonus scandal at the time, the commodities markets and exchange rate reacted quickly to the announcement. The dollar posted its biggest daily fall in value compared to major world currencies since 1985, and the prices of commodities such as crude oil, gold and silver jumped. As of this writing, exchange rates with the dollar have not yet regained their losses. This instability in value is undesirable in the world’s major reserve currency.
States with a vested interest in the stability of the dollar voiced their concerns over the dilution of the dollar in the days following the announcement, and their concerns with our central banking system should not be taken lightly. The Fed’s move prompted officials from China, Russia, the United Nations, and the International Monetary Fund to make announcements concerning the viability of the dollar as the world’s primary reserve currency.
Trailed by the euro, the dollar is the world’s first choice by states for storing and transacting large sums of money. Its status as the major reserve currency was established at the Bretton Woods conference during World War II. Although the Bretton Woods gold standard system, which provided stability to the dollar, collapsed in 1971, the dollar continued to be the major reserve currency. This era may soon come to an end if current trends continue, with possibly disastrous consequences for America.
President Woodrow Wilson later regretted signing the Federal Reserve Act once he realized the potential of the system to manipulate the financial system in a way that touches every American. The act delegated an authority granted to Congress by the Constitution to a private banking system not held fully accountable to the Treasury or to Congress. As the complexity of the banking system grew, so did the influence of the Fed.
The Fed has become influential to the point many take it for granted. Its existence is manifested every time you use paper currency, widely termed “money.” Many people don’t know, however, that unelected businessmen, with little vested interest in the long-term consequences of currency manipulation, determine the actual values of these pieces of paper. Take a close look at what a dollar note actually says. Across the top is written “Federal Reserve Note.” The only connections the note has to your elected government are the two token signatures of treasury officials, who themselves are appointees.
The dollar has retained less than 5 percent of its value since the formation of the Fed in 1913, with much of the value being lost after the adoption of a fiat monetary system. The Fed has continually devalued the worth of our currency through actions which create money out of thin air to satisfy the funding demands of the federal government. Such manipulations can only be expected from an organization with essentially zero accountability to the American people and with close ties to the wealthy influential schemers of the Bilderberg Group.
Several solutions have been proposed to rein in the Fed. The most difficult option, to eliminate the Federal Reserve system entirely, would require a careful execution to avoid economic collapse from such a radical change. Yet such an approach has ardent supporters, most notably the “End the Fed” grassroots campaign.
Opening up the Fed to audits would allow the oversight that is so sorely lacking. A current piece of legislation proposed by Congressman Ron Paul (R-TX) to subject the Fed to an audit is now in committee, already having gained 49 co-sponsors, both Democrat and Republican. The Federal Reserve Transparency Act (H.R.1207) aims to regain the congressional oversight of our monetary system as provided in Article I, Section 8 of the U.S. Constitution. While the act would not fully make the Federal Reserve system constitutional, the increased monetary oversight and review of the Fed’s relationship to the U.S. Treasury make the act an excellent interim measure to limit reckless and secretive actions by the Fed. If your representative has not yet expressed his or her support for the bill, please urge him or her to do so, as I have.
Another option to circumvent the Fed’s influence is to repeal the laws authorizing the use of Federal Reserve notes as legal tender. Congress is not authorized by the Constitution to declare which forms of currency are legal tender and states are limited to gold and silver as forms of legal tender per Article I, Section 10. The Framers knew the dangers of paper money without a commodity backing and therefore left it up to the free market to determine the value of coinage. Many foreign coins were in circulation prior to the establishment of the first U.S. mint in 1792 and continued to circulate even after. Now U.S. Code does not permit foreign gold or silver coins to be used in transactions in the United States and private mints are sometimes shut down in the name of counterfeiting, even when they are producing coinage not resembling official government currency.
Hard money or competing currencies do not necessarily need official recognition to be accepted by merchants. In addition to gold and silver coins, the U.S. government also issued gold and silver certificates at one time. These paper notes were redeemable for gold or silver, making hard money more convenient. Until 1935, commercial banks were able to issue their own banknotes as promises of payment in gold or silver. Merchants were free to accept them as payment or not based on the currency’s stability as a store of value. Ending the Fed’s monopoly on dictating the value of currency and its quantity would essentially eliminate the system’s authority.
We must look to history to determine the best monetary system to follow. Fiat paper currencies inevitably collapse eventually due to abuse by their creators. The Federal Reserve system continues to abuse its position as the source of currency, and unless significant steps are taken to make it accountable, the dollar will eventually become worthless. The blow to the world economy would cause makes keeping a watchful eye on this secretive powerhouse a pressing issue for our age. Pay close attention to the Fed’s actions and let your representatives know your opinions. It may not be too late to harness or slay this monster.
Colin McKim is an environmental management and protection junior and a Mustang Daily political columnist.