If Crazy Eddie Ran the U.S. Economy…Oh, Wait!

(Compiler's note: Absolutely must read article)

Brigadier General Greg Zanetti

“If the American people ever allow private banks to control the issue of their currency

, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered." – Thomas Jefferson

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world.” – Woodrow Wilson, lamenting his approval of the Federal Reserve Bank and its power to issue the nation’s currency

“Come to Crazy Eddie’s now! Where prices are in-sane!!!” – Crazy Eddie (Convicted Electronics Chain Salesman/Huckster)

Recently, the Federal Reserve announced it would buy $300 billion in US debt.

If Thomas Jefferson were alive, he would likely say, “I warned them.”

If Woodrow Wilson were alive, he would likely say, “I’m sorry.”

And if Crazy Eddie were out of jail, he would likely say, “How can I get a piece of the action?”

What is occurring now will someday qualify either as the winner of an economic Darwin Award, or as an exhibit at Ripley’s Believe It or Not museum.

To give you an idea of how convoluted our financial system has become, you have to understand who the players are and how the system works. So, let’s get to it.

First, long-time readers know that the Federal Reserve is neither federal…nor does it have any reserves. The Federal Reserve is a private company and is as federal as Federal Express. It was formed as a private corporation in 1913 (Woodrow Wilson signed the bill) and is owned by private shareholders. Those private shareholders are other banks like Citigroup, JP Morgan, Rothschild, Lazard, Bank of America, and others.

Thus, when Citigroup and JP Morgan ask for bailout money from the Federal Reserve, they are in essence asking for money from themselves.

So, where does the Federal Reserve get the money to bailout Citi? They get it the old-fashioned way, they print it.

Of course, printing money has the consequence of devaluing the currency, so it is the taxpayer who indirectly bails out Citi and JPM via a debased currency and higher prices. Now, if Citi bailing out Citi via the taxpayer weren’t “Crazy Eddie” enough for you, it gets stranger. You see, the Federal Government (which really is Federal) is now looking to be bailed-out by the private Federal Reserve…even though it was the owners of the Federal Reserve (the banks) who helped put the government in the position of having to be bailed-out in the first place!

Stay with me here, because as painful as this may be, it is important to gather the crime scene evidence and piece this caper together.

~ It is now common knowledge that, in their greed, the banks over-leveraged and placed the entire financial system at risk.

~Along the way, they paid the politicians to look the other way by means of campaign contributions...errrr, allegedly they did this.

~When the house of cards collapsed, they went back to these same politicians and, (in what can only be called extortion) demanded money to prevent financial apocalypse. The bill for this debacle was in the trillions…and everyone knew that the money had to come from somewhere.

There were only a few choices:

1. Taxes could be raised. Politically, that was unacceptable.

2. Spending could be cut elsewhere, and the funds re-directed to the bailout. Again, unacceptable.

3. Debt could be issued in the hopes that foreigners would exchange their money for our debt. Foreigners, however, balked. Which left the last resort....

4. The Federal Reserve could print money to buy the government’s debt.

Option #4 is what the Federal Reserve’s $300 billion announcement heralded. It is my belief that by the end of the summer that number will be north of $1 trillion. By year-end, it could be closer to $2 trillion.

So, let’s think this through step-by-step.

Step 1: The banks foul the system to the tune of trillions.

Step 2: The banks demand government assistance.

Step 3: The politicians complain in public, but easily oblige the banks; the politicians agree that the U.S. taxpayer will fund the bailout by issuing more debt.

Step 4: Without sufficient foreign assistance to buy the debt, the government then goes to the Federal Reserve and asks the Fed to print the money to buy the debt.

Step 5: The Federal Reserve creates the paper money/electronic digits (out of thin air) to buy the government’s debt. This “money” is then funneled to the banks….the very banks that own the Federal Reserve!

Step 6: The Federal Reserve now has the U.S. taxpayer on the hook to repay the debt WITH INTEREST (!) to the Fed for a problem the banks caused in the first place. Now to top it all off, the Federal Reserve is then proclaimed by the media as a white-knight riding in to save the system! The mind boggles….this is truly unbelievable.

Let me pause for a minute….I need a drink.

OK, I’m better now. Let’s proceed.

Since fewer than 1 in 1,000 understand what is going on, there will be no hue-and-cry to change the system. Knowing this, what will be the consequences of this arrangement? First, recognize that well-informed foreign governments are very aware of what is going on. After all, if Greg from Albuquerque can piece this together, so can the Chinese and Russian Governments.

At some point, there will be an exodus from the dollar. It will begin with the cessation of foreign purchases of U.S. debt, and then cascade toward outright selling of our debt and the dollar. These actions will lead to a decline in the value of the dollar…which, in turn, will lead to higher prices on everything in the U.S.

Higher prices will lead to a slowing economy, since Americans will be able to buy less “stuff” with their dollars. Because 70% of our economy is consumption-based, this will lead to rising unemployment and declining commercial real estate prices.

As Mr. Rogers used to say, “Can you say stagflation? Sure, I knew you could.”

In this environment, the correct response for individuals, municipalities, and states is to go the opposite way of the Federal Government. Instead of consumption, encourage production. Instead of more debt, encourage savings and capital formation. Instead of more government intervention and taxation, encourage more entrepreneurship and private industry growth.

And finally, let’s pay heed to men like Jefferson and Wilson…they saw the future clearly.

FamilySecurityMatters.org Contributor Brigadier General Gregory J. Zanetti, New Mexico National Guard, is the former Deputy Commander of Joint Task Force, Guantanamo Bay, Cuba, and currently plans to run for Governor of New Mexico.He authors The Strategic Outlook reports to inform and educate people about the connections between economics, politics, and national security.