I just want to say, thank you, for this most clarifying article! I have been guilty, myself, of referring to the FED as "private" - even when I know better. Thanks to this article, I'll never make that mistake again! BRAVO, DB!

You know, I've been coming around to your point of view more and more. It's interesting to watch the mental gyrations necessary to blame everything but the man behind the curtain, so to speak.

I guess I would say that the system will never give up control willingly. Your gold doesn't have the bullets of the enforcer class behind it. Or rather, I agree with your arguments, but who will bell the cat?

DB: "The only real leverage Congress has over the Fed is that it "can alter its responsibilities by statute."

not stated: and sanction it's fraudulent debasement of currency, by law.

When "they" print five percent more currency, they are compelling productive resources to the tune of five percent of whatever value previous currency and currency denominated assets had and, decreeing existing currency and currency denominated assets to be worth only 95% of previous "value".

In other words, they void the REAL terms of trade of every single contract previously in existence, be it labor rate, insurance policies, bank account balances and virtually everything denominated in the currency.

This unilateral decree (of counterfeiting, debasement) is a violation of our basic right of "freedom of association" which includes us controlling "terms of association".

Thanks for reiterating this point, it is a very important distinction.

It is time for Congress to exercise that leverage and make the Federal Reserve a truly federal agency, acting by and for the people through their elected representatives. If the Fed can demand AIG's stock in return for an $85 billion loan to the mega-insurer, we can demand the Fed's stock in return for the trillion-or-so dollars we'll be advancing to bail out the private banking system from its follies."

Excuse me, but isn't this what's currently going on in Europe? Isn't this about transfering the private debt onto the public? I'm not sure why there's talk about the need to re-capitalize the banks when they've already made the transfer. In our case, why not let the Fed continue to hold the debt bag of paper they've so generously paid for. They bought it. Why not simply allow them to continue doing what they do best, but make them one of many insolvents, or not so insolvents as we move forward toward a free banking model? Let the best man/system win. What you think?

DB said: In any event, a PUBLIC central bank would not likely print less money.

Example of a Public Central Bank, Reserve Bank of India, the head of the reserve bank of India is known as the governor, and they run the printing presses at full steam if not faster than the US fed.

As the price of gold and silver sinks, mines open back up and people dishoard. Simple.- DB

Wait a second. As the price sinks, what's the incentive for mines to open back up again? wouldn't the profitability of mining be going down? Same idea for, lets say, oil rigs? Yes, people would "pitch the midget" as gold and silver went down..

Reply from The Daily Bell

"History shows that in a private economy, gold and silver (or representative equivalents – digital or otherwise) would probably circulate. Too much gold and silver, and mines shut down and people begin to hoard. Too little gold and silver and mines open back up and people dishoard. Simple."

While I enjoyed the article, I'm afraid I cannot understand this part:

"History shows that in a private economy, gold and silver (or representative equivalents - digital or otherwise) would probably circulate. Too much gold and silver, and mines shut down and people begin to hoard. Too little gold and silver and mines open back up and people dishoard. Simple."

It seems to me that 1) the total quantity of gold or silver in circulation is practically irrelevant for all intents and purposes given that coinage containing milligrams of gold (or even less) is always a possibility and 2) the stock-to-flow ratio is more important than the "appearance" and coinage of new monetary units brought by mining.

In fact, mining is irrelevant in the big picture. It is not mining that gave gold its worth as a long-term store of value. If there was no more gold to be mined, this would have little effect on the value of gold already mined (actually, this would be as close a guarantee of non-inflation as we can get - assuming the modern-day alchemists don't figure out a way to make gold from something else... )

Either I'm missing an important point, or DB's formulation was decidedly unclear.

Reply from The Daily Bell

It seems historically a fact that when big gold discoveries are made, the amount of gold flooding into the local economy can have an effect on the price of gold. This apparently happened in Spain during the great SA confiscations of Aztec metals, etc. Rothbard proposed that the price of gold would be moderated only by hoarding and dishoarding. We combine both points to show how the market can putatively have an impact ...

"In fact, mining is irrelevant in the big picture."

Just to be clear: I mean that mining is irrelevant for our understanding of the monetary function of precious metals, insofar as it is not responsible for the fact that precious metals are used as long-term stores of value.

So, using the correct terminology.. mercantilism... the gov't supported and created Central Bank has the monopoly granted by the gov't, creates all debt for the gov't, and keeps all profits (interest) paid by the gov't. We should certainly take Ron Paul's proposal to wipe out the debt we owe ourselves. Since we have direct oversight, what's to stop us?

It is shocking how little is understood about the nature of the Federal Reserve System. Popular books like "The Creature from Jekyll Island" and the "Secrets of the Temple" are actually obfuscating the true nature of the pre-1935 and post-1935 Fed. The difference between the two Feds is like day and night.

The original Federal Reserve System consisted of twelve regional Reserve Banks which were owned by member banks. The physical property of the regional Federal Reserve banks, such as buildings, office furniture, vaults, etc. were paid by the private banks which were members of the regional Federal Reserve banks. The privately owned, regional Federal Reserve banks received a franchise from the U.S. Congress to issue the Federal Reserve Note as a national currency with their regional bank seal against the value of Real Bills and Gold held by the member banks within the region. The Board of Directors of the Federal Reserve System was appointed by the U.S. Congress to oversee the operation of the regional Federal Reserve banks. That is how the Federal Reserve Act of 1913 set up the initial Federal Reserve System.

The NY regional Federal Reserve bank, by its Governor Benjamin Strong, intimidated and manipulated the Board of Directors of the Federal Reserve in their performance of the oversight function. Starting in the early 1920s, the NY Fed started to monetized U.S. government debt which was strictly prohibited by provisions of the 1913 FRA. This rogue act by the NY Fed continued through the 1920s, and it caused the collapse of the monetary system established with the original FRA.

In 1933, when FDR prohibited the holding of gold by American citizens, he single handedly destroyed the Real Bills market. This move precluded any return to the original Fed monetary system. In its stead, the U.S. Congress established a central bank by thoroughly modifying the 1913 FRA with the Banking Act of 1935. The 1935 Banking Act eliminated the Board of Directors of the Federal Reserve System as the oversight arm of the U.S. Congress, and it replaced it with a Board of Governors of the Federal Reserve System which had the authority to set interest rates and to market the U.S. Treasuries through the Open Market Window at the NY Fed. The governors of the Fed are nominated jointly by the U.S. President and the twelve regional Reserve Banks. Their nominations have to be affirmed by the Congress. The buildings, furniture, vaults, etc. are still the "private" property of the regional Reserve banks of the post-1935 Fed.

As to creating money, not until TARP and Quantitative Easing did the Fed ever "print money out of thin air".

The biggest barrier to understand the money creation by the post-1935 Fed lies in the fact that hardly anyone understands that it is congressional budget "ear marks" which funnel money into every local congressional district to stimulate local economies. The federal reserve member banks recycle this money based on intial credit extended by the regional Reserve bank and the submission of T-Bills to the Fed Agent to obtain subsequent credit authorization.

The Board of Governors of the Fed sets the interest rates, and it receives bids for U.S. Treasuries. The Board is a joint "operation" of the banks and the U.S. Congress.

The money obtained through the sale of U.S. Treasuries is funneled into congressional district according to the "ear marks" entered into the yearly budget by the U.S. Representatives.

Now, can you please tell me again how the Federal Reserve is a private organization, or vice-versa how the Federal Reserve is a government or quasi-government organization?

The buildings, furniture, vaults, etc. are "private" property of the Reserve Banks owned by its regional members.

The fixing of the "prime" interest rate is done by the FOMC of the Board of Governors, placed there by the affirmation of the Congress.

The currency obtained from the sale of U.S. Treasuries is funneled through the NY Fed to the U.S. Treasury.

The amount of currency flowing from the U.S. Treasury into local economies depend on the budget deficits voted by the U.S Congress.

For Brown or Zarlenga to tout the closing of the Fed and to take over the function of creating currency, is nothing but a call to reissue the U.S. Greenback. The of U.S. Greenbacks as currency is something totally different then the use of Federal Reserve Notes as currency. I am not sure that either Ellen Brown nor Steve Zarlenga know the difference.

I am in favor of issuing redeemable currency under the Real Bills Doctrine along with the gold standard.

I am also in favor of reissuing the U.S. Greenback to pay for federal employees, provided:

1. The 16th Amendment is repealed;
2. The Greenback is open for periodic redemption.

You are confusing price with quantity. If there is too much gold (quantity) from either supply (or lack of demand during recession) the price sinks and mines shut down until there is a gold shortage (economy picks up) and the price rises enough for the mines to reopen.

This process allows the gold price to fluctuate with the overall price level (either inflationary or deflationary doesn't matter) but because the two fluctuate together overall we get price stability (in theory), assuming prices are quoted in gold or gold backed paper.

@rossbcan: The theory of money creation is you can do it (without being inflationary) as long as goods and services production increases at the same rate. Actually you need to do it otherwise you have too few currency units chasing more and more goods and services, which is deflationary or people resort to barter which I think is great but governments find it too hard to tax.

"The theory of money creation is that you can do it (without being inflationary) as long as goods and services production increases at the same rate."

That is Milton Friedman's theory, which is a modification of J. Maynard Keynes' theory.

In theory, it sounds like a practical solution. In practice Friedman's theory brings on currency collapse only slower than will Keynes' theory. Milton admitted as much before he passed away.

Just restrict currency rate increase to the rate of increase in production and services, and everything will be honky-dory. It sounds nice and simple, but with a little thought applied to the practical application, and you will see that it cannot work.

I'd be interested to see a step by step application of Friedman's theory to prove that it will work in the long run.

I got this from Yahoo Questions ... just as a side question...

Benjamin Guggenheim, Isa Strauss and John Jacob Astor were three of the richest men in the world, and all publicly opposed the idea of America having a central banking system. Coincidentally, all three perished on the night of April 12, 1912, when the Titanic hit an iceberg on its maiden voyage.

JP Morgan, who strongly wished to have a Federal Reserve established, owned the White Star Line, which in turn, owned the Titanic. Soon after the Titanic sunk, the Federal Reserve was established.

Isn't it convenient that the man who helped establish the Federal Reserve (JP Morgan), along with Warburg and Rockefeller, owned the Titanic, and that his 3 most powerful opponents died on the Titanic?

A MERCANTILIST, GOVERNMENT/PRIVATE COMBO FEDERAL RESERVE.
Federal Reserve is a money cartel just like a drug cartel or an oil cartel. A cartel is a coalition of government and special-interest groups having a common cause.

Unless the unimaginable concentration of wealth in the hands of the PE is removed, the gold standard and private money will do absolutely nothing. The gold standard and private money actually works in their favour because they own all or most of the gold. This is very well explained in the movie "The Money Masters"

Click to view link

Therefore public banking is a necessary first step before the ultimate transition to the gold standard and free markets. There is no great need to criticise public banking, it is a necessary first step to weaken the power of the PE. Public central banking is better than the present setup of the money cartel, a mercantilist, a government private combo Federal Reserve. Too much focus and crticism by DB makes one think that DB could be a controlled opposition too. We already heard praise for the John Birch Society recently from DB.

Reply from The Daily Bell

Where did we "endorse" JBS? And how does a public banker know how much money to print? Statements like this make us believe you may be a troll, RR.

"Actually you need to do it otherwise you have too few currency units chasing more and more goods and services, which is deflationary or people resort to barter which I think is great but governments find it too hard to tax."

This is not true. As long as the currency units are (practically) infinitely divisible, there is absolutely no reason to increase the amount of currency in circulation, even if goods and services production increase.

What is happening in the situation you describe is that the currency printer is effectively hijacking the economic benefits of the increased productivity, instead of having savers see their purchasing power increase (which should happen in a economy with stable money supply but increasing productivity).

I agree with Bischoff at 9:05 PM.

Indeed, there is quite a bit of information out there suggesting that the sinking of the Titanic was planned.

Who sunk the Titanic?
Click to view link

Titanic conspiracy:
Click to view link

Investigating the Titanic conspiracy:
Click to view link

Titanic conspiracy and the Federal Reserve:
Click to view link

Only have time to point out that the Mercantilism of Hamilton, Morris, et al, has metastasized and bifurcated into both Bolshevik Communism and Free Market Capitalism (both Wall Street creations.)

Why do Neo-Libertarians (yep, they've been neo'd too)and the Alabama Austrians have a Gila monster grip on this "government bad - free market good" mentality/meme?

Is the PRIVATELY owned "FED" enjoying a monopoly that the People gave to it, or one that it STOLE? I believe the latter, and I believe the facts as brought out by Bell contributor Ed Griffin (Creature) and Eustace Mullens' Secrets of the Fed support me.

Come on Bell! Does the tail really wag the dog? America's money has been in PRIVATE hands for MOST of its history. Let's give PUBLIC debt free and USURY free money and banking a 20 year run. If we do we will see UNBRIDLED prosperity, liberty and peace, and America will never again allow PRIVATE control of the MONEY POWER.

Reply from The Daily Bell

You can only believe that public money will be a better solution in the long term, anyway, than mercantilist (private/public) money if you ignore the Invisible Hand and Human Action. How you can ignore these two fundamental, magnificent points of intellectual evolution is beyond us.

it is also worth noting that even Christ's Sermon on the Mount (an eloquent statement for believers and non-believers alike in our view) advocated PRIVATE action.

This virus that making something "public" immediately confers advantages on it is most questionable. How then does one explain the inevitability of the Tragedy of the Commons, etc. So much genuine information about the Way the World Works must be ignored before someone can truly support the meme of public banking ....

How will public bankers know how much money to print? Private ones don't.

The rabbit hole is infinitely deep and, appears much deeper when you speculate. But, is seems to be an established fact that opponents to criminal enterprises, for all of history seem to meet "fates" and, now we have the "evidence destroyed" phenomena, most apparent on 9/11. Catherine Austin Fitts has done a lot of work regarding the "hiding financial crimes" aspect of 9/11. Many "interests" served by 9/11...

"evidence destroyed" phenomena

is only possible when evidence is in a central location, an aspect of hierarchical command / control organization. A "reliability risk", failure mode. Not possible with redundancy and ad-hoc, competing functions organization.