The following article was originally published in the Daily Observations on February 14, 2002 and is also on the front page of www.myhomelender.com
Pay special attention to the section on stock as a currency. I believe what we are witnessing today is stock trading as a currency, with no correlation to the underlying fundamentals to the economy or even the company. In other words stocks are trading as currencies and are reflecting the reactive move away from paper currencies all over the world; NOT reflecting positive, proactive anticipation of increasing economic activity or company specific potential.
The Fed, the Constitution, derivatives and Enron
The Federal Reserve, the central bank of the United States, was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.
This is not exactly accurate. The Federal Reserve Board was created by a group of bankers; who in turn lobbied congress to adopt their central banking model through the passage of legislation, the Federal Reserve Act of 1913.
Since then a debate has raged as to whether or not the creation of the Fed was legal or Constitutional. My concern is not whether or not a central bank is constitutionally disallowed to exist; it clearly isn't. Rather my concern is under what conditions it may exist and the due process of its creation. And further, whether or not it has succeeded in its goal as stated above.
I do not believe that the conditions for existence or process of creation of the central bank of the United States were legal or constitutional. Further the Fed has failed to accomplish its goal as stated above.
So why do we still have this Fed?
The Federal Reserve is a private organization. It is made up of 12 federal reserve districts; each having its own bank. Each of these banks is owned by its stockholders, member banks. The Federal Reserve is not a public institution. It is not owned by the Federal government or the tax payers of the United States. It is private. Just like most other private companies in the U.S.
A legal argument against this Fed's creation
The creation of the Federal Reserve resulted in the transfer of value without consideration.
In other words, Congress transferred control of the supply of money to the U.S. economy from the public sector to the private sector without getting something in return. In my opinion, this makes the process of creation illegal, without due process, and should result in the rescission of the Act.
v. transˇferred, transˇferˇring, transˇfers
1. Law. To make over the possession or legal title of; convey. n. (trnsfr)
2. Also transferal Law. A conveyance of title or property from one person to another.
Notice I am not saying a central bank is disallowed; only that the process through which this one was created was illegal. Simply because no transfer of value was completed. The owners of the Federal Reserve received something of substantial public value without paying for it. That in itself should nullify the Feds existence.
Further, since there was no transfer of value to the U.S. tax payer from the Federal Reserve, the transfer must then be considered to be a Federal tax absorbed by the U.S. taxpayer. The problem with that argument is that the law that would have allowed for that argument was the creation of the IRS. The problem is that the IRS, the federal taxation law, did not occur until 1915, 2 years after the creation of the Fed. Congress could not constitutionally create the Fed and then 2 years later create the law that allows them to create the Fed. Talk about putting the cart before the horse.
The Constitutional argument against this Fed's creation:
The Constitutional argument against the Fed's existence typically has been that it violated clause 5 of section 8 of the U.S. Constitution. (see below) And it did and does.
Clause 1: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
Clause 5: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
As a matter of fact, the specific purpose of the Federal Reserve is to "regulate the Value thereof" of money.
Quote again "The Federal Reserve, the central bank of the United States, was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system."
Note to the Fed supporters and U.S. Investors
The supporters of the Fed have contended that the Fed doesn't actually coin money and that because of that it is not unconstitutional. The point irrelevant as it is based on a difference without a distinction. The Fed "regulates the value thereof" by regulating the supply of money and thus is in direct violation of the U.S. constitution.
The Fed, derivatives and Enron
The first universally accepted, modern, western world currency was gold. The first derivative of this was the introduction of gold backed dollar. The gold-backed U.S. dollar was replaced with the gold backed U.S. Federal Reserve Note in 1913. Which in turn was replaced again in 1933 with the non-gold backed Federal Reserve Note; which in essence is what we transact business with today.
Take out your wallet and look at your money. They are not dollar bills. There is no longer any such paper currency or fixed concept of value known as a dollar bill. We carry and transact business with Federal Reserve Notes which represent the concept of dollar bill. The concept of dollar however, also carries no value other than which people perceive it to have; since the U.S. was taken off of the gold standard in 1933.
So a Federal Reserve note represents a U.S. dollar which in turn only has the value that investors perceive it to have. There is no tangible backing to any of them. When gold was replaced by the gold backed dollar we created a fixed derivative. When the gold-backed dollar was replaced with the gold backed Federal Reserve Note what we actually did was create a derivative 2 times removed. When that currency was then replaced with the non-gold backed Federal Reserve Note we created a derivative 3 times removed from the original "store of value" known as the gold backed U.S. dollar
Remember the daily quiz in our newsletter from a week or 2 ago wherein we asked what are the 3 functions of money? Go back and check it out.
Think of it this way: Take a Rembrandt painting and copy it on a Xerox machine. Then take the copy and copy it. Then do it again. Then put the copy of the copy of the copy up for sale and see what you get. Which of these 4 has the most value? It's not rocket science. Every time a new derivative level is introduced it dilutes the real value further.
So, before we get to trading dollars for stocks and bonds; which are just another derivative, we are already 4 derivative placements removed from gold.
Companies then "copy the copy" again by issuing stock which they trade for dollars. Stock is a company-specific "currency" that also floats in value on the open market and is dependent upon how much stock the company has printed. This is exactly what Enron did with their "currency" or stock and what every company does. So now we have created a derivative 5 times removed from the original, which is gold.
Enron then issued special stock, backed by their common stock and placed these in partnerships which in turn swapped those "derivatives" for dollars again. We are now 6 derivative positions removed from the gold standard.
Are you beginning to see the pattern? The problem with floating exchange rates? The moral hazard that it virtually guarantees? Can you understand why the Enron executives believe they did nothing wrong? After all they are only doing what Woodrow Wilson did in 1913 and FDR in 1933 and Mr. Greenspan and Mr. O'Neill continue to do today
The entire concept of a dollar is a Ponzi scheme. The entire concept of floating currency exchange rates is a Ponzi scheme. The way to accomplish them was to violate the U.S. Constitution in 1913 and create the Fed. The true beginning of the Enron affair.
The central banks around the world have printed more money than can be supported with "value." Companies have then borrowed even further out depreciating currency valuations further. Beyond that, companies have manipulated earnings to a point of absurdity.
An argument against this Fed's continued existence
Again the Fed's stated goal: The Federal Reserve, the central bank of the United States, was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.
The Fed was supposed to have decreased the near term volatility of the business or economic cycle and increase the long term growth rate of the economy as a result. In fact, there have been just as many boom and bust cycles since before the creation of the Fed and fall into 2 categories; 1) normal business cycles and 2) monetary mismanagement.
Before the Fed's creation we only had normal business cycles. And the Fed itself has maintained for years and continues to maintain that monetary policy can not supercede the business cycle. Well, the whole point in creating the Fed was that they could supercede the business cycle, at least at the margin.
As a matter of fact not only has the Fed failed to achieve its stated goal after 89 years but we have experienced a substantial reduction in long term growth rates during the course of the twentieth century that can be directly attributed to recessionary environments born out of monetary mismanagement. In other words we are in worse shape economically with the Fed than we were without it.
Further, as late as just a couple of months ago Mr. Greenspan himself said that monetary policy (what the fed controls, the supply of money) can not supersede the business cycle.
Well, the fundamental purpose for the creation of the Fed was that it could supersede the business cycle.
There is much more that needs to be said and that I could write. Think about what has been presented here. We will expand on it in the future. For those of you who can not extrapolate what this means for the future, the answer is simple.
The entire ponzi scheme that allows this system of derivatives on derivatives is predicated on the fact that the concept of the U.S. dollar has value. That assumption is being drawn into question right now. Investors are looking behind the curtain and realizing the emperor has clothes.
The entire world wide economic system is a con (confidence) game that can only work if the cost of goods and services is steadily inflating over time. If that steady inflation is interrupted the system collapses. This process has already begun and is beginning to unravel all over the world.
Disregard this warning at your own expense.
PAR Mortgage Rates
SPECIAL LOAN STILL AVAILABLE! requires agreement not to refinance for 3 years
The 30 year fixed at 4.75% and 15 year fixed at 4.60% for loans between $150,000 and $322,700
The 30 year fixed at 4.95% and 15 year fixed at 4.85% for loans between $322,701 and $500,000
45 Day Lock Pricing - minimum loan amount $150,000
The Break Even Rate is the rate from which you should refinance now. If your rate is at or above the Break Even rate you should call me immediatley to determine whether or not you should refinance at 1 800 658 2813.
Conforming Break Even Jumbo Break Even
Secondary Market $322,700 or less $322,701 or more
30 Year Fixed 5.625% 6.875% 5.750% 6.875%
20 Year Fixed 5.625% 6.875%
15 Year Fixed 4.875% 6.500% 5.125% 6.625%
10 Year Fixed 4.625% 6.375%
10 / 1 ARM 4.625%
7 / 1 Arm 4.625% 6.125% 5.000%
5 / 1 Arm 4.250% 4.625%
3 / 1 Arm 3.625% 4.250%
1 Year ARM Quote by phone due to volatile price swings.
Primary and Quasi Primary Market - FOR SELF EMPLOYED BORROWERS
COFI Start / Accrue 2.250% / 5.557%
LIBOR 2.200% / 4.230%
Roger's Radio Schedule - Listen Live Over The Net
Monday-Friday 11AM-Noon eastern Time; The Roger Arnold Show LIVE at www.TFNN.com
Sunday 8-10 AM eastern time; The Roger Arnold Show LIVE www.BusinessTalkRadio.net
Monday 3:00 - 4:00 PM eastern time; The Roger Arnold Show LIVE www.TFNN.com Monday 4:30 - 4:45 PM eastern time; The Tom O'Brien Show LIVE www.TFNN.com Thursday 5:30 - 5:45 PM easten time; The Tom O'Brien Show LIVE www.TFNN.com Monday / Thursday 10:12 AM eastern time to :20 after the hour LIVE www.KBNP.com
Listen Live Over The Net
www.TFNN.com www.BusinessTalkRadio.net www.KBNP.com www.KSBN.net
Radio Show Archives
Monday through Friday show http://www.tfnn.com/archived_shows.php
Sunday show http://www.businesstalkradio.net/weekend_host/Archives/ra.shtml
Locate a station near you http://www.businesstalkradio.net/affiliates/our_affiliates.shtml
Daily Observations Archives http://lists.sparklist.com/scripts/lyris.pl?visit=roger_arnold