Keith Olbermann is decrying what could be the most fundamental miscarriage of justice since Dred Scott v. Sandford, [1] declaring that a Black man had no right of citizenship in the United States.  This decision led, in short order to the Civil War. [2]

In the recently decided case Citizens United v. Federal Elections Committee [3] the issue before the court was the ability for a corporation to make campaign contributions, specifically to fund campaign ads.  Currently there is a cap on business campaign donations which have to be made through a political action committee.  The cap is in place to ensure that citizens can vote with their dollars early in the democratic process, specifically the funding of a candidate. 

The that has come down from Justice Roberts (a Bush Jr. appointee) has ruled that corporations, in line with previous rulings, are to be regarded as human beings in the eyes of the law, and thus limiting their ability to donate to campaigns is a fundamental violation of a corporation’s human rights. [4]

The previous ruling is the 1886 decision in Santa Clara County v. Southern Pacific Railroad [5] which had to do more to do with tax law.  It was decided that Southern Pacific Railroad was entitled to "the right to deduct the amount of their debts [i.e., mortgages] from the taxable value of their property, a right which was [previously only] given to individuals." [6]

During the pleading of the case, an orbiter dictum (legal: ‘passing comment’) was made that corporations were entitled to the same rights as humans.  The remark didn’t show up in the decision (merely the head notes) but from that point hereafter, corporations were regarded as human beings citing this ‘precedent.

The First Amendment of the US Constitution, indeed the Bill of Rights, (1791) establishes that "Congress shall make no law … abridging the freedom of speech, or of the press…".  The Supreme Court has taken this legislative gold and combined it with the dross of a passing comment in an unrelated case to produce an unholy alloy which now allows corporations, lacking human sensibilities aside from greed, all the rights of same. 

Olbermann concludes his commentary with a nod to another famous journalist famous for offering us a political conscience, Edward R. Murrow: “good night, and good luck.”

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Other Resources:
Jeff Toobin on the Colbert Report:
(United States) http://www.colbertnation.com/the-colbert-report-videos/249057/september-15-2009/citizens-united-v–federal-election-commission—jeffrey-toobin
(Canada) http://watch.thecomedynetwork.ca/the-colbert-report/interviews-a-z/the-colbert-report—interviews-b/clip97669#clip215649
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Citations
[1] http://www.oyez.org/cases/1851-1900/1856/1856_0 
[2] http://rawstory.com/2010/01/olbermanns-special-comment-freedom-speech-destroyed/
[3] , [4] United Citizens v. Federal Elections Committee: http://www.supremecourtus.gov/opinions/09pdf/08-205.pdf
[5] Santa Clara County v. Southern Pacific Railroad:  http://en.wikipedia.org/wiki/Santa_Clara_County_v._Southern_Pacific_Railroad
[6] Carl Brent Swisher, "Motivation and Political Technique" in The California Constitutional Convention, 1878-1879 (New York: Da Capo, 1969), p. 78

Congress · Edward R. Murrow · Federal Elections Committee · fundamental miscarriage · journalist · Keith Olbermann · miscarriage · Santa Clara County · Supreme Court · tax law · United States

For years now, I’ve tried to understand how the Federal Reserve (the Fed) lowers interest rates and how it affects inflation. I mistakenly thought that the Federal Reserve was a wholesaler of money. I thought that it was a Federal institution which under the direction of the government could make money available to banks at a certain lending rate. Thus when the Fed lowered rates to say 3%, the banks could get money at that rate and pass the savings along to their customers by lending money at say 3.5%. I was partially mistaken in my interpretation as to how that affected interest rates. I thought that as a result of people being able to get money at a lower rate, people would spend more, and the more they spent, the more the market could tolerate higher prices for common goods. This is true, but isn’t the full story. So let’s get the full picture.

My first mistake occurred when I assumed the Federal Reserve was a federal institution of any sort. This is not at all true. It is a private bank enacted by an act of congress in 1913 to oversee the US monetary policy. I offer the following interesting nugget of information for those who are interested: It was passed on Dec 23 1913 when most of congress was on vacation, in absence of a proper quorum. If that tidbit piqued your interest, please see this post: http://mwiner.wordpress.com/2008/01/25/terrific-documentary-explaining-the-economy/

So how then does the Fed manage to control interest rates? First off, when you hear of the Fed lowering or raising the interest rate, it isn’t directly lowering or raising the interest rates, it is changing the target interest rate. At a high level, the Fed accomplishes this by controlling the supply of money. Money, just like any other commodity can respond to supply and demand. If there is a lot of money in the economy, interest rates will drop because banks will have an easier time of procuring money to loan. However, having more money in the economy encourages inflation because the value of the currency is lowered by increased supply.

If you want to understand how the Fed manages to expand or contract the supply of money, we need to first understand a few key concepts. The first is partial reserve banking. It was long ago that banks discovered that not every person needed their cash at any given time. It was thus that banks could loan money that technically they didn’t have on reserve. In the US, banks are required to maintain a 10% reserve which means they can loan out 10 times the amount they have on reserve. (This is often referred to as ‘banker’s reach’.)

Next you need to understand what a treasury bill is. A treasury bill is a promise issued to the buyer by the federal government to give you the maturation price of the bill on the maturation date. The bill is always sold at a discount rate, that is a rate, less than the maturation date. For example, a treasury bill may be sold at a discount rate of $950, a maturity rate of $1000 and a maturity date which is a year from now. This means you can buy the bill at $950 and make $50 dollars profit when it matures in a year.

So we now have enough knowledge to work a simple example of how the system works. Suppose that the interest rate is currently 8%. Suppose too that there are 100 people who have $10 each. These 100 people each put $2 in the bank. The bank thus has $200 in reserves and due to partial reserve banking, they can make ten times that amount, some $2,000 in loans. This means they can make a loan of $20 per person.

People typically want to buy things that are 4 times the amount they have on hand. In housing the standard financing model is you must have 1/4 the purchase price in capital. So people with $10 typically want to make a major life purchase which would be $40, but as we see, the bank can easily lend everyone $20, but $40 would be hard to come by at a reasonable interest rate. Thus, people stop purchasing, the economy stalls and the Fed decides to step in.

The Fed does some research and discovers that if the lending rate reduces to 5%, then most people will be able to make the payments and will take out loans and start spending again. So the Fed set the TARGET rate to 5%. To reach this level, the Fed offers to buy a treasury bill the bank has on hand with a maturity value of $500. The bank accepts and now the bank has $700 in reserves. Recall that the bank is allowed to loan out 10 times the amount it has on reserve. So the bank can make $7000 dollars in loans or $70 dollars per person. Since the amount to loan out is plentiful the bank lowers its lending rate to 5% to entice people to take out loans.

It’s important to keep track of the total amount of money in the economy while all this occurs. We started with 100 people having $10 each. Thus there was $1000 in the economy. When the Fed purchased the treasury bill, it printed money to do so. So now there is another $500 dollars in the economy for a total of $1500. You may be scratching your head over the previous sentence, but this is the second part of the misnomer “Federal Reserve”. The Federal reserve is not federal and it doesn’t have any reserves. It prints money to make purchases. I don’t want this post to become a rant against the Fed so I’ll cut it short here and explain the other side of the coin: how the Fed contracts the supply of money.

So now in our moot world, everyone can take out a $30 loan to get the $40 item they’ve been dreaming of. However, one of the principles of a free market is that prices will rise to the maximum that the market will bear. As a result, since most people can afford the $40 item, the market starts charging $42 or $44. Slowly the price creeps up because the value of money has been decreased by an increased supply. In short we are experiencing inflation.

So the Fed sees this situation and decides to curb inflation by raising the target interest rate. By raising the target interest rate, the Fed makes money harder to get, more scarce and thus the market can’t bear higher prices, slowing spending and curbing inflation. To accomplish this, the Fed sells treasury bills. By selling treasury bills, banks that purchase them are forced to spend their reserves to make the purchase, thus pulling cash out of the economy. Recall that banks can loan 10 times the amount they have on reserve. By lowering the amount of cash banks have on reserve, the Fed restricts the bank’s ability to make loans. Since the bank has less money to loan, it must charge more interest to compensate, and the interest rates rise. The key point here is that the difference between the discount rate and the maturity rate must be paid for at some future rate. When the bank comes to collect on this treasury bill, the Fed must pay the bank the promised maturity price. If you have an eye for catching trends then you may have already guessed that the money to pay the difference comes from, yup, you guessed it, printed money.

In conclusion, the Fed controls the supply of money. It accomplishes this by buying and selling treasury bills on the common market. It’s important to remember that when the Fed buys treasury bills it does so with printed money. Also when the Fed issues treasury notes and those notes are redeemed, the difference owed to the purchaser is paid with printed money. This is called a fiat currency, or a currency based on credit — in this case the credit of the United States. It doesn’t take a Harvard ecomonist to realize that every time the Fed runs through one of these cycles of inflation and contraction, that the amount of money in the economy is increased. It is only a question of time before the Fed destroys the currency it relies upon by making it too common. This process is called devaluation. If you want to see devaluation in action, see this graph of the US dollar vs. the Euro over the past 5 years:

http://finance.yahoo.com/currency/convert?from=USD&to=EUR&amt=1&t=5y

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Corruption and collusion are what is wrong with the economy.  The Federal Reserve (Central Banking) is a criminal organization which uses inflation to manufacture debt.  The tax you pay in income tax or retail tax is simply collateral for the vast sums of inflated money that is printed on behalf of the federal government, a willing accomplice in this scheme. 

A picture is worth a thousand words:

(click to see larger version)

What you’re looking at is a chart of inflation from 1800 on.  Notice the blips that correspond to the war of 1812 and the Civil War of 1863.  Note that aside from these blips, inflation was relatively flat for around 113 years.  Then in 1913 the Federal Reserve was created.  In 1933 FDR confiscated all public monetary gold and removed the gold standard.  In 1971 Nixon removed the last vestiges of the gold standard (the foreign currency gold standard) and the results of this are clear.

What does this mean to you?  It means that any money you save becomes devalued.  Money in the bank is no longer a sure thing.  Inflation makes the funds you hold an investment in the currency.  The Federal Reserve was invented to prevent self-financing and financial independence.  As you can see from the graph above it has been quite successful. 

Who let’s the Federal Reserve continue to operate?  You do.  Apathy and lack of education the keys to the success of the Federal Reserve.  They throw bits of cheese at you in the form of 401K’s and fancy beach houses and watch you scurry after them laughing all the while as they devalue the dollars you earn. 

Inflation is nothing other than a tax.  The ‘tax’ you think of as tax is only collateral on the huge reams of printed money that the Federal Reserve pumps out at the behest of Congress’ bloated budgets.  It siphons value out of all your assets and ensures you remain in debt for as long as possible.

Don’t believe me.  Good, you need to be skeptical to survive in this world.  Here are some starting points for more information:

http://video.google.com/videoplay?docid=-515319560256183936
http://video.google.com/videoplay?docid=-8484911570371055528
http://video.google.com/videoplay?docid=-594683847743189197

a fun calculator:
http://www.minneapolisfed.org/Research/data/us/calc/

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