In order to live in a civilization in which liberty, prosperity and peace prevail, the Federal Reserve will need to be abolished. This author therefore advocates the thorough eradication of the Federal Reserve Banking system, as well as the end of the central banking systems of all other countries. Central banks around most of the world have infected humanity with inflation, destroying the purchasing power of everyone’s money, labor, earnings(both through direct work and investment vehicles), and savings. This kind of poverty is far from acceptable. is quite unnecessary, and is also one of many valid reasons to overhaul the current banking system. As G. Edward Griffin discusses in extensive details in The Creature from Jekyll Island, and in probably the most concise manner possible, these are the key reasons why the Federal Reserve must be abolished5:
-It is incapable of accomplishing its stated objectives
-It is the supreme instrument of usury
-It generates our most unfair tax, by which Griffin means inflation
-It encourages war
-It destabilizes the economy
-It is an instrument of totalitarianism
To add a seventh, the Federal Reserve Act was passed in 1913 by the racist President Woodrow Wilson who failed to keep Americans out of World War I by refusing to heed Germany’s warning to prevent American passengers from boarding any ships scheduled to travel in European waters4.
While many more reasons could be offered, the almost literally trillion dollar question is, how would our banking system, and broader economy as a consequence, function and thrive without the Federal Reserve, or any central bank? This question, along with perhaps very little consideration or care about American monetary and banking policy, is often used as resistance and hesitation to even diminish the Federal Reserve, let alone abolish it.
Most probably, abolishing the Federal Reserve Banking system would inevitably come with considerable short-term pain and economic hardship. While widespread bank failures and business bankruptcies would be some examples of such pain, the key word in the previous sentence is SHORT-TERM. While these adversities are severe, they must be endured because they force unproductive banks and other unproductive enterprises into bankruptcy while rewarding those that are prudent and productive – this is how it should be. Putting civilization in such a precarious position to risk suffering these tremendous adversities is one of the big reasons why the adoption of fiat money and the creation of the central banking system never should’ve happened in the first place, and why it must never happen again. However, in order to prevent the short-term adversities from being used as reasons to succumb to the temptation to regress back into fiat money and central banking, the following steps must be taken preceding the abolition of the Federal Reserve Banking system, in order to create the smoothest possible transition to liberty and prosperity, as Griffin explains6:
1. Repeal all legal tender laws. The people, the free market, should enjoy their liberty unpunished & unmolested by the state, interchangeable with the word government in this writing, to use and accept whatever form of money they wish, so long as no other party is coerced to accept any form of money. For clarification, the free market means the voluntary exchange of goods and services by all adults; this therefore includes the voluntary offering and acceptance of any commodity as money – more on that later. This also goes hand in hand with the abolition of both the federal income tax and 16th Amendment, which this author is also advocating.
2. Freeze the present supply of Federal Reserve Notes. Given the already gargantuan inflation and currency devaluation the Federal Reserve has already committed, the central bank must not be allowed to print any more units of currency or add even the tiniest unit more to the total monetary base of U.S. Dollars or Federal Reserve Notes.
3. Define the “real” dollar in terms of precious metal content. Preferably what it was in the past; 371.25 grains of silver per dollar. This price and weight can be something else, but 371.25 grains of silver per dollar has won out in history.
4. Establish gold as an auxiliary reserve, which can be substituted for silver at whatever price ratio the free market sets. Silver should be the foundation for the dollar.
5. Pledge the entire U.S. government’s hoard of gold and silver to be the backing for all Federal Reserve Notes in circulation. At too many various times in the nation’s history, people’s gold and silver were confiscated. As such, the gold and silver should be returned to the descendants of the family members who originally owned the bullion. In cases where descendant family members cannot be identified, the U.S. government will auction the gold and silver to be sold to the highest bidder, accepting only U.S. Federal Reserve Notes, which shall be used to pay off the existing national debt as much as possible. Any remaining debt thereafter shall be thoroughly repudiated.
6. After executing step number 5, Repudiate all remaining U.S. dollar-denominated debt owed by Congress to all debtors. The Federal Reserve should never have been allowed to create money out of thin air, nor should it have been allowed to entice Congress to borrow from it so that the federal income tax, enabled by the 16th Amendment, could be justified as a way to pay off that debt. The unwilling taxpayers don’t deserve to be held responsible for the debts of their government, especially if they are coerced to do so through the theft mechanism of the 16th Amendment i.e. the federal income tax. As such, because nobody should have been crediting the U.S. Congress with Federal Reserve Notes, no such creditor should be considered entitled to repayment, especially on the interest, as the fiat monetary system of the Federal Reserve Notes was deliberately made so that the only way for interest to be paid back is through creating additional fiat money. This newly created fiat money in turn gets lent to the federal government and inevitably comes with interest obligations, and what then is the only way to pay off that interest? By printing and creating even more fiat money, which comes with further interest obligations. This ultimately results in a system that perpetuates interest payment obligations, and therefore makes repayment of the national debt impossible – for the sole benefit of the central bankers and greedy politicians! Remember this whenever you hear one more promise by any politician to pay off the national debt – it is impossible by design. As such, this vicious cycle must be eradicated, and those who wrongly participated in the cycle, as either creditor or borrower, deserve no reward or entitlement as such.
7. Determine the weight of all gold and silver owned by the U.S. Government and then calculate the total value of that supply in terms of real silver dollars, as explained in step number 3.
8. Determine the number of all Federal Reserve Notes in circulation and then calculate the real dollar value of each note by dividing the value of the precious metals determined in step number 7. by the number of Federal Reserve Notes.
9. Retire all Federal Reserve Notes from circulation by offering to exchange them for dollars at the calculated ratio. There will be enough gold and silver to redeem every Federal Reserve Note in circulation. The prices of gold and silver in relation to Federal Reserve Notes would just have to be adjusted accordingly – this would mean drastically higher prices of gold and silver than the spot prices of both as of the time of this writing.
10. Convert all contracts based on Federal Reserve notes to dollars using the same exchange ratio as described in step 9. This includes mortgages and government bonds. In that way, monetary values expressed within debt obligations will be converted on the same basis at the same time as currency.
11. Issue Silver Certificates. As the Treasury redeems Federal Reserve Notes for dollars, recipients will have the option of taking coins or Treasury Certificates which are 100% backed. These certificates will become the new paper currency.
Because the Federal Reserve has been in charge of monetary policy, it becomes imperative to explain how the monetary system will function in the absence of central banks. Let’s start by explaining the origins of money and banking, as understanding this history will illustrate how money and banking preceded the Central Banking paradigm manifested by the Federal Reserve and various other foreign central banks. It will then therefore become clear how money and banking can indeed, and most definitely should, exist without the Central Banking status quo that has prevailed for over a century.
Griffin has done arguably the best job providing a working, formal definition of money. As he explains, money is fundamentally anything that can be accepted as a medium of exchange1. If you possess something that can be exchanged for another item, then you possess money. If this definition sounds very broad and vague, that is indeed the essence of money, as the specific manifestations of money, such as the U.S. Dollar, Euro, Japanese Yen, gold, and even bitcoin, are all TYPES of money. These types of money can be classified into the following forms:
1. Commodity Money
2. Receipt Money
3. Fiat Money
4. Fractional Money
5. Digital Money
That order was presented on purpose, as money originally started out as physical commodities that people would exchange. Preceding even ancient history, if you had potatoes and wanted firewood, in order to purchase the firewood, you had to find someone who both owned firewood and wanted your potatoes. Effectively, your potatoes and the other person’s firewood were money, and still can be even today, so long as there are two distinct entities willing to exchange such commodities. This primitive arrangement of voluntary exchange of physical commodities, considered consumer goods in today’s times, was known as barter. This barter system was a good starting point, but the problem became; what if you lacked the specific commodities that others were willing to receive as money? The modern-day equivalent would be lacking sufficient dollars to buy something. It therefore became necessary to develop a commodity that could intrinsically be exchangeable for all other commodities. Furthermore, the general public had to agree to accept these commodities as common media of exchange. Over time, humanity came to accept gold and silver as the best commodities as media of exchange, and therefore, as money. No law, government edict, or central bank mandate made gold and silver triumphant as money – people naturally and voluntarily agreed to accept them as money. Circling back to the prior example, if you only have potatoes and gold, you want firewood, but those selling firewood don’t want potatoes, you could instead exchange your gold for the firewood, as the firewood seller would accept the gold because it could be exchanged for a commodity that he/she actually wants or will want in the future, let’s say boots instead of potatoes. The key question to ask and answer now becomes, why did gold and silver, out of all possible commodities, emerge triumphant as the early forms of money and common media of exchange?
This question is especially important as this post is also advocating the return to the gold standard and silver dollar, as will be elaborated on later. Gold and silver, in addition to serving as exchange media, could also store value, and thereby function as savings, which could later be exchanged for future purchases and investments. Additionally, these metals can be used for purposes other than exchange and can be melted down into small coins that are convenient enough to carry, unlike diamonds. Furthermore, gold and silver coins don’t rot, unlike cows that were previously used as money, and they can also be precisely measured in weight and quantity. If you throw gold and/or silver gold(s) into the bottom of the ocean, those gold and silver coins will be exactly the same even if they get dug up 1,000 years into the future. Would this be possible with any modern day paper currencies, credit cards, or even cryptocurrencies such as Bitcoin(more on this later)? No. In effect, gold and silver became the reference by which all other commodities in the economy could be compared. This is why it is critical for the monetary unit to be both stable and constant, which gold and silver are. While there were, and arguably still may be, different commodities that have the same benefits of gold and silver, civilizations in history generally agreed upon gold and silver. The point is, like with every other commodity, the people i.e. the free-market, should decide what commodity prevails as money through the mechanism of natural and voluntary choice and exchange. This is not the case in 2020, and hasn’t been for too many decades, as money, meaning modern-day national currencies, in nearly every country is wrongly created and controlled by an unelected, uncaring, and unaccountable central bank, such as the Federal Reserve in the U.S.
On a relevant and interesting side note, the Byzantine Empire practiced sound money throughout its long, 800 year history. The Byzantine Empire is an excellent case study of how sound money, such as a pure gold standard, actually sustains civilization and enables its prosperity. This runs contrary to modern mainstream belief that the gold standard inhibits wealth growth and traps civilization in poverty. Learning on the sound money tradition of the Greeks, Emperor Constantine ordered the creation of the new gold piece which was called the solidus and a silver piece called the miliarense. The solidus was so dependable that it later became known as the bezant, from China to Brittany, from the Baltic Sea to Ethiopia. Furthermore, Byzantine laws practiced very strict laws regarding money and banking. In order to become a banker, the candidate required sponsorship by those who’d vouch for his character. Additionally, the candidate needed to pledge to refrain from filing or chipping either the solidus or miliarensia and also from issuing false coin. Violation of these rules called for cutting off a hand2. Although such a harsh and cruel punishment violates the Eighth Amendment of the Bill of Rights, it sure would be worth considering whether we should reimplement similar banker pledges. Definitely, bankers should be punished for inflating, and thereby devaluing, the money in circulation: how they should be punished is through the abolition of both the Federal Reserve banking cartel and the federal income tax that enables the banking sector to unfairly steal from the public, including the poorest taxpayers, to cover their reckless and failed investments and speculations – euphemistically called bailouts and Troubled Asset Relief Program(TARP) during the 2007-2008 Great Recession. After all, if the gold standard and sound money worked so well for the Byzantime Empire all the way back then to the point where it lasted over twice as long as the Roman Empire, why couldn’t it work in today’s more sophisticated and technologically advanced civilization?
As civilization became more sophisticated, as the division of labor in the economy became more specialized, and as people became wealthier, the number of people owning more gold and silver coins than was convenient to carry grew immensely too. This lead to the first coming of Receipt Money. Interestingly, some of the earliest innovators of receipt money were goldsmiths, primarily during the Medieval Era. At the time, lots of people held too much gold than was convenient to carry. Goldsmiths, by virtue of owning large and secure vaults, offered to store people’s gold for a small fee. This is the medieval equivalent to banking deposit fees, although those don’t really exist anymore. The goldsmiths would then give a paper receipt to the gold owners, who could return to the goldsmith and take the gold out of the vault upon presentation of the receipt. The original receipt owner could also give the receipt away and sign his/her approval of the transfer of ownership of the receipt and consequently, the gold. This was the first version of modern bank checks. Receipt money came about out of a need for convenience; instead of carrying heavy amounts of gold or silver, you simply had to carry around light-weight paper receipts. These paper receipts became the first version of currency.
Let us now define Fiat Money, as that is, at the time of this writing, the predominant form of money in both the U.S. and the vast majority of the world. The American Heritage Dictionary describes Fiat Money as “paper money decreed legal tender, not backed by gold or silver”. Essentially, this is the antithesis of commodity money. The legal tender feature is critical, as this is the primary reason why people would accept or use baseless money – because the law forces them to do so for the payment of debts, and it is the only form of money that can be used to pay the federal income tax, for which again, this author calls for the absolute abolition. Of course, in every country that practices fiat money, which sadly is pretty much every country, only one central authority is allowed to issue the fiat money, which in the U.S., is the Federal Reserve. If a non-banker citizen prints any notes and tries to exchange it as if it were a U.S. Dollar, he/she would be a counterfeiter and would then be thrown in jail, rightfully so. However, when the Federal Reserve, and all other central banks of the world do it, they get away with the crime of counterfeiting scot-free. This unjust balance of power is wrong, contrary to the Rule of Law, and the end of it is what this author is advocating. Inevitably, fiat money is created by inflation, either through physical printing of paper fiat money or in more recent times, through digital ledger entries on computers. This inflation, in turn, unjustly destroys the purchasing power of people’s earnings, savings, and investments, resulting in widespread poverty. History provides too many examples of this, ranging from the Roman Empire, colonial America, the Continental Army during the Revolutionary War, both armies of the U.S. Civil War, to more modern examples like Weimar Republic Germany, Zimbabwe, Argentina, South Africa, and Venezuela. Fiat money, because it is created by inflation, actually imposes a subtle tax which is actually far more sever than any income, property, sales, or excise tax. As Thomas Jefferson explained it, “Every one, through whose hands a bill passed, lost on that bill what it lost in value during the time it was in his hands. This was a real tax on him; and in this way the people of the United States actually contributed those… millions of dollars during the war, and by a mode of taxation the most oppressive of all because the most unequal of all”.3 As G. Edward Griffin explains, the Law of Fiat Money is “A nation that resorts to the use of fiat money has doomed itself to economic hardship and political disunity.”7 There are no exceptions to this law.
Number 4 on the categories of money is Fractional Money. Here again, the goldsmiths were some of the earliest innovators of Fractional Money. Fractional Money simply means that a bank only has to keep a fraction of deposits in its possession and can lend out a certain amount, a fraction, of the deposits. Say a bank has $100 in total deposits, and then decides to lend out some of those deposits, say $85, only keeping a fraction, $15, in the vault. The problem, however is that not only is the bank committing fraud and violating its contract by lending out money that is supposed to be available at all times for the deposit owner to redeem, but if the borrower does not pay back, then the depositor unjustly suffers the loss that he/she never consented to by depositing his/her gold with the goldsmith. The reason goldsmiths felt safe doing this was because at the time, depositors usually didn’t withdraw more than 15% of their deposits. In effect, the original receipts that depositors accepted after placing their gold in the vaults became fiat money as the money backing the receipts wasn’t physically in the vault, and so the receipt owners were now forced to rely on faith, fiat in Italian, that the vault owner would have the gold at any given time to redeem the receipt. To use a modern analogy, it is sort of like how airlines, at least before COVID-19, sell more flight tickets than available cabin seats as the airlines expect a few passengers to not show up to their flights.
Obviously, goldsmiths didn’t always have the gold available in their vaults as they were obligated to, causing bank runs and all kinds of other avoidable and severe banking and economic problems. As Griffin states, the Law of fractional money is that “Fractional money will always degenerate into fiat money. It is but fiat money in transition.”9 The only time bank deposits should be lent out is if the depositor provides informed consent to the banks that the deposit will not be available for withdrawal until a future time agreed upon by both the depositor and the bank. This is usually compensated with an interest rate payment to the depositor, with the risk of potential loss, of which the banker is obligated to properly inform the depositor.
Let us now discuss Digital Money, also known as and interchangeable with cryptocurrencies, the final above-listed form of money. Before 2009, digital money didn’t exist. Unlike conventional money like the USD or Euro, BitCoin is decentralized and controlled by no central bank. BitCoin has a finite supply of 21 million. While this seems to be a good thing and in line with the scarcity of gold and silver, the problem is, as Peter Schiff has pointed out, BitCoin, like all other cryptocurrencies, isn’t backed by anything physical, making it more like fiat money. The price of cryptocurrencies gets driven higher simply by the availability of others willing to buy it for higher prices, and the lack thereof such buyers is how the price of BitCoin, and all other cryptocurriencies, gets driven lower. Even at its peak price of $20,000, what is it about the intrinsic nature of BitCoin that makes it worth $20,000, or even $5? Even as a hedge against the dollar, BitCoin hasn’t always performed well. In some of the most recent corrections in the S&P500, Nasdaq, and Dow Jones indices, BitCoin hasn’t skyrocketed when those indices have declined. Take March 17, 2020, for example, right around when the U.S. started irrationally shutting down commerce and most of the economy in a vain attempt to combat the exaggerated COVID-19 scare; BitCoin also declined with the major stock market indices. Even in late July 2020, when gold is knocking on the door of its all time spot price record, BitCoin is hardly half of its all-time record close of nearly $19,447. Most importantly, that record high price came right as the year 2017 was ending, which was a year in which the DJIA and other major stock indexes were breaking new records, although of course those records were artificial as they were illegitimately boosted by Federal Reserve injection of monetary liquidity, otherwise known as Quantitative Easing. In essence, the stock market indices weren’t appreciating in value; the dollars used to buy them were depreciating because of Quantitative Easing. This produced the illusion of appreciated values of the stock market indices.
It therefore cannot be said that BitCoin is significantly different in speculative nature than the major stock markets or fiat currencies. In fact, BitCoin is only valuable by virtue of people having the willingness to accept it as a form of payment – that’s it. It is almost essentially another Ponzi Scheme, whereby the original value of the asset is dependent on a buyer willing to purchase for a higher price than the original cryptocurrency unit(s). Furthermore, BitCoin doesn’t have the monopoly on digital money – so many other cryptocurrencies can easily be created to compete and thereby reduce the value of BitCoin. Unlike gold and silver, BitCoin is really not that unique compared to its competitors. It isn’t really possible to discover or replicate a metal that can compete on the same level of gold. Furthermore, many merchants are uncertain about BitCoin’s, or any cryptocurrency’s, future value. Those merchants who do accept BitCoin or other cryptocurrencies as payment usually don’t keep the BitCoin stored; instead they usually immediately exchange it for dollars, further showing how BitCoin is not a better alternative to gold for the fiat US Dollar, or any other fiat currency in circulation as of the time of this writing. This author, along with other reputable commentators on economics, advocates for the return of the gold standard and the silver dollar.
Why return to gold and silver? Think about this; 1971, Richard Nixon “temporarily” took the U.S. off the Bretton Woods Agreement whereby the U.S. Dollar could be redeemable for $35 per ounce of gold. So, let’s say your wage was $1.60 per hour back then, the minimum wage of 1971. That means you had to work nearly 22 hours to be able to buy an ounce of gold(excluding taxes, deductions and those sorts if variables). in 2020, nearly 50 years later, the price of gold is a little above $1,800 per ounce. With the federal minimum wage at $7.25 per hour, the poorest employees in our country have to work over 248 hours for that same ounce of gold, representing a decline in purchasing power by over 11-fold! How’s that for nearly 50 years of withdrawing from the crazy, arcane, obsolete gold standard?
While some may ask in objection to the gold standard – What about the finite supply of gold and silver? They will argue that there isn’t enough gold and silver to go around in circulation. To that, the answer is: the supply of money doesn’t matter. Regardless of the supply of gold and silver, the prices of gold and silver will adjust relative to the supply of other commodities. The greatest evidence of this is the adjustment of gold’s per ounce price form $35 in 1971 to over $1,800 since then. As famous economist Murray Rothbard, former professor at the University of Las Vegas in Nevada explains: “We come to the startling truth that it doesn’t matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness, of its gold-unit. More money does not supply more capital, is not more productive, does not permit “economic growth”.9 Furthermore, if the supply gold and silver could be increased at any given time, they would be no better than the harmful fiat currencies of today.
So now that the case has been made for abolishing the Federal Reserve Banking system, the question now becomes, how would banks form in a world after the Federal Reserve Banking system? First, it is important to understand the process of forming a new bank today. Doing so will clarify the difficulties and problems in starting a new bank, how the system prevents legitimate competition to the Federal Reserve banking cartel, and how it should be changed, mainly by undoing many existing regulations currently on the books. For starters, a bank must receive a charter, on either the state or national level. While only federal agencies such as the OCC and Federal Reserve, which have biased and vested interests in preventing competitive threats or truly independent banks from emerging, have the authority to issue charters on national levels, state governments have the ultimate authority to issue state charters. What this means is that under the current system, no national bank that would compete with any of the Federal Reserve controlled member banks, such as Wells Fargo, Chase Bank, and Bank of America, will be allowed into operational existence.
While state-chartered banks aren’t so tightly controlled by federal agencies that are in favor of maintaining the Federal Reserve status quo, state charters only allow such banks to extend their service offerings within the geographic boundaries of the specific state. Of course, there is no guarantee that a state government or similar agency that would be in charge of approving a state charter application would be any less corrupt or any more interested in approving a bank which offers better deposit protection and services than the status quo. This is why this author proposes the elimination of banking charter requirements, as these requirements effectively serve as restrictive occupational licensing hurdles that are unnecessary and don’t guarantee protection to the public, depositors, or even the banks themselves. The depositors, the people, i.e. the free market, should decide by voluntary and natural choice whether a bank is trustworthy and permissible to exist, rather than any charter. Under a true free market system, banks that fail to earn the trust and willingness of depositors go bankrupt and therefore become unable to cause economic financial harm. However, we don’t have a free market system due to charter requirements and the mechanism of taxpayer bailouts that enable unscrupulous banks to continue wreaking financial and economic havoc by recklessly speculating, euphemistically and wrongly called lending, with people’s deposits.
Additionally, starting a bank legally requires a minimum amount of capital, the formation of a board of directors, and approval of a business plan by regulatory authorities. The business plan approval is the easiest to do away with; much like the proposal to eliminate charter requirements, business plans too should not need approval by governmental authorities. The depositors, the free market, can and should be in charge of approval, mainly by choosing to avoid patronizing a bank that doesn’t have a sound business plan, however the adjective sound may be subjectively defined by many different individuals. The same principles apply to the formation of a board of directors; if the free market really cared about it and saw it as necessary to prevent banking troubles, then banks would meet that need by forming one. Otherwise, it should be at the bank’s prerogative to form a board of directors, subject to the risk of repelling depositors and thereby earning less profit. When it comes to minimum capital requirements, this is effectively like minimum wage as it prices out banks that can only offer services at lower capital levels than the legal minima, just like the minimum wage law unfairly prices out workers who would otherwise be willing to sell their labor at a lower price, wage, than the legal minimum. Again, if depositors truly have objections to a bank’s low capital level, then depositors can and would exercise their liberty to avoid such banks. The biggest regulation, however, which applies to all U.S. banks on state and national levels, is the FDIC membership requirement. A bank cannot be approved or started in the U.S. without being a part of the FDIC. This is another burdensome and harmful regulation.
This is why, along with the Federal Reserve and the 16th Amendment, the FDIC must also be abolished. While it may be nice to have insurance for accounts up to $250,000, this insurance is anything but free, and the costs are severe. For one, by charging every member bank the same premium rate for the insurance, it takes away any punishment or risk for reckless speculations and bank loans. These reckless loans cause banking problems and failures, such as the many that have been endured in history. Furthermore, depositors end up paying for FDIC insurance through taxation, via the bailout mechanisms, and inflation, the latter of which diminishes the purchasing power of people’s bank accounts and earnings. As Griffin points out, in 1994, the FDIC has only 70 cents per insured dollar in its account.10 That proportion must be far below 70 cents per insured dollar in 2020, the year of this writing. Conservative and prudent banks get punished while reckless ones don’t, as they rightfully should. Real deposit insurance is what the economy needs.
How would real deposit insurance happen? Well, it could happen a number of different ways, each of which could work as long as they are arranged through voluntary means whereby neither taxation nor inflation function as the methods of funding the insurance. Perhaps banks could charge a higher deposit fee to customers, similar to how banks charge higher APRs for riskier credit card customers. Or perhaps depositors would seek out their own 3rd-party deposit insurance, similar to how some renters today seek out their own 3rd-party renter’s insurance. Insurance providers would compete to earn customers, driving insurance premiums down, probably to a lower cost than what the FDIC costs today, along with being more effective. There may be some providers who charge higher premiums for better coverage, but such providers would have to earn customer money in the market rather than through the mechanisms of taxation and/or inflation like the FDIC does today. Furthermore, because these deposit insurers would be private, they would not be able to get any sort of bailout, by either taxpayers or central bank fiat money. Imprudent insurance decisions would lead to bankruptcies. As such, these private deposit insurers would be far less likely to fail or cause disasters on the scale currently and historically caused by the FDIC. As investor Peter Schiff, famous for being one of the few voices laying out reasons for accurately forecasting the Great Recession of 2007-2008, states, many other countries like New Zealand don’t offer taxpayer funded banking insurance and don’t experience banking crises of the magnitude sustained in The United States of America.
As explained above, the institution of banking and the formation of the first banks came about naturally. No central banking system was needed whatsoever. It is not the government’s duty to establish, control, or regulate the banking industry, or any other industry.; there is also no authority in the U.S. Constitution granting the state such powers. All the government should do is protect private property rights, enforce contracts, and punish fraud – things it has a poor record of doing as of today. Banking started out on principles of sound money and honest, voluntary practices, not government edict or regulation, which is how it should be. All that is needed is to remind ourselves of those principles and put them into practice once again.
Anybody, in a truly free society where liberty prevails, should be able to open and start a bank, much like any run of the mill goldsmith could during the less sophisticated & medieval times. If you want to offer to store your neighbor’s money, for a fee or not, you should be allowed to do so, as long as your neighbor consents to receive your banking service. If any group wants to form a new bank, buy or rent building space, residential or commercial, then that group shouldn’t be prohibited from doing so or harassed in its attempts. If that group has an unsound business plan and/or unscrupulous operations, then depositors are free to withdraw their money, run that bank out of business, and then deposit their money elsewhere, helping to sustain and grow only the banks that the free market deems as possessing sound business plans and ethical operations.
This author cannot know which proposed banks will succeed and therefore prevail, nor does that matter because nobody, most especially unelected central bankers, can have such knowledge. As Nobel Peace Prize winner and economist Friedrich A. Hayek explains, central bankers, as well as all other entities, can only have, even in the best care scenario. a pretense of such knowledge. The people, the free market, should decide which banks get to succeed, so that the only ones that do are the ones that satisfy customer needs through legitimate and voluntary mechanisms. It can be thought of as democracy in action, but through the majority voluntarily choosing which bankers to bank with, rather than through the mechanism of voting, which unjustly coerces the minority; this is also no different than how the most successful grocery stores, restaurants, and clothing brands win the attraction of more customers over their respective competitors.
Humanity has achieved sound banking this way before – it’s about time for a renaissance. The best ways to minimize the duration of the short-term pain that would come about from the abolition of the Federal Reserve and FDIC are by abolishing the following as well:
-The 16 Amendment, which consequently means the Federal Income Tax as well.
-The Internal Revenue Services
-All federal regulations explained above pertaining to forming and operating either a commercial or investment bank.
Furthermore, the following must be done as well:
-Protect and enforce all contracts voluntarily made between bank customers and banks, so long as all parties are acting upon informed consent. This way, fraud gets punished appropriately, unlike in today’s monetary and banking system.
Doing the above steps will allow the free market to restore a legitimate banking system, one based on sound money and honest practices. Doing the above steps will also expedite the restoration process and minimize the short-term pain described above that would result from the necessary but painful abolition of the Federal Reserve Banking System.
For those who may think this proposal is too risky, crazy, or in some other way, undesirable, this author has these three questions:
-Have central banking and fiat money guaranteed otherwise lower or no poverty, as they were advertised to the public to achieve?
-Is this author’s proposal any risker or less desirable than the coming exacerbation of the widespread poverty already caused by the central banking and fiat money paradigms?
-How many more severe and unconstructive recessions, depressions, and losses in purchasing power of people’s earnings/savings must be endured in order for enough citizens to recognize that the banking/monetary status quo is totally unnecessary and unacceptable, and therefore must be reformed?
If the answers to the first two questions are no and if the answer to the third question is zero, then there really is no reason to further delay the long overdue reformation of the banking system and consequently, monetary policy too. If it can’t be achieved in this era, then hopefully, at some point in the not too distant future, posterity can use the concepts and knowledge presented here to make this long overdue reformation a reality.
Sources
1) G. Edward Griffin, Creature From Jekyll Island, pg. 138
2) Le Livre du prefet ou l’empereur Leon le Sage sur les corporations de Constantinople, French translation from the Geneva test by Jules Nicole, pg. 38. Cited by Groseclose, Money and Man pg. 52.
3) Thomas Jefferson, Observations of the Article Etats-Unis Prepared for the Encyclopedia, June 22, 1786
4) G. Edward Griffin, Creature From Jekyll Island, pg. 262
5) G. Edward Griffin, Creature From Jekyll Island, pg. 588
6) G. Edward Griffin, Creature From Jekyll Island, pg. 574
7) G. Edward Griffin, Creature From Jekyll Island, pg. 165
8) G. Edward Griffin, Creature From Jekyll Island, pg. 169
9) G. Edward Griffin, Creature From Jekyll Island, pg. 142
10) G. Edward Griffin, Creature From Jekyll Island, pg. 37