The Great Bank Robbery

As global leaders struggle to rescue their nations from economic breakdown, the legitimacy of the dollar as the world’s reserve currency is under attack. Perhaps the problem lies with the Fed.

A large part of the “super” in the American superpower is based on the modern creed of liberal democracy, which serves as the motor of free-market capitalism. And the lubricant that keeps this colossal machine humming at full speed 24/7 is the US dollar. So before we risk any conjectures on the future prospects of America’s versatile banknote, which presently serves as the ‘world’s reserve currency,’ perhaps we should know more about who controls it.

It usually comes as a shock to people – especially diehard Americans who place infinite trust in their sacred Constitution – when they discover that the US dollar is not a product of the American government. That’s right, fellow consumers, that crumpled wad of dollars in your pocket is the product of the U.S. Federal Reserve, and despite the very official title, is about as “federal” as Federal Express. The reality is that the U.S. Federal Reserve is a profit-making venture just like Wal-Mart, General Motors or McDonald’s.

Yet the US Constitution clearly states (Article 1, Section 8) that one of the many functions of government is to “coin money, regulate the value thereof.” Indeed, this task was deemed so important that the Founding Fathers mentioned it ahead of the obligation to “raise and support armies.” The Constitution says absolutely nothing about outside parties being responsible for printing money or regulating interest rates.

To quote Abraham Lincoln, the 16th president of the United States, “The privilege of creating and issuing money is… the supreme prerogative of government.”

It is no secret that the power to print money and set interest rates constitutes the greatest power of any government.

“Let me issue and control a nation’s money,” commented international banker Amschel Rothschild, “and I care not who makes the laws.”

Henry Kissinger reduced the almighty powers of the Federal Reserve to one line: “Who controls money controls the world.”

Besides having lost the power to regulate its own currency, the United States must also pay interest on the dollars it borrows. Given that the current bailout (and buy-in) of the American economy is in the ballpark of 9 trillion dollars it will take incalculable generations to pay back this monstrous bill.

“Henry Ford thinks its stupid and so do I, that for the loan of its own money the United States should be compelled to pay… interest,” complained the famous American inventor, Thomas A. Edison. “Why must we pay interest to money-brokers for the use of our own money!”

Given the trillions of dollars that the Federal Reserve has pumped into the economy to jumpstart consumer spending (indeed, Capitalism itself), many generations of Americans will be struggling financially as the United States goes from creditor nation to debtor nation practically overnight. Yet somehow US President Barack Obama still promises to create a long overdue national healthcare plan.

Much of the present financial stress began just after 9/11, some economists argue, when George W. Bush beseeched the American people to show defiance in the face of al Qaeda. Their recourse to action: ascend on the shopping malls in their Fords and Chevrolets en masse and shop! So the Federal Reserve, caught up in the euphoria, happily slashed interest rates and the banks, in cooperation with Wall Street, began to underwrite dangerously risky loans and subprime mortgages. Exactly how dangerous was revealed last year with the collapse of the US housing markets. The globe is still feeling the aftershocks, and some are predicting the arrival of yet another ‘big one’ before it’s all over.

Since the start of the ongoing economic crisis, which caused a tremendous loss of confidence in the US dollar, there have been calls to rebuild the world’s financial architecture.

“We must rethink the financial system from scratch, as at Bretton Woods,” said French President Nicolas Sarkozy in September.

In July 1944, with World War II drawing to a close, 730 representatives from over 40 nations assembled at the Mount Washington Hotel in Bretton Woods, New Hampshire, US. Here, the delegates agreed on financial legislation – including the creation of the International Monetary Fund and World Bank – that would dictate economic policy in the West for the next half a century.

At the center of the agreement was the decision to make the US dollar the ‘world’s reserve currency,’ which was based on the gold standard. This system collapsed on August 15, 1971 when US President Richard Nixon “closed the gold window.” In other words, the dollar is no longer backed up by gold reserves, and to this day the US currency enjoys “dollar hegemony.” But for how long is another question.

In October, Prime Minister Vladimir Putin rattled financial markets when he hinted to his Chinese counterpart, Wen Jiabao, that the two countries “stop using US dollars in Russian-Chinese settlements.”

China owns around $700 billion dollars of US debt in the form of Treasury Bonds, so it is understandable that the Chinese authorities are seriously considering what the heck to do with their investment at this point.

US officials estimate a deficit of $1.841 trillion for the 2009 budget.

Whatever US officials finally decide to do with the Federal Reserve, they may wish to reflect upon the British economist John Maynard Keynes’ suggestion for a world reserve currency.

Keynes suggested a ‘world currency unit,’ the bancor , which would regulate the international medium of exchange between nations. The famous supply-side economist envisioned the bancor being fixed upon the value of 30 commodities, with gold among them.

Now there's an idea worth banking on.