An Introduction to the Federal Reserve

Every day hundreds of thousands of Americans make deposits and withdrawals at their local banks, but how does this system work? The history of our modern banking is more interesting than you might think. If you think your bank is filled to the ceiling with dollar bills, then you might be quite wrong.

Our current banking system originated hundreds of years before society became industrialized. Ancient goldsmiths are said to have started the banking trade. These goldsmiths often built very large, secure safes to keep their gold in. Over time people began asking the goldsmith if they could also store their gold inside. In exchange for this service the goldsmith would give them a "certificate of deposit" that could be exchanged for their gold at any time.

Over time people began to realize that trading these new "certificates of deposit" was much easier than it was to trade gold bars. This led people to trade this new paper money, instead of the actual gold bars. The goldsmiths then realized that people weren't withdrawing their gold that much anymore. After this revelation the goldsmith decided to start using a certain percentage of the gold in his "vault" for his personal uses.

Eventually people from this small town began to notice that the goldsmith was becoming such a wealthy individual. Word quickly spread that the goldsmith had been using the gold in the vault. This led the entire city to go to the goldsmith at once and demand their gold. This "bank run" put the goldsmith into financial ruin, and his plans to get rich quick were significantly foiled.

How does this get rich quick story relate to the America's Federal Reserve (A.k.a. The Fed). All banks of most modern nations operate on the same principle as the ancient goldsmith. They take people's money, and then use it to generate excessive amounts of wealth because there is a very small probability that everyone would try to withdraw all of their money at once. Under this principle the banks are able to make a profit out of a convenience. In America most banks only need to have 10% of the money that is stored in them.

In this day age the problems of bank runs have been mostly eliminated through the Federal Reserve. In the event that a so called run on the bank occurs, the Federal Reserve is able to loan out money to the banks that need it the most. This central bank system greatly increases our trust in banks because it means that when people go to withdraw money, money will be available for them to withdraw.

Did you know that every dollar bill you have is actually loaned to you at interest? By creating money and then loaning it to the population the Federal Reserve is able to reap massive profits by placing an economic strain on our society (just like the goldsmiths). When just reading a sentence or two it may go in one year and out the other, but under this seemingly simplicity this phenomenon is in fact far more devious.

By loaning money to banks at interest the Federal Reserve is said to be able to control inflation and influence the so called business cycle. These traits allow for almost absolute control over our country by the Federal Reserve, and the people operating it.

Let us pretend that I want to give you a dollar, and charge you 10% interest on it. This may seem all fine and dandy. If you guessed that this is nothing more than a common loan, you're right it is. Now let us imagine that the people who create money decide to charge interest on the money that they make. This would mean that they would need to constantly increase the amount of money available so that people could continue to pay the interest on the loan.

If there were a fixed amount of 100 dollars in circulation, and the maker of these dollars decide to charge 10 percent interest per year on the money then it would be impossible to pay this 10 percent the next year assuming that there weren't anymore dollars built. This business, the Federal Reserve, constantly takes money from everyone in our population.

They do this buy continually printing more money in which to pay off the interest for the money that they originally loaned out. If one were to graph this phenomenon then you would see a very scary looking exponential curve.

In order to fix this situation one would need to abolish the Federal Reserve, and allow for the United States government to print their own money. This money would then be given to the public without charging them interest. Over time the amount of money available would need to slowly increase as the population increases, but this would not cause nearly the amount of inflation as our current monetary policies do.

This trick of a central banking system allows unscrupulous organizations (like The Fed) to make enormous profit by taking money from everyone without anyone knowing it. This is would be akin to a bank robbery happening at Fort Knox every single day of the year, without a single person noticing it.