The Curse of the Federal Reserve and the Federal Debt Explained and Delineated: Part I


When heuristically discussing the dire 21st Century status, and flagrant economic and financial practices, of the federal government, the 20th Century federal practitioners of the problematic socialist doctrines of economist John Maynard Keynes almost always say that there can be no viable comparison between federal economics and financial policy before 1913, and that which inexorably came after that pivotal year. How true it is that a purely polemic discussion about the state of austere economic flux in the united states after 1913 cannot sddfcu be adequately pursued with any degree of success in determining official culpability for the awful economic and financial mess that has prevailed in the country. To pursue this properly, the sordidly unconstitutional processes and policies legislated by the federal government during, and after, 1913 have to be recalled and examined, the guilty people responsible for the legislation and its implementation have to be named, and the deceit and conspiracy that caused the awful economic calamities and conditions, described by sad, though correct, history, to prevail in the first three decades of the 20th Century have to be examined and analyzed for what they exactly were.

Hence, if the reasons for the abject economic and financial problems of the 21st Century federal government may be properly attributed to their root causes, what would those causes be, and from whence did they come? The distinguished economic analyst Henry Hazlitt, in his books, “Economics in one Lesson, ” and “The Failure of the New Economics: An Analysis of the Keynesian Fallacies, ” summed up the faults of the Keynesian socialist economics imposed after 1913 by Woodrow Wilson and Franklin Roosevelt into three basic categories, 1) unconstitutional taxation, 2) rampant socialism, and 3) egregious federal deficit spending in the making of a, basically, unpayable federal debt. He points out that from U. S. Supreme Court Chief Justice John Marshall’s 1792 affirming vote in the Supreme Court case McCullough v. Maryland, which declared Alexander Hamilton’s First Bank of the united states as constitutional, and that it could not be taxed by a State entity, came the 1913 unconstitutional Federal Reserve Act, in which the Article 1, Section 8 power of Congress to coin money and determine its value was relinquished by the Legislative branch and given illicitly to a private cartel of private bankers known as the Federal Reserve Board. Hamilton, a monarchist of British tradition had persuaded President George Washington to sign the bill into law in 1791, and that the Banking Act was necessary in order for the execution of the powers of Congress in Article 1, Section 8. This, of course, was not true and constitutional, as was clearly asserted by Thomas Jefferson and James Madison, but Washington, a soldier and not a scholar, was putty in the hands of the persuasively sophistic Alexander Hamilton.

So, therefore, let’s take Hazlitt’s categories, one by one, beginning with unconstitutional taxation, and examine the prior and present taxing status of the federal government. Prior to the year 1913, the federal government was funded exclusively by excise taxes or tariffs, and it fared very well on those tariffs. Before the dubious ratification of the 16th (income tax) Amendment in February 1913, the federal government had very few essential constitutional responsibilities, and funded those essential responsibilities without the use of an income tax. Why was this so? It was because an income tax was an un-apportioned indirect tax and, therefore, blatantly unconstitutional and illegal for the federal government to impose. During the American Civil War, Abraham Lincoln, with impunity, blatantly violated the U. S. Constitution by unilaterally imposing an un-apportioned indirect income tax to fund the war of Northern aggression. Since he had already unilaterally suspended federal habeas corpus, an egregiously unconstitutional act, he presumed to have absolute power to do anything to reach his illegal end objectives. At the end of the American Civil War, Lincoln’s income tax was, however, immediately repealed, and during the subsequent peacetime, the federal government managed to operate efficiently, and entirely, on import taxes called tariffs. Congress was fully able to run the federal government on tariffs alone because federal responsibilities did not include unconstitutional welfare programs, agricultural subsidies, or social insurance programs like Social Security or Medicare. After the Civil War, though tariff revenues sometimes suffered under a protectionist policy ushered in by the Republican Party, which supplemented federal income via excises on alcohol, tobacco, and inheritances, the federal government always managed to operate efficiently with a balanced budget. During periods of war throughout early American history, prior to the American Civil War, the Founding Fathers were always able to raise additional revenue employing different methods of direct taxation authorized by the U. S. Constitution prior to the 16th Amendment. These alternative taxing methods gave the young American nation embarrassing peacetime budget surpluses that several times came close to paying off the national debt.

After the pivotal year 1913, when indirect un-apportioned income taxation was quasi-legitimized by ratification of the 16th Amendment (when 98 percent of the electorate opposed an income tax), rampant federal spending ensued marked specifically by military upgrading, turning the allowably defensive pre-1913 U. S. military into an offensive means for wartime intervention. That egregious spending done by Woodrow Wilson and his cronies was the beginning of an inexorable unending rise in the federal debt. The crux of this article essay focuses upon the irresponsible borrowing of money to create fictitious congressional appropriations of federal revenue for unconstitutional purposes. As was duly recorded in federal financial history, the federal debt began in 1791 with the presidential administration of George Washington and $75, 463, 476. 52 of accrued debt based upon the debt owed to the Dutch for the gold that was borrowed to finance the revolutionary War. This debt fluctuated, increased, and decreased to $67, 475, 043. 87 by the end of John Q. Adams’ administration in 1928. From 1829 to 1836, the debt decreased substantially under the two term administrations of Andrew Jackson to $37, 513 in 1837. This was the greatest period of astute financial management in Presidential history when the federal debt was reduced within eight years by 1, 798 percent. Never again would this happen with the application of excise tariffs and other direct taxes as the only means for generating federal revenue. In 1837, just one year after the lowest federal debt in the history of the republic, the debt increased 900 percent to $336, 957. Then it 1838, the debt rose 8, 900 percent to $3, 308, 124. From 1838 to 1862 the debt went from hundreds of thousands of dollars to millions of dollars and stayed below the hundred million mark until 1861, when it increased to $524, 176, 412. 00. This debt amount was incurred even with the imposition of an unconstitutional indirect un-apportioned income tax. This was a drastic negative 578 percent increase in federal debt during the war to stop secession. During the years of the American Civil War the federal debt climbed to above the billion dollar mark, to $2, 680, 647, 869. 00.

The fiscal year 1881 began with a federal debt of $2, 069, 013, 569. 00, which was decreased during that year with the juggling of excise taxes to $1, 918, 312, 994. 00 during the Garfield/Arthur presidential administrations. From 1882 until 1899, the debt fluctuated between $1. 98 billion and 1. 54 billion, its lowest point occurring in 1893. In 1900, the federal debt rose to the $2. 13 billion dollar mark. Finally, in 1912, just before the income tax amendment, the federal debt was $2. 87 billion. After 1913, even with the application of the revenue collected from graduated income taxation of all U. S. citizens, corporations, and company businesses, there was a sizable increase until 1920. From 1920 until the beginning of the great Depression, in 1930, the federal debt decreased from $25. 9 billion to $16. 9 billion due to efforts by the Harding, Coolidge, and Hoover administrations to use a significant percentage of the collected income tax revenue to apply to the standing debt. From 1929 to 1931, the debt hovered between $16. 2 and $16. 9 billion, with several years of increase and decrease. From 1932-on, the debt only increased until the post-World War II years of 1947-48, when, as a result of war debts partially paid by several European nations, the debt decreased by $11 billion during the first Truman administration. Therefore, shooting forward 33 years to 1981, the cumulative federal debt from 1913 until 1981 increased from $2. 9 billion to a record high of $997. 9 billion. With the incoming Ronald Reagan administration, the debt increased to $1. 14 trillion dollars. From 1982 until the present year, 2017, there was an inexorably staggering debt increase of over 1, 900 percent. Therefore, between 1913 and 2017, or one-hundred four years, the general federal debt increase was a staggering 6, 899 percent. Yet, this percentage of increase is valueless in meaning unless the devaluation of the American dollar is taken into consideration during this timeframe. One has to properly determine the decrease of value, due to political inflation imposed by the Federal Reserve, of the American dollar during this timeframe. This factor goes to show the actual value of the federal debt and its ever-increasing interest, for interest is compounded 24 hours per day, seven days per week. In 1912, the U. S. one dollar silver certificate was worth 95 percent of its intrinsic value based upon a determined amount of precious metal, silver. So 95 percent of each dollar paid to the federal debt went to pay merely the interest on the debt, while not decreasing the principal amount.

This is why the debt only increased from 1932 until the present day in 2017, with only five instances of minor decrease, 1947, 1948, 1951, 1956, and 1957, as an exclusive result of several nations paying portions of their war debts to the USA. This payment, made in gold, was applied to the debt directly with little effect on the principal owed. Therefore, if the federal debt has increased at such a staggering rate with the value of the American dollar steadily decreasing as a result of Federal Reserve devaluation, the real amount of money that has actually been paid on the federal debt, to date, is much less than is purported by official federal finance records. The mythical figure appears as an illusory projection of federal solvency. A simplified practical example of this is as follows. A nation-state borrows $50, 000 from another nation-state and negotiates a schedule for repayment at an established interest rate of 25 percent, compounded quarterly. The borrowing state begins making quarterly payments with a medium of exchange called a “dollar, ” but which has an intrinsic buying value of 50 percent less than the unit of exchange that made up the $50, 000 sum that was originally borrowed. The $50, 000 sum borrowed was worth 98 percent of its intrinsic value based upon a standard amount of precious metal, gold. Yet, the borrower expects to repay the debt with a unit of currency worth 50 percent less than the basic unit of currency that was borrowed, a currency which is not backed-up by precious metal. Hence, the terms of the negotiated debt cannot ever be met by the borrower with the money that he is using to repay the debt. In effect, the borrower will never pay-off the loan debt, which will keep increasing as the interest compounds quarterly.

According to the famed economist Milton Friedman, President Ronald Reagan’s chief economist during the 1980s, the Federal Reserve, between the years 1926 and 1929, deliberately and covertly withdrew one-third of the currency and coin from national circulation, which became the primary cause for the run on the banks that occurred in 1929, which put in motion the great Depression. Since the Federal Reserve is a private banking cartel, controlled by private socialist bankers who endorse Keynesian socialist economics, the reason for this deliberate action might be self-explanatory. The great Depression resulted in the severe redistribution of American wealth and the creation of an American middle-class, one of the objectives of the Marxian communist manifesto. As is reflected by its sad history, the Federal Reserve, established by the Federal Reserve Act of 1913, has languished miserably in its total unwillingness (not inability) to abide by its congressional mandate to forestall the numerous imminent financial disasters (recessions and depressions) with which the republic continually suffers. That Franklin D. Roosevelt, as an active component of the Federal Reserve, in New york city, had a hand in this clandestine process is a matter of fact. In 1932, the one dollar silver certificate was at 75 percent of its face value, based upon the value of silver during that particular year, when the Great Depression and national unemployment was at its highest point. This is why the federal debt began its unending rise from 1932-on, which gave FDR his motivation to introduce illusionary socialist Keynesian economics to the people, with when he began his bid for the presidency in 1933 (using collected income tax money as salaries for unemployed workers to build unnecessary federal projects). As Wilson’s entry into World War I had caused the debt to increase 300 percent from 1917 to 1918, FDR’s New Deal and manipulated entry into World War II caused the federal debt to increase 500 percent, from $43 billion to $269 billion, as wartime employment and war production mitigated his socialist programs to an insolvent end. The debt that was created during FDR’s sixteen years as U. S. President was $179 billion. Hence the actual amount of money that was used between 1912 and 1945 to pay on the federal debt was devalued almost 30 percent from its 95 percent value in 1912, which caused what was collected in taxation from the States (individual wage earners, corporations, and business interests) to be reduced in value 30 percent and paid only on the accruing interest of the federal debt. War production in the usa, from 1941-45, predominately armaments, caused the federal debt to increase by $209, 720, 743, 874 as tax rate for individuals and businesses was actually increase nearly 30 percent. The money needed to operate the significantly smaller federal government from 1941-45 was borrowed money.

Simply put, rampant socialism using income tax money began in the usa as a result of rampant taxation of individuals, corporations, and businesses by the federal government for that particular purpose. From the year 1913-on, most of the money collected by the federal government from un-apportioned income taxation immediately went to pay on the existing federal debt, while most uninformed Americans actually believed that their money, collected as taxes, would be used to operate the federal government. Very little of the actual tangible collected revenue was left to fund the operation of an expanded federal government; especially after 1934, when the unconstitutional New Deal and FDR’s unconstitutional administrative agencies were finally declared constitutional by U. S. Supreme Court justices nominated by FDR and confirmed by a Democrat-controlled U. S. Senate for that express illegal purpose. Yet, when the actual revenue used to support FDR’s rampant socialism was derived from purely borrowed money from 1934 to 1941, the federal debt increased horrendously. The last decrease, from one year to a succeeding year, in the amount of the federal debt was in 1956 under the administration of Dwight Eisenhower, when the total debt decreased by $1, 623, 409, 153. 30, from $274, 374, 222, 802. 62 to $272, 750, 813, 649. 32. From 1956 until the present day, the debt has only increased.

Presently, in the second decade of the 21st Century, the federal debt is $20, 244, 900, 016, 053. 51, and is increasing exponentially. That is $20. 2 trillion dollars, in units, or dollars that are 95 percent less in value than the U. S. silver certificate dollar of 1912! Compared to a 1912 dollar, the 2017 Federal Reserve note is worth less than five cents. The great majority of the American electorate (the voting age U. S. population) is ignorant of the issues of federal finance, and don’t realize the staggering amount, and consequence, of this debt. Since 1981, when the federal debt first exceeded one trillion dollars, the total amount of annually collected income tax money, excise tax money, and all other forms of un-apportioned taxation collected by the IRS has been routinely paid entirely on, only, the compounded interest of the multi-trillion dollar debt. Moreover, the Federal Reserve note dollar is merely paper and is not based on any precious metal, but only on a specious void of debt, and has no value in and of itself; and while the compounded yearly interest accruing on the current $20. 2 trillion federal debt exceeds the total amount of income and excise taxation collected every fiscal year by the federal government, the reasonable person wonders from where the yearly money required for the operation of the federal government is derived. This is a menacing question that no one, especially socialist economists, likes to answer; but the awful answer is, nonetheless, borrowed money, $2 million dollars per day, 365 days per year.

For even though the Federal Reserve one-dollar, five-dollar, ten-dollar, twenty-dollar, fifty-dollar, and hundred-dollar paper bills can be “exchanged” for food, clothing, and other merchandise as, supposedly, legal tender (as stated on the paper money), they are, in and of themselves, worthless, and can be made to have “any” value that the Federal Reserve places on them at any time. As will be subsequently shown, Federal Reserve notes are not legal tender, per the requirements set by the U. S. Constitution. Take, for example, a simple Hershey candy bar, which costs today, in some stores, one-dollar-or-more. In the year 1912, that Hershey bar cost five-cents or less (based upon a standard of silver) in any store, and remained five-cents or less until around 1968; and when someone pulled a dime from their pocket to buy one Hershey bar, the dime was made of pure silver and possessed the full 100 percent value of ten-cents. Since there are still twenty nickels in a dollar, the price of an ordinary Hershey bar, which hasn’t increased in size or quality since it was created over a hundred years ago, has ” politically (not economically) inflated” in price since 1968 over 2, 000 percent. From 1968 until 1970 it increased in price to ten-cents; from 1970 until 1974 it increased to twenty-five cents; from 1974 to 1982 it increased to fifty-cents; from 1982 until the present day it has increased another fifty cents when the dollar that is used to buy it is worth less than a 1912 dime. When the price of a Hershey remained stable for over eighty years, why did this inexorable inflation have to occur, as every other bit of merchandise manufactured in, or out, of the USA has, likewise, increased exorbitantly in price? The reason that it was politically inflated in price is because the medium of exchange, the dollar, which was used to buy it, became worthless in terms of its basic value, because it ceased to be based upon a standard unit of precious metal, gold or silver.

The following is a presentation from the internet Website “What Does the Constitution Say About Gold and silver Money? ”

“The U. S. Constitution is a set of instructions, a rulebook for what the federal government may do, with ALL ELSE being DENIED to it by default. Therefore, when the Constitution is lacking of specific authorization for anything, it simply means that the federal government is denied/prohibited from that thing by default.

Amendments 9 & 10 are probably the clearest examples to draw upon when determining that point:

The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

The powers not delegated to the united states by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

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