Taking Federal Reserve and banks to task

November 7, 2017

My October column about inflation and what the Fed has done to our money brought a stinging critique from Arthur Sowers, a frequent critic, in his Oct. 10 letter in the Cape Gazette. I think his response was sophomoric and typical for a defender of big government and central bank status quo.

He starts by denigrating libertarians and my sources with his "probably" argument.

Without countering their logic and facts, he goes after them personally as, "three self-promoting, self aggrandizing soap-boxers" who make their money (probably) on book sales, speeches, advice fees, radio programs and (probably) little or no investing."

Then, he says, "I left out the good side of inflation." Really?

As evidence he uses the example that, "...a house you buy today will sell decades later, for much more than you paid for in principal, interest, tax and maintenance."

Perhaps...but, was Mr. Sowers snoozing during the 2008 real estate debacle? Did he not see the ensuing collapse of home prices and lists of foreclosures and financial failure (e.g. Wilmington Trust) after the Fed's monetary malfeasance?

The fact is that there is no guarantee of what a house will be worth decades later, especially in an era of booms and busts (2000 and 2008) in spite of Mr. Sowers' assurance that it "will."

In reality, the Fed, Wall Street and Washington turned the family's most prized asset into a gambling casino featuring quick profit "house flipping" promoters, "no doc(ument)" loans, home-equity (second mortgage) debt holes and 100 percent home mortgage loan traps for veterans. Except for "no doc" loans, I don't think much has changed.

He next says that I'm "not correct" saying that the Fed actually creates more money and causes inflation. He claims that, "Most money is 'created' by banks that take deposits and make loans....fractional reserve banking."

But, Mr. Sowers doesn't complete the circle. The Fed is part of the fractional reserve banking fraud (which "reserves" only part of our deposits [10 percent] while loaning the rest) by adding reserves to the balances of member banks to promote more lending.

Writer James Grant, founder of Grant's Interest Rate Observer, says it well that, "The Federal Reserve is the government's Monopoly-money machine. It sets some interest rates and influences many others. It materializes dollars. It regulates - now regiments - the nation's banks. It pulls levers to make the stock market go up."

And now, the Fed after nine years is apparently starting to reduce its enormous (never done before) balance sheet of $4.5 trillion! From where does Mr. Sowers think that money came?

Hint. The Fed created it out of thin air ("materialized dollars") by the click of a computer key to buy bonds and other securities to create dollars ("liquidity") to bail out the banking system. And he also ignores or doesn't know why the bailout was even necessary.

Dr. Thomas DiLorenzo, PhD economics, Loyola College in Baltimore, gives us a lucid explanation of the background for the Great Recession of 2008 that's never admitted: "In the early 1990s the Boston Fed did all that it could to fabricate 'evidence' of widespread lending discrimination against racial minorities. But when...Forbes magazine asked Boston Fed official Alicia Munnel what evidence of discrimination she really had, she was forced to admit that she had none.

"Fighting discrimination was not the Fed's real goal. The real goal was to achieve a more 'egalitarian distribution' of housing, period. So under the phony guise of 'fighting discrimination' the Fed, the Congress, Fannie Mae, Freddie Mac, and myriad other federal government agencies forced, bribed, and extorted mortgage lenders of all kinds into making literally trillions of dollars in bad loans to unqualified borrowers. Countrywide Bank alone was praised by the Fed for making $600 billion in such loans (shortly before it went bankrupt)."

But, Mr. Sowers believes that, "You can't live without central banks."

However, Nomi Prins, former Wall Street executive and author of "All the Presidents' Bankers," wrote that after the Panic of 1907 when it was created in 1913, "The Fed would not prove able to stop subsequent crashes or crises, but it would always provide financing to the big banks and their closest friends in times of need."

Like 2008... but not for many Delawareans who were getting in foreclosure lines, losing thousands in their retirement accounts, making nothing in their savings accounts, while also seeing their Median Household Income decline -16.7 percent from 2000-15, ranking 49th among states, per the U.S. Census. That's the Federal Reserve that Arthur Sowers extols and is defending.

Geary Foertsch lives in Rehoboth and writes from a libertarian perspective to promote economic liberty, non-cronyism free markets, small government and a non-intervention foreign policy. He can be contacted at

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