ECONOMY: THEY CAN FIX IT IF THEY WANT
By Marilyn M. Barnewall
August 14, 2011
There are many ways to improve the economy. Our Congress – people we elected – moan and groan saying they can’t do anything about national monetary policy or make the marketplace user friendly for job creation. That is untrue. They have control… what they don’t have is the cojones to exercise it. For example, many experts believe the Federal Reserve Act of 1913 is illegal.
On what is this argument about the legitimacy of the Federal Reserve System based?
Article I, Section 8 of the United States Constitution says that “The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.” And here’s where it gets interesting. The Constitution says the Congress has the power “To borrow Money on the credit of the United States.” Oops. How did a private corporation called the Federal Reserve inherit that responsibility? Section 8 also says the Congress “shall have Power… to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.” Since the Federal Reserve, a private corporation, does these things… isn’t it unconstitutional?
Well, politicians and lawyers will argue and tell you that the Federal Reserve Act of 1913 makes it legal for the Congress to turn its monetary responsibilities as described in the Constitution over to the Federal Reserve.
Here’s an easier question for you to answer: In 1970, how old did an American citizen have to be to vote? Answer: 21. How did they lower the constitutional requirement that you had to be 21 to vote… how did 18 year olds get the vote? On June 22, 1970, then-President Richard Nixon signed a law making the voting age 18 in all federal, state and local elections. The States of Oregon and Texas challenged the law. The Supreme Court declared unconstitutional those parts of the law requiring states to register 18-year olds for state and local elections. Justice Hugo Black said: “I would hold that Congress has exceeded its power in attempting to lower the voting age in state and local elections.”
That Supreme Court ruling, then, meant states had to provide separate voting rolls for people between ages 18 and 21. It basically determined the Congress had the right to tell 18 year olds they could vote in federal elections, but states had the right to determine how old someone must be to vote in state elections. Special ballots created for those between the ages of 18 – 21 would create an election nightmare; so, on March 10, 1971, the Senate voted 94-0 in favor of passing a Constitutional amendment to guarantee the voting age would be no higher than 18 in all elections. On March 23, 1971, the House voted 401-19 in favor of the proposed amendment. The amendment was sent to each of the states and the minimum number of states ratified the proposed legislation – and the Constitution of the United States added Amendment XXVI, allowing 18 year olds to vote. Since I don’t know anyone (other than bankers who profit from the policies of the Federal Reserve System) who wouldn’t vote to do away with the Federal Reserve System, this alternative is available to the Congress. All they need is for a state legislature or two to challenge the Federal Reserve Act of 1913 and get the challenge to the Supreme Court. It would be interesting to see what today’s “living document” Supreme Court would do when faced with a 1970’s Court decision that comes down on the side of states’ rights.
A Supreme Court decision exists that says the Congress overstepped its bounds – or, as Justice Black said, “has exceeded its power” – by passing a law that applied to state and local elections. Many people suggest (myself included) the Congress “exceeded its power” by passing the Federal Reserve Act of 1913 because that law extends beyond the federal to the state level. How does it extend beyond the states to the federal level? Just one example: To be a “national bank” in Oregon or Texas (or in any state), a bank is required to be a member of the Federal Reserve System. Any state, at any time, can challenge the power base of the Federal Reserve System as it is exercised at the state level. So state legislators could change things too – if they wanted – just as Oregon and Texas successfully challenged the 1970 law signed by President Nixon giving 18 year olds the right to vote. Just because a President signs a Congressional Act doesn’t make it lawful. If it violates the Constitution of this country, it is not lawful and becomes what is called “fruit of the poisoned tree.”
As I have said in my columns many times, the Federal Reserve System is not part of the federal government. It is a private corporation (a cartel – like OPEC)… the only one in America that is exempt from both federal and state taxes. Well, General Electric (GE) doesn’t pay much in taxes, but that’s not because of an exemption. That’s because of loopholes – and that makes one scratch one’s head when one thinks about Obama’s key economic advisor, Jeffrey Imelt, Chairman and CEO of GE. When one rewards bad behavior (by honoring one guilty of it with a Presidential appointment), one should expect more bad behavior.
The point is, if the Congress or State Legislatures want to get rid of the Federal Reserve, they can… just like Texas and Oregon got rid of the 18 year old voting rights bill that was imposed on them by the United States Congress. I don’t know anyone who would vote to support keeping the Federal Reserve System… maybe Alan Greenspan and Ben Bernanke. The states forced the issue with Congress, they won, and an Amendment to the U.S. Constitution was required to legalize the 18-year old vote at state and local elections. The same charge of Congress exceeding its power when it transferred constitutional authority to the Federal Reserve System can be made by any state legislature… and a Supreme Court precedent exists.
A lot of people think the Congress is being dominated by the banksters… especially the investment banks on Wall Street. If that’s true, the Congress can regain control. Do away with the Riegel-Neal Interstate Banking and Branching Efficiency Act of 1994. Bring back the old McFadden Act which prohibited interstate branch banking. Give the too big to jail guys time to divest themselves of the interstate branches and decentralize all of that misbegotten banking power. McFadden protected us for many years from banks becoming too big to jail. The point is there are things that can be done to eliminate the power abuses of the Federal Reserve System —if the Congress wants to do them. There are things that can be done to put the Congress back in control of our banking system and our monetary policy. States can implement a state-owned system of banking… the best possible example I can think of to decentralize the power of the Federal Reserve.
Until 1980 when the Monetary Control Act was passed, the Glass Steagall Act protected Americans by preventing commercial banks from giving investment advice or selling stocks and bonds. Glass Steagall prevented investment banks – Wall Street brokers, not commercial bankers – from making loans or taking deposits. These two key financial transactions credit and investments (especially relative to new product development on the investment side), like oil and water, do not mix. When they are mixed, it creates a moral hazard that can result in economic meltdown. We had a perfect example of that in 2007-08 and are still trying to find our way out of the economic abyss that was created – some say intentionally (me among them) – for us. There are too many potential conflicts of interest for a compatible marriage bed between these two functions.
In a NWV article April 25, 2010, titled Moral Hazard Ahead: Beware, I defined “moral hazard” as the mingling of commercial and investment banking. I stand by what I said in that article – and in over a year since its publication, those words have proven themselves true.
If Washington really wanted to force the too big to jail banks to return to serving the people rather than servicing them, they would eliminate the Monetary Control Act of 1980 and re-implement Glass Steagall. It would repeal Gramm, Leach Bliley, a/k/a the Financial Services Modernization Act of 1999 which was the death thrust to Glass Steagall. Congress has the power to change things… if it wants.
Congress likes to play like it’s not in control… it absolves them from the problems they create (they think). But Congress holds the reins of power. There are only two possible reasons why the Congress has passed such utterly stupid regulations and allowed such weak regulatory oversight of the investment banking industry – the industry which caused most of America’s economic trauma: 1) They want to bring the economy of the United States to its knees and move forward with George Herbert Walker Bush’s “New World Order;” or, 2) Those who were stupid enough to get us into this mess aren’t smart enough to understand their complicity in causing this mess and have no idea how to get us out of it.
We can only assume that if the Congress isn’t taking action, it’s for one of three reasons: 1) They don’t understand America’s monetary system and how financial institutions function sufficiently to cast votes that impact or change the system; 2) They are more focused on their political careers than on the economic health of the nation they have taken an Oath to serve; or, 3) They want the system to fail. The number three choice would certainly explain the ongoing over-spending that has brought the United States very, very close to total economic collapse.
The tribal wisdom of the Dakota Indians, passed on from generation to generation, says that, "When you discover that you are riding a dead horse, the best strategy is to dismount."
Instead of listening to the wisdom of that voice from the past, we have a political administration that prefers appointing a committee to study the horse. It wants to provide more funding to help increase the dead horse’s performance.
We need to clean the House (and the Senate) in 2012.
For part one click here.
© 2011 Marilyn M. Barnewall - All Rights Reserved