The Federal Reserve System
the Federal Reserve System
the Federal Reserve - Part 1
There are many myths surounding the
Reserve system. Robert Prechter of Elliott Wave
recently released an excellent ebook Understanding the Fed
where he sets to expel many of those myths and answer some common
regarding the Fed, Banks and the Federal reserves banking system.
The free ebook contains many excerpts from Bob Prechters 'Elliott Wave
Theorist' monthly newsletter, and one of his best sellers Conquer the
Crash, which was first published back in 2002.
is a Dollar
the Federal Reserve System Manufactures Money
the Federal Reserve Has Encouraged the Growth of Credit
Makes Deflation Likely Today
the Fed Stop Deflation
the Fed Will Not Stop Deflation
Coming deflationary Pressure on the Government
Robert Prechter Explains The Fed,
world's foremost Elliott wave expert goes "behind the scenes" on
the Federal Reserve
Elliott Wave International
The ongoing financial crisis has made the central bank's decisions --
interest rates, quantitative easing (QE2), monetary stimulus, etc. -- a
permanent fixture on six-o'clock news.
Yet many of us don't truly understand the role of the Federal Reserve.
For answers, let's turn to someone who has spent a considerable amount
of time studying the Fed and its functions: EWI president Robert
Prechter. Today we begin a 3-part series that we believe will help you
understand the Fed as well as he does. (Excerpted from Prechter's
Conquer the Crash and the free Club EWI report, "Understanding the
Federal Reserve System.") Here is Part I.
Money, Credit and the Federal Reserve
the Crash, Chapter 10
An argument for deflation is not to be offered lightly because, given
the nature of today’s money, certain aspects of money and credit
creation cannot be forecast, only surmised. Before we can discuss these
issues, we have to understand how money and credit come into being.
This is a difficult chapter, but if you can assimilate what it says,
you will have knowledge of the banking system that not one person in
The Origin of Intangible Money
Originally, money was a tangible good freely chosen by society. For
millennia, gold or silver provided this function, although sometimes
other tangible goods (such as copper, brass and seashells) did.
Originally, credit was the right to access that tangible money, whether
by an ownership certificate or by borrowing.
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What Is a Dollar?
Originally, a dollar was defined as a certain amount of gold. Dollar
bills and notes were promises to pay lawful money, which was gold.
Anyone could present dollars to a bank and receive gold in exchange,
and banks could get gold from the U.S. Treasury for dollar bills.
In 1933, President Roosevelt and Congress outlawed U.S. gold ownership
and nullified and prohibited all domestic contracts denoted in gold,
making Federal Reserve notes the legal tender of the land. In
President Nixon halted gold payments from
the U.S. Treasury to foreigners in exchange for dollars. Today, the
Treasury will not give anyone anything tangible in exchange for a
dollar. Even though Federal Reserve notes are defined as "obligations
of the United States," they are not obligations to do anything.
Although a dollar is labeled a "note," which means a debt contract, it
is not a note for anything.
Congress claims that the dollar is
"legally" 1/42.22 of an ounce of gold. Can you buy gold for $42.22 an
ounce? No. This definition is bogus, and everyone knows it. If you
bring a dollar to the U.S. Treasury, you will not collect any tangible
good, much less 1/42.22 of an ounce of gold. You will be sent
Some authorities were quietly amazed that
when the government progressively removed the tangible backing for the
dollar, the currency continued to function. If you bring a dollar to
the marketplace, you can still buy goods with it because the government
says (by 'fiat') that it is money and because its long history of use
has lulled people into accepting it as such. The volume of goods you
can buy with it fluctuates according to the total volume of dollars -
in both cash and credit -- and their holders' level of confidence that
those values will remain intact.
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Exactly what a dollar is and what backs it
are difficult questions to answer because no official entity will
provide a satisfying answer. It has no simultaneous actuality and
definition. It may be defined as 1/42.22 of an ounce of gold, but it is
not actually that. Whatever it actually is (if anything) may not be
To the extent that its physical backing,
if any, may be officially definable in actuality, no one is talking. ...
you want to really understand the Fed? Then keep reading this free
the Fed", as
soon as you become a free member of Club EWI.
article was syndicated by Elliott Wave International and was originally
published under the headline Discover
the Dynamics of Using Moving Averages. EWI is
the world's largest market forecasting firm. Its staff of full-time
analysts led by Chartered Market Technician Robert Prechter provides
24-hour-a-day market analysis to institutional and private investors
around the world.