Wednesday, February 24, 2016

How FDR Destroyed America

Franklin Delanor Roosevelt will go down in history as Americas longest serving President. That is because after he died Congress decided that Presidents would have a two term max. They conveniently excluded themselves from this rule and hence can be elected for life. How thoughtful of themselves. FDR led Americans through arguably one of the roughest times in our countries history. The one thing he will not go down as is the person whom brought about monumental changes to the structure of our nation that will ultimately take a big role in its economic demise.

That is until now.

While FDR served with the best of intentions he did some rather uninformed things. He first took it upon himself to change the declaration that Treasury notes and private contracts could no longer be redeemed for gold, and made it illegal for individuals to possess gold coins and bullion(with certain limitations for collectors).  He helped solidify the notion that the USA government could at will go back on previous agreements(aforementioned Treasury note redeemable for gold), and could take at will what it wanted(your gold). This obviously created a lot of problems, and eventually forced the Treasury to intervene in the gold market.  During the ensuing turmoil he once advised the Treasury during their gold buying operations that "Gold should rise by .21 cents that day." Remarking "It's a lucky number because its three times seven." Not exactly the kind of person you really want running things.

The gold confiscation, while not the beginning of government involvement in personal assets, has manifested itself into other areas. If you read the fine print you'll find the government has now found its way to having back door access to just about everything you own or do. Including the places you think it's safe. Safety Deposit boxes come to mind . All the government has to do is issue some type of emergency to raid the boxes as a matter of national security. But they'd prefer to just have a judge issue a court order to force the bank to open it quietly. "Swiss bank accounts are safe!", one might say. Except that with FATCA and other information sharing agreements you are required by law to comply. So obviously be a good citizen and work within the legal framework.  Edward Snowden highlighted how the government is gathering literally every one of your phone calls, emails, texts, Facebook posts, and YouTube videos. Why? Because they can. This was all part of the Patriot Act which greatly expanded surveillance powers in the spirit of fighting terrorism. You should feel a little less patriotic by the way if you supported its passage. You were duped by an age old trick with that one. Funny they still can't stop terrorists even with their new surveillance power.

FDR also made major changes at the Federal Reserve. Previously the banks individual locations set interest rates for their respective territory. This allowed each regional bank office to manage conditions in its respective territory since the underlying economic components and strength varied from region to region. Under the Banking Act of 1935 Roosevelt ordered it to set one national interest rate, and mandated they be responsible for maximizing employment within the country through the creation of the FOMC committee to be based in D.C.  It was also mandated the bank buy government debt at par. Although that was later repealed it helped set precedent for what we have today.  All this turned the Federal Reserve into an organization different from its original intention as "the bankers bank." It was effectively turned into the governments bank. Don't worry it always seemed odd to me too that a government run bank was responsible for making sure the economy ran at full employment. Isn't that Congress' job?

During his presidency FDR was a big believer in running budget deficits as he took note from John Keynes that it was necessary for government to spend in order to kick the business cycle back into gear. Well neither of them fully understood the business cycle and why it always wins. Plus politicians know that unemployed people are disastrous for re-election purposes, and usually provide the crowds for revolt. Previously Congress and Presidents were pretty good at running a tight budget as they believed it was prudent for the budget to be balanced. Only during extreme financial panics or wars were large deficits ran. FDR saw the writing on the wall with his increased spending and a potential for war on the horizon. Don't worry a solution was proposed to fix this problem.

Someone would need to buy this huge increase in government debt. Why not just create the new buyer to handle the job? This new buyer would be called the Social Security Administration(created 1935) with money taken from hard working Americans. Most people are probably unaware that the government takes the money from Social Security collections into a trust fund that can only buy government debt. So if you only wanted to buy stocks for investments you now have absolutely no choice upon birth. Side note there is a 99% certainty that every government will eventually default in some way, shape, or form on its debt. One only needs to look at history for that answer. This effectively robs people of giving them the choice to invest their assets into potentially higher yielding endeavors. It also allowed Congress in essence to "borrow" from the fund to spend on whatever they liked.

While Social Security was a good idea in theory it set the stage for future politicians to pollute its original purpose turning the program into the giant problem we have today. Additionally the program laid the ideology that the government should be responsible for taking care of everyone, and certainly made passing Medicare easier.

This all further expanded Socialism within the country. If you are unsure of what Socialism is it means government takes money from people who have earned it to redistribute to those who have not earned as much if any at all.  That's great until you run out of other peoples money.  Socialism also takes the biggest bite out of the middle class to pay for everything. It also implies that government knows better than God, or yourself, in distributing resources.

So this leads us to the present. Some of the biggest challenges we face today have their roots set squarely within FDR's presidency.

Government confiscation of property - check
Invasion of individual privacy/rights - check
Un-independent Federal Reserve Bank - check
Monstrous debt load - check
Social Security solvency issues - check

So there we have it 83 years in the making. We are still paying interest on debt from the Great Depression. Everyone born since then just received a bill with no say whatsoever on what the money was spent on.  Next time someone brings up these issues you'll at least know where they started. I just hope it doesn't all end badly. This article doesn't even touch upon his role in the creation of the IMF and World Bank. Two organizations that are highly controversial. We'll let history tell that story for now. Meanwhile the Founding Fathers are rolling over in their graves.

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