Currency today is the largest component of the US M1 domestic money supply, and in March 2004 it accounted for more than half of the M1 aggregate. Why was this the case? It most likely wasn't the case until financial deregulation began in the 1980s. Recalling that era, I note that until then, local national banks were fixtures of the community, with their names proudly displayed on their large buildings. But then came an era of chaos in which the banks changed ownership rapidly, and the permanent names came off the banks and were replaced by temporary banners with the new names, and those were not thought permanent enough to justify putting up new permanent signs. Stability was a concern. Today there is a tall building near my home that, only a few years ago, had a huge lighted sign on the roof that read, "Bank of America". Now that sign has been replaced with one that reads "Mutual of Omaha Bank". This chaos probably contributed to the increase in cash holdings of the public. The disruption implied by such changes does not inspire public confidence.
When the Federal Reserve System was still operating as it was originally designed, all of its member commercial banks were wholly owned and operated within the borders of the US. The creation of money through fractional reserve banking was confined to lenders and clients operating within the US. Thus the economic factors that govern the expansion and contraction of the domestic money supply were all associated with success or failure of enterprises within the borders of the US. There were no transactions within the Federal Reserve System that passed money across our border to be invested in another country's economy with another central bank charged with expanding and contracting the money supply in that foreign country. That has all been changed now, with the changes occurring under the radar, without published alterations of the money mechanics of the Federal Reserve System. So now, anyone who has studied the Chicago Fed's publication, Money Mechanics, has no information explaining how this new global, multinational banking system works.
An example is the appearance, in recent years, of a bank called BBVA with branches in many places. They operate in the US just like the American banks do. They are apparently allowed to be part of our US Federal Reserve System. The following information about BBVA is quoted from their website.
BBVA is an increasingly global financial group, and we have used these recent years to continue our expansion into markets with high growth potential, such as Turkey, China and Latin America that already provide more than half of our annual gross income.The integration of the group's retail businesses in Spain (BBV, Argentaria, Banca Catalana, Banco del Comercio and Banco de Alicante) made it possible to leverage the potential of a significant branch network under the BBVA brand.
The efficiency of the BBVA integration was recognized by top financial publications. In 2000 it was chosen World's Best Bank (Forbes) and Best Bank in Spain (The Banker). In 2001 it was Best Bank in Latin America (Forbes) and Best European Bank (Lafferty).
What are we to make of this? Banks like this are international. They are not like the originally permitted US banks that were members of the Federal Reserve. They are not independent of the economies of other countries in which they operate. Therefore, our economic fate is not insulated from that of other countries over which we have no control.
There is another bothersome question. How did 70.7% of the outstanding US currency (the present estimate) turn up overseas? We don't know the answer to that, partly because of the banking changes discussed above, and partly because we do know of at least two times when multiple flights from JFK airport conveyed pallets of huge cubes of shrink-wrapped "bricks" of $100 bills to some unknown recipient in Russia and to undisclosed recipients in Iraq. During the second Iraq invasion US forces reported recovering such cash hoards that were said to have been stashed by Saddam's son.
We also know that the arms and drug trafficking all over the world has been enabled by the availability of US $100 notes.
We can see from the published data on US currency held abroad that the amount is increasing exponentially with time.
Legitimate export-import business is not conducted on a cash basis. So why is all this US currency out there?
If the Federal Reserve system worked today as it was designed originally, the cash on those pallets at JFK, all new and nicely wrapped by the U. S Treasury Bureau of Engraving and Printing, would have been "bought" by the recipient with deposits denominated in US dollars in the recipient's accounts in a US bank that is a member of the Federal Reserve System. But we didn't even know such huge financial deals were being done through the NY Fed Bank until someone discovered one of the planes being loaded. The Fed claimed that it was all legit, but they were not required, and did not, provide proof.
If Federal Reserve Notes are printed and then delivered to a recipient directly by the Department of the Treasury, by-passing the prescribed procedures by which Federal Reserve Banks supply their member banks with needed currency, this has the same effect as counterfeit. Why might this happen? It might be expedient to do this in situations where a dire international emergency is perceived by the POTUS, and the solution seems to be to send $100 Notes in sufficient quantity to achieve the desired result. There is no formal provision for this in the Federal Reserve System.
Our Federal Reserve System is out of control and is not providing the critical safeguards that are needed to ensure a stable uncorrupted money supply process.
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