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Separating Money and State

By Doug French

On December 23, 1993, the Federal Reserve System marked its 80th birthday. But few were celebrating.

The Federal Reserve Act, which was signed into law in 1913 by President Woodrow Wilson, is described by economist Hans Sennholz as "probably the most tragic blunder ever committed by Congress."

According to the Federal Reserve's Board of Governors, "The function of the Federal Reserve System is to foster the flow of credit and money that will facilitate orderly economic growth, a stable dollar, and long-run balance in our international payments."

The results have been the exact opposite. The government's money and banking monopoly has created an unstable modern American economy, while only serving the political and bureaucratic needs of the federal government.

The Federal Reserve's worst crime is its decimation of the dollar. The buying power of the dollar has shrunk 99 percent since the Fed's creation in 1913.

The idea of having a central bank in America waxed and waned during the 19th century. But, as Wall Street analyst and historian James Grant wrote, it took the Panic of 1907 to produce "a critical mass of disillusionment with the financial system as it was."

A run on New York's Knickerbocker Trust Co. sparked the panic. Knickerbocker's president had invested heavily in the stock of United Copper Company. When United Copper's price collapsed, the 18,000 Knickerbocker depositors wanted their money back.

The Knickerbocker failed, and nervous depositors at other trust companies demanded their money, setting off a panic. Chase National Bank economist Benjamin Anderson described the Panic of 1907 as "almost purely a money panic" that had "pulled us up before the boom had gone too far."

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