End the Fed?

Dear Reader,

In 2009, Ron Paul wrote a book titled, End the Fed.

The former Texas congressman and presidential candidate has been a critic and opponent of the Fed for years. Paul views the Fed as a quasi-criminal organization, a cartel made up of the biggest private banks in the world.

Thomas Jefferson would have agreed. “The issuing power [of money] should be taken from the banks and restored to the people to whom it properly belongs,” the founding father once warned.

What the Fed does is write checks, out of thin air, to buy U.S. Treasury bonds and other assets to keep the economy from collapsing. The money then flows to the biggest banks and into the economy. The Fed then collects interest on the bonds, interest paid by taxpayers.

What happens to the money the Fed collects? That’s the trillion-dollar question.

But rather than end the Fed, as Paul suggested, my rich dad taught his son and me to “be the Fed.”

To “be the Fed” requires a high level of financial education, which is why he started teaching us early in life.

The Federal Reserve Act of 1913

The U.S. government chartered several versions of a central bank over the eighteenth and nineteenth centuries. In 1913, after several years of financial instability, Congress created the Federal Reserve Bank.

American citizens were told that the Federal Reserve would provide a reserve of liquid assets and also allow for currency and credit to expand and contract with the movements of the U.S. economy.

The Federal Reserve Act of 1913, specified that the Fed was to keep a 40% reserve of “lawful money” (gold, or currency that could be redeemed for gold) at the U.S. Treasury.

The Bretton Woods Agreement in 1944 basically required world governments to copy the Federal Reserve System. Today most central banks, such as the Bank of Japan and the European Central Bank, are modeled after the Fed.

In 1944, the U.S. dollar became the reserve currency of the world. This meant that the world’s central banks put the U.S. dollar in their banks just as Americans put dollars in their savings. Things were fine as long as the U.S. dollar was backed by gold. Rather than hold gold, central banks held the dollar and U.S. bonds as real money.

When the dollar was severed from gold, the IMF and the World Bank required the rest of the world to separate from the gold standard or be excluded from their ‘club.’ Today’s global crisis has spread because the world economy is floating on Monopoly money.

From my point of view, however, the Fed only has two powers: to create money out of thin air and to lend money they don’t have.

Be the Fed

The defined purpose of the Fed is “to promote effectively the  goals of maximum employment, stable prices, and moderate long-term interest rates.”

Obviously, the Fed is having trouble doing its job. One reason we have multi-trillion-dollar deficits is that the Fed is failing. Rather than solve the underlying problems, the Fed prints more and more money.

Has the Fed made life easier for the poor and the middle class, or harder? One thing seems certain: The Fed has definitely made life much better for the rich.

Unfortunately, very few politicians dare to take on the Fed.

While I agree with Ron Paul that we should End the Fed, I choose to use my rich dad’s advice, which is: Be the Fed.

As my rich dad often said, “The best way to help the poor is to not be one of them.” He also said, “The more you try to help poor people, the more poor people are created.” Instead of governments printing more and more money, rich dad believed in teaching people to fish — to print their own money.

It never seems to fail that, when I explain the “Be the Fed” process, someone will stand up and say, “You can’t do that.” My reply is always the same: “Maybe you can’t do it, but I can. I do it every day.”

In more precise terms: I have created vehicles — investments, intellectual property, and assets — that put money in my pocket, month after month and year after year, whether I continue to work or not. That’s “being the Fed,” or printing your own money.

How I Created My Own Fed

My life was a series of successes and failures. My first big success was the nylon and Velcro® surfer-wallet business, a business that soon failed, leaving me nearly a million dollars in debt.

Eventually, I made it. But I may not have without my wife Kim and great friends. Much like flight school, it is a transformational process. Today I own my own Fed.

The following is what I do to Be the Fed:

#1 I print my own money. In 1996, Kim and I started The Rich Dad Company. We raised $250,000 from investors. Once the company was up and running, we paid the investors back with interest.

Today, the business prints its own money by operating in over 55 countries with gross revenues in the millions of dollars providing jobs all over the world.

All money coming in is an infinite return, since all the money we originally invested into the business, our investors’ money and ours, has been repaid. An infinite return is the same as printing money, just as the Fed does.

#2 I invest in real estate using fractional reserve money. Real estate is a great investment because bankers love real estate. It is much easier to get a real estate loan than a business loan. Investing in real estate is fractional-reserve money. For every dollar I invest in real estate, like apartment buildings or commercial properties, the bank will loan me another five dollars.

I call fractional reserve money a one-to-five lift because I have expanded my money supply by 500%. Some call it leverage. Some call it OPM. Some call it debt.

#3  I convert cash flow to commodity money. By being the Fed, I print my own fiat money and acquire assets such as businesses, real estate, and oil wells — assets that serve society, as well as produce cash flow. With our extra money, we purchase gold and silver.

Since the U.S. dollar is no longer real money, but instead a currency that is going down in value, it makes no sense to me to save dollars. If we need dollars — cash — then gold and silver are liquid and can be converted quickly and easily back into dollars.

By being the Fed I’ve reversed the history of money.

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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Robert Kiyosaki

Robert Kiyosaki, author of bestseller Rich Dad Poor Dad as well as 25 others financial guide books, has spent his career working as a financial educator, entrepreneur, successful investor, real estate mogul, and motivational speaker, all while running the Rich Dad Company.

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