Dan J. Harkey

Master Educator | Business & Finance Consultant | Mentor

How the Federal Reserve System Plunders the American Taxpayer

The Federal Reserve was established in 1913 under the Federal Reserve Act, following a series of banking panics, most notably the Panic of 1907. Its stated purpose was to stabilize the financial system, provide an elastic currency, and act as a lender of last resort. Over time, however, its policies have evolved into mechanisms that critics argue quietly transfer wealth from ordinary Americans to the government and financial elites. This “plunder” doesn’t happen through overt taxation—it occurs through monetary policy, inflation, and systemic favoritism.

by Dan J. Harkey

Share This Article

Understanding the Historical Context: From the Gold Standard to Fiat Money

  • 1913 Creation: The Fed was designed as a decentralized system of regional banks to prevent the concentration of power.  However, its ability to create money through credit expansion gave it enormous influence over the economy.
  • 1933 Gold Confiscation: During the Great Depression, President Roosevelt removed the Gold backing for U.S. currency domestically, allowing the Fed to expand credit without hard constraints.
  • 1971 Nixon Shock: President Nixon ended the Bretton Woods system, severing the dollar’s link to Gold internationally.  This transformed the dollar into a pure fiat currency, giving the Fed unlimited capacity to create money.
  • Result: These changes shifted the U.S. from a system of hard money, where currency was backed by a physical commodity like Gold, to one where monetary policy could be used to finance government deficits and manipulate economic cycles—often at taxpayers’ expense.  This new system, known as a fiat currency, is not backed by a physical commodity but by the government’s declaration that it has value.

1.  Inflation: The Hidden Tax

When the Fed expands the money supply—through quantitative easing (QE) or bond purchases—it dilutes the value of existing dollars.  Prices rise, and purchasing power falls.  This is effectively a tax on savers and wage earners.

  • Example:
    After the 2008 financial crisis, the Fed injected over $4 trillion into the economy through QE.  While this stabilized banks, it fueled asset inflation.  Between 2009 and 2019, the S&P 500 tripled, but wages barely kept pace with inflation.  Ordinary Americans bore the brunt of this, facing higher living costs and a widening wealth gap.

2.  Debt Monetization and Moral Hazard

The Fed buys U.S. Treasury bonds, enabling Congress to run massive deficits without immediate tax hikes.  This creates a cycle of overspending and deferred costs, where the actual financial burden is passed on to future generations.

  • Example:
    During the COVID-19 pandemic, the Fed purchased trillions of dollars in Treasuries to finance stimulus packages.  While relief checks were temporary, the long-term effect was a $31 trillion national debt and persistent inflation—costs borne by taxpayers.

3.  Interest Rate Manipulation

Artificially low interest rates benefit borrowers—especially the federal government—but punish savers and retirees who rely on fixed-income investments.

  • Example:
    From 2009 to 2016, near-zero interest rates allowed corporations and governments to borrow at low rates.  Meanwhile, retirees earned negligible returns on savings accounts and CDs, prompting many to seek riskier investments.

4.  Bailouts and Asset Price Inflation

The Fed’s crisis interventions disproportionately benefit Wall Street and asset holders.  Liquidity injections boost stock and real estate prices, enriching the wealthy while leaving average taxpayers to bear the brunt of inflation and debt.

  • Example:
    In March 2020, the Fed launched an unlimited QE program and began purchasing corporate bonds.  Stocks rebounded within weeks, while millions of Americans faced unemployment and rising grocery prices.

5.  Lack of Transparency and Accountability

The Fed operates as a quasi-independent entity, often making decisions behind closed doors, insulated from direct democratic oversight.  This lack of transparency raises questions about its accountability and the extent of its influence on the economy.

The Bottom Line

The Federal Reserve doesn’t “plunder” taxpayers through explicit theft.  Instead, it employs monetary tools that redistribute wealth subtly and systematically.  Inflation, asset bubbles, and debt monetization shift the burden onto ordinary Americans while rewarding those closest to the money spigot—government and financial elites.