*******Billions for the Bankers, Debts for the People
The European Stabilization Mechanism (ESM), Financial Insolvency and the Bailout of Europe's Mega Banks
by Bob Chapman
Global Research, December 14, 2011
After watching Europe’s performance last week the only thing they really were after was an ESM, European Stabilization Mechanism, to tie down all EU nations to a tighter regional set up. As it turns out England and others did not agree. Britain obviously does not want to become part of a new treaty that deprives them of their sovereignty. This regional government concept appeared in the early 1960s and is now going to be pushed in Europe with the US to follow. Our question, is England just trying to protect the advantages of the “City of London,” or is the disagreement deeper than that? A new treaty will take two years for ratification, but in the meantime an agreement will hold forth on what can be called a handshake. Evidence is still out on whether this is an attempt by Germany to break up the euro zone and the EU or a genuine effort to set up a platform for world government. We know that since WWII that the internationalists have been setting up Europe as the foundation for world government. On the other hand we know that 65% to 70% of the German people want no part of it from any standpoint.
The main players in the end treated the debt crisis as a secondary problem, probably because the Federal Reserve had it covered for them. The only main player that displayed real nervousness was France’s Sarkozy. France had to have its banks bailed out and had to avoid one or two rating downgrades. Not only would those downgrades entail higher costs, but also they would impair France’s ability to help bailout the six unsound economies. The Fed is bailing out French banks short-term. Once the situation is more stable American short-term bond buyers will return and the Fed can concentrate aiding in other areas. That, of course, is if stability returns. Bailouts can only emanate from central banks and governments and any such operations in and of themselves are inflationary and if persistent will lead to hyperinflation.
This means all of the banks in the solvent countries will have to be nationalized, all or in part. At the same time these same banks and countries have to bail out the dreaded six countries. That will be a tall order, as some are not even cooperating. That could mean three or more of these countries could default leaving sound countries and their banks with big holes in their balance sheets. Overall none of this has been solved, because France and Germany were more interested in changing treaty rules than addressing the debt problem. These massive bailouts are on the way for the sound and the unsound, accompanied by higher inflation. Needless to say, all of this solves nothing on the short to intermediate term. It is another temporary respite. All we see is avoidance. Von Mises has told us only purging the system works. The bankers, politicians and bureaucrats do not want to see that happen, because the key to their power lies in the banking system and once purged their power is lost and countries are free to survive on their own. That is why the world has wars to keep the elitist bankers as our overseers. Under such circumstances nations are forced to amalgamate to bring order and to provide for the common defense. None of us are on the inside, so we do not know which avenue will be taken. Both choices mean lots more trouble ahead. The EU and the euro zone structures do not need to be changed, but the debt problem certainly needs to be addressed.
The quest for more power via the ESM is obvious to those in favor of world government. There will be nothing democratic about the ESM and most players will be appointees. Someone should tell these elitists bigger is not better and that more than half of Europe knows what they are up too. Whether it is called the EU, or Soviet Union, National Socialist Bund or the North American Union, they are all the same. They are totalitarian governments within one form of socialism at its core. This is government by appointment and regulation, which has no intention of letting the public participate. Every move or change will require no input from the people, only edicts from above.
That brings us to the position that England has taken. PM David Cameron is an elitist and one directly chosen at the Queen’s request. His position at last week’s meeting was surprising as he wanted guarantees of protection for the “City of London,” which supplies 40% of London’s jobs and 10% of jobs in England. This is the gang that was deeply involved in Bear Stearns, Lehman Bros., AIG and the Madoff scandals.
Among other things, Britain has objected and threatened to veto any kind of tax, even 1%, which on a compound basis would be far higher. Cameron believes this would cause financial sector business to move to Frankfurt. This rebellion within the EU ranks has far reaching implications. Cameron is no conservative and is part of the elitist operatives; obviously few of these characters trust each other. This is why England never committed to the euro. Cameron’s action has finally set Britain apart from the EU, never to join the euro, and cuts England off in part from the attempted consolidation on the Continent. That means it will have difficulty in fronting for American interests, and such interests will become more transparent.
Such a new treaty could take years and in the meantime Germany expects an agreement to do the very same thing. You have to wonder if there really are any rules here. This is why Britain said no to the treaty. At the last minute Hungary, the Czech Republic and Sweden agreed to the arrangement. National parliaments have to approve such a treaty in Denmark, Latvia, Poland, Lithuania, Romania and Bulgaria. Remember, this is not what this was to be about. It was about providing funds for the six unsound economies, all of which was shunted into the background, as a sort of afterthought. There is no question this was the plan from the beginning. Change the treaties, moving European power to Germany and deal with the debt as they go. The US and UK are not going to like that. The US could withdraw support from the financial perspective. Germany is saying we want more centralized power if we are going to pay all these debts. It would demand balanced budgets. If not feasible then raise taxes. The agreement would give the EU power over each legislative action, which means sovereign nations would lose their sovereignty.
These central planners believe they will lose a number of euro zone members along the way and that does not concern them. They’ll just absorb the debt for their government and their banks, nationalizing them in the process. From the very beginning, years ago, we saw this coming, and it is here. The formation of a hardcore socialist bloc controlled by bureaucratic technocrats (bankers) with the public having little to say about proceedings.
That takes us to the other side of the equation - the six problem countries, led by Greece. Greece is a banker looting operation and when their man Papandreou couldn’t get the job done they had their man Lucas Papademos appointed to do the job. He is a Trilateralist and Bilderberg. In spite of Papademos’ position he is accomplishing very little. The Troika seems to be running in circles. It won’t be long before Mr. Samoras is in charge, perhaps 2-1/2 to 3 months. Polls show him with half the votes in a three party race. The people are enraged and rightly so. On September 20th almost $11 billion is coming into Greece and all but $1 billion will go to pay bankers’ interest, which means this coming year taxes will rise to pay the bankers even more interest. The financial treadmill Greece is on is running ever faster. At the same time the Troika wants government to fire even more people. This group is making no effort to create jobs, only to save banks and large corporations. The Troika wants to destroy Greece and pick up the pieces for 10 cents on the dollar. The result domestically is that crime is running rampant. People on the edge, who normally would never commit crime, have been forced to become criminals just to live. The police have even become criminals, because they cannot support their families on much lower salaries.
Mr. Samaras has put Mr. Papadimos on notice that real elections have to come quickly. If elections do not come soon it certainly will lead to serious trouble.
Those in office and those who have been in office are at great risk of being charged civilly and criminally. The politicians, bureaucrats and bankers have almost totally destroyed the country. Many could go to jail including Papandreou and Papadimos and then again Mr. Samaras could end up dead. These people are playing for the highest stakes and they should remember there is real trouble headed their way.
This push by Germany to dominate other euro zone and EU members could lead to serious political problems in France. The economy in France is weakening. Strauss-Kahn looks to be out of the race. Germany’s power is visualized in France as to turning France into a German satrapy and that has the French very upset. France was a very big buyer of toxic bonds and faces a rating reduction and perhaps even a double reduction. That will cost the French; it’s Bank of France, its banks and citizens more to do business with higher interest rates. These events have set the stage for the National Front’s, Marine Le Pen to improve her poll percentage currently at about 21%, up to 26%, which would put her into round two.
French voters have stepped further from the center since the late 1980s when Jean-Marie Le Pen garnered 21% of the final vote and lost the election, as head of the National Front. Traditional parties continue to lose ground in France whereas in other countries major parties hold their ground and third parties continue to find the going difficult. People in Europe see more clearly that with the exception of Germany, the Netherlands and Finland that their countries are being mismanaged. In France can a change come via Marine Le Pen? We think so, she has much common sense and the first thing she would do is leave the euro. She has stated this and many French agree. Like the average German many of the French want out. We have lived in both countries for an extended period of time, speak both languages, and deeply understand their cultures, which are like night and day. We see it amazing that the euro has held together as long as it has. Le Pen is acutely aware of these differences. She reflects national feeling far better than any French leader. She should be able to siphon off enough votes from Sarkozy to enter the finals, which she could win setting a whole new course for France. We must state here that we are friends of the Le Pen family and have known Marine since her teens, so we express favoritism in this case.
As we have stated for more than 15 years, the euro zone and the EU are unnatural associations that can never hope to work.
Britain’s approach is a perfect example of the dichotomous situation. The main mission of PM Cameron was to make sure there were no treaty changes that were detrimental to England. He accomplished that at a great price. The Monarchy and all its defenders, such as the “City of London” were proud he stood his ground. Germany and others were unwilling to accept such impertinence from a country they believe shouldn’t be in the EU in the first place. England is not against more spending to delay the inevitable – it had to protect the greatest wealth center in the world, the City of London. They also know just as the other members do, that they’ll be no meaningful reforms and more debt has to be created to service current debt, until the system collapses. Via this system the UK and US control the world and intend to continue to do so. This is a UK-US holding action until another series of wars, or a major war can be put in place to take the blame for the current financial failures. Just look at history. That is how it works and has worked for centuries. For the UK and US, Germany is the problem and France just tags along. That is something Marine Le Pen is well aware of and she wants to change that. French bankers hate her, because she knows exactly what they have been up too.
Treaty changes require unanimous consent, so there are not going to be any changes until the City of London is exempt from additional taxation. There are still several countries that have to approve by Parliamentary consent in their countries, so Mr. Cameron may have some company in bolstering his position. In fact whether they have their meetings or not, Britain has cast the die and now Germany must respond. It is either let’s make a deal or the EU and the euro zone breaks up. Who knows, perhaps that is what Germany is after?*******
The Real Story of the Money-Control Over America
by Pastor Sheldon Emry, circa 1980*
Posted at Bull Not Bull on May 1, 2005.
Editor's note: This piece is an internet classic, outlining the terrible flaws in our current banking system, and how it enriches bankers and powers-that-be at the expense of common people like us. If you have never seen it, you are in for an eye opener! If you have read it before, read it again - it is well worth it. Although originally written in 1980, the article is especially timely today in light of the new bankruptcy law that has been passed by the Senate and will surely be passed by the Congress soon. Read it and think about the world that we live in! Opening yourself to new information is the first step in awakening to the truth about the road we are traveling.
If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered. - Thomas Jefferson
Americans, living in what is called the richest nation on earth, seem always to be short of money. Wives are working in unprecedented numbers, husbands hope for overtime hours to earn more, or take part-time jobs evenings and weekends, children look for odd jobs for spending money, the family debt climbs higher, and psychologists say one of the biggest causes of family quarrels and breakups is "arguments over money." Much of this trouble can be traced to our present "debt-money" system. Too few Americans realize why our founding fathers wrote into Article I of the U.S. Constitution: Congress shall have the Power to Coin Money and Regulate the Value Thereof.
They did this, as we will show, in prayerful hope it would prevent "love of money" from destroying the Republic they had founded. We shall see how subversion of Article I has brought upon us the horrors of which Jefferson had warned.
MONEY IS MAN'S ONLY "CREATION"
Economists use the term "create" when speaking of the process by which money comes into existence. Now, creation means making something that did not exist before. Lumbermen make boards from trees, workers build houses from lumber, and factories manufacture automobiles from metal, glass and other materials. But in all these they did not "create," they only changed existing materials into a more usable and, therefore, more valuable form. This is not so with money. Here, and here alone, man actually "creates" something out of nothing. A piece of paper of little value is printed so that it is worth a piece of lumber. With different figures it can buy the automobile or even the house. Its value has been "created" in the true meaning of the word
MONEY "CREATING" PROFITABLE
As is seen by the above, money is very cheap to make, and whoever does the "creating" of money in a nation can make a tremendous profit! Builders work hard to make a profit of 5% above their cost to build a house.
Auto makers sell their cars for 1% to 2% above the cost of manufacture and it is considered good business. But money "manufacturers" have no limit on their profits, since a few cents will print a $1 bill or a $10,000 bill.
That profit is part of our story, but first let us consider another unique characteristic of the thing - money, the love of which is the "root of all evil."
ADEQUATE MONEY SUPPLY NEEDED
An adequate supply of money is indispensable to civilized society. We could forego many other things, but without money industry would grind to a halt, farms would become only self-sustaining units, surplus food would disappear, jobs requiring the work of more than one man or one family would remain undone, shipping, and large movements of goods would cease, hungry people would plunder and kill to remain alive, and all government except family or tribe would cease to function.
An overstatement, you say? Not at all. Money is the blood of civilized society, the means of all commercial trade except simple barter. It is the measure and the instrument by which one product is sold and another purchased. Remove money or even reduce the supply below that which is necessary to carry on current levels of trade, and the results are catastrophic. For an example, we need only look at America's Depression of the early 1930's.
THE BANKERS DEPRESSION OF THE 1930's
In 1930 America did not lack industrial capacity, fertile-farm land, skilled and willing workers or industrious farm families. It had an extensive and highly efficient transportation system in railroads, road networks, and inland and ocean waterways. Communications between regions and localities were the best in the world, utilizing telephone, teletype, radio, and a well-operated government mail system. No war had ravaged the cities or the countryside, no pestilence weakened the population, nor had famine stalked the land. The United States of America in 1930 lacked only one thing: an adequate supply of money to carry on trade and commerce. In the early 1930's, Bankers, the only source of new money and credit, deliberately refused loans to industries, stores and farms.
Payments on existing loans were required however, and money rapidly disappeared from circulation. Goods were available to be purchased, jobs waiting to be done, but the lack of money brought the nation to a standstill. By this simple ploy America was put in a "depression" and the greedy Bankers took possession of hundreds of thousands of farms, homes, and business properties. The people were told, "times are hard," and "money is short." Not understanding the system, they were cruelly robbed of their earnings, their savings, and their property.
MONEY FOR PEACE? NO! MONEY FOR WAR? YES!
World War II ended the "depression." The same Bankers who in the early 30's had no loans for peacetime houses, food and clothing, suddenly had unlimited billions to lend for Army barracks, K-rations and uniforms! A nation that in 1934 couldn't produce food for sale, suddenly could produce bombs to send free to Germany and Japan! (More on this riddle later.)
With the sudden increase in money, people were hired, farms sold their produce, factories went to two shifts, mines re-opened, and "The Great Depression" was over! Some politicians were blamed for it and others took credit for ending it. The truth is the lack of money (caused by the Bankers) brought on the depression, and adequate money ended it. The people were never told that simple truth and in this article we will endeavor to show how these same Bankers who control our money and credit have used their control to plunder America and place us in bondage.
POWER TO COIN AND REGULATE MONEY
When we can see the disastrous results of an artificially created shortage of money, we can better understand why our Founding Fathers insisted on placing the power to "create" money and the power to control it ONLY in the hands of the Federal Congress. They believed that ALL citizens should share in the profits of its "creation" and therefore the national government must be the ONLY creator of money. They further believed that ALL citizens, of whatever State or Territory, or station in life would benefit by an adequate and stable currency and therefore, the national government must also be, by law, the ONLY controller of the value of money.
Since the Federal Congress was the only legislative body subject to all the citizens at the ballot box, it was, to their minds, the only safe depository of so much profit and so much power. They wrote it out in the simple, but all-inclusive: "Congress shall have the Power to Coin Money and Regulate the Value Thereof."
HOW THE PEOPLE LOST CONTROL TO THE FEDERAL RESERVE
Instead of the Constitutional method of creating our money and putting it into circulation, we now have an entirely unconstitutional system. This has resulted in almost disastrous conditions, as we shall see.
Since our money was handled both legally and illegally before 1913, we shall consider only the years following 1913, since from that year on, ALL of our money has been created and issued by an illegal method that will eventually destroy the United States if it is not changed. Prior to 1913, America was a prosperous, powerful, and growing nation, at peace with its neighbors and the envy of the world. But - in December of 1913, Congress, with many members away for the Christmas holidays, passed what has since been known as the FEDERAL RESERVE ACT. (For the full story of how this infamous legislation was forced through our Congress, read The Creature from Jekyll Island, by G. Edward Griffin or Conquest or Consent, by W. B. Vennard). Omitting the burdensome details, it simply authorized the establishment of a Federal Reserve Corporation, with a Board of Directors (The Federal Reserve Board) to run it, and the United States was divided into 12 Federal Reserve "Districts."
This simple, but terrible, law completely removed from Congress the right to "create" money or to have any control over its "creation," and gave that function to the Federal Reserve Corporation. This was done with appropriate fanfare and propaganda that this would "remove money from politics" (they didn't say "and therefore from the people's control") and prevent "Boom and Bust" from hurting our citizens. The people were not told then, and most still do not know today, that the Federal Reserve Corporation is a private corporation controlled by bankers and therefore is operated for the financial gain of the bankers over the people rather than for the good of the people. The word "Federal" was used only to deceive the people.
MORE DISASTROUS THAN PEARL HARBOR
Since that "day of infamy," more disastrous to us than Pearl Harbor, the small group of "privileged" people who lend us "our" money have accrued to themselves all of the profits of printing our money' - and more! Since 1913 they have "created" tens of billions of dollars in money and credit, which, as their own personal property, they then lend to our government and our people at interest. "The rich get richer and the poor get poorer" had become the secret policy of our National Government. An example of the process of "creation" and its conversion to people's "debt" will aid our understanding.
THEY PRINT IT - WE BORROW IT AND PAY THEM INTEREST
We shall start with the need for money. The Federal Government, having spent more than it has taken from its citizens in taxes, needs, for the sake of illustration, $1,000,000,000. Since it does not have the money, and Congress has given away its authority to "create" it, the Government must go the "creators" for the $1 billion. But, the Federal Reserve, a private corporation, doesn't just give its money away! The Bankers are willing to deliver $1,000,000,000 in money or credit to the Federal Government in exchange for the Government's agreement to pay it back - with interest! So Congress authorizes the Treasury Department to print $1,000,000,000 in U.S. Bonds, which are then delivered to the Federal Reserve Bankers.
The Federal Reserve then pays the cost of printing the $1,000,000,000 (about $1,000) and makes the exchange. The Government then uses the money to pay its obligations. What are the results of this fantastic transaction? Well, $1 billion in Government bills are paid all right, but the Government has now indebted the people to the Bankers for $1 billion on which the people must pay interest! Tens of thousands of such transactions have taken place since 1913 so that by the 1980's, the U.S. Government is indebted. to the Bankers for over $1,000,000,000,000 (trillion) on which the people pay over $100 billion a year in interest alone with no hope of ever paying off the principal. Supposedly our children and following generations will pay forever and forever!
AND THERE'S MORE
You say, "This is terrible!" Yes, it is, but we have shown only part of the sordid story. Under this unholy system, those United States Bonds have now become "assets" of the Banks in the Reserve System which they then use as "reserves" to "create" more "credit" to lend. Current "fractional reserve" requirements allow them to use that $1 billion in bonds to "create" as much as $15 billion in new "credit" to lend to States, Municipalities, to individuals and businesses. Added to the original $1 billion, they could have $16 billion of "created credit" out in loans paying them interest with their only cost being $1,000 for printing the original $1 billion! Since the U.S. Congress has not issued Constitutional money since 1863 (over 100 years), in order for the people to have money to carry on trade and commerce they are forced to borrow the "created credit" of the Monopoly Bankers and pay them usury-interest!
AND THERE'S STILL MORE
In addition to the vast wealth drawn to them through this almost unlimited usury, the Bankers who control the money at the top are able to approve or disapprove large loans to large and successful corporations to the extent that refusal of a loan will bring about a reduction in the price that that Corporation's stock sells for on the market. After depressing the price, the Bankers' agents buy large blocks of the stock, after which the sometimes multi-million dollar loan is approved, the stock rises, and is then sold for a profit. In this manner billions of dollars are made with which to buy more stock. This practice is so refined today that the Federal Reserve Board need only announce to the newspapers an increase or decrease in their "rediscount rate" to send stocks up and down as they wish. Using this method since 1913, the Bankers and their agents have purchased secret or open control of almost every large corporation in America. Using that control, they then force the corporations to borrow huge sums from their banks so that corporation earnings are siphoned off in the form of interest to the banks. This leaves little as actual "profits" which can be paid as dividends and explains why stock prices are often depressed, while the banks reap billions in interest from corporate loans. In effect, the bankers get almost all of the profits, while individual stockholders are left holding the bag.
The millions of working families of America are now indebted to the few thousand Banking Families for twice the assessed value of the entire United States. And these Banking Families obtained that debt against us for the cost of paper, ink, and bookkeeping!
THE INTEREST AMOUNT IS NEVER CREATED
The only way new money (which is not true money, but is "credit" representing a debt), goes into circulation in America is when it is borrowed from Bankers. When the State and people borrow large sums, we seem to prosper. However, the Bankers "create" only the amount of the principal of each loan, never the extra amount needed to pay the interest. Therefore. the new money never equals the new debt added. The amounts needed to pay the interest on loans is not "created," and therefore does not exist!
Under this kind of a system, where new debt always exceeds the new money no matter how much or how little is borrowed, the total debt increasingly outstrips the amount of money available to pay the debt. The people can never, ever get out of debt!
An example will show the viciousness of this usury-debt system with its "built-in" shortage of money.
IF $60,000 IS BORROWED, $255,931.20 MUST BE PAID BACK
When a citizen goes to a Banker to borrow $60,000 to purchase a home or a farm, the Bank clerk has the borrower agree to pay back the loan plus interest. At 14% interest for 30 years, the Borrower must agree to pay $710.92 per month for a total of $255,931.20. The clerk then requires the citizen to assign to the Banker the right of ownership of the property if the Borrower does not make the required payments. The Bank clerk then gives the Borrower a $60,000 check or a $60,000 deposit slip crediting the Borrower's checking account with $60,000.
The Borrower then writes checks to the builder, subcontractors, etc., who in turn write checks. $60,000 of new "checkbook" money is thereby added to "money in circulation."
However, and this is the fatal flaw in a usury system, the only new money created and put into circulation is the amount of the loan, $60,000. The money to pay the interest is NOT created, and therefore was NOT added to "money in circulation."
Even so, this Borrower (and those who follow him in ownership of the property) must earn and TAKE OUT OF CIRCULATION $255,931, almost $200,000 MORE than he put IN CIRCULATION when he borrowed the original $60,000! (By the way, it is this interest which cheats all families out of nicer homes. It is not that they can't afford them; it is because the Banker's usury forces them to pay for 4 homes to get one!)
Every new loan puts the same process in operation. Each borrower adds a small sum to the total money supply when he borrows, but the payments on the loan (because of interest) then deduct a much LARGER sum from the total money supply.
There is therefore no way all debtors can pay off the money-lenders. As they pay the principal and interest, the money in circulation disappears. All they can do is struggle against each other, borrowing more and more from the money-lenders each generation. The money-lenders (Bankers), who produce nothing of value, slowly, then more rapidly, gain a death grip on the land, buildings, and present and future earnings of the whole working population.
SMALL LOANS DO THE SAME THING
If you haven't quite grasped the impact of the above, let us consider a small auto loan for 3 years at 18% interest. Step 1: Citizen borrows $5,000 and pays it into circulation (it goes to the dealer, factory, miner, etc.) and signs a note agreeing to pay the Banker $6,500. Step 2: Citizen pays $180 per month of his earnings to the Banker. In 3 years he will take OUT of circulation $1,500 more than he put IN circulation.
Every loan of Banker "created" money (credit) causes the same thing to happen. Since this has happened millions of times since 1913 (and continues today), you can see why America has gone from a prosperous, debt-free nation to a debt-ridden nation where practically every home, farm and business is paying usury-tribute to some Banker. The usury-tribute to the Bankers on personal, local, State and Federal debt totals more than the combined earnings of 25% of the working people. Soon it will be 50% and continue up.
THIS IS WHY BANKERS PROSPER IN GOOD TIMES OR BAD
In the millions of transactions made each year like those above, little actual currency changes hands, nor is it necessary that it do so. 95% of all "cash" transactions in the U.S. are by check, so the Banker is perfectly safe in "creating" that so-called "loan" by writing the check or deposit slip, not against actual money, but AGAINST YOUR PROMISE TO PAY IT BACK! The cost to him is paper, ink and a few dollars in salaries and office costs for each transaction. It is "check-kiting" on an enormous scale. The profits increase rapidly, year after year, as shown below.
These are a few taken from Arizona newspapers in January, 1979:
Valley Bank posts 49% gain in profits
Gains of 49 percent in net income and 51 percent in operating income were posted last year by Valley National Bank.
Those gains brought net income to $33,969,-000' in the year ended Dec..31 and operating income to $34,459.000. The year before those totals were $22,836.000 and $22,807,000 respectively.
Bank's profits rise 21% Arizona Bank announced on Monday it had achieved a 21.2 percent increase in net income in 1978 over 1977. On the basis of operating income, excluding the 1977 sale of the Arizona Bank Building for $l,336,369, the bank said the increase was 43.9 percent.
Tostenrud said loans and deposits increased in the last year: Deposits 18.8 percent to $1.353 billion and loans 21.9 percent to $951 million.
THE COST TO YOU? EVENTUALLY, EVERYTHING!
In 1910 the U.S. Federal debt was only $1 billion, or $12.40 per citizen. State and local debts were practically non-existent.
By 1920, after only 6 years of Federal Reserve shenanigans, the Federal debt had jumped to $24 billion, or $226 per person.
In 1960 the Federal debt reached $284 billion, or $1,575 per citizen and State and local debts were mushrooming.
By 1981 the Federal debt passed $1 trillion and was growing exponentially as the Banker's tripled the interest rates. State and local debts are now MORE than the Federal, and with business and personal debts totaled over $6 trillion, 3 times the value of all land and buildings in America.
If we signed over to the money-leaders all of America we would still owe them 2 more Americas (plus their usury, of course!)
However, they are too cunning to take title to everything. They will instead leave you with some "illusion of ownership" so you and your children will continue to work and pay the Bankers more of your earnings on ever-increasing debts. The "establishment" has captured our people with their ungodly system of usury and debt as certainly as if they had marched in with a uniformed army.
FOR THE GAMBLERS AMONG MY READERS
To grasp the truth that periodic withdrawal of money through interest payments will inexorably transfer all wealth in the nation to the receiver of interest, imagine yourself in a poker or dice game where everyone must buy the chips (the medium of exchange) from a "banker" who does not risk chips in the game, but watches the table and every hour reaches in and takes 10% to 15% of all the chips on the table. As the game goes on, the amount of chips in the possession of each player will go up and down with his "luck."
However, the TOTAL number of chips available to play the game (carry on trade and business) will decrease rapidly.
The game will get low on chips, and some will run out. If they want to continue to play, they must buy or borrow them from the "banker." The "banker" will sell (lend) them ONLY if the player signs a "mortgage" agreeing to give the "banker" some real property (car, home, farm, business, etc.) if he cannot make periodic payments to pay back all of the chips plus some EXTRA ones (interest). The payments must be made on time, whether he wins (makes a profit) or not.
It is easy to see that no matter how skillfully they play, eventually the "banker" will end up with all of his original chips back, and except for the very best players, the rest, if they stay in long enough, will lose to the "banker" their homes, their farms, their businesses, perhaps even their cars, watches, rings, and the shirts off their backs!
Our real-life situation is MUCH WORSE than any poker game. In a poker game none is forced to go into debt, and anyone can quit at any time and keep whatever he still has. But in real life, even if we borrow little ourselves from the Bankers, the local, State, and Federal governments borrow billions in our name, squander it, then confiscate our earnings from us and pay it back to the Bankers with interest. We are forced to play the game, and none can leave except by death. We pay as long as we live, and our children pay after we die. If we cannot pay, the same government sends the police to take our property and give it to the Bankers. The Bankers risk nothing in the game; they just collect their percentage and "win it all." In Las Vegas and at other gambling centers, all games are "rigged" to pay the owner a percentage, and they rake in millions. The Federal Reserve Bankers' "game" is also rigged, and it pays off in billions!
In recent years Bankers added real "cards" to their ‘game. "Credit" cards are promoted as a convenience and a great boon to trade. Actually, they are ingenious devices by which Bankers collect 2% to 5% of every retail sale from the seller and 18% interest from buyers. A real "stacked" deck!
YES, IT'S POLITICAL, TOO!
Democrat, Republican, and Independent voters who have wondered why politicians always spend more tax money than they take in should now see the reason. When they begin to study our "debt-money" system, they soon realize that these politicians are not the agents of the people but are the agents of the Bankers, for whom they plan ways to place the people further-in debt. It takes only a little imagination to see that if Congress had been "creating," and spending or issuing into circulation the necessary increase in the money supply, THERE WOULD BE NO NATIONAL DEBT, and the over $4 Trillion of other debts would be practically non-existent. Since there would be no ORIGINAL cost of money except printing, and no CONTINUING costs such as interest, Federal taxes would be almost nil. Money, once in circulation, would remain their and go on serving its purpose as a medium of exchange for generation after generation and century after century, just as coins do now, with NO payments to the Bankers whatever!
MOUNTING DEBTS AND WARS
But instead of peace and debt-free prosperity, we have ever-mounting debt and periodic wars. We as a people are now ruled by a system of Banker-owned Mammon that has usurped the mantle of government, disguised itself as our legitimate government, and set about to pauperize and control our people. It is now a centralized, all-powerful political apparatus whose main purposes are promoting war, spending the peoples' money, and propagandizing to perpetuate itself in power. Our two large political parties have become its servants, the various departments of government its spending agencies, and the Internal Revenue its collection agency.
Unknown to the people, it operates in close cooperation with similar apparatuses in other nations. which are also disguised as "governments." Some, we are told, are friends. Some, we are told, are enemies. "Enemies" are built up through international manipulations and used to frighten the American people into going billions of dollars more into debt to the Bankers for "military preparedness," "foreign aid to stop communism," "minority rights," etc. Citizens, deliberately confused by brainwashing propaganda, watch helplessly while our politicians give our food, goods, and money to Banker-controlled alien governments under the guise of "better relations" and "easing tensions." Our Banker-controlled government takes our finest and bravest sons and sends them into foreign wars with obsolete equipment and inadequate training, where tens of thousands are murdered, and hundreds of thousands are crippled. Other thousands are morally corrupted, addicted to drugs, and infected with venereal and other diseases, which they bring back to the United States. When the "war" is over, we have gained nothing, but we are scores of billions of dollars more in debt to the Bankers, which was the reason for the "war" in the first place!
BUT WAIT… THERE'S STILL MORE
The profits from these massive debts have been used to erect a complete and almost hidden economic and political colossus over our nation. They keep telling us they are trying to do us "good," when in truth they work to bring harm and injury to our people. These would-be despots know it is easier to control and rob an ill, poorly-educated and confused people than it is a healthy and intelligent population, so they deliberately prevent real cures for diseases, they degrade our educational systems, and they stir up social and racial unrest. For the same reason they favor drug use, alcohol, sexual promiscuity, abortion, pornography, and crime. Everything which debilitates the minds and bodies of the people is secretly encouraged, as it makes the people less able to oppose them or even to understand what is being done to them.
Family, morals, love of Country, the Christian religion, all that is honorable is being swept away, while they try to build their new, subservient man. Our new "rulers" are trying to change our whole racial, social, religious, and political order, but they will not change the debt-money economic system by which they rob and rule. Our people have become tenants and "debt-slaves" to the Bankers and their agents in the land our fathers conquered. It is conquest through the most gigantic fraud and swindle in the history of mankind. And we remind you again: The key to their wealth and power over us is their ability to create "money" out of nothing and lend it to us at interest. If they had not been allowed to do that, they would never have gained secret control of our nation. "The rich ruleth over the poor, and the borrower is servant to the lender" (Proverbs 22:7).
Let us now consider the correct method of providing the medium of exchange (money) needed by our people.
History tells us of debt-free and interest-free money issued by governments. The American colonies did it in the 1700's and their wealth soon rivaled England and brought restrictions from Parliament, which led to the Revolutionary War. Abraham Lincoln did it in 1863 to help finance the Civil War. He was later assassinated by an agent of the Rothschild Bank. No debt-free or interest-free money has been issued in America since then. Several Arab nations issue interest-free loans to their citizens today. The Saracen Empire for bad interest on money for 1,000 years, and its wealth outshone even Saxon Europe. Mandarin China issued its own money, interest-free and debt-free, and historians and collectors of art today consider those centuries to be China's time of greatest wealth, culture and peace.
Germany issued debt-free and interest-free money from 1935 and on, accounting for its startling rise from the depression to a world power in 5 years. Germany financed its entire government and war operation from 1935 to 1945 without debt, and it took the whole Capitalist and Communist world to destroy the German power over Europe and bring Europe back under the heel of the Bankers. Such history of money does not even appear in the textbooks of public (government) schools today.
Issuing money which doesn't have to be paid back in interest leaves the money available to use in the exchange of goods and services and its only continuing cost is replacement as the paper wears out. Money is the paper ticket by which such transfers are made and should always be in sufficient quantity to transfer all possible production of the nation to ultimate consumers.
It is as ridiculous for a nation to say to its citizens, "You must consume less because we are short of money," as it would be for an Airline to say "Our planes are flying, but we can't take you because we are short of tickets."
NO MORE BANKERS' PLUNDER
Under the present debt-usury system, the extra burden of usury forces workers and businesses to demand more money for the work and goods to pay their ever-increasing debts and taxes. This increase in prices and wages is called "inflation." Bankers, politicians and "economists" blame it on everything but the real cause, which is the usury levied on money and debt by the Bankers. This "inflation" benefits the money-lenders, since it wipes out savings of one generation so they cannot finance or help the next generation, who must then borrow from the money-lenders, and pay a large part of their life's labor to the usurer.
With an adequate supply of interest-free money, little borrowing would be required and prices would be established by people and goods, not by debts and usury.
If the Federal Congress failed to act, or acted wrongly, in the supply of money, the citizens would use the ballot or recall petition to replace those who prevented correct action with others whom the people believe would pursue a better money policy. Since the creation of money and its issuance in sufficient quantity would be one of the few functions of Congress, the voter could decide on a candidate by his stand on money, instead of the hundreds of lesser, and deliberately confusing, subjects which are presented to us today. And since money is, and would remain, a national function, local differences or local factions would not be able to sway the people from the nation's (citizens') interest. All other problems, except the nation's defense, would be taken care of in the State, County, or City governments where they are best handled and most easily corrected.
An adequate national defense would be provided by the same citizen-controlled Congress, and there would be no Bankers behind the scenes, bribing politicians to give $200 billion of American military equipment to other nations, disarming us, while alien nations prepare to attack and invade the United States of America.
A DEBT-FREE AMERICA
With debt-free and interest-free money, there would be no high and confiscatory taxation, our homes would be mortgage free with no $10,000-a-year payments to the Bankers, nor would they get $1,000 to $2,500 per year from every automobile on our roads. We would need no "easy payment" plans, "revolving" charge accounts, loans to pay medical or hospital bills, loans to pay taxes, loans to pay for burials, loans to pay loans, nor any of the thousand and one usury-bearing loans which now suck the life-blood of American families. There would be no unemployment, divorces caused by debt, destitute old people, or mounting crime, and even the so-called "deprived" classes would be deprived of neither job nor money to buy the necessities of life.
Criminals could not become politicians, nor would politicians become criminals in the pay of the Money-lenders. Our officials, at all government levels, would be working for the people instead of devising means to spend more money to place us further in debt to the Bankers. We would get out of the entangling foreign alliances that have engulfed us in four major wars and scores of minor wars since the Federal Reserve Act was passed, alliances which are now used to prevent America from preparing her own defense in the face of mounting danger from alien powers.
A debt-free America would mean mothers would not have to work. With mother at home, juvenile delinquency would decrease rapidly. The elimination of the usury and debt would be the equivalent of a 50% raise in the purchasing power of every worker. With this cancellation of all debts, the return to the people of all the property and wealth the parasitic Bankers and their quasi-legal agents have stolen by usury and fraud, and the ending of their theft of $300 Billion (or more) every year from the people, America would be prosperous and powerful beyond the wildest dreams of its citizens today. And we would be at peace! (For a Bible example of cancellation of debts to money lenders and restoration of property and money to the people, read Nehemiah 5: 1-13.)
WHY YOU HAVEN'T KNOWN
We realize this small, and necessarily incomplete, article on money may be charged with oversimplification. Some may say that if it is that simple the people would have known about it, and it could not have happened. But this MONEY-LENDERS' consPIRACY is as old as Babylon, and even in America it dates far back before the year 1913. Actually, 1913 may be considered the year in which their previous plans came to fruition, and the way opened for complete economic conquest of our people. The consPIRACY is old enough in America so that its agents have been, for many years, in positions such as newspaper publishers, editors, columnists, church ministers, university presidents, professors, textbook writers, labor union leaders, movie makers, radio and TV commentators, politicians from school board members to U.S. presidents, and many others.
CONTROLLED NEWS AND INFORMATION
These agents control the information available to our people. They manipulate public opinion, elect whom they will locally and nationally, and never expose the crooked money system. They promote school bonds, municipal bonds, expensive and detrimental farm programs, "urban renewal," foreign aid, and many other schemes which will put the people more into debt to the Bankers. Thoughtful citizens wonder why billions are spent on one program and billions on another which may duplicate it or even nullify it, such as paying some farmers not to raise crops, while at the same time building dams or canals to irrigate more farm land. Crazy or stupid? Neither. The goal is more debt. Thousand of government-sponsored ways to waste money go on continually. Most make no sense, but they are never exposed for what they really are, builders of "billions for the bankers and debts for the people."
So-called "economic experts" write syndicated columns in hundreds of newspapers, craftily designed to prevent the people from learning the simple truth about our money system. Commentators on radio and TV, preachers, educators, and politicians blame the people as wasteful, lazy, or, spend-thrift, and blame the workers, and consumers for the increase in debts and the inflation of prices, when they know the cause is the debt-money system itself. Our people are literally drowned in charges and counter-charges designed to confuse them and keep them from understanding the unconstitutional and evil money-system that is so efficiently and silently robbing the farmers, the workers, and the businessmen of the fruits of their labors and of their freedoms.
When some few Patriotic people or organizations who know the truth begin to expose them or try to stop any of their mad schemes, they are ridiculed and smeared as "right-wing extremists," "super-patriots," "ultra-rightists," "bigots," "racists," even "fascists" and "anti-Semites." Any name is used which will cause them to shut up or will at least stop other people from listening to the warning they are giving. Articles and books such as you are now reading are kept out of schools, libraries, and book stores.
Some, who are especially vocal in their exposure of the treason against our people, are harassed by government agencies such as the EPA, OSHA, the IRS, and others, causing them financial loss or bankruptcy. Using the above methods, they have been completely successful in preventing most Americans from learning the things you have read in this pamphlet. However, in spite of their control of information, they realize many citizens are learning the truth. Therefore, to prevent violence or armed resistance to their plunder of America, they plan to register all firearms and eventually to disarm all citizens. They have to eliminate most guns, except those in the hands of their government police and army.
TELL THE PEOPLE
The "almost hidden" conspirators in politics, religion, education, entertainment, and the news media are working for a Banker-owned United States in a Banker-owned world under a Banker-owned World Governments!
Love of Country and concern for your children should make you deeply interested in this, America's greatest problem, for our generation has not suffered under the "yoke" as the coming generations will. Usury and taxes will continue to take a larger and larger part of the annual earnings of the people and put them into the pockets of the Bankers and their political Agents. Increasing "government" regulations will prevent citizen protest and opposition to their control. Is it possible that your grandchildren will own neither home nor car, but will live in "government-owned" apartments and ride to work in "government-owned" buses (both paying usury to the Bankers), AND BE ALLOWED TO KEEP JUST ENOUGH OF THEIR EARNINGS TO BUY A MINIMUM OF FOOD AND CLOTHING while their Rulers wallow in luxury? In Asia and eastern Europe it is called "communism;" in America it is called "Democracy" and "Capitalism."
America will not shake off her Banker-controlled dictatorship as long as the people are ignorant of the hidden controllers. International financiers, who control most of the governments of the nations, and most sources of information, seem to have us completely within their grasp. They are afraid of only one thing: an awakened Patriotic Citizenry, armed with the truth, and with a trust, in Almighty God for deliverance. This article has given you the truth about their iniquitous system. What you do with it is in your hands.
AUDIT THE FEDERAL RESERVE SYSTEM? The Federal Reserve has never been audited by the government since it took over our money and credit in 1913. In 1975 a bill, H.R. 4316, to require an audit was introduced in Congress.
During the April, 1975 hearings, this author submitted a statement favoring the audit, as did many others. Due to pressure from the money controllers, it was not passed. No audit of the Fed has ever been made.
WHY HAVEN'T THEY TOLD YOU? Why haven't they told you about this scandal - the greatest fraud in history which has caused Americans and others to spill oceans of blood, pay trillions of dollars interest on fraudulent loans and burden themselves with unnecessary taxes?
Who are "they"? "They" are most of the politicians of the two old parties and elected officials. Most "educational" groups like the League of Women Voters, the Heritage Foundation and the American Civil Liberties Union (ACLU). All mainstream news services, such as the Associated Press and the United Press International. All mainstream daily newspapers, including the New York Times and Los Angeles Times. All mainstream weekly "news" magazines, such as "Time" and "Newsweek." All of the above and more have been hiding the truth from you.
What Some Learned Men Have Said About the Money Question
ALAN GREENSPAN: "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
PRESIDENT THOMAS JEFFERSON: "The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction… I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity… is but swindling futurity on a large scale."
PRESIDENT JAMES A. GARFIELD: "Whoever controls the volume of money in any country is absolute master of all industry and commerce".
CONGRESSMAN LOUIS McFADDEN: "The Federal Reserve(Banks) are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this Nation is run by the International Bankers".
HORACE GREELEY: "While boasting of our noble deeds were careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery.
THOMAS A. EDISON: "People who will not turn a shovel full of dirt on the project (Muscle Shoals Dam) nor contribute a pound of material, will collect more money from the United States than will the People who supply all the material and do all the work. This is the terrible thing about interest …But here is the point: If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People."
PRESIDENT WOODROW WILSON: "A great industrial Nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the Nation and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the world - no longer a Government of free opinion no longer a Government by conviction and vote of the majority, but a Government by the opinion and duress of small groups of dominant men". (Just before he died, Wilson is reported to have stated to friends that he had been "deceived" and that "I have betrayed my Country". He referred to the Federal Reserve Act passed during his Presidency.)
SIR JOSIAH STAMP, (President of the Bank of England in the 1920's, the second richest man in Britain): "Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits".
MAJOR L .L. B. ANGUS: "The modern Banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banks can in fact inflate, mint and unmint the modern ledger-entry currency".
RALPH M. HAWTREY: (Former Secretary of the British Treasury): "Banks lend by creating credit. They create the means of payment out of nothing".
ROBERT HEMPHILL: (Credit Manager of Federal Reserve Bank, Atlanta, Ga.): "This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon".
The Mandrake MechanismChapter 10 of The Creature from Jekyll Island
G. Edward Griffin
Posted at Bull Not Bull on February 9, 2006.
Editor's note: This is an excellent book, one that I highly recommend. It is available for purchase from Mr. Griffin's website: realityzone.com/
*******THE MANDRAKE MECHANISM . . . The method by which the Federal Reserve creates money out of nothing; the concept of usury as the payment of interest on pretended loans; the true cause of the hidden tax called inflation; the way in which the Fed creates boom-bust cycles.
In the 1940s, there was a comic strip character called Mandrake the Magician. His specialty was creating things out of nothing and, when appropriate, to make them disappear back into that same void. It is fitting, therefore, that the process to be described in this section should be named in his honor.
In the previous chapters, we examined the technique developed by the political and monetary scientists to create money out of nothing for the purpose of lending. This is not an entirely accurate description because it implies that money is created first and then waits for someone to borrow it.
On the other hand, textbooks on banking often state that money is created out of debt. This also is misleading because it implies that debt exists first and then is converted into money. In truth, money is not created until the instant it is borrowed. It is the act of borrowing which causes it to spring into existence. And, incidentally, it is the act of paying off the debt that causes it to vanish. There is no short phrase that perfectly describes that process. So, until one is invented along the way, we shall continue using the phrase "create money out of nothing" and occasionally add "for the purpose of lending" where necessary to further clarify the meaning.
So, let us now . . . see just how far this money/debt-creation process has been carried -- and how it works.
The first fact that needs to be considered is that our money today has no gold or silver behind it whatsoever. The fraction is not 54% nor 15%. It is 0%. It has traveled the path of all previous fractional money in history and already has degenerated into pure fiat money. The fact that most of it is in the form of checkbook balances rather than paper currency is a mere technicality; and the fact that bankers speak about "reserve ratios" is eyewash. The so-called reserves to which they refer are, in fact, Treasury bonds and other certificates of debt.
Our money is "pure fiat" through and through.
The second fact that needs to be clearly understood is that, in spite of the technical jargon and seemingly complicated procedures, the actual mechanism by which the Federal Reserve creates money is quite simple. They do it exactly the same way the goldsmiths of old did except, of course, the goldsmiths were limited by the need to hold some precious metals in reserve, whereas the Fed has no such restriction.
THE FEDERAL RESERVE IS CANDID
The Federal Reserve itself is amazingly frank about this process. A booklet published by the Federal Reserve Bank of New York tells us: "Currency cannot be redeemed, or exchanged, for Treasury gold or any other asset used as backing. The question of just what assets 'back' Federal Reserve notes has little but bookkeeping significance."
Elsewhere in the same publication we are told: "Banks are creating money based on a borrower's promise to pay (the IOU) . . . Banks create money by 'monetizing' the private debts of businesses and individuals."
In a booklet entitled Modern Money Mechanics, the Federal Reserve Bank of Chicago says:
In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper. Deposits are merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face amount.
What, then, makes these instruments -- checks, paper money, and coins -- acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and real goods and services whenever they choose to do so. This partly is a matter of law; currency has been designated "legal tender" by the government -- that is, it must be accepted.
In the fine print of a footnote in a bulletin of the Federal Reserve Bank of St. Louis, we find this surprisingly candid explanation:
Modern monetary systems have a fiat base -- literally money by decree -- with depository institutions, acting as fiduciaries, creating obligations against themselves with the fiat base acting in part as reserves. The decree appears on the currency notes: "This note is legal tender for all debts, public and private." While no individual could refuse to accept such money for debt repayment, exchange contracts could easily be composed to thwart its use in everyday commerce. However, a forceful explanation as to why money is accepted is that the federal government requires it as payment for tax liabilities. Anticipation of the need to clear this debt creates a demand for the pure fiat dollars.
MONEY WOULD VANISH WITHOUT DEBT
It is difficult for Americans to come to grips with the fact that their total money-supply is backed by nothing but debt, and it is even more mind boggling to visualize that, if everyone paid back all that was borrowed, there would be no money left in existence.
That's right, there would not be one penny in circulation -- all coins and all paper currency would be returned to bank vaults -- and there would be not one dollar in any one's checking account. In short, all money would disappear.
Marriner Eccles was the Governor of the Federal Reserve System in 1941. On September 30 of that year, Eccles was asked to give testimony before the House Committee on Banking and Currency. The purpose of the hearing was to obtain information regarding the role of the Federal Reserve in creating conditions that led to the depression of the 1930s.
Congressman Wright Patman, who was Chairman of that committee, asked how the Fed got the money to purchase two billion dollars worth of government bonds in 1933. This is the exchange that followed.
Eccles: We created it.
Patman: Out of what?
Eccles: Out of the right to issue credit money.
Patman: And there is nothing behind it, is there, except our government's credit?
Eccles: That is what our money system is. If there were no debts in our money system, there wouldn't be any money.
It must be realized that, while money may represent an asset to selected individuals, when it is considered as an aggregate of the total money supply, it is not an asset at all. A man who borrows $1,000 may think that he has increased his financial position by that amount but he has not. His $1,000 cash asset is offset by his $1,000 loan liability, and his net position is zero. Bank accounts are exactly the same on a larger scale. Add up all the bank accounts in the nation, and it would be easy to assume that all that money represents a gigantic pool of assets which support the economy. Yet, every bit of this money is owed by someone. Some will owe nothing. Others will owe many times what they possess. All added together, the national balance is zero. What we think is money is but a grand illusion. The reality is debt.
Robert Hemphill was the Credit Manager of the Federal Reserve Bank in Atlanta. In the foreword to a book by Irving Fisher, entitled 100% Money, Hemphill said this:
If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible -- but there it is.
With the knowledge that money in America is based on debt, it should not come as a surprise to learn that the Federal Reserve System is not the least interested in seeing a reduction in debt in this country, regardless of public utterances to the contrary. Here is the bottom line from the System's own publications. The Federal Reserve Bank of Philadelphia says:
"A large and growing number of analysts, on the other hand, now regard the national debt as something useful, if not an actual blessing . . . [They believe] the national debt need not be reduced at all."
The Federal Reserve Bank of Chicago adds: "Debt -- public and private -- is here to stay. It plays an essential role in economic processes . . . What is required is not the abolition of debt, but its prudent use and intelligent management."
WHAT'S WRONG WITH A LITTLE DEBT?
There is a kind of fascinating appeal to this theory. It gives those who expound it an aura of intellectualism, the appearance of being able to grasp a complex economic principle that is beyond the comprehension of mere mortals. And, for the less academically minded, it offers the comfort of at least sounding moderate. After all, what's wrong with a little debt, prudently used and intelligently managed? The answer is nothing, provided the debt is based on an honest transaction. There is plenty wrong with it if it is "based upon fraud".
An honest transaction is one in which a borrower pays an agreed upon sum in return for the temporary use of a lender's asset. That asset could be anything of tangible value. If it were an automobile, for example, then the borrower would pay "rent." If it is money, then the rent is called "interest." Either way, the concept is the same.
When we go to a lender -- either a bank or a private party -- and receive a loan of money, we are willing to pay interest on the loan in recognition of the fact that the money we are borrowing is an asset which we want to use. It seems only fair to pay a rental fee for that asset to the person who owns it. It is not easy to acquire an automobile, and it is not easy to acquire money -- real money, that is. If the money we are borrowing was earned by someone's labor and talent, they are fully entitled to receive interest on it. But what are we to think of money that is created by the mere stroke of a pen or the click of a computer key? Why should anyone collect a rental fee on that?
When banks place credits into your checking account, they are merely pretending to lend you money. In reality, they have nothing to lend. Even the money that non-indebted depositors have placed with them was originally created out of nothing in response to someone else's loan. So what entitles the banks to collect rent on nothing? It is immaterial that men everywhere are forced by law to accept these nothing certificates in exchange for real goods and services. We are talking here, not about what is legal, but what is moral. As Thomas Jefferson observed at the time of his protracted battle against central banking in the United States, "No one has a natural right to the trade of money lender, but he who has money to lend."
THIRD REASON TO ABOLISH THE SYSTEM (see the book for all seven reasons)
Centuries ago, usury was defined as any interest charged for a loan. Modern usage has redefined it as excessive interest. Certainly, any amount of interest charged for a pretended loan is excessive. The dictionary, therefore, needs a new definition. Usury: The charging of any interest on a loan of fiat money.
Let us, therefore, look at debt and interest in this light. Thomas Edison summed up the immorality of the system when he said:
People who will not turn a shovel of dirt on the project [Muscle Shoals] nor contribute a pound of materials will collect more money . . . than will the people who will supply all the materials and do all the work.
Is that an exaggeration? Let us consider the purchase of a $100,000 home in which $30,000 represents the cost of the land, architect's fee, sales commissions, building permits, and that sort of thing and $70,000 is the cost of labor and building materials. If the home buyer puts up $30,000 as a down payment, then $70,000 must be borrowed. If the loan is issued at 11% over a 30-year period, the amount of interest paid will be $167,806. That means the amount paid to those who loan the money is about 2 1/2 times greater than paid to those who provide all the labor and all the materials. It is true that this figure represents the time-value of that money over thirty years and easily could be justified on the basis that a lender deserves to be compensated for surrendering the use of his capital for half a lifetime. But that assumes the lender actually had something to surrender, that he had earned the capital, saved it, and then loaned it for construction of someone else's house. What are we to think, however, about a lender who did nothing to earn the money, had not saved it, and, in fact, simply created it out of thin air? What is the time-value of nothing?
As we have already shown, every dollar that exists today, either in the form of currency, checkbook money, or even credit card money -- in other words, our entire money supply -- exists only because it was borrowed by someone; perhaps not you, but someone.
That means all the American dollars in the entire world are earning daily and compounding interest for the banks which created them. A portion of every business venture, every investment, every profit, every transaction which involves money -- and that even includes losses and the payment of taxes -- a portion of all that is earmarked as payment to a bank.
And what did the banks do to earn this perpetually flowing river of wealth? Did they lend out their own capital obtained through investment of stockholders? Did they lend out the hard-earned savings of their depositors? No, neither of these were their major source of income. They simply waved the magic wand called fiat money.
The flow of such unearned wealth under the guise of interest can only be viewed as usury of the highest magnitude. Even if there were no other reasons to abolish the Fed, the fact that it is the supreme instrument of usury would be more than sufficient by itself.
WHO CREATES THE MONEY TO PAY THE INTEREST?
One of the most perplexing questions associated with this process is "Where does the money come from to pay the interest?" If you borrow $10,000 from a bank at 9%, you owe $10,900. But the bank only manufactures $10,000 for the loan. It would seem, therefore, that there is no way that you -- and all others with similar loans -- can possibly pay off your indebtedness. The amount of money put into circulation just isn't enough to cover the total debt, including interest. This has led some to the conclusion that it is necessary for you to borrow the $900 for interest, and that, in turn, leads to still more interest. The assumption is that, the more we borrow, the more we have to borrow, and that debt based on fiat money is a never ending spiral leading inexorably to more and more debt.
This is a partial truth. It is true that there is not enough money created to include the interest, but it is a fallacy that the only way to pay it back is to borrow still more. The assumption fails to take into account the exchange value of labor. Let us assume that you pay back your $10,000 loan at the rate of approximately $900 per month and that about $80 of that represents interest. You realize you are hard pressed to make your payments so you decide to take on a part-time job.
The bank, on the other hand, is now making $80 profit each month on your loan. Since this amount is classified as "interest," it is not extinguished as is the larger portion which is a return of the loan itself. So this remains as spendable money in the account of the bank. The decision then is made to have the bank's floors waxed once a week. You respond to the ad in the paper and are hired at $80 per month to do the job. The result is that you earn the money to pay the interest on your loan, and -- this is the point -- the money you receive is the same money which you previously had paid. As long as you perform labor for the bank each month, the same dollars go into the bank as interest, then out of the revolving door as your wages, and then back into the bank as loan repayment.
It is not necessary that you work directly for the bank. No matter where you earn the money, its origin was a bank and its ultimate destination is a bank. The loop through which it travels can be large or small, but the fact remains all interest is paid eventually by human effort. And the significance of that fact is even more startling than the assumption that not enough money is created to pay back the interest. It is that the total of this human effort ultimately is for the benefit of those who create fiat money.
It is a form of modern serfdom in which the great mass of society works as indentured servants to a ruling class of financial nobility.
UNDERSTANDING THE ILLUSION
That's really all one needs to know about the operation of the banking cartel under the protection of the Federal Reserve. But it would be a shame to stop here without taking a look at the actual cogs, mirrors, and pulleys that make the magical mechanism work. It is a truly fascinating engine of mystery and deception.
Let us, therefore, turn our attention to the actual process by which the magicians create the illusion of modern money. First we shall stand back for a general view to see the overall action.
Then we shall move in closer and examine each component in detail.
THE MANDRAKE MECHANISM: AN OVERVIEW:
The entire function of this machine is to convert debt into money. It's just that simple. First, the Fed takes all the government bonds which the public does not buy and writes a check to Congress in exchange for them. (It acquires other debt obligations as well, but government bonds comprise most of its inventory.) There is no money to back up this check. These fiat dollars are created on the spot for that purpose. By calling those bonds "reserves," the Fed then uses them as the base for creating nine (9) additional dollars for every dollar created for the bonds themselves. The money created for the bonds is spent by the government, whereas the money created on top of those bonds is the source of all the bank loans made to the nation's businesses and individuals. The result of this process is the same as creating money on a printing press, but the illusion is based on an accounting trick rather than a printing trick.
The bottom line is that Congress and the banking cartel have entered into a partnership in which the cartel has the privilege of collecting interest on money which it creates out of nothing, a perpetual override on every American dollar that exists in the world.
Congress, on the other hand, has access to unlimited funding without having to tell the voters their taxes are being raised through the process of inflation. If you understand this paragraph, you understand the Federal Reserve System.
Now for a more detailed view. There are three general ways in which the Federal Reserve creates fiat money out of debt.
One is by making loans to the member banks through what is called the Discount Window.
The second is by purchasing Treasury bonds and other certificates of debt through what is called the Open Market Committee.
The third is by changing the so-called reserve ratio that member banks are required to hold. Each method is merely a different path to the same objective: taking IOUs and converting them into spendable money.
THE DISCOUNT WINDOW
The Discount Window is merely bankers' language for the loan window. When banks run short of money, the Federal Reserve stands ready as the "bankers' bank" to lend it. There are many reasons for them to need loans. Since they hold "reserves" of only about one or two per cent of their deposits in vault cash and eight or nine per cent in securities, their operating margin is extremely thin. It is common for them to experience temporary negative balances caused by unusual customer demand for cash or unusually large clusters of checks all clearing through other banks at the same time. Sometimes they make bad loans and, when these former "assets" are removed from their books, their "reserves" are also decreased and may, in fact, become negative. Finally, there is the profit motive. When banks borrow from the Federal Reserve at one interest rate and lend it out at a higher rate, there is an obvious advantage. But that is merely the beginning. When a bank borrows a dollar from the Fed, it becomes a one-dollar reserve.
Since the banks are required to keep reserves of only about ten per cent, they actually can loan up to nine dollars for each dollar borrowed.
Let's take a look at the math. Assume the bank receives $1 million from the Fed at a rate of 8%. The total annual cost, therefore, is $80,000 (.08 X $1,000,000). The bank treats the loan as a cash deposit, which means it becomes the basis for manufacturing an additional $9 million to be lent to its customers. If we assume that it lends that money at 11% interest, its gross return would be $990,000 (.11 X $9,000,000). Subtract from this the bank's cost of $80,000 plus an appropriate share of its overhead, and we have a net return of about $900,000. In other words, the bank borrows a million and can almost double it in one year. That's leverage! But don't forget the source of that leverage: the manufacture of another $9 million which is added to the nation's money supply.
THE OPEN MARKET OPERATION
The most important method used by the Federal Reserve for the creation of fiat money is the purchase and sale of securities on the open market. But, before jumping into this, a word of warning. Don't expect what follows to make any sense. Just be prepared to know that this is how they do it.
The trick lies in the use of words and phrases which have technical meanings quite different from what they imply to the average citizen. So keep your eye on the words. They are not meant to explain but to deceive. In spite of first appearances, the process is not complicated. It is just absurd.
THE MANDRAKE MECHANISM: A DETAILED VIEW
Start with . . .
The federal government adds ink to a piece of paper, creates impressive designs around the edges, and calls it a bond or Treasury note. It is merely a promise to pay a specified sum at a specified interest on a specified date. As we shall see in the following steps, this debt eventually becomes the foundation for almost the entire nation's money supply. In reality, the government has created cash, but it doesn't yet look like cash. To convert these IOUs into paper bills and checkbook money is the function of the Federal Reserve System. To bring about that transformation, the bond is given to the Fed where it is then classified as a . . .
An instrument of government debt is considered an asset because it is assumed the government will keep its promise to pay. This is based upon its ability to obtain whatever money it needs through taxation. Thus, the strength of this asset is the power to take back that which it gives. So the Federal Reserve now has an "asset" which can be used to offset a liability. It then creates this liability by adding ink to yet another piece of paper and exchanging that with the government in return for the asset. That second piece of paper is a . . .
FEDERAL RESERVE CHECK
There is no money in any account to cover this check. Anyone else doing that would be sent to prison. It is legal for the Fed, however, because Congress wants the money, and this is the easiest way to get it. (To raise taxes would be political suicide; to depend on the public to buy all the bonds would not be realistic, especially if interest rates are set artificially low; and to print very large quantities of currency would be obvious and controversial.) This way, the process is mysteriously wrapped up in the banking system. The end result, however, is the same as turning on government printing presses and simply manufacturing fiat money (money created by the order of government with nothing of tangible value backing it) to pay government expenses. Yet, in accounting terms, the books are said to be "balanced" because the liability of the money is offset by the "asset" of the IOU. The Federal Reserve check received by the government then is endorsed and sent back to one of the Federal Reserve banks where it now becomes a . . .
Once the Federal Reserve check has been deposited into the government's account, it is used to pay government expenses and, thus, is transformed into many . . .
These checks become the means by which the first wave of fiat money floods into the economy. Recipients now deposit them into their own bank accounts where they become . . .
COMMERCIAL BANK DEPOSITS
Commercial bank deposits immediately take on a split personality.
On the one hand, they are liabilities to the bank because they are owed back to the depositors. But, as long as they remain in the bank, they also are considered as assets because they are on hand. Once again, the books are balanced: the assets offset the liabilities. But the process does not stop there. Through the magic of fractional-reserve banking, the deposits are made to serve an additional and more lucrative purpose. To accomplish this, the on-hand deposits now become reclassified in the books and called . . .
Reserves for what? Are these for paying off depositors should they want to close out of their accounts? No. That's the lowly function they served when they were classified as mere assets. Now that they have been given the name of "reserves," they become the magic wand to materialize even larger amounts of fiat money. This is where the real action is: at the level of the commercial banks. Here's how it works. The banks are permitted by the Fed to hold as little as 10% of their deposits in "reserve." That means, if they receive deposits of $1 million from the first wave of fiat money created by the Fed, they have $900,000 more than they are required to keep on hand ($1 million less 10% reserve). In bankers' language, that $900,000 is called . . .
The word "excess" is a tip off that these so-called reserves have a special destiny. Now that they have been transmuted into an "excess," they are considered as available for lending. And so in due course these excess reserves are converted into . . .
But wait a minute. How can this money be loaned out when it is owned by the original depositors who are still free to write checks and spend it any time they wish? The answer is that, when the new loans are made, they are not made with the same money at all. They are made with brand new money created out of thin air for that purpose. The nation's money supply simply increases by ninety per cent of the bank's deposits. Furthermore, this new money is far more interesting to the banks than the old. The old money, which they received from depositors, requires them to pay out interest or perform services for the privilege of using it. But, with the new money, the banks collect interest, instead, which is not too bad considering it cost them nothing to make. Nor is that the end of the process. When this second wave of fiat money moves into the economy, it comes right back into the banking system, just as the first wave did, in the form of . . .
MORE COMMERCIAL BANK DEPOSITS
The process now repeats but with slightly smaller numbers each time around. What was a "loan" on Friday comes back into the bank as a "deposit" on Monday. The deposit then is reclassified as a "reserve" and ninety per cent of that becomes an "excess" reserve which, once again, is available for a new "loan." Thus, the $1 million of first wave fiat money gives birth to $900,000 in the second wave, and that gives birth to $810,000 in the third wave ($900,000 less 10% reserve). It takes about twenty-eight times through the revolving door of deposits becoming loans becoming deposits becoming more loans until the process plays itself out to the maximum effect, which is . .
BANK FIAT MONEY = UP TO 9 TIMES GOVERNMENT DEBT
The amount of fiat money created by the banking cartel is approximately nine times the amount of the original government debt which made the entire process possible. When the original debt itself is added to that figure, we finally have . . .
TOTAL FIAT MONEY = UP TO 10 TIMES GOVERNMENT
The total amount of fiat money created by the Federal Reserve and the commercial banks together is approximately ten times the amount of the underlying government debt. To the degree that this newly created money floods into the economy in excess of goods and services, it causes the purchasing power of all money, both old and new, to decline. Prices go up because the relative value of the money has gone down. The result is the same as if that purchasing power had been taken from us in taxes. The reality of this process, therefore, is that it is a . . .
HIDDEN TAX = UP TO 10 TIMES THE NATIONAL DEBT
Without realizing it, Americans have paid over the years, in addition to their federal income taxes and excise taxes, a completely hidden tax equal to many times the national debt! And that still is not the end of the process. Since our money supply is purely an arbitrary entity with nothing behind it except debt, its quantity can go down as well as up. When people are going deeper into debt, the nation's money supply expands and prices go up, but when they pay off their debts and refuse to renew, the money supply contracts and prices tumble. That is exactly what happens in times of economic or political uncertainty. This alternation between period of expansion and contraction of the money supply is the underlying cause of . . .
BOOMS, BUSTS, AND DEPRESSIONS
Who benefits from all of this? Certainly not the average citizen.
The only beneficiaries are the political scientists in Congress who enjoy the effect of unlimited revenue to perpetuate their power, and the monetary scientists within the banking cartel called the Federal Reserve System who have been able to harness the American people, without their knowing it, to the yoke of modern feudalism.
The previous figures are based on a "reserve" ratio of 10% (a money-expansion ratio of 10-to-1). It must be remembered, however, that this is purely arbitrary. Since the money is fiat with no previous-metal backing, there is no real limitation except what the politicians and money managers decide is expedient for the moment. Altering this ratio is the third way in which the Federal Reserve can influence the nation's supply of money. The numbers, therefore, must be considered as transient.
At any time there is a "need" for more money, the ratio can be increased to 20-to-1 or 50-to-1, or the pretense of a reserve can be dropped altogether. There is virtually no limit to the amount of fiat money that can be manufactured under the present system.
NATIONAL DEBT NOT NECESSARY FOR INFLATION
Because the Federal Reserve can be counted on to "monetize" (convert into money) virtually any amount of government debt, and because this process of expanding the money supply is the primary cause of inflation, it is tempting to jump to the conclusion that federal debt and inflation are but two aspects of the same phenomenon. This, however, is not necessarily true. It is quite possible to have either one without the other.
The banking cartel holds a monopoly in the manufacture of money. Consequently, money is created only when IOUs are "monetized" by the Fed or by commercial banks. When private individuals, corporations, or institutions purchase government bonds, they must use money they have previously earned and saved. In other words, no new money is created, because they are using funds that are already in existence. Therefore, the sale of government bonds to the banking system is inflationary, but when sold to the private sector, it is not. That is the primary reason the United States avoided massive inflation during the 1980s when the federal government was going into debt at a greater rate than ever before in its history. By keeping interest rates high, these bonds became attractive to private investors, including those in other countries. Very little new money was created, because most of the bonds were purchased with American dollars already in existence. This, of course, was a temporary fix at best.
Today, those bonds are continually maturing and are being replaced by still more bonds to include the original debt plus accumulated interest. Eventually this process must come to an end and, when it does, the Fed will have no choice but to literally buy back all the debt of the '80s -- that is, to replace all of the formerly invested private money with newly manufactured fiat money -- plus a great deal more to cover the interest. Then we will understand the meaning of inflation.
On the other side of the coin, the Federal Reserve has the option of manufacturing money even if the federal government does not go deeper into debt. For example, the huge expansion of the money supply leading up to the stock market crash in 1929 occurred at a time when the national debt was being paid off. In every year from 1920 through 1930, federal revenue exceeded expenses, and there were relatively few government bonds being offered. The massive inflation of the money supply was made possible by converting commercial bank loans into "reserves" at the Fed's discount window and by the Fed's purchase of banker's acceptances, which are commercial contracts for the purchase of goods.
Now the options are even greater. The Monetary Control Act of 1980 has made it possible for the Creature to monetize virtually any debt instrument, including IOUs from foreign governments. The apparent purpose of this legislation is to make it possible to bail out those governments which are having trouble paying the interest on their loans from American banks. When the Fed creates fiat American dollars to give foreign governments in exchange for their worthless bonds, the money path is slightly longer and more twisted, but the effect is similar to the purchase of U.S. Treasury Bonds. The newly created dollars go to the foreign governments, then to the American banks where they become cash reserves. Finally, they flow back into the U.S money pool (multiplied by nine) in the form of additional loans. The cost of the operation once again is born by the American citizen through the loss of purchasing power. Expansion of the money supply, therefore, and the inflation that follows, no longer even require federal deficits. As long as someone is willing to borrow American dollars, the cartel will have the option of creating those dollars specifically to purchase their bonds and, by so doing, continue to expand the money supply.
We must not forget, however, that one of the reasons the Fed was created in the first place was to make it possible for Congress to spend without the public knowing it was being taxed. Americans have shown an amazing indifference to this fleecing, explained undoubtedly by their lack of understanding of how the Mandrake Mechanism works. Consequently, at the present time, this cozy contract between the banking cartel and the politicians is in little danger of being altered. As a practical matter, therefore, even though the Fed may also create fiat money in exchange for commercial debt and for bonds of foreign governments, its major concern likely will be to continue supplying Congress.
The implications of this fact are mind boggling. Since our money supply, at present at least, is tied to the national debt, to pay off that debt would cause money to disappear. Even to seriously reduce it would cripple the economy. Therefore, as long as the Federal Reserve exists, America will be, must be, in debt. The purchase of bonds from other governments is accelerating in the present political climate of internationalism. Our own money supply increasingly is based upon their debt as well as ours, and they, too, will not be allowed to pay it off even if they are able.
TAXES NOT EVEN NECESSARY
It is a soberting thought that the federal government now could operate -- even at its current level of spending -- without levying any taxes whatsoever. All it has to do is create the required money through the Federal Reserve System by monetizing its own bonds. In fact, most of the money it now spends is obtained in that way.
If the idea of eliminating the IRS sounds like good news, remember that the inflation that results from monetizing the debt is just as much a tax as any other; but because it is hidden, and so few Americans understand how it works, it is more politically popular than a tax that is out in the open.
Inflation can be likened to a game of Monopoly in which the game’s banker has no limit to the amount of money he can distribute. With each throw of the dice he reaches under the table and brings up another stack of those paper tokens, which all the players must use as money. If the banker is also one of the players – and in our real world that is exactly the case – obviously he is going to end up owning all the property. But, in the meantime, the increasing flood of money swirls out from the banker and engulfs the players. As the quantity of money becomes greater, the relative worth of each token becomes less, and the prices bid for the properties goes up. The game is called monopoly for a reason. In the end, one person holds all the property and everyone else is bankrupt. But what does it matter? It is only a game.
Unfortunately, it is not a game in the real world. It is our livelihood, our food, and our shelter. It does make a difference if there is only one winner, and it makes a big difference if that winner obtained his monopoly simply by manufacturing everyone’s money.
FOURTH REASON TO ABOLISH THE SYSTEM
Make no mistake about it, inflation is a tax. Furthermore, it is the most unfair tax of them all because it falls most heavily upon those who are thrifty, those on fixed incomes, and those in the middle and lower income tax brackets. The important point here is that this hidden tax would be impossible without fiat money. Fiat money in America is created solely as a result of the Federal Reserve System. Therefore, it is totally accurate to say that the Federal Reserve System guarantees the most unfair tax of all. Both the tax and the System that makes it possible should be abolished.
The political scientists who authorize this process of monetizing the national debt, and the monetary scientists who carry it out, know that it is not true debt. It is not true debt, because no one in Washington expects to repay it – ever. The dual purpose of this magic show is simply to create free spending money for the politicians, without the inconvenience of raising direct taxes, and also to generate a perpetual river of gold flowing into the banking cartel. The partnership is merely looking out for itself.
Why, then, does the federal government bother with taxes at all? Why not just operate on monetized debt? The answer is twofold. First, if it did, people would begin to wonder about the source of the money, and that might cause them to wake up to the reality that inflation is a tax. Thus, open taxes at some level serve to perpetuate public ignorance, which is essential to the scheme. Thus, open taxes at some level serve to perpetuate public ignorance, which is essential to the success of the scheme. The second reason is that taxes, particularly progressive taxes, are weapons by which elitist social planners can wage war on the middle class.
EXPANSION LEADS TO CONTRACTION
While it is true that the Mandrake Mechanism is responsible for the expansion of the money supply, the process also works in reverse. Just as money is created when the Federal Reserve purchases bonds or other debt instruments, it is extinguished by the sale of those same items. When they are sold, the money is given back to the System and disappears into the inkwell or computer chip from which it came. Then, the same secondary ripple effect that created money through the commercial banking system causes it to be withdrawn from the economy. Furthermore, even if the Federal Reserve does not deliberately contract the money supply, the same result can and often does occur when the public decides to resist the availability of credit and reduce its debt. A man can only be tempted to borrow, he cannot be forced to do so.
There are many psychological factors involved in a decision to go into debt that can offset the easy availability of money and a low interest rate: A downturn in the economy, the threat of civil disorder, the fear of pending war, an uncertain political climate, to name just a few. Even though the Fed may try to pump money into the economy by making it abundantly available, the public can thwart that move simply by saying no, thank you. When this happens, the old debts that are being paid off are not replaced by new ones to take their place, and the entire amount of consumer and business debt will shrink. That means the money supply also will shrink, because, in modern America, debt is money. And it is this very expansion and contraction of the monetary pool -- a phenomenon that could not occur if based upon the laws of supply and demand -- that is at the very core of practically every boom and bust that has plagued mankind throughout history.
In conclusion, it can be said that modern money is a grand illusion conjured by the magicians of finance in politics. We are living in an age of fiat money, and it is sobering to realize that every previous nation in history that has adopted such money eventually was economically destroyed by it. Furthermore, there is nothing in our present monetary structure that offers any assurances that we may be exempted from that morbid roll call.
Correction. There is one. It is still within the power of Congress to abolish the Federal Reserve System.
The American dollar has no intrinsic value. It is a classic example of fiat money with no limit to the quantity that can be produced. Its primary value lies in the willingness of people to accept it and, to that end, legal tender laws require them to do so.
It is true that our money is created out of nothing, but it is more accurate to say that it is based upon debt. In one sense, therefore, our money is created out of less than nothing. The entire money supply would vanish into the bank vaults and computer chips if all debts were repaid.
Under the present System, therefore, our leaders cannot allow a serious reduction in either the national or consumer debt. Charging interest on pretended loans is usury, and that has become institutionalized under the Federal Reserve System.
The Mandrake Mechanism by which the Fed converts debt into money may seem complicated at first, but it is simple if one remembers that the process is not intended to be logical but to confuse and deceive. The end product of the Mechanism is artificial expansion of the money supply, which is the root cause of the hidden tax called inflation.
This expansion then leads to contraction and, together, they produce the destructive boom-bust cycle that has plagued mankind throughout history wherever fiat money has existed.
The Federal Reserve Bank is Not a Government Agency
30 June 2007
Another Look at the Federal Reserve!
02 April 2011
G. Edward Griffin Tells It Like It Is!
04 August 2009
G. Edward Griffin - The Creature from Jekyll Island
05 August 2009
Money is Also Destroyed
by Michael Nystrom, MBA
July 20, 2007
If money can be created from thin air, the opposite is also true: it can be destroyed as well. Usually it is the Federal Reserve System that does the creating, but the destruction comes by other means. Bear Stearns’ hedge fund investors have found this out the hard way. Two of its funds recently went belly up, taking 100% of investors’ capital with them. One of the funds, the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage fund, reported $638 million of investor capital in the first quarter. Today nothing remains.
How can money so quickly and effectively be destroyed? To understand this, we have to understand how the money was created in the first place. According to news reports, the underlying securities in the hedge fund in question were subprime mortgages.
Mr. Jones Takes out a Sub Prime Loan
Let’s say it’s 2003, and Mr. Jones, who has less than stellar credit wants to buy a house. He goes to the bank to get a mortgage. The conventional wisdom is that the bank loans him money so he can buy the house. In reality, Mr. Jones is actually borrowing the money from himself, -- or rather against his own future earnings. The bank simply facilitates the real estate transaction between him and the house seller. It does this by writing a note that says ‘we’ve loaned Mr. Jones X dollars and he’s promised to pay us the money back over 30 years. We are holding his house as collateral until the money is paid back.’ This note is called the mortgage, and it becomes the bank’s asset. Under Federal Reserve rules, it can use this asset to create the money to pay the seller of the house.
In reality, the bank has no money, and the mortgage has value only because of Mr. Jones’s promise to pay back the money. As long as Mr. Jones’s promise is good, the mortgage will retain its value and the bank can sell it to another investor – for example a hedge fund.
The Hedge Fund Buys Mr. Jones’s Mortgage
The hedge fund bought thousands of mortgages like Mr. Jones’s, with the hope of collecting a steady stream of income as borrowers paid off their mortgages. That sounded like a good idea, and a solid bet. People traditionally are very good about paying their mortgages back. No one, after all, wants to lose their home. In fact, it sounded like great idea – so great in fact, that Bear Stearns took the $638 million of its investors money, borrowed $10 billion more, (yes, that is a b) and put it all into subprime mortgages.
Mr. Jones Defaults
As it turned out, Mr. Jones, and many more like him were unable to keep their promises to pay the money back. Maybe Mr. Jones lost his job in this terrible economy; maybe he got sick and couldn’t work; maybe he didn’t understand that his mortgage payment was going to jump to something he couldn’t afford; maybe he thought he could sell the house for more money, and never expected to hold on to it this long; maybe he just wasn’t a good credit risk to begin with.
Whatever the reason, Mr. Jones and millions like him had to break their promises about paying back the loans. In the end they’ll just give their keys back to the bank and say, “Thanks, but no thanks. I can’t afford it.”
The banks in turn will say, “Don’t give us the keys. We sold your mortgage a long time ago. We don’t even know who owns your mortgage now, and frankly we don’t care.”
Until now, his debt was an asset of the fund, and was being used as collateral against loans ten times its value. But the moment that Mr. Jones gave up on the idea of home ownership, the value of his mortgage simply disappeared. The paper asset, which derived its value from Mr. Jones’s promise, was destroyed. This had a cascading effect, since Mr. Jones’s mortgage was being used as collateral to borrow money to buy even more subprime mortgages, many of which were also defaulting. Assets purchased on borrowed money were now worthless. Only the debts remained, and suddenly there was more debt than the original amount that investors had put into the fund. These original funds would be needed repay the debts incurred by the fund. Nothing is left to return to investors. This is the process by which money is destroyed.
What about the houses, you ask? Yes, they have some value, but not nearly as much as when they were first purchased. Again, it was not the houses that had the value, it was Mr. Jones promise to pay a steady stream of high interest income over 30 years that was valuable to investors.
American Dream, Up in Smoke
Not only is the money gone, but so are the dreams of those millions of homeowners. The decision to purchase a home is not made lightly, and is usually accompanied by great hope and optimism. Defaults are the opposite. As the collective mood of millions of people like Mr. Jones, (not to mention the investors in the hedge funds who also lost everything) shifts from exuberance and optimism to negativity and pessimism, it is reflected in the larger economy as financial losses. This is a major aspect of the Wave Principle, which predicts tough times ahead.
Inflation and Deflation
The Federal Reserve System has systematically inflated the money supply since 1987, causing tremendous inflation. Along the way, money has also been destroyed, most memorably during the dot.com collapse of 2000-2003. This process of destruction is part of the reason why the economy has not experienced true hyperinflation.
In fact, a key point here is that the Fed is not really creating money, but credit. In truth, money is a physical commodity. Credit is simply the ability to buy something. Today credit functions as money, so it is difficult to tell the difference, but this was not, and will not always be the case.
If the Fed had actually printed bills (rather than made electronic book entries) for each dollar it created, those dollars would still be circulating in the economy and inflation would be much higher. As it is, the Fed can create credit, and those closest to the source of that credit creation – banks and government contractors – reap the greatest benefits. As the credit works its way through the system, it 1) causes general inflation, and 2) finds its way into weaker, less experienced hands – the likes of Mr. Jones and his subprime mortgage, or the average investor chasing internet stocks. In these weak hands, it can easily be manipulated to destruction.
Through this process of destruction, runaway money supply growth can be controlled. But if the destruction process gets out of hand, it is possible that we could see the reverse of what we have seen over the past twenty years – a prolonged period of sustained deflation. This could happen if people’s preference for assets over debt shifts along with the social mood. Recall that the value of paper assets is only as good as the promise standing behind them. Bear Stearns promise to investors rested on the promises of millions of people like Mr. Jones to continue paying their mortgages. Its not that they didn’t want to pay; economic conditions and the way the mortgages were written made sure that they couldn’t. If people like Mr. Jones become unwilling or unable to borrow, and if hedge fund investors who lost everything become to skittish about borrowing, the Fed will have a more difficult time increasing the money supply, since all credit creation today comes via debt creation.
The most recent issue of the Elliott Wave Financial Forecast, which remains a steadfast proponent of deflation, (available here, sign in required) made this observation earlier this month:
“When Merrill Lynch announced that it planned to sell the securities in [the Bear Stearns hedge fund] on the open market, Bloomberg reported that the “threat is sending shudders across Wall Street.” Why? “A sale would give banks, brokerages and investors the one thing they want to avoid: a real price on the bonds in the fund that could serve as a benchmark.”
Later that day, Merrill decided against an open market sale. Retuters described the episode this way: “If word of the exact nature of the losses became public, it would have forced many other funds to revalue their holding and perhaps lose money, setting off a domino effect that could rattle markets globally.”
How much value, based on how many broken promises, has already been lost but not yet revealed? As long as financial prices rise (as they have continued to recently) no one is interested in such questions. But in the end, an ever inflating money supply is simply unsustainable. Money must also be destroyed to maintain equilibrium.
In his most recent testimony before Congress, Chairman Bernanke reiterated that inflation is the Fed’s foremost concern. For the time being, the Fed is holding interest rates steady. If it can hold the line, and allow the market to continue on its destructive path, inflation can be contained. The risk is that the destruction gets out of hand, and becomes full blown deflation.*******
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