-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- This part and the preceding two parts can be found in http://www.badgersden.com/ra/rafiles/fedhist.htm Why the U.S. Now Borrows Its Own Currency and Pays interest on It The second fallacy in the whole Federal Reserve System is the fact that the private banks which own the stock in the Federal Reserve System, charge the United States interest for borrowing the country's own currency! The Federal Reserve scheme not only provides that all U.S. currency shall be printed up as Federal Reserve Notes but that if the government wants to use these notes it must give the Federal Reserve IOU's in the form of government bonds on which interest will be paid until the bonds have been redeemed. The question immediately arises, "Well, what did the banks loan to the government in exchange for these bonds?" The answer is, "Nothing, absolute ly nothing." The banks paid for the printing of their Federal Reserve notes and gave them to us, but they are not redeemable in gold, silver or anything else of value. They are just paper, backed by virtually nothing. The question next arises, "Then why are they able to charge us interest when all they are doing is printing up some of our own currency?" The answer is that in 1913 the Congress gave the Federal Reserve the legal "right" to print our money and that right is "as good as gold." Therefore, if we want to use the Fed's money, we have to borrow it and give the m Fed IOU's, for the amount obtained. And, of course, each IOU (government bond) is something on which interest must be paid. This whole arrangement is so totally irrational that the chairman of the Banking and Currency committee, Congressman Wright Patman, asked Marriner Eccles, Chairman of the Federal Reserve Board, the following: "Mr. Eccles, how did you get the money to buy these two billion dollars of government bonds? Mr. Eccles: "We created it." Mr. Patman: "Out of what?" Mr. Eccles: "Out of the right to create credit money. Lincoln Denounces This Second Fallacy in Government Financing Since it is the Government's right to create money in the first place, why should it have to borrow its own money from the Federal Reserve Banks and give interest-bearing bonds or IOU's in exchange for the money? Lincoln said: "Government possessing the power to create and issue currency and credit as money and enjoying the right to withdraw both currency and credit from circulation by taxation or otherwise, need not and should not borrow capital at interest as the means of financing governmental work and public enterprises. The government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government's greatest creative opportunity." (H.S. Kenan, Federal Reserve Bank, 1967 ed. rev. pp. 187-8.) By creating and issuing its own money, Lincoln said the people could avoid a national "debt" economy which bankers instinctively promote. By creating their own money, "The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be master and become the servant of humanity. Democracy will rise superior to the money power." (Ibid. p. 188.) The Third Fallacy of the Federal Reserve is "Fractional" Banking Fractional banking was invented in Europe around four hundred years ago. It allows a bank to set up a "reserve" to cover any claims which happen to come in and then go ahead and loan many times more money on credit than the "reserve" in the bank. By this means the bank loans out and charges interest on something it doesn't even have. With everybody else it is a fraud to loan, rent or sell something which does not exist. Fractional banking should have been outlawed 200 years ago. One of the most dangerous devices employed by the Federal Reserve under fractional banking, is its power to bounce the level of required reserves up and down so as to control the money supply and the interest rates. The Congress which passed the Federal Reserve Act assumed that this would be done in the interest of the public, but as we shall see later, the very opposite occurred. Promises of the Federal Reserve Turned Out to be Pie-Crusts Made to be Broken As mentioned earlier, the original promises of the Federal Reserve promoters were so glorious that it seemed it would be the height of stupidity to turn down such a marvelous opportunity, the Constitution to the contrary notwithstanding. All the Federal Reserve wanted was the privilege of printing the nation's currency and serving as the government's bank. In exchange for this great privilege, the following promises were made: 1. The Federal Reserve promised to operate entirely under the direction and control of the President and his appointees to the Board of Governors. The Fed escaped from this control almost immediately. It has so much influence in Congress that over 200 amendments were added to the original Act, and these gradually altered the entire statutory profile of the Act. Even the Secretary of the Treasury and the Comptroller of Currency were eliminated from its Board of Governors. Hundreds of times the Fed has defiantly acted against the interests of the American people and made billion-dollar decisions favorable to its banker stockholders. In these cases, the President and the Congress found themselves helpless and unable to intervene. The Chairman of the Board, Marriner Eccies, admitted this to the head of the Banking and Currency Committee of the House. When Mr. Eccles was asked if the Federal Reserve had more power than either the Congress or the President, Mr. Eccles replied: "In the field of money and credit, yes." (Joint Economic Committee Report, 1962, p. 525, quoted by Kenan, p. 192.) Fed Pays Nothing for the Right to Print Money 2. Section 16 of the Act provided that the Federal Reserve would pay the Government interest for the privilege of printing Federal Reserve notes as the nation's currency. However, the Act left this to the discretion of the Board of Governors who elected from the beginning to pay the government zero interest for this right to manufacture the nation's money. No legal remedy to enforce this section is available. Failure to Provide Free Banking Services 3. The Fed promised to perform many banking services for the Government free of charge, but in spite of this provision it began charging for its services right from the start. Wright Patman, Chairman of the House Banking and Currency Committee asked Mr. Eccles: "Wasn't it intended when the Federal Reserve Act was passed that the Federal Reserve Bank would render this service without charge-since under the Act the Government would give them the use of Government's credit free?" Mr. Eccles seemed shocked an d replied, "I wouldn't think so!" Failure to Stabilize the Dollar 4. It was promised that the Federal Reserve would manage the nation's money supply so that the American dollar would be protected and remain stab le so as to keep prices relatively stable. The Federal Reserve stockholders are now known to have manipulated the dollar until today its purchasing power is not worth more than ten cents of what it was when the Federal Reserve took over. The Federal Reserve was behind the legislation which took the nation off the gold standard and used its lobby in Congress to force the bill through without a hearing. Later it removed the nation from what was left of the silver standard and has since been found maneuvering behind the scenes in an attempt to get the dollar replaced with some kind of international money. Failure to Eliminate the Control of Wall Street 5. It was promised that the Federal Reserve Act would take the United States out from under the control of Wall Street. This was the biggest dece ption of all. The most powerful money trusts on Wall Street were the ones behind the passage of the bill and it was their money-managers who took over the Federal Reserve System as soon as the Act went into operation. During debates in the House, Congressman Charles Lindbergh, father of the famous Atlantic non-stop flyer, declared, "This Act establishes the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized... The worst legislative crime of the age is perpetrated by this banking and currency bill. The caucus of the party bosses have again operated and prevented the people from getting the benefits of their own government." (Kenan, p. 137.) Failure to Forestall Depressions 6. It was promised that the Federal Reserve would prevent any future depressions. Now it is known that the Federal Reserve deliberately engineered and prolonged the worst depression in the history of the United States. As the well-known economist, Dr. Milton Friedman, states in his text, Capitalism and Freedom: "I am myself persuaded, on the basis of extensive study of the historical evidence, that ... the severity of each of the contractions [depressions] --1920-21; 1929-33, and 1937-38 -- is directly attributable to acts of commission and omission by the Reserve authorities and would not have occurred under earlier monetary and banking arrangements." (p. 45.) Failure to Serve the Farmer and Small Business 7. The promise was made that the Federal Reserve would be the friend and helper of the farmer and the monetary needs of small businesses. The Fed so completely failed in this promise that entirely new lending agencies had to be created by Congress to help the farmers and small businessmen. Furthermore, the Federal Reserve used its power in 1920 to deliberately manipulate the economy to produce an agriculture collapse. This caused tens of thousands of farmers to lose their farms. (Kenan, p. 128.) Failure to Decentralize Banking 8. The promise was made that the new system would forever remain decentralized so that the Federal Reserve Bank in San Francisco would have as much to say about monetary policies as New York. This proved fallacious from the first year of operation. The centralized money market in the United States is in New York and the New York Federal Reserve Bank has dominated the other eleven districts to the point where the latter are usually not even consulted when decisions are made by the Open Market Committee. Foreign Entanglements 9. The promise was made that the Federal Reserve would protect American interests against foreign monetary assaults. Studies show that the privately-owned money-trust which set up the Federal Reserve System is riddled with foreign entanglements. It operates European branch banks and was found to have drained off billions in American resources to underwrite its interests abroad. In the midst of the depression, Congressman Louis T. McFadden of Pennsylvania, declared: "Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and th e Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of the United States and the people of the United States out of enough money to pay the Nation's debt.... The wealth of these Unite d States and the working capital have been taken away from them and has either been locked in the vaults of certain banks and the great corporatio ns or exported to foreign countries for the benefit of foreign customers of these banks and corporations. So far as the people of the United States are concerned, the cupboard is bare." (Congressman Louis T. McFadden on the Federal Reserve, Forum Pub. Co., Boston, p. 3. 26.) Domestic Commercial Banks at the Mercy of the Federal Reserve 10. The Federal Reserve System was specifically committed to supervising and inspecting the local banks and also providing funds in case they were pressed by unexpected demands for payment. It was recognized that every time a bank is forced to close its doors the savings and deposits as well as the stock of the bank's investors and stockholders are lost. But ins tead of being its protector, the policies of the Federal Reserve frequently have been a nightmare to the neighborhood commercial bank with which most Americans are familiar. Thousands of them have been forced into bankruptcy by inconsistent and selfish policies imposed on them by the big money trusts operating out of New York and Europe. How the Federal Reserve System is structured The present structure of the Federal reserve consists of a Board of Seven Governors who serve 14 years with the term of one of the members expiri ng every two years. The new members of the Board are appointed by the President of the United States who also selects the Chairman. The original design was to have these 7 men represent the "public interest" as opposed to the special interest of the member banks. However, the chairman of the Board of Governors has nearly always been a prominent member of the banking community. Great pressure is also exerted from Wall Street to have sympathetic board members appointed by the President. The nation is divided into 12 Federal Reserve Districts with a Federal Reserve bank in each district and branch banks in major cities as needed. Local commercial banks which become part of the Federal Reserve System are called "member" banks. Each member bank is required to subscribe "stock " in the Federal Reserve bank. This amounts to 6% of its capital and surplus. Only 3% must be paid into the bank, but the remainder is subject to call if needed. The bank receives an interest payment of 6% per annum on its paid-up stock. Washington will tell the bank how much "reserve" it must maintain with the Federal Reserve but this will always be a small fraction of what the bank is allowed to loan out at interest. On occasion it may be allowed to loan out as much as thirty times more than what it has in reserves. Of course, by doing so, it may risk having a "run on the bank" by its depositors if they begin to suspect the soundness of the bank. In these instances, the Federal Reserve is supposed to come to the bank's rescue, but very often it has not. Thousands of banks have gone under in recent years with losses of hundreds of millions by its depositors. Each of the 12 District banks has a board of directors. Six are usually bankers and 3 are selected from the non-banking business sector. Four times a year each of the 12 Districts sends a representative to Washington to confer with the Board of Governors. These meetings are called the Federal Advisory Council but it is not really too significant. An important function of the Federal Reserve System is to provide clearing houses for collecting checks, notes, drafts, etc. This is not done by transferring currency but by simply adding and subtracting from the accounts of the various banks. Banks with a balance-owing send in the differen ce. The Board of Governors is also responsible for a large staff of bank inspectors to check the practices and lending policies of the members banks. The Board can suspend a bank from operation or remove the officers of any bank which are considered to be using unsound practices. The inspection and check clearing services of the Federal Reserve is one part of the system which is reported to be administered with dispatch and efficiency. The Real Center of Power is the Federal Open Market Committee When it comes to controlling the money supply, interest rates, and the purchase or sale of securities , the real foot on the throttle and toe on the brake belong to the Open Market Committee. It makes all of the important decisions and meets in Washington behind closed doors every three wee ks. The Open Market Committee consists of the 7 members of the Board of Governors and 5 of the Board chairmen selected from the 12 District Banks. One of these will always be the chairman of the New York Bank. The others rotate in turn. Although the chairman from all 12 Districts may attend the se meetings, only the 5 who serve on the Committee can vote. The Congress originally intended this powerful committee to be under the close supervision of the non-banking members of the Board of Governors, but it is recognized today that this is a strictly banking-fraternity comm ittee operating completely outside the control of the President, the Secretary of the Treasury, the Comptroller or the Congress. As of this point in time, the Open Market Committee operates just like any of the privatey-owned central banks of Europe. Dr. Milton Friedman, a most astute stude nt of the Federal Reserve, and also William Simon, former Secretary of the Treasury, consider this Open Market Committee a dangerous threat to the economic stability of the United States and recommend that it be terminated. There Has to Be a Better Way There is no doubt but what history has caught up with the Federal Reserve System. It has had disgraceful record almost from the moment it went in to operation. The Act unconstitutionally delegated. to a consortium of private bankers one of the most precious rights a nation possesses -- the right to manage their own system of money and credit. Under the policies of the Federal Reserve System national indebtedness has been encouraged, inflation has sky-rocketed, and the value of the American dollar has sunk so low that savings have been eaten up, fixed income s have become a dribble, and a once wealthy nation finds itself owing more than all the rest of the nations of the earth combined. Fortunately, there is a way out of all this. It was provided in the last section of the Act, section 30. It is time Americans began talking seriously about Section 30 of the Federal Reserve Act so that we can save what is left of the American economic heritage. In our next "Behind the Scenes" letter we will discuss this exciting possibility. It will be called, "Save the Dollar!" _________________________________________________________________________ #3 The Urgent Need for U.S. Monetary Reform Save the Dollar, Save the People Save the Banks! No issue is creating more turbulence in the minds of Americans today that our money system. Double-digit inflation, the crushing burden of public and private debts, harassment of confiscatory taxation, high interest rates, depleted savings, leaping prices, crippling strikes, increasing bank ruptcies, and serious social problems of vice, crime and divorce -- all these are closely related in one way or another to the nation's sick money system. Why Hasn't Something Been Done About It? The problem in the past has been the fact that too many politicians and economists have been trying to prevent the system from exploding by putting billion-dollar paper patches on the boiler. These billion-dollar patch es have been squeezed out of America's abused and exploited citizen-taxpayer. This has aggravated the problem rather than solved it. It is amazing that the experts haven't been willing to explore the possibility that someone in the past may have found the answer. Always there has been the search for some new, exotic formula, and always the search has centered around bigger spending and more government controls. All these efforts have been counter-productive and ended in failure. The Founding Fathers' Formula What is needed today is a more careful study and a far deeper appreciation of a formula which was worked out by the Founding Fathers over 200 years ago but was never used. Not at any time during the two centuries that this nation has been in existence have the people enjoyed the rich and abundant blessings of a sound, honest money system. At the Constitutional Convention, the Founders "set their faces like flint" and determined that they would make the American dollar completely in dependent of any power or combinations of powers outside of the American people. They therefore gave the exclusive power to issue and control money to the people's representatives --the Congress-- and forbade anybody, even the States, to meddle with it. Not only was Congress to be held responsible for the issue of money, but it was to see that its purchasing power remained fixed. !n other words, the "value" of the money must not only remain steady and reliable in the United States, but also in relation to foreign money. It is not difficult to imagine how different the monetary history of the United States might have been if this formula had been used. Why Wasn't the Founders' Formula Followed? It was extremely unfortunate that the new Constitution was inaugurated during the depths of a devastating depression. In fact, at that particular time the whole American money system was based on a sick, terribly bloated dollar that had developed during the Revolutionary War. George Washington knew that unless some healthy money were immediately introduced into the economic system, the new government would be discredited and find Its elf doomed to oblivion. It was a time of extreme desperation. Alexander Hamilton came up with a plan to monetize the nation's mammoth war debt by issuing bonds and selling them to private banks. He also urged the President and Congress to allow these bankers to temporarily (for 20 years) establish a private bank in the name of the United States and be responsible for the issuing of money, controlling the amount, fixing its value, and financing the United States government. It was this last factor which appealed to President Washington. There was, of course, no Constitutional authority to have the Federal Government set up such a bank, but Hamilton persuasively argued a theory of "implied powers" which has seriously damaged the whole concept of "limited" government ever since. Although the argument was sufficiently strong to impress Congress, Washington was uncomfortable with it. In fact, he was actually contemplating a veto of the Banking Act when Hamilton drew him aside and filled his mind with such glowing promises of stability and prosperity under this "temporary" expediency that Washington finally overrode his professional instinct as one of America's most successful farmers, and signed the bill. Jefferson later accused Hamilton of complicating the whole scheme with such elaborate trappings that it had confused the President. It turned out that Washington's original instructive anxieties concerning the dangers of the bill were fully justified. By 1798 even Hamilton admitted that the whole thing had been a serious mistake. He actually wrote a letter to Oliver Wolcott, the Secretary of the Treasury, urging that the United State s abandon the plan he had concocted and return to the original idea expressed at the Constitutional Convention. He wrote that the Government should "raise up a (money) circulation of its own" which would require, of course, that the Government no longer allow this important task of issuing money to be assigned to a private banking system. (Letter dated August 22, 1798, quote in Money Makers, by Gertrude Coogan, pp. 204-5) Private Money-Managers Prove Difficult to Dislodge However, once the vested interests of the powerful and wealthy money-managers had become thoroughly entrenched, it proved far more difficult to remove them than Hamilton had realized. As a result, for nearly 200 years mighty voices have been pleading with Americans to demand that Congress return to its Constitutional money system. But always to no avail. These pleas have been coming from men such as Jefferson, Madison, Jackson, Lincoln, Lindbergh, and McFadden. They have been like voices in the wilderness And because their voices went unheeded, a highly vulnerable and easily manipulated sick dollar has been employed ever since with all of its at tendant evils. The ultimate mistake, as we saw in our last discussion ("How the Federal Reserve System Works") was setting up a privately controlled central bank in 1913 under the pretense that it was a government controlled monetary service agency. What it actually did was to give to a consortium of private money-managers the power to issue money, control the money supply, regulate the interest rate (which controls the "value" of money) and indulge in the wildest kind of "fractional" banking wherein these money-managers were allowed to loan "at interest" billions of dollars they didn't even own. <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are not allowed. Substance—not soap-boxing! These are sordid matters and 'conspiracy theory'—with its many half-truths, misdirections and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. 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