July 3, 2007
from WebOfDebt Website
It has been called,
The creation of money has been privatized, usurped from Congress by a private banking cartel.
Most people think money is issued by fiat by the government, but that is not the case. Except for coins, which compose only about one one-thousandth of the total U.S. money supply, all of our money is now created by banks. Federal Reserve Notes (dollar bills) are issued by the Federal Reserve, a private banking corporation, and lent to the government.1
Moreover, Federal Reserve Notes and coins
together compose less than 3 percent of the money supply. The other 97
percent is created by commercial banks as loans.2
Defendant Jerome Daly opposed the bank's foreclosure on his $14,000 home mortgage loan on the ground that there was no consideration for the loan. "Consideration" ("the thing exchanged") is an essential element of a contract. Daly, an attorney representing himself, argued that the bank had put up no real money for his loan.
The courtroom proceedings were recorded by Associate Justice Bill Drexler, whose chief role, he said, was to keep order in a highly charged courtroom where the attorneys were threatening a fist fight. Drexler hadn't given much credence to the theory of the defense, until Mr. Morgan, the bank's president, took the stand.
To everyone's surprise, Morgan admitted that the bank routinely created money "out of thin air" for its loans, and that this was standard banking practice.
In his court memorandum, Justice Mahoney stated:
The court rejected the bank's claim for foreclosure, and the defendant kept his house.
To Daly, the implications were enormous. If bankers were indeed extending credit without consideration - without backing their loans with money they actually had in their vaults and were entitled to lend - a decision declaring their loans void could topple the power base of the world.
He wrote in a local news article:
Needless to say, however, the decision failed to change prevailing practice, although it was never overruled.
It was heard in a Justice of the Peace Court, an autonomous court system dating back to those frontier days when defendants had trouble traveling to big cities to respond to summonses. In that system (which has now been phased out), judges and courts were pretty much on their own. Justice Mahoney, who was not dependent on campaign financing or hamstrung by precedent, went so far as to threaten to prosecute and expose the bank. He died less than six months after the trial, in a mysterious accident that appeared to involve poisoning.4
Since that time, a number of defendants have attempted to avoid loan defaults using the defense Daly raised; but they have met with only limited success.
As one judge said off the record:
From time to time, however, the curtain has been lifted long enough for us to see behind it. A number of reputable authorities have attested to what is going on, including Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920s.
He declared in an address at the University of Texas in 1927:
Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta in the Great Depression, wrote in 1934:
Graham Towers, Governor of the Bank of Canada from 1935 to 1955, acknowledged:
Robert B. Anderson, Secretary of the Treasury under Eisenhower, said in an interview reported in the August 31, 1959 issue of U.S. News and World Report:
How did this scheme originate, and how has it
been concealed for so many years? To answer those questions, we need to go
back to the seventeenth century.
Coins were durable and had value in themselves, but they were hard to transport in bulk and could be stolen if not kept under lock and key. Many people therefore deposited their coins with the goldsmiths, who had the strongest safes in town. The goldsmiths issued convenient paper receipts that could be traded in place of the bulkier coins they represented.
These receipts were also used when people who
needed coins came to the goldsmiths for loans.
They thus created "paper money" (receipts for loans of gold) worth several times the gold they actually held. They typically issued notes and made loans in amounts that were four to five times their actual supply of gold.
At an interest rate of 20 percent, the same gold lent five times over produced a 100 percent return every year, on gold the goldsmiths did not actually own and could not legally lend at all. If they were careful not to overextend this "credit," the goldsmiths could thus become quite wealthy without producing anything of value themselves.
Since only the principal was lent into the money supply, more money was eventually owed back in principal and interest than the townspeople as a whole possessed.
They had to continually take out loans of new
paper money to cover the shortfall, causing the wealth of the town and
eventually of the country to be siphoned into the vaults of the
goldsmiths-turned-bankers, while the people fell progressively into their
But periodic runs on the banks when the customers all got suspicious and demanded their gold at the same time caused banks to go bankrupt and made the system unstable. In 1913, the private banknote system was therefore consolidated into a national banknote system under the Federal Reserve (or "Fed"), a privately-owned corporation given the right to issue Federal Reserve Notes and lend them to the U.S. government.
These notes, which were issued by the Fed
basically for the cost of printing them, came to form the basis of the
national money supply.
To prevent this alarming deflationary spiral from collapsing the money supply completely, in 1933 President Franklin Roosevelt took the dollar off the gold standard. Today the Federal Reserve still operates on the "fractional reserve" system, but its "reserves" consist of nothing but government bonds (I.O.U.s or debts).
The government issues bonds, the Federal Reserve
issues Federal Reserve Notes, and they basically swap stacks, leaving the
government in debt to a private banking corporation for money the government
could have issued itself, debt-free.
Why the Fed quit reporting it in March 2006 is suggested by John Williams in a website called "Shadow Government Statistics" (shadowstats.com), which shows that by the spring of 2007, M3 was growing at the astounding rate of 11.8 percent per year. Best not to publicize such figures too widely!
The question posed here, however, is this: where did all this new money come from?
The government did not step up its output of
coins, and no gold was added to the national money supply, since the
government went off the gold standard in 1933. This new money could only
have been created privately as "bank credit" advanced as loans.
But as noted earlier, the only money the U.S. government actually issues are coins. In countries in which the central bank has been nationalized, paper money may be issued by the government along with coins, but paper money still composes only a very small percentage of the money supply.
In England, where the Bank of England was
nationalized after World War II, private banks continue to create 97 percent
of the money supply as loans.9
Another is that banks create only the principal but not the interest necessary to pay back their loans. Since virtually the entire money supply is created by banks themselves, new money must continually be borrowed into existence just to pay the interest owed to the bankers. A dollar lent at 5 percent interest becomes 2 dollars in 14 years.
That means the money supply has to double every 14 years just to cover the interest owed on the money existing at the beginning of this 14 year cycle. The Federal Reserve's own figures confirm that M3 has doubled or more every 14 years since 1959, when the Fed began reporting it. 10
That means that every 14 years, banks siphon off as much money in interest as there was in the entire economy 14 years earlier.
This tribute is paid for lending something the
banks never actually had to lend, making it perhaps the greatest scam ever
perpetrated, since it now affects the entire global economy. The
privatization of money is the underlying cause of poverty, economic slavery,
underfunded government, and an oligarchical ruling class that thwarts every
attempt to shake it loose from the reins of power.
"Fractional reserve" banking needs to be eliminated, limiting banks to lending only pre-existing funds. If the power to create money were returned to the government, the federal debt could be paid off, taxes could be slashed, and needed government programs could be expanded.
Contrary to popular belief, paying off the federal debt with new U.S. Notes would not be dangerously inflationary, because government securities are already included in the widest measure of the money supply.
The dollars would just replace the bonds, leaving the total unchanged. If the U.S. federal debt had been paid off in fiscal year 2006, the savings to the government from no longer having to pay interest would have been $406 billion, enough to eliminate the $390 billion budget deficit that year with money to spare.
The budget could have been met with taxes, without creating money out of nothing either on a government print press or as accounting entry bank loans. However, some money created on a government printing press could actually be good for the economy.
It would be good if it were used for the productive purpose of creating new goods and services, rather than for the non-productive purpose of paying interest on loans. When supply (goods and services) goes up along with demand (money), they remain in balance and prices remain stable. New money could be added without creating price inflation up to the point of full employment.
In this way Congress could fund much-needed
programs, such as the development of alternative energy sources and the
expansion of health coverage, while actually reducing taxes.