Hate to ask all of you to remember your train of thought from last year - but I just saw (7/19/93) the thread on the Fed/Debt Virus issue from last December; a few (hundred) thoughts on what went on ...

<< You might find A Monetary History of the United States, 1867-1960, interesting>> From what point of view is this book written? What is it's aim? (e.g. reference , narrative, conspiratorial ...)

<< The Fed was ... to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.>>

Since the creation of the Federal Reserve, the dollar has plunged in value (a 1913 dollar is worth around 12 cents in 1987) We experienced the worst financial period in our history under the watch of the Fed - we have experienced the same periodic occurrences of recessions under the Fed as we have had before the Fed (and after 1978) The track record of the Federal Reserve is abysmal whether you want to talk about stable prices, employment, or interest rates. It never fails to amaze me how people want to exempt the Fed from their performance, while in the same breath tout their goals which they have never achieved.

<< The First Bank of the U.S., established in 1791, performed a mixture of central and private banking functions>>

The 1st Bank of the US was a privately owned and controlled bank, and coined and printed the US's money, money from which it demanded more back than what is created (the interest charge - which was in gold, for money that they didn't even have to break a sweat to create) . The bank was patterned after the privately owned Bank of England (as are all of the major central banks with the exception of the Russian Gosbank) and pushed by Hamilton of whom is written in 'The Life and Times of James Madison' by W.C. Rivers, "He [Hamilton] frankly avowed his distrust of both Republican and Federal Government ... in his private opinion he declared, that the British Government was the best in the world" In a letter from Morris to Robert Walsh 2/5/1811 it was stated about Hamilton that , "He disliked the Constitution ... and he hated Republican Government" It turns out that Hamilton 1st Bank was really William Bingham's 1st Bank as a letter from Bingham to Hamilton is listed in Oliver Wolcott's Historical Papers where Bingham (a Philly banker) laid out the plans and structure of the bank. Guess who became a director when the bank opened? The bank was such a hit Congress refused to issue another charter (why, if it was such a benefit to the American people?) in 1811. Luckily for the banking community the War of 1812 conveniently happened which took Congress' mind off the banking question at which point the 2nd bank got started.

It was given the power to create $60 million which it bought interest bearing government bonds with (1816). The 2nd Bank of the US (also privately owned and controlled, and again creating its own money and charging gold for interest on it) was run by the President of the 1st Bank, Nicholas Biddle who once had a very interesting conversation with Andrew Jackson (before his presidency) Biddle: "Andy, I can make or break any businessman in the nation" Old Hickory: "How can you do that Nick?" NB: "Simply by extending or withholding a businessman's loan." AJ: "Then Nick, by the Eternal I'll kill your bank" The bank quickly increased the money supply until 1819 when it reversed itself and started a large contraction resulting in the 1819 recession which emptied the west of gold and transferred land ownership to the banking community. (It was here that the constitutional issue was 1st addressed with Justice John Marshall creating the concept of 'implied powers' regarding the Constitution - which means that every constitutional power can be given away - see the United Nations charter for an example) Biddle asked Congress to renew the charter during Jackson's re-election bid - 4 years before it was due for renewal; Jackson was not distracted from his bid and vetoed the bill. The public voted him back by an almost 2-1 margin over pro-bank Henry Clay. Biddle then refused a presidential order to withdraw government funds from the bank and instead had the banking system seesaw credit, 1st withdrawing it then replenishing it, which of course created havoc with the economy. He is quoted a saying "Nothing but the evidence of suffering abroad will produce any effect on Congress ... all other Banks and all the merchants may break, but the Bank of the United States shall not break." The public was unaware as to the source of the economic disturbances. Jackson told VP Van Buren "The Bank, Mr. Van Buren is trying to kill me. But I will kill it." There is a question as to whether Jackson meant politically or physically - but not too much later Richard Lawrence attempted the 1st presidential assassination (1/30/1885 for you trivia buffs). The 2nd Bank of the US did not get it's charter renewed.

Which brings us to the events surrounding the National Banking Act of 1863 where we find - surprise! another war (the civil war) This is also the 1st time the government issued debt-free paper - Lincoln's greenbacks. Why? He needed the money (ha-ha). Actually that's why; he needed money to keep the Union together, the Wall Street bankers offered him a loan at a mere 24-36% interest (Appleton's Cyclopedia for 1861 page 296 in case your local bookstore has a copy lying around). Lincoln had $60 million of full legal tender US notes printed via acts on 7/17/61 and 2/12/62. The bankers were so thrilled they hastily had a small convention (4 days after the Legal Tender act was passed) and soon after Congress added the 'Exception Clause' to the greenbacks making them ineligible to be used on import duties and interest on the debt. Since we were in war there was a great demand for imports. The importers had to use gold, it took them $2.85 worth of greenbacks to buy $1 of gold. They passed along their added expenses to the price of their goods. The banker then used the depreciated greenback to buy government bonds at the face value of the greenback and drew interest in gold in advance - which he then sells the next day for the importer's greenbacks and so on and so on ... not bad work if you can get it. The national banking act was pushed by Senator John Sherman. The following letter was written by the famous Rothschild bankers of England on 6/25/1863 to Wall Streeters Ikleheimer, Morton, & Vandergould , "A Mr. John Sherman has written us from a town in Ohio, U.S.A., as to the profits that may be made in their National Banking business under a recent act of your Congress... Apparently this act has been drawn upon the plan formulated here last summer by the British Bankers Association ... 'The few who understand the system', he says, 'will either be so interested in its profits, or so dependent on its favors, that there will be no opposition from that class, while ... the great body of people ... will bear its burdens' " they received a reply from the NY bankers in a 7/5/63 letter, "...He [Sherman] rightfully thinks he has everything to gain both politically and financially ... by being friendly with men and institutions having large financial resources ..." They also included a circular on how to get a charter and how to make a fortune off it. Another Bankers circular - the Hazard Circular - stated , "It will not do to allow the greenback, as it is called, to circulate as money any length of time, as we cannot control that." It was also quoted in 'Dollars and Sense' by Congressman Jerry Voorhis (Ca.) in 1938 Under the National Banking act the bankers invested greenbacks in government bonds. In addition to the bonds he then received 90% of the sum back in national bank notes to carry out his banking business. The bankers drew interest twice from one investment. Nice work if you can get it (deja vu!). The banking community dropped the circulation of money from 1.8 Billion in 1866 to 696 million by 1877 producing a severe recession of which the United States Monetary Commission wrote, "The true and only cause of the stagnation in industry and commerce, now and everywhere felt, is the fact everywhere existing of falling prices, caused by a shrinking volume of money." Senator John Logan states on 3/17/74 about the 1873 panic "No, sir, the panic was not attributable to the character of the currency, but to a money famine, and to nothing else." Why would Congress pass all these acts? Well at this time the banking interest had about "189 representatives in Congress" (Mrs. S.E.V. Emery 1887) It is interesting to note that on 12/23/1793 the following was passed - "Any person holding any office or any stock in any institution in the nature of a bank ... cannot be a member of the House whilst he holds such office or stock." Signed by Washington. I don't know as of today - but it wasn't repealed back in the 1860's. Which brings us to the bank panics which eventually led to the Fed.

About the 1893 panic - Senator Robert Owen (a bank owner himself) testified to Congress that he received what was known as the Panic Circular of 1893 from the National Banker's Association. It stated, "You will at once retire one-third of your circulation and call in one-half of your loans ..." Congressman Charles Lindbergh (father of the famous aviator) saw this letter and remarked that is was intended to cause "business men to appeal to Congress for legislation that would favor the bankers." The final straw was the 1907 panic. The founding father of the Fed, Paul Warburg (whose family is a principal stockholder in the German central bank) spoke before the members of the Twin City Banker's Club in St. Paul on 10/22/15 where he said "nothing is more ungovernable than a man reputed to be prosperous;and, on the other hand, nothing is more receptive of authority, than a man who is humbled by misfortune. ... So, you see, even in those days [he was telling a story about ancient Romans] they required a 1907 in order to be ready for some sound legislation." Remember the talk about Perot being the first 3rd party candidate in a long while to get a significant amount of the vote? Guess who was the previous one to do it - independent (Republican) Teddy Roosevelt who ran against Democratic Wilson (in favor of the Fed) and Republican President Taft (against the Fed). Wilson won.

<< The structure of the Federal Reserve resulted from both history and political compromise>> As we can have seen that is basically a true statement.

<< So, 6 of the 9 votes on the member banks' boards are accountable to the public, not the commercial banks. >>

What?? Are you telling me that when the banks elect 2/3 of the directors that they don't have a controlling interest? That's not the math I remember. The idea that a bank is going to elect someone not in their interest is quite a stretch indeed. The 1964 House of Rep Banking & Currency committee doesn't agree with you as stated in their pub 'Money Facts' (9/21/64) "Do private bank interests influence Federal Reserve policy? Yes. ... These presidents are elected by the individual regional banks' nine-man board of directors with its preponderance of private bank representatives." Where did you get the idea that banks would elect people who would take a detrimental position to the bank's interests?

<<The framers of the Federal Reserve Act had numerous examples throughout history where central government control over monetary system was abused to the detriment of the populous.>>

Not in America they didn't. We have never had a government owned or controlled central bank. Most of the central banks of the major nations are private banks as was the Bank of England the colonists suffered under.

<< the System is not independent from the government. It is a creature of Congress and your call for its abolition or change is testimony to that relationship.>>

Everyone loves to make this statement; like it would be as simple as a snap of the fingers. This would be a (needed) drastic action. "... the hard truth is that the administration cannot change Federal Reserve policy." (1964 House B&C) In Johnson's 1964 Annual Economic Report to Congress he actually asked the Federal Reserve not to undermine his efforts to reduce unemployment and raise incomes. The Fed refuses to submit to even a government audit. The Fed is about as entrenched as an entity can get; Witness the 1920-21 recession. The following is from that great conspiratorial body of work - the Congressional Record; specifically Senate document #310 67th Congress 4th session (2/24/1923) where the entire text of a Federal Reserve meeting held in secret in Wash DC on 5/18/1920 took place . In attendance were 5 board members, the Federal Advisory Council (elected by the directors and always bankers) and the Class 'A' directors. Governor WPG Harding opened the meeting, "Now, there is undoubtedly a spirit of extravagance in this country which must be curbed." Which is strange considering that they encouraged farmers to expand as he noted , "Every effort should be made to stimulate necessary production, especially of food products." Hmm...lots of borrowing and lots of collateral. "We can restrict credit and expand production, letting the expansion of production proceed at a greater rate than the restriction of credit, and we are then working in the right direction." Anybody have any ideas of how that's possible?? Perhaps it wasn't the economy's production he was thinking of expanding. "It is very clear that if we find it impossible under the present circumstances to increase the volume of production of the most essential articles, the only thing for us to do is to reduce consumption of those articles." And most people think periods of expansion and recession just happen and are beyond our abilities to control. The public was encouraged to buy government bonds (Liberty bonds). Harding had a plan about them too. "You can further see that if by any pressure these bonds can be turned out of the Federal Reserve banks and passed over to the strong boxes of great institutions - savings banks, ... just to that extent the 12 banks would be in a position to extend additional facilities ... Of course it seems hard that anyone who for patriotic purposes should have invested in Government bonds should be practically called upon to part with say, a loss of from 8 to 9 percent, but facts are stubborn things" all the 12 districts (A directors) were polled for their thoughts "We seem to have been able to have had some liquidation in our district" "I also think that the rates for money should continue on a high level, with the hope of causing liquidation in commodities." Boston A directors "...unless there is a very substantial contraction and a very definite and positive announcement made in some way, the users of credit in the country may become more hopeful again that the situation is not one to be feared" NY directors, and there was no positive/definite announcement given, Harding stated that he had a speech prepared to give to the press, and warned all in attendance of revealing the purpose of the meeting. "I think a reasonable depression in business will be a good thing for the country" Cleveland Fed director It goes on and on, but not all believed this was necessary, "I hardly see the necessity of increasing the rate at this time ... I have made a pretty close examination of it, and I do not think the shelves are overloaded." A Richmond Fed director thought the economy was OK as it was, but unfortunately he was in the extreme minority . Senate Document #23 first discussed the text of this meeting (2/28/23) . Comments from Senator Heflin, "The Supreme Court of the United States rendered a decision months ago taking the Federal Reserve Board to task, criticizing and condemning its conduct in its effort to destroy a little State bank in Nebraska." About the text of the meeting, "We never got hold of this little document until Governor Harding was driven from the Federal Reserve Board." "It was agreed in that secret meeting to hoist the black flag ... Out in Southern California the bankers' convention was in session, ... and this Federal Reserve agent got up and said to these bankers: 'You must not loan any more money on farm paper, agricultural products, live stock ... If you loan them money, we will not rediscount your paper." " I referred to a man .. now a senator ... telling me that they sent him word that they were going to deflate, and telling him accordingly and get in out of the weather." (He didn't and lost a bundle) "I hold in my hand a letter, written by the governor of the Federal Reserve Bank of Atlanta, in which he acknowledges that they charged a bank in my state 87.5 percent interest." The only place to escape the rate increase and subsequent recession was New York where rates went unchanged.

The 1964 House B&C in 'A Primer on Money' state how in 1958 the Fed lowered the reserve requirement so that banks could purchase government securities with the excess reserves rather than make economy expanding loans with it. In 59 the ABA sponsored the 'Bond Giveaway bill' (with the Fed's blessing) which transferred bonds held by the Fed (who return some of the interest to the Treasury) to private banks (who return nothing to the Treasury)

Congressman Wright Patman in 8/3/64 "It is a fact that the Open Market Committee's actions have created three depressions in the last 10 years - 1953-54, 1957-58, 1960-61. Each of these man-made recessions was preceded by tighter money and higher interest rates." Why didn't Congress abolish it given these facts? Perhaps the bankers are still well-represented in Congress. The public is vastly ignorant on the source of these problems and do not call for the Fed's scalp - they call for the government's - but for the life of me I just can't remember the last time Congress sat down and passed a law creating a depression.

<< But, are the banks "creating" money? IMO, not when the Federal Reserve has ultimate power over that created money.>>

Unfortunately the Chicago Fed disagrees with you - they call bank created checkbook dollars the most important part of the money stock. The economy is run by bank loans/investments/expenditures (all with created dollars), the notion that banks aren't creating money is patently absurd. The Fed can force a contraction, but they can't "push on a string" as they're fond of saying. During the 29 depression the Fed increased open market operations by $600 million in the last 6 months of 1932 but the banks refused to make loans as evidenced by the continuance of the drop in the money supply. Now if the Fed has "ultimate power" in this regard as you seem to believe then why did the money supply continue to drop?

<< the Fed can expand or contract the amount of loans the banking system can provide.>>

The Fed can expand/contract bank reserves. It's 100% up to the banks to expand loans/investments with extra reserves provided by the Fed.

<< The multiplier effect is well-known, as is the manner in which it occurs.>>

It ain't that well known. It 1939 the Board of Governors put out "The Federal Reserve System, its Purposes and Functions" which did indeed explain every detail of how the Fed created money; too much detail as it turned out for they quickly pulled it out of circulation and replaced it with a sanitized edition. Knowledge is power as the saying goes.

<< I would ask one question of those inclined toward elimination of the fed: Are you such a fan of the congress that you want them to directly, on a day to day basis, control our financial system?>>

Well I guess we can be glad you weren't around back in 1787 otherwise you would have informed everyone that they were wasting their time in creating powers for a government; maybe they should have set up USA inc. instead. You must be unaware of the Bank of North Dakota - the only government (state) owned bank in the US, small but extremely well run and profitable (for the state and taxpayers that is) It helps all of North Dakota's citizens/businesses, including the ones that private banks won't touch. Why was it started? Locals got fed up with short term loans of 12.5% from private bankers so they elected politicians who were in favor of the bank and it opened around 1919. Other states have tried this idea but the private financial interests have successfully fought them off in every instance, particularly in New York state. These banks were not in competition with the private banks and were not meant to replace them, but it didn't matter to the financiers.

<< Jaikaran is being totally absurd when he wants the U.S. monetary system to emulate an off-shore tax haven.>>

For the record - Jaikaran points out that the Channel Islands use a hybrid of his system and use it successfully. He points to it as a working example of his system, not the other way around. Have you read the book? You seem to be twisting his words to suit your argument. And if an entity that makes its own laws and currency can be considered a 'tax haven' then the US is also a tax haven by that definition. Guernsey was a poor desolate place until they took matters into their own hands and away from the private banks hands. Naturally the banks were against this but eventually lost. Today banking flourishes on the island. The only thing that turned the Channel Islands around was a revision of their monetary system. Poverty with bank created debt credit and prosperity with intelligently managed government money. It's amazing that critics of the Islands write off their use of government money in turning things around while ignoring their destitution under a bank credit system.

<< The worst mistake ever made in banking was the Depository Institutions Deregulation Monetary Control Act of 1980, which allowed non-banks to create checkbook money.>>

An executive at the Chicago Fed informs me that the thrifts did indeed create checkbook money prior to 1980 and the act only made them subject to the Fed's reserve requirements as well as extending other Fed services to them. I've written the NY Fed for confirmation of this - they're actually pretty good at answering people's questions.

<< The system as it is makes sense to me. >>

Your concept of the system has the FOMC as the main body in terms of economic clout does it not? "The annual volume of dealing in Government securities in New York amounts to over $400 billion. Of this the Open Market Committee of the Federal Reserve accounts for roughly $20 billion." (page 19 of Money Facts) Testimony to the House from Comptroller Elmer B. Staats "in 1970 the total transactions reported by the dealers in Government securities recognized by the Federal Reserve was $738 billion ... That represents about three times the value of the transactions on the New York Stock Exchange." Testimony of George W Mitchell Vice Chairman of the Fed Board to the House "Last year [1972] we purchased $24.5 billion worth of securities ... sold $17.5 billion ... made repurchase agreements amounting #33.9 billion. Now out of that we netted an increase in our portfolio of $5 billion." The Richmond Fed shows a Board graph giving the total dollar volume of government security transactions - $120 Trillion (with a T) by the end of 1991. The FOMC does peanuts compared to what gets done by the NY Fed's Trading Desk - so who's making the decisions?.

<<If you have any ideas that will pay off the national debt and stop the cycle of inflation, recession, and depression, ... I've been doing that on this forum for years. Stick around awhile. I'll get in the mood again>>

Really? Are they around here somewhere? I'd love to take a look. What would you have done in 1920-21? Considering that the debt owed to the Fed, banks and thrifts is about $1 Trillion and the M1 is about $1 Trillion and given that they all extinguish funds repaid to them from the money supply (except for the Fed and their interest) just paying off the banking industry would wipe out the M1. The fact is that banks create debt money for loans and investments and create debt-free money for their expenditures. Unfortunately for us, the banks extinguish at least this amount in the repayment process.

<< there are ways to diminish the burden without actually defaulting or engaging in hyper inflation.>>

You can't reduce the amount of debt owed to banks without reducing the money supply inviting recession/depression and banks create almost all the money. The total debt of the US as stated in the Fed's Z-7 Flow of Funds report is about $15 Trillion and there's a $1 Trillion M1 to pay that amount off with. If you want a reason for price inflation take a guess at the annual interest accrued from that $15 Trillion.

<< As the Economist wrote some time ago on the concept of Sovereignty>>

There's a taxpayer group out of Illinois named Sovereignty - they want the government to create (not borrow or tax) interest free, or low interest, loans to local communities for worthwhile public projects - is this the group you are referring to?

<< It owes the debt primarily to its own citizens and in its own currency.>>

The debt is ultimately owed to the entity that created the money that everyone used to buy pieces of the debt - the banking industry; when the American public gets paid off they will have to pay the entity that loaned them the money to do it. The public debt is owed to the banking community.

<< the buying power of Gold is not guaranteed,>>

General comment about gold - the gold supply of the United States Government is owned by the 12 Federal Reserve Banks.

<< "Legal tender is a non-interest bearing note>>

Please, even the Fed themselves admit they earn interest on Federal Reserve Notes. The US taxpayer is taxed on every Federal Reserve Note floating around. They are a money losing proposition for the US taxpayer.

A word on "Debt Virus". If you don't believe in its message and don't care to spend $20 to find out just exactly what it is, then in the Theory/Commentary section of this forum is USDEBT.ZIP which contains USDEBT.TXT a general summary of the book (there must be something to it - or the last paragraph of USDEBT wouldn't be possible). It also contains MYTH.TXT, which explains some common misconceptions about money such as those popular in this thread.

Investors forum, Theory/Commentray section, Fed_Resv.Zip – carmen pirritano 71022,3365

Recommend Pieces of Eights: Monetary Powers and Disabilities of the US Constitution by Vieira, Edwin, Jr

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April  1993

    1992, being an election year, brought much needed attention to the subject of the Federal debt; and rightly so, for its is a problem that is very slowly transferring away the wealth of a population.  Unfortunately, most, if not all, of the public debate looked only at the surface of the issue, preferring to attach blame to our politicians.  While they must accept responsibility for helping to accelerate the growth of the debt via their irresponsible spending that produced federal deficit after deficit, the root cause of debt in our country continues unnoticed by most people.  The two accompanying papers, written by different authors, deal with the all important issue of money creation and why it fuels our total (federal, state, local, and private) debt.

    I do not ask you to blindly accept what you will find presented here; if I had blindly accepted all that I was taught or told, I would have never had a reason to research the issue at all.  Instead I ask you to give serious consideration to what you will (hopefully) read.  Weigh it against all that you have previously accepted for the reasons to our massive debt and all the accompanying problems it brings with it.  If you find some merit to the articles then I simply ask you to seek out the truth yourself; you can start by obtaining, free of charge, information pertaining to money and monetary policy from our 12 Federal Reserve banks.  The book "Debt Virus" and the publications from Monetary Science Institute  P.O. Box 86  Wickliff, Ohio 44092 contain much information on the subject.  I recommend them to anyone who is interested in permanently solving our fiscal crisis.

Mr. Carmen J. Pirritano

If you have any comments or questions I can be reached through CompuServe at [71022,3365]  The author of the second article has included his address with his paper.



    The public debt is a familiar number to most people; it currently exceeds $4 trillion dollars.  A lesser known number that never gets mentioned by our politicians or the news media is the private debt; this is the money that common citizens and businesses owe.  This figure is on the order of $9 trillion dollars, which makes for a total debt of over $14 trillion dollars (including the $1 trillion owed by local and state governments).  One may now wonder just how much "money" is available in the economy in order to pay off our debts.  The basic supply of money in the U.S. is referred to by economists as the M1; this includes Federal Reserve Notes (currency) in circulation, coins, traveler checks (from non bank issuers), demand deposits (the types of non-interest bearing checking accounts that banks offer), NOW and ATS accounts, and credit union share draft balances.  Incidentally, savings accounts are not included in the M1; only the types of money that are liquid and can be used immediately in transactions are included in the M1 (just try to buy a bag of groceries with a savings passbook!).  The M1 is currently just over only $1 trillion dollars; there is 14 times more debt than money  to pay it off with!  Even if you took in all this money and added in everyone's savings accounts, plus all the "small" CD's and non-institutional  money market funds (this totals to what economists call the M2) you could not even pay off just the public debt; the M2 is about $3.4 trillion dollars.

    Now debt can only be retired through coins, currency or checkbook money (the type of money banks create when they make a loan or investment), unless you happen to be  in bankruptcy court, in which case you can use your possessions, but it is safe to say that the object is to try to avoid that particular solution.  So the question then becomes how can we increase the money supply so that we can eventually retire the debt?  To understand this one must know the process by which money is created today.

    Since the United States Treasury owns a printing press, most people are under the assumption that they also own the key to it. If so, then why does the government need to borrow money?  If  you had your very own printing press in your basement, and were allowed to print money in order to finance your expenditures, would you ever find yourself in debt?  Only a very foolish person would choose debt given the choice; public debt exists because ordinary citizens are not allowed this choice. The United States government, however, has the constitutional power to create money (read Article 1, Section 8, Clause 5 of the constitution sometime), so why are they in debt???  Obviously they are not creating money; but the money supply of this country has been generally increasing (in 1960 the M1 was under $200 billion).  Money can not reproduce, nor is it dug up or found growing on trees, as the saying goes.  Who is creating the United States' money?

    The answer to that question can be found in a publication entitled (appropriately enough) I Bet You Thought, by the Federal Reserve Bank of New York, 4th edition 1984. I quote directly: "The Bureau of Engraving and Printing in Washington, D.C., a unit of the Treasury, is responsible for printing the nation's currency, but, its order to print come from the twelve Federal Reserve banks, not the president or Congress.  The Reserve banks, not the Treasury, determine how much currency is printed, based mainly on estimates of depository institutions and public cash demands.  Under this arrangement, the government can not print more Federal Reserve notes to pay its bills or reduce its debt."  Most of the nation would not think much of this as they are under the belief that the Federal Reserve banks are a part of the federal government.  Nothing could be further from the truth!  They are twelve privately held corporations chartered by Congress to be the nation's central banking system. Let me offer the following as proof:

    Letters received from any Federal Reserve bank will not have any official government stamp, nor will it be franked.

    Federal Reserve banks pay real estate taxes.  Government owned buildings are not subject to real estate taxes.  The Federal Reserve banks own their buildings.

    Look in the phone book at the federal listings section; you will not find any listings for a Federal Reserve Bank.  They can be found listed  with the rest of the commercial banks.  Of course you need a phone book from a city that has a Federal Reserve bank located in it.

    Both the courts and congressional committees, on numerous occasions, have held that the Federal Reserve banks are not a public institution.

    The Federal Reserve banks have shareholders who get paid dividends.  Of course the U.S. government belongs to all its citizens.  The shareholders happen to be commercial banks  who own special nonmarketable stock in their districts' bank.

    The most decisive proof comes from the Federal Reserve banks themselves: "Some people think we are a branch of the government.  We are not.  We are the commercial bankers' bank." (from The Computer World of July 16, 1979, by the Federal Reserve Bank of San Francisco)

    Of course, the Federal Reserve banks are supervised by a government appointed board; but their salaries do not come from the government.  All of the expenses of the Board of Governors are paid for by the Federal Reserve Banks themselves; this reminds me of the saying, "I'm the most loyal employee money can buy."  It is further interesting to note that on March 10, 1993, the Congress called all 12 Fed Bank presidents together (no members of the Board of Governors were called); I quote the following from a newspaper article covering the story, "And they [the bank presidents] deflected any suggestion that the central bank should work closely on economic policy with the White House."

    Legal issues aside, isn't the bottom line that currency gets printed and into circulation?  Look closely at a $1 bill; at the top is printed 'Federal Reserve Note', what this means is 'Federal Reserve Bank Note', and a bank note represents a debt.  Currency actually represents a bank debt!!  A House of Representatives subcommittee on domestic finance (1964) recognized this fact with the following statement, "The dollar is based on credit, and every dollar in existence represents a dollar of debt owed by an individual, a business firm, or a governmental unit."  Currency does not reproduce itself; it does not matter how many times a dollar is used towards purchasing goods or services, or how many goods it can pay for to be produced.  Any debt must be repaid with money, and goods are not money; goods can only reduce debt in bankruptcy court.

    The other form of "money" is checkbook money.  Checkbook money is what allows you to buy a house.  When you take out a mortgage from your neighborhood bank, they actually created the funds that they loaned you right out of thin air by simply making a ledger or computer entry.  No currency exists or ever changes hands (try asking your bank for cash next time you buy a house or auto).  Indeed the funds you were lent actually represent only a promise to pay in Federal Reserve Notes, i.e., bank credit which the population accepts as legal money; if you or I were to do this we would be serving 10-20 years for counterfeiting. Commercial banks have operated this way since the creation of the Fed in 1913, and thrifts (the S&L's) started doing this as a result of the 1980 Banking De-Regulation Act.  It is no simple coincidence that the S&L's failed about 10 years after they were allowed to create money for loans and investments.  Can they create as much money as they will ever need?  No, the amount of checkbook money a bank or S&L can create is limited by their reserve requirements.  Most people are under the impression that, given a 10% reserve requirement, if a bank has $1 million in total deposits then the bank must hold $100,000 and can lend out $900,000.  Actually, banks do not lend out money from the pool of their saver's deposits, if they did the money supply would never increase; as I stated above, they are loaning out money that they  themselves create.  A bank's reserve requirements  are dependent on the amount of checkable deposits they have; this does not include savings type accounts.  Reserve accounts are non-interest bearing deposits that every bank or S&L has with the Fed.  The cash in a bank's vault also count towards its total reserves; reserves are not a part of the basic measures of the monetary supply (M1, M2, or M3).

     A bank must hold in its reserves an amount equal to, at a minimum, 10% (or whatever the reserve requirement is) of its checkable deposits. If a bank has a 10% reserve requirement (and the Fed determines what the bank's reserve requirements will be), and a total sum of $10 million in checkable deposits, then they must have in reserves a sum of $1 million.  For every extra dollar of reserves that the bank has, $10 dollars may eventually be created for the purposes of loans and investments. This new money, when created, exists solely as a ledger or computer entry and  has absolutely nothing to do with its customer's deposits.  When the bank loans money from this created pool, they demand to be repaid with interest; as the loan is repaid the principal that they created and the interest that you paid them flows out of circulation (and the M1) and is destroyed just as easily as it was created.  The net effect is to reduce the basic money supply (the M1).  The bank reserves that were previously held for the loan are now freed up and must be lent out again in order to increase the M1.  How then does a bank, and its stockholders, earn any money if the interest is destroyed?  Simple, the bank creates money by issuing a cashier's or treasurer's check, drawn on itself, for the amount in question; they can do this since a bank clears its own checks. If the check is deposited in a checking type account then the bank will lose some of its excess reserves; if it goes into a savings type account then there will be no change to the bank's reserves.  The interest that your savings account earns is really just a bank credit.  So what's the big deal where the money goes?  The difference is that a bank will lose some of its ability to create funds (which increases the M1) for more interest earning investments if its loses excess reserves, and in a capitalistic society there must be an adequate supply of money in circulation (i.e., in the M1) to foster economic growth. The funds in a savings account or a CD (i.e., in the M2) can not be spent into the economy in their current form; it is not unlike burying your money in the ground, if the ground paid interest.  Yes, people can, and often do, transfer money into their checking accounts, but people generally  want their money in the types of accounts that pay better interest, and as times get harder people get more reluctant to spend.  The catch-22 in this is that the bank, via its efforts to expand its business from the profits it makes off loans and investments, actually reduces the money supply as loans are repaid.

     What can happen if the banks do not create any new money with these freed up reserves?  Reducing the basic money supply has the effect of shrinking our economy; if it shrinks enough a recession will result.  Eventually a depression will result if the process continues long enough.  This process feeds upon itself, as banks are wary to loan out money since there are less qualified borrowers due to the lack of money available to repay loans.  Have you ever wondered what happened to all the money that disappeared from our economy during the great depression of 1929?  As people repaid loans, they reduced the basic money supply; banks stockpiled their excess reserves rather than make interest earning loans that had an ever increasing chance of failure.  The banks unwittingly contributed to the economic decline by looking out for their best interests and not loaning out new money that was needed to generate growth.  Finally, there was only one borrower who was safe enough to loan to - the U.S. government; and World War II provided the reason for the government to borrow.  This problem has not gone away, in a recent Wall Street Journal article (3/31/93) it was reported that the M2 measure of the money supply has been decreasing this year at a 2% annual rate.

    This process by which a bank or S&L can create money is known by the term "fractional reserve deposit expansion."  A bank's excess reserves increase whenever a check from another bank or the U.S. Treasury is deposited, or when funds are transferred from checking to savings, and whenever the Fed decides to add to them; this results in more checkbook money that can be created.  It is not hard to see that a bank can have many more claims against them than money to back them up with.  This is a reason why "runs" on banks happen and why banks, and S&L's, fail; when a loan goes bad the bank, by law, must write off any losses against its real earned income, even though the loan was made with checkbook money.    There is nothing wrong with someone charging interest for the use of money they actually possess, but is it fair for banks to be able to create their "stock" at absolutely no charge and no effort to themselves?

    Where do additional bank reserves come from?  The Fed does two things when they buy government securities (e.g. T-bills, notes, bonds) through open-market or off-market operations.  First, they write a check for the amount that they bought the security for.  Secondly, when the check is deposited, the bank will credit the depositor's account and send the check to the Federal Reserve Bank that wrote it; they, in turn, will credit the bank with an equal amount for their reserves.  This free gift can then be used by the bank to create new checkbook money in the form of loans, and thereby expand the economy.  Instead of credit, the bank can request that the additional reserves be in the form of currency (the Fed simply orders the Treasury to print the required sum); this currency only covers the amount that the securities were bought for, not the amount that they will be redeemed for.  This is how currency becomes debt money!  However, what the Fed giveth, the Fed can taketh away too; by selling from the large pool of securities that they own, the Fed can decrease a bank's reserves by reversing the above procedure. All this is important because the Fed's strategic approach towards manipulating the United States economy has been, since the mid 70's, to control the amount of bank reserves.  Reserves affect a bank's ability to create new debt money; the Fed can not force an expansion through the granting of additional reserves (witness the slow progression from our current recession) because they can not force a bank to make a loan.  They can force a recession by making fewer reserves available, which they have done before.

    Now let's look at what the government does when current expenditures exceed current tax revenues.  As previously shown, the government does not print the extra money required.  What they can do is print an equivalent sum in bonds (or notes or T-bills); these bonds are then put up for auction.  Three "groups" then bid on the bonds; the Fed, commercial banks, and major bond dealers. If the Fed purchases the bonds, they will then credit the Treasury's "checking account" by the face value of the bonds.  The Fed purchases interest paying bonds by simply writing a check, but the Fed does not possess a checking account!  The Fed themselves admit that they create money when they write a check.  No one has to buy the bonds from the Fed, at this point the government can spend the money in its account. Under the current law, the Fed can only buys bonds directly from the government in order to replace their bonds that have matured; however, they face no such restrictions when dealing with bond dealers.  Commercial banks can buy bonds with checkbook money (the same way that they create money for a loan they can create it for investments). We, the people, are in effect, paying private bankers for the right to have our government provide services for us.

    By now one thing should be clear, in the U.S. virtually every dollar created is born from debt.  If debt can only be repaid with money, and for every time that money is created, a debt greater than the sum of the money is also created, then the total debt can never be fully repaid; because when money is created it is only the principal that is created, but principal and interest must be repaid.  From where will the interest come from?  When one person pays off a debt it is only done so by acquiring someone else's principal; that person must now acquire somebody else's principal.  This vicious cycle continues until one person can not pay off his or her debt.  You now have two choices; you can either go bankrupt or borrow further.  Most people borrow further until they reach a point where they are not allowed to borrow any more and then they must turn to bankruptcy court.  The government just keeps borrowing and then every so often raises taxes to pay off their debt (their interest, that is; no principal is being repaid).  We have a system where bankruptcies are guaranteed; we also have a system where unemployment is guaranteed (thanks to business going bankrupt).

    To be fair, there are sources of debt free money that are created every year.  When the Fed has to pay its operating expenses (employee salaries, real estate taxes ... - not income taxes, they're exempt from paying them), they create the money necessary to pay those bills by writing a check.  Commercial banks and S&L's  pay their operating expenses the same way, however they may have to  use their excess reserves depending on how the money is deposited; this is spending money into circulation as opposed to lending it into circulation. If you have any friends who work for a bank, tell them not to feel so bad the next time they ask for a raise.   Coin is debt-free money, but it represents only about 3% of the M1.  Also, by the Fed's charter, they are required to return a "substantial" amount of their profits to the Treasury.  Does this invalidate everything I've said?  Hardly, the amount they return is only a few percentage points of the annual interest accrued from the public and private debt, and this profit represents only the interest that their securities earn, not the face amount which they bought with money that they created out of thin air.  Also, the Fed themselves determine, without any governmental auditing process, how much is "substantial".  Indeed, the Fed has resisted all efforts by the government to audit them.  I also note that when the Fed started out, they had $45 million in assets; today they have over $250 billion in assets - I wonder what their definition of "substantial" is.  Furthermore, I wonder why an entity that can create money whenever it wishes needs to charge interest at all.  One final point on this issue- for every $1 of bonds that the Fed earns interest on and returns part of, commercial banks can create $9 worth of loans from which they will return absolutely nothing on the earned interest.

    Once a country has employed a debt monetary system long enough, it is only a matter of time until some radical ideas are floated to deal with the resultant problems.  Witness the catastrophic fiscal problems of some of the Latin and South American countries; on more than one occasion it has been advanced that the only, and/or best solution is to legislate a depression as a means of starting a restoration process.  Let us try to understand the nature of recessions, depressions (for all intensive purposes a depression is simply a severe recession), and expansions.  Most people believe that these are something akin to forces of nature - uncontrollable and unpredictable; that we are fated to experience them from time to time.  We go through these cycles as our economy has its upturns and downturns.  An economy's true strength lies in its commerce and industry, therefore as this expands or contracts so does the general health of the economy.  What is the driving force behind our commerce and industry?  Regardless of what country you are in, or what outside competition there is, the lifeblood of commerce and industry is money.  No one will work for free, and no one will purchase products if they can not afford them.  Poor economic periods in the U.S. were not caused by a lack of available workers, or a lack of demand in the population for goods and services;  nor were there shortages of raw materials for manufacturing.  Many ideas have been put forward as to why we periodically experience these problems, however any scientific theory must apply over the entire life span of what it is addressing.  What has been in existence since the beginning of our country is debt created money.  Periods of recession and expansion can be engineered through manipulation of the money supply, and since 1913 the money supply has been controlled through the Federal Reserve System (the first federally chartered bank was the First Bank of the United States, chartered in 1791; it was a private bank and it created and distributed its own money).  The first recession after the Fed was created occurred in 1920; if one reads document number 310 of the U.S. Senate for the 67th Congress, 4th session, you will see that a deliberate contraction of the money supply led to that recession.

    Depression, recession, expansion, inflation, and interest all have their basis in money, a numerical based creation.  Therefore they are as subject to the laws of mathematics as the space missions are; and yet it is not mathematical law that drives our monetary decisions.  It is the ever the changing policy of economists and bankers who push a little here and pull a little there and then try to react to what happens.  If NASA scientists employed the same methods during the lunar mission, where do you think Neil Armstrong would be right now?  Deliberately engineering a recession or depression as a cure to inflation or debt is similar to cutting off one's head to cure a headache;   what is  really  needed is an infusion of debt-free money to counter the accumulated interest of the borrowing public.

    Would a debt-free monetary system really make a difference?  You can't tell by looking at the other countries of the world; Germany, England, the Latin and South American countries, and even Japan, employ some type of an all debt monetary system.  There are, however, two places where the governments create the money for their economies; these are the bailiwicks of Guernsey and Jersey in the Channel Islands.  They have been doing so for some 150 years and their residents currently enjoy low taxes, low inflation, a high standard of living, total 100% employment and zero public debt.  Guernsey has enjoyed a 40% increase in their money supply over the years 1987-89 in which there was hardly any inflation growth.  You can not credit all of this to their monetary system, of course, there are other factors involved to be sure, but their debt-free system gives them the chance that they have obviously capitalized on.

    Why does our current  system  continue, if it is so bad?  Obviously not many people truly understand how money works in our country and this includes our politicians.  The biggest winners in this system are the Federal Reserve banks and the major banks, as well as their stockholders, for sooner or later they are going to collect, and it will be either your money or your possessions (if you don't have enough money).  Is a solution to go back to the gold standard?  Well, on December 9, 1974, all of the gold that the United States held in its vaults was mortgaged to the Fed (by issuing them gold certificates) in return for an equal (as of that time) increase in the Treasury's checking account.  This can be proven by looking at the 73rd Annual Report of: Board of Governors of the Federal Reserve System-1986 page 222, and by the December 1976 United States Treasury Bulletin.  The U.S. can't go back on a gold standard because the government does not own any gold!  The only solution is to return to what the Constitution originally set up - a system where the government creates debt-free money in order to provide worthwhile public services for its citizenry. The government could then also create debt money for the purposes of financing private endeavors and use the resulting interest charge as an alternative to income taxes.

    Perhaps the single most important fact that one must accept is this: much can go wrong with a system when the true nature of it is vastly misunderstood by the population.  If you don't know what is wrong, then you can not fix it, much to the delight of those who are currently profiting from it.  Many issues concerning our country suffer from misconceptions.  I personally believe that the debt issue is of the utmost concern, however, for this country to achieve its full potential, all important areas must get corrected.  The only way to do this is to educate the population to what's going on and then have enough people demand change.  The best way to educate oneself about money creation and debt is to obtain a copy of the book Debt Virus authored by Dr. Jacques S. Jaikaran, published through Glenbridge Publishing.  This book was the basis for this letter and contains much more material on the issue, presented in a clear understandable manner.  The publications of Monetary Science Institute, P.O. Box 86, Wickliff, Ohio 44092 are particularly helpful in learning about the subject.  The facts that I have presented with respect to money creation can be obtained, free of charge, from the publications of the 12 Federal Reserve Banks.

    One final note of interest - one day in May of 1964 a man by the name of Jerome Daly took out a $14,000 loan from a Minnesota bank.  By Spring of 1967 Mr. Daly was behind in his payments, eventually the bank foreclosed on some property that Mr. Daly used as collateral and bought it at a sheriff's sale in June of 1967.  The matter went before a Minnesota judge in December of 1967 where it was proved that the bank, in combination with the Federal Reserve Bank of Minneapolis, created all $14,000 that was loaned to Mr. Daly.  The jury ruled in the favor of Mr. Daly who received his land back and $75.  The judge noted in his opinion that no United States law or statute exists that allow banks to create money.  The bank appealed, using two $1 Federal Reserve Notes to satisfy the fee.  The judge refused to allow the appeal on the basis that Federal Reserve Notes (bank created money) are unlawful and void for any purpose.  The decision still stands today.

MONEY BANKS US DEBT

The relationship between the money creation/destruction process and debt in the United States (public & private). Uploaded by C. Pirritano (71022,3365)

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Date:    Mon, Aug 2, 1993 4:28:07 AM
Subject: #667643-Hatch affirms 16th fraud
From:    carmen pirritano 71022,3365
To:      Bill Holmes 72010,3003 (deletable)

Hi,
I'm well aware of Mr. Warburg and the planned bank panics which gave the excuse for the Fed.  There's actually a reference made in an old Senate document by a Senator Owen, who was a banker, of a circular passed around in 1893 instructing everyone (bankers) to start recalling loans.  Senate document #310 contains the entire text of a secret Fed meeting in 5/20 where they actually liad the groundwork for the 1920 recession.  In the Investors forum there is an investors section; in the Theory/Commentray are I have a file named Fed_Resv.Zip which contains quotes from those documents (in addition to a whole lot of other stuff - its kinda long)
In This (Limbaugh) section I have 2 files USDEBT.ZIP - it is a summary of the book Debt Virus which explains the relationship between our money supply and debt; I don't know of that'll serve your purposes.  I have another file in this area named MYTH.ZIP which uses Federal Reserve publications and letters I have from Fed execs to show how all our money is created as a debt making repayment mathematically impossible.  That one may be of some use since it uses the Fed as the main source.  Good Luck with your work.
Carmen
PS After the Fed, Warburg also set up the bond trading companies which make a killing off of us through their commissions off of Fed business.

•---- Session 0, 8/3/93, 12:47:06 AM, National Issues and People Forum ----•
Message: #668388, S/9  Rush H. Limbaugh
Date:    Mon, Aug 2, 1993 6:20:12 PM
Subject: #667643-Hatch affirms 16th fraud
From:    carmen pirritano 71022,3365
To:      Bill Holmes 72010,3003 (deletable)

Oops, forgot one more -
there was a court case back in 1967 where a man, Jerome Daly, successfully took a bank to court when it foreclosed on him.  His case was successfully built on the point that the bank illegally created money that it required deed to his land in exchange for.  I haver a little bit of info on it. Let me know if it is something that you can use.
Carmen

Carmen -

The term money has been misapplied to the Federal Reserve Notes commonly called "money".  Consequently, in your USDEBT.ZIP file, third paragraph after the introduction, we suggest you use "coin of substance" instead of "money" in the phrase "constitutional power to create money".

- Bill Holmes, 8/14/93

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The Disastrous Catch-22 in our Monetary System

    In our monetary system banks remove from circulation all amounts repaid to them on all their loans each year.  These amounts are extinguished from our money supply in the loan repayment process.  This includes not only the principal repaid, but also all interest charges and bank fees collected.  This fact means that our money supply has a strong tendency to shrink each year.  Just to maintain the money supply at its current level, banks must use reserves freed by this extinguishing action to recreate new money in amounts paid to them in principal, interest and fees each year.  This is done in two different ways.  

    A portion of what the banks have extinguished from the money supply in interest charges and fees is recreated and returned to the system in the form of interest paid to its depositors and as bank spending for employee salaries, other operating expenses, branch expansions, acquisitions, investments in real property and profits.  This portion returns to the money supply as healthy debt free new money.  

    Bankers, being good business people, know that increasing this type of non interest earning expenditure helps the economy as it increases the influence of the banks in the economy.  Unfortunately it also requires an expanding volume of new loans to produce enough new interest and fee payments to cover their increasing overhead and growth needs.  Therefore, an increasing portion of the remaining interest and fees collected plus all the principal repaid annually must be recreated as new loans to governments, companies and individuals each year (or fees and interest rates must be increased).  This portion returns to our money supply as bank debt burdened new money.  Inflationary compound interest costs are permanently attached to this newly created money.  

    Remember, all this bank action will only maintain the money supply at its current level.  No increase in our money supply occurs, because all the bank interest payments and bank fees charged must be pulled out of the existing money supply during the year through loan and fee payment process.  What this process creates is a limited money supply in which an ever larger % of the total value of that money supply must be extinguished each year as continuously compounding interest payments to banks.  This process not only shrinks the real value of our money but it also threatens the banks own financial stability by constantly eroding the ability of its customers to service their bank loans.  The rising interest expense in the prices of everything we buy squeezes the discretionary spending of government, companies and individuals.  This inflation results mainly from compounding interest costs added to the economy each year by creating most of our new money as a new bank debt.  (See the shrinking volume of M-1 money in relation to GNP in the table following.)  

    The Federal Reserve tries to help by constantly supplying new reserves to banks through net additional purchases of Treasury debt each year.  Most of these new reserve dollars, however, go to a 10 fold increase in loans by banks (10% reserve requirement).  This produces increasing devaluation of a somewhat larger, more debt burdened money supply each year.  

    This catch 22 situation stems from the fact that the only source of healthy non-inflationary new debt free money in our economy is banks spending for their own needs and expansion.  As we see today, this bank spending must be curtailed because of weakness in the overall economy and therefore in the banks' own loan portfolios.  Ironically the weakness is caused by the geometrically compounding, but unnecessary, interest burden that the banks themselves must attach to an ever larger portion of our money supply.  This compounding inflationary mistake of creating an ever larger % of our money as new bank debt must be recognized and corrected before progress can be made on our growing economic and social problems.

The Restrictive Trend in Our Money Supply In Relation to the Size of Our GNP

    GNP    M-1    GNP/M-1 Ratio    Total Debt
    (Billions)    (Billions)   
1960    515    141    3.65/1    771
1965    685    168    4.08/1    1,109
1970    974    215    4.53/1    1,597
1975    1,598    288    5.55/1    2,619
1980    2,732    409    6.72/1    4,656
1981    3,052    437    6.98/1    5,166
1982    3,166    475    6.67/1    5,631
1983    3,406    521    6.53/1    6,288
1984    3,772    552    6.83/1    7,196
1985    4,015    620    6.47/1    8,243
1986    4,232    725    5.84/1    9,431
1987    4,516    750    6.02/1    10,463
1988    4,874    786    6.20/1    11,415
1989    5,201    794    6.54/1    12,393
1990    5,543    825    6.72/1    13,560
1991    5,695    897    6.33/1    14,161

Government,  All Corporations  and Individuals (in Billions)
Source:  The Statistical Abstract of the U.S., 1991-1981-1971
Notes:  If M-1 had increased at the same rate as GNP has since 1960, it would now be about $1,500 billion instead of $897 billion as it was in 1991.

A vicious circle is produced by creating most of our money as new bank debt.  If we had encouraged the banking industry to create this needed $700 billion in additional M-1 in their traditional way, as $700 billion in additional bank debt, the resulting compound interest charges would be shrinking the money supply even more drastically in relation to GNP.  The circulating money supply must shrink relative to GNP over time, because of added new bank debt whose compounding interest charges must be extinguished from the money supply in larger amounts in every succeeding year.  Therefore, our economy must languish as we try to get by on 60% of the money in circulation that we need (when compared to the amount of money in circulation relative to the GNP in 1960).  Creating most of our money supply as new bank debt is unnecessary, unhealthy and is strangling our economy as the compounding effect of unwarranted interest charges on newly created money becomes more overpowering.

REFERENCES

"Debt Virus" by Dr. Jacques Jaikaran.  Glenbridge Publishing Ltd., 1992
"The Federal Reserve System - Purpose and Function"   The Board of Governors  5th. ed., 1963 and 1939 Edition
"The Congressional Record"  House Committee Hearings on the Proposed Audit of the Federal Reserve Banking System - HR4316,  March 18, April 22, 23, 25, 29 and May 8, 1975
"Modern Money Mechanics"  The Federal Reserve Bank of Chicago, June 1992.
"Wealth, Virtual Wealthy and Debt"  The Solution of the Economic Paradox by Frederick Soddy M.A., F.R.S.  Originally published London: George Allen & Unwin Ltd. 1926.  New printing 1983
"The Truth in Money Book" by T. R. Thoren and R. F. Warner, 1984

Also available from Monetary Science Institute, P.O. Box 86, Wickliff, Ohio  44092

For more detailed information about the way this problem affects various areas of our society, contact:
John Buck
8835 Duveen Drive
Wyndmoor, PA  19118
(215) 836-7833

A Way to Simultaneously Strengthen Our Economy and Our Banking System

    Our entire banking industry and the economy itself could be made steadily stronger and made less risky if banks were not required to constantly undermine their own stability and the country's economic future.  This occurs because of an archaic money creation system which creates most of our money supply as bank debt.  

    Banks, performing their assigned task in our current system, must withdraw a geometrically increasing portion of our money's real value from the existing money supply each year.  This value is removed in the form of constantly compounding interest charges on all previously created bank debt which remains unpaid.  Interest paid to banks is extinguished from the money supply along with principal repaid.  New money created and spent into the economy by banks to pay their operating expenses, profits and to purchase real assets does enter the economy debt free.  However, most of our increasing money supply is created as rapidly growing bank debt through new bank loans to individuals, companies and governments.  

    When an arbitrary and inflationary debt interest burden is attached to most newly created money by banks, as it must be in our current money  creation process, the result is ever larger drains on the money supply in the future.  The banking industry's actions, therefore, take needed dollars out of the economy and away from their own loan customers, thereby compromising their own loan portfolios.  

    Our economy needs a steadily increasing money supply to allow for economic growth.  To replace all interest and principal payments extinguished in the loan payment process, and to provide the steady growth in money needed, banks have to spend or loan huge amounts of new debt burdened money into our system each year.  A vicious circle of more rapidly compounding interest payments on our growing bank debt produces a steady decline in the real value of goods that our money supply can purchase.  This is the primary source of inflation in our economy.  Inflation can be described as the declining purchasing power of our currency which occurs as the overwhelming and unnecessary debt interest burden on our circulating money supply grows geometrically each year.  

    If all new money needed for the healthy growth of our economy were created and stabilized in value debt free by the U.S. Treasury (per the Constitution), the banks and their loan customers would not have to suffer the increasingly more dangerous periodic financial declines which our bank debt money system guarantees must eventually occur.  Debt free U.S. Treasury money, once created and spent directly by our elected representatives for all our benefit, in lieu of income taxes, would stimulate more growth and savings.  Similarly, interest free loans of debt free U.S. Treasury created money to municipalities across the country for badly needed infrastructure improvements, would provide increased economic activity and jobs.  People would become more comfortable about deferring some of their spending in a consistentlyexpanding non-inflationary economy.  Banks could then concentrate on the much safer and more constructive business of attracting checking and savings deposits and then loaning this growing supply of existing money to a growing number of financially stable and responsible individuals, companies and entrepreneurs.  These now healthy bank loans of existing saved money could also be supplemented, when economically necessary, by low interest loans of U.S. Treasury created money to the banking industry.  Borrowing and repaying saved existing money would eliminate disruptive periodic restriction of the money supply, just as current loans and repayments between non bank related parties in today's economy do not affect the amount of money in circulation.  Individuals or companies would simply forego spending a portion of their earnings in return for the payment of a fee by another party who wanted to temporarily increase his spending or invest profitably.  Banks would still collect the difference between what depositors are paid and what borrowers are willing to pay.  Bankers would not, however, have the thankless responsibility of expanding and contracting our money supply.  (Many times in direct conflict with their own legitimate business interests.)  A stable, steadily growing debt free money supply would benefit all of us with increased GNP (sales), low inflation, low unemployment, increasing standards of living, lower taxes, elimination of bank failures and many fewer business or individual failures.  These improved conditions for all our citizens would also help eliminate the causes of many of our persistent growing social problems.  Risks to the banking industry and the financial markets would be much lower in the healthy, steadily growing economy that would result.