Banks the Fed Banksters and Power Elite
¨ The Money Masters
¨ Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich–and Cheat Everybody Else by David Cay Johnston
¨ FIAT EMPIRE – Why the Federal Reserve Violates the U.S. Constitution
Telly Award-winning documentary, which features presidential candidate RON PAUL, was inspired by the book, “The Creature From Jekyll Island” by author and FREEDOM FORCE founder, G. EDWARD GRIFFIN.To order a high-quality “Director’s Cut” DVD or VHS tape (with up to 160-minutes of unedited ADDITIONAL interviews) go to www.FiatEmpire.com/screener. To instantly download a DVD-quality version of FIAT EMPIRE, go to www.mecfilms.com/mid/orders/fiat4.htm or www.PAY-PER-VIEW.com.
¨ NONE DARE CALL IT CONSPIRACY
The Rockefeller File by Gary Allen
¨ Money as Debt –
Oh …. just google it and see for yourself
The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics by Michael Rowbotham
¨ Web of Debt
Reviewing Ellen Browns Web of Debt
Reviewing Ellen Brown’s “Web of Debt:” Part I
By Stephen Lendman
06 May, 2009
This is the first of several articles on Ellen Brown’s superb 2007 book titled “Web of Debt,” now updated in a December 2008 third edition. It tells “the shocking truth about our money system, (how it) trapped us in debt, and how we can break free.” Given today’s global economic crisis, it’s an appropriate time to review it and urge readers to digest the entire work, easily gotten through Amazon or Brown’s webofdebt.com site. Her book is a remarkable achievement – in its scope, depth, and importance.
In the forward, banker/developer Reed Simpson said:
“I have been a banker for most of my career, and I can report that even most bankers (don’t know) what goes on behind (top echelon) closed doors….I am more familiar than most with the issues (Brown covered, and) still found it an eye-opener, a remarkable window into what is really going on….(Although many banks follow high ethical practices), corruption is also rampant, (especially) in the large money center banks, in one of which I worked.”
“Credible evidence (reveals) a world (banking) power elite intent on gaining absolute control over the planet and its natural resources, including its subservient human (ones).” Money is their “lifeblood,” and “fear (their) weapon.” Ill-used, they can “enslave nations and ensure perpetual wars and bondage.” Brown exposes the scheme and offers a solution.
What president Andrew Jackson called “a hydra-headed monster….” entraps entire nations in debt. Financial commentator Hans Schicht listed how:
— by making concentrated wealth invisible;
— “exercising control through leverage(d) mergers, takeovers” or other holdings “annexed to loans;” and
— using a minimum of insider front-men to exercise “tight personal management and control.”
Powerful bankers want to rule the world by creating and controlling money, the very lifeblood of world economies without which commerce would cease. Professor Henry Liu calls the monetary system a “cruel hoax” in that (except for government issued coins) “there is virtually no ‘real’ money in the system, only debts” – to bankers “for money they created with accounting entries….all done by a sleight of hand,” only possible because governments empowered them to do it.
The solution is simple but untaken. As the Constitution mandates, money-creation power must “be returned to the government and the people it represents.” Imagine the possibilities:
— the federal debt could be eliminated, at least a more manageable amount before it mushroomed to stratospheric levels;
— federal income taxes could as well; entirely for low and middle income people and at least substantially overall;
— “social programs could be expanded….without sparking runaway inflation;” and
— financial resources would be available to grow the nation economically and produce stable prosperity.
It’s not pie-in-the-sky. It happened successfully under Abraham Lincoln and early colonists. More on that below.
Brown’s book explains that:
— the Federal Reserve isn’t federal; it’s a private banking cartel owned by its major bank members in 12 Fed districts;
— except for coins, they “create” money called Federal Reserve notes, in violation of the Constitution under Article I, Section 8 that gives Congress alone the right “To coin (create) money (and) regulate the value thereof….;”
— “tangible currency (coins and paper money comprise) less than 3 percent of the US money supply;” the rest is in computer entries for loans;
— money that banks lend is “new money” that didn’t exist before;
— 30% of bank-created money “is invested for their own accounts;”
— banks once made productive loans for industrial development; today they’re “a giant betting machine” using countless trillions for high-risk casino-type operations – through devices like derivatives and securitization scams;
— since Andrew Jackson’s presidency (1829 – 1837), the federal debt hasn’t been paid, only the interest – to private bankers and other owners of US obligations;
— the 16th Amendment authorized Congress to levy an income tax; it was done “to coerce (the public) to pay interest to the banks on the federal debt;”
— the amount has mushroomed to about $500 billion annually and keeps rising;
— creating money doesn’t cause inflation; it’s “caused by banks expanding the money supply with loans;”
— developing nations’ inflation was caused “by global institutional speculators attacking local currencies and devaluing them on international markets;”
— it could happen in America or anywhere else just as easily; and
— escaping this trap is simple if Washington reclaims its money-issuing power; early colonists did it; so did Lincoln.
As long as bankers control our money, we’ll remain in a permanent “web of debt” and experience cycles of boom, bust, inflation, deflation, instability and crisis. Yet none of this has to be nor repeated and inevitable bubbles – created by design, not chance, to advantage empowered “moneychangers,” much like today with its fallout causing global havoc.
Prior to the Fed’s creation, the House of Morgan was dominant in contrast to the early colonists’ model. Operating out of Philadelphia, the nation’s first capital, it favored state-issued and loaned out money, collecting the interest, and “return(ing) it to the provincial government” in lieu of taxes.
Lincoln used the same system to finance the Civil War, after which he was assassinated and bankers reclaimed their money-issuing power. Wall Street’s “silent coup (was) the passage of the (1913) Federal Reserve Act,” the most destructive ever congressional legislation, thereafter extracting a huge toll amounting to permanent debt bondage with national wealth transference from the public to private bankers – with most people none the wiser.
From Gold to Federal Reserve Notes
After the 1862 Legal Tender Act was rescinded (the so-called Greenback law letting the government issue its own money), new legislation replaced it empowering bankers by making all money again interest-bearing. Here’s the problem. “As long as the money supply (is an interest-bearing) debt owed back to private bankers….the nation’s wealth (will) continue to be drained off into private vaults, leaving scarcity in its wake.”
Dollars should belong to everyone. Early colonists invented them as “a new form of paper currency backed by the ‘full faith and credit’ of the people.” Today, a private banking cartel issues them by “turning debt into money and demanding” due interest be paid.
Ever since, it’s controlled the nation and public by entrapment in permanent debt bondage, and they do it through the Federal Reserve that’s neither federal nor has reserves. It doesn’t have money. It creates it with electronic entries, any amount at any time for any purpose, the main one being to enrich its owner banks.
This body is a power unto itself, secretive, unaccountable, and independent of congressional oversight or control. It’s a money-creating machine by turning debt into money, but only a small fraction of the total money supply. Individual commercial banks create most of it.
A 1960s Chicago Fed booklet (called Modern Money Mechanics) explained how – through “fractional reserve” alchemy. It states:
(Banks) do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.”
Money is created by “building up” deposits in the form of loans. They, in turn, become deposits, not the reverse. “This unique attribute of banking” goes back centuries, the idea being that paper receipts could be issued and loaned out for the same gold (in those days) many times over, so long as enough gold was held in “reserve” so depositors had access to their money. “This sleight of hand (became known) as ‘fractional reserve’ banking,” using money to create multiples more of it.
As for credit market debt, William Hummel (on the web site Money: What It Is, How It Works) explains that banks create only about 20% of it. The rest is by other non-bank financial institutions, including finance companies, pension and mutual funds, insurance companies, and securities dealers. They “recycle pre-existing funds, either by borrowing at a low interest rate and lending at a higher (one) or by pooling (investor) money and lending it to borrowers.” In other words, just like banks, “they borrow low and lend high, pocketing the ‘spread’ as their profit.”
But banks do more than borrow. They also “lend the deposits they acquire….by crediting the borrower’s account with a new deposit.” Banks thus increase total bank deposits that grow the money supply. It amounts to a sleight of hand like “magically pull(ing) money out of an empty hat.”
The US “money supply is the federal debt and cannot exist without it. (To) keep money in the system, some major player has to incur substantial debt that never gets paid back; and this role is played by the federal government.” It’s why the nation’s debt can’t be repaid under a banker-controlled system. Today’s size and debt service compounds the problem, around double the amount Brown cited, growing exponentially to unimaginable levels.
Colonial Paper Money – Another Way Predating the Republic’s Birth
In 1691, three years before the Bank of England’s creation, Massachusetts became “the first local government to issue its own paper money….” in the form of a “bill of credit bond or IOU….to pay tomorrow on a debt incurred today.” This money “was backed by the full ‘faith and credit’ of the government.”
Other colonies then did the same, some as IOUs redeemable in gold or silver or as “legal tender” money to be legally accepted to pay debts. Cotton Mather, a famous New England minister, later redefined money – not as gold or silver, but as a credit: “the credit of the whole country.”
Benjamin Franklin so embraced the “new medium of exchange” that he’s called “the father of paper money,” then called “scrip.” It made the colonies independent of British banks and let them “finance their local governments without” taxation. It was done in two ways, and most colonies used both:
— direct issue “bills of credit” or “treasury notes;” essentially government-backed IOUs to be repaid by future taxes, with no interest owed bankers or foreign lenders; “they were just credits issued and sent into the economy on goods and services;” and
— a system of generating “revenue in the form of interest by taking on the lending functions of banks; a government loan office called a ‘land bank’ (issued) paper money and (loaned) it to residents (usually farmers) at low interest rates….the interest paid….went into the public coffers, funding the government;” it was the preferred way to assure a stable currency rather than by issuing “bills of credit.”
Pennsylvania did it best. It’s 1723-established loan office showed “it was possible for the government to issue new money (in lieu of) taxes without inflating prices.” For over 25 years, it collected none at all. The loan office provided adequate revenue, supplemented by liquor import duties. Throughout the period, prices remained stable.
Prior to this system, Pennsylvania lost “both business and residents (for) lack of available currency.” With it, its population grew and commerce prospered. The “secret was in not issuing too much, and in recycling the money back to the government in the form of principal and interest on government-issued loans.”
Colony-based British merchants and financiers objected strongly to Parliament. Enough so that in 1751, King George II banned new paper money issuance to force colonists to borrow it from UK bankers. In 1764, Franklin petitioned Parliament to lift the ban. In London, Bank of England directors asked him to explain colonial prosperity at a time Britain experienced rampant unemployment and poverty. It’s because Colonial Scrip was issued, he stated, “our own money” with no interest owed to anyone. He added:
“You do not have too many workers, you have too little money in circulation, and that which circulates, all bears the endless burden of unrepayable debt and usury.”
With banks loaning money into the economy, more was “owed back in principle and interest than was lent in the original loans (so) there was never enough in circulation to pay interest and still keep workers fully employed.” Unlike banks, government can both lend and spend money in circulation – enough to pay “interest due on the money it lent, (keep) the money supply in ‘proper proportion’ and (prevent) the ‘impossible contract’ problem (of having) more money owed back on loans than was created (from) the loans themselves.”
Franklin’s efforts notwithstanding, the Bank of England got Parliament to pass a Currency Act making it illegal for the colonies to issue their own money. It turned prosperity into poverty because the money supply was halved with not enough to pay for goods and services. According to Franklin:
“the poverty caused by the bad influence of the English bankers on the Parliament” got colonists to hate the British enough to spark the Revolutionary War. “The colonies would gladly have borne the little tax on tea and other matters (if) England (hadn’t taken their money), which created unemployment and dissatisfaction.” So much that outraged people again issued their own money in spite of the ban. As a result, they successfully financed a war against a major power – with almost no hard currency and no taxation. Thomas Paine called it the Revolution’s “corner stone.”
However, British bankers responded by attacking its “competitor’s currency,” the Continental, driving down its value by flooding the colonies with counterfeit scrip. It was “battered but remained stable.” Where Britain failed, speculators succeeded – “mostly northeastern bankers, stockbrokers and businessmen, who bought up the revolutionary currency at a fraction of its value after convincing people it would be worthless after the war.” It had “to compete with states’ paper notes and British bankers’ gold and silver coins….The problem might have been avoided by making the Continental the sole official currency, but the Continental Congress (didn’t have) the power to enforce” such an order – with no courts, police or authority to collect taxes “to redeem the notes or contract the money supply.”
Having just rebelled against British taxation, colonists weren’t about to let Congress tax them. Speculators took advantage and traded Continentals at discounts enough to make them worthless and give rise to the expression “not worth a Continental.”
How the Government Was Persuaded to Borrow Its Own Money
John Adams once said: “there are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.” The latter method is stealth enough so people don’t know what’s happening and submit to their own bondage. Openly, nothing seems changed, yet a whole new system becomes master “in the form of debts and taxes” that people think are for their own good, not tribute to their captors. That’s today’s America writ large.
After the Revolutionary War, “British bankers and their Wall Street vassals” pulled it off by acquiring a controlling interest in the new United States Bank. It discredited paper scrip through rampant Continental counterfeiting and so disillusioned the Founders that they omitted mentioning paper money in the Constitution. Congress was given power to “coin money (and) regulate the value thereof, (and) to borrow money on the credit of the United States….” It left enough wiggle room for bankers to exploit to their advantage – but only because Congress and the president let them.
Alexander Hamilton bears much blame, the nation’s first Treasury Secretary and Tim Geithner of his day (1789 – 1795). He argued that America needed a monetary system independent of foreign control, and that required a federal central bank – to handle war debts and create a standard form of currency. In 1791, it was created, hailed at the time as a “brilliant solution to the nation’s economic straits, one that disposed of an oppressive national debt, stabilized the economy, funded the government’s budget, and created confidence in the new paper dollars….It got the country up and running, but left the bank largely in private hands” – to be manipulated for private gain, much like today. Worse still, “the government ended up in debt for money it could have generated itself.”
Instead, it had to pay interest on its own money in lieu of creating it interest free. Today, Hamilton is acclaimed as a model Treasury Secretary. For Jefferson, he was a “diabolical schemer, a British stooge pursuing a political agenda for his own ends.” He modeled the Bank of the United States on the Bank of England against which colonists rebelled. It so angered Jefferson that he told Washington he was a traitor. It fostered a bitter feud between them with Jefferson ultimately prevailing.
Hamilton’s Federalist Party disappeared after 1820 while Jefferson and Madison’s Democratic-Republicans became the forerunner of today’s Democrats after the party split into two factions, the Whigs no longer in existence and Jacksonians that by 1844 officially became the Democratic Party. Shamefully they veered far from Jacksonian and Jeffersonian principles.
For his part, Hamilton wasn’t entirely bad. He stabilized the new economy and got the country on its feet. He restored the nation’s credit, established a national currency, and made it economically independent. However, his legacy has a dark side – a “privileged class of financial middlemen (henceforth able) to siphon off a perpetual tribute in the form of interest.” He delivered money power into private hands, “subservient to an elite class of oligarchical financiers,” the same Wall Street types today holding the entire nation hostage – in permanent debt bondage.
From Abundance to Debt
Charging excessive interest is called “usury,” but originally it meant charging anything for the use of money. The Christian Bible banned it, and the Catholic Church enforced anti-usury laws through the end of the Middle Ages.
Old Testament scripture was more lenient, prohibiting it only between “brothers.” Charging it to foreigners was allowed and encouraged, which is why Jews unfairly were called “moneychangers.” They, like others, suffered greatly from money-lending schemes. For centuries, they were “persecuted for the profiteering of a few,” then scapegoated to divert attention from the real offenders.
Fiat money is legal tender by government decree – a simple tally representing units of value to be traded for goods and services. Paper money was invented in 9th century Mandarin China and successfully used to fund its long and prosperous empire. The same was true in medieval England. The tally system worked well for over five centuries before banker-controlled paper money began demanding payment in the form of interest.
History portrays the Middle Ages as backward, impoverishing, and a form of economic enslavement only the Industrial Revolution changed. In fact, the era was entirely different, characterized by 19th century historian Thorold Rogers as a time when “a labourer could provide all the necessities for his family for a year by working 14 weeks,” leaving nearly nine discretionary months to work for himself, study, fish, travel, or do what he pleased, something today’s overworked, over-stressed, underpaid workers can’t imagine.
Some attribute Middle Age prosperity to the absence of usurious lending. Instead of paying tribute in the form of interest, “people relied largely on interest-free tallies.” They avoided depressions and inflation since the supply and demand for goods and services grew in proportion to each other, thus holding prices stable. “The tally system provided an organic form of money that expanded naturally as trade (did) and contracted (the same way) as taxes were paid.”
No bankers set interest rates or manipulated markets to their advantage. The tally system kept Britain stable and thriving until the mid-17th century, “when Oliver Cromwell (1599 – 1658)….needed money to fund a revolt against the Tudor monarchy.”
The Moneylenders Take Over England
In the 19th century, the Rothchild banking family’s Nathan Rothchild said it well:
“I care not what puppet (sits on) the throne of England to rule the Empire on which the sun never sets. The man who controls Britain’s money supply controls the British empire, and I (when he ran the Bank of England) control the British money supply.”
Centuries early, moneylender power was absent. But after the 1666 Coinage Act, money-issuing authority, once the sole right of kings, was transferred into private hands. “Bankers now had the power to cause inflations and depressions at will by issuing or withholding their gold coins.”
King William III (1672 – 1702), a Dutch aristocrat, financed his war against France by borrowing 1.2 million pounds in gold in a secret transaction with moneylenders, the arrangement being a permanent loan on which debt would be serviced and its principle never repaid. It came with other strings as well:
— lenders got a charter to establish the Bank of England (in 1694) with monopoly power to issue banknotes as national paper currency;
— it created them out of nothing, with only a fraction of them as reserves;
— loans to the government were to be backed by government IOUs to serve as reserves for creating additional loans to private borrowers; and
— lenders could consolidate the national debt on their government loan to secure payment through people-extracted taxes.
It was a prescription for huge profits and “substantial political leverage. The Bank’s charter gave the force of law to the ‘fractional reserve’ banking scheme that put control of the country’s money” in private hands. It let the Bank of England create money out of nothing and charge interest for loans to the government and others – the same practice central banks now employ.
For the next century, banknotes and tallies circulated interchangeably even though they weren’t a compatible means of exchange. Banker money expanded when “credit expanded and contracted when loans were canceled or ‘called,’ producing cycles of ‘tight’ money and depression alternating with ‘easy’ money and inflation.” In contrast, tallies were permanent, stable, fixed money, making banknotes look bad so they had to go.
For another reason as well – because of King William’s disputed throne and fear if he were deposed, moneylenders again might be banned. They used their influence to legalize banknotes as the money of the realm called “funded” debt with tallies referred to as “unfunded,” what historians see as the beginning of a “Financial Revolution.” In the end, “tallies met the same fate as witches – death by fire.”
They were money of the people competing with moneylending bankers. After 1834 monetary reform, “tally sticks went up in flames in a huge bonfire started in a House of Lords stove.” Ironically, it got out of control and burned down Westminster Palace and both Houses of Parliament, symbolically ending “an equitable era of trade (by transferring power) from the government to the” central bank.
Henceforth, private bankers kept government in debt, never demanding the return of principle, and profiting by extracting interest, a very lucrative system always paying off “like a slot machine” rigged to benefit its operators. It became the basis for modern central banking, lending its “own notes (printed paper money), which the government swaps for bonds (its promises to pay) and circulates as a national currency.”
Government debt is never repaid. It’s continually rolled over and serviced, today with no gold in reserve to back it. Though gone, tallies left their mark. The word “stock” comes from the tally stick. Much of the original Bank of England stock was bought with these sticks. In addition, stock issuance began during the Middle Ages as a way to finance businesses when no interest-bearing loans were allowed.
In America, “usury banks fought for control for two centuries before” getting it under the 1913 Federal Reserve Act. An issue that once “defined American politics,” today is no longer a topic for debate. It’s about time it was reopened.
Jefferson and Jackson Sound the Alarm
Moneylenders conquered Britain, then aimed to entrap America – by provoking “a series of wars. British financiers funded the opposition to the American War for Independence, the War of 1812, and both sides of the American Civil War.” They caused inflation, heavy government debt, the chartering of the Bank of the United States to fund it, thus giving private interests the power to create money.
Jefferson opposed the first US Bank, Jackson the second, and both for similar reasons:
— distrust of profiteers controlling the nation’s money; and
— concern about the nation’s banking system falling into foreign hands.
Jefferson got Congress to refuse to renew the first US Bank charter in 1811 and learned on liquidation that two-thirds of its owners were foreigners, mostly English and Dutch and none more influential than the Rothschilds. Later, Madison signed a 20-year charter. However, when Congress renewed it, Jackson vetoed it.
The Powerful Rothschild Family
The House of Rothschild was British in name only. In the mid-18th century, it was founded in Frankfort, Germany by Mayer Amschel Bauer, who changed his name to Rothschild, fathered 10 children, and sent his five sons to open branch banks in major European capitals. Nathan was the most astute and went to London. “Over the course of the nineteenth century, NM Rothschild would become the biggest bank in the world, and the five brothers would come to control most of the foreign-loan business of Europe.”
Belatedly, Jefferson caught on to the scheme – that “private debt masquerading as paper money….owed to bankers” placed the nation in bondage. In his words, “deliver(ing) itself bound hand and foot to bold and bankrupt adventurers and bankers….” Jefferson’s idea for a national bank was a wholly government-owned one issuing its own credit without having to borrow it from private interests.
Jackson believed the same thing in calling the Bank of the United States “a hydra-headed monster.” When the bank charter was renewed, he promptly vetoed it, yet understood that the battle was just beginning. “The hydra of corruption is only scotched, not dead,” he said.
He was right. The Bank’s second president, Nicolas Biddle, retaliated “by sharply contracting the money supply. Old loans were called in and new ones refused. A financial panic ensued, followed by a deep economic depression.” However, Biddle’s victory was short-lived. In April 1834, the House rejected re-chartering the Bank, then January 1835 became Jackson’s “finest hour.”
He did something never done before or since. He paid off the first installment of the national debt, then reduced it to zero and accumulated a surplus. In 1836, the Bank’s charter expired. Biddle was arrested and charged with fraud. He was tried and acquitted but spent the rest of his life in litigation over what he’d done. “Jackson had beaten the Bank.” Imagine today if Obama defeated the Fed and its Wall Street puppeteers instead of embracing them with limitless riches.
Lincoln Foils the Bankers and Pays with His Life
Like Jackson, Lincoln faced assassination attempts, before even being inaugurated. “He had to deal with treason, insurrection, and national bankruptcy” during his first days in office. Considering the powerful forces against him, his achievements were all the more remarkable:
— he built the world’s largest army;
— “smashed the British-financed insurrection,”
— took the first steps to abolish slavery; it became official on December 6, 1865 when the 13th Amendment was ratified, eight months after Lincoln was assassinated;
— during and after his tenure, the country became “the greatest industrial giant” in the world;
— “the steel industry was launched; a continental railroad system was created; the Department of Agriculture was established; a new era of farm machinery and cheap tools was promoted;”
— the Land Grant College system established free higher education;
— the Homestead Act gave settlers ownership rights and encouraged new land development;
— government supported all branches of science;
— “standardization and mass production was promoted worldwide;”
— labor productivity increased by 50 – 75%; and
— still more was accomplished “with a Treasury that was completely broke and a Congress that hadn’t been paid” as a result.
It was because the government issued its own money. “National control was reestablished over banking, and the economy was jump-started with a 600 percent increase in government spending and cheap credit directed at production.” Roosevelt did the same thing with borrowed money. Lincoln did it with United States Notes called Greenbacks. They financed the war, paid the troops, spurred the nation’s growth, and did what hasn’t been done since – let the government print its own money, free from banker-controlled debt slavery, the very system strangling us today the way Lincoln feared would happen.
His advisor was Henry Carey, a man historian Vernon Parrington called “our first professional economist.” Lincoln endorsed his prescription:
— “government regulation of banking and credit to deter speculation and encourage economic development;”
— its support for science, public education and national infrastructure development;
— “regulation of privately-held infrastructure to ensure it met the nation’s needs;”
— government-sponsored railroads and “scientific and other aid to small farmers;”
— “taxation and tariffs to protect and promote productive domestic activity;” and
— “rejection of class wars, exploitation and slavery, physical or economic, in favor of a ‘Harmony of Interests’ between capital and labor.”
Leaders like Jefferson, Jackson and Lincoln are sorely missed, but for Lincoln it was costly.
He Loses the Battle with “the Masters of European Finance”
German Chancellor Otto von Bismark (1815 – 1898) called them that in explaining how they engineered the “rupture between the North and the South” to use it to their advantage, then later wrote in 1876:
“The Government and the nation escaped the plots of the foreign bankers. They understood at once that the United States would escape their grip. The death of Lincoln was resolved upon.” The last Civil War battle ended on May 13, 1865. Lincoln was assassinated on April 15.
European bankers tried but failed to trap him “with usurious war loans,” at 24 – 36% interest had he agreed. Using government-issued Greenbacks shut them out entirely, so they determined to fight back – eliminate the thorn, then get banker-friendly legislation passed, achieved through the National Bank Act reversing the Greenback Law. It was “only a compromise with bankers, (but) buried in the fine print,” they got what they wanted.
Although the Controller of the Currency got to issue new national banknotes, it was just a formality. In fact, the new law “authorized the bankers to issue and lend their own paper money.” They “deposited” bonds with the Treasury, but owned them so “immediately got their money back in the form of their own banknotes.” It was an exclusive franchise to control the nation’s money forcing government back into debt bondage where it never had to be in the first place. A whole series of private banks were then chartered, all empowered to create money in lieu of debt free Greenbacks.
One other president confronted bankers and paid dearly as well – James Garfield. In 1881, he charged:
“Whoever controls the volume of money in any country is absolute master of all industry and commerce….And when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”
Garfield took office on March 4, 1881. On July 2, he was shot. He survived the next two and half months, then died on September 19. It was a time of depression, mass unemployment, poverty, and starvation with no safety net protections. “The country was facing poverty amidst plenty,” because bankers controlled money and kept too little of it in circulation – an avoidable problem if government printed its own.
Gold v. Inflation – Debunking Common Fallacies
The classical “quantity theory of money” holds that “too much money chasing too few goods” causes inflation, excess demand over supply forcing up prices. The counter argument is that if paper money is tied to gold, an inflation-free stable money supply will result. Another fallacy is that adding money (demand) raises prices only if supply remains fixed.
In fact, if new money creates new goods and services, prices stay stable. For thousands of years, the Chinese kept prices of its products low in spite of their money supply being “flooded with the world’s gold and silver, and now with the world’s dollars….to pay for China’s cheap products.”
What’s important is not what money consists of but who creates it. “Whether the medium of exchange (is) gold or paper or numbers in a ledger,” when created by and owed to private lenders with interest, “more money would always be owed back than was created…spiraling the economy into perpetual debt….whether the money takes the form of gold or paper or accounting entries.”
Today’s popularism is associated with the political left. However, 19th century Populists saw “a darker, more malevolent force….private money power and the corporations it had spawned, which was threatening to take over the government unless the people intervened.”
Lincoln also feared it saying:
“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few and the Republic is destroyed.”
Today’s America is the reality he feared. A tiny elite own the vast majority of the nation’s wealth in the form of stocks, bonds, real estate, natural resources, business assets and other investments. In contrast, 90% of Americans have little or no net worth. Of all developed nations, concentrated wealth and inequality extremes are greatest here with powerful bankers sitting atop the pyramid, now more than ever with their new riches extracted from public tax dollars and Fed-created money.
A follow-up article will discuss how “bankers capture(d) the money machine.”
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago can be reached at firstname.lastname@example.org.
Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday – Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening.
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Reviewing Ellen Brown’s “Web of Debt:” Part II
By Stephen Lendman
11 May, 2009
This is the second of several articles on Ellen Brown’s remarkable book titled “Web of Debt….the shocking truth about our money system, (how it) trapped us in debt, and how we can break free.” It’s a multi-part snapshot. Reading the entire book is strongly recommended – easily obtainable through Amazon or Brown’s webofdebt.com site.
Bankers Capture the Money Machine – Fighting for the Family Farm
In the 1890s, “keeping the family homestead was a key political issue” given that foreclosures and evictions “were occurring in record numbers,” much like today. The “Bankers Manifesto of 1892” spelled it out – a willful plan “to disenfranchise farmers and laborers of their homes and property,” again like today except that now our very freedom and futures are at stake as sinister forces aim to steal them by turning America into Guatemala and lock it down by police state repression.
The panic of 1893 caused an earlier depression – severe enough to establish a precedent of street protests, the result of the first ever march on Washington. Businessman/populist Jacob Coxey led his “Coxey’s Army (of around 500) from Massilon, Ohio (beginning March 25, Easter Sunday) to the nation’s capital to demand jobs and a return to debt and interest-free Greenbacks. Local police intervened. The marchers were disbanded. Coxey was arrested. He spent 20 days in jail for disturbing the peace and violating a local ordinance against walking on the grass. However, he was never charged, then released, and is now remembered for his heroics.
He began a tradition later sparking suffragist marches; unemployed WW I veterans for their “Bonus Bill” money; numerous anti-war and earlier civil rights protests; in 2004, one million in the nation’s capital for women’s rights, and the previous day thousands protesting IMF-World Bank policies.
The late 19th century Populist movement was the last serious challenge to private bankers’ monopoly power over the nation’s money. Journalist William Hope Harvey wrote a popular book titled “Coin’s Financial School” that explained the problem in simple English – that restricting silver coinage was a conspiracy to enrich “London-controlled Eastern financiers at the expense of farmers and debtors.” He called England “a money power that can dictate the money of the world, and thereby create world misery.”
He referred to the “Crime of 73” that limited free silver coinage and replaced it with British gold. It forced America to pay England $200 million annually in gold in interest on its bonds and inspired William Jennings Bryan’s “Cross of Gold” speech. He nearly became president, but lost in a close (big-monied financed) race to William McKinley, but he, too, paid a price. He was later assassinated, likely for his protectionism, very much disadvantaging British bankers. With him gone, the Morgans and Rockefellers dominated US banking, and arranged for friendly leaders to run the country, Teddy Roosevelt included, a man with more bark than bite.
“The trusts and cartels remained the puppeteers with real power, pulling the strings of puppet politicians” who were bought and paid for like today.
The Secret Government
Various presidents suggested the worst of what’s now clear. By signing the Federal Reserve Act, Woodrow Wilson was a tool of big money. Yet he belatedly expressed regret, said “I have unwittingly ruined my country,” and called America “one of the worst ruled….most completely controlled governments in the civilized world (run by) a small group of dominant men.”
Franklin Roosevelt was as clear in saying “The real truth (is that) a financial element in the large centers has owned the government since the days of Andrew Jackson.” Other officials said the same thing, and so did Matthew Josephson (in his 1934 book) calling bankers and business titans “Robber Barons” – men who “lived for market conquest, and plotted takeovers like military strategy.”
They sought monopolies for market dominance and trusts – concentrated wealth in a few hands to be manipulated for maximum profits and power. During the Gilded Age, trusts became strong enough to plant “their own agents in the federal commissions, (use) government regulation (for) greater control….protect themselves from competition,” and keep prices high.
Four names (among others) stand out – Andrew Carnegie, John D. Rockefeller, Henry Ford, and JP Morgan running finance with the power of a potentate. “He didn’t build, he bought. He took over other people’s businesses, and he hated competition” so he eliminated it. Together with Rockefeller, they dominated business and finance through interlocking directorates, the same way as today throughout industry, commerce and finance.
For his part, Morgan was so dominant, financial writer John Moody called him “the greatest financial power in the history of the world” even before the establishment of the Federal Reserve. Morgan died months before its creation, but his influence made it possible.
His long arm favored the fortunate – with enough funding to monopolize their industries. “But where did (he and other bankers get their money)?” Congressman Wright Patman explained that they created it “out of an empty hat.” They held the ultimate credit card, limitless accounting-entries to buy out competitors, corner raw materials markets, control politicians, and after the birth of public relations, popular opinion the way distinguished author/psychogist and activist Alex Carey explained in his seminal book titled “Taking the Risk out of Democracy:”
“The 20th century has been characterized by three developments of great political importance: The growth of democracy, the growth of corporate power, and the growth of propaganda as a means of protecting corporate power against democracy.” It came into its own during WW I, then grew, became dominant, and remains near-omnipotent today, even with fissures appearing with enough promise to challenge it.
The Jekyll Island Affair – Establishing the Federal Reserve
In 1910, seven financial titans met secretly on this privately-owned island off the coast of Georgia and created the Federal Reserve:
— established three years later on December 23, in the middle of the night, by an act of Congress;
— its most outrageous action ever that few legislators, if any, even read or would have understood if they did because the text was so intentionally vague;
— it enfranchised powerful bankers to hold the nation hostage in permanent debt bondage by giving them the right to create money, in violation of Article I, Section 8 of the Constitution that states Congress alone has the power “To coin (create) money (and) regulate the value thereof….”
Woodrow Wilson made it possible, “Morgan’s man in the White House” with an administration staffed with his cronies. This act was so publicly harmful it had to be shepherded through a carefully arranged Conference Committee, scheduled for between 1:30 – 4:30AM three days before Christmas when many lawmakers had left town and many others were asleep. It was then enacted the next day – one that will live in infamy for the damage it caused.
“The bill was so obscurely worded that no one really understood its provisions.” The nation’s money would be printed by the US Bureau of Engraving and Printing, then issued as a government obligation (or debt) to the private Federal Reserve with interest.
Nominally, Congress and the president appoint Fed governors, but they operate secretly with no government oversight or control. As a privately owned banking cartel, they’re a power unto themselves. The chairman sits at its helm, but he’s a mere tool of the bankers who control him.
The 1913 Federal Reserve Act “was a major coup” for them. The Fed exists to serve them, not the government or public interest. Therein lies its problem and why it must be abolished.
For over a century, powerful international bankers wanted a private central bank giving them “the exclusive right to ‘monetize’ the government’s debt (that is, print their own money and exchange it for government securities or IOUs.)” The entire Act was written in obscure Fedspeak so no one but its creators knew its purpose.
“In plain English, the Federal Reserve Act authorized a private central bank to create money out of nothing, lend it to the government at interest, and control the national money supply, expanding or contracting it at will.” Nothing has been the same since.
Who Owns the Federal Reserve?
Contrary to common belief, it’s a private banking cartel owned by its member banks in each of its 12 Fed districts. “The amount of Federal Reserve stock” each one holds “is proportional to its size.” The New York Fed is most dominant (like a mother bank) owning 53% of the System’s shares because the nation’s largest commercial banks are located there, on Wall Street, of course, with names like JP Morgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley prominent and familiar. Bank of America was founded in California and remains concentrated heavily in Western and Southwestern states, yet operates globally like the others.
The largest banks are financial superpowers with interests in commercial and investment banking, insurance, real estate, home mortgages, credit cards, and virtually all things financial – nationally and globally.
Financial commentator Hans Schicht refers to Wall Street’s “master spider” controlling a powerful inner circle of men, headed by him. Their business is done secretly behind closed doors by what he calls “spider webbing.” It exercises “tight personal management and control, with a minimum of insiders and front-men who themselves have only partial knowledge of the game. They also have “leverage” over mergers, takeovers, chain store holdings where one company holds shares of others, conditions annexed to loans, and so forth.
Further, they make concentrated wealth “invisible. The master spider studiously avoids close scrutiny by maintaining anonymity, taking a back seat, and appearing to be a philanthropist.”
Post-WW II, the center of power shifted from the House of Rothschild to Wall Street with David Rockefeller Sr. (John D’s grandson) becoming “master spider,” a sort of boss of bosses, much like the underworld but much more deadly and powerful.
All the more so because “the Robber Barons (used) their monopoly over money to buy up the major media, educational institutions,” and other means of communications. They got all this but Morgan wanted more – to “secure the banks’ loans to the government with a reliable source of taxes, (gotten directly from) the incomes of the people. There was just one snag.” The Supreme Court “consistently” declared federal income taxes unconstitutional. So how were they instituted and why are they willingly paid?
The Federal Income Tax
The Constitution omits any mention of a federal income tax because the Founders “considered the taxation of private income, the ultimate source of productivity, to be economic folly.” They also decided that the States and federal government shouldn’t impose the same tax at the same time. Congress was to have responsibility “for collecting national taxes from the States’ ” tax revenues.
Direct taxes were to be apportioned according to each State’s population. “Income taxes were considered unapportioned direct taxes in violation of this provision of the Constitution.”
Except in times of war, no federal income tax existed until the 16th Amendment was ratified on February 13, 1913 empowering Congress to levy one – unapportioned among the states. Even without one, the economy grew impressively for nearly a century and a half, adequately funded by customs and excise taxes.
For a brief period, Congress enacted an income tax in 1894 when the nation was at peace. On April 8, 1895, in Pollock v. Farmers’ Loan and Trust Company, the Supreme Court held that unapportioned income taxes were unconstitutional. “That ruling has never been overturned.” To get around it, Wall Street packaged the 16th Amendment with the Federal Reserve Act, both in 1913. It applied only to annual incomes over $4000, well above the average level at the time.
The original tax code was simple enough to be covered in 14 pages. It’s now a 17,000 page monster, filled with obscure provisions professionals struggle to understand or even know about. It also has “whole pages devoted to private interests,” including loopholes exempting powerful corporations from paying rightfully owed taxes.
Before WW II, income taxes affected few people. However, from 1939 – 1944, Congress passed various ones, including to fund the war effort, and began letting workers (voluntarily) pay them in installments. Thereafter, “withholding” became mandatory.
“Today the federal income tax has acquired the standing of a legitimate tax enforceable by law, despite longstanding (Supreme Court rulings) strictly limiting its constitutional scope.” Numerous other taxes were also added, including on capital gains, real estate, corporate income, FICA, sales, luxury, and IRS interest and penalties. With all hidden ones included (dozens in all), up to 40% of an average worker’s income goes for taxes.
Enough for some tax protesters to challenge the 16th Amendment’s legitimacy on grounds that it was improperly ratified. However, US courts rejected the argument and now it’s “beyond review” – even though no tax would be needed if the federal government printed its own money interest-free instead of taking ours to defray banker-imposed charges.
After signing the Federal Reserve Act, Woodrow Wilson called himself “a most unhappy man. I have unwittingly ruined my country.” Yet he knew precisely what he did. He was a lawyer, a Ph. D, a historian and political scientist, and former Princeton University president before entering politics.
Reaping the Whirlwind – The Great Depression
In theory, the Federal Reserve was established to stabilize the economy, smooth out the business cycle, manage a healthy, sustainable growth rate, and maintain stable prices. It failed dismally on all counts – most noticeably in the 1930s after a depression followed the crash. The Fed wasn’t the solution. It was the problem.
As in recent years, it kept interest rates low and money plentiful – not money, in fact, but “credit” or “debt,” the same problem creating havoc today. In the 1920s, production rose faster than wages, but (again like today) people could borrow on credit. Then as stocks soared in “value,” Wall Street promoted buying them on margin (namely, leverage on credit) on the premise that higher prices could repay loans. It turned “investing” into a “speculative pyramid scheme” based on money that didn’t exist.
The Fed caused the whole scheme with easy and plentiful money (credit). It assured the inevitable crash, and late in the game Fed officials saw it coming. New York Fed governor, Benjamin Strong, warned wealthy industrialists, politicians, and high foreign officials to sell stocks, then began reducing the money supply and raising bank-loan rates to correct the bubble “naturally.” It caused a huge liquidity squeeze. Stock purchases declined. Prices fell. Margins were called causing the crash over three days – so-called Black Thursday (on October 24), Monday and Tuesday.
The subsequent fallout was disastrous. From 1929 – 1933, “the money stock fell by a third, and a third of the nation’s banks closed their doors….It was dramatic evidence of the dangers of delegating the power to control the money supply to a single autocratic head of an autonomous agency.”
It resulted in a “vicious cyclone of debt….dragging all in its path into hunger, poverty and despair” – the very process repeating today, including insiders being tipped off, selling high, profiting from the collapse at fire sale prices, and letting the public pay for the dirty scheme they had in mind in the first place. Then, like today – shifting huge wealth amounts from “the Great American Middle Class to Big Money.”
Instead of shutting the Fed and prosecuting its conspirators, Congress enacted the Federal Deposit Insurance Corporation (FDIC), “ostensibly to prevent” another collapse. It insured deposits up to $5000 at the time and rescued some banks, but not all. It was for “rich and powerful” ones, the equivalent of prominent names today and considered then like now, “too big to fail” run by officials too important to offend.
Milton Friedman blamed the Great Depression on the contraction of the money supply, but others disagreed. Chairman Louis McFadden of the House Banking and Currency Committee said it “was not accidental. It was a carefully contrived occurrence….The international bankers sought to bring about a condition of despair here so that they might emerge as rulers of us all.”
The “Bankers Manifesto of 1934” suggested the same thing, and some observers today believe it’s again playing out, this time on a global scale for much greater stakes for both winners and losers.
Roosevelt, Keynes and the New Deal
Roosevelt addressed the collapse straightaway, starting impressively in his first 100 days with the passage of 15 landmark acts, covering:
— emergency banking;
— Glass-Steagall and the FDIC;
— empowering the Reconstruction Finance Corporation that was toothless under Hoover;
— the Securities Act of 1933, then the Securities Exchange Act of 1934;
— the Home Owners’ Loan Corporation to refinance homes and prevent foreclosures; and
— an alphabet soup of development agencies in charge of constructing national infrastructure and producing jobs for the unemployed.
In all, it was a whirlwind of achievement in a few short months unlike anything before or since – so much in such a short time. This writer’s late April article said:
Despite its flaws and failures, FDR’s New Deal was remarkable in what it accomplished. It helped people, put millions back to work, reinvigorated the national spirit, built or renovated 700,000 miles of roads, 7800 bridges, 45,000 schools, 2500 hospitals, 13,000 parks and playgrounds, 1000 airfields, and various other infrastructure, including much of Chicago’s lakefront where this writer lives. It cut unemployment from 25% in May 1933 to 11% in 1937, then it spiked before early war production revived economic growth and headed it lower.
Challenging Classical Economic Theory – Keynesianism
Post-WW II, it dominated economic policy, the idea being that deficit spending could propel nations to prosperity unlike the classical economic belief that money supply increases weren’t needed. Its theory was that when the supply contracts, so do prices and wages naturally leaving everything in balance like before.
It didn’t work at a time people wanted jobs, but there were few around. Factories could produce, but there was little demand, and resources were available but unused – for the lack of enough pump priming to reinvigorate a collapsed economy.
Enough, but not too much because as long as bankers print money, added liquidity means more debt and a greater amount to service. In addition, doing it crowds out social services, sacrifices industrial growth, and increases inflation hugely over time. The 5 cent ice cream cone and candy bars this writer remembers as a boy today cost around $2.50. If government printed its own money, they might still be a nickel or pretty close.
Congressman Wright Patman suggested it in 1933 by asking: “Why is it necessary to have Government ownership and operation of banks? The Constitution of the United States says that Congress shall coin money and regulate its value,” not hand it over to predatory private bankers.
Instead of returning money-creation power to the government, Roosevelt let “moneychangers” keep it under an overhauled Federal Reserve – a still powerful private banker-controlled “citadel, run from the top down (by) a small cartel of appointed banking representatives (operating) behind a curtain of secrecy,” more powerful than government itself. Had Roosevelt acted like Jackson and Lincoln, it would have been his greatest achievement.
Even so, in his first few months in office, he got enacted tough reformist legislation, very much impacting bankers. He also “took aim at the trusts and monopolies that had returned in force” in the anything-goes 1920s. By 1929, consolidation left around 200 companies “in control of over half of all American industry.”
FDR reversed the trend with new legislation, reviving earlier trust-busting efforts. He also imposed banking regulations as cited above – enough to get him to call financiers “unanimous in their hatred of me, and I welcome their hatred.” Lucky for him he survived. Big money plays for keeps, wins more often than it loses, and generally on what matters most.
Wright Patman Exposes the Money Machine
A Texas Democrat, he served in Congress from 1929 – 1976 where from 1963 – 1975 he headed the House Banking and Currency Committee until his death. Unlike his counterparts today in the House and Senate, he was called an “economic Populist,” one way being for how he exposed Fedspeak to reveal the scheme behind it.
In an August 5, 1964 Committee document titled “A Primer on Money,” he concluded:
“The Federal Reserve is a total moneymaking machine. It can issue money or checks. And it never has a problem of making its checks good because it can obtain the $5 and $10 bills necessary to cover (them) simply by asking the Treasury Department’s Bureau of Engraving to print them.”
Although the Fed now returns most interest on its government bonds to the Treasury, of far greater importance is the windfall its member banks get. “The bonds that have been acquired essentially for free become the basis of the Fed’s ‘reserves” – the phantom money that is advanced many times over by commercial banks in the form of loans.”
Virtually all money in circulation comes from the Fed and its member banks, expanded by a factor of about 10 (through fractional reserve lending) for every federal debt dollar monitized. It all “consists of loans on which the banks have been paid interest.” This interest, not what the Fed gets, “is the real windfall to the banks.
The limitless money-creation machine is kept hidden “in obscure Fedspeak,” even undecipherable to people who think they understand the process. In The Creature from Jekyll Island, Ed Griffin states that:
“modern money is a grand illusion conjured by the magicians of finance and politics. (The Fed’s function) is to turn debt into money. It’s just that simple….if one remembers that the process is not intended to be logical but to confuse and deceive.” It has to be. Would the public ever put up with it if they realized they’d be had – that their tax money was being used to enrich bankers, and Washington made it possible.
“Magical(ly) multiplying reserves is called fractional reserve banking” that seems more like a con or “shell game.” Each dollar deposited “magically” becomes about 10 in the form of loans or computer-generated funds. As explained below, “reserves” are being phased out so the 10 – 1 multiple is actually higher but the principle is the same.
So if $1 million deposited becomes $10 million, and $900,000 can be loaned out (the other $100,000 required for reserves), “money created out of thin air (at 5% interest) is doubled in about two years.”
The Fed claims it returns 95% of its profits to the Treasury. In fact, it’s only the interest on federal securities held as reserves. Far more important is the windfall afforded banks, the Fed’s owners, that “use the securities as the ‘reserves’ that get multiplied many times over in the form of loans” that generate huge profits for them.
Wright Patman wanted to abolish the Open Market Committee and nationalize the Fed, thus giving Congress control of it as a “truly federal agency” issuing interest-free money.
The Fed is now heading for a zero percent reserve requirement meaning they’ll be “no limit to the number of times deposits can be relent.” There’s effectively no limit now as if banks exhaust their reserves, they can borrow freely from the Fed – today at zero percent interest.
Inside the Fed’s Playbook
“Banks don’t have to have the money they lend before they make loans, because the Fed will ‘provide’ the necessary reserves by making them available at the federal funds rate” – today amounting to limitless free money at zero percent interest to be loaned out at higher rates for profit. The “slight of hand” is that the Fed “creates reserves out of thin air.”
Loans then become deposits that banks can freely re-lend many times over – the more deposits, the greater the amount of lending. It’s a process of multiplying the money supply and charging interest for doing it, a very profitable business when working well in a healthy economy.
So, the process works as follows:
— banks “lend money (they) don’t have;”
— loans become deposits on their books;
— when borrowers spend their money, banks raise their reserves back to the required 10% (or less) “by borrowing from the Fed or other sources;” and
— the Fed never runs out of reserves because its “open market operations” create more of them; it simply manufactures whatever amounts it wishes out of thin air, and the public is none the wiser or that they’re being taxed to pay for this shell game.
Reserves don’t comprise safe money to pay claimants. They’re accounting entries at Federal Reserve banks letting commercial banks “make many times those sums in loans.” In plain English, “reserve accounts are a smoke and mirrors accounting trick concealing the fact that banks create the money they lend out of thin air, borrowing any ‘reserves’ they need from the Fed, which also creates the money out of thin air.” What a business, especially given how secretive it is under the protection and auspices of the federal government that sanctions the con.
There’s more as well. Besides what they loan out, banks “create their own investment money” to use for their own purposes. Traditionally, commercial banks invested conservatively, but not investment banks. They raise money for their clients through stock issuances and sales. But more important is their “proprietary trading” that involves using their own money to buy or sell stocks, bonds, currencies, commodities, or any other financial instrument or derivative thereof no matter how risky.
Since investment and commercial banks may be one in the same, limitless sums are available through magical money creation and open-ended Fed borrowing, then leveraged multiple times through more borrowing. The game worked “magically” until it no longer did the old way, so alternatives are used.
Bear Raids and Short Sales
The 1929 “Crash” happened on three “Black” days but “continued for nearly four years, stoked by speculators who made huge profits not only on the market’s” ascent but during its plunge to 11% of its peak value.
Called a “bear raid,” it targets vulnerable stocks for “take-down” quick profits or corporate takeovers at fire sale prices. When done on a large scale, short selling can impact markets greatly on the downside just like heavy “program buying” can rocket it up. The whole business amounts to blatant manipulation for quick profits.
Short sellers actually do it with borrowed (not owned) stock, then sell it into the market. If it declines (it may also rise, of course), it’s re-bought at the lower price, returned to the seller, with short-sellers pocketing the difference as profit. It’s not investing. It’s gambling with someone else’s stock, without permission to borrow it, and as a result harms its owner by driving down the price when it works.
“Short selling is sometimes justified as being necessary to keep a brake on (over-exuberance) that might otherwise drive popular stocks into dangerous ‘bubbles.’
(However,) Any alleged advantages to a company from the liquidity afforded by short selling (and supposedly keeping markets honest) are offset by the serious harm (this causes) companies targeted for take-down(s) in bear raids.” When done with enough force, it can destroy companies if that’s the intent.
“Short selling is the modern version of the counterfeiting (that brought) down the Continental in the 1770s.” Currencies, bonds, and commodities can be shorted just like stocks – to manipulate them for profit.
Worse still, and illegal, is so-called naked short-selling without first borrowing the security shorted, assuring it can be borrowed, or arranging to borrow it as required by law – the reason being that it’s an even easier way to manipulate stock prices so SEC regulations ban it.
Even so, the idea that markets move randomly is rubbish. So is believing that companies or nations don’t target competitors for destruction by attacking their worth through short selling or other manipulative ways.
Hedge funds and Derivatives
“Hedge funds are private funds that pool the assets of wealthy investors with the aim of making ‘absolute returns’ – making a profit whether (markets go) up or down” on whatever financial assets they invest in. Leverage is used for maximum profitability, the more of it the greater gain or loss. In futures trading, it’s called the margin – placing “many more bets than if they had paid the full price.”
Originally, hedge funds were to “hedge (investment) bets….against currency or interest rate fluctuations (but) they quickly became instruments for manipulation and control.” At their peak, they controlled over half of daily equity market trading because of their numbers, size, amount of capital, and frequency of their buying or selling.
Derivatives are one of their key tools – essentially making “side bets that some underlying investment will go up or down” to insure against the risk. “All derivatives are variations on futures trading (and like it) is inherently speculation or gambling.” Familiar examples include puts and calls – on whether assets will go down or up.
“Over 90% of the derivatives held by banks….are ‘over-the-counter’ (ones) specially tailored to financial institutions (with) exotic and complex features, not traded on standard exchanges.” They’re unregulated, hard to trace, and “very hard to understand,” quite often impossible. In a 1998 interview, banking columnist John Hoefle called them “the last gasp of a financial bubble.” More recently Warren Buffett said they were “financial weapons of mass destruction” even though he owns a sizable amount of them and incurred considerable losses as a result.
Derivatives aren’t assets. They’re “just bets” on how assets will perform using very little real money. Most is borrowed to make private unreported, unregulated bets that have soared to a “notional value” of around $370 trillion, according to the Bank for International Settlements as of 2006. Notional value is “the number of units of an asset underlying the contract, multiplied by the spot price of the asset.” In other words, “fanciful, dubious or imaginary” assets.
The amount gets so large because when unregulated “gamblers can bet any amount of money they want,” and when markets work well for them, the sky’s the limit. In mid-2006, the Office of the Controller of the Currency reported that around 97% of US bank-held derivatives were owned by five major US banks, including JP Morgan Chase and Citigroup. In November 2005, Bloomberg reported that the credit derivatives market was “vulnerable to a crisis if one (of their major bank holders) fails to pay on contracts that insure creditors from companies defaulting….” John Hoefle warned we were “on the verge of the biggest financial blowout in centuries, bigger than the Great Depression….”
Since banks can create money out of thin air, how can they go bankrupt? Because under accounting rules, commercial banks have to balance their books so their assets equal liabilities. “They can create all the money they can find borrowers for, but” if loans default, banks must record a loss.
Just imagine – if the government created money and not banks, economic stability would follow, crises could be avoided or greatly lessened, inflation would be minimal or non-existant, prosperous growth would be long-term, and bank loans would be far less risky than today assuring steady profits but in smaller amounts.
A follow-up article will discuss global debt entrapment.
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at email@example.com.
Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday – Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening.
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¨ Confessions of an Economic Hit Man: The Shocking Story of How America Really Took Over the World (Paperback) by John Perkins
|Monday, 13 September 2010 12:24|
|Folks I believe the below info will happen sooner then later I have adviced all who will listen to start pulling all your money out of the banks. cheers Tami
Global Research <http://www.globalresearch.ca/>, August 31, 2010
Global Research, August 31, 2010 Future Fast Forward
Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history.
Quantitative Easing (QE I) spearheaded by the Chairman of Federal Reserve, Ben Bernanke delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.
That is why in November of 2009, I was so confident to warn my readers that by the end of the first quarter of 2010 at the earliest or by the second quarter of 2010 at the latest, the global economy will go into a tailspin. The recent alarm that the US economy has slowed down and in the words of Bernanke “the recent pace of growth is less vigorous than we expected” has all but vindicated my analysis. He warned that the outlook is uncertain and the economy “remains vulnerable to unexpected developments”.Obviously, Bernanke’s words do not reveal the full extent of the fear that has gripped central bankers and the financial elites that assembled at the annual gathering at Jackson Hole, Wyoming. But, you can take it from me that they are very afraid.
Let me be plain and blunt. The “unexpected developments” Bernanke referred to is the collapse of the global banks. This is FED speak and to those in the loop, this is the dire warning. So many renowned economists have misdiagnosed the objective and consequences of quantitative easing. Central bankers’ scribes and the global mass media hoodwinked the people by saying that QE will enable the banks to lend monies to cash-starved companies and jump start the economy. The low interest rate regime would encourage all and sundry to borrow, consume and invest.This was the fairy tale.
Then, there were some economists who were worried that as a result of the FED’s printing press (electronic or otherwise) working overtime, hyper-inflation would set in soon after. But nothing happened. The multiplier effect of fractional reserve banking did not take off. Bank lending in fact stalled.
Let me explain in simple terms step by step.
1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.
2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.
3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.
4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.
5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?
6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?
7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!
8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. . Let me explain: A House was sold for say US $500,000. Borrower has a mortgage of US $450,000 or more. The house is now worth US $200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent. It is my estimation that they have to QE up to US $20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.
9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.
10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.
11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?
12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.
Now that you fully understand this SCAM, it is left to be seen how the FED will get away with the next round of quantitative easing – QE II. Obviously, the FED and the other central banks are hoping that in time, asset prices will recover and resume their previous values before the crisis. This is a fantasy. QE II will fail just as QE I failed to save the banks. The patient is in intensive care and is for all intent and purposes brain dead, although the heart is still pumping albeit faintly. The Too Big To Fail Banks cannot be rescued and must be allowed to be liquidated. It will be painful, but it is necessary before there is recovery. This is a given.
When the ball hits the ceiling fan, sometime early 2011 at the earliest, there will be massive bank runs. I expect that the FED and other central banks will pre-empt such a run and will do the following:
1) Disallow cash withdrawals from banks beyond a certain amount, say US$1,000 per day;
2) Disallow cash transactions up to a certain amount, say US$10,000 for certain transactions;
3) Transactions (investments) for metals (gold and silver) will be restricted;
4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II.
5) Imposition of capital controls etc.;
6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards;
7) Legislations to make it a criminal offence for any contraventions of the above.
Maintain a bank balance sufficient to enable you to comply with the above potential impositions.
Start diversifying your assets away from dollar assets. Have foreign currencies in sufficient quantities in those jurisdictions where the above anticipated impositions are least likely to be implemented.
There will be a financial tsunami (round two) the likes of which the world has never seen.
Global banks will collapse!