The Banking Robbers:
The Lawlessness of the Federal Reserve
by Curtis Kekoa III - Print View Here
The United States government gave up control of its economy when the Federal Reserve Act was
signed into law on December 23, 1913. While it is not the purpose of this essay to explain the
creation of this banking monstrosity, the Act created the Federal Reserve Bank and granted it
sweeping powers over our nation’s economy, such as control of the currency, the elasticity and the
value thereof, and control of the extension of credit. Though an Act of congress, “The [Federal
Reserve] System is independent of other branches and agencies of government and is self-financed
without having to involve itself in the congressional budgetary process” (San Francisco). As such,
the “Federal Reserve banks are not only privately owned but their policies cannot be changed by the
president or by the congress” (Jaikaran 35).
The Federal Reserve Bank is not federal nor do its guidelines maintain any sort of public policy but of
private, monetary policy. Larson writes that monetary policy “is perhaps the most important
constitutional function of the central government […] and [the Fed] is in no way responsible either to
the will of Congress or to the needs of the American people” (78). The Fed (Federal Reserve Bank) is
a central bank consisting of member banks. In other words, the Fed is the bank from which banks
borrow their money.
Banks are generally thought to provide credit and “safe” places for storing dollars. A bank, however,
is never thought of as part of a system which derives its wealth through deceptive measures, a
bank's only function. As an unfortunate consequence of this deceptive banking system, public and
private wealth will be transferred from Americans and their government into the hands of the few
bankers (and shareholders) who control the system. This transfer of wealth will be the result of an
economic collapse caused by the Fed’s manipulation of the economy.
History has shown that ever since the Fed’s inception, the U.S. economy has suffered several small
collapses - at least one depression and several recessions. The Fed was supposedly created to deter
such events (Grey 9). However, it is accurate to state that these economic collapses could never
occur with an ever-so-powerful corporate entity at the helm of a nation’s monetary controls unless the
controls were deliberately set to cause these collapses.
Paper Money
In order to understand the true nature of the Fed – its deception in manipulating the economy to gain
wealth – the Fed’s most basic responsibilities must be understood, such as the Fed’s role of
manufacturing paper money. The Fed, not the federal government, controls the creation of paper
money. It is imperative to understand that the role of paper money is to create an illusion of wealth;
paper money only “provides a means to store wealth in a form other than real property” (Jaikaran
27). This is the grandest, deceptive measure of the Federal Reserve. Americans are ingrained with
the illusion that their wealth is paper money; the American mind “confers real value and elaborate
powers on these mere scraps of paper” (Greider 226).
Paper money is fiat currency of which the government declares legal tender, but is not backed by
anything except by the faith and credit of the declaring government. Fiat is from the Latin “fieri”
which means “let it be done” (Fiat). Fiat currency does not represent, or is not based upon, specie,
and contains no provision of redemption (Larson 115). Simply put, fiat currency is not valued by gold
or silver or anything of the sort which makes fiat currency extremely vulnerable to value
fluctuations. In fact, the absence of an “anchor” (gold, silver, etc.) by which to base the value of fiat
currency makes it a risky and unreliable medium for exchange. Fiat currency, therefore, “has no
meaning beyond its concrete existence; it is merely another object with certain physical properties”
(Greider 226).
Paper money emerged through goldsmiths, those who safely stored gold for wealthy individuals
(Jaikaran 125). The goldsmith would accept gold from his depositor, and the goldsmith would issue
her a bill of exchange, an IOU, representing how much gold she deposited with the goldsmith. The
depositor could at any time return to the goldsmith and exchange her IOU for the appropriate measure
of gold (Greider 227). The depositor, however, soon realized it was easier to handle a paper IOU
versus actual gold. For instance, one paper IOU could easily represent one hundred pounds of gold.
Thus, because of convenience, the goldsmith’s depositors could use the IOUs, instead of gold, as a
medium of exchange, and they did (Jaikaran 116). The goldsmith observed the infrequent withdrawal
of gold from his vaults, and therefore, lent the gold at interest to those who borrowed gold from the
goldsmith (Jaikaran 126). In this way, the goldsmith gained additional gold by interest on borrowed
gold. In addition, instead of lending actual gold, the goldsmith could most often issue IOUs which
represented a certain amount of gold. By using just IOUs, the goldsmith had no limit to the amount of
his lending; he could simply issue as many IOUs as to his fancy.
The inherent danger of this system was the goldsmith’s inability to make available the measure of
gold in equal proportion of the amount of IOUs. In plainer terms, IOUs exceeded the goldsmith’s
ability to honor them with gold (Jaikaran 126). The goldsmith could only rely on the infrequency of
the exchange of IOUs for gold, a gamble at best.
This arrangement between the goldsmith and the depositor, however, not only created paper money
but also the framework for fractional-reserve lending, the basis of our contemporary American
banking system of the Federal Reserve Bank.
The first image (top-down) is of a recently made dollar-bill.
The words "Federal Reserve Note" adorn the top of the bill -
hereafter referred to as "note." Also notice that "This note is
legal tender for all debts public and private" is also on the
contemporary note. The second image is of a dollar-bill
made sometime between 1934 and 1945, during Henry
Morgenthau, Jr.'s tenure as Secretary of the Treasury. This
bill contains nothing of a "Federal Reserve Note." Rather,
the bill was labeled a "Silver Certificate." Several other
clauses also appear on the certificate which are missing
from the note: "This certifies that there is on deposit in the
Treasury of the United States of America One Dollar in silver
payable to the bearer on demand." This significance is
staggering between the two. The holders of both the note
and the certificate are entitled to whatever is written in the
agreement on the documents' faces. For the note at right,
the bearer or "noteholder" is entitled to absolutely nothing.
The bearer or holder of the certificate, however, is entitled to
some amount of silver, one-dollar's worth. In theory, the
certificate could be taken to the U.S. Treasury and
exchanged for silver, although the Treasury has illegally
denied payment to those who have "demanded" silver (real
money) despite the certificate, a legal contract between the
Treasury and the "bearer," stating otherwise. The dollar,
over time, has been revamped into what it is today, a note
which can be exchanged for nothing - a mere shell of what it
used to be (for the noteholder anyway). Hence, the
Treasury's denial of payment to a noteholder is no longer
illegal since the note does not specify for what, if anything, it
can be exchanged. Notice, too, that the Federal Reserve
has replaced the Treasury as the one indebted if indeed it
really is.
The emergence of paper money out of fractional-reserve lending declares paper money a debt. For
instance, the IOU used in the previous example represented a debt of the goldsmith to the depositor;
the depositor gave the goldsmith gold, hence, the goldsmith was indebted to the depositor for that
measure of gold. The IOU, in short form, represented this fact. Eventually, IOUs were not backed by
gold simply because there was not enough deposit of gold to back existing IOU's (Jaikaran 126). The
faith of the depositors who used the IOUs as a medium, however, backed the IOUs exchangeability,
rendering IOUs fiat and encouraging the production of more IOUs. In all actuality, however, a paper
IOU is useful in that it can be burned for heat or used as wallpaper, and for the moment buy gas
which 6 years ago cost half as much. But that value (heat and wallpaper) is intrinsic and offers no
stability for exchange.
In order to understand this concept in the context of the modern banking system, the Federal Reserve
note, or the dollar-bill as it commonly referred, will be examined. A note is “a written or printed
paper acknowledging a debt, and promising payment” (qtd. in Larson 117). A note states that the
borrower will pay the lender a certain debt over a certain period of time. Basically, the note says
that the borrower owes the lender money, and the note describes this in great detail. Under the
provisions of a note, the note-holder (the lender) can present this to the borrower at any time and
exchange the note for the amount of debt specified, or the note-holder may accept installments on the
note and exchange it upon full payment of the debt. This process is the same as that of a mortgage
note.
Similarly, the dollar-bill, a note issued by the Fed, says “This note is legal tender for all debts, public
and private,” which means the note is a legal contract signed by the Secretary of the Treasury and
the Treasurer of the United States. By definition, it is a promise to pay the note-holder back a debt.
The dollar-bill, therefore, is an IOU as well as fiat money.
Application of the concept of the IOU, however, to dollar-bills poses a problem to those who possess
dollar-bills, you: The dollar-bill does not specify how the Fed will pay the debt for a dollar-bill.
Remember, a dollar-bill is an IOU which is a note, and it represents a debt that the Federal Reserve
must pay the note-holder. Accordingly, the debt of one dollar-bill is satisfied by exchanging it for
absolutely nothing (Larson 117). This means the dollar-bills Americans use as IOUs in lieu of real
money, such as gold, represent nothing. The value placed on dollar-bills is that of those Americans
who use the notes for their exchange of goods and services (Larson 117). Once the notes are
incapable of providing that exchange power, then they become worthless except in the case of
burning them for heat. (Such a loss of buying power is represented in the unbelievable rise in gas
prices.) If Americans try to satisfy the debt of Federal Reserve IOUs, the Fed can legally deny
payment of that debt. One can see that “Federal Reserve [notes] are not only unconstitutional as
money – they are a total fraud; they have no stability or assurance of future value; they can be printed
like newspapers” (Larson 117).
Today, Americans trade their time as work for dollar-bills, IOUs that are worth absolutely nothing,
and thus, Americans have worked for nothing. This is stealing which is a crime. Unbelievably,
Americans have been convinced of a nefarious scheme of trading their time for a piece of paper of no
real or otherwise stable value.
Real Money Versus Fiat
It can be argued that although the governments which use it determine the value of fiat money, those
same governments also determine the value of gold and, therefore, gold is also fiat. In a sense, this
could be true, but only if gold were in an unlimited abundance and controlled like fiat money. The
example of the goldsmith demonstrated an unlimited amount of lending by simply producing an
unlimited amount of IOUs. This immense ability to reproduce debt indefinitely by controlling the
currency is woven into the definition of fiat money and, unfortunately, the Federal Reserve System.
Gold, however, is finite. It is a natural occurrence and cannot be reproduced by mankind, at least not
as of yet. Its measure is constant, and it cannot be duplicated. Hence, the value of gold is
determined by its availability.
Generally, the rarer the medium the more value it carries (Jaikaran 115). This was the original
reason why gold was used as a medium for exchange and why it is still used as the ultimate source
of purchasing power today. For this reason, gold cannot be fiat money. Gold defies the very
definition of fiat. Similarly, all precious metals such as silver are regarded the same. Other objects
can have a certain values as well and can be used as money. Such objects are those produced in
nature in abundance similar to printing fiat currency. The main difference between these objects and
fiat currency is that there is no monopoly in the production of naturally occurring objects, like that of
the Fed over fiat currency. Perhaps seashells could have at one time provided the same constancy of
value as precious metals, or at least until a new beach was found.
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