The Banking Robbers:
The Lawlessness of the Federal Reserve
By Curtis Kekoa
III
March 31, 2005
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.
A Dollar is a Debt
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.
Debt and More Debt to Pay Debt
A solid understanding of the dollar-bill issued as debt is necessary in
understanding the role of credit extension, or debt, which is the main business
of all banks. It is how the cycle of credit can create and will ultimately
destroy an economy and its nation. Credit extension is the result of bank
loans, interest-bearing loans lending a sum of money at interest and repaid
over the course of a particular period of time.
For instance, the bank loans $10,000 payable over five years at eight percent
per annum. The amount required to pay back the loan would be approximately $202
per month. Because of interest, the bank receives at the end of the five years
$2,120 more than what it loaned originally. In order to pay back more than what
was borrowed, the bank (or some bank) would have to loan an extra $2,120 into
the economy to cover the interest accrued on the original $10,000 loan. The
result is a borrower payout of $12,120, and the bank receives an extra $2,120
in addition to the original $10,000.00 loan.
The national debt, public debt that is a direct liability of the United States
government, works in much the same way as private debt. It is a grave
misconception that the government “makes” the money. The government incurs
public debt only in a slightly different manner compared to private borrowing.
Maisel explains:
“The creation of government debt is simple. When the United States Treasury
needs 1 billion in dollars, a billion dollars of U.S. bonds are printed [by the
U.S. Treasury] and the Federal Reserve Bank is notified, who in turn advises
the Bureau of Engraving to print $1 billion Federal Reserve notes (dollar
bills). The Treasury delivers the United States bonds to the Federal Reserve,
which then issues the Federal Reserve notes to the Treasury […] a $1 billion
debt for the American people on which they must pay interest. If you analyze
this sequence carefully, you will realize that the same amount of money is
printed [$1 billion], but the government ends up owing the Federal Reserve
Banks and its assignees $1 billion, plus interest” (101).
Furthermore, “Every time the Fed voted to increase its discount rate, it was
also voting to increase the [public] debt by the additional increment of
interest required to service the debt” (Maisel 78), and “The total public debt
is largely a legacy of war, economic recession and inflation” (Treasury). The
public debt as of mid-October, 2002, was $6.25 trillion (Public Debt).The
supreme dilemma for all debts private and public is that in order for borrowers
to pay their debt, banks must loan more debt to the borrowers or otherwise face
an economic meltdown. Loaning more debt means “that for every dollar of money,
there is a corresponding dollar of interest bearing debt” (Grey 91). Therefore,
current debt can only be serviced by future debt. “When money is created as
debt, the money owed on that interest charge is not created, and this is the
crux of the problem in our all debt monetary system” (Jaikaran 7). By this, the
very nature of interest-bearing debt in theory perpetuates the cycle of debt,
“in theory” because nothing in the universe is perpetual. Upon closer
observation of this “crux,” it is understood that if the flow of credit
extension halts, then the current debt cannot be serviced, economic collapse
occurs and banks confiscate collateral (the transfer of wealth or capital).
Hence, in order to keep the economy afloat, more and more debt must be extended
ad infinitum, an unapproachable solution.
Inflation
Our debt-based system causes inflation, and inflation is a major culprit of
economic decline. The Board of Governors, the policy-making arm of the Federal
Reserve which causes inflation, says, “Inflation is a form of taxation that
falls on those least able to cope with it” (Board 3). This means, “the real
value of savings held and of income earned by the mass of our people are
reduced” (Board 3). This is further evidence of the Fed’s fraudulent activity,
particularly since the Constitution decries that only government can levy
taxes.
A recession, or economic slow-down, signals a rise in costs, or inflation.
Inflation is a constant rise in prices of products resulting in a decrease of
currency value. Due to inflation, more dollars are needed to satisfy everyday
needs of consumers. The extra dollars used for everyday needs effectuate fewer
dollars spent for debt. In a time of inflation, this poses real problems for
consumers and basically any entity which needs to borrow money - any and all
within the economy, really. Less debt can be incurred by consumers
effectively leading to economic decline because fewer dollars are available for
payment on existing debt. Eventually, there will not be enough dollars to
pay existing debt which will result in economic collapse. Default will lead
banks to legally confiscate collateral used to secure their loans.
Grey, however, argues that there is no “reason why there must be enough money
outstanding to pay off all debt” (92). He cites that “the needs of the economy
are much smaller than the economy’s total debt” (Grey 92). Also, “the total
amount of money needed is less than the total value of the transactions because
the money is used more than once” (Grey 92) because the same money can be
circulated again and again to complete transactions (Grey 92). This argument is
faulty; it does not solve the problem of debt itself. In fact, Grey avoids the
problem altogether. Despite whatever amount of money is physically present, the
banks keep ledgers on the amount of debt actually owed, and by sheer common
sense it is easy to understand that all debt can never be paid in full.
Also, by Grey’s logic, it can be said that the same money can be loaned again
without end which creates more debt. Hence, the same money “used more than
once” continuously creates new debt.
In addition, Grey argues that not all money is loaned into existence. The Fed
has dividends and expenses it must pay out of its earnings (interest) which are
spent into the economy (92). Grey implies that the Fed, as a private
enterprise, provides enough money through its expenditures necessary to pay
back the economy’s total debt. This argument would be plausible, however, if
the Fed’s payouts matched the amount of all loans and interest charged on all
loans of which the payouts do not - not by a long shot. Again, common sense
allows for yet another easy understanding: The Fed is only a small fraction of
the economy, and thus, the Fed’s payouts are just as small.
Monetary Controls
To their dismay, Americans, in general, seldom understand monetary controls
used by the Fed. The stigma surrounding inflation is the impetus behind the
Fed’s changes in the discount rate, one monetary control. The discount rate is
spoken most often by the popular media without explanation and is widely
thought to be the only control concerning the Fed’s monetary policy. Simply,
the discount rate is the rate the Fed imposes upon individual banks for loans
made by the Fed. Changes in the discount rate proportionately affect individual
bank rates - car loans, mortgages, credit cards, etcetera. It is thought, or at
least the Fed argues, that if rates are raised, then inflation is reduced or at
least “controlled.” But Maisel argues that “the reverse is true: high interest
rates tend to increase the money supply. Raising the interest rates increases
pressure to expand the money supply” (74). Also, when the Fed raises the
discount rate, inflation occurs
evermore rapidly because the cost of credit - interest on loans - for
businesses increases. “Non-productive interest payments on commercial loans is
the major cause of inflation” (Jaikaran 58). Any business, whether banking,
manufacturing or whatever, will absorb the extra cost of interest by passing
the cost onto the consumer. This triggers inflation because the dollar’s
purchasing power is weakened because of higher prices of goods. Consequently,
economic productivity declines because consumers cannot afford the price
increases, and businesses cannot afford to invest in new employees or production.
Lowering the discount rate is regularly promoted as a remedial effort for an
already sagging economy. As opposed to raising the rate, if the Fed lowers the
discount rate, more credit - interest-bearing loans - can be and is extended to
those who could not afford credit at previously higher rates, the price of a
loan. This increase in new credit is given in the form of cash which is now
plunged into the economy along with other cash from other loans. As a result of
a formerly cash-hungry economy now virtually swimming in cash, inflation occurs
because more dollars are circulating within the economy. Although this may seem
beneficial, it really is not. Consumers who previously postponed purchasing
products now have cash-in-hand to buy the products, but “since the recession
has curtailed production, there is a short-term disruption in the flow of
goods. The result is an inflationary force on the economy” (Maisel 82). In
other words, there are simply not enough goods to meet demand, and prices rise
as a result. A rise in prices generally
remains that way; rarely do prices return to what they used to be, or at least
for a sustained period of time.
Another monetary control of the Fed is the reserve requirement, the amount of
credit a bank may extend in proportion to the amount of currency in its vaults.
This is perhaps the most dangerous control to our economy, for its harmful
effects can be sudden. Currently, the reserve requirement is at ten percent
(Domestic A8) which means out of every one hundred dollars of credit extended
by a bank, only ten dollars are required to be in its vault. This remarks of
the ability of any bank to loan nine-hundred percent of the amount of money it
has in its vaults for immediate withdrawal. Unfortunately, inflation occurs if
the reserve requirements are lowered as more dollars are allowed to circulate
back into the economy as credit.
The opposite, however, would occur if the Fed raised the reserve requirement.
Banks would now need additional cash in their vaults to satisfy the new
requirement. As a result, fewer dollars would circulate, and thus, would
deflate the economy. This is deflation, and it is disastrous because fewer
dollars would accelerate an economic collapse. Paying back all debt is already
a mathematical impossibility; taking existing dollars out of the system would
only expedite the reality of collapse. Raising the requirement would prevent
banks from making new loans and prompt banks to call existing loans before
maturity to fulfill the reserve requirement (Larson 72). It is unlikely that
most consumers and businesses would have the necessary funds on-hand to pay
their loans in full, particularly during deflated times. Failure to pay such
loans would result in the immediate confiscation of capital (transfer of wealth)
to cover the full amounts of the loans.
Will This Ever End?
Yes.
Historically, the Fed used the reserve requirement and discount rate under the
guise of controlling inflation. This mix of monetary policy created either a
recession or depression, and banks captured staggering amounts of wealth - not
money - by confiscating collateral such as houses, land and businesses. One can
only imagine the amount of wealth created during times of economic prosperity
followed by periods of recession / depression. At present, if banks extend
credit properly, and most often banks do, then they stand “to gain either way.
If the loan is paid off, the bank has made a fantastic return, and if it is not
paid off, the bank is in a position to claim the collateral” (Maisel 75).
It is evident that there is a trend of ever-increasing inflation as well as a
system of wealth
confiscation of the Fed by its manipulation of monetary controls, manipulation
free from public interests while laden with the interests of Federal Reserve
stockholders. The ability of consumers to keep up with inflation, i.e. rise in
household incomes, has not, unfortunately, increased in proportion to the rate
of inflation despite the Fed’s cark that “unprecedentedly high levels of
household indebtedness could lead to economic contraction” (Olney 319). By
inflating prices of all products and services where prices exceed consumers’
ability to pay in cash, coupled with a voraciously driven, American appetite
for mostly newer products and services, the Fed has created a gigantic need for
borrowing money. This is a very deceptive, if not criminal, result of the
ruthless nature of the Federal Reserve, particularly since it is impossible to
pay back the debt issued by the Fed under its debt-based, fiat-dependent
system. By this system, Americans have no choice but to be forced into bondage
under the Fed. And As inflation continues to increase, it will become evermore
difficult for Americans to maintain interest payments on debt, private and
public, and as a result, financial collapse will occur. Collapse is inevitable,
because all debt’s interest exceeds the supply of money necessary to service
the interest.
The Holy Bible puts it this way: “The rich rules over the poor, and the
borrower becomes the lender’s slave” (New American Standard Bible,
Prov. 22.7). This is an absolutely true statement, but an even worse tragedy is
most Americans do not even know they are slaves to the banks as well as to
their tax-hungry government which is has also become servant to the Fed.
Eventually, because of the Fed’s manipulation of monetary controls and an
American ignorance unparalleled before in our history, Americans will fail to
pay their private debts, and our own government will not be able to service the
public debt any longer with taxpayer money. The U.S. Government will, by lawful
mandate, allow the banks to confiscate the public and private wealth of an
entire nation, the United States. Thus, the Fed could ultimately, if it wills,
own the nation. Some would argue, however, that the Fed would not do this
because its largest source of income - U.S. citizenry - would perish. But since
the Fed can already create money, then power would be the only and ultimate
thing left to gain, and owning a nation’s wealth is powerful. It stands to
reason that the Fed already wields unmerciful power over its borrowers, just
like a master over his slaves. Also, the Federal Reserve, after confiscating
the wealth, can just mortgage it again,
starting the system once again without a thought.
John Maynard Keynes, the “father” of this debt-based economic system, wrote in
his Economic Consequences of the Peace (1919): “By a continuing process
of inflation, governments can confiscate, secretly and unobserved, an important
part of the wealth of their citizens” (qtd. in Jaikaran 52). Keynes was right,
but he forgot to mention that the Federal Reserve would be the force behind the
government.
------------------------------
Note: The preceding
report about the Federal Reserve was originally written for a class in 2002.
The public debt then was about $6.25 trillion. The public debt now (March 2005) is almost $7.8 trillion
- an almost 25% increase in only two years! “So what?,” you say? How about
third-world status after this crash - that’s the “so what.” No more Suburbans
or satellite dishes, just bondage and misery.
Got your attention now? Probably not.
The majority of the text focused on the Fed and the fraudulent dollar, but
there is a whole other story surrounding the Fed’s creation, which at best is
conspiratorial, and a conspiracy is a crime. I encourage you to do your own
research into who and what was involved with creating the Federal Reserve as
well as read the Federal Reserve Act of 1913 which was passed into law during
Congress’ Christmas recess of that year. If anything, email me with questions
or refutations of which I will gladly answer both. To this date, I have not
been stumped.
Before you brush this off by watching the next life-changing episode of Fear
Factor or basketball game, consider this: Why do so many of us know so
little about our money, yet it is the only thing every one of us has in common?
Money is what we all have in our possession right now, what we all need, what
we all work for, what we all want, and what some would and have died for. Some
have even sold their souls and murdered others for the dollar, yet nada
understanding of what it truly is: a fraud. There’s a reason government schools
teach sex-education and promote sodomy in lieu of our banking system and what
the Constitution says about it (Article1, Section 8).
Youv’e been warned; you have no excuse after reading this report.
God help us.
Works
Cited
Board of
Governors of the Federal Reserve. The Federal Reserve System: Purposes and
Functions. Washington, D.C.: Federal Reserve Bank, 1974.
“Domestic Financial Statistics.” Federal Reserve Bulletin Oct. 2002.
Federal Reserve Bank of San Francisco’s Digital Gateway to the Fed, The. 28 Aug. 2002. Federal Reserve Bank of San Francisco. 24 Oct. 2002 http://www.frbsf.org/.
“Fiat.” Merriam Webster’s Collegiate Dictionary. 10th ed. 1994.
Greider, William. Secrets of the Temple: How the Federal Reserve Runs the Country. New York: Simon and Schuster, 1989.
Grey, George B. Federal Reserve System: Background, Analyses and Bibliography. New York: Nova Science, 2002.
Jaikaran, Jacques S. Debt Virus: A Compelling Solution to the World’s Debt Problems. Macomb, Illinois: Glenbridge, 1992.
Larson, Martin A. The Federal Reserve and Our Manipulated Dollar. Connecticut: Devin-Adair, 1975.
Maisel, F.W. Great American Ripoff: An Indictment of the Federal Reserve Board. San Diego: Condido, 1983.
New American Standard Bible. New York: Thomas Nelson Publishers, 1983.
Olney, Martha L. “Avoiding Default: The Role of Credit in the Consumption Collapse of 1930.” Quarterly Journal of Economics 114.1 (1999): 319-331.
Public Debt: Bureau of the Public Debt Home Page. 25 Oct. 2002. U.S. Department of the Treasury. 25 Oct. 2002 http://www.publicdebt.treas.gov/.
United States
Department of the Treasury. 25 Oct. 2002. 25 Oct. 2002 http://www.
ustreas.gov/.
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Evolution
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Ever own real silver? |
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Copyright 2005