Figure l is a picture of the Fed's relationship with the Treasury Department. Instead of being a "sub-treasury" central bank of issue, it is actually above the Treasury in that it has been given the ultimate power and authority to "create" credit and issues of paper money out of thin air. "Federal Reserve Bank credit does not consist of funds that the Reserve authorities get somewhere to lend, but constitute funds that they are empowered to CREATE." (reference, Federal Reserve System, Its Purposes and Functions, U.S. Government Publications, 1939 ed., p.85) When the Federal Government needs money, it must turn to the Federal Reserve Bank, both for income-tax moneys, which are funneled from the IRS through the Fed to the Treasury, and also for the creation of fresh debt, the annual deficit. To get "money," the Treasury must print fresh U.S. Government Securities, on the presses of the Bureau of Engraving and Printing. These are the same presses, the operating costs of which are paid by taxpayers, that the Fed utilizes to print fresh issues of Federal Reserve Notes. If the Treasury wants cash, the Fed will, in this manner, supply cash. The Fed pays the Treasury for the printing (paper and ink only), which is running about 3 cents a bill, whether it is a one-dollar bill or a thousand-dollar bill. The Treasury must give the Fed a Million dollars in bonds or interest-bearing securities for every million dollars of cash or credit the Fed supplies the Treasury. This is the first unequal exchange. These U.S. Government Securities are interest-bearing Liabilities of the tax-paying American public. As long as these securities remain in the vaults of the Fed, however, they are, in theory, the property of the People. Taxpayers pay the interest that these bonds generate and this revenue pays for the work-a-day expenses of the Federal Reserve Banks. The surplus interest, in excess of the cost of running the Fed, is channeled back into the U.S. Treasury.
Figure 2 is a picture of the relationship of the Fed to its member banks, and the masses. The masses are on the bottom, the banks are in the middle, and the privately owned Federal Reserve Bank is on top. Behind the Federal Reserve, is the bond-holding class. The Federal Reserve System is the instrument and tool of the private banking industry. Banks are allowed, in effect, to create Fiat Money on the credit (faith) of the people and to also collect interest on this money from the government, and people of the United States. The euphemism applying to this privilege is "Fractional Reserve." Banks are enabled to lend this money at profit-making interest rates to their customers. Not only do the banks create money out of thin air (e.g., when the reserve ratio is 8 to 1, $8 can be leant out for every $1 dollar "on deposit"), but also since the system requires the selling of government bonds to back up "the Fractional Reserve" funds created, the U.S. Treasury is paying interest on the funds it allows the banks to create. This is a moneymaking machine. Meanwhile, out on the street, there is always a dearth of money, actually about only $1,000 per person (though most people rarely see that much) of actual cash (paper money and token coins) in the system. This translates into only $250 billion for 250 million norte americanos.[1993]This artificially created scarcity of cash money generates the necessity for the enormous undertow of bank credit and public debt. Currently, [again, 1993] the total "debt" has risen to more than 14 trillion dollars. The ratio of the amount of cash money in the system to "credit" and debt dollars is less than 1 to 50. Less than 2% of the "money" in the system is in "cash." When people need money, they must put up collateral at the bank. This is real estate or other property or bonds, notes, or some other kind of financial instrument. There is no other way for the public to obtain money from the system (except in the case of government loans and the G.I. Bill), than by putting up collateral to borrow it from the banks. In periods of credit expansion, people tend to feel optimistic or "bullish" about America and borrow heavily. When the credit is contracted (as it was in the spring of 1929), loans are called in and people without enough cash in the system to pay all the loans (remember, there is only about $1,000 per capita) lose their collateral. The long-term effect of this has transformed the masses of the Norte Americanos into a nation of renters (serfs). The corollary to this reality is that the landlord-bankers, and their holding companies, have acquired liens on the titles to most of the land and the resources, not only of North America, but of much of the Third World as well. This has been accomplished by means of that marvelous instrument of "credit," the Norte Americano carnivorous debt-dollar, which, like Pac-Man, gobbles up everything in its path.
Figure 3 is a picture of the Fed's relationship with the Federal Open Market Committee (the FOMC), the Fed's "window" upon Wall Street, the creation of which was part of the marvelous "Reform" package of that Father Christmas and friend of the people, Franklin D. Roosevelt. The FOMC, in order to "regulate" the economy, buys and sells on the open market corporate and government bonds and securities. This is so it can create inflation when that is needed or deflation, should that be necessary. It creates "inflation" by buying corporate securities from both domestic and foreign corporations. It pays for the securities by issuing "new money," that is, money it has created out of thin air, as is its privilege. The Fed operates on the principle that corporations need the money and that it eventually will find its way into the economy. Thus we find the New Deal was practicing "trickle-down" economics long before Reagan. In buying government bonds the commercial banks use the "Fractional Reserve" currency they are allowed to create. The corporations, which are favored with Federal Open Market Committee largesse, as a rule, have inter-locking directorates with the commercial banks, where they park their money. These banks can then multiply their deposits by the factor determined by the current reserve ratio and purchase government bonds, speculate, or lend to customers. The Fed, meanwhile, when economic conditions dictate, pontificates solemnly that there is too much inflation and that they must put the brakes on the economy and institute a little deflation. The Fed, so the story goes, causes "deflation" by selling bonds and securities on the open market. The theory has it that the FOMC sells bonds, to take money out of the economy because "too much money" in the economy has caused "inflation," which in turn has caused prices to rise, and that's bad. That's the cover story. When prices rise, it's generally not because of scarcity of commodities - or because the volume of money has made prices "dear." - It's usually because the cartels have simply jacked the prices up a notch. [This is no longer the case with regards to oil.] Profit. The real reason the Fed sells bonds through the FOMC is because the business of the Fed is transfer wealth and energy (money rendered back in taxesis the tangible expression of labor and energy) from the people to the bond-holding class. The term "bond-holding class" does not refer to the Ma & Pa owners of "U.S. Savings Bonds," but to the elite families who own the "preferred" stock in the Prime Banks, and utilize the ability of these banks to create "Fractional Reserve" dollars out of thin air. These Families receive Quarterly dividends from this bank-stock. The Fed sells U.S. government securities (the notes that were issued against the money in square 1) in order to raise money for the poor government, which is continually running into deficit, spending beyond its allocated budget. These securities, as long as they remained in the vaults of the Fed, were the property of the people. But the Fed is continually moving these bonds, through bond auctions at the FOMC, into the "public," (that is, the banking) sector. You will remember that the prime banks are able to multiply their deposits to create new money. These prime banks and foreign, and domestic brokerage houses, queue up to buy government bonds when they are offered for sale. This is merely one more way our hungry government obtains money. The "new" bank-created money is transferred from the "reserve accounts" of the prime banks at the Fed and is credited to the Government. The prime banks, however, have acquired interest-bearing bonds.
Figure 4 is a picture of how "America's 60 families" and the foreign stockholders of the "Class A" stock of the international prime banks collect interest off the National Debt. The commons, the People must queue up and pay tithes to the government for the privilege of living in America and being able (forced) to use Federal Reserve notes and for the folly of being poor and not owning the preferred stock in the right banks, so they would be able to afford to live off of borrowed money (which is a liability and hence not taxable), the way the rich do. The fact that debt payment is the Number One priority of the budget shows graphically that this system has been engineered to make the many work for the few. Payment to the prime banks holding the bonds against the National Debt is the first order of priority once the Fed receives the checks and drafts from tax-payers. The IRS is really nothing more than the collection agency for the Fed. The prime banks, then, issue a semi-annual dividend to the holders of their "preferred stock" from that part of their portfolio that is holding tax-exempt government bonds. Only after the interest on the "debt" has been paid does the Fed channel tax moneys to the General Fund of the U.S. Treasury. This whole system is upside-down. The Treasury should be above the Central Bank, and the Treasury should be the original source of the creation of all new money and credit. The Central Bank should be subservient to and not the master of the people. The Treasury could then become what it was intended to be, the storehouse of the common (or collective) wealth of the nation. This is the idea of the Co-operative Common-wealth. This is what is meant to "nationalize credit." In reality, Fiat Money need not be backed by bonds and is, in the final analysis, already backed by the credit-worthiness and "faith" of the American people collectively, whether or not the procedure of creating federal debt is engaged in. Our Federal debt and deficit is largely the result of the subsidization of private banking interests by the unwitting American people, through their elected representatives, who have sold out to the interests of the private banking industry.
Sources:
ADAMS, Silas Walter, The Legalized Crime of Banking and a Constitutional Remedy, Boston, Meador, 1958.
See, also his Commentary on:
The Federal Reserve System, Its Purposes and Functions, United States of America, Washington, D.C., 1939, Ed. MORSE, EIsa Peters, The Key to World Peace and Plenty, San Francisco, Summit Press, 1960. POPP, Dr. Edward E. , The Great Cookie Jar, Taking the Mystery Out of the Money System, Wisconsin Education Fund, P.O. Box 321, Port Washington, Wisconsin, 53074. VOORHIS, Jerry, Beyond Victory, Farrar-Straus, New York, 1944. My thanks also to Wilson Ogg of Berkeley - retired corporate lawyer, genius, the son of Jerry Voorhis' campaign manager, and the only person I know who has ever taken upon himself to read and intellectually comprehend the entire six-hundred, plus pages of the Federal Reserve Act as it stands, together with all of its amendments, ancillary addendums and nullifications, etc... and who patiently explained and made simple the more arcane aspects of this elaborate shell game. - Mark Walter Evans - Published in the North Coast Xpress, 1993 -
