Money Creation - Legalized Embezzlement and Global Debt-Slavery

MONEY CREATION: LEGALIZED EMBEZZLEMENT AND
GLOBAL DEBT-SLAVERY
ʹIt is far more powerful than I ever dared to think at first, so powerful
that in the end it would utterly overcome anyone of mortal race who
possessed it. It would possess him.”1
— Gandalf, in Lord of the Rings
ʺPermit me to issue and control the money of a nation, and I care not
who makes its laws!ʺ
— Mayer Anselm Rothschild
This is possibly the most important section of this volume, so please read
on with due care. Monetary realities have a deep impact on the lives of
average citizens and it may well be that the monetary control of societies by
power‐manic and wealth‐usurping elites has been the principle arena of
human struggle and the overriding cause of social injustice over the course
of recent economic history. Today, the creation of purchasing power through
credit—loans, mortgages, credit cards, and so on—is controlled by private
financial institutions and, though regulated, works primarily for their profit.
Describing the historical path to this reality brings these concepts closer;
most pertinently, it forces this criminal conspiracy under the light of scrutiny,
and helps eradicate the pervasive mystification in which both the concept
and the reality of money has craftily been shrouded. This monetary control
has now reached a level that is pushing humanity to the very brink of
economic, social and ecological disaster. A control that is exercised and
manipulated with the validation of monetary theories trumpeted by a
rampant high priesthood of economists through obscure, outdated and
private interest‐driven doctrines about the very nature of money. Because
we never learn about alternative economic structures and monetary systems,
we fail to challenge, and, in fact, ignorantly deify, this entirely artificial
system that has been forged by the tempest of malignant historical forces.
Yet, there was a time, not too long ago, when men were bolder and the
media was more independent and, hence, people had a deeper and clearer
understanding of the consequences of being, what President Martin Van
Buren lamented was, a “bank‐ ridden society.”
I offer the following quotes with an aim of setting the stage for this
section from the outset and I state upfront that the current banking system in
which private banks control all principle aspects of the monetary system is at
the very heart of the demise of global freedom, democracy and social equity;
a point hardly lost on Thomas Jefferson who noted in a letter to Secretary of
the Treasury Albert Gallatin in 1802:
Planet Titanic: From Hubris to Hell 1
Raja Sohail Bashir – rsbannie@web.de
I believe that banking institutions are more dangerous to our
liberties than standing armies. If the American people ever allow
private banks to control the issue of their currency, first by inflation,
then by deflation, the banks and corporations that will grow up
around [the banks] will deprive the people of all property until their
children wake‐up homeless on the continent their fathers conquered.
The issuing power should be taken from the banks and restored to the
people, to whom it properly belongs.
—President Thomas Jefferson2
Further quotes of similar insight and comparable disgust include the
following:
ʺHistory records that the money changers have used every form of
abuse, intrigue, deceit, and violent means possible to maintain their
control over governments by controlling money and its issuance.ʺ
— President James Madison
“All the perplexities, confusion and distress in America arise, not from
defects in the Constitution, not from want of honor or virtue, so much
as downright ignorance of the nature of coin, credit, and circulation.”
— Salmon P. Chase, Lincolnʹs Secretary of Treasury3
the powerful class of the financial elite rightly fear the broad
recognition “…that what makes them…wealthy is…only robbery”
and that it “must from the beginning …have beset (political
economy’s) primary step…”4
— Henry George, 20th century reformer and social philosopher
̴
Even though the U.S. constitution gave Congress authority over the
monetary system, this authority has long since been compromised. Even
before the Civil War, state‐chartered banks were allowed to issue bank notes.
With the National Banking Acts of 1863‐4 and the Federal Reserve Act of
1913, Congress largely ceded its powers over money creation to the private
banking industry. Today, the Federal Reserve Bank has de facto
monopolized the issuance of notes. (These notes are a substandard type of
money, since each one is entered into circulation only through a debt
payable to a bank with interest.) However, this monopoly only leaves the
government and, hence, public control of the nation’s money supply in the
lurch—not the private banks, because demand deposits function as
equivalent to cash, and with each new loan, a nationʹs money supply
inflates in proportion to the loan.
Historically, the total amount of money in circulation was limited to the
actual quantity and quality of a commodity such as gold or silver. Both
gold and silver have supremely “money‐like” qualities (high‐value per unit
weight to ensure portability, high divisibility, in high demand yet scarce,
and highly durable). Consequently, both silver and gold, when availabie,
have consistently been selected by markets as money and as a form of
yardstick to gauge the value of currencies.5 In 1971, with the unilateral
abolishment of the gold standard by President Nixon, all this changed.
Henceforth, the only limit on how much money could be created was
essentially the total limit of debt. In abolishing the gold standard, Nixon
was reacting to the rising pressure on the price of gold ever since the early
1960s. At the time, America’s trading partners began to suspect that the U.S.
was manipulating its self‐imposed position (as a result of the Bretton‐Woods
agreements) as reserve currency issuer to export inflation (as it is now doing
with China) and that the costly war in Vietnam had pushed the nation to the
brink of insolvency. Successive U.S. governments fought the upward market
pressure on gold throughout the 1960s, but on August 15, 1971, Nixon finally
gave in, declaring the U.S. would no longer redeem paper dollars for gold.
(Until then, the dollar had been redeemable in gold to foreign central banks
and governments at US$35 an ounce.) This milestone in monetary history
paved the way for a truly a remarkable surge in global monetary activities
and for a boundless bonanza for the global banking bucaneers.
The shackles were finally off and all national currencies were
henceforth at risk because they would float without any tie
whatsoever to objective value, not even to the rudimentary yardstick
of gold.
(Of course, it should be noted that the notion of “yardstick” is indeed
rather misleading. It is a misconception to believe that gold, or any other
commodity for that matter, has any “intrinsic” value. Naturally, if gold has
no inherent value, neither can monies based on a gold standard. In truth, any
such standard is purely arbitrary and a currency can be fixed at any
particular price level of gold that sets the amount of gold available in
relation to the size of the economy).
Since then, the U.S. monetary system has been based on an entirely
fiat paper standard; incoincidentally, the U.S. has since suffered from an
unprecedented level of peacetime inflation. At once, global financial
markets have become inherently instable6 and national economies have
been victimized by rampant speculation and currency manipulation.
Indeed, national economies are increasingly vulnerable to the greed of the
major financial players who have amassed funds large enough to destroy
entire economies by selling short their currencies to force devaluations; a
ploy that is not a matter of particular intelligence or smarts; it only requires
having access to the requisite funds and a profound lack of moral integrity
and common decency. Over recent decades, such tactics have been
methodically used to coerce so‐called “structural adjustment” measures
from developing economies that only serve to benefit the international
financial mafia and pilfer the wealth of societies across the globe.
̴
The prevalent money creation system is dominated by private banks
through the process of bank‐created credit. Only a century ago, various
alternative froms of money circulated in America, such as large quantities of
coinage, silver certificates, and government‐issued, non‐interest bearing
greenbacks. In contrast, almost all the money in circulation today stems from
loans made by financial institutions. In Britain, for example, only three
percent of new money is actually in the form of new coins and notes from
the various government mints; the balance is created by private banks,
when they provide various kinds of loans. It is noteworthy that this is not
money that the banks have created in any productive fashion. To the
degree that banks lend their own savings7—or, as intermediaries, mobilize
the savings of others—and channel these funds into more productive loans
and investments, their activities are meaningful and very much in line with
what most people are duped into believing banks actually do. Based on its
expertise, the bank would choose to whom it lends money and if the bank
makes sound investment choices it profits, otherwise it will face bankruptcy
just like any other business. There would be no problem with such a
process. The process would be inherently legitimate, productive and, most
importantly, non‐inflationary.
However, today, all bank loans and overdrafts represent the creation of
entirely new money in the form of credit; mostly created via digital entries
recording virtual deposits in accounts. When loans are issued the bank
merely opens up an account; allows checks to be written on the account; and
records the loan transaction as a liability on its ledger. The only “substance”
behind this spontaneous money (credit) is the borrower’s creditworthiness,
generally backed by claims to the borrower’s assets.8 This latter point is truly
remarkable:
Bank credit is spontaneously created as an interest‐bearing debt to the
banks, which is lent against the real credit of society; unbelievably,
via a few keystrokes, private banks are gifted claims to the real
assets of society.
In a magical, Copperfieldesque act of great social and moral
consequence the bank has created money out of thin air. Moreover, the
newly created bank liability has instantaneously inflated the money supply.
“The most sinister and anti‐social feature of bank‐deposit money is
that it has no existence. The banks owe the public for a total amount of
money which does not exist. In buying and selling, implemented by
cheque transactions, there is a mere change in the party to whom the
money is owed by the banks. As the one depositorʹs account is debited,
the other is credited and the banks can go on owing for it all the time.”
— Frederick Soddy, Winner of the Nobel Prize in Chemistry in 1921
Because each new loan inflates a nationʹs money supply, governments
ostensibly place limits on spontaneous money creation by enforcing rules
such as fractional reserve requirements, whereby, private banks can create
new money depending on a pre‐defined ratio between their capital stock
(reserves) and their lending ceiling. Today, bank reserves principally
consist of two elements: the amount of government issued cash—or its
equivalent—that the bank has deposited at the Central Bank plus the amount
of existing debt money the bank has on deposit. The fractional reserve rules
are essentially arbitrary and vary widely from country to country and
across time within countries. In the U.S., fractional reserve requirements
have diminished considerably over the past 150 years. In such a system, the
government’s role is principally restricted to supervising that private banks
maintain adequate capital reserve requirements to meet normal
redemptions. The money creation process itself is best illustrated with a
simple example:
Bank A has just opened for business and has total reserves of US$111.11. You are the
first client of Bank A and would like to purchase a television set for US$1,000. Let’s
assume that the current legal reserve requirement in Bank A’s country is an arbitrary
10 percent. The amount banks can pyramid new deposits on top of reserves is called the
money multiplier, which is the inverse of the minimum reserve requirement. In this case
MM is 1/10 percent which equals 10. Therefore, Bank A is allowed to pyramid new
demand deposits up to a total of US$1,111.12 (ten times US$111.12). Given total
demand deposits of US$111.12 and a legal reserve requirement of 10 percent, Bank A
can loan out one minus the reserve requirement, which in our example is one minus 10
percent, or 90 percent, of demand deposits. Therefore, Bank A can now issue US$1,000
in loans. Conveniently, US$1,000 is exactly the amount you need. You are given the
loan and purchase your television set. The seller of the television set goes to her bank,
Bank B9, and deposits the US$1,000. With the deposit Bank B’s reserves have increased
and Bank B is now allowed to provide additional loans of US$900. It is because of this
ratio of US$1,000 deposit and US$900 in loans that banks always show a higher deposit
to loan ratio. It is this effect that misguidedly leads the public to believe that banks
provide credit from cash deposits. However, we are by no means finished in this magical
game of financial musical chairs. Now, the US$900 just deposited at Bank B is needed
by Borrower 2 to purchase a refrigerator. Once Borrower 2 is granted the loan and has
purchased the refrigerator from Seller 2, Seller 2 deposits the US$900 in Bank C. Bank
C is now able to loan out nine‐tenths of US$900, which equals US$810. As this process
continues the original reserve/deposit at Bank A ripples through the economy. In
principle, this process can continue until the initial US$111.12 of reserves deposited by
Bank A is multiplied asymptotically 100 times to US$10,000. This effect is aptly called
the multiplier‐effect. Since the banking system is effectively a closed‐loop system, the
only “leakages” are monies not deposited at banks and held as cash. In this bizarre
system private banks are allowed to fraudulently charge interest and loan fees for
monies they never possessed
As mentioned the example is somewhat special as we assumed that Bank A had just
begun operations. In reality, Bank A would normally avoid blithely issuing loans to the
full amount possible based on the legal reserve requirement. In a multi‐bank economy,
each individual bank must fear interbank redemption. Therefore, Bank A would seek to
expand its lending more cautiously. In practice, Bank A would do so in accordance with
the money multiplier (1 minus the minimum reserve requirement) and lend out 90
percent of its reserves. However, as we can see from Table 5 below, as loans ripple
through the system in a central banking system, each bank’s ability to expand by 90
percent allows all banks, in the aggregate, and in a relatively short period of time, to
expand by the money multiplier of 10:1 leading to a system expansion of 1,000 percent
of loans, demand deposits and cumulative reserves.
Step Bank Total Cumulative Amount Cumulative Individual Cumulative

Demand Demand Loaned out Loans Bank Reserves
Deposits at Deposits by Bank Reserves
B k
1 A 1,111.11 1,111.11 1,000.00 1,000.00 111.11 111.11

2 B 1,000.00 2,111.11 900.00 1,900.00 100.00 211.11
3 C 900.00 3,011.11 810.00 2,710.00 90.00 301.11
4 D 810.00 3,821.11 729.00 3,439.00 81.00 382.11
5 E 729.00 4,550.11 656.10 4,095.10 72.90 455.01
22 V 121.58 10,016.91 109.42 9,015.22 12.16 1,001.69
Table 1: Credit Expansion with Competing Banks
Naturally, just as each new loan inflates a nationʹs money supply,
each withdrawal deflates it. Whenever the public draws demand deposits to
obtain cash, and assuming that banks are fully loaned up (as they normally
are), private banks must go the Central Bank and draw down their checking
accounts, thereby, reducing their reserves by the same amount. The Central
Bank, in exchange, must print an equivalent amount of new notes to give to
the banks. Since the reserves have decreased and the banks remain fully
loaned up, the banks are forced to contract their loans and demand deposits
until the new total of deposits is lowered enough to meet the legal reserve
requirement. In short, if the legal reserve requirement is 10 percent total
deposits must decrease by ten times. A US$10 million dollar cash
withdrawal leads to an equivalent reduction in reserves of US$10 million,
forcing the bank to reduce total deposits by US$100 million. The total
money supply is reduced by US$90 million.
THE INTEREST TRAP
Banks only create the credit needed for the principal not the amount
needed to pay off the interest. The only place the money to pay the interest
can come from is the general economyʹs overall money supply; but almost
all that money supply has been created exactly the same way—as bank
credit that has to be repaid with more than was created. As an obvious
result,
all borrowers scurry to obtain the money they need to pay back both
principal and interest from a total money pool that contains only
principal.
The ratio of principal to interest defines the maximum level of
borrowing that can eventually be repaid. The formula is simple:
total principle / (total interest + total principle)
The social and economic consequences of the absurd mechanism, which
this simple formula denotes, are staggering:
In an unending spiral, the only way to avoid systemic loan defaults
and foreclosures is to issue more debt to increase purchasing power
and induce economic growth.
But there is more. When the Federal Reserve raises interest rates, it
slows economic activity by suppressing wages and investment—the latter, in
turn, increases unemployment. The higher interest itself pulls in the other
direction by adding to input costs and lifting prices. Thus, uncontrolled
inflation has continued even during periods of monetary contraction, as in
the 1979‐83 recession when the consumer price index rose nearly 20 percent.
Moreover, in a system of debt‐based credit, both businesses and
government increase prices to lower the burden of debt payments.
Governments running deficits endeavor to pay with monies of less value, so
they pursue inflationary policies to push taxpayers into higher tax brackets;
yet another way a bank‐centered monetary system distorts real economic
values and budens the avaerage worker. Reducing the payment of interest to
banks through monetary reform would lessen inflationary pressure and
eliminate the policy whereby the Federal Reserve tries to create “price
stability” on the backs of working people. Contentions that the Federal
Reserve controls inflation by rasing interest rates are an absurd contradiction
of monetary reality. Empirically, high interest rates have been a cause of
inflation rather than a result. For example, inflation was low in the 1950s
and 1960s, when interest rates were below 2006 levels, but much higher since
the 1970s.
The need to pay interest is possibly the most insidious aspect of the
current banking system as it essentially drives the systemʹs constant need
for economic growth—something that is unsustainable in a finite physical
world (s. […]). The need to make interest payments also underlies the
dysfunctionality of the Federal Reserve System, which operates by either
stimulating or dampening the economy by regulating the fractional reserve
banking system and interest rates. That these mechanisms have never
functioned merely reflects the reality that using liquidity to manipulate
economic growth is inherently linked to the creation of credit that must be
repaid with interest.
Clearly, charging interest is both a moral and a practical problem.
The latter point is significant in that it justifies the elimination of this
system without the need for a protracted moral debate, merely on the
basis of rational practicality, because the system just does not work.
What’s more, significant problems arise in the context of long‐term
loans such as housing mortgages and government debt. In such cases, the
aggregate amount of interest payments, as a proportion of the initial
principle, are much higher than for short‐term loans. When the money
supply outgrows a countryʹs economy, the result is inflation. Therefore,
economies with high levels of long‐term debt must achieve high levels of
economic growth to keep inflation in check and avoid a high proportion of
foreclosures. If the economy depresses too much, bankruptcies are
inevitable; when these are combined with credit collapse, it can result in an
economy‐wide deflation.
The nature of the system forces it to continually expand the economy.
It must grow or die.
Ever creative corporate propaganda has transformed this distasteful fact
into a “shining” principle of human transformation. We are told that
economic growth offers opportunity for personal achievement, the
fulfillment of ambition, success, creativity and innovation. What remains
unspoken is that only very few will be the eventual “winners” of this absurd
rat race while the system shreds the fabric of society and leaves the lives of
the vast majority in tatters and without hope of reprieve.
Indeed, in a healthy economic system, money should only facilitate
ecologically regenerative production, trade and consumption. But, as the
supply of credit‐based monies rises, money increasingly loses value unless
gross national expenditure increases in line with the overall money supply;
in other words, unless quantitative (not qualitative) production and trade
in the real world grows equivalently.
The problem is, of course, that the perpetual growth of the economy
requires the perpetual growth of both natural resource consumption
and energy use just to maintain the system.
We must then ask ourselves,
how can a financial system that functions on the premise of
perpetually compounded growth, allow a sustainable economy?
The only answer is—it cannot.
If growth lags, increasing amounts of debt must be created to service
the previous debt and keep the level of foreclosures down. Of course, this
only serves to further increase the total debt on which even more interest
must be paid. Over the past 150 years, the fractional reserve banking virus
combined with masterfully executed consumer manipulation through public
relations and marketing (s. [..] ff) has infected every aspect of our lives. In the
process, it has transformed us from prudent citizens who carefully avoid
debt to voracious consumers unable to exist without it. The only
circumstance keeping the “systemic shortage” of money from ravaging our
economies today is the time lag between the creation of new credit—as new
loans—and its repayment. To keep this perverted mechanism from
collapsing, banks must continually increase the amount of credit (which is
why credit is so easily available) and governments are forced to continually
increase spending (which is why budget deficits tend to continually
increase).
As the overall money supply is systemically lower than the total
accumulated debt, it would clearly appear that this system—by
default—is designed to keep the non‐banking economy in debt.
Ludwig van Mise, the eminent Austrian economist, noted, “Sooner or
later all these debts will be liquidated in some way or another, but certainly
not by payment of interest and principal according to the terms of the
contract.ʺ10 No matter how robust this sytem might appear to one today, it is
inherently fragile and vulnerable. With leveraging of any kind, there is the
innate possibility of a cascading sequence of defaults culminating in
financial implosion.
Banks in their present form, are, by definition, intrinsically bankrupt.
As the economist, Murray Rothbard succinctly points out, if depositors
recognized the fact that the money they believe to be available on demand
does not exist and, in collective panic, made a run on all the nation’s
banks—the result would most likely be a disastrous hyperinflation.
Suppose that, tomorrow, the American public suddenly became aware of the banking
swindle, and went to the banks tomorrow morning, and, in unison, demanded cash.
What would happen? The banks would be instantly insolvent, since they could only
muster 10 percent of the cash they owe their befuddled customers. Neither would the
enormous tax increase needed to bail everyone out be at all palatable. No: the only thing
the Fed could do, and this would be in their power, would be to print enough money to
pay off all the bank depositors. Unfortunately, in the present state of the banking system,
the result would be an immediate plunge into the horrors of hyperinflation.
Let us suppose that total insured bank deposits are $1,600 billion. Technically, in the
case of a run on the banks, the Fed could exercise emergency powers and print $1,600
billion in cash to give to the FDIC to pay off the bank depositors. The problem is that,
emboldened at this massive bailout, the depositors would promptly redeposit the new
$1,600 billion into the banks, increasing the total bank reserves by $1,600 billion, thus
permitting an immediate expansion of the money supply by the banks by tenfold,
increasing the total stock of bank money by $16 trillion. Runaway inflation and total
destruction of the currency would quickly follow.11
THE CURSE OF “INNOVATIVE” BANKING
If the principle of fractional reserve banking ensures that banks are
inherently fragile, recent innovations in the banking sector such as
securitization, mismatching of funds, and the trend towards cashless
payment have only worked to increase the vulnerability of these institutions
and the economic systems they exploit and endanger.
Essentially, securitization is about pooling loans and selling them to
investors. The basic concept dates back to 1970, however, the practice has
mushroomed in recent years. At the end of 2006, US$6.5 trillion of
securitized mortgage debt was outstanding, Also in 2006, over 60 percent of
home mortgages made in the U.S. went to securitization trusts and some
US$450 billion worth of subprime mortgages (those made to borrowers with
weak credit) were securitized. Thanks to securitization, bank assets are
increasingly in the form of loans to marketable assets, as banks are now
able to repackage and pass‐through loans to other business entities such as
investment companies. Hereby, banks can wipe the loans off their balance
sheets and elegantly circumvent fractional reserve requirements, enabling
them to offer even more loans. A wonderful scheme it might seem, but it is
one fraught with complex hazards and pitfalls that bankers, focused only
on how they could make quick money and caring nothing for the profound
effects of their schemes on society, did not “waste time” thinking through
and understanding. These hazards and pitfalls are linked to issues of
valuation and partial—and often inherently opaque—liability and have
come to the fore in the unfolding global sub‐prime mortgage crisis (s. […] ff).
Moreover, because the loan‐making function is essentially decoupled
from deposited savings money, banks increasingly follow the inherently
unstable practice of borrowing short and lending long (i.e. making long‐
term loans with short‐term deposits). This mismatching of funds is a
systemic threat12 that has become critical for many banks and is a serious
problem in times of crisis when depositor confidence is low and the
possibility of deposit redemptions increases.
Making all of the above much worse is that we are increasingly moving
towards a cashless society. For all the reasons cited hitherto, this
momentous shift in monetary history promises the ultimate bonanza to
private banks.
Of course, cashless transactions are convenient; and we have been
groomed to love convenience, especially when we do not understand
its cost.
That is why the concept is so readily marketable. However, when
combined with fractional reserve banking, it is a convenience that comes at a
steep cost to society.
Areas where this monumental shift is taking hold are electronic
banking (83 percent of Social Security recipients in the U.S. receive their
monthly payments by automatic deposit), internet buying, prepaid cards
and automatic identity tags for toll booths; all are on the rise. Then there
are credit cards. In the West, credit cards are increasingly ubiquitous.
Especially, since the dotcom boom ended in 2003, consumers have been free
spending with their credit. It has been estimated that,
in 2005, Americans possessed 1.7 billion credit and debit cards—
around seven cards for every person over 15. They could use these
cards in any one of 6.8 million card‐swiping terminals in the U.S.
(triple the number of terminals available there in 1999); and they did
so with consummate ease, splashing out US$6,700 each; the highest
per capita credit card spending of any nation.
But using more credit means higher repayments. It comes as no surprise
that personal bankruptcies in America rose by 20 percent between 2000
and 2005.13 As Ellen H. Brown points out in Web of Debt, the 2005 bankruptcy
bill in the U.S. was written by, and for, credit card companies. And they are
milking it to the best of their “entrepreneurial” possibilities. Credit card debt
was US$735 billion in 2003, 11 times the 1980 level. Among the circa 60
percent of credit card users who do not pay off their monthly balances, debts
average nearly US$12,000. As Brown notes, “This ‘subprime’ market is
actually targeted by banks and credit card companies, which count on the
poor, the working poor and financially strapped to NOT make their
payments. In fact, over 75 percent of credit card profits come from people
who make those low, minimum monthly payments at usurious interest
levels. In 2006, profits to lenders from interest charges and late fees on
American credit card debt alone, reached US$90 billion.14 It is a similar
story in Britain, where debit‐card spending is proportionally higher.
Moreover, in 1996, checks and cash represented almost 80 percent of
consumer payments, now they are less than half. Electronic payments are
projected to exceed 70 percent of the total within 2010. Furthermore, credit
cards are increasingly used for such mundane purposes as grocery
purchases. This latter fact is not merely due to convenience but serves to
highlight the plight of many cash‐strapped Americans. According to the
Food Marketing Institute, most Americans found this basic idea “unnatural”
just as recently as 1990. Now cards cover about 65 percent of food sales in
America.
As we now know, using less cash comes at the cost of the inherent
“hidden taxation” of cashless transactions in a fractional reserve banking
system. However, to this fundamental cost of “cashlessness” we must add
the excessive fees and usury interest rates charged to consumers by private
payment companies and especially credit card issuers. For example, most
consumers fail to understand that the interchange fees 15 charged to
merchants—and set by credit card companies—are invariably passed on to
them via higher prices. Most consumers also do not know that these
interchange fees are set in collusion by the reigning duopoly of Visa and
MasterCard. 16 “Each company works with their member banks to
collectively set the price of interchange fees. Because banks benefit from
higher interchange fees, Visa and MasterCard compete to charge the
highest rate.” In the U.S., this is a clear violation of federal antitrust laws.
In fact, consumer advocate Edmund Mierzwinski 17 , testified before the
House Judiciary Committee that credit card interchange fees cost merchants
and consumers US$36 billion in 2006 and that interchange fees had
increased by 17 percent since 2005 and 117 percent since 2001.
Embarrasingly, the credit card companies are unable to provide viable
reasons for their excessive interchange charges. This is not hard to believe
because they have none. To hide this shameful fact, these companies
effectively enforce a gag‐rule on merchants prohibiting them to openly
disclose the fees.18,19
Finally, we have—the hardly trivial issue—that cashless economies
further erode the governmentʹs ability to either control the money supply
or benefit from seigniorage (the difference between the production cost of
money and its face value), which is, essentially, a form of taxation levied on
the holders of a currency by its issuer. The losses to national treasuries that
cede the seigniorage privilege to private owners of member banks of the
regional Federal Reserve Banks are substantial. One estimate (exact figures
are not available), put forward by the non‐profit American Monetary
Institute (AMI), conservatively assesses the corresponding losses to the
public at anywhere between US$100‐200 billion per annum in the U.S. and
£41 billion in Britain.
The worrying global trend towards e‐banking and cashless payments is now also taking
hold in developing nations such as Vietnam. In fact, in its attempts to “modernize” the
banking sector and further integrate that country into the moribund global economy,
the Vietnamese government is actively urging the local banking community to press
ahead with the deployment of technology to enable cashless payments. According to the
State Bank of Vietnam, the percentage of cash payments has already fallen considerably,
from 31.7 percent in 2001 to 17.21 percent in 2006; the trend is expected to continue,
especially as salaries to government employees will increasingly be made directly into
employee bank accounts starting in 2008.
̴
Finally, since the financial deregulation of the 1980s, and in efforts to
artificially boost stock markets, brokerage firms on Wall Street have been
allowed to offer virtually unlimited speculative loans to investors eager to
purchase securities on margin. Perversely, monies that are best allocated to
meaningful and regenerative production and consumption are misused for
senseless, non‐productive financial speculation. The following then is no
exaggeration:
The biggest casinos in the world are not in Las Vegas, Macau or
Monaco but in New York, London, Tokyo and Frankfurt.
As stock prices are bolstered by inflationary funds, and eventually rise
beyond any coherent definition of intrinsic value, they disperse the
illusion of wealth to the unwitting majority. However, at once, as this
illusion is cleverly nurtured and exaggerated the real wealth of the
citizenry—by means of the inflationary credit process—is funneled to the
financial and business elite.
No doubt, it is the perfect crime—the perfect fraud.
THE FEDERAL RESERVE: A PASSPORT TO INFLATION AND

STATE SANTIONED PLUNDER
̴
As new money ripples through the economic system, it raises the
demand curves for certain goods or services. This tends to increase prices
along the way. The more extensive the spread of credit—and the more new
money is created—the greater will be its inflationary effect. Microeconomic
theory states that continuing, sustained inflation can either be the result of a
persistent, continuing fall in the supply of most or all goods and services; or
of a continuing rise in the supply of money. Now, we know clearly that in
today’s world the supply of most goods and services rises rather than falls
each year. We also know that the money supply keeps rising substantially
every year. Combining the two trends it is evident that the cause of our
chronic and accelerating problem of inflation is a demand‐side (more
specifically increases in the quantity of money and hence of the monetary
demand for products) rather than a supply‐side problem. Fractional reserve
banking is especially prone to this development because there is no inherent
mechanism to keep the money supply in balance with money demand.
The catastrophic result is a decrease in the real wealth of the thrifty who
hold cash or deposits while, on the other side, the wealth of the issuer of
newly created money increases. As new money is injected into the economy
and the inevitable ripple effect plays out; early receivers of the new
money—usually corporations, special interest groups and the government
itself—spend more and bid up prices. Those who receive the money later,
pay more (as prices are higher) than those who receive it earlier. In
addition, some citizens will never benefit from the new money at all: either
because the ripple stopped, or because they have fixed incomes—from
salaries or bond yields, or as pensioners or holders of annuities.
Because of the arbitrary expansion and contraction of the overall money
supply, it is precisely the fractional reserve banking system that inherently
introduces artificial boom‐and‐bust cycles. Of course, we must not forget
that any so‐called “boom” is predicated on the fraudulent taxation of
everyone but the issuer. Now, every time a loan is repaid the original
expansion of the money supply is canceled out and the ripple effects in the
economy can have a deflationary impact.
Let me hasten to add that I have no gripes, in principle, with the concept
of publicly owned money expansion as a means of taxation presuming it is
conducted with the full knowledge and political consent of all citizens and
provided the wealth transfer be put to use to the direct benefit of public
welfare.20 In fact, as Nuri points out, such a system has significant benefits
such as its uniformity (tax is paid for every single dollar in circulation), the
impossibility of tax evasion and its simplicity. However, it belies reason
and credulity that the power of monetary expansion and the coupled
“taxation rights” are so purblindly granted by governments to private banks.
It belies reason and credulity that such a setup is so illicitly supported by
Central Banks such as the U.S. Federal Reserve Bank (which, incidentally,
is a privately owned and managed institution—owned and managed by
private banks ever since its inception in 1913). However, in truth, it belies
credulity only if one is fooled by the incessant, beguiling propaganda that
veils the true nature of the crafty system. The naked and disturbing reality is
bedeviling. The central banking system is not—as many naively believe—the
protective white knight always at hand to save the hapless citizenry from the
devious machinations of a private banking mafia. It is finally time to bury
that sad myth. The truth is deeply distressing:
Central Banks are the godfathers of the banking mafia.
They are the “lender of last resort” for one reason only—to enable
private banks to fully load their lending without distress. Private banks, it
is true, are now far “safer,” but that is a highly dubitable blessing; for that
“safety” means that they can dismiss their only major incentive not to
inflate.
It is the institution of a Central Bank that facilitates the pyramiding of
commercial banks atop a single repository of cash and bank reserves.
Banks can inflate prolifically, always confident of avoiding bank runs
and redemptions by competing banks and, hence, bankruptcy. The Central
Bank stands ready, at all times, to support check bank credit expansion by
lending “its vast prestige and resources to bail out private banks in trouble
and to provide them with reserves by purchasing their assets or lending
them reserves.” 21 In that way, the Central Bank can assist private banks
through most difficulties and even allow them to expand in complicit
harmony. In fact, in 1971, the U.S. Congress was complicit enough to remove
the final statutory restrictions on the Fed’s expansion of reserves and
printing of money, thereby, giving the Fed an unlimited and unchecked
power to inflate. These are certainly happy days for private banks; then
without this safety net, banks would be significantly more cautious in
loading their lending for fear of bank runs and bankruptcy; a fear that in the
U.S., ever since 1933, has been lessened by the fateful introduction of federal
guarantees of bank deposits through the Federal Deposit Insurance
Corporation. However, it is a distasteful misleading of the public to even use
the term “insurance” as it is futile to insure a system that is per definition
bankrupt and in which activating the insurance policy simply leads to
economic catastrophe by a different means (e.g. post‐bank run
hyperinflation).
“In short, the Central Bank functions as a government cartelizing
device to coordinate the banks so that they can evade the restrictions
of free markets and free banking and inflate uniformly together. The
banks do not chafe under central banking control; instead, they lobby
for and welcome it. It is their passport to inflation and easy money.”22
So, what are the pyramiding implications of the inflationary fractional
reserve system in America? In The Mystery of Banking¸ Murray Rothbard
analyses this question using gold as the original monetary standard. He
illustrates that the Fed’s total stock of gold certificates on December 31, 1981
was US$11.15 billion on top of which the Fed had pyramided liabilities
(Federal Reserve notes plus demand deposits at the Fed) of US$162.74
billion (14.6 times the value of its gold stock). Moreover, for that date, the
banking system had created an aggregate M‐1 money supply of US$444.8
billion; a pyramiding of 2.73:1 on top of the monetary base and 38.9:1 on top
of the Fed’s stock of gold. That increase in itself should offer abundant food
for thought. Nonetheless, let us conduct the same simple analysis using data
from October 31, 200723. The total stock of gold certificates has remained
almost constant at US$11.04 billion. However, the pyramided liabilities
have ballooned to US$804.07 billion (72.85 times the value of the Fed’s gold
stock). What’s more, the banking system has now created an aggregate M‐1
money supply of US$1,361.8 billion 24 , a pyramiding of 1.69 times the
monetary base. Astonishingly, the aggregate pyramiding since 1913 is now
123.4 times the Fed’s stock of gold.
̴
On March 16, 2008, to the benefit of its financial mafia constituents,
the Federal Reserve once more radically rewrote its rulebook amid the
burgeoning financial catastrophe of the subprime mortgage crisis and the
profound erosion of counterparty trust in the financial community. It opted
to use US$30 billion of taxpayer funds to bail out America’s fifth‐largest
investment bank, Bear Stearns and agreed to lend directly to other brokers.
A few days later, the Fed—once more—cut short‐term interest rates to 2.25
percent, evidencing the most precipitous loosening of monetary policy in
over a generation. In response, The Economist noted, “Rescuing Bear Stearns
and its kind from their own folly may strike many people as overly
charitable. For years, Wall Street minted billions without showing much
compassion. Yet the Fed put $30 billion of public money at risk for the best
reason of all: the public interest. Bear is a counterparty to some $10 trillion of
over‐the‐counter swaps. With the brokerʹs collapse, the fear that these and
other contracts would no longer be honored would have infected the worldʹs
derivatives markets. Imagine those doubts raging in all the securities Bear
traded and from there spreading across the financial system; then imagine
what would happen to the economy in the financial nuclear winter that
would follow. Bear Stearns may not have been too big to fail, but it was too
entangled.” Of course, what the author fails to disclose is that the Fed, by
default, cannot act in the public’s best interest unless, by chance, public
interest is aligned with the interests of the banking mafia—which it almost
never is. The Fed can only act in the best interest of the financial services
sector. Should any other groups benefit from the decisions of the Fed, that is
merely incidental. The only restraint to how far the Fed will go in support of
the banking mafia is public perception. The system priority is not to topple
the lucrative apple cart but to stretch the limits of what can be done by
steady manipulation of the media and all areas of society. The above cited
article in The Economist is indicative of how this delicate process is put in
play and manipulated even at times when the failure of the system is
transparent to all, because even then the author lauds the “marvelous edifice
of modern finance.“ For the author to define the Fed’s actions as in “the
public interest” displays either a sorry lack of basic economic
understanding or another example of media duplicity in the fabulous
scheme.
A vivid example of how the system works is the following. In early 2006,
the Federal Reserve announced a hike in interest rates after data was
released showing that wages in the U.S. increased by a tenth of a percentage
point above expectations. As a result of such interest rate increases,
hundreds of thousands of people are forced pay higher rates on their
adjustable rate mortgages, foreclosures of homes increase, tens of millions
pay more interest on their credit card balances, and the loans that fuel the
American economy, paying for everything from raw materials to inventory
and transportation, cost more. Also, both business and individual
bankruptcies increase, workers and salaried employees are laid off.
PONZI RETURNS
For years, mortgage lenders have understood that they could make huge
profits offering loans to people in poor and working‐class areas. Without
hesitation, they ensnared their prey. Taking advantage of an impoverished
regulatory environment they brazenly and unconscionably strove to exploit
the most unsophisticated homebuyers and homeowners with mortgages and
refinancing schemes that were destined to result in an atomic explosion of
foreclosures and ultimately force anguish, desolation, and destitution upon
their bamboozled clients. For many years, bank executives ignored their
traditional instincts and became complicit in a massive bubble‐scam
investment fraud that puts poor Charles Ponzi 25 to shame. Bankers
progressively threw caution to the wind and joined the happy gamblers club
of securitization and derivates; a modern‐day, cyber‐space, hyper‐version of
pyramid scams in which ʺprofitsʺ are not created by the success of any
underlying, productive business venture but—fraudulently—through the
capital contributions of investors. Consequently, bankers exuberantly doled
out “covenant lite” or so‐called “Ninja loans” 26 and allowed “Payment in
Kind” debt instruments27 . If you could breathe you were handed a loan.
Caught up in the frenzy of bubble‐era complacency banks likewise stopped
insisting on including “material adverse change” clauses in their term sheets
in buy‐out deals. Such clauses would have prudently allowed them to cancel
financing in the case of unexpected market turmoil. All of this adds to
overall calamity facing the balance sheets of many banks. The exuberance
and lack of perspective was shared and nurtured by current U.S. Federal
Reserve chairman, and then a senior White House economic adviser, Ben
Bernanke. In 2005, on CNBC, a financial‐television channel, he was asked
about the possibility of a decline in housing prices and confidently declared,
“Weʹve never had a decline in housing prices on a nationwide basis. What I
think is more likely is that house prices will slow, maybe stabilize.”28 But, of
course, special interests and “pump and dump” tactics can never be
constrained: Neil Barsky of Alson Capital Partners, a company with
substantial exposure to the residential housing industry29 wrote emphatically
in the Wall Street Journal, “The reality is this: there is no housing bubble in
this country. Our strong housing market is a function of myriad factors with
real economic underpinnings: low interest rates, local job growth, the
emotional attachment one has for oneʹs home, oneʹs view of oneʹs future
earning‐ power, and parental contributions, all have done their part to
contribute to rising home prices.”30
The true source of this disaster, like with all other disasters of recent
financial history, rests, at its core, in the fractional reserve banking system
that has been the conduit for a lucrative and cheap source of virtual monies
for the gambling safe havens on Wall Street and in the City of London .
Without credit controls and without the yardstick of a gold standard the
creation of credit has been limited only by the creativity of the markets in
finding instruments to leverage debt. Essentially, it has known few bounds.
The present pattern of growth in financial services harks back to the early
1980s. Initially, this growth was underpinned by the rising prices of real
assets. This led to an unprecedented bull market for both shares and bonds
until 2000. At once, central banks across the world colluded to feed the debt
monster by keeping interest rates low, in turn, fuelling debt‐based
consumption and investment, and feeding rampant debt‐based economic
growth. Rampant corporate downsizing, global wage competition, and
radical changes in information technology boosted corporate profits. The
yields on asset portfolios far surpassed historical values and the financial
services sector grew bigger and more profitable. Despite fundamental
changes in the underlying economy in the early 2000s, when GDP growth in
America began to decline and the dotcom farce finally came to its end, the
industry continued apace. Vastly more powerful information technology
had allowed for the creation of a dizzying array of new financial
instruments creating mind‐numbing layers of entanglement. This
increasingly complex, interdependent system was not only prone to collapse;
it has flung open the barn door to myriads of conflicts of interest. It is no
surprise that fraud has reached epic levels in an industry in which the ability
to befraud and deceive is an accepted hallmark of quality. With the rise of
securitisation, debt could be repackaged in multiple forms and steps, vastly
increasing the number of off‐balance sheet transaction and effectively
eliminating debt from financial statements across the country. The Wall
Street “wizards” appeared to believe that any limits to how debt might be
leveraged were abolished. Increasingly, banks began to use the newly
created funds to conduct proprietary trading to further boost profits. Toady,
in many institutions, proprietary trading surpasses trading for external
accounts and many are geared to the hilt. Goldman Sachs is using about
US$40 billion of equity as the foundation for US$1.1 trillion of assets. At
Merrill Lynch, the most leveraged institution, US$1 trillion of assets is
teetering on around US$30 billion of equity. In bull markets, the bigger the
gearing the more stellar the return on equity. However, when markets are in
peril, even a minor fall in asset values can destroy companies.
The greed of the 1980s era of corporate raiders was put to shame amid a
new epidemic of greed that spread rapidly throughout the economy. As
greed grew, so did the naiveté of investors. Increasingly, funds flowed into
highly leveraged hedge funds managed by incompetent, overpaid and
under‐regulated managers. In the process, the value of assets held in these
funds has quintupled. The debt disease has reached epic proportions. One
result of the explosive growth of debt is that the financial industry is easily
the fastest growing sector in the American economy, with sector
capitalization increasing from below five percent of the Standard and Poor’s
total market caitalization in 1980 to 22 percent in early 2007. The value of
outstanding credit‐default swaps is now at an astounding US$45 trillion;
almost four times America’s annual GDP. In 1980, financial‐sector debt was
only one‐tenth of the size of non‐financial debt. Today, it is half the size. At
its peak, towards the end of 2007, the financial services sector generated 40
percent of all U.S. corporate profits, up from 10 percent in the early 1980s;
these are profits that result from such “productive” activities and sources as
account and transaction fees, commissions, interest charges, foreclosures,
penalties, and late fees. These proportions would, without question, be
unsustainable in any healthy economy, given that financial services account
for only 15 percent of corporate Americaʹs gross value added and a mere 5
percent of private‐sector jobs. A bulk of the US$545 billion in 2006 profits are
a windfall for the financial services industry that stem from the socially
destructive deployment of debt as a surrogate for earned purchasing power.
While some of the profits support consumption through payment of salaries,
dividends, and bonuses to financial industry executives, employees, and
shareholders, much is plowed back into new lending to further fuel the
depraved virtuous cycle of insanity. This contributes to further erosion of
total societal purchasing power. The overall data on financial industry
profits certainly puts a question mark behind the national rollback of usury
regulation, which started in the 1980s. Few realize that interest rates in the
range of 6.5 to 7.5 percent, which are viewed today as “low,” are actually
higher than in times past. The average mortgage interest rate in 1960, for
example, was 5.25 percent.
The banksʹ course was made possible by cheap money, facilitated in
turn by low consumer‐price inflation. In more regulated times, credit
controls or the gold standard restricted the creation of credit. But recently
central banks have conspired with the banksʹ urge to earn fees and use
leverage. The resulting glut of liquidity and the hunt for yield led eventually
to the ill‐starred boom in American subprime mortgages.
Even when the dotcom bubble burst in 2001 and U.S. growth weakened
in its aftermath (in fact, it weakedend more than in any “cycle” since the
1950s with the exception of the double‐dip recovery in 1980‐81) and growth
in consumer spending fell in line with total investment and exports the
intrepid bucaneers of Wall Street financial services, unable to reign in their
voracity, just kept on going. A service industry that has its only menaingful
function in enabling people to write, trade and manage financial claims on
future cashflows from productive eneterprise has forged an “niche” that has
overtaken and and threatens to destroy the real economy.
The extent of the damage has been huge. The Wall Street Journal
recently conducted an analysis of loan data that shows that between 2004
and 2006, at the peak of home prices in many parts of America, over 2,500
banks, thrifts, credit unions and mortgage companies made combined high‐
interest‐rate loans 31 of US$1.5 trillion. 32 After rising by an incredible 134
percent over the previous decade prices finally peaked in 2006. Buying
property for investment was en vogue and took an ever‐increasing share of
the market during the extended boom. Consequentially, the U.S. economy
was propelled forward as housebuilders responded to the surge in demand.
Annual housing starts leaped from 1.5 million in August 2000 to a high of 2.3
million in January 2006. 33 Now, imperturbably, what many analysts until
very recently calimed was a “strong housing market” is collapsing as
witnessed by the sharp decline in the broadest gauge of prices, the
S&P/Case‐Shiller national index34; it fell by 3.2 percent in the second quarter
of 2007 year‐on‐year—a record annual decline in America. Expect much
more to come. In 2006, the California office of the Center for Responsible
Lending reported that subprime loans represented circa one quarter of all
home loans in America and that an estimated 2.2 million households in the
subprime market would ultimately face foreclosure.
The subprime fiasco had been hovering on the horizon since late 2006,
and it has been clear that mounting delinquencies and foreclosures 35 ,
coupled with elevated interest rates on adjustable mortgages and waning
residential construction and home prices, would undermine the market for
mortgage securities. And yet, as Joshua Rosner points out in a New York
Times op‐ed piece, it took “Moody’s Investors Service, Fitch Ratings and
Standard & Poor’s, the three leading agencies that rate long‐term debt, until
[July 2007] to react to this looming financial crisis, which involves more than
$1.2 trillion of subprime mortgages originated in 2005 and 2006 alone. As
one investor asked during a recent Standard & Poor’s conference call,
‘What is it that you know today that the markets didn’t know three
months ago?’”
Now, at last, investors and lenders have abruptly awoken from their
sleepwalk through derivative nirvana; the fallout will be catastrophic,
with implications for companies in need of fresh capital to cover capital
expenditure, debt repayments and the ever‐fashionable executive hobby of
mergers and acquisitions (M&A). A reduction in M&A activity would, by
default, be a blessing in disguise; as fewer M&A deals would require
managers to spend more time on their actual business and give them less
opportunity to exalt their hubris and fritter away their shareholders funds
on loss‐making and time and energy sapping acquisitions. Some argue that
corporations have sufficient liquidity to meet current needs. We will have to
wait and see.
The U.S. housing market is another kettle‐of‐fish. The situation is dire. It
will only worsen, as foreclosures increase and house prices continue to fall.
Ie early 2007, the proclaimed free market apostles from Wall Street began
screaming for father Fed to come to their rescue. Once more, their petty,
self‐indulgent screams have been heard. Around the world, billions of
dollars are being injected into the decrepit financial system to shore up
liquidity and “confidence.” Such a response is an inversion of moral
principle and social sanity that sees ordinary taxpayers bailing out moronic,
greed‐infested financial clowns whose actions and schemes are as distant
from the realities of the real world as gambling in Las Vegas is from
earning your livelihood as a miner in the coal pits of Kentucky.
In contrast, the cries of the millions lured into contracting adjustable‐
rate mortgages by criminal Ponzi‐brokers and Ponzi‐bankers are ignored.
Many now face exorbitant monthly payments. Some face payments close to,
or equivalent to, their monthly incomes. As ordinary people desperately try
to restructure their loans—and simply survive destitution—they are
repeatedly thwarted both by stringent protections put in place to protect
investors who bought the mortgage pools and by faceless bankers, who are
now unwilling to repackage the loan deals. To expedite the misery, in some
states foreclosures can conveniently be instigated by loan servicers and
concluded within only 40 days. 36 Around the nation, homeowners now wait
anxiously afraid to answer the doorbell for fear of expulsion from their
homes. We moronically ignored the subprime dementia and its
transparently foreseeable consequences until it was far too late. Now, we are
disregarding the plight of the hundreds of the millions mired in the tidal
wave of foreclosures. The selective ruthlessness of so‐called “free markets”
knows no bounds. The fact that mortgage brokers and bankers operated
legally does not justify the immorality of their actions; it does not make their
actions right. Where markets are free but not fair, society as a whole
invariably suffers chaos and distress. Conjointly, it is a gleeful scenario for
the inchoate breed of “vulture capitalists” silently, but impatiently, waiting
in the shadowed wings to gain from their perquisite, prized boon of fire‐sale
asset prices. Theirs is the ultimate capitalist mitzvah.
The unfolding events mock any precept of free‐market capitalism, which
demands that those who bear responsibility should—and must—be held
accountable.
The responsibility lies with Wall Street. They have devised and spread
these untested instruments; they have been funding these mad, bad
loans; they should carry the burden of losses.
However, our markets are only “free” when that freedom is convenient
for the conjoined political and business elite.37
In a recall of events relating to the tech bubble of early 2000—shame shit
different day—our pretentious “Wall Street Wizards of Oz” made fortunes
issuing Ponzi securities.
Now, just as then, bullish stock and credit analysts—such as those at
Bear Stearns, who profited quite nicely, thank you, from underwriting and
rating those investments—defrauded investors with bubbly proclamations.
Their lack of integrity knowing no bounds these proclamations were
expounded even as loan defaults rocketed.38
SYSTEMIC FRAUD
In a highly enlightening paper that looks at the absurd economic and “gush‐
up” wealth transfer effects of the fractional reserve system from an
econophysics perspective, Vladimir Z. Nuri points out the following:
“Whoever has or is given the authority to create credit has the authority to extract
wealth from the economy by that same mechanism. Moreover, there is no meaningful
distinction between fractional reserve banking and money expansion. The analogy of
counterfeiting looms large as the mathematics reveals. In many ways the only difference
between illegal counterfeiting and legal privately‐owned money expansion is that gains
by the recipient in the latter case are officially sanctioned, not indiscriminate, and
limited based on the expansion rate. Therefore, paradoxically, privately‐owned money
expansion is basically equivalent to `legalized counterfeiting,ʹ i.e. a surreptitious state‐
sanctioned plundering of money holder wealth by private bankers! Because it is an
intrinsic oxymoron, however, the counterfeiting analogy is awkward and unsatisfactory
and some other metaphor seems necessary. Perhaps the simplest explanation for this
situation is that new shares of the economy are issued, but they are owned by private
bankers at the expense of the ownership of all other shareholders (i.e. money holders,
taxpayers, citizens). Via mere money manipulation the private bankers own a greater
real share of the entire economy (e.g. GDP denominated in dollars). Hence the term
“money stockʺ takes on new meaning! The tragic absurdity of the situation has reached
epic, international, worldwide proportions. 39
Some of you might still find it difficult to believe the assertion that the
fractional reserve banking system is systemically fraudulent. I can now do
no better than offer the following extended excerpt from Murray Rothbard’s,
The Mystery of Banking.40,41 The below excerpt alludes to the beginnings of the
practice of deposit banking at a time in which deposit banks functioned as
safe‐deposit boxes do today. The depositor would place his goods on
deposit at the warehouse. In return, he received a warehouse receipt
confirming his redemption rights whenever he presented the ticket at the
warehouse. The receipt or claim check was instantly redeemable on
demand at the warehouse.
Gold coin and bullion—money—provides an even greater temptation for embezzlement
to the deposit banker than grain to the warehouseman. Gold coin and bullion are fully
as fungible as wheat; the gold depositor, too, unless he is a collector or numismatist,
doesn’t care about receiving the identical gold coins he once deposited, so long as they
are of the same mark and weight. But the temptation is even greater in the case of
money, for while people do use up wheat from time to time, and transform it into flour
and bread, gold as money does not have to be used at all. It is only employed in
exchange and, so long as the bank continues its reputation for integrity, its warehouse
receipts can function very well as a surrogate for gold itself. So that if there are few
banks in the society and banks maintain a high reputation for integrity, there need be
little redemption at all. The confident banker can then estimate that a smaller part of his
receipts will be redeemed next year, say 15 percent, while fake warehouse receipts for the
other 85 percent can be printed and loaned out without much fear of discovery or
retribution.
The English goldsmiths discovered and fell prey to this temptation in a very short time,
in fact by the end of the Civil War. So eager were they to make profits in this basically
fraudulent enterprise, that they even offered to pay interest to depositors so that they
could then “lend out” the money. The “lending out,” however, was duplicitous, since
the depositors, possessing their warehouse receipts, were under the impression that their
money was safe in the goldsmiths’ vaults, and so exchanged them as equivalent to gold.
Thus, gold in the goldsmiths’ vaults was covered by two or more receipts. A genuine
receipt originated in an actual deposit of gold stored in the vaults, while counterfeit
ones, masquerading as genuine receipts, had been printed and loaned out by goldsmiths
and were now floating around the country as surrogates for the same ounces of gold.
The same process of defrauding took place in one of the earliest instances of deposit
banking: ancient China. Deposit banking began in the eighth century, when shops
accepted valuables and received a fee for safekeeping. After a while, the deposit receipts
of these shops began to circulate as money. Finally, after two centuries, the shops began
to issue and hand out more printed receipts than they had on deposit; they had caught
onto the deposit banking scam. Venice, from the fourteenth to the sixteenth centuries,
struggled with the same kind of bank fraud.
Why, then, were the banks and goldsmiths not cracked down on as defrauders and
embezzlers?
Because deposit banking law was in even worse shape than overall warehouse law and
moved in the opposite direction to declare money deposits not a bailment but a debt.
Thus, in England, the goldsmiths, and the deposit banks which developed subsequently,
boldly printed counterfeit warehouse receipts, confident that the law would not deal
harshly with them. Oddly enough, no one tested the matter in the courts during the late
seventeenth or eighteenth centuries. The first fateful case was decided in 1811, in Carr v.
Carr. The court had to decide whether the term “debts” mentioned in a will included a
cash balance in a bank deposit account. Unfortunately, Master of the Rolls Sir William
Grant ruled that it did. Grant maintained that since the money had been paid generally
into the bank, and was not earmarked in a sealed bag, it had become a loan rather than a
bailment. Five years later, in the key follow‐up case of Devaynes v. Noble, one of the
counsel argued, correctly, that “a banker is rather a bailee of his customer’s funds than
his debtor, . . . because the money in . . . [his] hands is rather a deposit than a debt, and
may therefore be instantly demanded and taken up.” But the same Judge Grant again
insisted—in contrast to what would be happening later in grain warehouse law—that
“money paid into a banker’s becomes immediately a part of his general assets; and he is
merely a debtor for the amount.” The classic case occurred in 1848 in the House of
Lords, in Foley v. Hill and Others. Asserting that the bank customer is only its creditor,
“with a superadded obligation arising out of the custom (sic?) of the bankers to honour
the customer’s cheques,” Lord Cottenham made his decision, lucidly if incorrectly and
even disastrously:
Money, when paid into a bank, ceases altogether to be the money of the principal; it is
then the money of the banker, who is bound to an equivalent by paying a similar sum to
that deposited with him when he is asked for it . . . . The money placed in the custody of
a banker is, to all intents and purposes, the money of the banker, to do with it as he
pleases; he is guilty of no breach of trust in employing it; he is not answerable to the
principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not
bound to keep it or deal with it as the property of his principal; but he is, of course,
answerable for the mount, because he has contracted . . . .
Thus, the banks, in this astonishing decision, were given carte blanche. Despite the fact
that the money, as Lord Cottenham conceded, was “placed in the custody of the
banker,” he can do virtually anything with it, and if he cannot meet his contractual
obligations he is only a legitimate insolvent instead of an embezzler and a thief who has
been caught red‐handed. To Foley and the previous decisions must be ascribed the major
share of the blame for our fraudulent system of fractional reserve banking and for the
disastrous inflations of the past two centuries.
Even though American banking law has been built squarely on the Foley concept, there
are intriguing anomalies and inconsistencies. While the courts have insisted that the
bank deposit is only a debt contract, they still try to meld in something more. And the
courts remain in a state of confusion about whether or not a deposit—the “placing of
money in a bank for safekeeping”—constitutes an investment (the “placing of money in
some form of property for income or profit”). For if it is purely safekeeping and not
investment, then the courts might one day be forced to concede, after all, that a bank
deposit is a bailment; but if an investment, then how do safekeeping and
redemption on demand fit into the picture?
Furthermore, if only special bank deposits where the identical object must be returned
(e.g. in one’s safe‐deposit box) are to be considered bailments, and general bank deposits
are debt, then why doesn’t the same reasoning apply to other fungible, general deposits
such as wheat? Why aren’t wheat warehouse receipts only a debt? Why is this
inconsistent law, as the law concedes, “peculiar to the banking business”?42
GIVING CONTROL OF THE MONEY SUPPLY BACK TO THE

PUBLIC
Governments across the world have ceded the most important non‐natural
commons of all, credit, to private interests. Governments, with the power to
create money, have ceded that power via government charter to a private
monopoly. Now, to raise funds, governments issue Treasury notes,
Government Bonds and other securities. Without logic or reason, they
borrow monies, which they could create themselves (the money created by
private banks through the current money creation system). The greatest
absurdity is that they do so at interest and virtually to the point of
bankruptcy in many nations. In the process, governments have ceded
public utility and public welfare to the interests of this cabal of private
bankers. The supreme perversion is that the common taxpayer is the
ultimate guarantor of this government “debt.”43
It is no exaggeration to proclaim that the single most influential factor
in promoting wealth concentration and social inequality has been the
privately controlled monetary system based on fractional reserve
banking.
There is no coherent reason why governments should not print money
and create credit, at no interest, in an appropriate proportion to the
requirements of a sustainable, steady‐state economy and to promote the
production of goods and services that benefit all parts of society and
eliminate poverty. There is no coherent reason why governments should
waste a significant portion of tax revenues on servicing debt to a tiny
minority in the private sector. There is no coherent reason why governments
cannot create sovereign credit that is not based on debt but on the direct
allocation of money spent into circulation by the government itself to
promote the general welfare (e.g. spent on social services, pensions,
education, health care etc.). The money supply could then be monitored by a
monetary control board to ensure economic stability and that it is neither
deflationary nor inflationary.
History furnishes splendid examples of the benefits of government‐
controlled money supply. For one, Germany furnishes an astonishingly
successful example of money spent into circulation by government. It is the
astounding transformation of that country’s economy after the Nazi’s came
to power in 1933—Hitler followed ideas put forward by Gottfried Feder—at
a time when the country was in total economic collapse— in the aftermath of
the ruinous war‐reparations and the hyperinflation of the 1920s—and had
absolutely no access to foreign investment or credit. Yet, as Henry C.K. Liu
writes, “through an independent monetary policy of sovereign credit and a
full‐employment public works program, the Third Reich was able to turn a
bankrupt Germany, stripped of overseas colonies it could exploit, into the
strongest economy in Europe within four years, even before armament
spending began.” As Sheldon Emry notes in Billions for the Bankers, Debts for
the People, “Germany issued debt‐free and interest‐free money from 1935 on,
accounting for its startling rise from the depression to a world power in 5
years. Germany financed its entire government and war operation from 1935
to 1945 without gold, without debt, and it took the whole Capitalist and
Communist world to destroy the German power over Europe and bring
Europe back under the heel of the Bankers. Such history of money does not
even appear in the textbooks of public schools today. “
Another such example, one that predates the German success, began to
unfold on 12 April 1861 when Abraham Lincoln, needing money to finance
his war effort, met with financiers in New York to apply for the necessary
loans. The moneychangers, wanting the Union to fail, offered loans at 24 to
36 percent. Lincoln declined the offer. Uncertain how to resolve his financial
concerns and finance the war, Lincoln turned to his friend Colonel Dick
Taylor who responded, ʺJust get Congress to pass a bill authorizing the
printing of full legal tender treasury notes... and pay your soldiers with them
and go ahead and win your war with them also.ʺ Contemplating Taylor’s
suggestion, Lincoln was concerned that Americans might not accept the
notes. However, Taylor reassured him that, ʺThe people or anyone else will
not have any choice in the matter, if you make them full legal tender. They
will have the full sanction of the government and be just as good as any
money; as Congress is given that express right by the Constitution.ʺ44 And
indeed, it is. The Founding Fathers—having painfully learned from the
impoverishment that resulted when British bankers imposed the
introduction of debt‐based silver and gold coins in the colonies to replace
the non‐interest bearing colonial scrips that had hitherto enabled an
unheard of prosperity—were careful to protect the nation against the
exploitation of the international banking mafia. It is expressly stipulated in
Article 1, Section 8, paragraph 5 of the American Constitution45, that
“Congress shall have the power to coin money and to regulate the
value thereof.”
Between 1862 and 1863, in full compliance with the provisions of the
American Constitution, the Lincoln administration printed 450 million
dollars worth of debt‐free Treasury notes. The new bills (United States
Notes46) were popularly dubbed “greenbacks” because they were printed
with green ink on the back to distinguish them from other notes. It was the
first issuance of paper as a ʺlegal tenderʺ and circulating medium of
exchange. The immense benefits of this new money quickly became clear
to Lincoln.
ʺThe government should create, issue and circulate all the currency
and credit needed to satisfy the spending power of the government
and the buying power of consumers..... The privilege of creating and
issuing money is not only the supreme prerogative of Government,
but it is the Governmentʹs greatest creative opportunity. By the
adoption of these principles, the long‐felt want for a uniform medium
will be satisfied. The taxpayers will be saved immense sums of interest,
discounts, and exchanges. The financing of all public enterprises, the
maintenance of stable government and ordered progress, and the
conduct of the Treasury will become matters of practical
administration. The people can and will be furnished with a currency
as safe as their own government. Money will cease to be the master
and become the servant of humanity. Democracy will rise superior
to the money power.ʺ
According to Lincoln, the greenback was the “greatest blessing the
American people have ever had.” However, it was a nightmare and
potential disaster for the bankers. They reacted exigently to sabotage
Lincoln and destroy the greenback. Their degree of perturbance is
documented in a remarkably open assessment of the situation that came
from within their ranks from a certain Lord Goschen—who was to later
become the Chancellor of the Exchequer—and was published in the London
Times. It provides a surprisingly honest appraisal of the position of the
financiers and underlines their hatred of the social benefits inherent in
monies such as the greenback.
“If this mischievous financial policy, which has its origin in North
America, shall become indurated down to a fixture, then that
Government will furnish its own money without cost. It will pay off
debts and be without a debt. It will have all the money necessary to
carry on its commerce. It will become prosperous without precedent
in the history of the world. That Government must be destroyed, or it
will destroy every monarchy on the globe.”
This aggressive stance is not unique to that time. Throughout history,
bankers have followed a successful formula of destruction and
warmongering to thwart any attempts to hinder their schemes. Following
the innate destructive instincts of their guild, the bankers proceeded to
undermine the greenback. Using their incomparable political and financial
influence, they induced Congress into passing the “Exception Clause” in
February 1862, which forbade the use of greenbacks to pay interest on the
national debt or to pay taxes, excises, or import duties. (At that time, national
revenue was drawn mainly from internal excise taxes on the sale of goods
such as tobacco and liquor, and from tariffs on imports.) Then, in 1863,
having bankrolled the election of a sufficient pool of senatorial and
congressional lickspittle lackeys, the banking mafia was able to “convince”
Congress to revoke the Greenback Law (U.S. Notes bill) and replace it with
the National Banking Act which would allow interest‐bearing money to be
issued by privately‐owned banks and provided for the progressive
withdrawal of greenbacks from circulation. Distracted by the war and his
dominant wish to save the Union, Lincoln believed it wise to postpone his
veto until after the war, yet, did not fail to voice his indignation:
“The money powers prey upon the nation in times of peace and
conspire against it in times of adversity. It is more despotic than a
monarchy, more insolent than autocracy, and more selfish than
beaurocracy. It denounces as public enemies all who question its
methods or throw light upon its crimes. I have two great enemies, the
Southern Army in front of me and the bankers in the rear. Of the two,
the one at my rear is my greatest foe.”
Lincoln was re‐elected President in 1864, and made it quite clear that he
would attack the power of the bankers, once the war was over. The war
ended on April 9, 1865, only five days later, Lincoln was assassinated. A
tremendous restriction of credit followed, diligently organized by the banks:
the currency in circulation, which was US$1,907 million in 1866 (US$50.46
per capita) had been reduced to $605 million in 1876 (US$14.60 per capita). In
the process 56,446 business failures destroyed US$2 billion of wealth. Ten
years later, in 1887, per capita currency in circulation fell to only US$6.67.
̴
That bankers were able to influence Congress to pass the Exception Clause and the
National Banking Act should come as no surprise. Throughout the history of the U.S.,
financiers have successfully bought support in Congress and the Senate. One of the
best‐documented examples relates to the passing of the Coinage Act of 1873. This
intriguing story unfolds as follows: in 1872 a certain Ernest Seyd was sent to America
on behalf of European financiers to bribe Congress into demonetizing silver, thereby,
enabling the eventual introduction of the gold standard and causing a further decline in
the issuance of greenbacks. (Bankers had already been successful in introducing the so‐
called, but pitifully named, Gold Standard Age, which began when governments
around the world demonetized silver in the early 1870s and officially adopted gold as
their sole standard money 47 and installed central banks. A move that very much
benefited the financiers who controlled most of the gold. The ruse worked brilliantly for
the bankers because required bank reserves were never more than 35 ‐ 40% of
deposits a large portion of which was not held in gold but in the from of
government bonds48.) Seyd, in fact, drafted the legislation himself, which came into
law with the passing of the Coinage Act, effectively stopping the minting of silver that
year. This is what Seyd himself had to say about his trip,
ʺI went to America in the winter of 1872‐ 73, authorized to secure, if I
could, the passage of a bill demonetizing silver. It was in the interest
of those I represented ‐ the governors of the Bank of England ‐ to have
it done. By 1873, gold coins were the only form of coin money.”
Or, as Senator Daniel of Virginia noted on the same issue, ʺIn 1872 silver being
demonetized in Germany, England, and Holland, a capital of 100,000 pounds
($500,000.00) was raised, Ernest Seyd was sent to this country with this fund as agent
for foreign bond holders to effect the same object (demonetization of silver).”49
The new legislation worked liked a charm for the bankers. Within three years, 30
percent of the work force was unemployed. The U.S. Silver Commission was established
to assess the problem. It responded with a remarkable historic analogy:
ʺThe disaster of the Dark Ages was caused by decreasing money and
falling prices... Without money, civilisation could not have had a
beginning, and with a diminishing supply, it must languish and
unless relieved, finally perish. At the Christian era, the metallic money
of the Roman Empire amounted to $1,800 million. By the end of
the15th century, it had shrunk to less than $200 million. History
records no other such disastrous transition as that from the Roman
Empire to the Dark Ages...ʺ
In 1877, in response to the social tragedy, riots erupted across America and demand for
the reissuance of greenbacks grew vociferously. But tragedies are merely opportunities
for business and profit for bankers. Hence, with customary disregard for social welfare
and the bankers merely sought to further enhance their position by campaigning against
the greenback and sustaining the depression by withholding loans. The American
Bankers Association (ABA) secretary, James Buel, openly expresses this insidious
attitude in a letter to ABA members. He wrote: ʺIt is advisable to do all in your power
to sustain such prominent daily and weekly newspapers, especially the Agricultural
and Religious Press, as will oppose the greenback issue of paper money and that you
will also withhold patronage from all applicants who are not willing to oppose the
government issue of money. To repeal the Act creating bank notes or to restore to
circulation the government issue of money will be to provide the people with money and
will therefore seriously affect our individual profits as bankers and lenders. See your
Congressman at once and engage him to support our interest that we may control
legislation.ʺ 50 The Gold‐Standard Age continued until 1898 in the U.S., severely
deflating the money supply (bank and government paper currency, bank credit, gold,
and silver), thereby, causing a prolonged and massive depression induced by falling
purchasing power, lower commodity prices, and slower economic activity.
Throughout this time, the bankers made handsome profits.
In principle, they were to follow the same strategy to induce the Great Depression only
a few decades later.
̴
If governments’ regained their rightful control over money creation in
the context of a wide‐reaching monetary reform there would be virtually no
need for foreign investments in many countries and there would be no
need for governments to finance budgets by privatizing sectors that
represent the backbone of public welfare, such as education, health, energy
and telecommunication. Governments could reduce and quite rapidly
eliminate deficits and foster demand for goods and services needed to close
the growing gap between productivity (achieved at the expense of worker
wages or job cuts) and demand. Governments could initiate ecologically
meaningful restoration of physical infrastructure through long‐term non‐
interest loans. It is clear that the privately controlled money system has no
interest in making such infrastructure expenditures. Such loans might be
offered via a dedicated national infrastructure bank that would facilitate
investment at both the state and local levels. In fact, this is effectively what
happened with the Reconstruction Finance Corporation during the New
Deal. The basic idea was that massive government spending programs
would help overcome the decline in purchasing power caused by the
restrictive lending policies of private banks. These programs were funded
by a huge federal deficit and a steeply progressive income tax. (The U.S.
was finally able to work its way out of this crisis during WWII through
masssive deficit spending on the military‐industrial complex—which
remains the foundation of the U.S. economy today—and a large balance of
payments surplus, which continued into the 1960s. Of course, with
America’s huge trade deficit today, that solution is not available and, with
monetary reform, would not be necessary.) Increased demand would also
limit the vile competitive rat race that now results in declining living
standards for all but the elite layers of society. Importantly, by creating
investment opportunities in the productive sector of the economy, money
creation for truly sustainable development could curb the concentration of
capital in the international financial markets and reduce speculation.
These concepts have been well understood throughout the history of the
U.S., as the many quotes and references supplied in this section obviously
highlight. But ever since the Federal Reserve Act, such sensible thought has
been discarded on the waste heap of capitalist doctrine and drowned out by
the incessant incantations of the banking mafia that has persistently
propagandized the falsehood that a government managed money supply
invariably results in inflation. In fact, as Stephen Zarlenga, the Director of
the AMI, notes in his excellent book, The Lost Science of Money, precisely the
opposite is true.
“When one actually examines the monetary record…it becomes clear
that government has a superior record issuing and controlling money
than the bankers have.”
This should hardly surprise given that the motivations of bankers are
antipodal to the needs of society and the welfare of the majority. One case‐
in‐point is the record of the Federal Reserve in its first 20 years of collusion
with the banking mafia. Twenty years that “brought America to its knees” as
farms were destroyed by massive debt and falling land prices; factories were
shutdown; exchanges destroyed; banks closed. Between 1929 and 1932,
national income fell 52 percent, industrial production fell 47 percent,
wholesale prices fell 32 percent, and the real value of debt rose 140 percent.
The country was in ruins as unemployment rose by 329 percent from 3.5
million to 15 million—about a quarter of the total workforce.
ʺThe Federal Reserve definitely caused the Great depression by
contracting the amount of currency in circulation by one‐third from
1929 to 1933.ʺ
— Milton Friedman51
An example of how historic truths have been distorted and how
economics textbooks are written according to the whims and interests of
the global banking elite is the first runaway inflation in modern history—
the hyperinflation that occurred in Germany after WWI. Germany’s
hyperinflation during the Weimar Republic is generally credited to the
failure of the German government to restrict the money supply, the truth lies
elsewhere. Just as with the Federal Reserve Bank in the U.S., the German
Reichsbank was a privately owned bank, run for private profit. What
pushed Germany’s wartime inflation into hyperinflation was not
irresponsible government monetary policy but speculation by foreign
investors who were up to their favorite pastime of selling currencies short
(in this case the Reichsmark) betting on their devaluation. The Reichsbank
and other private banks supported the speculation by collectively created
huge amounts of money from nothing and making these funds available
for speculative borrowing. It was only when the Reichsbank was put under
strict government control that stringent measures were taken to eliminate
speculation.
In its proposed American Monetary Act the AMI states that putting the
money supply back under the control of government provides an
opportunity for to instill “considerations of fairness, sustainability, sound
environmental practice and social cohesion as [core] values in monetary
decision making. In other words moral considerations are explicitly
considered.”
In fact, as early as the 1920s, C.H. Douglas brought forth the idea of
Social Credit and proposed a Basic Income Guarantee.
Douglas, identified fundamental factors in the very nature of
industrial production at the level of the corporation that induced a
chronic state of economic instability, crisis and disintegration.
The basic premise of his ideas was that in any technologically advanced
economy, it is impossible for the population of a nation to earn enough
money (total of all salaries, wages, direct labor costs) to consume the entire
production base. Among the many sources of this purchasing power
deficiency, Douglas listed retained business earnings; individual savings
(“mere abstention from buying”); investments which create a new cost
without new purchasing power; accounting factors (carryover of costs
incurred in earleir periods into current prices); and deflation (“sale of
securities by banks and recall of loans”). Other elements not mentioned by
Douglas but put forward by Richard Cook, include insurance, maintenance
of unused plant capacity, corporate pension contributions, and the
cumulative sum of retained earnings and other cost factors when businesses
buy from each other. All of these factors are components of the prices of
goods and services but are not paid as earnings to individuals and, hence,
are not spent into consumption. The absurdity of the current system
reaches profound heights when one considers that when loans are repayed
to banks, the purchasing power tied to the amount of the loan dissipates.
This is so because the loan must have eventually been used to pay for or
purchase something such as wages, rent, commodities and so on that form a
cost component of the prices eventually charged for goods and services. This
risible system creates systemic shortfalls in purchasing power which are
increasingly plugged by further loans. The system is a viruous circle in
which borrowers are condemend to constantly borrow more merely to
survive.
The following example, using macroeconomic data from the U.S,
exemplifies the magnitude of the current purchasing power deficiency. In
2006, U.S. GDP was US$12.98 trillion, with the trade deficit of US$726 billion
figured in. The total national income was US$10.23 trillion, including wages,
salaries, interest, dividends, personal business earnings, and capital gains. Of
this amount, at least 10 percent, or US$1.02 trillion, would have been
reinvested either at home or abroad, including retirement savings, leaving
total available purchasing power of US$9.21 trillion. Hence, total GDP minus
total purchasing power was US$3.77 trillion, which equates to the “shortfall”
needed to consume the entire GDP. The above figures are from an insightful
article by Richard Cook in which he also points out that defining the
difference, as a shortfall is the wrong way to look at this issue. Since a
principal factor, why earnings are so far below total output is because, with
the relative stagnation of wages (of course, not senior executive wages) labor
costs are comparatively low. Therefore, it would be more appropriate to
classify the difference as a societal dividend. Moreover, the present decline
in housing values in the U.S. results in lower capital gains so that the
purchasing power deficiency is growing. At present, consumers are forced to
make up for the shortfall of US$3.77 trillion by taking on new debt. In 2006,
new debt was 29 percent of GDP. Of course, we are discussing gross
numbers here so we are overlooking the significant fact that income
disparities in the U.S. are growing rapidly and, therefore, lower income
earners carry the rising debt burden disproportionately. (Of course, we need
to keep in mind that the system is functioning as designed because this
upward transfer of wealth is its primary intent.)
Increasingly, consumers are taking on debt not to cover luxury
purchases but simply to survive. At once, in relentless marketing and
advertising campaigns designed to stimulate a never‐ending spiral of
consumption, corporations have, for decades, used sophisticated
psychological techniques to modify the very meaning of notions such as
needs, wants and desires so that the very concept of “basic need” has been
warped to their interests and ideas of what defines the bare minimum now
exceed the greatest luxuries of past generations (s. [..] ff). As the chasm
between aspiration and reality grows deeper and wider for the average
citizen, the levels of unhappiness, stress, and social despair are rapidly on
the rise and are already at unprecedented levels (s. [..] ff).
At the end of 2006, total debt in the U.S., including households,
businesses, and all levels of government (for which the taxpayer is
ultimately responsible0, was US$48.3 trillion. This is 50 percent more than
the combined personal wealth of the entire population, 38 percent more than
the market capitalisation of all publicly traded American companies, and
amounted to US$161 thousand per resident, payable with interest to private
banks. During 2005‐2006 alone, total debt grew five times faster than the
economy. According to the Federal Reserve, total debt in 2007 was 4.6 times
the national income compared to “only” 1.86 times in 1957. Credit card debt
was US$9,300 per household in 2004 and is more now, three years later. A
typical family pays US$1,200 a year in credit card interest charges alone.
The problem is symptomatic of all developed nations. Across the board,
developed economies are now inherently consumer‐based and functional
only when supported by consumer borrowing. Douglas made the
compelling case that
productivity gains that lead to increases in economic output with
proportionately smaller amounts of labor should really be reclassified
as a leisure dividend which is to be distributed equally among all
strata of society.
Given inevitable purchasing power deficiencies, how can governments
ensure that the production base is consumed and employment levels are
maintained? The obvious answer is to increase purchasing power.
Regretfully, governments, following the guidance of the financial banking
mafia and their economist cronies, invariably attack this problem in all the
wrong ways. One of the wrong ways is to permit private debt financing
based on fractional reserve banking that leads to profits for the banks at the
expense of everyone else. Today, this ruinous approach reigns supreme as an
ugly reflection of societies that exclusively value private property, private
ownership, and private profit.
A second is the attempt to overcome instability by promoting
continuous economic growth through the smoke‐and‐mirrors of
inflationary bubbles (e.g. housing market, stock markets) so that castle‐in‐
the‐air financial transactions can be taxed as if they produced something of
real, tangible, value. This is a truly fantastical illusion.
A third is by means of aggressive foreign policies founded on trade
and monetary dominance. It is another tragedy of our times that few
understand just how fundamentally monetary decisions drive not only
national economies but also foreign policy. In effect, key foreign policy
decisions are being made in the boardrooms of the major financial
institutions in New York and London. This, of course, has been the case for
centuries to varying degrees, but never to the almost absolute and
overpowering extent, we are sorry to experience today. Douglas correctly
diagnosed the classic policy of government’s to try to export their way out
of trouble through a positive balance of payments. However, this approach
leads to tremendous competition among nations for foreign markets and,
hence, as Douglas pointed out, as a matter of sheer economic survival; wars
must result. History is witness to the validity of this latter argument. Of
course, political and business leaders are never ones to miss the economic
benefits of war. And indeed, war does allow for the consumption of massive
amounts of goods (bombs, missiles, tanks, airplanes, etc) and services
(military) which otherwise would not have been consumed. War economies
also provide increased employment, however senseless (military, armaments
industry). And of course, we would severely err by failing to consider the
spoils of war for the victorious (e.g. oil revenue and corporate profits from
the war in Iraq…of course, lurking in the shadows we always find the
satanic sodality of surplus skimming bankers).
Douglas spotlights a far better, simpler, more direct, and less
inflationary way of eliminating the purchasing power deficiency; the
introduction of a National Dividend (tied to production and consumption
data, hence, variable from year to year) or Basic Income Guarantee. He
proposed that, at the start of each year, everyone—without means tests and
without distinction as to whether they work—would receive a specific
income. As an engineer, Douglas understood that any form of Social Credit
could not be tied to work because jobs would be increasingly lost to
mechanization and automation. Moreover, he realized that the
beneficiaries of these productivity increases are essentially determined by
monetary and banking policy and they are, by default, the world’s super‐
rich who own the private financial institutions supported by the
multinational corporations that borrow from and funnel profits into their
despotic lodge. The average citizen is merely a debt‐serf, a pawn in a nation
state owned by the financiers and run for their pleasure; s/he is essential
only as the consumer is essential to the consumption of national output.
However, as well‐paid jobs become ever scarcer, the pawns find this one
function increasingly impossible to fulfill without access to interest‐bearing
debt that debt‐serfs must repay from future earnings that are becoming
increasingly diminished and increasingly uncertain.
Douglas proposed that during years in which the National Dividend
failed to reach a designated threshold, the balance of a Basic Income
Guarantee could be provided from tax revenues. Of course, in highly
automated economies such as the U.S., and in other economies, as they
increasingly mechanize, the National Dividend would normally suffice.
It is essential to understand that the National Dividend is not at all
“free” money.
Underpinning the Social Credit proposal is the moral position that the
production of wealth is more than simply the consequence of the
utilization of private resources or capital; it is, to a far greater degree,
the result of the accumulated ingenuity, industry, and wealth of the
entire nation not just at a certain moment in time but as a function,
consequence and legacy of historic circumstances. Rather it is the
result of a productive, scientific and cultural system that has been
nurtured and developed over centuries and represents the true wealth
of a nation. Whatever is created, produced, and sold is done so within
the broadest social and cultural context, within which wealth is
generated.
It is for this reason, above all, that the outrageous proposition that any
CEO or business executive might be worth annual incomes of tens of
millions of dollars—equivalent to several hundred times more than the
average worker—are demonstrably preposterous and shameful. It is for
this reason too, that the accumulation of vast wealth among private
entrepreneurs who have benefited, immeasurably beyond proportion,
from one idea—people such as the co‐founders of Google or Microsoft—is
an abominable and scandalous social injustice. In reference to the
arguments put forth in [...]. In the present system the bulk of the citizenry are
prevented from benefiting from their own cultural heritage, leaving them
increasingly indebted to private banks, and unable to reduce the portion
of their lives that they spend working and simply trying to survive. The
system is designed to disproportionately benefit a very lucky few who are
able to skim the economic surplus created by society.
It is only right that the fruits of this longstanding national legacy rightly
be shared among all of society once business owners receive a reasonable
profit. Naturally, the question arises, what level of profit is reasonable? As I
have outlined in an earlier section [..] I would hope that humanity might one
day be enlightened enough to understand that profit is not a necessary
component of a functioning and ecologically sustainable economic system
and is certainly a hindrance to a socially just economic system. Until we
reach that level of enlightenment I suggest that profits be limited in such a
way that no individual is allowed to earn an income of above US$10
million per annum in 2008 dollars or to accumulate personal net worth
greater than US$150 million. I believe such levels of income and wealth
appropriation should suffice to encourage entrepreneurial activity and to
satisfy personal needs.
It is important to acknowledge that Social Credit is not a socialist
system as those who can think only in terms of pathetic dogmas and pitiless
class‐warfare might want to portray it. In lieu, proponents prefer to equate it
to a form of “democratic capitalism,” to suggest its delineation from the
prevalent form of “finance capitalism” that has become so damaging. This is
not so important to me beyond the obvious need to market this suggestion in
a form that it is palatable to those who have been indoctrinated to fear any
form socialism without understanding or context. What IS important is that
a National Dividend would provide a “secure source of income to
individuals which, though it might be desirable to augment it by work,
when obtainable, would, nevertheless, provide all the necessary purchasing
power to maintain self‐respect and health.” Under the Social Credit system,
Douglas foresaw the opportunity to work less if one so chooses, an
“opportunity,” that today, as we all know, is increasingly taken up by
necessity rather than by choice. But, in future, it would be a true opportunity
that would allow a great many more people to follow their intrinsic passion
in life without regard to the need to scrounge for basic living in meaningless
work as Homo economicus. (s.”happiness” [..] ff).
Individuals could use their dividend to pay down personal, household,
or student debt. Although, I would prefer that a major proportion of such
debt be written off through national bankruptcy laws in a process similar to
the one proposed for debtor nations caught the web of the international
credit mafia (s. Eliminating Third World Debt pp. 45 ff).. Richard Cook and
others have proposed a Basic Income Guarantee of US$10,000 in America,
which could simply and effectively introduce liquidity into the economy if it
were “issued to individuals as a credit or voucher against future
production.” Further, any difference between the total payout of National
Dividend and the purchasing power deficiency could be used to pay down
principle on national debt.
The fact that socially and ethically valuable concepts such as Social
Credit and the National Dividend have not been adopted or even seriously
debated is only because neo‐classical economics is dominated by notions
conducive to the needs of the private financial industry. Bankers detest the
very thought of money in the hands of the hoi‐polloi that is not tied in some
way to a monetary debt that the bankers control. That the present system can
easily be eradicated and replaced is indeed the most‐cherished secret in
economics history. But there are economists who support these ideas. In fact,
during the Great Depression, a majority of U.S. economists supported the
“Chicago Plan” which was the most innovative and progressive of
numerous proposals then put forth to modify the ailing financial system. The
ʺChicago Plan,ʺ submitted in 1933 by economists at the University of
Chicago, firmly recommended the abolition of the fractional reserve
system and the imposition of 100% reserves on demand deposits. Critically,
the proposal began by stating that
government had failed in its primary function of controlling currency
by allowing banks to usurp this power and that such ʺfree bankingʺ in
deposit creation ʺgives us an unreliable and inhomogeneous medium;
and it gives us a regulation or manipulation of currency which is
totally perverse.ʺ
The backers of the plan declared the need for a *ʹcomplete reorientation
of our thinking…and a redefinition of the objectives of reform.”52 The core
solution they proposed was the ʺoutright abolition of deposit banking on the
fractional‐reserve principle.ʺ 53 The Chicago Plan ultimately succumbed to
alternative (and less stringent) measures embodied in the Banking Act of
1935, but its principles (e.g. restricting bank assets and limiting taxpayersʹ
liability from Federal deposit insurance) remain valid today.
Monetary ideas that may seem revolutionary and that would be
characterized as such, and much worse, by the financial establishment,
are rather simple, logical, and fair.
Contrary to the assertions of mainstream economists, there are no set
rules for banking systems.
The current system is based on outdated economic principles that are
entirely incompatible with the requirements of a world faced with
massive global poverty, population explosion, and the all‐
encompassing social and ecological impacts of the climate
predicament.54
We must concede, and act upon, the fact that the very nature of the
prevailing leeching and parasitical capitalist monetary system is defunct.
As such, fixes can—and will not—suffice. The system itself must be
discarded, must be replaced.
It is a system that, per definition, nullifies the responsible utilization of
finite resources. It is a system that, per definition, nullifies our ability to cope
with the profound challenge of the climate predicament.
It is a primary social and economic obligation of governments to issue
the entirety of currency and credits needed to satisfy government
spending and enable sustainable consumption. Without doubt, this is
governments’ greatest opportunity.
Governments could easily issue credit either against a reserve of tax
receipts or against the “real credit” of the nation’s GDP. Moreover, because
government has no need to earn a profit on lending, credit would be issued
at rates of interest designed only to cover administrative costs. Public credit
could become a vehicle to shift economies towards regenerative production
and massive programs to fund research and development in renewable
energy could hasten the shift towards widespread adoption of renewable
energy.
As Robert H. Hemphill, Credit Manager of the Federal Reserve Bank,
Atlanta, Georgia, correctly brings to our attention, we must act soon:
This is a staggering thought. We are completely dependent on the Commercial Banks.
Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks
create ample synthetic money, we are prosperous; if not, we starve. We are, absolutely,
without a permanent money system. When one gets a complete grasp of the picture, the
tragic absurdity of our hopeless position is almost incredible, but there it is. It is the
most important subject intelligent persons can investigate and react upon. It is so
important that our present civilization may collapse, unless it becomes widely
understood, and the defects remedied very soon. 55
This is a time when the operation of the financial machine has become
so odious, so deplorable that we must refrain from taking part.
Instead, where the machine has made a desert, we call it progress.
We must now seek to stop its perilous course. We must now seek to
venture beyond the struggles of the past and to use our true substance and
our deepest hopes to create a world that is improved for all and made safe
for the welfare and freedom of humankind.
Indeed, there are innumerable ways to contend the principles of political
economy, but, by far the most appropriate is to do so from a moral
standpoint. As Zarlenga rightly argues,
”showing the unfairness—that is the immorality—of granting special
privileges within our society. Who is going to dare argue for special
treatment in principle? For what justification? There is none. Their
position is untenable.”
Bankers and their economist cronies will argue in perpetuity over
technicalities, happy do so, in mind‐numbing, doublespeak soundbites, as
long as change is hindered by confusing the debate and deflecting from the
core issue that a radical overhaul of the system is needed. They wil suggest,
tweaking interest rates, cutting production costs, tighter regulation, job
destroying productivity increases; but these tried but wretched measures do
nothing to change the systemic faults of the underlying financial structure.
̴
In all of this section, we have not yet appropriately discussed the great
looming challenge of the climate predicament in the context of a system of
Social Credit. As the world fails to rise to the challenge of climate change
and the wider ecological issues of our time, how can a new monetary system
cope with these changes? Reformers such as Douglas have invariably
implied that our socio‐economic problems stem not from our inability to
manage fairly the limited resources in a world of scarcity but from our
inability to manage resources in a world of great abundance and prosperity.
Therefore, the entire monetary reform movement is predicated on the view
that what is needed is to change the underlying financial structure from one
that lavishes abundance on the privileged elite—whether nations or
individuals—to one that is able to provide it to everyone on Earth. However,
this implicit understanding fails to fully acknowledge the horrendous
ecological cost of the massive prosperity that a few have embezzled. We now
face the dilemma that abundance and prosperity is not assured, even in the
best of times, because present forms of industrial and technological progress
are continuing to destroy the natural environment. Whereas, the past quest
may not have been to eliminate industrial progress, the future quest might
just be. Our only hope of sustaining present levels of wealth may lie in
technology but it is an unlikely source of workable solutions in the time we
have left. Let me conclude this section with the wise words of the great
German poet Goethe:
“None are more enslaved than those who falsely believe they are free.ʺ
— Johann Wolfgang von Goethe
THE GLOBAL DISEASE
Freeing humanity from the cancer of international finance is no easy task;
indeed, it is one made ever‐more difficult given the pervasive spread of
financial capitalism that has now gripped the entire world, not only at the
individual country level but, increasingly though the emergence of
institutions such as the World Bank, the International Monetary Fund (IMF),
the Bank of International Settlements (BIS), and the WTO. These
organizations are the manifest consolidation and internationalization of
the prevailing financial system under the deceptive, but alluring, guise of
peace, poverty alleviation, prosperity, transparency and sound economic
management. The Bretton Woods institutions, the World Bank and the IMF,
and GATT (later WTO), were not, as many falsely believe, designed by John
Maynard Keynes, he himself actually presaged that the IMF, in its current
form, would inevitably lead to unpayable debts. The triade of World Bank,
IMF and WTO, are decidedly the well‐groomed little brats of the United
States. Keynes only accepted the US proposals because he preferred a system
with rules, but he was livid at the outcome. It was evident to Keynes and
many other economists of the day that
the new institutions were defined in such a way as to make it
impossible for indebted nations to flourish, regardless of how well
they were governed.
That we incessantly hear arguments to this day that national governance
issues are a key impediment to the progress of nations, especially those in
Africa, are frankly beyond absurd. These insensitive and baseless
allegations are essentially moot and miss the point.
Bad governance can make a very bad situation worse but good
governance cannot make it better.
In fact, the WTO is a far cry from the vision of an International Trade
Organization (ITO) that Keynes had originally proposed in combination
with a supporting international central bank, the International Clearing
Union (ICU).56 Keynes had espoused an ITO that, in broad principle, would
work to not only reduce tariffs but to transfer technology to developing
countires and protect the rights of workers and prevent Big Business from
controlling the world economy. The United States, egged on by U.S.
corporations, found such notions unacceptable and the proposals were
postponed in favor of an interim institution, the general agreement on tariffs
and trade (GATT). The ITO was never to be, doomed at the outset, to be
massacred at the altar of U.S. corporate greed and banking interests.
Eventually, GATT became the WTO and the impoverished were abandoned
to be exploited and enslaved by the world’s corporate and banking elite. The
ICU was inventively designed by Keynes to automatically redeem
imbalances in trade and cancel debt, by forcing creditors to pay interest on
their international currency surplus at the same rate as debtors. All
international trade would be conducted in the central currency, the bancor,
which would have a fixed exchange rate with all national currencies, and
would be the measure of trade between nations. Individual nations would be
incentivised to avoid trade surpluses, otherwise risking a penalty that would
allow the ICU to place a percentage of the bancor surplus in a reserve fund.
The currencies of countries with trade deficits would be devalued to boost
exports. A system that would have gone a long way to establishing fair trade
between nations and eliminating the dependency on debt was, by its very
nature, a thorn in the side of the U.S.; naturally, it too was discarded.
The incomparable power of financial capitalism has implemented a
global system of feudal financial control in private hands that easily
dominates national political systems and commands the global economy
through the concerted actions of the world‘s central banks that are
deliberated and decided in clandestine meetings and implemented in secret
agreements well outside public purview. Each central bank seeks to
dominate its government and subvert the population. Each can easily do so
because it controls treasury loans, is granted the power to manipulate
currency exchanges to control domestic economic activity and to influence
subservient politicians by means of direct bribery or subsequent pecuniary
gratification in the glamour world of business. But, behind all of this are, of
course, the world’s private financial institutions.
It belies credulity that the illusion can still be maintained that a global
community of nation states, each of which is in the direst of financial
positions, each of which must contend with massive private and national
debt and the incessant threat of insolvency are in a position to lend money to
the developing nations. Of course, they are not. Loans to developing
countries consist almost entirely of monies that have been created, via
precisely the same commercial fractional reserve banking mechanism
described above specifically for the purpose of such loans. Ipso facto, these
monies are owed to private, commercial banks; yet, of course, what else, they
too are backed by the full faith and credit of the member countries’
governments. In the following, we will take a closer look at the workings of
the World Bank and the IMF.
THE WORLD BANK AND THE IMF

The World Bank holds only a nominal reserve contributed by the wealthy
members, but raises large quantities of money by drawing up bonds and
selling these to commercial banks on global money markets. The World
Bank does not itself create money.
To raise funds the World Bank sells bonds to commercial banks just
as national governments do. The commercial banks purchase these
bonds by creating additional bank credit from nothing, which the
World Bank registers as debts against developing nations.
The World Bank is effectively nothing other than a central broker for
commercial banking activities. Regardless of their denomination, these
loans are entirely unconnected to the respective national economies and
neither represent monies loaned by these nations, nor debts owed to them by
developing nations.
The IMF presents itself as international reserve of funds established by
means of contributions (quotas) from member nations. What is far less well
understood and never clearly communicated is that
credit creation is core to every aspect of IMF funding.
A quarter of each nationʹs quota is paid in gold (gold quota), the balance
in sovereign currency. The 75 percent payable in national currency is
invariably funded by the sale of government bonds to commercial banks,
leading to debt creation by those banks, adding to each nation’s national
debt. As demand for loans have increased over the decades, certain creditor
nations (foremost the U.S.) have become reluctant to increase their national
deficit to supply these funds. This has forced the IMF to circumvent the
restrictions of its quota system, which it has done by working directly
with commercial banks to administer ʹloan packagesʹ comprised
increasingly of funds from commercial sources. (Commercial banks have
been eager to get into this game ever since the four‐fold surge in oil prices in
the 1970s opened the floodgates of petrodollars into the western banking
system.) For example,
US$36 billion, out of the US$56 billion loan advanced to South Korea
at the height of the Asian financial crisis, was arranged in direct co‐
operation with international commercial banks, which had created
money specifically for the purpose.
The total funds of the IMF were substantially increased when it was
given authority by the U.S. (who else?) to create and allocate Special
Drawing Rights (SDRʹs). This authority mirrors that of the U.S. Federal
Reserve Bank to create Federal Reserve notes. This authority
essentially defines the IMF’s status as a money‐creation agency.
SDRs (“paper gold”) are nothing more than accounting transactions
within a ledger of accounts and were created to serve, as an additional
international currency that is defined in dollars and valued against a basket
of four major currencies.57
The fact that debts are denominated in dollars has disastrous
consequences for developing nations. Caught in the “free trade” trap
countries relinquish their sovereign credit, their ability to pay their debts in
their national currency issued greenback style by their own governments.
Instead, nations become materially indebted, not, in fact, to industrialized
nations per se—but rather to the international commercial banking mafia.
Because these debts are denominated in dollars, nations are forced to
compete in cutthroat export markets in a futile mission in search of a
perpetual export surplus that might enable them to accumulate enough
reserves to pay off the debt. This inevitable outcome is that they become
increasingly reliant on foreign investment and decreasingly able to develop
their economies for domestic consumption. Clearly, to the degree that
international debts in non‐domestic currencies remain, so does the export
imperative. But this dollar hegemony not only serves to inundate the world
with U.S. currency, loans, and debt instruments to maintain economic
subservience through the WTO, the World Bank and the IMF, it also serves
to ensure the allegiance of governing elites and to support America’s fiscal
and trade deficits and to pay for that nation’s egregious abuse of global
resources.
SDRs were created to replace gold as a reserve in large international
transactions and to supplement the standard reserve currencies with the
specific aim of enabling unrestricted aggregate global growth to the
benefit of the global elite by unshackling the world from meaningful
constraints to liquidity. SDRs are credits that nations with balance of trade
surpluses can “draw” upon nations with balance of trade deficits.58 In the
U.S., SDRʹs are already accepted as legal tender, and all other
IMF member nations are being pressured to follow suit to enable a
seamless integration of global finance and world trade.
Although SDRs are ʹcreditedʹ to each nationʹs account with the IMF, if a
nation borrows these SDRs it must repay this amount, or pay interest on the
loan. Whilst SDRs are described as amounts ʹcreditedʹ to a nation, no money
or credit of any kind is put into nationsʹ accounts. SDRs are actually a credit‐
facility just like a bank overdraft —if they are borrowed, they must be repaid.
Thus, the IMF is now creating and issuing money in the form of a new
international currency, created in parallel with debt, under a system
essentially the same as that of a bank—the IMF ʹreserveʹ being the original
pool of quota funds. It is a crafty scheme designed to maintain the flow of
wealth from debtor nations to the financial masters of the universe who now
effectively control the IMF and the World Bank beyond the original purview
of their henchmen and debt collectors.
Of the trillion s of dollars of currently outstanding Third World and
developing country debt, the vast majority represents money created by
commercial banks in parallel with debt. In a spiral of indebtedness, that has
proceeded unhindered over decades, permanent debt—debt that is simply
unpayable in the real world of modern finance—is constantly increased to
facilitate temporary relief from the poverty that results directly from prior
borrowing. Consequently, these nations have scant opportunity for a new
beginning unencumbered by debt or perfidious imperial self‐interests.
In contrast to the legal recourse of corporations to declare bankruptcy in
the case of insolvency, in the loaded world of international lenders and
borrowers there are no bankruptcy laws or courts. Each debtor nation must
deal with its creditors on a case‐by‐case basis. And while there are
organizations such as the Paris Club which negotiate on behalf of industrial
nations, developing debtor states have no counterpart. Hence, the resolution
of debt problems relies simply on the balance of bargaining power between
debtor and creditor. It is obvious how this balance generally plays out. I
assert that
all developing economies should simply repudiate their debts as null
and void and refrain from servicing them.59
̴
Now, after centuries of patient manipulation, coercion, blackmail,
bribery, extortion, and warmongering the global coup of the banking elite is
now almost complete. Much like the witch in Grimm’s Hansel and Gretel
these modernday warlocks lure the unwittting and naïve into the sugar
candy cottage of the global economy. Much like the witch they feed their
victims with lavish portions of foreign investment and overseas
development assistance rabidly waiting to devour the fattened victims at the
appropriate time. Through their structural adjustment policies, the Bretton
Woods institutions have wreaked havoc, developing nation debts can never
be repaid, and the domestic policies of elected governments around the
world are dictated by the criminal cohorts in Wall Street, the City of
London, and Frankfurt.
Today, more money is flowing back to the developed world in the
form of debt service than is flowing out in the form of loans.
By 2001, enough money had flowed back from Third World to First
World banks to pay for the principal due on the original loans six times over.
But interest consumed so much of those payments that the total debt actually
quadrupled during the same period. Invariably, the poorer the country, the
more likely that debt repayments are taken from people who neither
contracted the loans nor received any of the funds. As Brazil’s former
president, Luiz Inácio da Silva solemnly declared, ʺWithout being radical or
overly bold, I will tell you that the Third World War has already started—a
silent war, not for that reason any the less sinister. This war is tearing
down Brazil, Latin America and practically all the Third World. Instead of
soldiers dying there are children, instead of millions of wounded there are
millions of unemployed; instead of destruction of bridges there is the tearing
down of factories, schools, hospitals, and entire economies…It is a war by
the United States against the Latin American continent and the Third World.
It is a war over the foreign debt, one which has as its main weapon interest, a
weapon more deadly than the atom bomb, more shattering than a laser
beam ...ʺ60
ELIMINATING THIRD WORLD DEBT

It is obvious that WTO rules do not benefit the poorer nations and merely
serve the interests of the wealthy members who become greedier as they
become wealthier. The world has come a long way since the days when
crafty goldsmiths befrauded their clients. Over the centuries, on a vastly
grander scale, the initial crimes have evolved, first on national platforms,
through the Bank of England, the Federal Reserve Bank and all major central
banks around the world, and now on a global scale in a pandemic instituted
though the IMF, the World Bank, the WTO and the BIS. The IMF’s incredible
history of disastrous failure in achieving its purported goals but incredible
success in making possible the real and hidden objective of increasing
national indebtedness to the overseas banking mafia and forcing countries to
float and then devalue their currencies so that prime assets can be devoured
at fire‐sale prices is witnessed in the events that have unfolded across the
globe in places like Mexico, Ukraine, Yugoslavia, Russia, Thailand, and a
whole range of Latin American countries. This subtle usurpation of global
power has transpired in clear sight of public purview and inspection but
craftily hidden from public understanding by complex sounding
mechanisms and unending jargonry that comprise to form a veil of
ignorance. However subtle this process may have transpired, it is nothing
else than a class war waged by the verminous wealthy financiers against
humanity. They have incessantly schemed to take any action required for
them to impose their will upon mankind enslave man in the process. The
moral absurdity is best demonstrated by the extent of economic determinism
we presently experience, by which, possibly only a few thousand people
usurp global wealth and dictate and limit how all others are obliged to act,
think and live.
We live in a world in which the combined GDPs of the 41 most
Heavily Indebted Poor Countries (567 million people) is less than the
wealth of the world’s SEVEN richest people and the world’s
billionaires (497 people are worth US$3.5 trilion (over 7 percent of
global GDP), whereas, low income countries (2.4 billion people)
account for only US$1.6 trillion or 3.3 ercent of global GDP.61
The fact that almost half of the world’s population lives on less than two
dollars a day is a bland statistic that fails to capture the sheer humiliation,
powerlessness and brutal hardship that defines the everyday lives of the
world’s poorest.
This is the truth of the matter. It is now high time to tear down the veil
and exterminate the cancer.
Despite all the upbeat rhetoric about debt elimination for Third World
countries, no meaningful steps have been taken to make such a dream even a
remote possibility. Yet, the solutions are very much at hand; moreover, they
are simple. However, they do involve acknowledging that debt‐cancellation
is desirable. Evidently, for those who control this spiel, it is not.
Just as the creation of money in a fractional reserve banking system
equates to the simple measure of a computer entry in a ledger so the
elimination of Third World debt equates simply to the acceptance of a
change in accounting convention. British author Michael Rowbotham has
consistently made suggestions precisely along these lines noting that under
current accounting rules in banking, banks are obliged to restore asset levels
to equal their liabilities if debts are written off causing the banks to incur
losses. This is generally done by transferring an equivalent sum from their
reserves. Rowbotham proposes two ways of overcoming this accounting
problem. Firstly, it could be agreed that banks are allowed to hold, in
perpetuity, reduced levels of assets in amounts corresponding to the Third
World debt bonds they cancel. As Rowbotham succintly notes, “This is a
simple matter of record‐keeping.” His second proposal is to cancel the Third
World debt bonds as far as the debtors are concerned but allow the banks to
hold them on their books as permanent, non‐negotiable assets, at face
value.62
As Rowbotham demonstrates, the cancellation of all international debts
could be achieved tomorrow without any detrimental effect on the global
economy. In fact, the effects would be quite the opposite, in that such a move
would allow developing nations to follow meaningful growth strategies
targeting domestic consumption and the welfare of their citizens. The
international banking mafia would only “lose” payments on loans they
devlishly handed out on monies they created out of nothing in the first place.
However, for these scum, such an option is out of the question as they
continue on their endeavor to enslave the world.

1 From Lord of the Rings. Gandalf referring to the One Ring.

2 In a letter to the Secretary of the Treasury, Albert Gallatin (1802), 3rd president of US (1743 - 1826)
3 Stated publicly, shortly after the passage of the National Banking Act, in 1863
4 See Study of Political Economy Lecture, p. 140; also see SPE: xxxviii; xxxix; p. 134, and p. 138.
5 Clearly, gold is scarce, but it might surprise you just how scarce it is. It has been coherently suggested
that the total amount of gold ever mined on Earth would represent a cube roughly 25 meters (circa 82
feet) on a side; an amount that would hardly suffice to build about one-third of the Washington
Monument. See If you took all of the gold in the world and put it in one place, how much would there be?,
URL: http://www.howstuffworks.com/question213.htm
6 See
7 In contrast to banks (and more recently investment firms), all other institutions in society can rightly
only lend money that they have acquired through productive economic activities.
8 The same concept applies, for example, when the U.S. government issues Government securities.
9 The seller could just as well deposit her funds at Bank A—it would make no difference to the process.
10 See http://www.mises.org/about/3248
11 See Murray N. Rothbard, Taking Money Back, URL: http://www.mises.org/rothbard/moneyback.asp
12 Deposit banks simply cannot observe this rule because their liabilities are instantaneously due on
demand, while outstanding loans to debtors are inevitably available only after some time period.
13 See Credit-card spending - Plastic fantastic, The Economist, Mar. 4, 2008, URL:
http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=10794888
14 See Ellen H Brown, (2007), Web of Debt, Third Millenium Press, Baton Rouge, ISBN 0979560802, p.
284
15 The credit card interchange fee is a percentage of each transaction that Visa and MasterCard and their
member banks collect from retailers every time a credit or debit card is used to pay for a purchase.
16 Visa and MasterCard control 80 percent of total credit card purchase volume in the U.S.
17 Consumer program director for the U.S. Public Interest Research Group.
18 See Merchants Welcome Congressional Concern Re: Credit Card Interchange, URL:
http://www.paymentsnews.com/2007/07/merchants-welco.html
19 See Robert Samuelson, The Cashless Society Has Arrived, Jun. 20, 2007, URL:
http://www.realclearpolitics.com/articles/2007/06/the_cashless_society_has_arriv.html
20 See A.M. Gause,.1996. The Secret World of Money. New Jersey: Gause.
21 See Murray N. Rothbard, The Mystery of Banking. ISBN 0-943940-04-4. p. 83. Also available online as
an e-book at:
http://www.mises.org/mysteryofbanking/mysteryofbanking.pdf
22 Ibid., p. 84
23 From http://www.federalreserve.gov/releases/h41/20071101/
24 From http://www.federalreserve.gov/releases/H6/hist/h6hist1.txt
25 See http://en.wikipedia.org/wiki/Charles_Ponzi
26 “Ninja loans” are loans offered to people with No Income, No Job and no Assets.
27 “Payment in Kind” (PIK) debt instruments accept repayment of interest “in kind” with more debt
instruments rather than cold, hard cash so that the interest payments basically accrue until the maturity
of the PIK instrument. Eliminating the interest of the PIK can significantly boost equity returns.
28 See
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=URI:urn:newsml:reuter
s.com:20050729:MTFH78473_2005-07-29_20-53-45_WBT003593:1
29 See http://www.investors.com/yahoofinance/2005w31/storyA01.asp and
http://today.reuters.com/stocks/InstHoldersInverse.aspx?iconum=128271
30 See Neil Barsky, What Housing Bubble?, Wall Street Journal, Jul 28, 2005, [online] URL:
http://online.wsj.com/article/0,,SB112250505320798017,00.html?mod=opinion%5Fmain%5Fcommenta
ries
31 The WSJ used the federal Home Mortgage Disclosure Act data to find “high interest loans.” Not all high
interest loans are "subprime", some are Alt-A. It is also not clear if the WSJ analysis included IO ARMs
and Neg Am ARMs; two loan types frequently used by homebuyers in more affluent areas.
32 See Rick Brooks and Constance Mitchell Ford, The United States of Subprime, WSJ, Oct. 11, 2007, URL:
http://online.wsj.com/article/SB119205925519455321.html
33 See House prices—A hole in the roof, The Economist, Oct. 7, 2007, URL:
http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=9976467
34 See
http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0
,1,1,0,0,0,0,0.html and S&P/Case-Shiller home price indexes shows record annual decline for Q2, Forbes
magazine, Aug. 28, 2007, [online] URL:

http://www.forbes.com/markets/feeds/afx/2007/08/28/afx4060038.html
35 Jessica McGowan documents how racial minority groups are likely to carry a large share of the burden
for the indiscrepencies of Wall Street. See Mortgage Maze May Increase Foreclosures, URL:
http://www.nytimes.com/2007/08/06/business/06home.html?pagewanted=1&_r=1&hp&adxnnl=0&ad
xnnlx=1186395780-xLh0ePP/C+fsh9dOn5Z/tQ
36 The following are amateur videos of of auctions: Northern Virginia Auction, URL:
http://econvideo.blogspot.com/2007/10/northern-virginia-auction.html and San Diego Foreclosure Sale

Oct 3, 2007, URL: http://econvideo.blogspot.com/2007/10/san-diego-foreclosure-sale-oct-3-2007.html
37 See Mortgage Maze May Increase Foreclosures, URL:
http://www.nytimes.com/2007/08/06/business/06home.html?pagewanted=1&_r=1&hp&adxnnl=0&ad
xnnlx=1186395780-xLh0ePP/C+fsh9dOn5Z/tQ
38 See Crisis Looms in Market for Mortgages, [online] URL:
http://www.nytimes.com/2007/03/11/business/11mortgage.html?_r=1&th&emc=th&oref=slogin
39 See Vladimir Z. Nuri, Factional Reserve Banking as Economic Parasitism, [online] URL:
http://129.3.20.41/eps/mac/papers/0203/0203005.pdf
40 Ibid.
41 See http://en.wikipedia.org/wiki/Rothbard
42 Ibid., pp. 60-62
43 Section 16 of the Federal Reserve Act (codified at 12 USC 411) declares, "Federal Reserve Notes" are
"obligations of the United States". The "full faith and credit" of the United States was thereby
hypothecated and rehypothecated to the lending institutions for the issuance and emission of bills of
credit as legal tender "for all taxes, customs, and other public dues". The paper in circulation and
transactions accounts could then be inflated 60% and the purchasing power depreciated and reduced by
an equivalent amount.
44 Lincoln By Emil Ludwig 1930, containing a letter from Lincoln, also reprinted in Glory to God and the
Sucker Democracy A Manuscript Collection of the Letters of Charles H. Lanphier compiled by Charles C.
Patton.
45 Signed in Philadelphia, in 1787.
46 See http://www.friesian.com/notes.htm#us
47 For example, the German Mint Law of 1873 and the US Gold Standard Act of 1900.
48 Of course, worth recalling is that today's American banking system requires far less reserves across all
classes of reserves-none of which is gold.

49 Senator Daniel of Virginia, May 22, 1890, from a speech in Congress, to be found in the Congressional
Record, page 5128, quoting from the Bankers Magazine of August, 1873.
50 From a circular issued by authority of the Associated Bankers of New York, Philadelphia, and Boston
signed by one James Buel, secretary, sent out from 247 Broadway, New York in 1877, to the bankers in all
of the States.
51 See e.g. Milton Friedman on the Central Federal Rserve Bank, Jan. 1996, URL:
http://hubpages.com/hub/Milton_Friedman_on_the_Central_Federal_Reserve_Bank
52 See Henry Simons et. al., 1933. Banking and Currency Reform, Manuscript, reprinted in Research in
the History of Economic Thouqht and Methodoloqv, edited by Warren Samuels, JAI Press, 1990. p.1
53 Op cit supra note [Henry Simons et. al., 1933. Banking and Currency Reform, Manuscript, reprinted in
Research in the History of Economic Thouqht and Methodoloqv, edited by Warren Samuels, JAI Press,
1990.] p. 2
54 See e.g. Stephen Zarlenga, The 1930s Chicago Plan and the 2005 American Monetary Act, URL:
http://www.monetary.org/chicagoplan.html
55 See G.E. Griffin. 1994. The Creature from Jekyll Island: a Second Look at the Federal Reserve.
California: American Media.

56 See Armand van Dormael, Bretton Woods: Birth of a Monetary System, Macmillan, London, 1978
57 Updated valuations of SDRs are available at: http://www.imf.org/external/np/fin/data/rms_sdrv.aspx
58 See Senate Report 1164, pg. 2105.
59 See Michael Rowbotham, The Invalidity of Third World Debt, 1998, pp.14-17
60 Luis Ignacio Silva, at the Havana Debt Conference in August 1985, quoted by Susan George, A Fate
Worse Than Death, p. 238

61 See, World Bank Key Development Data & Statistics, World Bank, accessed March 3, 2008; Luisa Kroll
and Allison Fass, The World’s Richest People, Forbes, Mar. 3, 2007; and World Bank’s list of Heavily
Indebted Poor Countries (41 countries), accessed Mar. 3, 2008
62 Op cit supra note [See Michael Rowbotham, The Invalidity of Third World Debt, 1998] pp.135-136

Money Creation - Legalized Embezzlement and Global Debt-Slavery

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MONEY CREATION: LEGALIZED EMBEZZLEMENT AND

Step Bank Total Cumulative Amount Cumulative Individual Cumulative

1 A 1,111.11 1,111.11 1,000.00 1,000.00 111.11 111.11

22 V 121.58 10,016.91 109.42 9,015.22 12.16 1,001.69

THE INTEREST TRAP

THE CURSE OF “INNOVATIVE” BANKING

THE FEDERAL RESERVE: A PASSPORT TO INFLATION AND

GIVING CONTROL OF THE MONEY SUPPLY BACK TO THE

THE GLOBAL DISEASE

THE WORLD BANK AND THE IMF

ELIMINATING THIRD WORLD DEBT

11 See Murray N. Rothbard, Taking Money Back, URL: http://www.mises.org/rothbard/moneyback.asp

http://econvideo.blogspot.com/2007/10/northern-virginia-auction.html and San Diego Foreclosure Sale

42 Ibid., pp. 60-62

classes of reserves-none of which is gold.

California: American Media.

57 Updated valuations of SDRs are available at: http://www.imf.org/external/np/fin/data/rms_sdrv.aspx

58 See Senate Report 1164, pg. 2105.

Worse Than Death, p. 238

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