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THE
MANDRAKE MECHANISM:
JEKYLL ISLAND PONZI SCHEME EXPOSED
 
THE MANDRAKE
MECHANISM...What is it? It is the method by which the Federal Reserve creates
money out of nothing; the concept of usury as the payment of interest on
pretended loans; the true cause of the hidden tax called inflation; the way in
which the Fed creates boom-bust cycles.
In the 1940s, there was a comic strip character called Mandrake
the Magician. His specialty was creating things out of nothing and, when
appropriate, to make them disappear back into that same void. It is fitting,
therefore, that the process to be described in this section should be named in
his honor.
We have examined the technique developed by the political and monetary
scientists to create money out of nothing for the purpose of lending. This is
not an entirely accurate description because it implies that money is created
first and then waits for someone to borrow it.
On the other hand, textbooks on banking often state that money is created out of
debt. This also is misleading because it implies that debt exists first and then
is converted into money. In truth, money is not created until the instant it is
borrowed. It is the act of borrowing which causes it to spring into existence.
And, incidentally, it is the act of paying off the debt that causes it to
vanish. There is no short phrase that perfectly describes that process. So,
until one is invented along the way, we shall continue using the phrase "create
money out of nothing" and occasionally add "for the purpose of lending" where
necessary to further clarify the meaning.
So, let us now...see just how far this money/debt-creation process has been
carried -- and how it works.
The first fact that needs to be considered is that our money today has no gold
or silver behind it whatsoever. The fraction is not 54% nor 15%. It is 0%. It
has traveled the path of all previous fractional money in history and already
has degenerated into pure fiat money. The fact that most of it is in the form of
checkbook balances rather than paper currency is a mere technicality; and the
fact that bankers speak about "reserve ratios" is eyewash. The so-called
reserves to which they refer are, in fact, Treasury bonds and other certificates
of debt.
Our money is "pure fiat" through and through.
The second fact that needs to be clearly understood is that, in
spite of the technical jargon and seemingly complicated procedures, the actual
mechanism by which the Federal Reserve creates money is quite simple. They do it
exactly the same way the goldsmiths of old did except, of course, the goldsmiths
were limited by the need to hold some precious metals in reserve, whereas the
Fed has no such restriction.
The Federal Reserve is candid.
The Federal Reserve itself is amazingly frank about this process.
A booklet published by the Federal Reserve Bank of New York tells us:
"Currency cannot be redeemed, or exchanged, for Treasury gold or any other
asset used as backing. The question of just what assets 'back' Federal Reserve
notes has little but bookkeeping significance."
Elsewhere in the same publication we are told: "Banks are creating money
based on a borrower's promise to pay (the IOU)...Banks create money by
'monetizing' the private debts of businesses and individuals."
In a booklet entitled Modern Money Mechanics, the Federal Reserve Bank of
Chicago says:
In the United
States neither paper currency nor deposits have value as commodities.
Intrinsically, a dollar bill is just a piece of paper. Deposits are merely book
entries. Coins do have some intrinsic value as metal, but generally far less
than their face amount.
What, then, makes these instruments -- checks, paper money, and
coins -- acceptable at face value in payment of all debts and for other monetary
uses? Mainly, it is the confidence people have that they will be able to
exchange such money for other financial assets and real goods and services
whenever they choose to do so. This partly is a matter of law; currency has been
designated "legal tender" by the government -- that is, it must be accepted.
In the fine print of a footnote in a bulletin of the Federal Reserve Bank of St.
Louis, we find this surprisingly candid explanation:
Modern monetary
systems have a fiat base -- literally money by decree -- with depository
institutions, acting as fiduciaries, creating obligations against themselves
with the fiat base acting in part as reserves. The decree appears on the
currency notes: "This note is legal tender for all debts, public and private."
While no individual could refuse to accept such money for debt
repayment, exchange contracts could easily be composed to thwart its use in
everyday commerce. However, a forceful explanation as to why money is accepted
is that the federal government requires it as payment for tax liabilities.
Anticipation of the need to clear this debt creates a demand for the pure fiat
dollars.
Money would vanish without debt.
It is difficult for Americans to come to grips with the fact
that their total money-supply is backed by nothing but debt, and it is even more
mind boggling to visualize that, if everyone paid back all that was borrowed,
there would be no money left in existence.
That's right, there would not be one penny in circulation -- all coins and all
paper currency would be returned to bank vaults -- and there would be not one
dollar in any one's checking account. In short, all money would disappear.
Marriner Eccles was the Governor of the Federal Reserve System in 1941. On
September 30 of that year, Eccles was asked to give testimony before the House
Committee on Banking and Currency. The purpose of the hearing was to obtain
information regarding the role of the Federal Reserve in creating conditions
that led to the depression of the 1930s.
Congressman Wright Patman, who was Chairman of that committee, asked how the Fed
got the money to purchase two billion dollars worth of government bonds in 1933.
This is the exchange that followed.
ECCLES: We created
it.
PATMAN: Out of what?
ECCLES: Out of the right to issue credit money.
PATMAN: And there is nothing behind it, is there, except our government's
credit?
ECCLES: That is what our money system is. If there were no debts in our money
system, there wouldn't be any money.
It must be realized that, while money may represent an asset to
selected individuals, when it is considered as an aggregate of the total money
supply, it is not an asset at all. A man who borrows $1,000 may think that he
has increased his financial position by that amount but he has not. His $1,000
cash asset is offset by his $1,000 loan liability, and his net position is zero.
Bank accounts are exactly the same on a larger scale. Add up all the bank
accounts in the nation, and it would be easy to assume that all that money
represents a gigantic pool of assets which support the economy. Yet, every bit
of this money is owed by someone. Some will owe nothing. Others will owe many
times what they possess. All added together, the national balance is zero. What
we think is money is but a grand illusion. The reality is debt.
Robert Hemphill was the Credit Manager of the Federal Reserve Bank in Atlanta.
In the foreword to a book by Irving Fisher, entitled 100% Money, Hemphill
said this:
If all the bank
loans were paid, no one could have a bank deposit, and there would not be a
dollar of coin or currency in circulation. 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 situation is almost incredible -- but there it
is.
With the knowledge that money in America is based on debt, it
should not come as a surprise to learn that the Federal Reserve System is not
the least interested in seeing a reduction in debt in this country, regardless
of public utterances to the contrary.
Here is the bottom line from the System's own publications.
The Federal Reserve Bank of Philadelphia says:
"A large and
growing number of analysts, on the other hand, now regard the national debt as
something useful, if not an actual blessing....[They believe] the national debt
need not be reduced at all."
The Federal Reserve Bank of Chicago adds:
"Debt -- public
and private -- is here to stay. It plays an essential role in economic
processes.... What is required is not the abolition of debt, but its prudent use
and intelligent management."
What's wrong with a little debt?
There is a kind of fascinating appeal to this theory. It gives
those who expound it an aura of intellectualism, the appearance of being able to
grasp a complex economic principle that is beyond the comprehension of mere
mortals. And, for the less academically minded, it offers the comfort of at
least sounding moderate. After all, what's wrong with a little debt, prudently
used and intelligently managed? The answer is nothing, provided the debt is
based on an honest transaction. There is plenty wrong with it if it is "based
upon fraud".
An honest transaction is one in which a borrower pays an agreed upon sum in
return for the temporary use of a lender's asset. That asset could be anything
of tangible value. If it were an automobile, for example, then the borrower
would pay "rent." If it is money, then the rent is called "interest." Either
way, the concept is the same.
When we go to a lender -- either a bank or a private party -- and receive a loan
of money, we are willing to pay interest on the loan in recognition of the fact
that the money we are borrowing is an asset which we want to use. It seems only
fair to pay a rental fee for that asset to the person who owns it. It is not
easy to acquire an automobile, and it is not easy to acquire money -- real
money, that is. If the money we are borrowing was earned by someone's labor and
talent, they are fully entitled to receive interest on it. But what are we to
think of money that is created by the mere stroke of a pen or the click of a
computer key? Why should anyone collect a rental fee on that?
When banks place credits into your checking account, they are merely pretending
to lend you money. In reality, they have nothing to lend. Even the money that
non-indebted depositors have placed with them was originally created out of
nothing in response to someone else's loan. So what entitles the banks to
collect rent on nothing? It is immaterial that men everywhere are forced by law
to accept these nothing certificates in exchange for real goods and services. We
are talking here, not about what is legal, but what is moral. As Thomas
Jefferson observed at the time of his protracted battle against central banking
in the United States, "No one has a natural right to the trade of money
lender, but he who has money to lend."
Centuries ago, usury was defined as any interest charged for a loan. Modern
usage has redefined it as excessive interest. Certainly, any amount of interest
charged for a pretended loan is excessive. The dictionary, therefore, needs a
new definition.
Usury: The charging of any interest on a loan of fiat money.
Let us, therefore, look at debt and interest in this light. Thomas Edison summed
up the immorality of the system when he said:
People who will
not turn a shovel of dirt on the project [Muscle Shoals] nor contribute a pound
of materials will collect more money...than will the people who will supply all
the materials and do all the work.
Is that an exaggeration? Let us consider the purchase of a
$100,000 home in which $30,000 represents the cost of the land, architect's fee,
sales commissions, building permits, and that sort of thing and $70,000 is the
cost of labor and building materials. If the home buyer puts up $30,000 as a
down payment, then $70,000 must be borrowed. If the loan is issued at 11% over a
30-year period, the amount of interest paid will be $167,806. That means the
amount paid to those who loan the money is about 2 1/2 times greater than paid
to those who provide all the labor and all the materials. It is true that this
figure represents the time-value of that money over thirty years and easily
could be justified on the basis that a lender deserves to be compensated for
surrendering the use of his capital for half a lifetime. But that assumes the
lender actually had something to surrender, that he had earned the capital,
saved it, and then loaned it for construction of someone else's house. What are
we to think, however, about a lender who did nothing to earn the money, had not
saved it, and, in fact, simply created it out of thin air?
What is the time-value of nothing?
As we have already shown, every dollar that exists today, either
in the form of currency, checkbook money, or even credit card money -- in other
words, our entire money supply -- exists only because it was borrowed by
someone; perhaps not you, but someone.
That means all the American dollars in the entire world are earning daily and
compounding interest for the banks which created them. A portion of every
business venture, every investment, every profit, every transaction which
involves money -- and that even includes losses and the payment of taxes -- a
portion of all that is earmarked as payment to a bank.
And what did the banks do to earn this perpetually flowing river of wealth? Did
they lend out their own capital obtained through investment of stockholders? Did
they lend out the hard-earned savings of their depositors? No, neither of these
were their major source of income. They simply waved the magic wand called fiat
money.
The flow of such unearned wealth under the guise of interest can only be viewed
as usury of the highest magnitude. Even if there were no other reasons to
abolish the Fed, the fact that it is the supreme instrument of usury would be
more than sufficient by itself.
Who creates the money to pay the interest?
One of the most perplexing questions associated with this
process is "Where does the money come from to pay the interest?" If you borrow
$10,000 from a bank at 9%, you owe $10,900. But the bank only manufactures
$10,000 for the loan. It would seem, therefore, that there is no way that you --
and all others with similar loans -- can possibly pay off your indebtedness. The
amount of money put into circulation just isn't enough to cover the total debt,
including interest. This has led some to the conclusion that it is necessary for
you to borrow the $900 for interest, and that, in turn, leads to still more
interest. The assumption is that, the more we borrow, the more we have to
borrow, and that debt based on fiat money is a never ending spiral leading
inexorably to more and more debt.
This is a partial truth. It is true that there is not enough money created to
include the interest, but it is a fallacy that the only way to pay it back is to
borrow still more. The assumption fails to take into account the exchange value
of labor. Let us assume that you pay back your $10,000 loan at the rate of
approximately $900 per month and that about $80 of that represents interest. You
realize you are hard pressed to make your payments so you decide to take on a
part-time job.
The bank, on the other hand, is now making $80 profit each month on your loan.
Since this amount is classified as "interest," it is not extinguished as is the
larger portion which is a return of the loan itself. So this remains as
spendable money in the account of the bank. The decision then is made to have
the bank's floors waxed once a week. You respond to the ad in the paper and are
hired at $80 per month to do the job. The result is that you earn the money to
pay the interest on your loan, and -- this is the point -- the money you receive
is the same money which you previously had paid. As long as you perform labor
for the bank each month, the same dollars go into the bank as interest, then out
of the revolving door as your wages, and then back into the bank as loan
repayment.
It is not necessary that you work directly for the bank. No matter where you
earn the money, its origin was a bank and its ultimate destination is a bank.
The loop through which it travels can be large or small, but the fact remains:
all interest is paid eventually by human effort. And the significance of that
fact is even more startling than the assumption that not enough money is created
to pay back the interest. It is that the total of this human effort ultimately
is for the benefit of those who create fiat money.
It is a form of modern serfdom in which the great mass of society works as
indentured servants to a ruling class of financial nobility.
Understanding the Illusion
That's really all one needs to know about the operation of the
banking cartel under the protection of the Federal Reserve. But it would be a
shame to stop here without taking a look at the actual cogs, mirrors, and
pulleys that make the magical mechanism work. It is a truly fascinating engine
of mystery and deception.
Let us, therefore, turn our attention to the actual process by which the
magicians create the illusion of modern money. First we shall stand back for a
general view to see the overall action.
Then we shall move in closer and examine each component in detail.
The Mandrake Mechanism: An Overview
The entire function of this machine is to convert debt into
money. It's just that simple. First, the Fed takes all the government bonds
which the public does not buy and writes a check to Congress in exchange for
them. (It acquires other debt obligations as well, but government bonds comprise
most of its inventory.) There is no money to back up this check. These fiat
dollars are created on the spot for that purpose. By calling those bonds
"reserves," the Fed then uses them as the base for creating nine (9) additional
dollars for every dollar created for the bonds themselves. The money created for
the bonds is spent by the government, whereas the money created on top of those
bonds is the source of all the bank loans made to the nation's businesses and
individuals. The result of this process is the same as creating money on a
printing press, but the illusion is based on an accounting trick rather than a
printing trick.
The bottom line is that Congress and the banking cartel have entered into a
partnership in which the cartel has the privilege of collecting interest on
money which it creates out of nothing, a perpetual override on every American
dollar that exists in the world.
Congress, on the other hand, has access to unlimited funding without having to
tell the voters their taxes are being raised through the process of inflation.
If you understand this paragraph, you understand the Federal Reserve System.
Now for a more detailed view. There are three general ways in which the Federal
Reserve creates fiat money out of debt.
One is by making loans to the member banks through what is called the Discount
Window.
The second is by purchasing Treasury bonds and other certificates of debt
through what is called the Open Market Committee.
The third is by changing the so-called reserve ratio that member banks are
required to hold. Each method is merely a different path to the same objective:
taking IOUs and converting them into spendable money.
THE DISCOUNT WINDOW
The Discount Window is merely bankers' language for the loan
window. When banks run short of money, the Federal Reserve stands ready as the
"bankers' bank" to lend it. There are many reasons for them to need loans. Since
they hold "reserves" of only about one or two per cent of their deposits in
vault cash and eight or nine per cent in securities, their operating margin is
extremely thin. It is common for them to experience temporary negative balances
caused by unusual customer demand for cash or unusually large clusters of checks
all clearing through other banks at the same time. Sometimes they make bad loans
and, when these former "assets" are removed from their books, their "reserves"
are also decreased and may, in fact, become negative. Finally, there is the
profit motive. When banks borrow from the Federal Reserve at one interest rate
and lend it out at a higher rate, there is an obvious advantage. But that is
merely the beginning.
When a bank borrows a dollar from the Fed, it becomes a
one-dollar reserve.
Since the banks are required to keep reserves of only about ten per cent, they
actually can loan up to nine dollars for each dollar borrowed.
Let's take a look at the math. Assume the bank receives $1 million from the Fed
at a rate of 8%. The total annual cost, therefore, is $80,000 (.08 X
$1,000,000). The bank treats the loan as a cash deposit, which means it becomes
the basis for manufacturing an additional $9 million to be lent to its
customers. If we assume that it lends that money at 11% interest, its gross
return would be $990,000 (.11 X $9,000,000). Subtract from this the bank's cost
of $80,000 plus an appropriate share of its overhead, and we have a net return
of about $900,000. In other words, the bank borrows a million and can almost
double it in one year. That's leverage! But don't forget the source of that
leverage: the manufacture of another $9 million which is added to the nation's
money supply.
THE OPEN MARKET OPERATION
The most important method used by the Federal Reserve for the
creation of fiat money is the purchase and sale of securities on the open
market. But, before jumping into this, a word of warning. Don't expect what
follows to make any sense. Just be prepared to know that this is how they do it.
The trick lies in the use of words and phrases which have technical meanings
quite different from what they imply to the average citizen. So keep your eye on
the words. They are not meant to explain but to deceive. In spite of first
appearances, the process is not complicated. It is just absurd.
THE MANDRAKE MECHANISM: A DETAILED VIEW
Start with...
GOVERNMENT DEBT
The federal government adds ink to a piece of paper, creates impressive designs
around the edges, and calls it a bond or Treasury note. It is merely a promise
to pay a specified sum at a specified interest on a specified date. As we shall
see in the following steps, this debt eventually becomes the foundation for
almost the entire nation's money supply. In reality, the government has created
cash, but it doesn't yet look like cash. To convert these IOUs into paper bills
and checkbook money is the function of the Federal Reserve System. To bring
about that transformation, the bond is given to the Fed where it is then
classified as a.
.
SECURITIES ASSET
An instrument of government debt is considered an asset because it is assumed
the government will keep its promise to pay. This is based upon its ability to
obtain whatever money it needs through taxation. Thus, the strength of this
asset is the power to take back that which it gives. So the Federal Reserve now
has an "asset" which can be used to offset a liability. It then creates this
liability by adding ink to yet another piece of paper and exchanging that with
the government in return for the asset. That second piece of paper is a.
.
FEDERAL RESERVE CHECK
There is no money in any account to cover this check. Anyone else doing that
would be sent to prison. It is legal for the Fed, however, because Congress
wants the money, and this is the easiest way to get it. (To raise taxes would be
political suicide; to depend on the public to buy all the bonds would not be
realistic, especially if interest rates are set artificially low; and to print
very large quantities of currency would be obvious and controversial.) This way,
the process is mysteriously wrapped up in the banking system. The end result,
however, is the same as turning on government printing presses and simply
manufacturing fiat money (money created by the order of government with nothing
of tangible value backing it) to pay government expenses. Yet, in accounting
terms, the books are said to be "balanced" because the liability of the money is
offset by the "asset" of the IOU. The Federal Reserve check received by the
government then is endorsed and sent back to one of the Federal Reserve banks
where it now becomes a.
.
GOVERNMENT DEPOSIT
Once the Federal Reserve check has been deposited into the government's account,
it is used to pay government expenses and, thus, is transformed into many...
GOVERNMENT CHECKS
These checks become the means by which the first wave of fiat money floods into
the economy. Recipients now deposit them into their own bank accounts where they
become.
.
COMMERCIAL BANK DEPOSITS
Commercial bank deposits immediately take on a split personality.
On the one hand, they are liabilities to the bank because they are owed back to
the depositors. But, as long as they remain in the bank, they also are
considered as assets because they are on hand. Once again, the books are
balanced: the assets offset the liabilities. But the process does not stop
there. Through the magic of fractional-reserve banking, the deposits are made to
serve an additional and more lucrative purpose. To accomplish this, the on-hand
deposits now become reclassified in the books and called.
.
BANK RESERVES
Reserves for what? Are these for paying off depositors should they want to close
out of their accounts? No. That's the lowly function they served when they were
classified as mere assets. Now that they have been given the name of "reserves,"
they become the magic wand to materialize even larger amounts of fiat money.
This is where the real action is: at the level of the commercial banks. Here's
how it works. The banks are permitted by the Fed to hold as little as 10% of
their deposits in "reserve." That means, if they receive deposits of $1 million
from the first wave of fiat money created by the Fed, they have $900,000 more
than they are required to keep on hand ($1 million less 10% reserve). In
bankers' language, that $900,000 is called.
.
EXCESS RESERVES
The word "excess" is a tip off that these so-called reserves have a special
destiny. Now that they have been transmuted into an excess, they are
considered as available for lending. And so in due course these excess reserves
are converted into.
.
BANK LOANS
But wait a minute. How can this money be loaned out when it is owned by the
original depositors who are still free to write checks and spend it any time
they wish? The answer is that, when the new loans are made, they are not made
with the same money at all. They are made with brand new money created out of
thin air for that purpose. The nation's money supply simply increases by ninety
per cent of the bank's deposits. Furthermore, this new money is far more
interesting to the banks than the old. The old money, which they received from
depositors, requires them to pay out interest or perform services for the
privilege of using it. But, with the new money, the banks collect interest,
instead, which is not too bad considering it cost them nothing to make. Nor is
that the end of the process. When this second wave of fiat money moves into the
economy, it comes right back into the banking system, just as the first wave
did, in the form of.
.
MORE COMMERCIAL BANK DEPOSITS
The process now repeats but with slightly smaller numbers each time around. What
was a "loan" on Friday comes back into the bank as a "deposit" on Monday. The
deposit then is reclassified as a "reserve" and ninety per cent of that becomes
an "excess" reserve which, once again, is available for a new "loan." Thus, the
$1 million of first wave fiat money gives birth to $900,000 in the second wave,
and that gives birth to $810,000 in the third wave ($900,000 less 10% reserve).
It takes about twenty-eight times through the revolving door of deposits
becoming loans becoming deposits becoming more loans until the process plays
itself out to the maximum effect, which is.
.
BANK FIAT MONEY = UP TO 9 TIMES GOVERNMENT DEBT
The amount of fiat money created by the banking cartel is approximately nine
times the amount of the original government debt which made the entire process
possible. When the original debt itself is added to that figure, we finally
have...
TOTAL FIAT MONEY = UP TO 10 TIMES GOVERNMENT
The total amount of fiat money created by the Federal Reserve and the commercial
banks together is approximately ten times the amount of the underlying
government debt. To the degree that this newly created money floods into the
economy in excess of goods and services, it causes the purchasing power of all
money, both old and new, to decline. Prices go up because the relative value of
the money has gone down. The result is the same as if that purchasing power had
been taken from us in taxes. The reality of this process, therefore, is that it
is a.
.
HIDDEN TAX = UP TO 10 TIMES THE NATIONAL DEBT
Without realizing it, Americans have paid over the years, in addition to their
federal income taxes and excise taxes, a completely hidden tax equal to many
times the national debt! And that still is not the end of the process. Since our
money supply is purely an arbitrary entity with nothing behind it except debt,
its quantity can go down as well as up. When people are going deeper into debt,
the nation's money supply expands and prices go up, but when they pay off their
debts and refuse to renew, the money supply contracts and prices tumble. That is
exactly what happens in times of economic or political uncertainty. This
alternation between period of expansion and contraction of the money supply is
the underlying cause of.
.
BOOMS, BUSTS, AND DEPRESSIONS
Who benefits from all of this? Certainly not the average citizen.
The only beneficiaries are the political scientists in Congress who enjoy the
effect of unlimited revenue to perpetuate their power, and the monetary
scientists within the banking cartel called the Federal Reserve System who have
been able to harness the American people, without their knowing it, to the yoke
of modern feudalism.
RESERVE RATIOS
The previous figures are based on a "reserve" ratio of 10% (a money-expansion
ratio of 10-to-1). It must be remembered, however, that this is purely
arbitrary. Since the money is fiat with no previous-metal backing, there is no
real limitation except what the politicians and money managers decide is
expedient for the moment. Altering this ratio is the third way in which the
Federal Reserve can influence the nation's supply of money. The numbers,
therefore, must be considered as transient.
At any time there is a "need" for more money, the ratio can be increased to
20-to-1 or 50-to-1, or the pretense of a reserve can be dropped altogether.
There is virtually no limit to the amount of fiat money that can be manufactured
under the present system.
NATIONAL DEBT NOT NECESSARY FOR INFLATION
Because the Federal Reserve can be counted on to "monetize" (convert into money)
virtually any amount of government debt, and because this process of expanding
the money supply is the primary cause of inflation, it is tempting to jump to
the conclusion that federal debt and inflation are but two aspects of the same
phenomenon. This, however, is not necessarily true. It is quite possible to have
either one without the other.
The banking cartel holds a monopoly in the manufacture of money. Consequently,
money is created only when IOUs are "monetized" by the Fed or by commercial
banks. When private individuals, corporations, or institutions purchase
government bonds, they must use money they have previously earned and saved. In
other words, no new money is created, because they are using funds that are
already in existence. Therefore, the sale of government bonds to the banking
system is inflationary, but when sold to the private sector, it is not. That is
the primary reason the United States avoided massive inflation during the 1980s
when the federal government was going into debt at a greater rate than ever
before in its history. By keeping interest rates high, these bonds became
attractive to private investors, including those in other countries.15 Very
little new money was created, because most of the bonds were purchased with
American dollars already in existence. This, of course, was a temporary fix at
best.
Today, those bonds are continually maturing and are being replaced by still more
bonds to include the original debt plus accumulated interest. Eventually this
process must come to an end and, when it does, the Fed will have no choice but
to literally buy back all the debt of the '80s -- that is, to replace all of the
formerly invested private money with newly manufactured fiat money -- plus a
great deal more to cover the interest. Then we will understand the meaning of
inflation.
On the other side of the coin, the Federal Reserve has the option of
manufacturing money even if the federal government does not go deeper into debt.
For example, the huge expansion of the money supply leading up to the stock
market crash in 1929 occurred at a time when the national debt was being paid
off. In every year from 1920 through 1930, federal revenue exceeded expenses,
and there were relatively few government bonds being offered. The massive
inflation of the money supply was made possible by converting commercial bank
loans into "reserves" at the Fed's discount window and by the Fed's purchase of
banker's acceptances, which are commercial contracts for the purchase of goods.
Now the options are even greater. The Monetary Control Act of 1980 has made it
possible for the Creature to monetize virtually any debt instrument, including
IOUs from foreign governments. The apparent purpose of this legislation is to
make it possible to bail out those governments which are having trouble paying
the interest on their loans from American banks. When the Fed creates fiat
American dollars to give foreign governments in exchange for their worthless
bonds, the money path is slightly longer and more twisted, but the effect is
similar to the purchase of U.S. Treasury Bonds. The newly created dollars go to
the foreign governments, then to the American banks where they become cash
reserves. Finally, they flow back into the U.S money pool (multiplied by nine)
in the form of additional loans. The cost of the operation once again is born by
the American citizen through the loss of purchasing power. Expansion of the
money supply, therefore, and the inflation that follows, no longer even require
federal deficits. As long as someone is willing to borrow American dollars, the
cartel will have the option of creating those dollars specifically to purchase
their bonds and, by so doing, continue to expand the money supply.
We must not forget, however, that one of the reasons the Fed was created in the
first place was to make it possible for Congress to spend without the public
knowing it was being taxed. Americans have shown an amazing indifference to this
fleecing, explained undoubtedly by their lack of understanding of how the
Mandrake Mechanism works. Consequently, at the present time, this cozy contract
between the banking cartel and the politicians is in little danger of being
altered. As a practical matter, therefore, even though the Fed may also create
fiat money in exchange for commercial debt and for bonds of foreign governments,
its major concern likely will be to continue supplying Congress.
The implications of this fact are mind boggling. Since our money supply, at
present at least, is tied to the national debt, to pay off that debt would cause
money to disappear. Even to seriously reduce it would cripple the economy.
Therefore, as long as the Federal Reserve exists, America will be, must be, in
debt.
The purchase of bonds from other governments is accelerating in the present
political climate of internationalism. Our own money supply increasingly is
based upon their debt as well as ours, and they, too, will not be allowed to pay
it off even if they are able.
EXPANSION LEADS TO CONTRACTION
While it is true that the Mandrake Mechanism is responsible for
the expansion of the money supply, the process also works in reverse. Just as
money is created when the Federal Reserve purchases bonds or other debt
instruments, it is extinguished by the sale of those same items. When they are
sold, the money is given back to the System and disappears into the inkwell or
computer chip from which it came. Then, the same secondary ripple effect that
created money through the commercial banking system causes it to be withdrawn
from the economy. Furthermore, even if the Federal Reserve does not deliberately
contract the money supply, the same result can and often does occur when the
public decides to resist the availability of credit and reduce its debt. A man
can only be tempted to borrow, he cannot be forced to do so.
There are many psychological factors involved in a decision to go into debt that
can offset the easy availability of money and a low interest rate: A downturn in
the economy, the threat of civil disorder, the fear of pending war, an uncertain
political climate, to name just a few. Even though the Fed may try to pump money
into the economy by making it abundantly available, the public can thwart that
move simply by saying no, thank you. When this happens, the olds debts that are
being paid off are not replaced by new ones to take their place, and the entire
amount of consumer and business debt will shrink. That means the money supply
also will shrink, because, in modern America, debt is money. And it is this very
expansion and contraction of the monetary pool -- a phenomenon that could not
occur if based upon the laws of supply and demand -- that is at the very core of
practically every boom and bust that has plagued mankind throughout history.
In conclusion, it can be said that modern money is a grand illusion conjured by
the magicians of finance in politics. We are living in an age of fiat money, and
it is sobering to realize that every previous nation in history that has adopted
such money eventually was economically destroyed by it. Furthermore, there is
nothing in our present monetary structure that offers any assurances that we may
be exempted from that morbid roll call.
Correction. There is one. It is still within the power of
Congress to abolish the Federal Reserve System.
SUMMARY
The American dollar has no intrinsic value. It is a classic
example of fiat money with no limit to the quantity that can be produced. Its
primary value lies in the willingness of people to accept it and, to that end,
legal tender laws require them to do so.
It is true that our money is created out of nothing, but it is more accurate to
say that it is based upon debt. In one sense, therefore, our money is created
out of less than nothing. The entire money supply would vanish into the bank
vaults and computer chips if all debts were repaid.
Under the present System, therefore, our leaders cannot allow a serious
reduction in either the national or consumer debt. Charging interest on
pretended loans is usury, and that has become institutionalized under the
Federal Reserve System.
The Mandrake Mechanism by which the Fed converts debt into money may seem
complicated at first, but it is simple if one remembers that the process is not
intended to be logical but to confuse and deceive. The end product of the
Mechanism is artificial expansion of the money supply, which is the root cause
of the hidden tax called inflation.
This expansion then leads to contraction and, together, they produce the
destructive boom-bust cycle that has plagued mankind throughout history wherever
fiat money has existed.
"It is well that
the people of the nation do not understand our banking and monetary system, for
if they did, I believe there would be a revolution before tomorrow morning." --
Henry Ford
"The financial system has been turned over to the Federal Reserve Board. That
Board administers the finance system by authority of a purely profiteering
group. The system is Private, conducted for the sole purpose of obtaining the
greatest possible profits from the use of other people's money" -- Charles A.
Lindbergh Sr., 1923
"We are completely dependant 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.... It is the most important subject intelligent
persons can investigate and reflect upon. It is so important that our present
civilization may collapse unless it becomes widely understood and the defects
remedied very soon."
-- Robert H. Hamphill, Atlanta Federal Reserve Bank
Banking &
Federal Reserve Quotes
"The entire taxing
and monetary systems are hereby placed under the U.C.C. (Uniform Commercial
Code)" -- The Federal Tax Lien Act of 1966
"The few who understand the system, will either be so interested from it's
profits or so dependant on it's favors, that there will be no opposition from
that class." -- Rothschild Brothers of London, 1863
"Give me control of a nation's money and I care not who makes it's laws" --
Mayer Amschel Bauer Rothschild
"Most Americans have no real understanding of the operation of the international
money lenders. The accounts of the Federal Reserve System have never been
audited. It operates outside the control of Congress and manipulates the credit
of the United States" -- Sen. Barry Goldwater (Rep. AR)
"Whoever controls the volume of money in any country is absolute master of all
industry and commerce." -- James A. Garfield, President of the United States
"Banks lend by creating credit. They create the means of payment out of nothing"
-- Ralph M. Hawtrey, Secretary of the British Treasury
To expose a 15 Trillion dollar rip off of the American people by the
stockholders of the 1000 largest corporations over the last 100 years will be a
tall order of business." -- Buckminster Fuller
"Every Congressman, every Senator knows precisely what causes inflation...but
can't, [won't] support the drastic reforms to stop it [repeal of the Federal
Reserve Act] because it could cost him his job." -- Robert A. Heinlein, Expanded
Universe
"The regional Federal Reserve banks are not government agencies. ...but are
independent, privately owned and locally controlled corporations." -- Lewis vs.
United States, 680 F. 2d 1239 9th Circuit 1982
"We have, in this country, one of the most corrupt institutions the world has
ever known. I refer to the Federal Reserve Board. This evil institution has
impoverished the people of the United States and has practically bankrupted our
government. It has done this through the corrupt practices of the moneyed
vultures who control it". -- Congressman Louis T. McFadden in 1932 (Rep. Pa)
"The Federal Reserve banks are one of the most corrupt institutions the world
has ever seen. There is not a man within the sound of my voice who does not know
that this nation is run by the International bankers -- Congressman Louis T.
McFadden (Rep. Pa)
"Some people think the Federal Reserve Banks are the United States government's
institutions. They are not government institutions. They are private credit
monopolies which prey upon the people of the United States for the benefit of
themselves and their foreign swindlers" Congressional Record 12595-12603 --
Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years)
June 10, 1932
"[Every circulating FRN] represents a one dollar debt to the Federal Reserve
system." Money Facts, House Banking and Currency Committee
"...the increase in the assets of the Federal Reserve banks from 143 million
dollars in 1913 to 45 billion dollars in 1949 went directly to the private
stockholders of the [federal reserve] banks." --Eustace Mullins
"As soon as Mr. Roosevelt took office, the Federal Reserve began to buy
government securities at the rate of ten million dollars a week for 10 weeks,
and created one hundred million dollars in new [checkbook] currency, which
alleviated the critical famine of money and credit, and the factories started
hiring people again." -- Eustace Mullins
"Should government refrain from regulation (taxation), the worthlessness of the
money becomes apparent and the fraud can no longer be concealed." -- John
Maynard Keynes, "Consequences of Peace."
"By this means government may secretly and unobserved, confiscate the wealth of
the people, and not one man in a million will detect the theft."--John Maynard
Keynes (the father of 'Keynesian Economics' which our nation now endures) in his
book "THE ECONOMIC CONSEQUENCES OF THE PEACE" (1920).
"These 12 corporations together cover the whole country and monopolize and use
for private gain every dollar of the public currency..." -- Mr. Crozier of
Cincinnati, before Senate Banking and Currency Committee - 1913
"A great industrial nation is controlled by it's system of credit. Our system of
credit is concentrated in the hands of a few men. We have come to be one of the
worst ruled, one of the most completely controlled and dominated governments in
the world--no longer a government of free opinion, no longer a government by
conviction and vote of the majority, but a government by the opinion and duress
of small groups of dominant men." --President Woodrow Wilson
"The Federal Reserve Banks are not federal instrumentalities..." -- Lewis vs.
United States 9th Circuit 1992
"The Federal Reserve banks, while not part of the government,..." -- United
States budget for 1991 and 1992 part 7, page 10
"The Federal Reserve bank buys government bonds without one penny..."
Congressman Wright Patman, Congressional Record, Sept 30, 1941
"The Federal Reserve system pays the U.S. Treasury 020.60 per thousand notes --a
little over 2 cents each-- without regard to the face value of the note. Federal
Reserve Notes, incidently, are the only type of currency now produced for
circulation. They are printed exclusively by the Treasury's Bureau of Engraving
and Printing, and the $20.60 per thousand price reflects the Bureau's full cost
of production. Federal Reserve Notes are printed in 01, 02, 05, 10, 20, 50, and
100 dollar denominations only; notes of 500, 1000, 5000, and 10,000
denominations were last printed in 1945." --Donald J. Winn, Assistant to the
Board of Governors of the Federal Reserve system
"Neither paper currency nor deposits have value as commodities, intrinsically, a
'dollar' bill is just a piece of paper. Deposits are merely book entries." --
Modern Money Mechanics Workbook, Federal Reserve Bank of Chicago, 1975
"This [Federal Reserve Act] establishes the most gigantic trust on earth. When
the President [Wilson} signs this bill, the invisible government of the monetary
power will be legalized....the worst legislative crime of the ages is
perpetrated by this banking and currency bill." --Charles A. Lindbergh, Sr. ,
1913
"From now on, depressions will be scientifically created." -- Congressman
Charles A.
Lindbergh Sr. , 1913
"The [Federal Reserve Act] as it stands seems to me to open the way to a vast
inflation of the currency... I do not like to think that any law can be passed
that will make it possible to submerge the gold standard in a flood of
irredeemable paper currency." -- Henry Cabot Lodge Sr., 1913
"When you or I write a check there must be sufficient funds in out account to
cover the check, but when the Federal Reserve writes a check there is no bank
deposit on which that check is drawn. When the Federal Reserve writes a check,
it is creating money." -- Putting it simply, Boston Federal Reserve Bank
"There is a distinction between a 'debt discharged' and a debt 'paid'. When
discharged, the debt still exists though divested of it's charter as a legal
obligation during the operation of the discharge, something of the original
vitality of the debt continues to exist, which may be transferred, even though
the transferee takes it subject to it's disability incident to the discharge."
--Stanek vs. White, 172 Minn.390, 215 N.W. 784
"I have never seen more Senators express discontent with their jobs....I think
the major cause is that, deep down in our hearts, we have been accomplices in
doing something terrible and unforgivable to our wonderful country. Deep down in
our heart, we know that we have given our children a legacy of bankruptcy. We
have defrauded our country to get ourselves elected." John Danforth (R-Mo)
"Capital must protect itself in every way...Debts must be collected and loans
and mortgages foreclosed as soon as possible. When through a process of law the
common people have lost their homes, they will be more tractable and more easily
governed by the strong arm of the law applied by the central power of leading
financiers. People without homes will not quarrel with their leaders. This is
well known among our principal men now engaged in forming an imperialism of
capitalism to govern the world. By dividing the people we can get them to expend
their energies in fighting over questions of no importance to us except as
teachers of the common herd."-- Taken from the Civil Servants' Year Book, "The
Organizer" January 1934.
Founding Father's Quotes on Banking:
"I believe that banking institutions are more dangerous to our liberties than
standing armies. Already they have raised up a monied aristocracy that has set
the government at defiance. The issuing power (of money) should be taken away
from the banks and restored to the people to whom it properly belongs."--Thomas
Jefferson, U.S. President.
"If Congress has the right [it doesn't] to issue paper money [currency], it
was given to them to be used by...[the government] and not to be delegated to
individuals or corporations" President Andrew Jackson, Vetoed Bank Bill of
1836
"History 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 it's issuance". -- James Madison
"Ownership of gold is not about lust: it is about liberty of the individual. The
gold standard is not a 'game': it is the embodiment of the timeless principle 'pacta
sunt servanda' (promises are made to be kept). Official hatred of gold
bordering on the neurotic appears less irrational if we contemplate that gold,
and gold alone, is capable of exposing the ever-present bad faith behind the
promises of the powers that be." - Get Gold!
From one of the Most Important books in the world:
The Creature from Jekyll Island,
by E. Griffin.
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