"Let me issue and control a nation's money supply, and I care not who makes its laws."
Mayer Amschel Rothschild,
Founder of Rothschild Banking Dynasty
Many prominent Americans
such as Benjamin Franklin, Thomas Jefferson, and Andrew Jackson have argued
and fought against the central banking polices used throughout Europe.
A note issued by a
central bank, such as the Federal Reserve Note, is bank currency. These notes
are given to the government in exchange for an interest-bearing government
bond. The primary means to pay for the interest on these bonds is to borrow
more bank notes, thus beginning a vicious cycle that ultimately ends with the
complete destruction of the currency and bankruptcy of the nation. History is
replete with such occurrences. (For a list of countries that have experienced
hyperinflation click here).
This begs the question as
to why such a doomed system would exist? The reason
is that during the course of the arrangement, which can last for centuries,
the central bankers who issue the money amass great fortunes from the large
sums of interest collected. In essence it is a transfer of wealth from the
many to the elite few. Government leaders prefer such a system because it
does not require budgets to be balanced. It is far more politically expedient
to borrow, then to directly tax the citizens.
The effects of currency
debasement and debt accumulation are not obvious and in the words attributed
to Vladimir Lenin by John Maynard Keynes,
"By a continuing
process of inflation, governments can confiscate, secretly and unobserved, an
important part of the wealth of their citizens...There is no subtler, no
surer means of overturning the existing basis of society than to debauch the
currency. The process engages all the hidden forces of economic law on the
side of destruction, and does it in a manner which not one man in a million
is able to diagnose." (John Maynard Keynes)
Throughout the history of
the United States there has been a struggle between central bankers and their
interest-bearing money and those who oppose them. In fact, the United States
was created as a direct result of that struggle.
Colonial America
In order to pay debts
incurred from the Seven Years War with France, King George III of England
sought to heavily tax the colonies in America. In 1742, the British
Resumption Act required that taxes and other debts be paid in gold.
As a result of scarcity
of gold, the colonists turned to alternative forms of money including wampum,
tobacco, and copper coins. Most silver coinage in circulation came from
Spanish America, Spain, the Netherlands, the German States, France and other
foreign countries. The colonies began issuing colonial script that was paper
fiat currency not backed by gold or silver. This type of money was also known
as colonial bills of credit. This radically
differed from the bills of debit issued by the
central banks of Europe.
During a visit to Britain
in 1763, The Bank of England asked Benjamin Franklin how he would account for
the newfound prosperity in the colonies. Franklin replied.
"That is simple. In
the colonies we issue our own money. It is called 'Colonial Script'. We issue
it in proper proportion to the demands of trade and industry to make the
products pass easily from the producers to the consumers...In this manner,
creating for ourselves our own paper money, we control its purchasing power,
and we have no interest to pay to no one."
In response, the Bank of
England influenced the British Parliament to put a stop to this activity.
Under the Currency Act of 1764, King George III decreed that the Colonists
cease printing their own money. The colonial script in circulation was to be
exchanged at a two-to-one ratio with notes drawn from the Bank of England.
This caused widespread unemployment and economic depression in the colonies.
"In one year, the
conditions were so reversed that the era of prosperity ended, and a
depression set in, to such an extent that the streets of the Colonies were
filled with unemployed." (Benjamin Franklin)
Additional British
legislation further angered the colonists who protested against taxation
without representation. The Stamp Act of 1765 was the first direct tax levied
by the British Parliament on the colonies. Every item of commerce -
newspapers, almanacs, pamphlets and official documents, even decks of playing
cards - were required to have the stamps. An economic boycott of British
goods later led to its repeal.
The Townsend Acts of 1767
placed a tax on a number of essential goods including paper, glass and tea.
On April 12, 1770 all the taxes, except for that on tea, were repealed
Increased British
military presence in the colonies further reduced Colonial support towards
Britain. On March 5, 1770,
a large boisterous mob armed with sticks of firewood
began throwing snowballs and debris at a group of British soldiers. One of
the soldiers was struck down and in the confusion the British soldiers
discharged their muskets into the crowd. Eleven people were hit of which
three were killed instantly. Two later died from their wounds. The event became
known as the Boston Massacre and was often cited and exaggerated to illicit
further discontent towards the British.
The currency
restrictions, hated taxes and numerous clashes with British soldiers set the
stage for the infamous Boston Tea Party.
The Boston Tea Party
This 1846 lithograph has become a classic image of the Boston Tea
Party
The colonists began
smuggling in tea from Holland to circumvent British taxes. Under the Tea Act
of 1773, the British removed a duty always paid at an English port by the tea
merchant on his way from the Orient to America, thereby making their tea
cheaper than that from Holland.
Tea-laden ships reached
Charleston, Philadelphia, New York, and Boston late in the autumn of 1773.
However, the colonists felt that principles were at stake and, in defiance,
refused to purchase the English tea. The only port the tea landed was
Charleston where it was left to rot in storage.
On December 16, 1773, a group of
colonists disguised as Mohawk Indians, led by Samuel Adams, boarded the ships
of British tea merchants and dumped 340 chests of tea with an estimated value
of £10,000 worth into the Boston harbour.
The infuriated British
government responded by passing several acts that came to be known as the
Intolerable Acts of 1774. These Acts included, among other measures, the
Boston Port Act which closed the important port until the East India Company
had been repaid for the destroyed tea and until the king was satisfied that
order had been restored.
The harsh measures of
these Acts made it difficult for moderates within the colonies to continue
supporting Britain and promoted sympathy towards Massachusetts. This resulted
in the formation of the First Continental Congress. Measures discussed at
this meeting included a formal agreement to boycott British goods unless the
Intolerable Acts were reversed and a pledge that all colonies would support
Massachusetts in case of any military action from Britain.
Open hostilities began on
April 19, 1775 in
Middlesex County, Province of Massachusetts Bay when a British regiment was
dispatched to confiscate arms and arrest revolutionaries. This sparked the
beginning of the American Revolutionary War, later identified as the War of
Independence.
The Bank of North America
(1781-1785)
The first attempt to set
up a European style central bank was the formation of the Bank of North
America by Robert Morris who used gold loaned from France as a reserve
deposit. Using the system of fractional reserve banking, money was loaned out
to eager American political leaders who were cash-strapped from the War of
Independence.
Fractional reserve
banking is a time-honoured tradition beginning with the English goldsmiths of
1000 A.D.
The goldsmiths, who at that time functioned as early bankers, discovered that
they could lend out more in paper receipts for gold than they had of the
actual metal so long as the majority of depositors never asked for their gold
back. Fractional reserve banking is the tolerated, and now institutionalized,
practice of banks lending out money they don't have and charging interest on
it. In any other industry, this would be considered fraud. (For a more
in-depth discussion of Fractional Reserve banking, click here).
To illustrate the
process, consider a bank having $1 million in reserve deposits. Under a
reserve ratio of 10%, that bank may legally lend out $10 million in loans. At
a modest interest rate of 7%, this equates to an annual
revenue of $700,000 from an underlying asset of just $1 million. It is
through this fraudulent practice that banking is such a profitable business
and why all the tallest buildings in major urban centers
are owned by banks.
The large issue of bills
from the Bank of North American led to a rapid decline in their value and
collapse of the bank in 1785. The interest money collected during those years
did not go unnoticed. Gouverneur Morris of Pennsylvania,
one of the authors of the Constitution of the United States, stated in 1787
that,
"The rich will
strive to establish their dominion and enslave the rest. They always did.
They always will... They will have the same effect here as elsewhere, if we
do not, by (the power of) government, keep them in their proper
spheres." (Gouverneur Morris of Pennsylvania)
The [First] Bank of the
United States
Six years after the
collapse of the Bank of North America, bankers in Europe installed a private
central bank, known as the [First] Bank of the United States. The bank bill
was officially proposed by Alexander Hamilton, Secretary of the Treasury, to
the first session of the First Congress in 1790.
Coincidently, one of
Hamilton's first jobs after graduating from law school in 1782 was as an aide
to Robert Morris, the head of the Bank of North America that collapsed in
1785.
Secretary of State Thomas
Jefferson argued that the Bank violated traditional property laws and that
its relevance to constitutionally authorized powers was weak.
"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." (Thomas Jefferson,
1743-1826)
Hamilton argued that the
while the Constitution states that while no single state government can
create paper currency, there is no wording preventing the federal government
from doing so.
In the end, George
Washington signed the bank bill into law on April 25, 1791 for a 20-year
charter. In the first five years of operation, the American government
borrowed $8.2 million and prices rose by 72%.
"I wish it were
possible to obtain a single amendment to our Constitution - taking from the
federal government their power of borrowing." (Thomas Jefferson, 1798)
Twenty years later, the
Democratic-Republican majority in Congress voted against renewing the
Federalist conceived institution and the [First] Bank of the United States
officially closed its doors on March 3, 1811.
War of 1812
Nathan Mayer Rothschild,
son of Mayer Amschel Rothschild, is claimed by some
historians to have warned, "...that the United States would find itself
involved in a most disastrous war if the bank's charter were not
renewed." Coincidently, within five months of the closing of the [First]
Bank of the United States, the British declared war allegedly financed by
loans from the Rothschilds, whom at this time were
already prominent bankers in Europe.
The War of 1812 resulted
in the first significant issue of treasury notes from the United States of
America. These notes differed from bank notes because they were not exchanged
for an interest-bearing government bond.
The U.S. Constitution defines
a difference between legal currency and bills of credit. As a result the
treasury bills were not to circulate as currency and could only be issued to
persons who 'may choose' to accept them. A resolution in 1814 seeking to make
the treasury notes "legal tender in all debts due" was voted down
95 to 42. Some 50 years later, Congress would not demonstrate such wisdom
again.
With the British busy
fighting Napoleon, the War of 1812 ended in a draw in 1814.
The Second Bank of the
United States
Due to the costs of war,
many banks had over-issued their currency from making loans to the
government. In order to protect the banking industry, Congress suspended
redemption of paper money in gold or silver. Instead of just keeping merely
the banks solvent, this measure allowed them to further lend money. Soon the
entire U.S. banking system was in chaos.
The banking system would
ultimately be required to honour their obligations. This would result in
widespread bankruptcies, as loans would be need to
be called in to cover depositor withdrawals. The most politically viable
option to prevent this was to establish a central bank to function as the
lender of last resort.
The Second Bank of the
United States was chartered in 1816 under the administration of U.S.
President James Madison. It was founded with a mandate similar to that of the
previous [First] Bank of the United States whose charter had expired five
years prior. These mandates were to issue currency, purchase government debt,
and serve as the official depository for Treasury funds.
The bank was to raise $7
million in as reserves but never acquired more than $2.5 million. In 1818,
the Bank had $2.36 million in reserves, and $21.8 million of notes and
deposits on record giving it a reserve ratio of 0.11. Within one and half
years the bank had added $19.2 million to the Nation's money supply thus
sparking an economic boom.
As a result of soaring
prices from currency devaluation the bank became in danger of being unable to
honour redemptions on its reserves. To prevent such a calamity, the bank
decreased the money supply from $21.9 million to $11.5 million. The 47%
reduction in money supply led to a text-book example of a deflationary bust
caused by manipulation of the money supply.
Andrew Jackson 'Kills the
Bank'
President Jackson was an
advocate of sound monetary policies as outlined in the U.S. Constitution. He
opposed the central bank system of issuing currency against debt.
Jackson had an
investigation done on the Second Bank of the United States which he said
established "beyond question that this great and powerful institution
had been actively engaged in attempting to influence the elections of the
public officers by means of its money."
In 1832, Andrew Jackson's
re-election slogan was "JACKSON and NO BANK!" On July 10, 1832
President Jackson vetoed congress' decision to renew the charter of The
Second Bank of The United States.
"It is not our own
citizens only who are to receive the bounty of our government. More than
eight millions of the stock of this bank are held by foreigners... is there
no danger to our liberty and independence in a bank that in its nature has so
little to bind it to our country? ... Controlling our currency, receiving our
public moneys, and holding thousands of our citizens in dependence... would
be more formidable and dangerous than a military power of the enemy."
(President Andrew Jackson - July 10, 1832)
In 1833, President Andrew
Jackson instructed his Secretaries of the Treasury to cease depositing funds
to the bank. Two refused to obey, so he fired them, one after the other,
until he got one who did: Roger B. Taney, his
former Attorney General and the future Supreme Court Chief Justice.
In 1835, Jackson paid off
the final instalment on the national debt. He was the first and only
president to ever accomplish this. A few weeks later, Richard Lawrence tried
to shoot Jackson. However, both revolvers failed and he was arrested and
tried but was found not guilty by reason of insanity. Allegedly, he spoke to
several friends that wealthy people in Europe had put him up to it and
promised to get him released if he was caught.
Abraham Lincoln
In order to finance the
North's Civil War efforts, Lincoln approached the European banks controlled
by the Rothschilds in 1861. They demanded 24% to
36% interest. Lincoln refused and instead passed the Legal Tender Act of
1862. Under this new piece of legislation, Lincoln issued US$449,338,902 of
interest-free money, known as Greenbacks, so-called from the green ink they
used. It served as legal tender for all debts, public and private and was
used to finance the Union's Civil War efforts.
"The 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 Government's 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..." (Abraham Lincoln)
An editorial in the London Times reveals sentiment of the European bankers,
"If this mischievous
financial policy, which has its origin in North America, shall become endurated down to a fixture, then that Government will
furnish its own money without cost. It will pay off debts and be without
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. The brains, and wealth of all countries will go to North
America. That country must be destroyed or it will destroy every monarchy on
the globe." (London Times, 1865)
By the end of 1863,
Congress had authorized the printing of US$850 million worth of Greenbacks.
Private banks used these Greenbacks as bank reserves, against which the
issued their own bank notes and demand deposits. Over the course of the U.S.
Civil War the money supply went from $45 million to $1.77 billion. Prices
subsequently skyrocketed.
In 1863, Congress passed
the National Bank Act from which point forward, all money in circulation
would be created out of debt from bankers buying U.S. government bonds in
exchange for bank notes. By 1865, the national banks had 83 percent of all
bank assets in the United States.
Lincoln was assassinated
by John Wilkes Booth on April 14, 1865, just five
days after Lee surrendered to Grant. On April 12, 1866, Congress passed the
Contraction Act which called for retiring Lincoln's greenbacks from circulation
as soon as they came back to the Treasury in payment of taxes.
Assassination of
President Garfield
President James A.
Garfield was inaugurated in 1881 and was the second American president to be
assassinated. He was shot by Charles J. Guiteau on
July 2, 1881 and later died from medical complications on September 19. Two
weeks before being shot, President Garfield is attributed with saying,
"Whoever controls
the volume of money in our country is absolute master of all industry and
commerce...and when you realize that the entire system is very easily
controlled, one way or another, by a few powerful men at the top, you will
not have to be told how periods of inflation and depression originate."
(President James A. Garfield, 1881)
Panic of 1907
Three failed attempts of
establishing a central bank in the United States did not dissuade a fourth.
By the beginning of the 20th century the most
influential business men and bankers were the J.D. Rockefeller, J.P. Morgan,
Paul Warburg, and the Rothschilds.
The Panic of 1907 was a
run on the American banking system as a result of a public announcement by
J.P. Morgan that a prominent bank in New York was insolvent. The results were
wide-spread mass withdrawals on the entire banking system. This forced the
banks to call in their loans. Bankruptcies, repossessions and financial
turmoil emerged.
Congress created the
National Monetary Commission after the Panic of 1907 to draft up a plan for
banking reform. Nelson Aldrich headed the Commission that comprised of two
components - one to study the European central banking systems headed by
Aldrich himself and another to study the American monetary system.
Centralized banking was
met with much opposition from the American public, who were suspicious of a
central bank and who charged that Aldrich was biased due to his close ties to
wealthy bankers such as J.P. Morgan and his daughter's marriage to John D.
Rockefeller, Jr.
Creation of the Federal
Reserve
Allegedly, in exchange
for financial support for his presidential campaign, Woodrow Wilson agreed
that if elected, he would sign a bill that would lead to the formation of a
central bank for the United States.
On 1910, a secret meeting
took place on the Morgan estate on Jekyll Island, Georgia. Aldrich met with
representatives of prominent banking firms. Such men included Henry Davison
(senior partner of J.P. Morgan Company), Frank Vandelip
(President of the National Bank of New York associated with the
Rockefellers), Charles D. Norton (president of the Morgan-dominated of First
National Bank of New York), Benjamin Strong (representing J.P. Morgan), and
the primary architect of the Act, Paul Warburg (representing Kuhn, Loeb &
Co.)
Over a period of ten days
they drafted the Federal Reserve Act that was voted on in Congress on Monday
22 December 1913 between the hours of 1:30 am to 4:30 am when much of
Congress was either sleeping or at home with their families for the Christmas
holidays. It passed through the Senate the following morning and Woodrow
Wilson signed the bill into law later that same day at 6:02 pm. This Act
transferred control of the money supply of the United States from Congress as
defined in the U.S. Constitution to the private banking elite.
The deceptive terminology
of the name was carefully chosen because the American public did not want a
central bank similar to those in Europe. The Federal Reserve is not a federal
governmental entity nor is it a reserve, such as a governmental treasury,
backing up its currency. The Federal Reserve is a legalized cartel of the
money supply owned by private national banks, operating for the benefit of
the few under the guise of protecting and promoting public interests.
The meeting on Jekyll
Island remained unknown to the public until Forbes magazine founder Bertie Charles Forbes wrote an article about it in 1916,
three years after the Federal Reserve Act was passed.
Wilson wrote in his book,
The New Freedom,
"A great industrial
nation is controlled by its system of credit. Our system of credit is
privately concentrated. The growth of the nation, therefore, and all our
activities are in the hands of a few men ... [W]e have come to be one of the
worst ruled, one of the most completely controlled and dominated, governments
in the civilized world--no longer a government by free opinion, no longer a
government by conviction and the vote of the majority, but a government by
the opinion and the duress of small groups of dominant men." (Woodrow
Wilson, The New Freedom: A Call for the Emancipation of
the Generous Energies of a People)
A central banking system
wherein every dollar created is an instrument of debt requires the collection
of large sums of money from the people to pay off the interest.
Interestingly, 1913 was also the year that introduced the Sixteenth
Amendment, thereby giving government the power to collect taxes based on
income.
World War I
In 1914, when war broke
out in Europe, the American public did not want to become involved. While
President Woodrow Wilson publicly declared that the United States would
remain neutral, efforts were being made behind the scenes to ensure America's
entry into the war.
Wars are extremely
profitable for central bankers because it forces the governments to further
borrow addition money at interest. Secretary of State, William Jennings Bryan
wrote, "the large banking interests were deeply interested in the world
war because of the wide opportunities for large profits."
Allegedly on May 7, 1915
the Lusitania, an ocean-liner carrying American passengers, was deliberately
sent into German controlled waters. The German Imperial embassy paid to have
a warning ad in fifty East Coast newspapers, including those in New York,
stating that anyone boarding the Lusitania would be doing so at their own risk . The ad appeared only in the Des
Moines Register.
As expected, a German
U-boat torpedoed the Lusitania. German records indicate that a large
secondary explosion followed the torpedo hit leading some to speculate the
storing of ammunition. As a result 1,198 people of the 1,959 aboard lost
their lives and the U.S. shortly entered the war thereafter.
The First Moves of the
Federal Reserve
The public was told that
the creation of the Federal Reserve would stabilize the economy. From 1914-1919
the money supply nearly doubled. This resulted in extensive loans to small
businesses and the public. A calling in of the loans in 1920 resulted
wide-spread bankruptcies and bank-runs marking the steep 1920-1 recession.
Over 5400 independent and competitive private banks outside of the Federal
Reserve System collapsed thus consolidating the power of the central banks.
The Harding
administration did not intervene despite political pressure to do so.
Harding's approach to the problem was, "the banks got themselves into
this mess, so let them get themselves out of
it." Since the Harding administration public management of the economy
has emerged as a primary activity of the government.
President Harding was the
sixth president to die while in office. It was during his "Voyage of
Understanding", during which he was returning from Alaska. The official
cause of death as stated in the New York Times was, "a stroke of
apoplexy". Gaston B. Means, an amateur historian and gadfly, noted in
his book The Strange Death of President Harding
(1930) that the circumstances surrounding his death lend themselves to
speculation he had been poisoned.
The Great Depression
From 1921 to 1929 the
Federal Reserve increased the money supply by 62% thus fuelling the period
known as the Roaring Twenties. Further fuelling the rise in stock market
indices was a new type of loan, known as a margin loan,
whereby an investor would only need to put down 10% of the value of a stock
with the remaining 90% being loaned from the broker. Like today, these loans
could be called in at any time and had to be paid within 24 hours, known as a
margin call. This is typically accomplished by the
selling of the stock purchased using the loan.
These two factors, loose
monetary policy and easy loans resulted in a fivefold increase in the Dow
Jones Industrial Average over the latter half of the 1920's.
The mass calling in of
these margin loans by the New York banking establishment resulted in the
devastating market crashes of October of 1929. "Black Thursday", the
initial crash, occurred on October 24. The crash that caused general panic
five days later on October 29 was known as "Black Tuesday".
Then, instead of
expanding the money supply, the Federal Reserve contracted it, thereby
creating the period known as the Great Depression. Congressman Wright Patman in A Primer On Money,
reported that the money supply decreased by eight billion dollars from 1929
to 1933, causing 11,630 banks of the total of 26,401 in the United
States to go bankrupt. This allowed central bankers to buy up rival banks and
whole corporations at a deep discount.
It is interesting to note
that biographies of J.P. Morgan, Joe F. Kennedy, J.D. Rockefeller and Bernard
Baruch indicate that they all managed to transfer their assets out of the
stock market and into gold just before the crash of 1929.
Legend has it that Joseph
P. Kennedy decided to sell his considerable stock holdings after hearing an
investment tip from a shoe-shiner. Joe Kennedy went from having $4 million in
1929 to over $100 million in 1935.
One must wonder if that
'shoe-shiner' was Paul Warburg, a founder and original member of the Federal
Reserve warning of the coming collapse and depression in an annual report to
the stockholders of his International Acceptance Bank,
"If the orgies of
unrestrained speculation are permitted to spread, the ultimate collapse is
certain not only to affect the speculators themselves, but to bring about a
general depression involving the entire country." (Paul Warburg, March
1929)
On June 10, 1932,
Congressman Louis McFadden, a long-time adversary to the Federal Reserve,
made a 25-minute speech before the House of Representatives, in which he
accused the Federal Reserve of deliberately causing the Great Depression.
In 1933, McFadden
introduced House Resolution No. 158, Articles of Impeachment for the
Secretary of the Treasury, the Comptroller of the Currency, and the Board of
Governors of the Federal Reserve, for numerous criminal acts, including but
not limited to, conspiracy, fraud, unlawful conversion, and treason.
Louis McFadden died in
Oct 3, 1936 during a visit to New York City. The official reason of death was
"heart-failure sudden-death", after a "dose" of
"intestinal flu."
There were previously two
alleged attacks on McFadden's life. The first came in the form of two
revolver shots when he was in a cab outside one of the Capitol hotels. Both
shots missed their intended target. The second was when he became violently
ill after a political banquet at Washington. He was saved from a physician
friend at the same banquet that procured a stomach pump and gave McFadden
emergency treatment.
Seizure of the American
Publics' Gold
Under the pretense of helping to end the Great Depression came the
1933 Gold Seizure whereby the Roosevelt Administration outlawed private
ownership of gold. Under the threat of imprisonment for 10 years, a US$10,000
fine or both, everyone in America was required to turn in all gold bullion to
the U.S. Treasury.
The rationale for the
seizure was that the declining prices of the Great Depression were a direct
result of overcapacity. This flawed reasoning resulted in the creation of
disastrous policies such as National Industrial Recovery Act where business
cartels were deliberately constructed to keep prices high and the Agricultural
Adjustment Act that ordered mass destruction of livestock and crops in order
to reduce supply and drive up prices. In a time when unemployment is at
record highs and people are suffering from economic hardship, these policies
are the complete opposite of what is required.
As a final component to
the Roosevelt Administration's desire to increase prices was to devalue the
dollar. To do so required that the dollar be uncoupled from gold. As long as
the dollar was tied to a gold standard, the amount of money in circulation
could not dramatically increase as the public would convert the paper into
gold when they became aware of the over-issuance of paper currency.
Example of a US$100 gold certificate from the late 1920's
On April 5, 1933,
Roosevelt signed Executive Order 6102, which ordered people to turn in their
gold to the government at payment of $20.67 per ounce. Individuals could hold
up to $100 in gold coins, and there were some exceptions for dental use, jewelry, and artists and others who used gold in their
jobs.
While U.S. citizens could
be ordered not to hoard gold, Roosevelt knew he could not impose such a law
on sovereign nations. Foreigners could still exchange there U.S. dollars for
gold, but shortly after issuing Order 6102, Roosevelt devalued the dollar to
US$35 per ounce thereby decreasing the value of the dollar overnight by
40.94%.
The result of these
policies allowed greater ability of the Federal Reserve to increase the
amount of money in circulation thereby increasing their revenue from
interest.
World War II
"The question was
how should we maneuver them
[Japan] into firing the first shot... it was desirable to make sure the
Japanese be the ones to do this so that there should remain no doubt as to
who were the aggressors." (Henry Stimson, U.S. Secretary of War prior to
WWII, Nov. 25, 1941 in
a journal documenting his conversation with President Roosevelt)
Franklin Delano
Roosevelt's uncle, Frederic A. Delano, was appointed by Woodrow Wilson to the
First Federal Reserve Board on August 5, 1914. Roosevelt may have been
sympathetic to the central bankers desire for
American entry into the Second World War. There exists some suggestive
evidence that the Roosevelt administration provoked the Japanese into
attacking American forces stationed at Pearl Harbor.
In 1940, FDR ordered the
pacific fleet transferred from the West Coast to Hawaii. Admiral Richardson
complained of inadequate protection from both air and torpedo attack. He
twice disobeyed orders to berth the fleet there and was replaced by Admiral
Kimmel, who later brought up the same issues.
On October 7, 1940,
Lieutenant Commander Arthur McCollum wrote an eight page memo describing a
process to force Japan into war with the U.S.
On February 11, 1941, FDR
proposed sending six cruisers and two carriers to Manila.
It is generally agreed
that the U.S. oil embargo on Japan lead promptly to the Japanese invasion of
the Dutch East Indies.
Roosevelt further
antagonized Japan by freezing all of the Japanese assets in the United
States, supplied financial aid to Nationalist China and military aid to the
British in violation to the existing international war rules.
On Dec 4, three day prior
the attack on Pearl Harbor, Australian intelligence
warned Roosevelt of a Japanese task force moving towards Pearl Harbor.
The attack resulted in
the deaths of 2,400 American soldiers and resulted in the entry of the United
States into the war. Before the attack on Pearl Harbor,
83% of the American public did not want to enter the war. After the attack,
one million men volunteered for the military service.
Bretton Woods
Agreement
The United States had
emerged from the Second World War as a dominant world power both militarily
and economically. It had grown wealthy selling weapons and lending money to
both sides of the war. In 1945, the U.S. produced half the world's coal,
two-thirds of the oil, and more than half of the electricity. The U.S.
manufacturing industry was able to produce great quantities of machinery,
including ships, airplanes, vehicles, armaments, machine tools, and
chemicals. In addition, the U.S. held over 65% of world's gold reserves and
was the sole possessor of the atomic bomb.
Delegates from 44 Allied
nations gathered at the Mount Washington Hotel in Bretton
Woods, New Hampshire for the United Nations Monetary and Financial Conference
during the first three weeks of July 1944. The purpose of the conference was
to establish the rules for commercial and financial relations amongst the
world's major industrial states. The agreements signed at this conference
became known as the Bretton Woods Monetary System.
The Bretton
Woods Monetary System was basically a pegged rate currency exchange system
with the U.S. dollar functioning as the underlying currency. All countries
would peg their currency to the U.S. dollar and would buy and sell U.S.
dollars to keep the market exchange rates within a trading band of plus or
minus 1% from the original ratio. The U.S. dollar would be convertible into
gold at a rate of US$35 per troy ounce. In effect, the U.S. dollar took over
the role held by gold under the previous international gold standard
financial system.
The U.S. has enjoyed an
enormous advantage of such a system because they are the only entity legally
capable of creating more of the reserve currency, that being U.S. dollars.
Other nations were forced to buy large amounts of U.S. dollar reserves to
maintain their currency within the trading band.
John Fitzgerald Kennedy
On June 4, 1963, John F.
Kennedy signed a virtually unknown Presidential decree, Executive Order 11110, a mere four months before his assassination on
November 22, 1963. This decree returned to the U.S. Federal government the
Constitutional right to create and "to issue silver certificates against
any silver bullion, silver, or standard silver dollars in the Treasury."
As a result,
US$4,292,893,815 of new "Kennedy Bills" were
created through the U.S. Treasury instead of the Federal Reserve System. In
1964, Kennedy's successor, Lyndon B. Johnson, stated that, "Silver has
become too valuable to be used as money." The Kennedy bills were removed
from circulation.
Below are examples of the
$2 and $5 dollar denominated "Kennedy Bills" (also known as
"Red Seal Bills"). Note the 1963 date and
words "United States Note" at the top instead of the familiar
"Federal Reserve Note" wording. (Click on image to enlarge).
The importance
of these bills is not to be underestimated. The regular Federal Reserve Notes
are created through the Fed who exchanges them for an interest-paying
government bond. These "United States Notes" were directly created
through the U.S. Treasury and backed by the silver held there.
There was no interest to
be paid on these bills by the government (or more correctly, by the
tax-payer) to the Federal Reserve.
Vietnam War
U.S. involvement in Vietnam
began as far back as 1954, but the "official" position was that no
combat missions were conducted until late 1963. The official declaration of
war on Vietnam in 1964 came as a direct result of two alleged attacks on two
U.S. destroyers by North Vietnamese PT boats in the Gulf of Tonkin. A report released in 2005 by the National Security Agency indicated that the
second attack likely never occurred.
During the Vietnam War,
many American air commanders were convinced that rigid Rules of Engagement
(ROEs) prevented an American aerial victory over North Vietnam during the
Rolling Thunder air campaign form 1965-1968. These rules of
engagement were declassified in
1985. Many were so restrictive that it was impossible to achieve effective
results. Some of the rules included:
- North Vietnamese anti-aircraft missile
systems could not be bombed until they were known to be operational.
- No enemy could be pursued if they crossed
into neighbouring Laos or Cambodia.
- Critical strategic targets could only be
engaged unless initiated by high military officials.
- Pilots were restricted from attacking
enemy airfields, SAM sites, power plants, naval craft in some areas, a 30 mile area around
Hanoi, and a 10 mile
area around Haiphong.
- In many instances up until early 1967,
U.S. pilots were not allowed to engage enemy fighters unless they
themselves had been attacked first.
These rules of engagement
were televised in North Vietnam thus enabling them to strategize their war
tactics around them.
In 1966 Johnson lifted
trade restrictions against the Soviet Union knowing full well that the
Soviets were funding up to 80% of the North Vietnamese war supplies. David
Rockefeller financed factories in the Soviet known to manufacture military
equipment for North Vietnam.
The war in Vietnam was
never meant to be won. It was intended to be sustained for the benefit of the
central bankers who lent money for the war effort. The war resulted in the
deaths of 58,000 U.S. soldiers and three million Vietnamese.
Nixon Unilaterally Closes
the Gold Window
Escalating costs from
both the Vietnam War and domestic social programs resulted in ever increasing
amounts of U.S. dollars being printed. In the early 1970's, the United States
as a whole began running a trade deficit for the first time in the twentieth
century. Foreign owners of U.S. dollars began to question the ability of the
U.S. government to reduce budget and trade deficits.
Increasingly, foreign
nations, in particular the French under Charles de Gaulle, began to send the
U.S. dollars earned by exporting to the U.S. back to be redeemed in gold as
legally entitled under the Bretton Woods Agreement
signed in 1944.
The drain on U.S. gold
threatened to completely empty the U.S. Treasury. To prevent this from
happening, on August 15, 1971, President Richard Nixon unilaterally closed
the gold window. He made the dollar inconvertible to gold directly, except on
the open market.
The severing of this last
link between gold and paper money meant that all the world's currencies now
"floated" against one another. The result was inevitable with gold
soaring from US$35 to US$195 an ounce by the end of 1974.
This was the final step
in abandoning the gold standard. All the central banks had to control now was
the public's perception of inflation to allow them to create as much money as
desired.
Central Bank Gold Auctions
On January 1, 1975, after
42 years, it became "legal" for individual Americans to own gold
again. Anticipating the demand, many central banks sold off large quantities
of their gold reserves. The effect was a decline in the price of gold to US$103
a troy ounce in eighteen months.
Gold regained its
previous nominal high of US$195 set on December 1974, almost three-and-a-half
years later on July 1978. It then went on to new highs, hitting US$250 in
February 1979, US$300 in July, and US$400 by October.
The new Fed Chairman,
Paul Volcker, appointed by Jimmy Carter announced a change in policy upon
return from a conference in Belgrade concerning the global financial system.
He announced that the U.S. Federal Reserve was switching its policy from
controlling interest rates to controlling the money supply.
Gold reached a peak of
US$850 on Jan 21, 1980 amidst soaring interest rates. The U.S. Prime rate hit
20% in April 1980 and stayed there (with a brief dive in mid-1980) until the
end of 1981. This resulted in a rush out of gold and back to U.S. dollars.
By 1982, interest rates
had dropped and gold had fallen to US$296 an ounce. Investors piled both into
the stock market and gold. The price of bullion reached a peak of US$510 an
ounce at the end of January 1983. However, in the last four trading days of
February 1983, gold fell US$105 and the Dow broke above the 1100 point level
for the first time.
Thus began the long bear
market in gold and boom in equity markets.
The Rise of Debt
Further fuelling the rise
in equities was the effective abandonment of the permanent debt ceiling of
US$400 billion set in March 1971. By late 1982, the public debt had tripled
to US$1.25 trillion. Presently, the public debt of the United States stands at
over US$9 trillion.
This explosion of debt
led to worldwide monetary inflation as the U.S. still enjoys a de facto reserve currency status by virtue of history and
an agreement made with OPEC in 1973 that world oil would be priced in U.S.
dollars.
Monetary inflation leads
to the formation of economic bubbles wherein market speculators bid up the
prices of assets to unrealistic highs. When all market participants have
clambered into the market the market generally collapses when it becomes
apparent that there is nobody left to buy.
There have been four
notable economic bubbles formed since 1982:
- The global stock market boom of 1982-87
- The Japanese stock market boom of 1988-90
- The Dot-com boom from late 1994 to early
2000.
- The U.S. and global housing market from
2001 to present-day
It is important to be
aware of the fact that these booms, and subsequent busts, are not the result
of free-market capitalism as commonly held. They are the direct result of
monetary manipulation by central banks no different in principle than
Soviet-era market intervention.
In Summary
The current Federal
Reserve banking system is modeled after the
European central banking system Americans revolted against during their War
of Independence.
Every dollar created
under the present monetary system does not represent a tangible asset. It
represents an I.O.U. from the government, and therefore the people, to the
central bank. After three failed attempts, central bankers finally gained
control the monopoly on the issuance of American money with the creation of
the Federal Reserve in 1913.
There are two unavoidable
results of the Federal Reserve System: (1) devaluation of the dollar and (2)
accumulation of debt.
Devaluation
Since the establishment
of the Federal Reserve, the U.S. dollar has lost over 95% of its purchasing
power.
Rising prices is not
intrinsic to free-market capitalism. It is a monetary phenomenon caused by
increasing money supply. Money, like anything else, is subject to the laws of
supply and demand. The more abundant the money, the lower its value.
If the amount of money
were to remain constant relative to population, we would see a general
decrease in the prices of goods as technologies and transportation
efficiencies improved. This would be a boon to consumers.
Consider the rapid spread
of telecommunications and computers, two industries where technological
improvements have actually been able to outpace the price escalation caused
by the monetary inflation of central banks. Lower prices have led to a surge
in consumer usage. People don't hold onto their money in hopes of waiting for
a better computer or phone. Quite often they buy a second or third one. The
consumer base grows as well because for those who previously could not afford
one now can do so.
Despite these blatant
observations, conventional economic thought believes that decreasing prices
are bad for the economy because it encourages saving. It is widely held that
consumer spending, not saving, is what drives the economy.
This is a falsehood,
perpetrated by those would stand much to gain by further and further
indebtedness of the public. Savings leads to capital investment which is the
real driver behind capitalism.
Debt
Every dollar created is
an instrument of debt lent out at interest. The extra money required to pay
back the interest can only come from one place, that being the central bank.
As such, the central banks must continuously increase the money supply.
Growth of Currency
For the 2007 fiscal year
ending Sept 30, 2007, the total
interest charges to the Total Outstanding
Public Debt of the United States was US$430.0 billion making it the forth
largest expense after Human and Health Services, Social Security
Administration and National Defense.
By means of comparison,
for that same 2007 fiscal year, the total revenue collected from individual
income taxes was US$1,156.8 billion (see table S-8 Receipts by Source on page
169 of the Budget for the Fiscal Year 2008 here).
Thus, the equivalent of a
little over 37 cents of every dollar the U.S. government collects under the
Sixteenth Amendment goes towards paying the interest on the national public
debt. This amount doesn't include any repayment on the principal, nor does it
include any State or Local public debt.
Not a bad rate of return
for the Federal Reserve which literally creates the money that indebts the
nation out of nothing but the want thereof!
How do We
Get Out of this Mess?
The current monetary
system uses questionable practices on both moral and legal grounds. Monetary
inflation erodes the wealth of citizens. Fractional reserve banking enable banks to fraudulently lend out more than they have.
Debt is incurred every time new money is created. This debt must is inherited
by future generations.
Below are three measures
that would establish an honest monetary system.
Repay the Public Debt
The U.S. government must
begin by first balancing the annual budget and then begin reducing the public
debt. This would reduce the tax burden and ultimately allow tax dollars to be
spent only on services requested by the people and not to banking agencies.
(For a discussion of to whom the debt is owned to
click here).
Introduce a Hard Currency
A hard currency should be
introduced that competes against Federal Reserve Notes. Each of these bills
would be backed by a defined quantity of a hard asset, such as gold, that are
fully convertible at any time. Such a system could be comprised of bills
representing a number of grams of gold.
There should be no
legislation regarding the exchange ratios between gold and any other
commodity or fiat currency. The free market should determine what the price
of silver or Euros is in gold.
Borrowers and lenders
should negotiate an interest rate on any lending arrangement using the hard
currency.
Lastly, there should be
no law requiring that people must use this new currency. Legal tender laws
are needed to make people accept a bad currency, not a good one.
This hard currency would
require banks to store gold in their vaults. Any bank without gold would be
unable to issue out the hard currency either in cash or as a loan.
In essence, the hard
currency is a paper receipt convertible on a 1:1 exchange basis with gold.
The gold is the money; the paper receipt is merely a representation of the
physical metal.
Abolish Fractional
Reserve Banking
The practice of
fractional reserve banking should be criminalized, as is any other form of
fraud. No business should be able to lay claim to assets they do not have,
let alone lend out these assets and charge interest on them. This would
eliminate the phenomena of bank-runs whereby panicked depositors line up to
withdraw their assets for fear that the bank is insolvent. A bank should be
able to lend out $10,000, only if it has $10,000 to begin with.
With the present system,
banks can lend out multiples in loans to what they have in reserve deposits.
Within these ratios a
financial institution may legally lend out up to $8.5 million without any
reserve or $45.8 million with less than $1.4 million in assets.
Benefits of an Honest
Monetary System
The most significant
expenses facing people are: taxes, interest and inflation. The relative
significance of each of these costs depends upon one's socio-economic status.
Each of them is further exacerbated by the current fiat monetary system of
centralized banks and the industry's use of fractional reserve banking.
The measures described
above would ensure price stability, preserve wealth and reduce debt.
Price Stability
Price stability can be
seen in the following chart that shows the price of oil from 1950 to the
present day. Note the marked change in the price of oil before and after
Nixon took the U.S. dollar off the gold standard when he closed the gold
window in 1971.
The reason for the price
stability under a gold standard is that the relative value
between commodities fluctuates much less than their prices
in fiat currency.
Preservation of Wealth
Personal wealth would be
preserved under an honest monetary system. Under a fiat monetary system,
newly created money diminishes the value of those already out in circulation.
It is no different from theft, albeit an insidious form that the victim
doesn't even realize. The amount of gold being mined inflates the gold supply
by about 2% per year. Much less than the estimated 12-15% money supply growth
rate of fiat money.
Reduction in Debt
Future generations would
be spared the burden of a large debt for obligations promised by a previous
administration.
To do this, would require
that we begin living within our means. Perhaps this is the most serious
roadblock to us ever having an honest monetary system.
Mike Hewitt
DollarDaze.org
Mike Hewitt is the
editor of www.DollarDaze.org, a website pertaining to
commentary on the instability of the global fiat monetary system and
investment strategies on mining companies.
Disclaimer: The opinions
expressed above are not intended to be taken as investment advice. It is to
be taken as opinion only and I encourage you to complete your own due
diligence when making an investment decision.
© 2007 DollarDaze
|