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expanded; and this could all be done without imposing austerity
measures on the people or sparking runaway inflation. Utopian as
that may sound, it represents the thinking of some of America™s brightest
and best, historical and contemporary, including Abraham Lincoln,
Thomas Jefferson and Benjamin Franklin. Among other arresting facts
explored in this book are that:
The “Federal” Reserve is not actually federal. It is a private
corporation owned by a consortium of very large multinational
banks. (Chapter 13.)
Except for coins, the government does not create money. Dollar
bills (Federal Reserve Notes) are created by the private Federal
Reserve, which lends them to the government. (Chapter 2.)
Tangible currency (coins and dollar bills) together make up less
than 3 percent of the U.S. money supply. The other 97 percent
exists only as data entries on computer screens, and all of this money
was created by banks in the form of loans. (Chapters 2 and 17.)
The money that banks lend is not recycled from pre-existing
deposits. It is new money, which did not exist until it was lent.
(Chapters 17 and 18.)
Thirty percent of the money created by banks with accounting
entries is invested for their own accounts. (Chapter 18.)
The American banking system, which at one time extended
productive loans to agriculture and industry, has today become a
giant betting machine. By December 2007, an estimated $681 trillion
were riding on complex high-risk bets known as derivatives ” 10
times the annual output of the entire world economy. These bets
are funded by big U.S. banks and are made largely with borrowed
money created on a computer screen. Derivatives can be and have
been used to manipulate markets, loot businesses, and destroy
competitor economies. (Chapters 20 and 32.)


3
Introduction

The U.S. federal debt has not been paid off since the days of Andrew
Jackson. Only the interest gets paid, while the principal portion
continues to grow. (Chapter 2.)
The federal income tax was instituted specifically to coerce
taxpayers to pay the interest due to the banks on the federal debt.
If the money supply had been created by the government rather
than borrowed from banks that created it, the income tax would
have been unnecessary. (Chapters 13 and 43.)
The interest alone on the federal debt will soon be more than the
taxpayers can afford to pay. When we can™t pay, the Federal
Reserve™s debt-based dollar system will collapse. (Chapter 29.)
Contrary to popular belief, creeping inflation is not caused by the
government irresponsibly printing dollars. It is caused by banks
expanding the money supply with loans. (Chapter 10.)
Most of the runaway inflation seen in “banana republics” has been
caused, not by national governments over-printing money, but by
global institutional speculators attacking local currencies and
devaluing them on international markets. (Chapter 25.)
The same sort of speculative devaluation could happen to the U.S.
dollar if international investors were to abandon it as a global
“reserve” currency, something they are now threatening to do in
retaliation for what they perceive to be American economic
imperialism. (Chapters 29 and 37.)
There is a way out of this morass. The early American colonists
found it, and so did Abraham Lincoln and some other national
leaders: the government can take back the money-issuing power
from the banks. (Chapters 8 and 24.)
The bankers™ Federal Reserve Notes and the government™s coins
represent two separate money systems that have been competing for
dominance throughout recorded history. At one time, the right to
issue money was the sovereign right of the king; but that right got
usurped by private moneylenders. Today the sovereigns are the people,
and the coins that make up less than one one-thousandth of the money
supply are all that are left of our sovereign money. Many nations
have successfully issued their own money, at least for a time; but the
bankers™ debt-money has generally infiltrated the system and taken
over in the end. These concepts are so foreign to what we have been
taught that it can be hard to wrap our minds around them, but the
facts have been substantiated by many reliable authorities. To cite a
few “
4
Web of Debt

Robert H. Hemphill, Credit Manager of the Federal Reserve Bank
of Atlanta, wrote in 1934:
We are completely dependent on the commercial Banks. Someone
has to borrow every dollar we have in circulation, cash or credit. If
the Banks create ample synthetic money we are prosperous; if
not, we starve. We are absolutely without a permanent money
system. When one gets a complete grasp of the picture, the tragic
absurdity of our hopeless position is almost incredible, but there
it is. It is the most important subject intelligent persons can
investigate and reflect upon.5
Graham Towers, Governor of the Bank of Canada from 1935 to
1955, acknowledged:
Banks create money. That is what they are for. . . . The
manufacturing process to make money consists of making an
entry in a book. That is all. . . . Each and every time a Bank makes
a loan . . . new Bank credit is created -- brand new money.6
Robert B. Anderson, Secretary of the Treasury under Eisenhower,
said in an interview reported in the August 31, 1959 issue of U.S.
News and World Report:
[W]hen a bank makes a loan, it simply adds to the borrower™s
deposit account in the bank by the amount of the loan. The
money is not taken from anyone else™s deposit; it was not previously
paid in to the bank by anyone. It™s new money, created by the bank
for the use of the borrower.
Michel Chossudovsky, Professor of Economics at the University of
Ottawa, wrote during the Asian currency crisis of 1998:
[P]rivately held money reserves in the hands of “institutional
speculators” far exceed the limited capabilities of the World™s
central banks. The latter acting individually or collectively are
no longer able to fight the tide of speculative activity. Monetary
policy is in the hands of private creditors who have the ability to
freeze State budgets, paralyse the payments process, thwart the regular
disbursement of wages to millions of workers (as in the former Soviet
Union) and precipitate the collapse of production and social
programmes. 7
Today, Federal Reserve Notes and U.S. dollar loans dominate the
economy of the world; but this international currency is not money
issued by the American people or their government. It is money created
and lent by a private cartel of international bankers, and this cartel
5
Introduction

has the United States itself hopelessly entangled in a web of debt. By
2006, combined personal, corporate and federal debt in the United
States had reached a staggering 44 trillion dollars “ four times the
collective national income, or $147,312 for every man, woman and
child in the country.8 The United States is legally bankrupt, defined in
the dictionary as being unable to pay one™s debts, being insolvent, or
having liabilities in excess of a reasonable market value of assets held.
By October 2006, the debt of the U.S. government had hit a breath-
taking $8.5 trillion. Local, state and national governments are all so
heavily in debt that they have been forced to sell off public assets to
satisfy creditors. Crowded schools, crowded roads, and cutbacks in
public transportation are eroding the quality of American life. A 2005
report by the American Society of Civil Engineers gave the nation™s
infrastructure an overall grade of D, including its roads, bridges,
drinking water systems and other public works. “Americans are
spending more time stuck in traffic and less time at home with their
families,” said the group™s president. “We need to establish a
comprehensive, long-term infrastructure plan.”9 We need to but we
can™t, because government at every level is broke.
If governments everywhere are in debt, who are they in debt to?
The answer is that they are in debt to private banks. The “cruel hoax”
is that governments are in debt for money created on a computer
screen, money they could have created themselves.

Money in the Land of Oz

The vast power acquired through this sleight of hand by a small
clique of men pulling the strings of government behind the scenes evokes
images from The Wizard of Oz, a classic American fairytale that has
become a rich source of imagery for financial commentators. In a
2002 article titled “Who Controls the Federal Reserve System?”, Victor
Thorn wrote:
In essence, money has become nothing more than illusion -- an
electronic figure or amount on a computer screen. . . . As time
goes on, we have an increasing tendency toward being sucked
into this Wizard of Oz vortex of unreality [by] magician-priests
that use the illusion of money as their control device.12
Christopher Mark wrote in a series called “The Grand Deception”:
Welcome to the world of the International Banker, who like the
famous film, The Wizard of Oz, stands behind the curtain of
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Web of Debt

orchestrated national and international policymakers and so-
called elected leaders.10
The late Murray Rothbard, an economist of the classical Austrian
School, wrote:
Money and banking have been made to appear as mysterious
and arcane processes that must be guided and operated by a
technocratic elite. They are nothing of the sort. In money, even
more than the rest of our affairs, we have been tricked by a
malignant Wizard of Oz.11
James Galbraith wrote in The New American Prospect:
We are left . . . with the thought that the Federal Reserve Board
does not know what it is doing. This is the “Wizard of Oz”
theory, in which we pull away the curtains only to find an old
man with a wrinkled face, playing with lights and loudspeakers.13
The analogies to The Wizard of Oz work for a reason. According
to later commentators, the tale was actually written as a monetary
allegory, at a time when the “money question” was a key issue in
American politics. In the 1890s, politicians were still hotly debating
who should create the nation™s money and what it should consist of.
Should it be created by the government, with full accountability to the
people? Or should it be created by private banks behind closed doors,
for the banks™ own private ends?
William Jennings Bryan, the Populist candidate for President in
1896 and again in 1900, mounted the last serious challenge to the
right of private bankers to create the national money supply. According
to the commentators, Bryan was represented in Frank Baum™s 1900
book The Wonderful Wizard of Oz by the Cowardly Lion. The Lion
finally proved he was the King of Beasts by decapitating a giant spider
that was terrorizing everyone in the forest. The giant spider Bryan
challenged at the turn of the twentieth century was the Morgan/
Rockefeller banking cartel, which was bent on usurping the power to
create money from the people and their representative government.
Before World War I, two opposing systems of political economy
competed for dominance in the United States. One operated out of
Wall Street, the New York financial district that came to be the symbol
of American finance. Its most important address was 23 Wall Street,
known as the “House of Morgan.” J. P. Morgan was an agent of
powerful British banking interests. The Wizards of Wall Street and
the Old World bankers pulling their strings sought to establish a national

7
Introduction

currency that was based on the “gold standard,” one created privately
by the financial elite who controlled the gold. The other system dated
back to Benjamin Franklin and operated out of Philadelphia, the
country™s first capital, where the Constitutional Convention was held
and Franklin™s “Society for Political Inquiries” planned the
industrialization and public works that would free the new republic
from economic slavery to England.14 The Philadelphia faction favored
a bank on the model established in provincial Pennsylvania, where a
state loan office issued and lent money, collected the interest, and
returned it to the provincial government to be used in place of taxes.
President Abraham Lincoln returned to the colonial system of
government-issued money during the Civil War; but he was
assassinated, and the bankers reclaimed control of the money machine.
The silent coup of the Wall Street faction culminated with the passage
of the Federal Reserve Act in 1913, something they achieved by
misleading Bryan and other wary Congressmen into thinking the
Federal Reserve was actually federal.
Today the debate over who should create the national money
supply is rarely heard, mainly because few people even realize it is an
issue. Politicians and economists, along with everybody else, simply
assume that money is created by the government, and that the
“inflation” everybody complains about is caused by an out-of-control
government running the dollar printing presses. The puppeteers
working the money machine were more visible in the 1890s than they
are today, largely because they had not yet succeeded in buying up
the media and cornering public opinion.
Economics is a dry and forbidding subject that has been made
intentionally complex by banking interests intent on concealing what
is really going on. It is a subject that sorely needs lightening up, with
imagery, metaphors, characters and a plot; so before we get into the
ponderous details of the modern system of money-based-on-debt, we™ll
take an excursion back to a simpler time, when the money issues were
more obvious and were still a burning topic of discussion. The plot
line for The Wizard of Oz has been traced to the first-ever march on
Washington, led by an obscure Ohio businessman who sought to
persuade Congress to return to Lincoln™s system of government-issued
money in 1894. Besides sparking a century of protest marches and
the country™s most famous fairytale, this little-known visionary and
the band of unemployed men he led may actually have had the solution
to the whole money problem, then and now . . . .

8
Section I
THE YELLOW BRICK ROAD:
FROM GOLD TO
FEDERAL RESERVE NOTES

“Did you bring your broomstick?”
“No, I™m afraid I didn™t.”
“Then you™ll have to walk. . . . It™s always best to start at
the beginning . . . all you do is follow the Yellow Brick Road.”
-- The Wizard of Oz (1939 film)
Chapter 1 - Lessons from the Wizard of Oz




10
Web of Debt

Chapter 1
LESSONS FROM
THE WIZARD OF OZ

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