Who Stole Joe Public's Lunch?

I have recently realized just how divergent our opinions are - even among members of this forum - in regard to just who is to blame for the insolvency which resulted in the "Recession of 2008". Some point to the government. Some claim it was corporations. A few point to the banks. Still others blame the American people. But while all of these institutions share a bit of responsibility, many of them are simply used to shroud the largest and initial cause of that insolvency, the central banking system. And the insolvency it has perpetuated is no mistake.

The Federal Reserve. Unfortunately, most Americans are ignorant of the fact that the Federal Reserve is neither federal, nor reserve. It is a private banking system, established by private bankers, and sold to Congress and the American people as a measure of stability for the US Economy (despite having presided over the market crash of 1921, the Great Depression, and seven other major recessions). Although the Fed is subject to some restrictive legislations (including one that enables the Senate to approve its chairmen), it is privately managed and administrated. The bank officially claims to not be private, but it is certainly not federal or governmental. Yet surprisingly, this non-governmental bank has been granted the sole authority to issue the official money of the United States.

Creation of the Federal Reserve. The Federal Reserve was created by the world's leading private bankers. Among them were Paul Warburg, representative of the Rothschild banking dynasty; Frank Vanderlip, president of the National City Bank of New York; and three senior executive officers of J.P. Morgan. The bank was brought online in a time when larger banks (such as J.P. Morgan) were experiencing increased competition from smaller, emerging US banks. The Federal Reserve System was a carefully devised smokescreen to create a central bank to which all of these smaller banks would be regulated and taxed by.

The Environment That Enabled The Federal Reserve Act. Possibly the single largest political issue of the day in the earliest part of the 20th Century, was a shared disdain for a central bank (such as the Bank of England) by the American people. A central bank had been an experiment exactly two times, and was each time dissolved. But this time around, the idea of a central bank was hidden behind a clever naming convention (which avoided either the notion of "central" or "bank"), a system of regional banks that provided a smokescreen for centralization, and the idea that the system was actually a governmental mechanism to protect the people. The system was carefully devised, the fear of the people after the panic of 1907 was played upon, and legislation was passed in 1913.

What resulted was literally a bank with monopolistic power over the US money supply. Ultimately, the Fed fought and earned the ability to make the money supply "elastic", which is to say that they could print it at will in order to lend more, earning more and more interest. It also had a measure of control over all of the other banks in the US, legislated to it by the Senate. Local banks were forced to buy shares in the regional federal reserve banks, which made up the Federal Reserve.

But with authority to issue money, the Fed enabled these member banks to create money that cost them nothing. Of course, the member banks were required to borrow that money from the Fed with interest, but it could be lent to other borrowers at a much higher interest. The lenders would not only pay the money back, but with a handsome amount of interest. Again, these loans cost the central bank nothing, because it didn't even have to own the gold it initially represented.

In addition, the idea of the loans costing the central bank nothing was even more prolific when money eventually became based on nothing. So in sum, the central bank had the sole power to print money, which was based on nothing, and convert it to valuable assets by lending it to borrowers on interest. So even when a borrower defaults, the Federal Reserve sustains no real loss, because the money it lent actually cost it nothing to begin with. (However, default isn't "good" per se, because that loan ceases to be an asset). And the central bank could even collect a tax by all of the smaller banks who were enabled by the central bank to make those same loans.

But just how the bank makes their money is what is most terrifying. Because the asset is the loan itself due to the interest that it yields, the bank doesn't really want the loan to be ever fully repaid. They want the loan to remain on the books and the interest payments to continue. What this means is that while the banks make some money on private loans, the most is made on corporations, and even more on governments. This is due to the inability of governments to balance their budgets. Very few governments have EVER repaid their debts in full, so loans to governments represent an asset that may potentially pay forever. So the best result FOR THE PRIVATE BANKS WHO ACTUALLY CONTROL THE MONEY SUPPLY, is for those loans to remain outstanding.

Treasury Notes As A Debt Instrument. Because the US Government cannot balance its budget, it is forced to borrow. No surprise here. But the means in which it borrows is by selling Treasury Securities. These T-notes, T-bonds, and T-bills are essentially IOUs, issued to "lenders", and are repaid with interest.

Now enter the Federal Reserve. The Federal Reserve, using money it creates from nothing, purchases an enormous amount of these securities from the US Gov, essentially loaning it money. In 2007, the Federal Reserve held about $800 billion in Treasury Securities - equal to the total amount of the US money supply at that time. After two major bailouts, funded mostly with new US T-notes, bills, and bonds; that number is much higher. So essentially, the US Government is heavily indebted to the Federal Reserve Bank.

Perpetuation of Debt. Because the central banking institution wants to maintain its interest payments (chiefly by governments and mega-corporations), it will work very hard to prevent them from defaulting. Usually, this is done by lending more money. In the case of governments, the Federal Reserve loans more money by purchasing more debt (T-notes, bills, and bonds). So the debt is sustained, much to the joy and prosperity of the regional reserve banks. If a nation or corporation edges on default, the Federal Reserve will simply loan it more money, further entreanching this debt relationship.

Rescheduling of Debts. When the total revenue of a corporation or tax income of a government becomes tied up in simply paying interest, the notion of default becomes more and more enticing. But the central banking system wants to reatin their assets (interest-paying loans), so it does something called debt rescheduling. This is where the interest payments are reduced, but for a lengthened loan term. Again, this further cements the debt relationship, and eventually creates the perception of insolvency when even this agreement becomes untenable.

Bailouts, the Most Clever of the Fed's Strategies. Because the Federal Reserve was sold to the American people as a measure of monetary stability, it still holds a degree of misplaced trust among both individuals and government (although that level of trust is diminishing). As such, when borrowers become INSOLVENT as we saw wholesale in 2007, the Federal Reserve goes to Congress and asks for more free money to "bail out" involvent borrowers.

The Fed, still erroneously viewed as a government entity, plays on fears by warning of economic disaster if "liquidity" is not regained. So Congress approves "bailouts", which enable the Fed to create more money out of nothing. Most of this money in 2008 and 2009 went to the regional Federal Reserve Banks, giving them more free money to create more loans (interest-producing assets). The rest of it went to the Federal government to bail out... drumroll.... the nation's major member banks and even some mega-corporations.

It needs to be remembered that the nature of the economic turmoil in 2007-2008 was an inability to repay debts. Individuals were unable to repay mortgages, and then those major financial corporations were unable to repay the moneys owed to the regional reserve banks. What is interesting then, is where that new money from the bailouts was injected. It very well could have been injected at the American taxpayer level, but it was in fact injected at the mega-bank level (Merrill Lynch, J.P. Morgan, Bear Stearns, etc.). That's because these are the institutions who get their liquidity by borrowing from the Federal Reserve, and as such, pay the interest to the Federal Reserve.

These bailouts become increasingly costly to the American people. Ultimately, once the market adjusts by realizing this revaluation of currency based on a massively inflated supply of money; costs will increase. But increased costs are simply a devaluation of the dollar. So cleverly, all costs sustained by bailing out these major corporations and banks was shifted from the banks (who who profit from it) to the American people.

Even more cleverly, the entire package is blamed on corporate America for their "greed". Of course corporations are "greedy". That's what keeps them in business. Of course corporate excesses and corruption should be prosecuted, but instead we perpetuated it by bailing them out. In short, corporations contributed to America's economic turmoil, but merely revealed a massively unsustainable debt system that was created by a private, central banking system.

This post is based on readings from the following works:
Heal The Money System Heal Society by Suzanne Phillips
The Creature From Jekyll Island by G. Edward Griffin
"What Has Government Done To Our Money?" Murray N. Rothbard


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