Reviewing Ellen Brown's "Web of Debt:" - Stephen Lendman

This is the first of several articles on Ellen Brown's superb 2007 book titled "Web of Debt," now updated in a December 2008 third edition. It tells "the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." Given today's global economic crisis, it's an appropriate time to review it and urge readers to digest the entire work, easily gotten through Amazon or Brown's webofdebt.com site. Her book is a remarkable achievement - in its scope, depth, and importance.

In the forward, banker/developer Reed Simpson said:

"I have been a banker for most of my career, and I can report that even most bankers (don't know) what goes on behind (top echelon) closed doors....I am more familiar than most with the issues (Brown covered, and) still found it an eye-opener, a remarkable window into what is really going on....(Although many banks follow high ethical practices), corruption is also rampant, (especially) in the large money center banks, in one of which I worked."

"Credible evidence (reveals) a world (banking) power elite intent on gaining absolute control over the planet and its natural resources, including its subservient human (ones)." Money is their "lifeblood," and "fear (their) weapon." Ill-used, they can "enslave nations and ensure perpetual wars and bondage." Brown exposes the scheme and offers a solution.

Debt Bondage

What president Andrew Jackson called "a hydra-headed monster...." entraps entire nations in debt. Financial commentator Hans Schicht listed how:

-- by making concentrated wealth invisible;

-- "exercising control through leverage(d) mergers, takeovers" or other holdings "annexed to loans;" and

-- using a minimum of insider front-men to exercise "tight personal management and control."

Powerful bankers want to rule the world by creating and controlling money, the very lifeblood of world economies without which commerce would cease. Professor Henry Liu calls the monetary system a "cruel hoax" in that (except for government issued coins) "there is virtually no 'real' money in the system, only debts" - to bankers "for money they created with accounting entries....all done by a sleight of hand," only possible because governments empowered them to do it.

The solution is simple but untaken. As the Constitution mandates, money-creation power must "be returned to the government and the people it represents." Imagine the possibilities:

-- the federal debt could be eliminated, at least a more manageable amount before it mushroomed to stratospheric levels;

-- federal income taxes could as well; entirely for low and middle income people and at least substantially overall;

-- "social programs could be expanded....without sparking runaway inflation;" and

-- financial resources would be available to grow the nation economically and produce stable prosperity.

It's not pie-in-the-sky. It happened successfully under Abraham Lincoln and early colonists. More on that below.

Brown's book explains that:

-- the Federal Reserve isn't federal; it's a private banking cartel owned by its major bank members in 12 Fed districts;

-- except for coins, they "create" money called Federal Reserve notes, in violation of the Constitution under Article I, Section 8 that gives Congress alone the right "To coin (create) money (and) regulate the value thereof....;"

-- "tangible currency (coins and paper money comprise) less than 3 percent of the US money supply;" the rest is in computer entries for loans;

-- money that banks lend is "new money" that didn't exist before;

-- 30% of bank-created money "is invested for their own accounts;"

-- banks once made productive loans for industrial development; today they're "a giant betting machine" using countless trillions for high-risk casino-type operations - through devices like derivatives and securitization scams;

-- since Andrew Jackson's presidency (1829 - 1837), the federal debt hasn't been paid, only the interest - to private bankers and other owners of US obligations;

-- the 16th Amendment authorized Congress to levy an income tax; it was done "to coerce (the public) to pay interest to the banks on the federal debt;"

-- the amount has mushroomed to about $500 billion annually and keeps rising;

-- creating money doesn't cause inflation; it's "caused by banks expanding the money supply with loans;"

-- developing nations' inflation was caused "by global institutional speculators attacking local currencies and devaluing them on international markets;"

-- it could happen in America or anywhere else just as easily; and

-- escaping this trap is simple if Washington reclaims its money-issuing power; early colonists did it; so did Lincoln.

As long as bankers control our money, we'll remain in a permanent "web of debt" and experience cycles of boom, bust, inflation, deflation, instability and crisis. Yet none of this has to be nor repeated and inevitable bubbles - created by design, not chance, to advantage empowered "moneychangers," much like today with its fallout causing global havoc.

Prior to the Fed's creation, the House of Morgan was dominant in contrast to the early colonists' model. Operating out of Philadelphia, the nation's first capital, it favored state-issued and loaned out money, collecting the interest, and "return(ing) it to the provincial government" in lieu of taxes.

Lincoln used the same system to finance the Civil War, after which he was assassinated and bankers reclaimed their money-issuing power. Wall Street's "silent coup (was) the passage of the (1913) Federal Reserve Act," the most destructive ever congressional legislation, thereafter extracting a huge toll amounting to permanent debt bondage with national wealth transference from the public to private bankers - with most people none the wiser.

From Gold to Federal Reserve Notes

After the 1862 Legal Tender Act was rescinded (the so-called Greenback law letting the government issue its own money), new legislation replaced it empowering bankers by making all money again interest-bearing. Here's the problem. "As long as the money supply (is an interest-bearing) debt owed back to private bankers....the nation's wealth (will) continue to be drained off into private vaults, leaving scarcity in its wake."

Dollars should belong to everyone. Early colonists invented them as "a new form of paper currency backed by the 'full faith and credit' of the people." Today, a private banking cartel issues them by "turning debt into money and demanding" due interest be paid.
Ever since, it's controlled the nation and public by entrapment in permanent debt bondage, and they do it through the Federal Reserve that's neither federal nor has reserves. It doesn't have money. It creates it with electronic entries, any amount at any time for any purpose, the main one being to enrich its owner banks.

This body is a power unto itself, secretive, unaccountable, and independent of congressional oversight or control. It's a money-creating machine by turning debt into money, but only a small fraction of the total money supply. Individual commercial banks create most of it.

A 1960s Chicago Fed booklet (called Modern Money Mechanics) explained how - through "fractional reserve" alchemy. It states:

(Banks) do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts."

Money is created by "building up" deposits in the form of loans. They, in turn, become deposits, not the reverse. "This unique attribute of banking" goes back centuries, the idea being that paper receipts could be issued and loaned out for the same gold (in those days) many times over, so long as enough gold was held in "reserve" so depositors had access to their money. "This sleight of hand (became known) as 'fractional reserve' banking," using money to create multiples more of it.

As for credit market debt, William Hummel (on the web site Money: What It Is, How It Works) explains that banks create only about 20% of it. The rest is by other non-bank financial institutions, including finance companies, pension and mutual funds, insurance companies, and securities dealers. They "recycle pre-existing funds, either by borrowing at a low interest rate and lending at a higher (one) or by pooling (investor) money and lending it to borrowers." In other words, just like banks, "they borrow low and lend high, pocketing the 'spread' as their profit."

But banks do more than borrow. They also "lend the deposits they acquire....by crediting the borrower's account with a new deposit." Banks thus increase total bank deposits that grow the money supply. It amounts to a sleight of hand like "magically pull(ing) money out of an empty hat."

The US "money supply is the federal debt and cannot exist without it. (To) keep money in the system, some major player has to incur substantial debt that never gets paid back; and this role is played by the federal government." It's why the nation's debt can't be repaid under a banker-controlled system. Today's size and debt service compounds the problem, around double the amount Brown cited, growing exponentially to unimaginable levels.

Colonial Paper Money - Another Way Predating the Republic's Birth

In 1691, three years before the Bank of England's creation, Massachusetts became "the first local government to issue its own paper money...." in the form of a "bill of credit bond or IOU....to pay tomorrow on a debt incurred today." This money "was backed by the full 'faith and credit' of the government."

Other colonies then did the same, some as IOUs redeemable in gold or silver or as "legal tender" money to be legally accepted to pay debts. Cotton Mather, a famous New England minister, later redefined money - not as gold or silver, but as a credit: "the credit of the whole country."

Benjamin Franklin so embraced the "new medium of exchange" that he's called "the father of paper money," then called "scrip." It made the colonies independent of British banks and let them "finance their local governments without" taxation. It was done in two ways, and most colonies used both:

-- direct issue "bills of credit" or "treasury notes;" essentially government-backed IOUs to be repaid by future taxes, with no interest owed bankers or foreign lenders; "they were just credits issued and sent into the economy on goods and services;" and

-- a system of generating "revenue in the form of interest by taking on the lending functions of banks; a government loan office called a 'land bank' (issued) paper money and (loaned) it to residents (usually farmers) at low interest rates....the interest paid....went into the public coffers, funding the government;" it was the preferred way to assure a stable currency rather than by issuing "bills of credit."

Pennsylvania did it best. It's 1723-established loan office showed "it was possible for the government to issue new money (in lieu of) taxes without inflating prices." For over 25 years, it collected none at all. The loan office provided adequate revenue, supplemented by liquor import duties. Throughout the period, prices remained stable.

Prior to this system, Pennsylvania lost "both business and residents (for) lack of available currency." With it, its population grew and commerce prospered. The "secret was in not issuing too much, and in recycling the money back to the government in the form of principal and interest on government-issued loans."

Colony-based British merchants and financiers objected strongly to Parliament. Enough so that in 1751, King George II banned new paper money issuance to force colonists to borrow it from UK bankers. In 1764, Franklin petitioned Parliament to lift the ban. In London, Bank of England directors asked him to explain colonial prosperity at a time Britain experienced rampant unemployment and poverty. It's because Colonial Scrip was issued, he stated, "our own money" with no interest owed to anyone. He added:

"You do not have too many workers, you have too little money in circulation, and that which circulates, all bears the endless burden of unrepayable debt and usury."

With banks loaning money into the economy, more was "owed back in principle and interest than was lent in the original loans (so) there was never enough in circulation to pay interest and still keep workers fully employed." Unlike banks, government can both lend and spend money in circulation - enough to pay "interest due on the money it lent, (keep) the money supply in 'proper proportion' and (prevent) the 'impossible contract' problem (of having) more money owed back on loans than was created (from) the loans themselves."

Franklin's efforts notwithstanding, the Bank of England got Parliament to pass a Currency Act making it illegal for the colonies to issue their own money. It turned prosperity into poverty because the money supply was halved with not enough to pay for goods and services. According to Franklin:

"the poverty caused by the bad influence of the English bankers on the Parliament" got colonists to hate the British enough to spark the Revolutionary War. "The colonies would gladly have borne the little tax on tea and other matters (if) England (hadn't taken their money), which created unemployment and dissatisfaction." So much that outraged people again issued their own money in spite of the ban. As a result, they successfully financed a war against a major power - with almost no hard currency and no taxation. Thomas Paine called it the Revolution's "corner stone."

However, British bankers responded by attacking its "competitor's currency," the Continental, driving down its value by flooding the colonies with counterfeit scrip. It was "battered but remained stable." Where Britain failed, speculators succeeded - "mostly northeastern bankers, stockbrokers and businessmen, who bought up the revolutionary currency at a fraction of its value after convincing people it would be worthless after the war." It had "to compete with states' paper notes and British bankers' gold and silver coins....The problem might have been avoided by making the Continental the sole official currency, but the Continental Congress (didn't have) the power to enforce" such an order - with no courts, police or authority to collect taxes "to redeem the notes or contract the money supply."

Having just rebelled against British taxation, colonists weren't about to let Congress tax them. Speculators took advantage and traded Continentals at discounts enough to make them worthless and give rise to the expression "not worth a Continental."

How the Government Was Persuaded to Borrow Its Own Money

John Adams once said: "there are two ways to conquer and enslave a nation. One is by the sword. The other is by debt." The latter method is stealth enough so people don't know what's happening and submit to their own bondage. Openly, nothing seems changed, yet a whole new system becomes master "in the form of debts and taxes" that people think are for their own good, not tribute to their captors. That's today's America writ large.

After the Revolutionary War, "British bankers and their Wall Street vassals" pulled it off by acquiring a controlling interest in the new United States Bank. It discredited paper scrip through rampant Continental counterfeiting and so disillusioned the Founders that they omitted mentioning paper money in the Constitution. Congress was given power to "coin money (and) regulate the value thereof, (and) to borrow money on the credit of the United States...." It left enough wiggle room for bankers to exploit to their advantage - but only because Congress and the president let them.

Alexander Hamilton bears much blame, the nation's first Treasury Secretary and Tim Geithner of his day (1789 - 1795). He argued that America needed a monetary system independent of foreign control, and that required a federal central bank - to handle war debts and create a standard form of currency. In 1791, it was created, hailed at the time as a "brilliant solution to the nation's economic straits, one that disposed of an oppressive national debt, stabilized the economy, funded the government's budget, and created confidence in the new paper dollars....It got the country up and running, but left the bank largely in private hands" - to be manipulated for private gain, much like today. Worse still, "the government ended up in debt for money it could have generated itself."

Instead, it had to pay interest on its own money in lieu of creating it interest free. Today, Hamilton is acclaimed as a model Treasury Secretary. For Jefferson, he was a "diabolical schemer, a British stooge pursuing a political agenda for his own ends." He modeled the Bank of the United States on the Bank of England against which colonists rebelled. It so angered Jefferson that he told Washington he was a traitor. It fostered a bitter feud between them with Jefferson ultimately prevailing.

Hamilton's Federalist Party disappeared after 1820 while Jefferson and Madison's Democratic-Republicans became the forerunner of today's Democrats after the party split into two factions, the Whigs no longer in existence and Jacksonians that by 1844 officially became the Democratic Party. Shamefully they veered far from Jacksonian and Jeffersonian principles.

For his part, Hamilton wasn't entirely bad. He stabilized the new economy and got the country on its feet. He restored the nation's credit, established a national currency, and made it economically independent. However, his legacy has a dark side - a "privileged class of financial middlemen (henceforth able) to siphon off a perpetual tribute in the form of interest." He delivered money power into private hands, "subservient to an elite class of oligarchical financiers," the same Wall Street types today holding the entire nation hostage - in permanent debt bondage.

From Abundance to Debt

Charging excessive interest is called "usury," but originally it meant charging anything for the use of money. The Christian Bible banned it, and the Catholic Church enforced anti-usury laws through the end of the Middle Ages.

Old Testament scripture was more lenient, prohibiting it only between "brothers." Charging it to foreigners was allowed and encouraged, which is why Jews unfairly were called "moneychangers." They, like others, suffered greatly from money-lending schemes. For centuries, they were "persecuted for the profiteering of a few," then scapegoated to divert attention from the real offenders.

Fiat money is legal tender by government decree - a simple tally representing units of value to be traded for goods and services. Paper money was invented in 9th century Mandarin China and successfully used to fund its long and prosperous empire. The same was true in medieval England. The tally system worked well for over five centuries before banker-controlled paper money began demanding payment in the form of interest.

History portrays the Middle Ages as backward, impoverishing, and a form of economic enslavement only the Industrial Revolution changed. In fact, the era was entirely different, characterized by 19th century historian Thorold Rogers as a time when "a labourer could provide all the necessities for his family for a year by working 14 weeks," leaving nearly nine discretionary months to work for himself, study, fish, travel, or do what he pleased, something today's overworked, over-stressed, underpaid workers can't imagine.

Some attribute Middle Age prosperity to the absence of usurious lending. Instead of paying tribute in the form of interest, "people relied largely on interest-free tallies." They avoided depressions and inflation since the supply and demand for goods and services grew in proportion to each other, thus holding prices stable. "The tally system provided an organic form of money that expanded naturally as trade (did) and contracted (the same way) as taxes were paid."

No bankers set interest rates or manipulated markets to their advantage. The tally system kept Britain stable and thriving until the mid-17th century, "when Oliver Cromwell (1599 - 1658)....needed money to fund a revolt against the Tudor monarchy."

The Moneylenders Take Over England

In the 19th century, the Rothchild banking family's Nathan Rothchild said it well:

"I care not what puppet (sits on) the throne of England to rule the Empire on which the sun never sets. The man who controls Britain's money supply controls the British empire, and I (when he ran the Bank of England) control the British money supply."

Centuries early, moneylender power was absent. But after the 1666 Coinage Act, money-issuing authority, once the sole right of kings, was transferred into private hands. "Bankers now had the power to cause inflations and depressions at will by issuing or withholding their gold coins."

King William III (1672 - 1702), a Dutch aristocrat, financed his war against France by borrowing 1.2 million pounds in gold in a secret transaction with moneylenders, the arrangement being a permanent loan on which debt would be serviced and its principle never repaid. It came with other strings as well:

-- lenders got a charter to establish the Bank of England (in 1694) with monopoly power to issue banknotes as national paper currency;

-- it created them out of nothing, with only a fraction of them as reserves;

-- loans to the government were to be backed by government IOUs to serve as reserves for creating additional loans to private borrowers; and

-- lenders could consolidate the national debt on their government loan to secure payment through people-extracted taxes.

It was a prescription for huge profits and "substantial political leverage. The Bank's charter gave the force of law to the 'fractional reserve' banking scheme that put control of the country's money" in private hands. It let the Bank of England create money out of nothing and charge interest for loans to the government and others - the same practice central banks now employ.

For the next century, banknotes and tallies circulated interchangeably even though they weren't a compatible means of exchange. Banker money expanded when "credit expanded and contracted when loans were canceled or 'called,' producing cycles of 'tight' money and depression alternating with 'easy' money and inflation." In contrast, tallies were permanent, stable, fixed money, making banknotes look bad so they had to go.

For another reason as well - because of King William's disputed throne and fear if he were deposed, moneylenders again might be banned. They used their influence to legalize banknotes as the money of the realm called "funded" debt with tallies referred to as "unfunded," what historians see as the beginning of a "Financial Revolution." In the end, "tallies met the same fate as witches - death by fire."

They were money of the people competing with moneylending bankers. After 1834 monetary reform, "tally sticks went up in flames in a huge bonfire started in a House of Lords stove." Ironically, it got out of control and burned down Westminster Palace and both Houses of Parliament, symbolically ending "an equitable era of trade (by transferring power) from the government to the" central bank.

Henceforth, private bankers kept government in debt, never demanding the return of principle, and profiting by extracting interest, a very lucrative system always paying off "like a slot machine" rigged to benefit its operators. It became the basis for modern central banking, lending its "own notes (printed paper money), which the government swaps for bonds (its promises to pay) and circulates as a national currency."

Government debt is never repaid. It's continually rolled over and serviced, today with no gold in reserve to back it. Though gone, tallies left their mark. The word "stock" comes from the tally stick. Much of the original Bank of England stock was bought with these sticks. In addition, stock issuance began during the Middle Ages as a way to finance businesses when no interest-bearing loans were allowed.

In America, "usury banks fought for control for two centuries before" getting it under the 1913 Federal Reserve Act. An issue that once "defined American politics," today is no longer a topic for debate. It's about time it was reopened.

Jefferson and Jackson Sound the Alarm

Moneylenders conquered Britain, then aimed to entrap America - by provoking "a series of wars. British financiers funded the opposition to the American War for Independence, the War of 1812, and both sides of the American Civil War." They caused inflation, heavy government debt, the chartering of the Bank of the United States to fund it, thus giving private interests the power to create money.

Jefferson opposed the first US Bank, Jackson the second, and both for similar reasons:

-- distrust of profiteers controlling the nation's money; and

-- concern about the nation's banking system falling into foreign hands.

Jefferson got Congress to refuse to renew the first US Bank charter in 1811 and learned on liquidation that two-thirds of its owners were foreigners, mostly English and Dutch and none more influential than the Rothschilds. Later, Madison signed a 20-year charter. However, when Congress renewed it, Jackson vetoed it.

The Powerful Rothschild Family

The House of Rothschild was British in name only. In the mid-18th century, it was founded in Frankfort, Germany by Mayer Amschel Bauer, who changed his name to Rothschild, fathered 10 children, and sent his five sons to open branch banks in major European capitals. Nathan was the most astute and went to London. "Over the course of the nineteenth century, NM Rothschild would become the biggest bank in the world, and the five brothers would come to control most of the foreign-loan business of Europe."

Belatedly, Jefferson caught on to the scheme - that "private debt masquerading as paper money....owed to bankers" placed the nation in bondage. In his words, "deliver(ing) itself bound hand and foot to bold and bankrupt adventurers and bankers...." Jefferson's idea for a national bank was a wholly government-owned one issuing its own credit without having to borrow it from private interests.

Jackson believed the same thing in calling the Bank of the United States "a hydra-headed monster." When the bank charter was renewed, he promptly vetoed it, yet understood that the battle was just beginning. "The hydra of corruption is only scotched, not dead," he said.

He was right. The Bank's second president, Nicolas Biddle, retaliated "by sharply contracting the money supply. Old loans were called in and new ones refused. A financial panic ensued, followed by a deep economic depression." However, Biddle's victory was short-lived. In April 1834, the House rejected re-chartering the Bank, then January 1835 became Jackson's "finest hour."

He did something never done before or since. He paid off the first installment of the national debt, then reduced it to zero and accumulated a surplus. In 1836, the Bank's charter expired. Biddle was arrested and charged with fraud. He was tried and acquitted but spent the rest of his life in litigation over what he'd done. "Jackson had beaten the Bank." Imagine today if Obama defeated the Fed and its Wall Street puppeteers instead of embracing them with limitless riches.

Lincoln Foils the Bankers and Pays with His Life

Like Jackson, Lincoln faced assassination attempts, before even being inaugurated. "He had to deal with treason, insurrection, and national bankruptcy" during his first days in office. Considering the powerful forces against him, his achievements were all the more remarkable:

-- he built the world's largest army;

-- "smashed the British-financed insurrection,"

-- took the first steps to abolish slavery; it became official on December 6, 1865 when the 13th Amendment was ratified, eight months after Lincoln was assassinated;

-- during and after his tenure, the country became "the greatest industrial giant" in the world;

-- "the steel industry was launched; a continental railroad system was created; the Department of Agriculture was established; a new era of farm machinery and cheap tools was promoted;"

-- the Land Grant College system established free higher education;

-- the Homestead Act gave settlers ownership rights and encouraged new land development;

-- government supported all branches of science;

-- "standardization and mass production was promoted worldwide;"

-- labor productivity increased by 50 - 75%; and

-- still more was accomplished "with a Treasury that was completely broke and a Congress that hadn't been paid" as a result.

It was because the government issued its own money. "National control was reestablished over banking, and the economy was jump-started with a 600 percent increase in government spending and cheap credit directed at production." Roosevelt did the same thing with borrowed money. Lincoln did it with United States Notes called Greenbacks. They financed the war, paid the troops, spurred the nation's growth, and did what hasn't been done since - let the government print its own money, free from banker-controlled debt slavery, the very system strangling us today the way Lincoln feared would happen.

His advisor was Henry Carey, a man historian Vernon Parrington called "our first professional economist." Lincoln endorsed his prescription:

-- "government regulation of banking and credit to deter speculation and encourage economic development;"

-- its support for science, public education and national infrastructure development;

-- "regulation of privately-held infrastructure to ensure it met the nation's needs;"

-- government-sponsored railroads and "scientific and other aid to small farmers;"

-- "taxation and tariffs to protect and promote productive domestic activity;" and

-- "rejection of class wars, exploitation and slavery, physical or economic, in favor of a 'Harmony of Interests' between capital and labor."

Leaders like Jefferson, Jackson and Lincoln are sorely missed, but for Lincoln it was costly.

He Loses the Battle with "the Masters of European Finance"

German Chancellor Otto von Bismark (1815 - 1898) called them that in explaining how they engineered the "rupture between the North and the South" to use it to their advantage, then later wrote in 1876:

"The Government and the nation escaped the plots of the foreign bankers. They understood at once that the United States would escape their grip. The death of Lincoln was resolved upon." The last Civil War battle ended on May 13, 1865. Lincoln was assassinated on April 15.

European bankers tried but failed to trap him "with usurious war loans," at 24 - 36% interest had he agreed. Using government-issued Greenbacks shut them out entirely, so they determined to fight back - eliminate the thorn, then get banker-friendly legislation passed, achieved through the National Bank Act reversing the Greenback Law. It was "only a compromise with bankers, (but) buried in the fine print," they got what they wanted.

Although the Controller of the Currency got to issue new national banknotes, it was just a formality. In fact, the new law "authorized the bankers to issue and lend their own paper money." They "deposited" bonds with the Treasury, but owned them so "immediately got their money back in the form of their own banknotes." It was an exclusive franchise to control the nation's money forcing government back into debt bondage where it never had to be in the first place. A whole series of private banks were then chartered, all empowered to create money in lieu of debt free Greenbacks.

One other president confronted bankers and paid dearly as well - James Garfield. In 1881, he charged:

"Whoever controls the volume of money in any 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."

Garfield took office on March 4, 1881. On July 2, he was shot. He survived the next two and half months, then died on September 19. It was a time of depression, mass unemployment, poverty, and starvation with no safety net protections. "The country was facing poverty amidst plenty," because bankers controlled money and kept too little of it in circulation - an avoidable problem if government printed its own.

Gold v. Inflation - Debunking Common Fallacies

The classical "quantity theory of money" holds that "too much money chasing too few goods" causes inflation, excess demand over supply forcing up prices. The counter argument is that if paper money is tied to gold, an inflation-free stable money supply will result. Another fallacy is that adding money (demand) raises prices only if supply remains fixed.

In fact, if new money creates new goods and services, prices stay stable. For thousands of years, the Chinese kept prices of its products low in spite of their money supply being "flooded with the world's gold and silver, and now with the world's dollars....to pay for China's cheap products."

What's important is not what money consists of but who creates it. "Whether the medium of exchange (is) gold or paper or numbers in a ledger," when created by and owed to private lenders with interest, "more money would always be owed back than was created...spiraling the economy into perpetual debt....whether the money takes the form of gold or paper or accounting entries."

Today's popularism is associated with the political left. However, 19th century Populists saw "a darker, more malevolent force....private money power and the corporations it had spawned, which was threatening to take over the government unless the people intervened."

Lincoln also feared it saying:

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few and the Republic is destroyed."

Today's America is the reality he feared. A tiny elite own the vast majority of the nation's wealth in the form of stocks, bonds, real estate, natural resources, business assets and other investments. In contrast, 90% of Americans have little or no net worth. Of all developed nations, concentrated wealth and inequality extremes are greatest here with powerful bankers sitting atop the pyramid, now more than ever with their new riches extracted from public tax dollars and Fed-created money.

A follow-up article will discuss how "bankers capture(d) the money machine."

This is the second of several articles on Ellen Brown's remarkable book titled "Web of Debt....the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." It's a multi-part snapshot. Reading the entire book is strongly recommended - easily obtainable through Amazon or Brown's webofdebt.com site.

Bankers Capture the Money Machine - Fighting for the Family Farm

In the 1890s, "keeping the family homestead was a key political issue" given that foreclosures and evictions "were occurring in record numbers," much like today. The "Bankers Manifesto of 1892" spelled it out - a willful plan "to disenfranchise farmers and laborers of their homes and property," again like today except that now our very freedom and futures are at stake as sinister forces aim to steal them by turning America into Guatemala and lock it down by police state repression.

The panic of 1893 caused an earlier depression - severe enough to establish a precedent of street protests, the result of the first ever march on Washington. Businessman/populist Jacob Coxey led his "Coxey's Army (of around 500) from Massilon, Ohio (beginning March 25, Easter Sunday) to the nation's capital to demand jobs and a return to debt and interest-free Greenbacks. Local police intervened. The marchers were disbanded. Coxey was arrested. He spent 20 days in jail for disturbing the peace and violating a local ordinance against walking on the grass. However, he was never charged, then released, and is now remembered for his heroics.

He began a tradition later sparking suffragist marches; unemployed WW I veterans for their "Bonus Bill" money; numerous anti-war and earlier civil rights protests; in 2004, one million in the nation's capital for women's rights, and the previous day thousands protesting IMF-World Bank policies.

The late 19th century Populist movement was the last serious challenge to private bankers' monopoly power over the nation's money. Journalist William Hope Harvey wrote a popular book titled "Coin's Financial School" that explained the problem in simple English - that restricting silver coinage was a conspiracy to enrich "London-controlled Eastern financiers at the expense of farmers and debtors." He called England "a money power that can dictate the money of the world, and thereby create world misery."

He referred to the "Crime of 73" that limited free silver coinage and replaced it with British gold. It forced America to pay England $200 million annually in gold in interest on its bonds and inspired William Jennings Bryan's "Cross of Gold" speech. He nearly became president, but lost in a close (big-monied financed) race to William McKinley, but he, too, paid a price. He was later assassinated, likely for his protectionism, very much disadvantaging British bankers. With him gone, the Morgans and Rockefellers dominated US banking, and arranged for friendly leaders to run the country, Teddy Roosevelt included, a man with more bark than bite.

"The trusts and cartels remained the puppeteers with real power, pulling the strings of puppet politicians" who were bought and paid for like today.

The Secret Government

Various presidents suggested the worst of what's now clear. By signing the Federal Reserve Act, Woodrow Wilson was a tool of big money. Yet he belatedly expressed regret, said "I have unwittingly ruined my country," and called America "one of the worst ruled....most completely controlled governments in the civilized world (run by) a small group of dominant men."

Franklin Roosevelt was as clear in saying "The real truth (is that) a financial element in the large centers has owned the government since the days of Andrew Jackson." Other officials said the same thing, and so did Matthew Josephson (in his 1934 book) calling bankers and business titans "Robber Barons" - men who "lived for market conquest, and plotted takeovers like military strategy."

They sought monopolies for market dominance and trusts - concentrated wealth in a few hands to be manipulated for maximum profits and power. During the Gilded Age, trusts became strong enough to plant "their own agents in the federal commissions, (use) government regulation (for) greater control....protect themselves from competition," and keep prices high.

Four names (among others) stand out - Andrew Carnegie, John D. Rockefeller, Henry Ford, and JP Morgan running finance with the power of a potentate. "He didn't build, he bought. He took over other people's businesses, and he hated competition" so he eliminated it. Together with Rockefeller, they dominated business and finance through interlocking directorates, the same way as today throughout industry, commerce and finance.

For his part, Morgan was so dominant, financial writer John Moody called him "the greatest financial power in the history of the world" even before the establishment of the Federal Reserve. Morgan died months before its creation, but his influence made it possible.

His long arm favored the fortunate - with enough funding to monopolize their industries. "But where did (he and other bankers get their money)?" Congressman Wright Patman explained that they created it "out of an empty hat." They held the ultimate credit card, limitless accounting-entries to buy out competitors, corner raw materials markets, control politicians, and after the birth of public relations, popular opinion the way distinguished author/psychogist and activist Alex Carey explained in his seminal book titled "Taking the Risk out of Democracy:"

"The 20th century has been characterized by three developments of great political importance: The growth of democracy, the growth of corporate power, and the growth of propaganda as a means of protecting corporate power against democracy." It came into its own during WW I, then grew, became dominant, and remains near-omnipotent today, even with fissures appearing with enough promise to challenge it.

The Jekyll Island Affair - Establishing the Federal Reserve

In 1910, seven financial titans met secretly on this privately-owned island off the coast of Georgia and created the Federal Reserve:

-- established three years later on December 23, in the middle of the night, by an act of Congress;

-- its most outrageous action ever that few legislators, if any, even read or would have understood if they did because the text was so intentionally vague;

-- it enfranchised powerful bankers to hold the nation hostage in permanent debt bondage by giving them the right to create money, in violation of Article I, Section 8 of the Constitution that states Congress alone has the power "To coin (create) money (and) regulate the value thereof...."

Woodrow Wilson made it possible, "Morgan's man in the White House" with an administration staffed with his cronies. This act was so publicly harmful it had to be shepherded through a carefully arranged Conference Committee, scheduled for between 1:30 - 4:30AM three days before Christmas when many lawmakers had left town and many others were asleep. It was then enacted the next day - one that will live in infamy for the damage it caused.

"The bill was so obscurely worded that no one really understood its provisions." The nation's money would be printed by the US Bureau of Engraving and Printing, then issued as a government obligation (or debt) to the private Federal Reserve with interest.

Nominally, Congress and the president appoint Fed governors, but they operate secretly with no government oversight or control. As a privately owned banking cartel, they're a power unto themselves. The chairman sits at its helm, but he's a mere tool of the bankers who control him.

The 1913 Federal Reserve Act "was a major coup" for them. The Fed exists to serve them, not the government or public interest. Therein lies its problem and why it must be abolished.

For over a century, powerful international bankers wanted a private central bank giving them "the exclusive right to 'monetize' the government's debt (that is, print their own money and exchange it for government securities or IOUs.)" The entire Act was written in obscure Fedspeak so no one but its creators knew its purpose.

"In plain English, the Federal Reserve Act authorized a private central bank to create money out of nothing, lend it to the government at interest, and control the national money supply, expanding or contracting it at will." Nothing has been the same since.

Who Owns the Federal Reserve?

Contrary to common belief, it's a private banking cartel owned by its member banks in each of its 12 Fed districts. "The amount of Federal Reserve stock" each one holds "is proportional to its size." The New York Fed is most dominant (like a mother bank) owning 53% of the System's shares because the nation's largest commercial banks are located there, on Wall Street, of course, with names like JP Morgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley prominent and familiar. Bank of America was founded in California and remains concentrated heavily in Western and Southwestern states, yet operates globally like the others.

The largest banks are financial superpowers with interests in commercial and investment banking, insurance, real estate, home mortgages, credit cards, and virtually all things financial - nationally and globally.

Financial commentator Hans Schicht refers to Wall Street's "master spider" controlling a powerful inner circle of men, headed by him. Their business is done secretly behind closed doors by what he calls "spider webbing." It exercises "tight personal management and control, with a minimum of insiders and front-men who themselves have only partial knowledge of the game. They also have "leverage" over mergers, takeovers, chain store holdings where one company holds shares of others, conditions annexed to loans, and so forth.

Further, they make concentrated wealth "invisible. The master spider studiously avoids close scrutiny by maintaining anonymity, taking a back seat, and appearing to be a philanthropist."

Post-WW II, the center of power shifted from the House of Rothschild to Wall Street with David Rockefeller Sr. (John D's grandson) becoming "master spider," a sort of boss of bosses, much like the underworld but much more deadly and powerful.

All the more so because "the Robber Barons (used) their monopoly over money to buy up the major media, educational institutions," and other means of communications. They got all this but Morgan wanted more - to "secure the banks' loans to the government with a reliable source of taxes, (gotten directly from) the incomes of the people. There was just one snag." The Supreme Court "consistently" declared federal income taxes unconstitutional. So how were they instituted and why are they willingly paid?

The Federal Income Tax

The Constitution omits any mention of a federal income tax because the Founders "considered the taxation of private income, the ultimate source of productivity, to be economic folly." They also decided that the States and federal government shouldn't impose the same tax at the same time. Congress was to have responsibility "for collecting national taxes from the States' " tax revenues.

Direct taxes were to be apportioned according to each State's population. "Income taxes were considered unapportioned direct taxes in violation of this provision of the Constitution."

Except in times of war, no federal income tax existed until the 16th Amendment was ratified on February 13, 1913 empowering Congress to levy one - unapportioned among the states. Even without one, the economy grew impressively for nearly a century and a half, adequately funded by customs and excise taxes.

For a brief period, Congress enacted an income tax in 1894 when the nation was at peace. On April 8, 1895, in Pollock v. Farmers' Loan and Trust Company, the Supreme Court held that unapportioned income taxes were unconstitutional. "That ruling has never been overturned." To get around it, Wall Street packaged the 16th Amendment with the Federal Reserve Act, both in 1913. It applied only to annual incomes over $4000, well above the average level at the time.

The original tax code was simple enough to be covered in 14 pages. It's now a 17,000 page monster, filled with obscure provisions professionals struggle to understand or even know about. It also has "whole pages devoted to private interests," including loopholes exempting powerful corporations from paying rightfully owed taxes.

Before WW II, income taxes affected few people. However, from 1939 - 1944, Congress passed various ones, including to fund the war effort, and began letting workers (voluntarily) pay them in installments. Thereafter, "withholding" became mandatory.

"Today the federal income tax has acquired the standing of a legitimate tax enforceable by law, despite longstanding (Supreme Court rulings) strictly limiting its constitutional scope." Numerous other taxes were also added, including on capital gains, real estate, corporate income, FICA, sales, luxury, and IRS interest and penalties. With all hidden ones included (dozens in all), up to 40% of an average worker's income goes for taxes.

Enough for some tax protesters to challenge the 16th Amendment's legitimacy on grounds that it was improperly ratified. However, US courts rejected the argument and now it's "beyond review" - even though no tax would be needed if the federal government printed its own money interest-free instead of taking ours to defray banker-imposed charges.

After signing the Federal Reserve Act, Woodrow Wilson called himself "a most unhappy man. I have unwittingly ruined my country." Yet he knew precisely what he did. He was a lawyer, a Ph. D, a historian and political scientist, and former Princeton University president before entering politics.

Reaping the Whirlwind - The Great Depression

In theory, the Federal Reserve was established to stabilize the economy, smooth out the business cycle, manage a healthy, sustainable growth rate, and maintain stable prices. It failed dismally on all counts - most noticeably in the 1930s after a depression followed the crash. The Fed wasn't the solution. It was the problem.

As in recent years, it kept interest rates low and money plentiful - not money, in fact, but "credit" or "debt," the same problem creating havoc today. In the 1920s, production rose faster than wages, but (again like today) people could borrow on credit. Then as stocks soared in "value," Wall Street promoted buying them on margin (namely, leverage on credit) on the premise that higher prices could repay loans. It turned "investing" into a "speculative pyramid scheme" based on money that didn't exist.

The Fed caused the whole scheme with easy and plentiful money (credit). It assured the inevitable crash, and late in the game Fed officials saw it coming. New York Fed governor, Benjamin Strong, warned wealthy industrialists, politicians, and high foreign officials to sell stocks, then began reducing the money supply and raising bank-loan rates to correct the bubble "naturally." It caused a huge liquidity squeeze. Stock purchases declined. Prices fell. Margins were called causing the crash over three days - so-called Black Thursday (on October 24), Monday and Tuesday.

The subsequent fallout was disastrous. From 1929 - 1933, "the money stock fell by a third, and a third of the nation's banks closed their doors....It was dramatic evidence of the dangers of delegating the power to control the money supply to a single autocratic head of an autonomous agency."

It resulted in a "vicious cyclone of debt....dragging all in its path into hunger, poverty and despair" - the very process repeating today, including insiders being tipped off, selling high, profiting from the collapse at fire sale prices, and letting the public pay for the dirty scheme they had in mind in the first place. Then, like today - shifting huge wealth amounts from "the Great American Middle Class to Big Money."

Instead of shutting the Fed and prosecuting its conspirators, Congress enacted the Federal Deposit Insurance Corporation (FDIC), "ostensibly to prevent" another collapse. It insured deposits up to $5000 at the time and rescued some banks, but not all. It was for "rich and powerful" ones, the equivalent of prominent names today and considered then like now, "too big to fail" run by officials too important to offend.

Milton Friedman blamed the Great Depression on the contraction of the money supply, but others disagreed. Chairman Louis McFadden of the House Banking and Currency Committee said it "was not accidental. It was a carefully contrived occurrence....The international bankers sought to bring about a condition of despair here so that they might emerge as rulers of us all."

The "Bankers Manifesto of 1934" suggested the same thing, and some observers today believe it's again playing out, this time on a global scale for much greater stakes for both winners and losers.

Roosevelt, Keynes and the New Deal

Roosevelt addressed the collapse straightaway, starting impressively in his first 100 days with the passage of 15 landmark acts, covering:

-- emergency banking;

-- Glass-Steagall and the FDIC;

-- empowering the Reconstruction Finance Corporation that was toothless under Hoover;

-- the Securities Act of 1933, then the Securities Exchange Act of 1934;

-- the Home Owners' Loan Corporation to refinance homes and prevent foreclosures; and

-- an alphabet soup of development agencies in charge of constructing national infrastructure and producing jobs for the unemployed.

In all, it was a whirlwind of achievement in a few short months unlike anything before or since - so much in such a short time. This writer's late April article said:

Despite its flaws and failures, FDR's New Deal was remarkable in what it accomplished. It helped people, put millions back to work, reinvigorated the national spirit, built or renovated 700,000 miles of roads, 7800 bridges, 45,000 schools, 2500 hospitals, 13,000 parks and playgrounds, 1000 airfields, and various other infrastructure, including much of Chicago's lakefront where this writer lives. It cut unemployment from 25% in May 1933 to 11% in 1937, then it spiked before early war production revived economic growth and headed it lower.

Challenging Classical Economic Theory - Keynesianism

Post-WW II, it dominated economic policy, the idea being that deficit spending could propel nations to prosperity unlike the classical economic belief that money supply increases weren't needed. Its theory was that when the supply contracts, so do prices and wages naturally leaving everything in balance like before.

It didn't work at a time people wanted jobs, but there were few around. Factories could produce, but there was little demand, and resources were available but unused - for the lack of enough pump priming to reinvigorate a collapsed economy.

Enough, but not too much because as long as bankers print money, added liquidity means more debt and a greater amount to service. In addition, doing it crowds out social services, sacrifices industrial growth, and increases inflation hugely over time. The 5 cent ice cream cone and candy bars this writer remembers as a boy today cost around $2.50. If government printed its own money, they might still be a nickel or pretty close.

Congressman Wright Patman suggested it in 1933 by asking: "Why is it necessary to have Government ownership and operation of banks? The Constitution of the United States says that Congress shall coin money and regulate its value," not hand it over to predatory private bankers.

Instead of returning money-creation power to the government, Roosevelt let "moneychangers" keep it under an overhauled Federal Reserve - a still powerful private banker-controlled "citadel, run from the top down (by) a small cartel of appointed banking representatives (operating) behind a curtain of secrecy," more powerful than government itself. Had Roosevelt acted like Jackson and Lincoln, it would have been his greatest achievement.

Even so, in his first few months in office, he got enacted tough reformist legislation, very much impacting bankers. He also "took aim at the trusts and monopolies that had returned in force" in the anything-goes 1920s. By 1929, consolidation left around 200 companies "in control of over half of all American industry."

FDR reversed the trend with new legislation, reviving earlier trust-busting efforts. He also imposed banking regulations as cited above - enough to get him to call financiers "unanimous in their hatred of me, and I welcome their hatred." Lucky for him he survived. Big money plays for keeps, wins more often than it loses, and generally on what matters most.

Wright Patman Exposes the Money Machine

A Texas Democrat, he served in Congress from 1929 - 1976 where from 1963 - 1975 he headed the House Banking and Currency Committee until his death. Unlike his counterparts today in the House and Senate, he was called an "economic Populist," one way being for how he exposed Fedspeak to reveal the scheme behind it.

In an August 5, 1964 Committee document titled "A Primer on Money," he concluded:

"The Federal Reserve is a total moneymaking machine. It can issue money or checks. And it never has a problem of making its checks good because it can obtain the $5 and $10 bills necessary to cover (them) simply by asking the Treasury Department's Bureau of Engraving to print them."

Although the Fed now returns most interest on its government bonds to the Treasury, of far greater importance is the windfall its member banks get. "The bonds that have been acquired essentially for free become the basis of the Fed's 'reserves" - the phantom money that is advanced many times over by commercial banks in the form of loans."

Virtually all money in circulation comes from the Fed and its member banks, expanded by a factor of about 10 (through fractional reserve lending) for every federal debt dollar monitized. It all "consists of loans on which the banks have been paid interest." This interest, not what the Fed gets, "is the real windfall to the banks.

The limitless money-creation machine is kept hidden "in obscure Fedspeak," even undecipherable to people who think they understand the process. In The Creature from Jekyll Island, Ed Griffin states that:

"modern money is a grand illusion conjured by the magicians of finance and politics. (The Fed's function) is to turn debt into money. It's just that simple....if one remembers that the process is not intended to be logical but to confuse and deceive." It has to be. Would the public ever put up with it if they realized they'd be had - that their tax money was being used to enrich bankers, and Washington made it possible.

"Magical(ly) multiplying reserves is called fractional reserve banking" that seems more like a con or "shell game." Each dollar deposited "magically" becomes about 10 in the form of loans or computer-generated funds. As explained below, "reserves" are being phased out so the 10 - 1 multiple is actually higher but the principle is the same.

So if $1 million deposited becomes $10 million, and $900,000 can be loaned out (the other $100,000 required for reserves), "money created out of thin air (at 5% interest) is doubled in about two years."

The Fed claims it returns 95% of its profits to the Treasury. In fact, it's only the interest on federal securities held as reserves. Far more important is the windfall afforded banks, the Fed's owners, that "use the securities as the 'reserves' that get multiplied many times over in the form of loans" that generate huge profits for them.

Wright Patman wanted to abolish the Open Market Committee and nationalize the Fed, thus giving Congress control of it as a "truly federal agency" issuing interest-free money.

The Fed is now heading for a zero percent reserve requirement meaning they'll be "no limit to the number of times deposits can be relent." There's effectively no limit now as if banks exhaust their reserves, they can borrow freely from the Fed - today at zero percent interest.

Inside the Fed's Playbook

"Banks don't have to have the money they lend before they make loans, because the Fed will 'provide' the necessary reserves by making them available at the federal funds rate" - today amounting to limitless free money at zero percent interest to be loaned out at higher rates for profit. The "slight of hand" is that the Fed "creates reserves out of thin air."

Loans then become deposits that banks can freely re-lend many times over - the more deposits, the greater the amount of lending. It's a process of multiplying the money supply and charging interest for doing it, a very profitable business when working well in a healthy economy.

So, the process works as follows:

-- banks "lend money (they) don't have;"

-- loans become deposits on their books;

-- when borrowers spend their money, banks raise their reserves back to the required 10% (or less) "by borrowing from the Fed or other sources;" and

-- the Fed never runs out of reserves because its "open market operations" create more of them; it simply manufactures whatever amounts it wishes out of thin air, and the public is none the wiser or that they're being taxed to pay for this shell game.

Reserves don't comprise safe money to pay claimants. They're accounting entries at Federal Reserve banks letting commercial banks "make many times those sums in loans." In plain English, "reserve accounts are a smoke and mirrors accounting trick concealing the fact that banks create the money they lend out of thin air, borrowing any 'reserves' they need from the Fed, which also creates the money out of thin air." What a business, especially given how secretive it is under the protection and auspices of the federal government that sanctions the con.

There's more as well. Besides what they loan out, banks "create their own investment money" to use for their own purposes. Traditionally, commercial banks invested conservatively, but not investment banks. They raise money for their clients through stock issuances and sales. But more important is their "proprietary trading" that involves using their own money to buy or sell stocks, bonds, currencies, commodities, or any other financial instrument or derivative thereof no matter how risky.

Since investment and commercial banks may be one in the same, limitless sums are available through magical money creation and open-ended Fed borrowing, then leveraged multiple times through more borrowing. The game worked "magically" until it no longer did the old way, so alternatives are used.

Bear Raids and Short Sales

The 1929 "Crash" happened on three "Black" days but "continued for nearly four years, stoked by speculators who made huge profits not only on the market's" ascent but during its plunge to 11% of its peak value.

Called a "bear raid," it targets vulnerable stocks for "take-down" quick profits or corporate takeovers at fire sale prices. When done on a large scale, short selling can impact markets greatly on the downside just like heavy "program buying" can rocket it up. The whole business amounts to blatant manipulation for quick profits.

Short sellers actually do it with borrowed (not owned) stock, then sell it into the market. If it declines (it may also rise, of course), it's re-bought at the lower price, returned to the seller, with short-sellers pocketing the difference as profit. It's not investing. It's gambling with someone else's stock, without permission to borrow it, and as a result harms its owner by driving down the price when it works.

"Short selling is sometimes justified as being necessary to keep a brake on (over-exuberance) that might otherwise drive popular stocks into dangerous 'bubbles.'
(However,) Any alleged advantages to a company from the liquidity afforded by short selling (and supposedly keeping markets honest) are offset by the serious harm (this causes) companies targeted for take-down(s) in bear raids." When done with enough force, it can destroy companies if that's the intent.

"Short selling is the modern version of the counterfeiting (that brought) down the Continental in the 1770s." Currencies, bonds, and commodities can be shorted just like stocks - to manipulate them for profit.

Worse still, and illegal, is so-called naked short-selling without first borrowing the security shorted, assuring it can be borrowed, or arranging to borrow it as required by law - the reason being that it's an even easier way to manipulate stock prices so SEC regulations ban it.

Even so, the idea that markets move randomly is rubbish. So is believing that companies or nations don't target competitors for destruction by attacking their worth through short selling or other manipulative ways.

Hedge funds and Derivatives

"Hedge funds are private funds that pool the assets of wealthy investors with the aim of making 'absolute returns' - making a profit whether (markets go) up or down" on whatever financial assets they invest in. Leverage is used for maximum profitability, the more of it the greater gain or loss. In futures trading, it's called the margin - placing "many more bets than if they had paid the full price."

Originally, hedge funds were to "hedge (investment) bets....against currency or interest rate fluctuations (but) they quickly became instruments for manipulation and control." At their peak, they controlled over half of daily equity market trading because of their numbers, size, amount of capital, and frequency of their buying or selling.

Derivatives are one of their key tools - essentially making "side bets that some underlying investment will go up or down" to insure against the risk. "All derivatives are variations on futures trading (and like it) is inherently speculation or gambling." Familiar examples include puts and calls - on whether assets will go down or up.

"Over 90% of the derivatives held by banks....are 'over-the-counter' (ones) specially tailored to financial institutions (with) exotic and complex features, not traded on standard exchanges." They're unregulated, hard to trace, and "very hard to understand," quite often impossible. In a 1998 interview, banking columnist John Hoefle called them "the last gasp of a financial bubble." More recently Warren Buffett said they were "financial weapons of mass destruction" even though he owns a sizable amount of them and incurred considerable losses as a result.

Derivatives aren't assets. They're "just bets" on how assets will perform using very little real money. Most is borrowed to make private unreported, unregulated bets that have soared to a "notional value" of around $370 trillion, according to the Bank for International Settlements as of 2006. Notional value is "the number of units of an asset underlying the contract, multiplied by the spot price of the asset." In other words, "fanciful, dubious or imaginary" assets.

The amount gets so large because when unregulated "gamblers can bet any amount of money they want," and when markets work well for them, the sky's the limit. In mid-2006, the Office of the Controller of the Currency reported that around 97% of US bank-held derivatives were owned by five major US banks, including JP Morgan Chase and Citigroup. In November 2005, Bloomberg reported that the credit derivatives market was "vulnerable to a crisis if one (of their major bank holders) fails to pay on contracts that insure creditors from companies defaulting...." John Hoefle warned we were "on the verge of the biggest financial blowout in centuries, bigger than the Great Depression...."

Since banks can create money out of thin air, how can they go bankrupt? Because under accounting rules, commercial banks have to balance their books so their assets equal liabilities. "They can create all the money they can find borrowers for, but" if loans default, banks must record a loss.

Just imagine - if the government created money and not banks, economic stability would follow, crises could be avoided or greatly lessened, inflation would be minimal or non-existant, prosperous growth would be long-term, and bank loans would be far less risky than today assuring steady profits but in smaller amounts.

A follow-up article will discuss global debt entrapment.

This is the third in a series of articles on Ellen Brown's superb 2007 book titled "Web of Debt," now updated in a December 2008 third edition. It tells "the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." This article focuses on global debt entrapment.

Global Debt Enslavement - From Gold Reserves to Petrodollars

"The gold standard (while it lasted) was a necessary step in giving bankers' 'fractional reserve' legitimacy, but the ruse could not be sustained indefinitely" because exiting gold to defray foreign debts results in money backing it to be withdrawn from circulation. The result - contraction, recession, or depression, the very problem that forced FDR to drop the gold standard to prevent an even greater collapse. In 1971, Nixon did it permanently "when foreign creditors threatened to exhaust US gold reserves by cashing in their paper dollars for gold."

John Kennedy was the last president to challenge Wall Street, contends Donald Gibson in one of his two books about him. In "Battling Wall Street: The Kennedy Presidency," he said that Kennedy opposed "free trade," believed industry should serve the nation, and that America should sustain its independence by developing cheap energy. That "pitted him against the oil/banking cartel," intent on "raising oil prices to prohibitive levels in order to" entrap the world in a "web of debt."

Evidence also suggests that "Kennedy crossed the bankers by seeking to revive a silver-backed currency," independent of the Fed. In fact, on June 4, 1963, he issued Executive Order (EO) 11110 giving the president authority to issue currency. He then ordered the Treasury to print over $4 billion of "United States Notes" in place of Federal Reserve Notes. Some believe that he intended to replace them all when enough of the new currency was in circulation - to return money-creation power to the government where it belongs.

Five and a half months later, he was assassinated. In his second book on the president, "The Kennedy Assassination Cover-up," Gibson contends that a private network of wealthy individuals did it - not the FBI, CIA, Mafia, LBJ, the oil cartel, or anti-Castro extremists. Whatever the truth, bankers regained their power in short order when Johnson rescinded Kennedy's EO and fully restored their money-creation authority. They've had it ever since.

Bretton Woods - The Rise and Fall of the International Gold Standard

In mid-1944, the Bretton Woods monetary management system was established, about a year before WW II ended but when its outcome was clear. It created a postwar international monetary system of convertible currencies, fixed exchange rates, free trade, the US dollar as the world's reserve currency linked to gold, and those of other nations fixed to the dollar. It also designed an institutional framework for market-based capital accumulation to ensure that newly liberated colonies would pursue capitalist economic development beneficial to the victorious powers, most of all America.

In August 1971, the system unraveled when Nixon closed the gold window - ending the last link between gold, the dollar, and sound money. Thereafter, currencies would float and compete with each other in a casino-like environment, easily manipulated by powerful insiders, hedge funds, giant international banks, or governments at times in their own self-interest.

According to F. William Engdahl: "Market forces now could determine the dollar (entirely without gold). And they did it with a vengeance."

Bretton Woods was to ensure stability along with the IMF and World Bank's original missions - to establish exchange rates for the former and provide credit to war-torn Third World countries for the latter. Both bodies are, in fact, hugely exploitative while David Rockefeller ostensibly convened Bretton Woods to ensure gold-backed currencies would "justify a massive expansion of US dollar debt around the world."

The scheme worked until Vietnam war debt unraveled it. It might have continued (for a while at least) by raising the gold price. Instead it was kept at $35 an ounce forcing Nixon to close the gold window permanently, then take "the brakes off the printing presses" to generate as many dollars as there were willing takers. After that, Wall Street financiers "proceeded to build a worldwide financial empire based on a 'fractional reserve' banking system (using) bank-created paper dollars in place of the time-honored gold. Dollars became the reserve currency for a global net of debt to an international banking cartel."

Skeptics said they planned it that way to pull off "the biggest act of bad faith in history." True or not, gold failed as a global reserve currency because there isn't enough of it to go around. Inevitably shortages result forcing something to change.

Flawed as it is, however, "floating" exchange rates are much worse, especially for developing nations at the mercy of giants, like America, able to devalue currencies by attacking them through short selling. Manipulative power is so great, it can extract painful concessions that are hugely profitable to bankers.

Earlier in the 1930s, floating exchange rates proved disastrous, yet most countries agreed to them post-1971. Ones that resist are very vulnerable and can be coerced as a condition of debt relief, much like what happened after oil quadrupled in price in 1974. Suspicions about it at the time were justified.

It was a Kissinger - Saudi royal family scheme to revive dollar dominance by recycling petrodollars into US investments and weapons in return for guaranteeing the kingdom's safety - mainly from America had they turned us down. In a word, it was protection money like the underworld extracts on a smaller scale with oil now backing dollars instead of gold. Henceforth, countries need dollars to buy it and require exports for enough of them.

As for oil producers, Wall Street and London bankers profited from windfall petrodollar deposits - recyclable as developing nation loans to buy oil but at the same time to be entrapped in permanent debt bondage. Pre-1973, Third World debt "was manageable and contained....financed mainly through public agencies (for projects) promising solid economic success." That changed when commercial banks took over. Their business isn't development. It's "loan brokering (or) loan sharking," preferably with dictator/strongmen able to cut deals on their own.

Later the IMF got involved. At the behest of giant bankers, as "debt policemen" instituting rigorous structural adjustments, including slashed wages and social benefits as well as state asset sales on favorable terms to private investors.

At the same time, America got deeply indebted. It's now the world's largest by far and needs hundreds of billions annually to keep the dollar recycling game going - in the last 12 months alone, far more than that after the national debt doubled. Today, the nation is "hopelessly mired in debt to support the banking system of a private international cartel." Ordinary people pay the price.

Germany Finances a War without Money

The 1919 Versailles Treaty imposed onerous post-WW I terms on Germany. In May 1921, it got a six-day ultimatum to accept them or have the industrial Ruhr Valley militarily occupied. Even worse, it lost its colonies, all their resources, and the population had to pay the cost of war, amounting to three times the value of all property in the country. At the same time, German mark speculation caused it to plummet causing hyperinflation that by 1923 was catastrophic.

In January, the mark dropped to 18,000 to the dollar. By July, it was 353,000, by August 4,620,000, and by November an astonishing 4,200,000,000,000 - effectively worthless from the greatest ever hyperinflation, ravaging the nation's savings and making later calamitous events inevitable.

Loss of German assets compounded the problem. Britain took its colonies along with Alsace-Lorraine and Silesia with its rich mineral and agricultural resources. Lost was 75% of the country's iron ore, 68% of zinc ore, 26% of coal as well as Alsatian textile industries and potash mines. In addition, Germany's entire merchant fleets were taken, a portion of its transport and fishing fleet plus locomotives, railroad cars and trucks - all justified as legitimate war debts that were fixed at an impossible to pay 132 billion gold marks at 6% interest.

The 1923 Dawes Plan (named for US banker Charles Dawes) imposed fiscal control to continue the looting and assure reparations were paid. A huge debt pyramid resulted that collapsed after the 1929 crash along with radical political elements gaining prominence.

How to cope was the key question. Like the earlier American Greenbackers, Germany issued its own money after Hitler came to power. He had two choices, and like Lincoln, did it right. He freed the country from debt bondage and at the same time implemented vast infrastructure development - what Roosevelt as well did, but in his case by indebtedness to bankers.

Hitler issued $1 billion interest-free, "non-inflationary bills of exchange, called Labor Treasury Certificates." He put millions back to work, paid them with the Certificates that were used for goods and services to create more jobs and revive prosperity. Within two years, Germany was "back on its feet....with a solid, stable currency, no debt, and no inflation, at a time" America and Western economies were still struggling.

Hitler, however, diverged from the Greenbackers by equating bankers with Jews and launching a reign of terror against them. Greenbackers knew the real enemy - private bankers imposing debt bondage with onerous terms.

Beyond that and his imperial aims, Hitler reinvigorated the Third Reich in a few years, became hugely popular, and achieved it even before undertaking large-scale military spending. It impressed Pastor Sheldon Emry to write:

"Germany issued debt-free and interest-free money from 1935 and on, accounting for its startling rise from the depression to a world power in 5 years. Germany financed its entire government and war operation from 1935 to 1945 without gold and without debt, and it took the whole Capitalist and Communist world" to bring him down and restore the power of bankers.

Had Germany created debt and interest-free money post-Versailles, it could have escaped its disastrous inflation, later ravages, and rise of a tyrant like Hitler. In the 1920s, the privately-owned Reichsbank, not the government, caused havoc by flooding the economy with money compounded by foreign investor speculators shorting the mark and betting on its decline - because the Reichsbank printed massive currency amounts to be loaned "at a profitable interest to the bank. When (it couldn't keep up with demand), other private banks were allowed to create marks out of nothing and lend them at interest as well."

According to Hitler's Reichsbank president, Hjalmar Schacht, the government regulated the Bank, ended speculation by eliminating "easy access to loans of bank-created money," and solved the previous decade's hyperinflation problem as a result.

Reexamining the Inflation Humbug

Old theories die hard. It's not money creation that causes inflation. It's because merchants have to raise prices to cover costs, the result of "a radical (currency) devaluation" stemming usually from it being manipulated by its floating exchange rate.

Case in point - post-Soviet Russia's ruble collapse. It had nothing to do with rampant money creation. As F. William Engdahl explained in his Century of War:

"In 1992, the IMF demanded a free float of the Russian ruble as part of its 'market-oriented' reform. The ruble float led within a year to (a 9900%) increase in consumer prices, and a collapse in real wages of 84 percent. For the first time since 1917, at least during peacetime, the majority of Russians were plunged into existential poverty."

American-imposed "shock therapy" was the economic equivalent of military conquest, and most Russians have paid dearly to this day. With the IMF in charge, the nation and its former republics were weakened and made dependent "on Western capital and dollar inflows for their survival." A tiny elite got "fabulously rich" while most Russians experienced deep poverty and despair.

In 1993 - 1994, it was even worse for Yugoslavia and Ukraine, by some estimates an even greater hyperinflation than in Weimar Germany. Again the textbook explanation was rubbish.

Yugoslavia collapsed because the IMF "prevented the government from obtaining the credit it needed from its own central bank." Unable to create money and issue credit, social programs couldn't be financed or the provinces kept in place as one country.

Yugoslavia's problem was its success under a mixed free-market socialist model that threatened Western capitalism once the Soviet Union disbanded. It was feared that other former republics would emulate it, free from IMF shock therapy. As a result, the country had to be dismembered and its model destroyed, especially because of its strategic location - its "critical path" to potential Central Asian oil and gas.

In the 1980s, its imports exceeded exports, and it borrowed huge foreign sums for unprofitable factories. With too few dollars for repayment, IMF debt relief was requested under its usual terms. The result was 20% unemployment after 1100 companies went bankrupt. Worse still, inflation rose dramatically to over 150% in 1991. With still too little money to retain the provinces, "economic chaos followed causing each (one) to fight for its own survival" lasting a decade and causing tens of thousands of deaths and destruction.

Washington-imposed policies made it worse - a total embargo causing hyperinflation and 70% unemployment while blaming it on Milosevic. Ukraine met the same fate the result of IMF diktats. The currency collapsed, inflation soared, and state industries unable to get credit went bankrupt - as planned.

It's an ugly scheme to let Western predators buy assets on the cheap. Once Europe's breadbasket, Ukraine was reduced to begging the US for food aid, which then dumped its excess grain on the country, further exacerbating its self-sufficiency. Predatory capitalism is ruthless. This is how it works with bankers in the lead role.

Argentina is another example - "swallowed (by) the same debt monster" as the others. In the late 1980s, inflation rose 5000 percent, but money creation had nothing to do with it.

Post-WW II, the country was troubled by inflation, but it wasn't critical until after Juan Peron's 1974 death. Over the next eight years, it increased seven-fold to 206 percent - not by printing pesos but by radically devaluing the currency combined with a 175 percent rise in oil prices. One source said it was done intentionally to benefit exporters, speculators, and capitalists to prove free-market policies work best.

Nonetheless, high inflation and speculation became "hallmark(s) of Argentine financial life," the result of disastrous government policies. Even worse was that Argentina was "targeted by international lenders for massive petrodollar loans." When interest rates rocketed in the 1980s, repayment became impossible, and obtaining concessions came at the expense of IMF demands.

In the 1990s, they were implemented. The peso was pegged to the dollar. Currency devaluations ceased. The country lost its international competitiveness. The "money supply was fixed, limited and inflexible," and as a result national bankruptcies occurred in 1995 and again in 2001, but government reaction wasn't as expected. Argentina defied its creditors, defaulted on its debt, and began its road to recovery - with no foreign help or intervention. Post-2001, the economy grew by 8% for two successive years. Exports increased. The currency stabilized. Investors returned. The IMF was paid off, and unemployment eased.

Numerous other examples are similar. Professor Henry CK Liu calls foreign capital a "financial narcotic that would make the (19th century) Opium War(s) look like a minor scrimmage." In the late 1990s, Asian Tiger economies got a taste.

America's Economic War on Asia

Today's Japan evolved out of its feudal past once a modern central government was formed. Its 20th century economic model "has been called 'a state-guided market system.' The (government) determines the priorities and commissions the work, then hires private enterprise to carry it out."

America's military-industrial complex resembles it, but differs in one major respect. Post-WW II, Japan developed its economy without war. America practically worships it to the detriment of everyone at home and abroad.

At the end of the 1980s, "Japan was regarded as the leading economic and banking power in the world," and thus a challenge to US supremacy as the country that could say no. Its model was so successful that Asian "Tiger" economies copied it - in South Korea, Malaysia, Taiwan, Thailand, and elsewhere. Washington determined to undercut them as early as the 1985 James Baker-engineered Plaza accord and Baker-Miyazawa agreement.

He got Toyko to exercise monetary and fiscal measures to expand domestic demand and reduce Japan's trade surplus. At the same time, the Bank of Japan cut interest rates to 2.5% in 1987 and held that level until May, 1989. The idea was for lower rates to stimulate US goods purchases, but instead, cheap money went into Japanese stocks and real estate fueling two colossal bubbles.

The yen was also affected. Within months, it shot up 40% against the dollar, and overnight Japan became the world's largest banking center. At its twin bubble peaks, Tokyo real estate (in dollars) exceeded all of America's and its stock market represented 42% of world valuations - but not for long.

In 1990, Japan proposed financing former Soviet republics on its model and drew strong US opposition for two reasons. It might exclude US companies, and it would rely on the successful model that fueled Japanese and Asian Tiger growth. It had to be stopped and was.

Pressure was applied with threats of drastic US troop cuts that might endanger Japan's security. The scheme was drop your economic plans or defend yourself. At the same time, the country's twin bubbles imploded, and within months its Nikkei index lost $5 trillion in value, the result of predatory Wall Street short selling intervention. It left Japan severely hurt and no longer a challenge to America.

Confronting Asia's Tiger economies came next. In a Century of War, F. William Engdahl explained:

These economies "were a major embarrassment to the IMF and free-market model. Their very success in blending private enterprise with a strong state economic role" threatened IMF exploitation. "So long as the Tigers appeared to succeed with a model based on a strong state role, the former communist states and others could argue against taking the extreme IMF course. In east Asia during the 1980s, economic growth rates of 7 - 8 per cent per year, rising social security, universal education and a high worker productivity (free from debt) were all backed by state guidance and planning under market-based rules."

In 1993, Washington demanded changes - deregulate, open financial markets, and allow free foreign capital flows. Easing followed along with trouble. From 1994 - 1997, hot money flooded in and created speculative real estate, stock, and other asset bubbles ripe for imploding.

Hedge fund predators like George Soros took full advantage, attacking the weakest regional economy and its currency - Thailand and its baht. The aim: forced devaluation, and it worked. Thailand floated its currency and needed first-time ever IMF help.

Next came the Philippines, Indonesia, and South Korea with much the same result and fallout. Prosperous Asian Tigers were forced into IMF debt bondage as their populations sank into economic chaos and mass poverty, the result of a liquidity crisis severe enough to plunge the region into depression. Within months, over $100 billion shifted to private hands, and within a year $600 billion in stock market valuations were lost.

East Asia was effectively looted. Real earnings plummeted. Unemployment soared with the International Labor Organization estimating around 24 million lost jobs along with the region's remarkable miracle - its prosperous middle class. People literally were thrown overboard - small farmers and business owners, unions, and millions of ordinary people made human wreckage, the result of Wall Street-designed predation, the same scheme wrecking havoc today on a global scale.

China Awakens and Prospers

Under Deng Xiaoping, China changed from a centrally-planned economy to its own market-based model under government-owned banks able to issue credit for domestic development. Until the global economic crisis emerged, it grew impressively at double-digit rates.

Key is its banking system, its government-issued currency, and a system of state-owned banks. Henry CK Liu distinguishes between "national" and "central" banks - the former serves the national and public interest; the latter, private international finance at the expense of the nation and people.

In 1995, China's Central Bank Law gave the People's Bank of China (PBoC) central bank status, but more in name than form in that it still follows government policies by directing money for internal development, not bank profits. In addition, China is debt free and thus unemcumbered by IMF mandates and predatory banking cartel interests. It also protected its currency by refusing to let it float (beyond a minor adjustment) and be vulnerable to speculative predators.

The proof is in the results. China's independent monetary policy works, much like colonial America, government under Lincoln, and Nazi Germany under Hitler. They printed their own money, debt free, and prospered - impossible under today's American model of indebtedness to predatory bankers.

Even worse are New World Order and WTO rules for a global government run by powerful international bankers and corporations - "oppressing the public through military means and restricting individual freedoms." Financial terrorism as well by shifting wealth hugely to the top at the expense of beneficial social change to be abandoned.

A follow-up article focuses on America captured in a "web of debt."

This is the fourth in a series of articles on Ellen Brown's superb 2007 book titled "Web of Debt," now updated in a December 2008 third edition. It tells "the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." This article focuses on America's "web of debt" entrapment.

The Debt Spider Captures America - American Workers Consigned to Debt Serfdom

America has been trapped for over two centuries, with today's debt level way exceeding developing nations. Like bankrupt people staying "afloat by making the minimum payment(s) on (their) credit card(s), the government (avoids) bankruptcy by paying just the interest on its monster debt" - now double in size since Brown's first edition and onerous enough for Controller of the Currency David Walker to warn earlier of its unaffordability by this year. If America can't service the amount, it's officially bankrupt and the economy will collapse. If it happens, IMF austerity will follow and turn America into Guatemala. Other vulnerable economies as well - permanent debt bondage and worker serfdom.

Catherine Austin Fitts was a former high-level Wall Street and government insider. She points to a "financial coup d'etat" conspiracy between the two to hollow out America, centralize power and knowledge, shift wealth to the top, destroy communities and local infrastructure, create new wealth by rebuilding them, and leave human wreckage in its wake.

She also calls today's crisis "a criminal leveraged buyout of America (meaning) buying (the) country for cheap with its own money and then jacking up the rents and fees to steal the rest." She calls it the "American Tapeworm" model:

It's "to simply finance the federal deficit through warfare, currency exports, Treasury and federal credit borrowing and cutbacks in domestic 'discretionary' spending...This will then place local municipalities and local leadership in a highly vulnerable position - one that will allow them to be persuaded with bogus but high-minded sounding arguments to further cut resources. Then to 'preserve bond ratings and the rights of creditors,' our leaders can be persuaded to sell our water, national resources and infrastructure assets at significant discounts of their true value to global investors" - masquerading as a plan to "save America by recapitalizing it on a sound financial footing."

In fact, it's to loot the country by shifting wealth offshore and to the top. Also, to destroy the country's middle class, consign US workers to serfdom, then meet expected civil disobedience with military force, followed by mass internment in over 800 FEMA detention camps in every state.

Today, the rich are getting richer while millions of Americans struggle daily to get by and live perilously from paycheck to paycheck, a mere one away from insolvent disaster.

Given where we're heading, Warren Buffett warns that America is changing from an "ownership society" to a "sharecroppers' " one, no different than feudal serfdom. Economist Paul Krugman calls it "debt peonage," much like the post-Civil War South that forced debtors to work for their creditors.

Make no mistake, it's a corporate America scheme for a plentiful reserve army of labor no better off than in developing countries - at low wages, no benefits, weak unions if any, and government engineering the whole scheme. Even personal bankruptcy protection eroded under the Bankruptcy Abuse Prevention and Consumer Protection of 2005 - benefitting lenders at the expense of borrowers by keeping them chained to their debts.

It requires many more people "to file under Chapter 13, which does not eliminate debts but mandates that they be repaid under a court-ordered payment schedule over a three to five year period." Homes, in some cases, may be seized and even owe a "deficiency, or balance due" if its sales price doesn't cover it. This Act "eroded the protection the government once provided against (various) unexpected catastrophes (like job loss and high medical expenses) ensuring that working people (henceforth) are kept on a treadmill of personal debt."

Even worse are loopholes in the law letting "very wealthy people and corporations....go bankrupt....and shield(ing) their assets from creditors..." This bill was written at the behest of credit card companies that entrap consumers in debt, charge usurious interest, and demand repayment no matter what besets them. In one respect, debt bondage is worse than slavery. As property, slaves had to be cared for. Debt slaves have to fend for themselves and pay tribute (interest) to their captors.

The Illusion of Home Ownership

In 2004, household home ownership rates were "touted" to be nearly 69%. In fact, only 40% of homes are debt-free, but that percentage fell given the amount of refinancing in recent years. As a result, "most mortgages on single-family properties today are less than four years old" meaning they're many years away from free and clear ownership.

"The touted increase in home ownership actually means an increase in debt (and) Households today owe more relative to their disposable income than ever before," although in recent months they've been repaying it and saving more.

Earlier, and still now, low "teaser rates" entrapped households in onerous debt, fueling the housing bubble as another Federal Reserve/lender ploy to pump "accounting-entry money into the economy," set it up for trouble, then let financial predators exploit it for profit. The same strategies for Third World countries are playing out in America with too few people the wiser.

The 19th century "Homestead Laws that gave settlers their own plot of land (cost and debt free) have been largely eroded by 150 years of the 'business cycle,' in which bankers have periodically raised interest rates and called in loans, creating successive waves of defaults and foreclosures" - worst of all for subprime and other risky mortgage holders defaulting in record numbers with millions still ahead in what's playing out as the nation's worst ever housing crisis showing no signs of ending.

The Perfect Financial Storm

It looms in the form of inflation and deflation given the enormity of newly created money at the same time borrowers can't repay loans that then default. When that happens, "the money supply contracts and deflation and depression result."

When the housing market corrected between 1989 - 1991, "median home prices dropped by 17%, and 3.6 million mortgages" defaulted. The equivalent 2005 decline "would have produced 20 million defaults, because the average equity-to-debt ratio....had dropped dramatically" - from 37% in 1990 to 14% in 2005, a record low as a result of equity extracted refinancings.

"What would 20 million defaults do to the money supply?" Two trillion dollars would evaporate or about one-fifth of M3. The fallout would cause huge stock and home value declines, income taxes needing to be tripled, Social Security, Medicare and Medicaid benefits halved, and pensions and comfortable retirements gone for the vast majority of workers. And that's assuming a modest housing price decline when it's already far more severe and continuing, giving pause to the virtually certain calamity ahead and devastation for the millions affected.

Policy changes in 1979 - 1981 laid the groundwork for today's crisis by "flood(ing) the housing market with even more new money," and much more. They let Fannie and Freddie speculate in derivatives and mortgage-backed securities and by so doing assume enormous risk.

In June 2002, writer Richard Freeman warned of the impending dangers in an article titled: "Fannie and Freddie Were Lenders - US Real Estate Bubble Nears Its End." He cited the largest housing bubble in history made all the greater by Fannie and Freddie manipulation and stated: ...."what started out as a simple home mortgage has been transmogrified into something one would expect to find at a Las Vegas gambling casino. Yet the housing bubble now depends on (highly speculative derivatives as new) sources of funds," made all the riskier through leverage.

In 2003, Freddie was caught cooking its books to make its financial health look sound. In 2004, Fannie did the same thing. Meanwhile, housing peaked in 2006, then steadily imploded, bringing the economy down with it.

Derivatives in the Eye of the Cyclone

In November 2006, financial expert and investor safety advocate Martin Weiss called the derivatives crisis:

"a global Vesuvius that could erupt at almost any time, instantly throwing the world's financial markets into turmoil....bankrupting major banks....sinking big-name insurance companies....scrambling the investments of hedge funds (and) overturning the portfolios of millions of average investors."

Gary Novak's web site explains the derivatives crisis as follows: the banking system gridlocked because "pretended assets are fake and fake assets" consumed real ones. Deregulation, beginning in the 1980s, caused the problem. Once eliminated, "funny money became the order of the day (in the form) of very complex vehicles (called) derivatives, which were often made intentionally obscure and confusing." Even financial experts don't understand them, and that was the whole idea - to sell junk to the unsuspecting, profit hugely as a result, and let buyers handle the problems.

It was a Ponzi scheme disappearing money "down the derivatives hole." Holders are now stuck with "pretend" values. They can't sell and no one will buy. A global liquidity shortage resulted. "The very thing derivatives were designed to create - market liquidity - has been frozen to immobility in a gridlocked game." Ironically, derivatives are sold as insurance "against something catastrophic going wrong." The solution is now the problem writ large.

Something gone wrong makes counterparties (on the other side of the bet) "liable to fold their cards," take losses, "and drop out of the game."

In May 2005, early signs of a crisis emerged after GM and Ford debt was downgraded to junk. Dire warnings followed of "a derivatives crisis 'orders of magnitude beyond LTCM" in 1998. To head it off, the Fed and other central banks covertly flooded the market with liquidity by no longer reporting M3 - "the main staple of money supply management and transparent disclosure for the last half-century, the figure on which the world has relied in determining the soundness of the dollar."

Even worse is that the government isn't doing it interest and inflation-free. The private Federal Reserve and banks are creating a massive amount of government debt, debasing the currency, and risking a future hyperinflation even though none is around today. When the Fed buys government bonds with newly issued money, they stay in circulation, "become the basis for generating many times their value in new loans; and the result is highly inflationary."

Catherine Austin Fitts describes an Orwellian (pump and dump) scheme letting "the powers that be steal money by manipulation (then) keep this thing going, but in a way that leads to a highly totalitarian government and economy - corporate feudalism" with workers as serfs. Another observer said: "The only way government can function and maintain control in an economically collapsed state is through a military dictatorship," where it looks like we're heading with police state laws enacted and hundreds of concentration camps nationwide to handle expected civil disobedience disruptions once people realized they've been had.

Financial Market Rigging

The notion that markets move randomly and reflect investors' sentiment is rubbish. There's a "mechanism at work, like the Wizard of Oz behind a curtain, pulling on strings and pushing buttons." Indeed there is with names.

In 1989, Reagan's EO 12631 created the Working Group on Financial Markets (WGFM) in response to the 1987 market crash. It's more commonly known as the Plunge Protection Team (PPT), including the president, Treasury secretary, Fed chairman, SEC chairman, and Commodities Futures Trading Commission (CFTC) chairman. Its purpose: to enhance "the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and (maintain) investor confidence."

The plain truth is that the PPT rigs market performance up or down at Wall Street's discretion because insiders profit both ways. Money used to manipulate markets is "Monopoly money, funds created from nothing and given for nothing" just to move markets as insiders wish.

In a June 2006 article titled "Plunge Protection or Enormous Hidden Tax Revenues," Chuck Austin wrote bluntly stating:

"....Today the markets are, without a doubt, manipulated on a daily basis by the PPT. Government controlled 'front companies' such as Goldman Sachs, JP Morgan and many others collect incredible revenues through market manipulation. Much of this money is probably returned to government coffers, however, enormous sums....are undoubtedly skimmed off by participating companies and individuals."

They're no different from Mafia crime families but far larger and more profitable. Further, these banks are global crimes syndicates writ large, and, unlike the Mafia, have limitless Fed-supplied funds, free from accountability, investigation, and prosecution.

"The PPT not only cheats investors out of trillions of dollars, it also eliminates competition that refuses to be 'bought' through mergers. Very soon now, only global companies and corporations owned and controlled by the NWO (New World Order) elite will exist." Wall Street giants sit atop that pyramid.

Along with the PPT, the "Exchange Stabilization Fund (ESF) exists - "authorized by Congress to keep sharp swings in the dollar's exchange rate from 'upsetting' financial markets." In a word, like the PPT, it operates by rigging markets for insiders, the usual suspects being major Wall Street firms - getting inside information on how to invest or the equivalent of tomorrow's Wall Street Journal today.

Another organization exists for the same purpose - the so-called Counterparty Risk Management Policy Group (CRMPG), established in 1999 to handle the LTCM crisis and protect against future ones. According to one account, it was "set up to bail out its members from financial difficulty by combining forces to manipulate markets" with US government approval.

One of its devices is for the nation's giant banks to collude in large-scale program trading, amounting to over half of all daily New York Stock Exchange volume and on some days much more. Knowing which way to bet puts them at odds with smaller firms and ordinary investors, vulnerable to losing out by a scam designed to defraud them - supported, however, by the full faith, credit, and muscle of the government.

But is an eventual day of reckoning coming? Hans Schicht believes so and says:

"In 2003, master spider David Rockefeller was 88 years old, so today," he'll be 94 in June. "(W)herever we look, his central command is seen to be fading. Neither is there a capable successor in sight to take over the reigns....Corruption is rife....Rivalry is breaking up the empire."

"What has been good for Rockefeller, has been a curse for the United States. Its citizens, government and country indebted to the hilt, enslaved to his banks...The country's industrial force lost to overseas in consequence of strong dollar policies (pursued for bankers not the country....)"

With Rockefeller leaving the scene, sixty years of dollar imperialism (is ending)....The day of financial reckoning is not far off any longer....With Rockefeller's strong hand losing its grip and the old established order fading, the world has entered a most dangerous transition period, where anything could (and may) happen."

Consider also the possibility that the "spider" moved to London where a "navy of pirate hedge funds....rule the world out of Cayman Islands" - an "epicenter for globalization and financial warfare" run by "Anglo-Dutch oligarchy" chosen officials allied with major global banks and shadow financial system players.

But even best laid plans at times fail, given how vulnerable even major banks are from their derivatives bets. As gold expert Adrian Douglas observed:

The system is so corrupted that if huge bets go wrong, the giants "have no other choice (than) to manipulate the price of underlying asset prices to prevent financial ruin....Instead of stopping this idiotic sham business from growing to galactic proportions, they've let it spin out of control (placing them) all on the hook....(This) sham is coming unglued because the huge excess liquidity (in the system ballooned to) asset bubbles all over the place."

He concluded that when derivatives buyers catch on to the scam and "quit paying premiums for insurance that doesn't exist, (they'll be) a whole new definition of volatility....the financial equivalent of a hurricane Katrina hitting every US city on the same day....When the bubble(s collapse), the banking empire....built on (them) must collapse as well."

To fend it off, Wall Street and its European partners are using desperate measures, "including a giant derivatives bubble that is jeopardizing the whole shaky system." In a February 2004 article called "The Coming Storm," the London Economist warned that "top banks around the world are now massively exposed to high-risk derivatives (posing a systemic) risk of an industry-wide meltdown."

John Hoefle believes that "the Fed has been quietly rescuing banks ever since. (He) contends that the banking system went bankrupt in the late 1980s, with the collapse of the junk bond market and the real estate bubble." The S & L crisis was "just the tip of the iceberg."

The Fed secretly took over Citicorp in 1989," arranged shotgun mergers for other giant banks, back door bailouts, and "bank examiners were ordered to ignore bad loans. These measures, coupled with a headlong rush into derivatives and other forms of speculation gave banks a veneer of solvency while actually destroying what was left of the US banking system."

It got in trouble because big gambles failed, including Third World debt defaults as well as Enron and other corporate bankruptcies. Giant US banks "are masters at....counting trillions of dollars of worthless IOUs (like derivatives) on their books at face value (to make it look like they're) solvent."

Between 1984 - 2002, takeovers papered over failures by reducing bank numbers nearly in half and consolidating the top seven into three - Citigroup, JP Morgan Chase, and Bank of America. According to Hoefle:

"The result of all these mergers is a group of much larger, and far more bankrupt giant banks. (A) similar process played out worldwide." He added that "zombies have now taken over the asylum" and writer Michael Edward agreed in a 2004 article titled: "Cooking the Books - US Banks Are Giant Casinos (engaging in) smoke and mirror accounting," then merging with each other to conceal their derivatives losses with "paper asset" bookkeeping. It means that "US banks have become (a giant) Ponzi scheme paying account holders with other account holder assets or deposits" - robbing Peter to pay Paul but promising to end very badly.

Does this "mark the inevitable end times of a Ponzi scheme that is inherently unstable?" Perhaps private banking as well, replaced by pension and mutual funds, and others able to operate efficiently at low cost.

Battling back, giants expanded into investment banking with repeal of Glass-Steagall, but profits continued to fall as the economic downturn accelerated, resulting in investment banks converting to commercial ones and retrenching temporarily from core businesses like M & A and corporate lending. "Meanwhile, banking as a public service has been lost to the all-consuming quest for profits," the very strategy getting giants in trouble and needing periodic government bailouts.

Very few of their services involve "taking deposits, providing checking services, and making consumer or small business loans." Instead, they concentrate on "dubious practices" responsible for a giant Ponzi scheme with "the entire economy in its death grip." They created a "perilous derivatives bubble that has generated billions of dollars in short-term profits but has destroyed the financial system in the process."

The "too big to fail" concept resulted from the S & L crisis when many of them collapsed and Citibank lost half its value. In 1989, Congress passed the Financial Institutions Reform, Recovery and Enforcement Act, bailing S & Ls out with taxpayer money. It was a brushfire compared to today's global conflagration, making it far harder to contain and effectively teetering all banks on bankruptcy. Considering the damage they've done, it's time to cut them loose and let them survive or fail on their own. And if the latter, it will be a major step toward restoring economic health overall.

Banking services can more efficiently be provided than by parasites using us as their food source."The irony is that our economic system is built on an illusion. We have been tricked into believing we are inextricably mired in debt, when the 'debt' was for an advance of 'credit' that was ours all along." It's high time we reclaimed it.

The next article focuses on taking back our money power.

This is the fifth of several articles on Ellen Brown's superb 2007 book titled "Web of Debt," now updated in a December 2008 third edition. It tells "the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." This article focuses on taking back our money power.

Recapturing What's Ours and Turning Scarcity to Abundance

In 1952, Norman Vincent Peale (1898 - 1993) first published his most famous book - "The Power of Positive Thinking." It sold about five million copies and was a New York Times bestseller for 186 consecutive weeks delivering messages like: "Never talk defeat. Use words like hope, belief, faith, victory." FDR struck the same theme in saying: "The only thing we have to fear is fear itself."

In 1900, Frank Baum's The Wizard of Oz was first published, conveying "the notion that a life of scarcity could be transformed in an instant into one of universal abundance...." In real life, the secret is by taking back our money power from the private bankers who stole it in 1913, in the middle of the night, two days before Christmas, and kept it ever since.

Today's real cause of scarcity is that "somebody is paying interest on most of the money in the world all of the time," and by so doing enslaves nearly everyone in perpetual debt bondage. Meeting America's huge debt burden requires the money supply to keep expanding, "and for that to happen, borrowers must continually go deeper into debt, merchants must continually raise their prices, and the odd men out in the bankers' game of musical chairs must continue to lose their property to the banks."

The result - inevitable wars, competition, strife, inflation, deflation, recessions, depressions, debt bondage, poverty, and despair, while at the same time bankers get fabulously richer and more powerful. The obvious solution is to stop "parasitic" banks from "feeding on the world's prosperity," but the "Witches of Wall Street" don't yield easily. Dethroning them will take the process Francis Fox Piven explained in her 2006 book, "Challenging Authority." She quoted Thomas Jefferson responding to the repressive 1798 Alien and Sedition Acts saying:

"A little patience, and we shall see the reign of witches pass over, their spells dissolve, and the people, recovering their true sight, restore their government to its true principles."

Disruptive social actions have done it as Piven explained:

"ordinary people (have) power....when they rise up in anger and hope, defy the rules....disrupt (state) institutions....propel new issues to the center of political debate (and force) political leaders (to) stem voter defections by proferring reforms. These are the conditions that produce" democratic change.

Sidestepping the Debt Web with "Parallel" Currencies

Community currencies, for example, that historically rose "spontaneously when national (ones) were scarce, unobtainable," or in the case of Weimar Germany worthless because of hyperinflation. "Hundreds of communities in the United States, Canada and Europe did the same thing during the Depression" when hard times forced creative solutions. "Like the medieval tally, these currencies were simply credits (letting bearers) trade (them) for an equivalent value in goods and services...."

Today, community currencies "operate legally in more than 35 countries...." and in North America over 30 are available in places like Ithaca, New York where Ithaca HOUR scrip is used, saying on the back:

"This is money (entitling) the bearer to receive one hour of labor or its negotiated value in goods and services. Please accept it, then spend it...."

Another example is corporate credits like airline frequent flyer miles entitling holders to free flights and other benefits like lodging, rental cars, restaurant meals and even groceries.

Computer technology provides other alternatives as well, without currencies, by facilitating trades electronically. In 1981 after IBM released its XT computer, the first electronic currency system was devised - a Local Exchange Trading System (LETS) for recording transactions and keeping accounts by simply having "an information system for recording human effort." It tallied credits in and debits out, tax and interest free, and stored electronically.

Check out these sites for more information:

-- ithacahours.com;

-- madisonhours.org;

-- communitycurrency.org; and

-- geog.le.ac.uk/ijccr.

The main drawback to these systems is they're small, local, and fail to address the greater problem - "the mammoth debt spider that is sucking the lifeblood from the national economy" and our well-being. Solving that requires national currency reform - returning money creation power to the people who own it from bankers who stole it.

Goldbugs v. Greenbackers

In 1896 at the Democratic National Convention, William Jennings Byran railed against Goldbugs and their moneyed interests backers in support of Greenbacker farmers and laborers saying: "You shall not crucify mankind upon a cross of gold." The arguments went like this:

-- Bankers claimed gold was a stable medium of exchange; "sound" or "honest" money in relatively fixed supply that couldn't be inflated by irresponsible governments out of proportion to the demand for goods and services;

-- Greenbackers called scarcity a drawback letting governments condone "dishonest" money through fractional reserve banking; they'd be harmed too many previous times not to know it; also, during the 1850s Gold Rush, its supply and consumer prices rose sharply, did again from 1917 - 1920, and during the 1970s when gold rose from $40 an ounce to $800 and inflation along with it.

The debate still continues, but today's goldbugs are money reformers, not bankers who have it all going their way so why change.

As a medium of exchange, gold has serious drawbacks. In the Great Depression, it left the country, exacerbating deflation that caused the money supply and demand to contract. Another problem is that productivity is linked to its availability, but more practical matters are also relevant like needing gold bars for large purchases, something avoided by paper, checkbook and electronic money.

In the 1990s, Harvey Barnard proposed a new currency reform idea that included a national sales tax in lieu of the federal income tax with the aim of zero inflation and a stable economy. The National Economic Stabilization and Recovery Act (NESARA) he called it. His idea was for the government to issue currency in three forms - standard silver coins, standard gold ones, and Treasury credit notes or Greenbacks. Treasury notes would replace Federal Reserve ones with the Federal Reserve abolished.

NESARA was never introduced in Congress and might work if enacted. But why bother when the central problem is more simply addressed by returning money creation power to the government as the Constitution mandates. Paper currency isn't the problem. A private banking cartel controlling it is what's at issue to fix. By doing it, "the water of a free-flowing money supply can transform an arid desert of debt into the green abundance envisioned by our forefathers." It's there for the taking by simply "eliminating the financial parasite that is draining our abundance away," and there's nothing complicated about doing it.

The Federal Debt

How to pay it off is the question Congress one day must address. We can't grow our way out, but here's another way - pay it off "by turning (government) bonds into what they should have been all along, legal tender."

Economic analyst Al Martin cites a 2001 US Treasury study showing that US debt service may force the government to raise the personal income tax to 65% by 2013, and if interest can't be paid, bankruptcy and economic collapse will follow as well as for global economies within five days. The only alternative at that point would be "through currency (and) military might, or internal military power...."

However, two centuries ago, Alexander Hamilton showed "that Congress could dispose of the federal debt by 'monetizing' it, but Congress made the mistake of delegating that function to a private banking system." It can fix it by "buying back its own bonds with newly-issued US Notes" it can print in limitless amounts - debt and interest free.

It's being done now - "not by the government but by the private Federal Reserve." However, doing it leaves the bonds in circulation, with two sets of securities (bonds and cash) instead of one. "This highly inflationary (scheme) could be avoided" if the government just bought back its own bonds and voided them out - a win-win arrangement for the nation and public with only bankers losing out as they should.

It's simple to do and would be able to "extinguish the national debt with the click of a mouse." In January 2004, the Treasury did it when it "called" (paid off) a 30-year bond issue prior to its due date. Paying "in book-entry form" eliminated doing it with paper currencies or checks and turned securities from interest-bearing to non-interest bearing ones. Bondholders had a choice. They could take their redemption amount in cash or not sell and get no interest.

By this method, the Treasury "can pay off the entire federal debt....It just has to announce that it is calling its bonds and other securities, and that they will be paid 'in book-entry form.' " No cash is involved and funds received can be otherwise reinvested. The process can be accomplished gradually as securities come due. It's just a matter of doing it along with restoring money creation power to the government and making America democratic again, unbeholden to bankers.

Federal Debt Liquidation without Inflation

"Inflation results when the money supply increases faster than goods and services, and replacing government securities with cash would not change the size of the money supply." If government buys its own bonds, they simply convert from interest-bearing notes into non-interest-bearing legal tender (cash). The money supply remains unchanged, and there's no inflationary impact.

That's "very different from what happens today" with the Fed buying bonds, not voiding them out, and creating "reserves" for issuing "many times their value in new loans." It adds new cash to the money supply - a "highly inflationary (scheme simply avoided by having) the government buy back its own bonds and (take) them out of circulation."

It's also a way to solve the "Social Security crisis." Resolve it by "simply cashing out (of) federal bond holdings (in exchange for) newly-issued US notes" with no inflationary effect because no new money would be created. Bonds would become cash, remain in the fund, and be used for future pay-outs.

Fed-held securities could be cashed out the same way and just as benignly. Cash would replace bonds. They'd be voided out. The money supply would be unchanged, and inflation would be avoided. It would work no differently for foreign central bank held debt since bonds and cash are the same thing and either can be held in reserve to support their own currencies or to buy oil per the 1974 OPEC agreement.

Already sovereign debt holders are cutting back, reducing their US securities reserves but doing it discretely so as not to be disruptive. However, "the tide is rolling out, and US bonds will be coming back to (our) shores whether we like it or not." At issue is who'll buy them and whether an inflationary or non-inflationary path will be taken. So far it's the former with all the dangers involved.

Federal Reserve-Issued "Helicopter" Money

Early in the new millennium, deflationary concerns were great enough for Ben Bernanke to deliver a Washington 2002 speech titled: "Deflation: Making Sure 'It' Doesn't Happen Here." He explained that lowering interest rates isn't the sole way to inject new money into the economy. The "US government has a new technology, called a printing press (an electronic one), that allows it to produce as many US dollars as it wishes at essentially no cost." The government could reflate the economy and buy hard assets at the same time. At issue again is whether government or private bankers do it (or local communities acting independently) and the positive or negative effects of each choice.

Today we're banking cartel controlled, and it's "brought the system to the brink of collapse. The privately-controlled Federal Reserve, which was chartered specifically to 'maintain a stable currency,' has allowed the money supply to balloon out of control. The Fed manipulates the money supply and regulates its value behind closed doors, in blatant violation of the Constitution and the antitrust laws" with the full faith and blessing of the administration, Congress and courts. It "can't be held to account; it doesn't even have to explain its rationale or reveal what is going on."

Imagine the difference if the "banking spider....could be decapitated, returning national (money creation) sovereignty to the people themselves." In other words, the rightful owner.

A final article addresses a people-oriented banking system.

This is the sixth and final article on Ellen Brown's superb 2007 book titled "Web of Debt," now updated in a December 2008 third edition. It tells "the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." This article focuses on establishing a people-oriented banking system. It's high time we had one and reclaimed what's rightfully ours.

Restoring National Sovereignty with A Truly National Banking System

One serving everyone, not powerful moneychangers alone, the so-called Money Trust cartel of Wall Street bankers looting the national wealth for themselves and heading the country for bankruptcy, tyranny and ruin. Stopping them is Job One, and only mass activist outrage can do it.

At the Chicago Democratic National Convention, William Jennings Bryan won the nomination saying:

"(W)e believe that the right to coin money and issue money is a function of government....I stand with Jefferson (and say), as he did, that the issue of money is a function of the government and that banks should go out of the governing business....(W)hen we have restored the money of the Constitution, all other necessary reforms will be possible, and....until that is done there is no reform that can be accomplished."

No Fed existed at that time. If one did and operated like today, Bryan would have said abolish it or make it truly federal. As a US government agency, money created would go directly to the Treasury. But that's only 3% of the money supply. What about the other 97% in the form of commercial loans? Would that put government in the commercial lending business?

"Perhaps, but why not. As Bryan said, banking is the government's business, by Constitutional mandate" - at least the part of it involved in creating new money. The rest could be in private hands, like today - through banks and other financial institutions, such as finance companies, pension and mutual funds, insurance companies, and securities dealers. "These institutions do not create the money they lend but merely recycle pre-existing funds." With government printing money, banks would become more equitable recyclers - "borrowing money at a low rate and lending it at a higher one," except for one downside. Some would go bankrupt, but start-ups would replace them under a more stable and equitable system.

In 1946, the Bank of England was nationalized in name only and retained its (privately-controlled) money printing power. In 2003, James Robertson and John Bunzl proposed changing it their book titled: "Monetary Reform: Making It Happen." They advocated making it illegal for banks to create new money as loans. Only a central bank should do it with commercial banks having to borrow it for relending.

Government officials, however, balked at the idea saying the nation would be harmed as banks would go broke having been stripped of their "credit multiplier" capacity - the British version of fractional reserve lending. London banks are second only to Wall Street so rather than risk this fate they'd likely relocate "en masse to the Continent" and force the British economy to collapse.

In the 1940s, Representative Jerry Voorhis proposed a similar plan to Congress called "the 100 Percent Reserve Solution," his idea being "to require banks to establish 100 percent reserve backing for their deposits" - done by borrowing from the Treasury to supply what they needed.

In "The Lost Science of Money," Stephen Zarlenga wrote:

"With this elegant plan, all the bank credit money the banks have created out of thin air, through fractional reserve banking, would be transformed into US government legal tender - real, honest money." True enough but at a cost so great that (in 1946) it launched Richard Nixon's political career with a vicious red-baiting campaign accusing Voorhis of Communist Party links.

His plan was later revived but never enacted into law. One of its advocates is Zarlenga's American Monetary Institute. It drafted an American Monetary Act to eliminate fractional reserve banking and impose a 100% reserve requirement on all demand deposits, making them unavailable to loan and only for "a (fee-based) warehousing and transferring service." The Fed would be incorporated into the Treasury with the government solely authorized to create new money - to be circulated inflation and deflation-free for purposes such as: infrastructure development, education, health care, job creation, financing local economies, and funding government at all levels. For their part, banks would function traditionally - as intermediaries for deposits loaned out to borrowers.

A Monetary Reform Act goes further by requiring:

-- 100% reserve requirement on all bank deposits, including savings; deposits wouldn't be counted as reserves against which to make loans; they'd be held in trust solely for their depositors' use;

-- banks servicing depositors could only lend their own money; and

-- doing it with depositors' funds would require they establish separate institutions, not called banks.

If Congress reclaims its money-creation power, banks will have to maintain 100% reserve requirements (available for withdrawals), to "avoid the electronic duplication that is the source of" money supply growth today. It would require them to raise enough money to "fund" all outstanding loans. "The 'credits' (or loans then) become 'deposits' that represent 'liabilities' of the banks, money (they) owe to the depositors." It would be secured (by borrowing) around $6 trillion or more in real money, not the fictitious kind they create today.

In turn, they'd have to raise interest rates, pay depositors less, operate on thinner margins, and likely drive customers to more competitive non-bank institutions, already controlling 80% of the market.

In December 2006, William Hummel proposed an alternative in an article titled "A Plan for Monetary Reform" under which banks could sell their existing loans to investors with ready cash if the federal debt was paid off by monitizing it with government-issued currency. Federal bond holders would need a new home for their savings with a rate of return making up for what they lost. Investment funds would likely create new vehicles for it. They could buy bank loans with investors' money and bundle them as securities for resale with interest.

Selling the loans would let banks avoid incurring substantial new debt to meet the new 100% reserve requirement. Bank "balance sheets could be wiped clean and they could start fresh with new loans" - operating traditionally by borrowing low and lending higher. However, these new limitations could prove harmful, "imposing an unfair burden on unsuspecting shareholders, warranting some equitable division of the sale proceeds in compensation."

Consider also that if these type restrictions existed, banks "would have little incentive to service the depository needs of the public." A solution would be to transfer its "depository role to a system of (nationwide) bank branches acting as one entity under the (government-run) Federal Reserve." In other words, a government-run public utility.

It would make the Fed "the sole depository and only its branches would be called 'banks.' " Others would close down or become private financial institutions in whatever form they'd choose.

Robert Guttman explains that basic banking is fairly simple - to provide a safe place to store money and transfer it to others. A government agency could handle it easily. It did earlier through the US Postal System (until shut down in 1967) and can do it again.

With the restoration of traditional banks, servicing credit cards would also have to be addressed as banks might be unable to do it. One solution would be to turn credit extension "over to a system of truly national banks (authorized to operate with) the 'full faith and credit of the United States' as agents of Congress," newly empowered to create money. In addition, government banks wouldn't be profit driven enough to charge exorbitant rates. They'd be "reasonable, predictable and fixed."

Consider also that old banks (namely existing branches) could be bought to become government-run ones, or if insolvent banking giants were nationalized, their branches alone might do the job. The FDIC could hire new management or have existing ones operate under new guidelines. The difference would be that interest would accrue to the government (and the) 'full faith and credit of the United States' would become an asset of the" country.

There's one other limitation as well - 100% reserve requirements would restrict money growth so it would have to expand to meet demand by other means. One way in a system with no federal debt or interest is to let consumer debt be self-regulated as under the LETS system in which "money is created whenever someone pays someone else with 'credits,' and it is liquidated when the outstanding credits are used up."

Nationwide, "money would come into existence when it was borrowed from the community-owned bank, (then) extinguished as the loans were repaid." It's no different than how money is created now except that communities, not bankers (siphoning off interest in windfall profits), will do it. None of the above systems are perfect, but they're far better than the current corrupted one benefitting bankers, not people.

The Question of Interest - Solving the "Impossible Contract" Problem

Money controlled by banks only creates the "principle and not the interest" to repay loans. Governments, on the other hand, can "not only lend but spend money into the economy, covering the interest shortfall and keeping the money supply in balance."

However, "returning all the interest collected on loans to the government would require nationalizing" all forms of lending at interest, including banks. In the real world, a semi-private, semi-public system might work better as follows:

-- governments would create money and be its initial lender;

-- private financial institutions, including banks, "would recycle this money as loans;"

-- they'd still earn interest, but not as much;

-- as a result, the money supply would need to expand to cover it, but not as much as now; and

-- overall it would expand proportionally to demand keeping inflation contained.

Vilified today as socialism, it's the very system colonists used successfully to jump-start the country, make it grow, and do it without taxes or inflation. Franklin and Jefferson championed it. So did Jackson, Lincoln, and perhaps Kennedy later on.

Early 20th century Australia's Commonwealth Bank created money, made loans, and collected interest at a fraction of what private bankers charged. It worked well enough for the country to have one of the highest standards of living in the world at that time. Once private banks printed money, Australia became heavily indebted, and its living standard fell to a 23rd place ranking.

In the 1930s, the Fed printed money. However, FDR empowered the Reconstruction Finance Corporation to provide plenty of cheap credit to build infrastructure, create jobs, and provide emergency loans to states. The US Postal Savings System, Small Business Administration (SBA), Fannie and Freddie initially worked the same way outside the private banking system.

After being privatized, these mortgage lenders became corrupted, then bankrupt proving government can be the solution, not the problem, and a cheaper, more efficient one besides. From her own experience as Assistant HUD Secretary, Catherine Austin Fitts states:

"The public policy 'solution' has been to outsource government functions to make them more productive. In fact, this jump in overhead (simply subsidizes) private companies and organizations....regardless of (their) performance. (The scheme) make(s) no sense except for the property managers and owners who build and manage it for layers of fees."

It's the same argument used against privatized health care as opposed to cheaper, more efficient universal coverage leaving out insurer middlemen, letting government buy drugs at lower cost, and still leaving lifelong, high quality, comprehensive, and affordable choices in consumers' hands. It's a system begging to be instituted but won't be under Obama.

Once again, fear of big government is misguided. It should protect and serve everyone equally - impossible with the Money Trust running it, the way it works now with bankers creating money and extracting the national wealth for themselves.

Masquerading as "free enterprise today is a system in which giant corporate monopolies (use) their affiliated banking trusts to generate unlimited funds to buy up competitors, the media, and the government itself, forcing truly independent private enterprise out" - the very system Adam Smith and other classical economists abhorred.

Private banks have America and most other nations by the throat. They force governments to pay interest on their own money as well as "advance massive loans to their affiliated cartels and hedge funds, which use the money to raid competitors and manipulate markets." Its Darwinism in the extreme giving power brokers the right to choose who survives and who doesn't with ordinary people faring worst of all.

The solution is "publicly-operated police, courts and laws to keep corporate predators at bay" under a nationalized banking system, creating its own money, and serving people, not bankers - a truly equitable, sustainable, efficient and democratic system freed from parasitic financiers.

Beating the Robber Barons at Their Own Game

Using accepted business practices, the Rockefellers, Morgans, Carnegies, and Vanderbilts et al "deprived their competitors of property" by buying it on the open market through takeovers. Their "slight of hand" was how they funded them - through their own affiliated banks able to create money out of thin air, the same way it's done today for even larger stakes.

What banking cartels can do, so can governments - but through a much smaller, fairer and more efficient nationalized banking system operating as a public utility. Private financial institutions could still recycle loans but in the way described above.

Another choice would be for government to buy out all banks - a more equitable but unnecessary choice even though it would be quite affordable with the power to create money. What better time than now given the gravity of today's economic crisis leaving world economies close to collapse.

According to Murray Rothbard, the entire commercial banking system is bankrupt. It belongs in receivership and their managements jailed for embezzlement. Taxpayers would save a lot of money, and nations would be on the road to recovery and prosperity.

One observer says too-big-to-fail banks are already stealth nationalized since taxpayer bailouts stand ready whenever they get in trouble - the idea being that costs are socialized and profits privatized, a process begging to be halted. Taxpayer-supported banks "can and should be made public institutions operated for the benefit of" everyone. Given that major banks today are corrupted and bankrupt, now is the time to do it - not as a temporary measure but irrevocably under a totally restructured system.

The Quick Fix - Government that Pays for Itself

How much newly created government money would be inflation free? Could income and other taxes be eliminated? Would it "avoid the 'impossible contract' problem by furnishing the money necessary to cover the interest (not) advanced in commercial loans?"

If government and not banks created money, the amount needed would be less - "without cutting government programs or adding to a burgeoning federal debt." Inflation would be avoided and income taxes eliminated without sacrificing growth and prosperity in proportion to a larger population. More people would be employed as well compared to over 20% out of work today according to economist John Williams when all excluded and distorted categories are included.

Imagine an inflation-tax-free economy with enough government-created money for health care, education, infrastructure development, other productive growth, environmental cleanup, scientific research, development of alternative energy sources, and much more. It would be utopian compared to today's unsustainable system devouring people for profits and heading world economies for ruin.

Under today's "impossible contract" system, 99% of the money supply is borrowed, all at interest to lenders. It means more of it is owed back in principle and interest than was borrowed. The money supply must continue to expand to keep up and prices along with it. The latter could be avoided if a proportional amount of goods and services are created, not at all the case in America with growing amounts of manufacturing offshored under a financialized economy paying tribute to bankers - "for lending money they never had to lend" in the first place.

Roger Langrick solves the "impossible contract" this way: let government "issue enough new money to match the outstanding collective interest bill of the nation" even though it's prohibitive at around $500 billion annually for government debt service alone. Today's public and private debt comes to many tens of trillions so servicing that burden is staggering, yet innovative solutions may handle it, and once done, a brighter tomorrow awaits.

Ending Third World Debt

Today most of it is held by giant US-based banks like Citigroup and JP Morgan Chase. If they're placed in receivership, the "US government could declare a 'Day of Jubilee' " of debt forgiveness, and if done, it "would not be an entirely selfless act." For America to pay off its international debt, it needs all the goodwill it can get. Forgiving other debts would encourage our creditors to forgive ours as world nations have no interest in seeing major economies collapse. What affects one, harms others.

"Our shiny new monetary scheme, rather than appearing to be a slight of hand, could unveil itself as a millennial model for showering abundance everywhere" for the mutual benefit of everyone. It's simple to do - just void out debts on banks' books with a click of a mouse. "No depositors or creditors would lose money, because (none) advanced their own money in the original loans." They were created out of thin air through accounting entries. On banking financial statements, they're liabilities because accounting rules say books must balance.

Once old debts are gone, new ones can be avoided by stabilizing national currencies to prevent devaluation by speculators. Bretton Woods protected against this. A new system is now needed, one that "retains the virtues of the gold standard while overcoming its limitations."

One now in use is to peg currencies to the dollar but with it comes loss of flexibility to compete in international markets or be able to budget enough for domestic needs - with a fixed money supply. Argentina's "currency board" in the 1990s forced its eventual bankruptcy in 1995 and again in 2001 as earlier mentioned.

A global currency is another proposal - one that creates more problems than it solves. The world "is not one nation or one region," and who's to be boss and in charge. Further, if all governments issued the same currency, "the global money supply (would be) vulnerable to irresponsible governments (issuing) too much." Strong ones would end up dominating the weak, and national sovereignty would be weakened, perhaps ended. A "fully dollarized" world is a prescription for trouble enough to make scarcity "the order of the day."

Rather than one currency, "a single global yardstick" is needed "against which governments can value their currencies - some independent measure (by) which merchants can negotiate their contracts and be sure of getting what they bargained for." How to do it is the question?

A New Bretton Woods

Michael Rowbotham picked up on John Maynard Keynes idea of pegging currencies to a basket of commodities, calling it "a profoundly democratic idea." He states:

"Today, wheat grown in one country may, due to a devalued currency, cost a fraction of wheat grown in another. This leads to (cheap wheat producers) becoming (heavy exporters) regardless of need, or the capacity to produce better quality wheat in other locations. In addition, currency values can change dramatically and the situation can reverse. Critically, such wheat 'prices' bear no relation to genuine comparative advantage of climate, soil type, geography and even less to indigenous/local/regional needs." Nor does it stabilize production in relation to need. By "imputing value to a nation's produce, and allowing this to determine the value of (its) currency, one is imputing value to its resources, its labourers and acknowledging its own needs."

An international trade unit could be established based on a basket of commodities representative enough to fend off speculators - just a "yardstick for pegging currencies and negotiating contracts." Exchange rates would be fixed everywhere but not forever. Changes would "reflect the national market for real goods and services," not currencies. They'd be "no room for speculation or hedging."

Various proposals involve "private international currency exchanges, but the same (type) reference unit (could) stabilize exchange rates among official national currencies." One calls for:

-- a new fixed exchange rate system;

-- a treaty banning speculation in derivatives;

-- canceling or reorganizing international debt; and

-- having governments issue enough "credit" to create full employment, then used for technical innovation and infrastructure development.

The plan is for exchange rates to be "based on an international unit of account pegged against the price of an agreed-upon basket of hard commodities."

Other plans are around as well, all stressing the same idea - "the urgent need for change" because the current system is corrupted and broken.

How then to stabilize national currencies? "The simplest and most comprehensive....international currency yardstick (measure) seems to be the Consumer Price Index....modified to reflect" real consumer expenditures, not the quantity of currencies traded in international markets by speculators. Henceforth, currencies "would just be coupons for units of value recognized globally" - stable enough for "commercial traders (to) 'bank' on them."

National currencies "would become what (they) should have been all along - (contracts) or promise(s) to return value in goods and services of a certain worth, as measured against a universally recognized yardstick for determining value."

Government without Taxes or Debt

Only a "radical shift in our concepts of money and banking will save us from the cement wall looming ahead" - an abyss otherwise named. Letting bankers hold "an illusory sum of gold," to be multiplied many times over by fractional reserve alchemy, entraps everyone in debt bondage. "The result was a (giant) Ponzi scheme that has pumped the global money supply into a gigantic credit bubble" now imploding.

Everything of value is at risk, including our futures and that of our loved ones - unless we can reverse the corrupted system entrapping us, and think of the benefits: expanded government services and prosperity, inflation and tax free.

Today's "web of debt" is based on fraud, deceit, and manipulative sleights of hand, including:

-- fractional reserve alchemy - pure hocus-pocus witchcraft hokum;

-- the gold standard of an earlier time letting bankers dangerously inflate the money supply "on the same gold reserves;"

-- the private banking cartel Federal Reserve owned by major banks in each of 12 Fed districts empowered to create money and charge the government, business, and individuals interest on it - the result being everyone put in permanent debt bondage to world-class predators;

-- the federal debt and money supply; both continually expand under a highly inflationary scheme;

-- the federal income tax to pay interest to bankers;

-- the FDIC and IMF to ensure mega-banks get bailed out no matter what unwarranted risks they take; the IMF is also a sort of knee-cap breaking enforcer for the monied interests - extracting multiple pounds of flesh in as part of a giant extortion racket;

-- a "free market" for those who own it under a corrupted, manipulated system of socialized risks and privatized profits, enforced by the Pentagon's long arm;

-- the Plunge Protection Team (PPT) and Counterparty Risk Management Policy Group (CRMPG) - created to rig and manipulate markets along with colluding Wall Street bankers bailed out whenever they get in trouble; the notion that markets move randomly is rubbish - about as real as the tooth fairy or Mother Goose;

-- "floating" exchange rates - for more manipulation and collusion in international currency markets;

-- short selling - for speculators in all type assets; when used against currencies, it can artificially force them down enough to cause economic havoc the way it was done to Asian Tiger countries in 1997 and many others as well;

-- "globalization" and "free trade" - a predatory system benefitting America and the West under WTO rules; countries also become vulnerable to speculative assaults when their currencies are convertible and economies opened to "free trade;"

-- inflation myths - money creation isn't the problem; speculative currency attacks force destructive devaluations, meaning prices rise as a result; American inflation is "caused by private banks inflating the money supply with debt," not by printing money; also by productive growth not keeping up;

-- the "business cycle" - responsible financial managements produce stable prosperity; when irresponsibly done by a private banking cartel, booms and busts result; it's an unnatural "monetary scheme in which money comes into existence as a debt to private banks for 'reserves' of something lent many times over;"

-- the home mortgage boondoggle - monetizing home mortgages today creates most money; borrowers think they're using "pre-existing funds, when the bank is just turning one's promise to pay into an 'asset' secured by real property;" when paid off, the interest usually exceeds the original loan, and in cases of default, banks seize the homes;

-- the housing bubble - it was caused by easy credit in the 1990s and post-2000 by an irresponsible Fed and Wall Street bankers' plan, including massive fraud like issuing up to 10 mortgages on a single home when its owner had only one;

-- adjustable rate mortgages (ARMs) - affecting about half of all US ones, it was a scam through subprime lending and low "teaser" rates, later ratcheted to unaffordable levels and catching buyers unawares;

-- the secret bankruptcy of banks - they gambled hugely on risky derivatives and housing loans, far afield from traditional banking of borrowing low and lending higher for modest, stable profits; the result - all major banks are insolvent with only government bailouts keeping them afloat;

-- "vulture capitalism" and derivatives - the former amounts to predatory banks and hedge funds "buying out shareholders and bleeding businesses of profits, using loans of 'phantom money' created on a computer screen" out of thin air; the latter turned banks into casinos making huge bets that went sour; and

-- moral hazard, once called the "Greenspan put;" substitute Bernanke and Geithner now for the maestro of misery; it lets banking giants take outsized risks knowing bailout backups await any that go sour.

Conclusion - private commercial banking practices are corrupted, destructive and obsolete, and vulture capitalist investment banks are parasites on productivity, serving their interests at public expense. Congress should and must either close down insolvent banks or put them in receivership as step one. Then "claim them as public assets, and operate them as agencies serving" public depository and credit needs.

The federal debt is another problem - at "its mathematical limits, (it's) forcing another paradigm shift if the economy is to survive." We have a choice: let a debt-based house of cards collapse or have it be a wake-up call for radical change. Again, imagine the possibilities:

-- ending personal income taxes and stimulating stable economic growth at the same time;

-- eliminating the federal debt entrapping us and future generations in permanent bondage;

-- returning money creation power to the government as the Constitution mandates with a cornucopia of benefits to follow;

-- strengthening universal Social Security for everyone in place of disappearing private pensions;

-- fostering stable, inflation-free prosperity with no booms and busts;

-- keeping borrowing costs fair and affordable, not subject to private bank manipulation; and

-- ending destructive currency devaluations and economic warfare for private gain; with stable exchange rates, the "dollar becomes self-sustaining, and the United States and other countries become self-reliant," free from foreign creditors and one-way market rules benefitting the strong over the weak.

Impossible? Only for non-believers, but it won't happen magically. It's for organized people to challenge organized money enough for government to reclaim its money creation power.

Nothing short of a populist revolution for radical change is needed - bubbling up from the grassroots to an unstoppable force. "Reviving the 'American system' of government-issued money" would return us to our colonial roots, and like Dorothy in the Wizard of Oz, "we the people would finally have come home."

More on that topic in a follow-up article.

Stephen Lendman is a Research Associates of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday - Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening.

http://www.globalresearch.ca/index.php?context=va&aid=13641

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