Retaking Control of the Money System

Earlier I proposed a two part strategy to regain popular sovereignty in America from the corporate oligarchy that now controls our government.  The first part of the strategy, ending our war policy, was discussed in my blog entry of November 26, 2010, “War Liberty and Prosperity”. In this entry, I’ll discuss the second part of the strategy – retaking public control of the money system from the private banking cartel.

Mayer Rothschild, founder of the Rothschild family international banking dynasty, is quoted as saying: “Let me issue and control a nation’s money and I care not who writes the laws.”

Rothschild was correct. The money system impacts every aspect of our lives – from our wage levels and employment opportunities to questions of war and peace.  If the money system is controlled by the public, its management will reflect the needs of the nation and its citizens. If it’s controlled by private banks, as is the case today, the money system will be managed to maximize their profits.

While retaking control of the money system from the private banking cartel is critical to restoring sovereignty, as well as, improving our standard of living, the matter is a bit complicated. So let’s look at the money issue piece by piece.

What is money?

Money is a medium of exchange to facilitate commerce. It can be of intrinsic value, such as a gold coin, or merely a token like the wooden tally sticks used successfully as money in England for centuries. In either case, money should be of stable value and widely accepted. Additionally, the money supply should be expandable to accommodate economic growth.

Although we usually think of money as coins and paper bills, nowadays physical money only represents a tiny part of the money supply. Most money today is just entries on a computer.

Who creates money?

For many centuries, governments created money. It was part of the sovereign’s power – like raising an army, regulating trade or negotiating treaties. If the government needed money, it simply created it to pay for things it needed. Once the money was spent for goods and services, it entered the economy and became the money supply – circulating through the economy.

However, this all changed when the Dutchman, William of Orange, overthrew James II, King of England in 1688. Backed by Dutch bankers and a new financial elite in England, William oversaw the creation of a new private central bank, the Bank of England, which took control of money creation away from the government. This private central bank money system was later introduced into the United States over much opposition in 1913 with the establishment of the Federal Reserve.

How is money created by the private central bank?

While the government formerly created its own debt free money as needed, the government now must go to the private central bank, the Federal Reserve, and ask for a loan. It works like this.

The government says to the Fed Reserve, “We need another $10 billion to run the government”. The Fed says “No problem”. The Fed creates $10 billion out of thin air and delivers it to the government either as printed money or electronic entries.

In exchange for the $10 billion, the government gives the Fed an interest bearing IOU in the form of a Treasury bond. The interest on the government bonds issued for the new money is paid by you and me to bondholders through our income taxes.

How do the commercial banks fit in?

The Fed uses the newly created government bonds as a banking reserve on which it lends money to commercial banks. They in turn use the money they get from the Fed as reserves upon which they make loans to customers.

The banks don’t actually lend their reserves. Like the Fed, when they make a loan they create new money to give to the borrower which is balanced on the banks’ books by a new asset – a promissory note from the borrower. As various commercial banks successively make loans based on the original Fed created reserve, the money is multiplied many times.

From its inception, this is a debt money system. Just about all money in the country originates in loans on which interest must be paid.

So what’s the problem?

There are several huge problems with the present system as far as the public is concerned:

First, we taxpayers are paying hundreds of billions of dollars each year in interest to borrow money from the Fed which we could have created for free. The national debt which represents money borrowed by the government is about $14 trillion as of January 2011. At the rate it is growing, the national debt should exceed $20 trillion during this decade.

Consider the fact that total income tax revenue is about $ 1 trillion. Imagine that interest rates return to normal levels of around 5%. You don’t have to be a math genius to see the day coming when the entire income tax could go for interest on the national debt.

Second, when the Federal Reserve and commercial banks create money through lending, they only create the principal – not the interest which will have to be paid.  So there is a shortage of money built into the system.

Consider this example. The Federal Reserve creates $1 billion for the government and receives U.S. Treasuries earning 5% interest. Over 15 years, about $1 billion of interest will be paid on those bonds. Unless new money is created for the interest, there will be a $1 billion money shortage.

Third, in privatizing money creation in the Federal Reserve, we have placed tremendous power in the hands of a private banking cartel whose operations are not subject to public control or scrutiny. The interests of the Fed’s owners are not those of the U.S. public. Naturally, the banks look out for number one.

Take the Federal Reserve Bank of New York, the heaviest hitter in the Fed system, whose principal shareholders include J P Morgan Chase and Citigroup.  These two institutions were leaders in the explosive growth of the profitable but risky derivatives market. When the derivatives market collapsed devastating the economy, these two giants and their friends got bailed out and ordinary people were left to deal with the recession.

From a political standpoint, the private central bank is the linchpin of the corporate oligarchy. Through the control of the money system, the banking cartel protects, not only, the banks’ interests, but also, those of the banks’ large corporate clients.

Why didn’t anybody stop the hijacking of our money system?

Great Americans tried. Ben Franklin championed colonial Pennsylvania’s public money system which he said was responsible for the colony’s prosperity.  Thomas Jefferson defended the right of the U.S. government to control money creation and supported a constitutional amendment to bar government borrowing. Andrew Jackson fought a bitter battle to kill the Second Bank of the United States, an early version of the Fed, while Abraham Lincoln printed government issued interest-free greenbacks to finance the Civil War.

However, in 1910 the big New York banks hatched a successful coup at a secret meeting at a Morgan resort at Jekyll Island, Georgia.  Through a skillful public relations campaign which included giving the new private central bank a name that implied it was a government agency, they got it through Congress in 1913.

The new law, the Federal Reserve Act, gave the New York based bank cartel a government sanctioned monopoly over the creation of the US money supply. It is no coincidence that they pushed through the new federal income tax at the same time since they understood the income tax would be necessary to pay interest on the new debt.

Since 1913 many prominent leaders like Republican Congressmen Charles Lindbergh, Sr. and Louis McFadden and Democratic Congressman Wright Patman struggled to get back the public’s right to create money. In the early 1960’s, President Kennedy, following Lincoln’s example, had the U.S. Treasury print interest free U.S. dollars but the program was discontinued after his murder.

Although the money issue was a central part of U.S. political debate for over a century, few people are familiar with it today. It’s time we put this issue on the front burner and get back public control over the money system.

How can we retake control of the money system?

First, abolish the Federal Reserve and replace it with a national bank controlled by the people through their elected representatives.

Second, while the national bank would continue to make credit available to private banks at reasonable interest, the bank should, also, be able to create interest free money for the government to pay for goods and services.  This interest free money would become an important part of the money supply.

Third, the national bank should be authorized to make loans without interest for important infrastructure projects to improve the nation’s economy – modeled after projects like the Eire Canal, the Tennessee Valley Authority and the Interstate Highway System.

Fourth, the national bank would be responsible for ensuring sufficient expansion of the money supply appropriate for the non-inflationary growth of the economy. It would also, be responsible for preventing speculative bubbles such as we have seen in real estate and derivatives which threaten the entire economy.

Fifth, the national bank would retire the national debt. As U.S. bonds became due, the holders would be paid off in full with debt free government money.  Taxpayers would no longer pay billions to bondholders through their income taxes. Since the bonds would be extinguished, there would be no effect on the total money supply.

Sixth, the Glass-Steagall Act, repealed in 1999, should be restored separating commercial banks where people have their savings and checking accounts from investment banks which can engage in more risky operations. The government’s insurance programs should protect the savings of US. citizens – not the profits of speculators.

Seventh, at the state level, we should encourage the establishment of publicly owned banks such as the very successful Bank of North Dakota.  Using state funds as reserves, the Bank of North Dakota for almost a century has spurred economic growth in North Dakota while returning income from its operations to the state treasury.

Suggestions for further reading:

Web of Debt, Ellen Hodgson Brown and The Creature from Jekyll Island, G. Edward  Griffin

Suggestions for listening:

My interviews with Ellen Brown and G. Edward Griffin at and Gus and my January 5, 2011 interview with Ellen on the public bank movement on In Context.


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One Response to Retaking Control of the Money System

  1. Dibbles says:

    Thanks for such a concise, easy to understand explanation of our current money system and its’ inadequacies – if not outright frauds. I wish more people (the young especially) would take more time and interest in this topic. Their very future is in their hands if they were to understand and correct this deceptive scheme. And states could certainly remedy their budgetary shortfalls. They have the tools and legal authority. They just need citizens’ support and encouragement.

    Thanks again for sharing Ellen’s great work.

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