‘RETURNING THE MONEY TO THE PEOPLE’
by Ellen Brown, Attorney at Law
One of the most remarkable admissions by a banker concerning the
mysteries of his profession was made by Sir Josiah Stamp, president of the Bank
of England and the second richest man in
"The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was every invented. Banking was conceived in inequity and born in sin …. Bankers own the earth. Take it away from them but leave them the power to create money, and with a flick of a pen, they will create enough money to buy it back again …. Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in …. But if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit."
The sleight of hand by which banks create money dates to the seventeenth century, when paper money was devised by European goldsmiths. Gold and silver coins, the standard currency in European trade, were hard to transport in bulk and could be stolen if not kept under lock and key. Many people therefore deposited their gold with the goldsmiths, who had the strongest safes in town. The goldsmiths issued convenient paper receipts that could be traded in place of the bulkier gold they represented. These paper receipts were also used when people who needed gold came to the goldsmiths for loans.
The mischief began when the goldsmiths noticed that only about 10 to 20 percent of their receipts came back to be redeemed in gold at any one time. The goldsmiths could safely ‘lend’ the gold in their strongboxes at interest several times over, as long as they kept 10 to 20 percent of the value of their outstanding loans in gold to meet the demand. They thus created ‘paper money’ (receipts for loans of gold) worth several times the gold they actually held. They typically issued notes and made loans in amounts that were four to five times their actual supply of gold. The townspeople wound up owing the goldsmiths four or five sacks of gold for every sack the goldsmiths had on deposit, gold the goldsmiths did not actually have title to and could not legally lend at all.
If the goldsmiths were careful not to overextend this ‘credit’, they could thus become quite wealthy without producing anything of value themselves. Since more gold was owed than the townspeople as a whole possessed, the wealth of the town and eventually of the country was siphoned into the vaults of these goldsmiths-turned-bankers, as the people fell progressively into their debt. As long as the bankers kept lending, the money supply would expand and the economy would be in a boom cycle. But when the credit bubble got too large, the bankers would raise interest rates and people who could not afford the new rates would default on their loans or would be unable to take out new ones. Their property would then revert to the banks, and the cycle would start again.
If a farmer had sold the same cow to five people at one time and pocketed the money, he would quickly have been jailed for fraud. But the goldsmiths had devised a system in which they traded, not things of value, but paper receipts for them. The shell game became known as ‘fractional reserve’ banking because gold held in reserve was a mere fraction of the banknotes it supported.
The Rise of the Central Banking System
Fractional reserve lending, in turn, became the basis of the modern central banking system. It allowed private banks to issue gold and silver notes that were many times in excess of the banks’ holdings. Although the scheme smacked of fraud, the new paper bank-notes were condoned and even welcomed by kings short of gold, because they gave the appearance of being backed by that scarce commodity. An expandable money supply was needed to fund the economic expansion of the Industrial Revolution. The coinage system had put undue emphasis on metals. Rapid industrialisation had led to repeated economic crises because the availability of precious metal coins could not keep up with demand.
The charter for the Bank of England was granted to William Paterson, a
Scotsman, in 1694. Called ‘the Mother of Central
Banks’, the Bank of
In most modern central banking systems, a private central bank is chartered as the nation’s primary bank, which lends exclusively to the national government. It lends the central bank’s own notes (printed paper money), which the government swaps for ‘bonds’ (its’ promises to pay) and circulates as a national currency. Today in the United States, dollars are printed by the US Bureau of Engraving and Printing at the request of the Federal Reserve (the US private central bank), which ‘buys’ them for the cost of printing them and calls them ‘Federal Reserve Notes’. Today, however, there is no gold on ‘reserve’ backing the notes. The dollar reflects a debt for something that doesn’t exist.
The Bank of England was nationalised in 1946, but the coins and notes it
issues constitute only about 3 percent of the money supply. Like in the
The House the Debt Built
The result of this illusive credit-money system is that today we’re
living in a ‘credit bubble’ of ominous proportions. In 1959, when the
Federal Reserve first began reporting the annual money supply, M3 (the widest
reported measure) was a mere $288.8 billion.
By February 2004 – in only 45 years – M3 had multiplied by over 30 times to $9 trillion. Where did this new money come from? No gold was added to the asset base of the country, which went off the gold standard in 1934. The answer to this riddle is that the money didn’t come from anywhere. It exists only as a debt. If that concept is hard to fathom, it is because it actually makes no sense. It is ‘a fiction based on a fraud’.
Robert H Hemphill, Credit Manager of the Federal Reserve Bank of
"We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets of complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilisation may collapse unless it becomes widely understood and the defects remedied soon."
With the exception of a few coins, all of our money is borrowed; and it is borrowed from banks that never had it to lend! Today they just create it as a data entry on a computer screen.
An aggressive experiment
Richard Duncan, writing in the
US is now the world’s largest debtor
By the time the great Asian tsunami hit on
"In numerous years following [the Civil War], the Federal Government ran a heavy surplus. It could not [however] pay off its debt, retire as securities, because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply."
That is one reason the debt can’t be paid off: our money supply is debt and can’t exist without it. But there is another obvious reason: the debt is simply too big. To get some sense of the magnitude of a $7.6 trillion obligation, if you took 7 trillion steps you could walk to the planet Pluto, which is a mere 4 billion miles away. If the government were to pay $100 every second, in 317 years it would have paid off only one trillion dollars of this debt. That’s just for the principal. If interest were added at the rate of only 1 percent compounded annually, the debt could never be paid off in that way, because the debt would grow faster that it was being repaid. (3). To pay it off in a lump sum through taxation, on the other hand, would require increasing the tax bill by about $100,000 for every family of four, a non-starter for most families.
Financial Weapon of Mass Destruction?
For the foreign holders of
"The timing of any drastic move by big players is very hard to predict. China and Japan for example, either one of those, can cause a complete crash, a total collapse of the dollar just by selling a small portion of their reserves. In fact, probably they won’t have to sell their reserves, all they have to do is stop accumulating or slow down their rate of accumulation and it will be dollar crash. (5)"
According to a January 2005 Asia Times article:
Returning the Money Power to the People
The American colonies were an experiment in utopia. In an
uncharted territory, you could design new systems and make new rules. In
"There was abundance in the Colonies, and peace was reigning on every border. It was difficult, and even impossible, to find a happier and more prosperous nation on all the surface of the globe. Comfort was prevailing in every home. The people, in general, kept the highest moral standards, and education was widely spread."
Different provinces experimented
differently with the new paper money. Under the
The Real Cause of the American Revolution
The colonies thrived without silver or gold until 1751, when paper
‘legal tender’ was outlawed in
The colonists won the Revolution against the British Crown, but they
lost the right to create their own money to the British bankers and their
A $7.7 trillion (+) debt tsunami is currently bearing down on the
The $7.7 trillion federal debt was created with accounting entries on a
computer screen. It can be eliminated in the same way. The
simplicity of the procedure was demonstrated in January 2004, when the US
Treasury called a 30-year bond issue before its due date. The Treasury’s
action generated some controversy, since government bonds are generally
considered good until maturity. (7) But calling (or paying off) a
bond before its due date is done routinely by other issuers. Corporations
and municipalities buy back their bonds whenever it is advantageous for them to
do so. When interest rates fall, they call their bonds in order to
refinance their debt at lower rates. The difference between a bond
called by a corporation and one called by the
TREASURY CALLS 9-1/8 PERCENT BONDS OF 2004-09
"The Treasury today announced
the call for redemption at par on May 15, 2004 of the 9-1/8% Treasury Bonds of
2004-09, originally issued may 15, 1979, due May 15, 2009 (CUSIP No
9112810CG1). There are $4,606 million of these bonds outstanding, of
which $3,109 million are held by private investors. Securities not
These bonds are being called to reduce the cost of debt financing. The 9-18% interest rate is significantly above the current cost of securing financing for the five years remaining to their maturity. In current market conditions, Treasury estimates that interest savings from the call and refinancing will be about $544 million.
Payment will be made automatically by the Treasury for bonds in book-entry form, whether held on the books of the Federal Reserve Banks or in Treasury /Direct accounts." (8)
The provision for payment ‘in book entry form’ means that no dollar bills, cheques or other paper currencies are to be exchanged. Numbers will simply be entered into the Treasury’s direct online money market fund (‘Treasury Direct’). The investments will remain in place and intact and will merely change character – from interest-bearing to non-interest-bearing, from a debt owed to a debt paid.
Where did the government plan to get the money to ‘refinance’ this $3 billion bond issue at a lower interest rate? Whether it was from the private banking system on the open market, or from the Bank of Japan with notes printed up for the occasion, or from the Federal Reserve as the purchaser of last resort, the money was no doubt created out of thin air. As Federal Reserve Board Chairman Marriner Eccles testified before the House Banking and Currency Committee in 1935:
"When the banks buy a billion dollars of Government bonds as they are offered …. they actually create, by a bookkeeping entry, a billion dollars."
If the Treasury can cancel its promise to pay interest on its bonds simply by announcing its intention to do so, and if it can pay off the principal just by entering number sin an online database, it can pay off the entire federal debt in that way. It just has to announce that it is calling all of its bonds and securities, and that they will be paid ‘in book-entry form’. No cash needs to change hands.
The usual objection to this solution is that it would be dangerously
inflationary, but would it? Paying off the
A Newer Deal
In 1933, President Roosevelt pronounced the country officially bankrupt, exercised his special emergency powers, waved the royal Presidential fiat, and ordered the promise to pay in gold removed from the dollar bill. The dollar was instantly transformed from a promise to pay in legal tender into legal tender itself. Seventy years later, Congress could again acknowledge that the country is officially bankrupt and propose a plan of reorganisation. By simple legislative fiat, it could transform its ‘debts’ into ‘legal tender’.
One objection that has been raised to paying off the federal debt by ‘monetizing’ it is that foreign investors would be discouraged from purchasing US bonds in the future. But once the government reclaims the power to create money from the banking cartel, it will no longer need to sell its bonds to investors. It will no longer even need to levy income taxes. It will have other ways to finance its budget.
A Modest Proposal for Eliminating the Personal Federal Income Tax
Returning the power to create money to the government and the people it represents would generate three new sources of revenue for the public purse:
1. The interest earned on loans would be returned to the government
Using the figures for 2002 (the last relatively normal year before the
United Sates was at war in
2. Congress could issue new interest-free US Notes (Greenbacks) to the extent (and only to the extent) needed to ‘grow’ the money supply in order to cover productivity and interest charges.
In the monetary scheme of Benjamin Franklin, paper money was issued ‘in proper proportions to the demands of trade and industry’. What is the ‘proper proportions’ of monetary growth? One way to approach the problem is to look at current growth. The money supply (M3) grew from $7.96 trillion in November 2001 to $8.49 trillion in November 2002, an increase of $529 billion or 6.6 percent. (10) Under the present system, the expansion in the money supply needed to keep up with productivity and interest charges must come from federal borrowing, since private borrowing zeroes out on repayment. If the government were to quit ‘borrowing’ money into existence, this source of growth would dry up, and there would be insufficient money to cover the interest due on commercial loans. Like in a grand game of musical chairs, some borrowers would have to default.
If the average collective interest rate is 6.6 percent, and if the government can no longer ‘borrow’ that money into existence, it will need to issue enough new Greenbacks to increase the money supply by 6.6 percent just to keep the system in balance. In 2002, that would have meant creating $529 billion in new debt-free US Notes.
3. If the government were to pay off the federal debt with new Greenbacks, it would no longer need to budget for interest on the debt.
Using 2002 figures, money paid in interest on the federal debt came to £333 billion. Paying off the debt would have reduced the collective tax bill by that sum.
Combining these three sources of funding - $353 billion in interest income, $529 billion in new US Notes to cover annual growth in the money supply, and $333 billion saved in interest payments on the federal debt – the public coffers could have been swelled by $1,215 billion in 2002. Total personal income taxes that year came to only $1,074 billion. Thus by reclaiming the power to create money from the private banking system, Congress could have eliminated individual income taxes in 2002 with $141 billion to spare. How much is $141 billion? According to the Unites Nations, a mere $80 billion added to existing resources in 1995 would have been enough to cut world poverty and hunger in half, achieve universal primary education and gender equality, reduce under-five mortality by two-thirds and maternal mortality by three-quarters, reverse the spread of HIV/AIDS, and halve the proportion of people without access to safe water world-wide (11)
(1) J Lawrence Broz,
et al., Paying for Privilege: The Political Economy of Bank of
(2) "How much are we giving to
George Humphrey, Common Sense
(4) ‘The Presidential Facts Page’, The History Ring, www.scican.net/-dkochan.
Mead McKay, ‘Central Banks Dump Dollar for Euro’, Asia Times, www.atimes.com
Stephen Zarlenga, The Lost Science of Money (
‘US Treasury Defaults on 30 Year Bond Holders’, www.rense.com
Department of the Treasury, ‘Public Debt News’, Bureau of the Public Debt,
Federal Board of Governors, ‘Total Bank Credit Outstanding’, see
Federal Reserve Statistical Release, ‘Money Stock Measures’ (
Ellen is an attorney
in Los Angeles, California and the author of ten books, including the best
selling Nature’s Pharmacy, co-authored with Dr Lynne Walker. This
article is drawn from her forthcoming book The
Wizards of Wall Street and How They Are Bankrupting
Published in Namaste Volume 8 Issue 3