Chapters 1, 2, and 3 of 'Monetary Revolution USA'

(all rights reserved: David Redick, Author)

(see Chapters 3, 4, and 5 at #2 in the left margin of this site)

"Give me control of a nation's money and I care not who makes it's laws" – 1790, Mayer Amschel Bauer Rothschild (1743 -1812), Founder of the worldwide Rothschild Baning Dynasty 

Definition of Revolution: Activity or movement designed to effect fundamental changes in the socioeconomic situation (Merriam-Webster) 

Introduction 

The USA needs a Monetary Revolution to end distortions and losses in our economy, and end corruption in government and the financial services industry. Most of our citizens have accepted the immoral and counterproductive attitude that: 1. The government should and will bail out most people and businesses that get in financial trouble, even if due to irresponsible, self-serving, conduct, and 2. It is proper to tax others (typically ‘the rich’ and ‘corporations’) to fund benefits for yourself, which I call gang-theft-by-vote. Federal money feeds these bad habits. The economic and moral decline of our country and its worldwide empire are the result. 

What does our monetary system have to do with this? The key underlying issues are: 1. Internationally, the US dollar is the world’s primary reserve currency (while this status lasts), so we can create dollars out of thin air to pay our foreign debts (imports and loans) with our own currency (most nations must buy US Dollars) without facing exchange rates (very handy for our big spending government !), and 2. Our central bank, the Federal Reserve System, creates new fake money to fund the excessive federal spending (politicians like that better than raising taxes), plus recent massive bailouts of firms run by their friends, using phony reasons such as ‘too big to fail’. In addition to ‘normal’ borrowing to fund deficits, our federal debt increases because, 1. Our foreign suppliers often invest in US Treasury securities with the dollars we pay them, so there is a ready market for us to borrow from, and 2. More borrowing and new money is needed because US states become dependent on federal money as they seek and accept grants, pork, and federally funded state projects with strings attached (happily provided by vote-seeking congresspersons). All of this federal spending leads to an excess increase in our money supply, which causes price inflation and eventual failure of the US dollar as its value drops worldwide. Thus, our present mode of operation is not sustainable and must end. 

As my effort to avoid further decline of our USA, this book focuses on problems and solutions about our monetary system, and how we fund government at all levels (city to federal), and banking. My prior book, ‘Rebuild America Now’ covers other economic and social problems. 

Broadly, a ‘monetary system’ for a nation is the system used to provide and control the exchange of money. It includes the currency (physical coins and paper, or their electronic form; see Glossary), mints, various types of private (not government owned) banks, and usually a ‘central bank’ which manages the system and stores the nation’s reserves (gold, currency of other nations, etc.). In most nations, the central bank is owned and operated by the government, but our Federal Reserve System is a so-called ‘private’ corporation, but operates in secrecy and kow-tows to pressure from politicians; more on that in Chapter 2. All developed nations today control their monetary systems tightly, including ‘legal tender’ laws that in various ways force people to use the ‘official’ government money. History shows us that private money (issued by non-government mints) and banking always works well, where anyone can create money and run a bank, and the only government role is to prevent fraud and theft. The crooks that create and push (as in dope ‘pushers’) fake money are soon discovered and no one will use their money or bank. However, when the government is the crook, and uses legal tender laws to force use of their fake money, it is harder for the citizens to make corrections! Politicians always try to gain control of the system so they can manipulate it to fund projects to keep and enhance their jobs, egos, and power. They make new fiat money out of thin air, debase coins (reduce precious metal content or coin size), etc. ‘Fiat’ means the government declares the ‘face value’ of metal or paper money without regard to the intrinsic market value of the material of which it is made. They also borrow money from banks and other nations, usually by selling bonds. Bankers have the same incentive to control government (with loans, bribes and threats), and thus the monetary system, and history shows they have been successful at it. Their favorite method is to control the central bank of a nation, and it is said they arrange ‘troubles’ (wars, assassinations) for those who won’t cooperate. The Rothschild banking family has been preeminent worldwide in starting and controlling central banks. The formative days of banking and securities dealers in the U.S. (through 1930) were dominated by the families of Morgan, Rockefeller, Warburg, Carnegie, Harriman, du Pont, Astor, and Kennedy. Their legacy of government control is still with us. It reminds us that both politicians and bankers follow the Golden Rule: ‘He who owns the gold, makes the rules’. 

Thus, the world has a long history of nations that have failed due to abuse of their monetary system to fund wars, excess spending, and corruption. The failed empires (they had lots of colonies) of Rome, France, Portugal, Spain and England are recent examples. Sadly, the USA is in the late stage of a failing empire for the same reasons. We don’t have colonies, but with our over 800 bases in 130 countries (and growing), we exert a lot of control, which has the same effect. See Chapter 2 in my book ‘Rebuild America Now’ for more discussion on empires. 

Given those historical trends, where are we today? It is not surprising that our monetary system, and those in most of the world, are controlled by corrupt politicians, securities dealers (aka ‘Wall Street’), and bankers. Learned economists join the group-thought to have secure jobs. The greed and treachery of these financial industry leaders and their willing dupes caused the world depression that started in 2007 and is still unfolding as I write in September, 2010. Greed is a human trait and present wherever humans operate, and in any type of political or economic system (Capitalism, Socialism, Fascism, Communism; see Glossary). Crooked leaders and their gangs are worst in the more centralized and authoritarian systems, where the authority of government, and its fake money, protect their jobs and feed their growth. When these self-serving people get control of a government, and a country’s financial system, major distortions, wars, and then economic and moral failure, always occur. 

This book will analyze where we are today, and offer a comprehensive plan on how we can repair the damage and recover.  A major innovation is shown on page 79 and 109, where I re-introduce the ‘Private Gold Standard’. My version is based on ‘Redick’s Four Monetary Rules’ shown on P. 72. 

With regard to the goals of more peace, prosperity, justice and ethics, I evaluate a nation’s condition and conduct in accordance with my core principle: ‘'The government's proper role is to protect the personal and property rights of its citizens and legal residents, as individuals, from threat to, or violation of, their rights by others”. Governments that violate this principle ALWAYS veer from these goals by engaging in immoral fundraising (most taxes are gang-theft-by-vote), intervention and damage to free-market productivity and civil rights, corruption, excess spending and debt, and imperialist adventures abroad. Thus, most of my solutions require LESS GOVERNMENT and PRODUCE MORE LIBERTY. Our Constitution supports this approach. 

For more information, and updates on topics herein, see my web site www.Forward-USA.org. Please send comments to Dave@Forward-USA.org. 

Thanks for your interest and support,  Dave Redick 

Dave’s Brief Bio  (see P. 111 for details) 

Personal and Education: 

1935: Born in MI (near Detroit) 

1958: BS-Engineering, University of Michigan, Ann Arbor, MI 

1965: MBA-Economics, Santa Clara University, Santa Clara, CA 

Career: 

1958 -1969: Aerospace Engineering and hi-tech sales 

1970 -2004: Telecommunications sales and management 

1993 -2000: VP Sales then CEO of consultant HNTelecom.com 

2000 -2001: VP and Cofounder of venture capital funded startup Fiberstreet.com (closed, use Google) 

2004 - Present: a) Speaker and Author on Economics, Better Government, and Trends, and b) Energy Consultant 

Politics: Active in ‘less government’ political work since 1978. Candidate for US Congress (3 times), and State Assembly (2).

Chapter 1: The US Monetary System    

A Brief History of Money 

The American colonies created script (paper money not backed by a commodity such as gold) but it was often abused by over-production. This gave our Founders fair warning about the poblems with paper money. The King of England frowned on their attempts at monetary independence and their script was banned by English Parliament in the ’Currency Act of 1764’. This caused a depression in the colonies, and was one of the reasons for the American Revolution. Notice that this is not in the government-approved history books in our schools! 

The Colonies and early US used many types of currency from other nations, and had no ‘official’ U.S. money. The ‘Spanish Milled Dollar’ (or ‘8 Reales’) was prominent due its known silver content (27.07 grams of .903 fine silver). People often cut these coins into pie-slice shaped halves, quarters, and eighths (or ‘bits’) to make change. These are the famous “pieces of eight” of romantic literature, and the origin of ‘2 bits’ equals a quarter dollar. 

Following Alexander Hamilton’s recommendations to create a national currency, Congress enacted the ‘Coinage Act of 1792’ (The Mint Act). It established gold and silver as the monetary standards of the United States with the gold standard regulated at 15 times the value of silver. This fixed ‘bi-metallic’ standard caused trouble later! The initial US silver dollar coins were struck of 26.96 grams of 0.8924 fine silver alloyed with copper. The diameter was about 39 to 40 millimeters with a lettered edge reading ‘HUNDRED CENTS ONE DOLLAR OR UNIT’. The act also allowed for the creation of a national mint. It was the world’s first decimal-based monetary system.

Between the adoption of the Constitution and the Civil War the United States government did not issue paper money as we know it today, but on many occasions it did issue short term debt called Treasury Notes. They also issued Demand Notes that were intended to function as money, and were authorized within the legal framework of Treasury Notes. This was a ‘sneaky’  ploy since the U.S. was not generally assumed to have the authority to issue banknotes at that time.

The Continental Congress had issued Continental dollars between 1775 and 1779 to help finance the American Revolution. The paper Continental dollars nominally entitled the bearer to an equivalent amount of Spanish Milled dollars but were never redeemed in silver and lost 99% of their value by 1790 despite the American victory. Some claim that British General Howe printed thousands of Continentals and sold them cheaply in order to destroy its value. With the fate of the Continentals in mind, the Founding Fathers put no provision for a paper currency in the Constitution, and they forbaide the states to use anything but gold or silver as legal tender. As a result, the pre-Civil War circulation of banknotes in the United States consisted of private issues, including issues by private federally chartered banks such as the First and Second banks of the U.S. (more below).

In 1861 Lincoln needed money to finance the Civil War, so he went with his Secretary of the Treasury to New York to apply for the necessary loans. The Bankers (money changers), wishing the Union to fail, offered loans at annual rate of 24% to 36%. Lincoln declined the offer. An old friend of Lincoln's, Colonel Dick Taylor of Chicago was put in charge of solving the problem of how to finance the war. His solution is recorded as this: "Just get Congress to pass a bill authorizing the printing of full legal tender treasury notes... and pay your soldiers with them and go ahead and win your war with them also." It worked for a few years.

Then came the ‘National Bank Act of 1863’ that established a system of national charters for banks. It encouraged development of a national currency based on bank holdings of U.S. Treasury securities, the so-called National Bank Notes. It also established the Office of the Comptroller of the Currency (OCC) and US Mint as part of the Department of the Treasury.

The next major banking law was the ‘Fourth Coinage Act of 1873’ led by Pres. Grant that demonetised silver and effectively put the US on the gold standard, which replaced the gold and silver bimetallicstandard that had been created by Alexander Hamilton. Many of the poorer citizens saw this as a "crime," which prompted passage of the Bland-Allison Act, by Congress on February 28, 1878. It did not provide for the "free and unlimited coinage of silver" demanded by Western miners, but it did require the United States Treasury to purchase between $2 million and $4 million of silver bullion from mining companies in the West, to be minted into coins that would be legal tender for all debts, like gold. Paper ‘Siver Certificate’ money was first issued in 1878 (until 1964) and bore the words; ‘Silver Certificate, This certifies that there is on deposit in the Treasury of the United States of America ‘x’ Dollars in silver payable to the Bearer on Demand’, and ‘This Certificate is Legal Tender for all Debts, Public and Private.’ Most were $1, $2, and $5. Redemptions were paid in $1 silver coins of one ounce.

Next, the bankers conspired to get  the Federal Reserve System approved on December 23,1913 (see P. 21). Today’s ‘Federal Reserve Notes’ only bear the words ‘This Note is Legal Tender for all Debts Public and Private.’ In Dec-1971 the short-lived Smithsonian Agreement was tried. The most recent was passing ‘The Depository Institutions Deregulation and Monetary Control Act’ a United States federal financial statute law passed in 1980, which gave the Federal Reserve greater control over non-member banks.

US Central Banks

Politicians like central banks that control the national monetary system because they can manipulate them to gain funding without politically unpopular taxation. In 1791, the ‘First Bank of the United States’, (BUS-1), was started, but it failed in 1811. The second attempt was the ‘Second Bank of the United States’ (BUS-2), which was chartered in 1816, with a renewal required in 1836.

“The predominant reason that the Second Bank of the United States was chartered was that in the War of 1812, the U.S. experienced severe inflation and had difficulty in financing military operations. Subsequently, the credit and borrowing status of the United States were at their lowest levels since its founding.

The Second B.U.S. was in no sense a national bank but rather a privately held banking corporation. The bank had a unique relationship with the federal government that gave it access to substantial profits. President Andrew Jackson strongly opposed the renewal of the ‘second’ bank’s  charter, and built his platform for the election of 1832 around doing away with the Second Bank of the United States, which he did in Sep-1833.” (wikipedia.org)

Creating the Fed

The Federal Reserve System should be considered the third U.S. central bank (BUS-3). The secret movement to create the financial monster now known as the ‘Fed’ was consummated on November 22, 1910 at a private club on Jekyll Island, Georgia. 

Congregated at his clandestine meeting were some of the most powerful financial people in Europe and America including: 

Nelson W. Aldrich: Republican "whip" in the Senate, chairman of various committees including the Committee on Finance and Chairman of the National Monetary Commission. Aldrich was a business associate of J. P. Morgan and father-in-law to John D. Rockefeller, Jr.

Frank Vanderlip: President of the National City Bank of New York, which at the time was one of the most powerful banks in the US and was under the control of William Rockefeller and the international investment banking house of Kuhn, Loeb & Company

A. P. Andrew:  Assistant Secretary of the United States Treasury

Henry P. Davison: Senior Partner of J. P. Morgan Company, emissary of J. P. Morgan

Charles D. Norton: President of the Morgan-dominated First National Bank of New York

Benjamin Strong: Head of J. P. Morgan's Bankers Trust Co. and loyal lieutenant of J. .P Morgan

Paul Warburg: A recent émigré from Germany, partner in the banking firm of Kuhn, Loeb & Co. who was the agent of the German Central Bank (Reichsbank) and the Rothschilds and Warburgs banking dynasties based in Europe.

‘The sole intention of these conspirators was to draft a blueprint for a strong central bank that served their interests. This blueprint was the Federal Reserve System and the prize was the future control of the money supply and credit of the United States.

Because the Federal Reserve System was to be a bank of issue then, just as the plotters understood all too well, it was unconstitutional from its inception. And, here was the second greatest challenge to the schemers – to prepare a program of fundamental banking reform and get it past the scrutiny of patriotic Congressmen and the American public. (www.overlordsofchaos.com) 

Aldrich headed a commission in 1911 to study the role and need for central banks. He came home from a study trip to Europe claiming to be a new supporter of them, but that was a ploy to cover the existing plans from Jekyll Island in 1910. The Aldrich Commission's report was submitted to Congress in 1912. Although Woodrow Wilson, a Democrat, won the 1912 election, the Republican Aldrich's plan shaped the extensive debate that followed. A Democrat, Carter Glass of Virginia, shepherded the Federal Reserve Act through the Congress. On Dec. 23, 1913, when many Congresspersons, including major opponents of central banking, had already left town, Congress adopted the Federal Reserve Act, also known as the Owens-Carter Act. Even the name was meant to deceive, so they chose: 1.  ‘Federal’ to make it seem to be part of the government, and 2. ‘System’ instead of ‘Bank’ because many Congresspersons opposed a federal bank. They planned the ‘system’ with twelve regional banks (each a privately owned corporation) to satisfy private bankers that their regional concerns would be heard.

‘ One sees the fine hand of Warburg in this final strategy. Some of the bill's most vocal critics had already left Washington. It was a long-standing political courtesy that important legislation would not be acted upon during the week before Christmas, but this tradition was rudely shattered in order to perpetrate the Federal Reserve Act on the American people.

The "unprecedented speed" with which the Federal Reserve Act had been passed by Congress during what became known as "the Christmas massacre" had one unforeseen aspect. Woodrow Wilson was taken unaware, as he, like many others, had been assured the bill would not come up for a vote until after Christmas. Now he refused to sign it, because he objected to the provisions for the selection of Class B. Directors.

William L. White relates in his biography of Bernard Baruch that Baruch, a principal contributor to Wilson's campaign fund, was stunned when he was informed that Wilson refused to sign the bill. He hurried to the White House and assured Wilson that this was a minor matter, which could be fixed up later through "administrative processes". The important thing was to get the Federal Reserve Act signed into law at once. With this reassurance, Wilson signed the Federal Reserve Act on December 23, 1913. History proved that on that day, the Constitution ceased to be the governing covenant of the American people, and our liberties were handed over to a small group of international bankers.’ (from www.goldismoney.info) 

Structure of the Fed 

 ‘The Federal Reserve System consists of the Board of Governors of the Federal Reserve System, the 12 Federal Reserve banks, the Federal Open Market Committee, the Federal Advisory Council, and, since 1976, the Consumer Advisory Council. There are also within the system several thousand member banks. The Board of Governors of the Federal Reserve System, domiciled in Washington DC, determines the reserve requirements of the member banks within statutory limits, reviews and determines the discount rates established by the 12 Federal Reserve banks, and reviews the budgets of the reserve banks.

Each Federal Reserve Bank is a privately owned corporation established pursuant to the Federal Reserve Act of 1913 to supposedly serve the public interest. A board of nine directors governs each Federal Reserve Bank, six of whom are appointed by the member banks and three of who are appointed by the Board of Governors of the Federal Reserve System. The 12 Federal Reserve banks are located in Boston, New York, Philadelphia, Chicago, San Francisco, Cleveland, Richmond, Atlanta, St. Louis, Minneapolis, Kansas City and Dallas. Determination of Federal Reserve Bank policy in the purchase and sale of securities on the open market is the power of the Federal Open Market Committee (FOMC) consisting of the seven members of the Board of Governors and five members elected by the Federal Reserve banks. The Federal Advisory Council consists of 12 members, one of whom is elected by the board of directors of each of the Federal Reserve districts, and whose role is purely advisory. Federal Reserve Act of 1913 demands that all US national banks are required to be members of the Federal Reserve System, while state banks may become members if they meet membership qualifications. The supreme regulatory powers in fiscal affairs gifted to this private monopoly called the Federal Reserve System manifest in several ways but the most important are the instruments of so-called direct or indirect control.

 1. Of direct control, one method used is adjusting the legal reserve ratio (i.e. the proportion of its deposits that a member bank must hold in its reserve account) thereby increasing or reducing the amount of new loans that the commercial banks can make. Thus, in this way the potential money supply is expanded or reduced because loans give rise to new deposits.

2. Another direct control mechanism to influence potential money supply is by the manipulation of the discount (rediscount) rate, which is the rate of interest charged by Federal Reserve banks on short-term secured loans to member banks. Loans are usually sought to maintain reserves at their required level, and so an increase in the cost of such loans has an effect similar to that of increasing the reserve requirement.

3. Of indirect control, the classic method is through open-market operations. It was first used in the 1920s but is now employed daily to make small adjustments in the market. This control mechanism has the Federal Reserve Bank selling or purchasing securities on the open markets that causes a reduction or increase the size of commercial-bank reserves. That is, when the Federal Reserve sells securities, the purchasers pay for them with checks drawn on their deposits, thereby reducing the reserves of the banks on which the checks are drawn'

4. A supplemental control mechanism occasionally used by the Federal Reserve Board is that of changing the margin requirements involved in the purchase of securities.’ (from www.overlordsofchaos.com)

Notice that the word ‘reserve’ is used extensively above, both in the name of the Fed, and its activities. This is because if a private bank gets low on reserves (compared to the legal requirements at the time), it can’t make new loans, and this could be widespread in bad economic times. While a new bank depends on investments by shareholders for its initial reserves, profits and borrowing from the Fed become major sources as it grows. Hence, the Fed’s role in loaning banks money to boost their reserves is a powerful tool in ‘managing’ the level of economic activity nationwide. It also allows the Fed, as ‘lender of last resort’, to do bail-outs in bad times!

The above description shows how the so-called ‘privately owned’ Fed bank controls the US monetary system. Not mentioned, is that most of its meetings and actions are secret, even to Congress, and that it is heavily politicized and controlled by the Federal government. What a joke to see the liar Bernanke plead that Ron Paul’s bill HR-1207 to audit the Fed will reduce its independence. It has none!

Nelson Hultberg (www.AFR.com) said it well in his essay ‘The Fed is a Fascist Cartel’: “The Federal Reserve, in my opinion, should not be classified as a private corporation. It should be termed a government-run fascist cartel. There are several important reasons for this. For example,

1. All nationally chartered banks in the Federal Reserve system are forced by the government to join the cartel.

2. Bernanke and his board of governors are appointed by the President and approved by the Senate.

3. The Federal Reserve came into being because of an act of Congress, and it can be altered or legislated out of being at anytime by Congress.

These factors are not how private corporations are created or operated. The Fed entails government involvement in a massive way. Without the special monopoly privileges legislated by Congress that sustain the Fed, it disappears.”

Chapter 2: Effects of the Fed and Other Central Banks

The Impact of Fake Money

You won't read the following analysis in the newspapers or in a college economics course. Most government and industry leaders, and professors like the present system because their jobs, grants, and social life depend on having and supporting it!  They want to be viewed as 'normal', not a radical 'gold bug' who respects the importance of sound, or ‘real’, money which means gold or silver coins, and paper redeemable in gold by anyone, on demand. This requires an ethical lapse where the fake nature of the money is ignored in order to (hopefully) gain an advantage from it.

The creation of fiat ‘official’ government money has had a profound effect in history and on our nation and the world today. ‘Fiat’ means it is worth whatever the government says it is (its ‘face value’), although the material of which it is made may have more or less intrinsic market value (examples: valuable silver dollars and worthless paper, both declared worth $1, and today’s American Eagle bullion coin with a ‘face value’ of $50 for one ounce of gold!).

KEY POINT ! Normally, when a country creates too much fake money, Sellers avoid it for payment, or stop buying its bonds, due to its falling value, and the party is soon over. However, the US is in a unique position never seen in the history of the world. Our fiat paper money (face value declared by government; not redeemable in precious metal) is the primary de facto (not ‘formal’, since 1971) world’s ‘reserve currency’ (anyone will accept it for payment, and keep it as cash, or as a dollar-denominated asset). We can create new money (paper or electronic) out of thin-air by the billions and sellers of goods and services worldwide (and in the US) will accept it, and we can pay our debts with it, even as the federal government spends to excess. We have abused the 'privileged’ status of the US$ in many immoral and counterproductive ways. It is the underlying cause (funder) of our major problems with jobs (exported due to excess imports of goods), banking and securities (weird deals based on loose money), excess personal spending and debt (buy and play now, pay later!), and wars (expensive). 

                               Table 1

                 The Honest National Debt 

                             ($ Trillions)       

$ 38.3  Medicare (unfunded promises as of Jan-2008)

6.6   Social Security (unfunded promises as of Jan-2008)

  13.5  Public Debt (known liabilities that it is legally obliged to

           fulfill; includes publicly held debt, military and civilian

           pensions, and retiree health benefits)

$ 56.4  Total 

(source: 2008 Financial Report of US Govt, US Treasury Dept;

format from www.PGPF.org) 

The ‘official’ government debt figures ignore the above Medicare and SS items, plus potential trillions that loom due to losses among the about $5.3 trill. of mortgages owned by  Fannie and Freddie, now government-owned.

The deceit is exposed by the fact that after Congress increased the federal debt limit to $12.104 trill. in Feb-2009 (80% of GDP), in late 2009 it was considering (with great political pain) an increase to just above $13 trill. I say, ‘How about the uncounted trillions?’ Government accounting is loaded with hypocrisy. They ignore the normal accounting rules and honesty that apply to mere citizens, in order to hide the problems they have created. They prosecute private firms for doing the same thing! Note that the above figures do not count the trillions that Obama’s new health plan will cost. 

In 1970 the national debt was $380.9 bill., and 37.6% of the GDP (see Glossary).  In 2010 it is estimated at $14,456.3 bill., and 98.1% of the GDP. Most of the increases occurred after 2002. No one believes this will be paid. To pay it, we can, 1. Increase taxes a lot, 2. Do an overt default, and refuse to pay most of it, or 3. Create new fake money, but this would likely cause hyper price inflation, and destroy the US dollar and economy. Horrible choices, all thanks to irresponsible government leaders, and their willing dupes, on Wall and Main Street.

Of course consumer debt (cars, home mortgages – first and second -, credit cards, TVs, etc.) zoomed upward because of the easy (lax terms, sub-prime), cheap (low interest) fake money created by the Fed in 2000 to 2007. As more people lose their jobs, more bills go unpaid, and the defaults and foreclosures are now doing the upward zoom. Sad. 

New fiat money, and lax terms, funded the debt explosion. This excess credit creates and feeds the abusive and corrupt Wall Street and Main Street excess spending and debt. One cannot underestimate the importance of our ability to pay debts to other nations, and not be required to convert to their money. This conversion would normally trigger ‘market valuation’ which could collapse the US$ value !! Conversely, other nations must buy dollars to pay for most imports, and face declining exchange rates if they have expanded their money supply too much. We have abused this 'reserve' status and as of mid-2009, other nations are seeking alternatives (yuan, yen, a 'basket of currencies', etc.). Most people are not aware that the 'reserve' currency is used for most payments between other nations (example: India pays Brazil for coffee with US$). Hence, all nations keep a supply of US$ to use in trade. All banks are required to have sufficient ‘reserves’ to show a strong asset base for the bank’s obligations (mainly demand and time deposits). Since the US$ has been valued by the world system as ‘good as gold’, it is known as a ‘reserve currency’ and used instead of gold to fund these bank reserves. The Dollar has been used in about 90% of international transactions since its ascendancy in the 1930’s (the English ‘Pound Sterling faded), but it has become weaker since 2000, and declined to 70% or less in 2009. About 30% of international deals are now done in Euros and Yen, but that is increasing as the economies and currencies of China and others grow stronger. Indeed, China started using its yuan for international transactions in 2010, and also allowed foreign firms to create a yuan-denominated private equity funds.

While ‘inflation’ of the money supply (like a balloon) reduces the value of every US dollar, the US government prefers this to deflation because ‘free money’ from inflation helps pay off federal debts to other nations. In the extreme, this is a form of default, since the lender gets paid in near-worthless paper money. In mid-2009, our lenders (China, etc.) voiced concern about this possibility. 

The federal funds target interest rate had been at historic lows of about 1% during 2001 to 2005, which was done to stimulate recovery after the ‘dot-com’ bubble burst on NASDAQ in March-2000. In Jan-2006 Fed Chairman Greenspan increased interest rates to 5.25% to ‘put the brakes on’, just as he ended his final term and handed the reins (and whip?) to Bernanke. The sudden Fed increase caused mortgage rates to rise, which in turn triggered the 2007 decline in housing prices and purchases, and started the worldwide depression. Fed intervention strikes again! The U.S. economy failed quickly because many banks and Wall Street firms were highly leveraged (over 25:1) in risky investments and could not tolerate losses. During the 2000 to 2007 boom times, Wall Street had been ‘securitizing’ bundles of various weak and bad debt instruments (subprime mortgages, credit card debt, etc.), then getting their complicit rating agencies (Moodys, S&P, etc.) to falsely label them AAA. By doing so, they could sell them worldwide to get them off their books, and then make more money by making new loans to other weak borrowers. Massive amounts of cheap fake money, supplied by the Federal Reserve System started and supported these debacles. The money was created for Bush’s $700 billion TARP program (Troubled Asset Relief program) in 2008, the Fed pouring about $2.2 trillion into the economy for their bailouts, and then $787 bill. more for Obama’s Feb-2009 Recovery plan. It’s like pouring gas on a fire!

I say that all of these problems were created by the Fed (with cheering from Congress) by flooding the nation with cheap, fake, money as a stimulant. It should surprise no one that people, bankers, and Wall Street reacted by seeking high-return risky investments (houses, derivatives, etc.) to help them beat the price inflation caused by this easy money (low interest, lax terms), and excess expansion of the money supply. A second cause of seeking excess profits and risk was the ‘moral hazard’ of knowing they would probably be bailed out by the Fed if they got in trouble. Since its creation in 1913, and with a surge since 2000, the Fed has expanded (‘inflated’) the money supply by twenty times. ‘Price Inflation’, a secondary effect caused by inflating the money supply, has reduced the US dollars’ (US$) purchasing power by 95% (20:1) since 1913, So much for government management !

Many people claim that ‘unfettered free-market Capitalism’ was the cause of the 2008 crash, and call for more regulation. They have re-defined 'capitalism' and 'corporations' so they have straw men to attack. In fact, Capitalism is just an ‘economic system' based on private ownership, free enterprise, and minimal regulation, and corporations are primarily just a way to raise money through sale of shares. Capitalism offers more than economic results, it is a moral system that depends on the activity of willing buyers and sellers within the rule of law, not coercion and control by others (the government power folks). Socialists, Liberals, and Progressives have distorted the meaning to call it a ‘social system based on greed and power for the rich’. They blame ‘corporations’ for most of the abuse, while ignoring that in any system (government, church, club, etc.), concentrated power and self-serving, unethical people are always the cause. What they also ignore, through ignorance or bias, is that we have not had a free market since 1913 (when the Fed was born), and especially since 1933 when FDR declared that the government was our mother and boss, and responsible to provide convenience and security for all, and have ‘someone else’ (the government or ‘the rich’) pay for it. This pushed a dagger into the heart of our citizen’s sense of ethics and personal responsibility. Now Liberals tout ‘shared responsibility’ as their basis for taxing others to fund their projects (health, welfare, etc.). Our nation‘s culture and economy have been sliding downhill ever since. The fact is that unconstitutional government programs and intervention have caused our problems. This result shows in every country run by central authority in history, and worldwide today. Central authority always brings less liberty, peace, prosperity, ethics, and justice for all but those in power, and their friends and lackeys.

History shows us that free market capitalism always provides more liberty, peace, prosperity, ethics, and justice for all. I recognize that people violate ethics and justice under capitalism, but this relates to bad people and can occur in any economic system (or church or club). Capitalism still comes out best. Centralized systems like Socialism give more power to the bad guys.

The Fed’s Record of Results

The purchasing power of the US dollar (US$) has dropped 95% since 1913, all due to excess creation of new money (expansion of the money supply; monetary inflation). This hurts the people (especially those on limited or fixed incomes, and those with savings), but the bankers have done well, since they make money selling US debt (T-bills, etc.) and get bailed-out when in trouble due to their own greed (Bear-Stearns in 2008, etc.). Most Fed meetings are secret, and proceedings are not even available to Congress; Preposterous ! Some economists say the Fed is needed in order to assure adequate 'liquidity' or ‘elasticity’ for growth by proper expansion of the money supply, equal to growth of the economy; about 3 to 5% per year. The problem is that such powers are ALWAYS abused by governments (by expansion of 10 to 20% per year, or more!), though some (the Swiss) less than others (the US is among the worst of the major currencies). We cannot, and should not, trust the government or Fed to 'manage' our monetary system. This excess money causes bad spending and investment decisions at both the business and personal level, which creates financial distortions (big peaks, then valleys), as seen in: 1. Bailing-out England after WW1, leading to mal-investment (too much money around) and the crash of 1929 when the money supply was suddenly reduced by about 30% by the Fed, and 2. The 2007-2008 housing price and construction collapse due to a Fed interest rate increase of 4.25% (from 1 to 5.25%) in 2006, and 3. Many other large peaks and valleys, and 90% loss of purchasing value, since the Fed was created. So much for government 'management' of currency and the economy!!

As James Quinn wrote on his web site www.The BurningPlatform.com, in his article ‘Grand Illusion – The Federal Reserve’: “The average American might just conclude that prices always go up, so what’s the big deal about inflation. This is where the Federal Reserve and politicians have pulled the wool over your eyes. The CPI was 30.9 in 1964. Today, it is 211.1. This means that prices have risen 683% since 1964. The only problem is that your wages have not risen at the same rate, even using the government manipulated CPI. Using a true CPI figure, average weekly earnings are 64% below what they were in 1964. This explains why a family of five could live well with one parent working in 1964, but even with both parents working and using debt in prodigious amounts, the average family does not live as well today.”

When nations used real money (gold coins, and tokens and certificates redeemable for gold), they had small highs and lows in their economies, but they were 'self-liquidating' (private investors stop putting limited funds into bad deals), and they never had the huge variations now caused by excess fake money (investors and the government have lots of money to keep funding lots of deals; good and bad).

The analogy below helps demonstrate what fake money does to an economy, its firms, and people.

The Heroin Analogy

The injection of heroin into your body, or a large increase in the money supply (over 5% per year) into an economy, are both 'stimulants', but cause illness when used to excess. When the stimulants are ended to solve the bad effects, your body suffers from withdrawal, and the economy from recession, or worse! Creating fake money to fund 'stimulus' risks price inflation (reduced purchasing power of the US dollar), but or 'leaders' in DC like it because it is a quick 'fix' (shows that they are ‘doing something’), and also helps them payoff their friends (campaign donors) on Wall Street, and federal debt, with cheap dollars. This is part of the heroin analogy, where our 'leaders' (Obama, Geithner, Bush, Paulson, Bernanke (Fed Chm. since February 1, 2006), Greenspan, and most Congresspersons) are shameless, dishonest pushers and dealers with their ‘bailout’ programs. Their priority is to get re-elected (or keep their appointed job) by doing favors for voters, their bosses, and campaign donors, no matter what the long-term harm.

As shown in the May 5, 2009 issues of Gary North's REALITY CHECK, Issue 854, www.GaryNorth.com, “The FED is engaged in a gigantic system of misrepresentation.  It is misrepresenting the solvency of large banks and financial firms in debt to banks.  It is misrepresenting the supply of invested capital.  It is substituting inaccurate prices for accurate prices.  These are the most important prices of all: the price of capital.  These prices inform investors and entrepreneurs of the condition of the capital markets.

The FED is doing its best to conceal the degree of risk and
uncertainty in the capital markets.  Central banks around the world are cooperating with the FED.  This is an international effort by central bankers to deceive the public. To the extent that this deception is working, investor confidence will increase. 

 On April 15, 2008, the FED held $866 billion in assets,
which served as the monetary base for the nation.  On April 15, 2009, it held $2.2 trillion! “

The Fed calls this giant, inflationary, increase in the money supply ‘quantitative easing’. It is the same as more heroin to a sick addict. See more on inflation below.

Some say the Fed should be eliminated because it is a preposterous, damaging, and unconstitutional scheme. Others prefer to just reform it (audits, transparency, etc.). I am in the former camp, and add that we should convert to gold money as discussed in Chapter 4. The world will soon follow as fake money is refused by Sellers; a reverse form of Gresham's Law (without legal tender laws). In this case, good money drives out bad. This would end the justification by all governments for money control and manipulation groups such as central banks worldwide, the BIS, World Bank, IMF, FDIC, legal tender laws, etc., all of which should be abolished. Bernanke and his pals worldwide would need to look for honest work. Good riddance!

The above heroin analogy sends the message that you will always get counter-productive conduct when you flood a system (nation, industry, family) with money. Examples are: 1. 'Nice' student loans have resulted in 'college industry' costs (tuition, books, fees) going up eight times faster than starting salaries for graduates since 1950, due to higher teacher and admin salaries, more teachers (with a low teaching load) and support staff, excess construction, etc., and 2. Health care costs have soared since Medicare started in the 1960’s. You should expect price increases in an industry where the customers receive government money to pay for services! It’s an old story of unsustainable distortions caused by government meddling with the economy (social-engineering, stimulants, depressants, controls, etc., etc.). This also causes price inflation (reduced purchasing power of the Dollar), but the government likes inflation because they have more money to pay of their debts, but the creditor gets less valuable paper. This a form of partial default.

The solution is to use real money and free markets so there is a stable supply of money, and 1. Thus no funding for wars and other corrupt deals, and 2. Failing deals aren't funded for long (government deals get MORE money when in trouble!). Not perfect, but many times better results (peace, prosperity, justice, etc.) than produced by government 'management' and meddling (intervention in the free market)!

Monopoly Money and Legal Tender Laws   

Alan Greenspan was Chairman of the Federal Reserve Bank from 1987 to 2006 and was thus the chief, self-serving, 'pusher, dealer' of heroin (excess increase in money supply) into the US economy. He did this to keep his job (Presidents and Congress hate to run out of money) with full knowledge of, a) the risk of 'distortions' that the equally complicit Congress and Presidents would use it for (war costs, cheap loans for houses), and b) the resulting reduction in value (purchasing power vs. other currencies) of the US$. His meek excuse in Nov-2008 that: 'I erred in trusting the free market' is a lie, and he should be treated as a self-serving liar. He knew he was doing harm, as all heroin pushers do. I remember being asked sometime in the 1990’s whether I thought Greenspan was doing a good job. I replied that ‘It’s not a matter of who has the job, I don’t want the Fed to exist!’ Congressional 'leaders' like Sen. Dodd and Rep. Frank deserve equal shame, plus others. Only a few people in Congress (Senators Hagel, McCain, Dole and others, and Rep. Paul) raised the red flag in the 2000 to 2005 period about the risks of excess and fake money, but they were ignored. The crash of Oct-2008 was the result!

The Fed measures the quantity of U.S. money ('money supply') worldwide in four ways: M0= basic money supply (notes and coins = currency), M1 = M0 + checkable deposits, M2 = M1 + near-money (savings accounts, mutual funds, etc; quick conversion to money), and M3 = M2 + large time-deposits (over $100k). They stopped publishing M3 in 2006. Private sources estimate M3 at $14 trillion in late 2009, of which $6 trill. is overseas. Far less than half of M1 is coins or paper (= 'currency'). The rest is only in electronic form on computers.

But there is another part of the money supply, namely unused credit. As John Mauldin, of www.frontlinethoughts.com, penned on April 17, 2009: " It's a bit misleading to talk about money supply, because money really is roughly $2 trillion of cash and then $50 trillion in credit. Because what do the banks do? They take deposits in and then they borrow money to leverage them up (this is their deal with the Fed: maintain about ten percent 'reserves', the actual deposits, and then borrow your 'lending money' from the Fed). I take my credit card and I spend with it. I borrow against a house. I have an asset that rises, and I borrow against it.

We have $2 trillion of actual cash propping up $50 trillion in credit. If we all decided to settle and pay off everything, we couldn't do it because there is not enough cash. There would be massive asset deflation. We, as a nation, are leveraged 25 to 1, or we were. Now, that $50 trillion is in a real sense the money supply because that is what we are all pretending is real money. I lend you money and you pretend you are going to pay me back. Then you pretend he is not going to call your debt for cash, and we are all going to keep the system going. " A charade!

In addition to creating the Fed, the government tampers with money in other ways, such as 'Legal Tender' laws. Early controls, such as Art. 1, Sec. 10 of the Constitution shown below, were used to assure that only ‘real’ commodity-based money was produced by the government, but politicians find ways to avoid these limits. Ignoring the Constitution is a convenient method, and no one seems to mind! Later, laws were designed to force people to accept fake money, such as Civil War ‘Greenbacks’, rather than insist on gold, etc. This forced Sellers to accept government money when offered (tendered) if they wanted legal recognition of deals (i.e., enforceable in court). These laws are usually a sign of weakness and fraud in a monetary system. Primary U.S. monetary laws are now as follows:

The U.S. Constitution, Art. I Sec. 10 Cl. 1, states, in part:

‘No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; ...’

During the early American Civil War, the federal government first issued United States Demand Notes (the first greenback notes) which were redeemable in gold and silver coin, which were then in shortage due to hoarding. However, due to eventual difficulties in redeeming Demand Notes, a money-strapped Congress which had to pay for the war, eventually adopted the Legal Tender Act of 1862, issuing United States Notes backed only by treasury securities, and compelling people to accept these as payment for debts. Thus forced to accept federal banknotes, the recipients wanted to be able to use them to pay their own debts to each other, and this led to litigation from those who did not want to accept them, but instead preferred coin. The United States Supreme Court ruled the practice unconstitutional in Hepburn v. Griswold in 1870, but later reversed this decision following the appointment of two new judges by President Ulysses S Grant. The Court held that paper money, even that not backed by specie such as the United States Notes can be legal tender, in the Legal Tender Cases, ranging from 1871 to 1884.

On the other hand, coins made of gold or silver may not necessarily be legal tender, if they are not fiat money in the jurisdiction where they are preferred as payment.

Title 31 of the United States Code outlines the role of the money and finance.

Title 31, Chapter 5103: Legal tender, states: ‘United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts. ‘

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor in the U.S..’ (from www.wikipedia.org)

Another example of serious tampering is when FDR was worried that foreign nations might start redeeming their paper US$ to gold before the U.S. ran out of it, so issued the Gold Recall Act (illegal Executive Order 6102) in 1933 that made it illegal for US citizens to own gold anywhere in the world, except for jewelry, and as rare coins. This was codified by the Gold Reserve Act of 1934. It demonetized gold, and increased the government holdings. People were forced to sell it to the government for $20.67 of paper money per ounce, and then FDR increased the 'official' price to $35 oz ! (a fake bonus for the government !). These restrictions on gold ownership were weakened over the years, and ended in 1975.

The Act also established the Exchange Stabilization Fund (ESF), which is still active. Initially funded by the above ‘bonus’ from gold confiscation, it had assets of $51.2 bill. as of June-2008. Its function is to use this special fund to: a. purchase or sell foreign currencies, b. hold U.S. foreign exchange and Special Drawing Rights (SDR) assets, and c. to provide financing to foreign governments, all aimed at bringing stability to the foreign exchange market (read, ‘distort it to suit the US’). There is strong evidence that it was used in the 1990s to intervene in the public gold market to suppress the price of gold (a high gold price makes fiat money look bad). The Sec. of the Treasury has broad discretion in use of the money. What a nice slush fund! Hence, we need to audit the Fed to reveal how much gold they still have, and of what quality.

There have been a series of international agreements to 'manage' currency'. The International Monetary Fund (IMF) and World Bank were born of these deals. Both are counterproductive causes of spending and distortions (including feeding corrupt governments) and should be abolished. Redeemability was restricted more and more until the 'Bretton Woods' agreement (named for the resort area in NH where they met) in July, 1944 which set rules to: 1. Allow only nations to redeem paper for gold between each other (not people; a form of the Gold Bullion Exchange standard), 2. Create the International Monetary Fund (IMF) to handle its transactions, and 3. Set the US$ as the worlds reserve currency, with a fixed value of $35 per ounce of gold. The US engaged in so much monetary expansion (inflation of the money supply) after WW2 it lost much of its value and flooded Europe with so-called 'Euro-dollars'. France finally started demanding gold for most of their paper dollars, which peaked with De Gaulle’s famous press conference on Feb. 4, 1965 where he described the U.S. as having an ‘exorbitant privilege’ as the world’s reserve currency, which allowed us to pay our debts with money created out of thin air! He said: "There can be no other criterion, no other standard, than gold. Gold that never changes, that can be shaped into ingots, bars, coins...that has no nationality and that is eternally and universally accepted as the ultimate fiduciary value par excellence." France started redeeming their paper dollars to gold, but Nixon soon refused to remit gold to any nation (we were running out), and then abrogated Bretton Woods on Aug. 15, 1971, setting the dollar 'afloat' with no redeemability. Within a few years, all nations had done the same, including conservative Switzerland. Whoopee! Everybody could make money out of thin air!

                             Table 2

         Growth of M0: Basic Money Supply

                           (Billion US$)

   Year         M0                 Dollar       
                           Percent    Notes

                    Total      
                                   Change        Change

Notes:

A. Info:

1, Data from Federal Reserve Bank-St.Louis; Year 2009 is to Oct., http://research.stlouisfed.org/fred2/series/AMBNS

2, ‘M0’ is basic currency supply (notes and coins),

B. Analysis of Table Data:

3. The Federal Reserve System started in 1913; the Fed did large M0 increase in ‘30s to help England after WW1,

4.the Fed reduced M0 quickly due to market frenzy in late ‘30s, a major cause of the depression,

5. Fed increased M0 to fund WW2, (see next page)

6. Fed increased M0 in ‘80s as a stimulant after ‘80-81 recession, which led to dot.com bubble in ‘90s,

7. Fed increased M0 in 2000 to 2006 to recover from dot.com bubble crash in March-2000. This became the underlying cause of the 2007-8 housing bubble burst as it fed the CRA, Fannie, Freddie and Main Street and Wall Street binges of excess spending, credit, and fraud! The ‘Bernanke Spike’ of $2 trill. in late 2008 was to stimulate the economy after the housing bubble burst in 2007. Constant meddling and harm!!

The Fed destroys the value of our money by excess expansion of the money supply (‘monetary inflation’). Proof is shown in the start and end "purchase power" amounts below, which are from www.measuringworth.com:

It took $1,202.05 in the year 1912 for the same "purchase power" as $1,000 in the year 1774 (a 17.7% loss in 138 yrs, or 0.13 % per yr).

It took $22,427.40 in the year 2008 for the same "purchase power" as $1,000 in the year 1913 (a 95.5% loss in 95 yrs, or 1.0% per yr). Almost eight times worse than before the Fed!

A decline in purchasing power of the dollar, and thus price increases, always follow a rapid and excess (over 5% per year) increase in the money supply (monetary inflation). The dollar lost 95% of its value from 1913 (when the Fed started) to 2000, but 80% of that loss occurred after Nixon cut the Bretton Woods tie to gold in 1971, and the money supply increased faster. Other factors, such as a reduced supply of goods and services, can cause price increases, but monetary inflation has caused the most harm. An example of distorting the supply of consumer goods is the payroll for workers in aerospace and military industries, where the workers have more money, but the things they produce are not available for purchase by the people.

A special monetary expansion event occurred in late 2008 when Bernanke produced the now infamous ‘Bailout Spike’ by injecting almost $1 trill. of new money into the US economy. On April 15, 2008, the Fed held $866 billion in assets, which served as the monetary base for the nation.  On April 15, 2009, it held $2.2 trillion. A decline in purchasing power of the dollar will follow this increase in the money supply.

Internationally, the US$ emerged as the world's reserve currency (good as gold) after WW1 because all fiat paper money is actually viewed as a share in the economy of the issuer. Thus, the paper of a large and stable government and economy has good value (the best choice within the world’s fake money). Until recently (2008) the US was without question the world’s strongest economy, and thus the US$ had good value as a ‘share’ (like ‘stock’) in 'USA, Inc.'.  Since 1971, the US has abused its currency by inflating its supply even more than other countries, borrowed and spent to excess, and the dollars’ value has decreased (prices increased) rapidly ever since (look at any chart) on both the international exchange basis (about 4:1 against western Europe 'legacy' currencies from 1971 to 1999, then a loss of about 2:1 against the Euro from 1999 to 2008; 0.8 to 1.5 US$ per Euro !), and by about 10:1 domestically (price increase of cars, pizza, etc.; things not subsidized or under price controls). Thus our ‘share’ money is decreasing in value and confidence as viewed by other nations, and they are seeking less dependency on the US$ as the primary reserve currency for the world. This has massive implications on our ability to create new money to pay our bills to other countries, and could result in a crash (loss of 50% or more of purchasing power) of the US$!!

Central Banking Worldwide

The various central banks worldwide are another layer of monetary manipulation. They use the ‘Bank for International Settlements’ (or ‘BIS’) as their meeting place. The BIS, established by the Hague agreements of 1930, is an international organization of 55 central banks, based in Basel, Switzerland, which claims to "foster international monetary and financial cooperation and serves as a bank for central banks" , and says it seeks to make monetary policy more predictable and transparent among its member central banks. While monetary policy is determined by each sovereign nation, it is subject to central and private banking scrutiny and potentially to speculation that affects foreign exchange rates and especially the fate of export economies. Although a private corporation, the BIS, its offices, employees, directors and members share an incredible immunity from virtually all regulation, scrutiny and accountability, with quasi diplomatic status granted and supported by the Swiss government. See more at; http://en.wikipedia.org/wiki/Bank_for_International_Settlements, http://www.newswithviews.com/Wood/patrick5.htm, and http://informationclearinghouse.info/article22247.htm. Many believe the BIS is; 1. Controlled by elite bankers to serve not just the interests of their nation, but also of business and personal ‘friends’, and 2. Is the cause of most currency-related problems, such as inflation and depressions. Stay tuned!

Another ‘world’ financial entity is a private club known as the Bilderberg Group. The original Bilderberg conference was held at the Hotel de Bilderberg, near Arnhem in the Netherlands in1954. It was initiated by several people concerned about the growth of anti-Americanism in Western Europe, who proposed an international conference at which leaders from European countries and the United States would be brought together with the aim of promoting understanding between the cultures of United States of America and Western Europe. Now its focus is on world monetary affairs and holds an annual invitation-only conference of around 130 guests, most of whom are persons of influence in the fields of politics, business, and banking. The participants talk about a variety of global issues; economic, military, and political.

The group meets at a luxury hotel, normally in Europe, and once every four years in the United States or Canada. It has an office in Leiden in the Netherlands. The 2009 conference took place from May 14-16 in Athens, Greece. This year the focus was on topics such as; a Global Monetary Authority, a Global Central Bank, regional currencies, a global reserve currency, and a world governing body.

As Ellen Brown J.D. wrote in the Introduction of her book ‘Web of Debt’; “The late Dr. Carroll was Bill Clinton's mentor. Dr. Quigley wrote from personal knowledge of an elite clique of global financiers bent on controlling the world. Their aim, he said, was "nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole." This system was "to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements." He called this clique simply the "international bankers." Their essence was not race, religion or nationality but was just a passion for control over other humans. The key to their success was that they would control and manipulate the money system of a nation while letting it appear to be controlled by the government. The international bankers have succeeded in doing more than just controlling the money supply. Today they actually create the money supply, while making it appear to be created by the government.”

I say the vision of both the BIS and Bilderberg Group for world prosperity will fail because it is based on money that has no intrinsic value, is subject to excess creation of new money, and thus unsustainable. Yet another ‘world financial’ group, the ’G20’ (20 major nations) had its annual meeting of April, 2009 in London and also focused on the ‘money’ problem. History has many examples of failure, since all empires fail due to running out of purchasing power (their fake money becomes almost worthless; Rome/Italy, Spain, France, England, USSR, etc. are examples). Another sign of failing is decadence of the citizens. Look at how the content of TV, movies, and magazines, etc. have changed since the ‘50s, with more sex, violence and cursing. Just as Romans wanted bread and circuses, with lions and gladiators, our people thrive on the violence of NASCAR and cheating and fighting in sports.  

Starting in the late ‘90s, Pres. Clinton and Cong. B. Frank (the worst mortgage abusers) pushed Fannie and Freddie to ‘help the poor’ (and vote for me) by making more subprime loans, many of which were then sold to Wall Street to be securitized. As Peter Schiff (www.peter-schiff.com) wrote on Feb. 14, 2009; “Developed primarily over the last 10 years, securitization permitted loans of all shapes and sizes to be packaged into investment-ready securities. The system worked, fueling unprecedented levels of lending in the home, auto, student, and credit card sectors. But in the last few years, as the collateral underpinning of these securities has collapsed in value, the trillions of dollars of securitized debt now in circulation has become the toxic sludge at the bottom of our financial pit.”

Foreign banks and investors happily bought trillions of dollars of these securities because they were primarily based on US real estate, had high interest income, and were apparently backed by the US government. The process was corrupt from the start, but was pushed by Congress and Wall Street elites, many of whom made hundreds of millions each in bonuses. As the false prosperity slowed, and caused loss of US jobs, then mortgage foreclosures, these fake securities lost value, and the worldwide crash started in late 2008.

The countries we buy imports from (China leads) accumulate billions of US$ and buy our T-bills to get some interest (and help feed future purchases?). This is a re-cycling of fake money, with interest paid by fake money, with all parties hoping it will last forever!

China and Russia suggested at the Jan-2009 ‘World Economic Forum’ in Davos that a new system is needed to replace the US$ as the world’s primary reserve currency.

On Dec. 15, 2009, Kuwait’s finance minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council (GCC) summit in Kuwait, said:  “The Gulf monetary union pact has come into effect.” This move will give these oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Saudi Arabia, Kuwait, Bahrain, and Qatar are to launch the first phase in 2011, creating a Gulf Monetary Council (GMC) that could evolve quickly into a full-fledged central bank. The Gulf currency (for now “Gulfo”) would track a global exchange basket and could ultimately float as a regional reserve currency in its own right. “The US dollar has failed. We need to delink.” said Nahed Taher, chief executive of Bahrain’s Gulf One Investment Bank. Watch for growth of the GMC, and other ‘new currency’ projects around the world. As of Sep-2010, these grand plans have subsided due to problems with the Euro in early 2010 that gave warning to the Arabs that creating a new currency is risky.

Chapter 3:

The US Banking and Securities System

The System:  The system includes, 

1. 'Commercial Banks', which provide services to large firms,

2. 'Retail Banks', which provide services to small firms and individuals (1 and 2 are sometimes called 'National banks' if multi-state),

3. 'Investment Banks' which invest in ('own') capital (bonds, securities, mortgages, etc.; not to be confused with securities brokers or dealers),

4. 'Savings and Loan Institutions' ('Thrifts'), which provide home mortgages, and

5. Stock Exchanges (SE), which sell securities (shares) issued by corporations. Examples are: New York SE, Pacific SE, NASDAQ, etc.

The 'system' is regulated by the: 

1. 'Federal Reserve System'

2. 'Securities and Exchange Commission' (SEC), created in 1934 to regulate securities markets,

3. 'Federal Deposit Insurance Corp.' (FDIC) which insures deposits against bank failures,

4. 'Office of Control of Currency' (OCC) was established in 1863 as a bureau of the U.S. Department of the Treasury. The OCC is headed by the Comptroller, who is appointed by the President. The OCC was created by Congress to charter national banks, and to oversee a nationwide system of banking institutions.

5. 'Commodity Futures Trading Commission’ (CFTC) is an independent agency of the US government. Its mission  is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets,

6. 'Office of Thrift Supervision' (OTS), an agency of the United States Department of the Treasury, is the primary regulator of federal savings associations (sometimes referred to as federal thrifts). Federal savings associations include both federal savings banks and federal savings and loans. The OTS is also responsible for supervising savings and loan holding companies (SLHCs) and some state-chartered institutions. The OTS was established by Congress as a bureau of the Department of the Treasury on August 9, 1989 as part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

7. 'The Federal Housing Finance Agency' as conservator to regulate Super GSE's FannieMae and FreddieMac. (formed in Sep-2008 as part of the bailout), and

8. The 'Troubled Assets Relief Program' (TARP)  became the manager of the Oct-2008 $700+ billion bailout of Wall Street and banking firms. The initial plan was to buy toxic mortgage-based assets from Walll Street firms, but by Nov-2008 the target had shifted helping with frozen consumer debt. What is Next in this 'Panic to Patch' ??

Abuse of the System by Banks and Congress

It’s bad enough that self-serving politicians and bankers created the Fed to supply money for themselves and their career-enhancing (job saving) projects and wars, but that’s only part of how the banks abuse their customers, the people, and the government. They pay off politicians to get laws that accommodate their schemes to increase profits by entering into high reward but risky deals, while protecting themselves from the risk. The casino culture that caused the 2008 crash and ensuing bailouts of Wall Street form a perfect example.

They sell the toxic CRA mandated ‘no-doc’, ‘fake appraisal’, ‘sub prime’ home mortgages to GSEs Fannie and Freddie the same day they make them. This takes the risk and loan funding off their books while they continue to earn fees for ‘servicing’ the deal by collecting payments, etc. With the prior deals sold, they still have the reserves needed to make new deals. A real profit churn, with the taxpayers at risk via the GSE’s.

Prudent bankers are wary of high-risk projects so they won’t go insolvent due to project failures. This became ‘no problem’ when they created the Fed to be ‘lender of last resort’ to replenish their reserves, even when the ‘market’ would avoid them. This is called a ‘moral hazard’ (acting imprudently because you know you will be bailed-out). The same applies to any business or person with good government ‘connections’.

The ownership of deposits has been distorted by friendly judges and Congresspersons to give an advantage to the banks. Deposits were originally considered to remain the property of the depositor (a ‘bailment’), but courts ruled that since the specific pieces of money could not be identified in the case of losses that the banks were not accountable. Thus deposits became more like loans to the bank that they could use however they wished (loan to others, etc.).

'Fractional reserve' banking is a big part of the problem. When the Fed sets the legal reserve at a typical 10%, banks can loan ten times more than they have. Example: If you deposit $100, they can loan $1,000 (newly created money), and still have your deposit as a 10% reserve. Note that every time a loan is made, or a credit card issued, the money supply increases, and value of all US$s go down.

Another key problem is the Federal Deposit Insurance Corp. (FDIC). This fake 'insurance' (rates not set by market risks; not adequately funded) was created by the government in 1933 so depositors wouldn't get suspicious of fake money and worry enough to withdraw, or avoid making deposits, and now covers $250,000 per depositor per bank. It back-fired in 1991 when the also fake Federal Home Loan Banks ('Savings and Loan' banks) were deregulated in 1990 (as to rates paid to depositors), yet were still insured. White-collar crooks started or bought S&Ls, offered excess high rates to attract deposits, then paid themselves high salaries and bonuses before going bankrupt due to high interest costs! It was planned that way. A federal taxpayer-funded bailout ensued as yet another unintended consequence of government intervention in the free (honest) market. As the FDIC bailed-out depositors of failed banks in the 2008 crash, they replenished their depleted fund by fees imposed on the well-managed surviving banks. Why should the prudently managed banks be forced to bail-out the greedy casino banksters? Another rip-off! With sound money the FDIC is not needed.

The FHA (Federal Housing Administration), created in 1934, insures lenders against default by homebuyers. This is another distortion of the market that weakens our economy. Sure enough, use of the FHA was broadened in the 2008 home mortgage crisis to bailout home 'owners' who signed-up for loans they couldn't afford, and lenders who knowingly approved their bad or insufficient credit. This is another case of the government pouring good money after bad, rather than liquidating past counterproductive 'help'.

Another counterproductive monetary intervention is the 'Pension Benefit Guaranty Corporation'. It is an independent agency of the federal government that was created to support (bail-out?) private pension plans.  How in the world does Congress justify using taxes (or fake money, or under-funded insurance premiums) to bail out private pension plans? Well, it is called 'buying votes' from pensioners. This is what economists call a 'moral hazard' (or perverse incentive), because it allows firms to under-fund their pension plans without penalty; thus more do it. The same applies to 'Federal Disaster Insurance' (passed by Congress in Nov-2007), and 'National Flood Insurance' (NFIP, 1968) which forces all taxpayers to subsidize rates for 'other people' or land developers (including fees tagged-on to home loans, even in areas with extremely low flood risk; such as a small creek nearby !!) so they can get 'affordable' (subsidized) insurance to build (or rebuild) in high risk (flood, hurricane. etc.) areas. All this applies to FEMA, the disastrous Federal organization that is supposed to help us after disasters, which in fact should be treated as State and local issues! This is more counterproductive 'vote getting' with fake money (the States run out of money, but the Federal government doesn't; it is another form of Federal pork)! FEMA should be abolished.

Yet other damaging contrivances (they distort financial markets) are the federally chartered GSE (Government Sponsored Enterprise) corporations. Congress created the first GSE in 1916 with the Farm Credit System; it initiated GSEs in the home finance segment of the economy with the creation of the Federal Home Loan Banks in 1932; and it targeted education when it chartered Sallie Mae in 1972 (although Congress allowed Sallie Mae to relinquish its government sponsorship and become a fully private institution via legislation in 1995).  Federal National Mortgage Association (FMNA, Fannie Mae, was founded in 1938 by FDR, www.fanniemae.com/), and Federal Home Loan Mortgage Corp. (Freddie Mac, in 1970, www.freddiemac.com).  LBJ converted Fannie to a publicly traded corporation, (FNM) in 1968 so it wouldn't be 'on the books' as part of the US budget deficit caused by the Viet Nam war. These fake organizations were created in part to allow banks to issue 30-year fixed-rate home mortgages (sometimes with liberal terms to qualify; such as 'no job, no money') to 'help' make home purchases 'affordable' (with fake, not market-based rates and terms). The problem is that no sane banker would ever guarantee a rate for 30 years! The game is that private banks sell these loans to home buyers, and then re-sell them to Fannie or Freddie the same day (to get rid of such garbage). Both are listed on the NYSE (FNM and FRE), and because their debts were semi-guaranteed by the U.S. Government ('fully' as of Sep-2008), they are able to borrow at low rates. A further deal is that they pay no state or local taxes, and are not required to disclose internal 'problems' as normal banks are. We saw the predictable result of corrupt management policies in Sep-2008 when the US Treasury and Fed invoked the new 'Housing and Economic Recovery Act of 2008' to bail-out (buy?) failing Fannie and Freddie, then set up 'The Federal Housing Finance Agency' (FHFA) to regulate them. A better solution would have been to liquidate them! They were key originators of the ‘2008 Crisis’ by fraudulently representing their weak loans (poor borrower credit) as prime when they sold them to Wall Street to be securitized. On September 17, 2008,  Byron W. King of  www.DailyReckoning.com said: “It used to be that the job of the Federal Reserve was, as former Chairman William McChesney Martin Jr. told it, “to take away the punch bowl just as the party gets going.” Now it seems like the Fed is laying a direct pipeline to the distillery to keep everyone loaded.”

A third player, Ginnie Mae (GNMA), Government National Mortgage Association also provides a link between capital markets (the lenders) and the Federal Housing markets. This makes mortgage-backed securities more attractive to investors, such as pension funds and the like. The main difference between this company and Fannie Mae lies in the government backing. While the backing was only perceived in Fannie Mae (until the government ‘bought’ it on Sep. 7, 2008), it is real in the case of a Ginnie Mae backed security or mortgage since the US Government owns Ginnie. About 95% of all home loans through FHA (Federal Housing Authority) and the VA (Veterans Administration) are backed by GNMA.

These organizations distort our financial system, since at their fake low loan rates, excess money goes into housing because low wage earners can buy bigger houses. This is nice for politicians who want votes, but is a misallocation of resources in the overall economy! Of course, the Federal Reserve is part of the game with its rate and reserve manipulations. This is what caused the 'subprime' mortgage crash in 2008! Further, the banks 'borrowed-short, and lent-long', which puts the lender at high risk, and no sane banker would do it. BUT, in the US the Fannie-Freddie twins buy these toxic loans from the banks, and take on the risk. Even socialist Canada, while amortizing the principal over 30 years, requires the interest rate to be adjusted ‘to market' every five years, and interest is not tax deductible. They have no Fannie or Freddie equivalents to distort the market. Hence, Canada has been doing welI since the US economy plunged in 2008. I recommend that the Canadian approach be adopted by the US. Part of the fun in the US is that Mom and Pop borrower get to pay-off their loan with cheap dollars (the US$ value declines every year, 10:1 since 1975, and most wages and salaries go up to partially compensate).

Excess money (combined with greed) also hurts the 'big guys'. The Mar-2008 bailout of investment bank Bear-Stearns by the Fed (and injection of over $200 bill. 'liquidity' for others) was to prevent the bankruptcy of Bear Stearns, and its ripple effect on others, caused by high-risk, high-leverage (up to 40:1), high-profit investments that got into trouble. The Fed stepped in to save the US 'financial system'. What a pathetic, costly joke! They damage the system with 'loose' money, then try to fix it with more of the same. Guess who loses?; The taxpayers and little guys!.

Here are some words that came out of the April 3, ’08 Senate Banking Committee hearing investigating the near collapse of Bear Stearns: "20 years ago the Fed would have let Bear Stearns go bust. Today, it is too interlinked to fail." Not too big to fail…, too interlinked to fail. The ‘I’ word is our new monster! ‘I’ describes the world of derivatives, and hedge funds. The proliferation of a vast array of complex financial instruments that are sliced and diced and recombined in a bewildering variety of forms and bought and sold and traded by thousands of parties across the globe (and sometimes labeled ‘AAA’ even though backed by junk loans; can you say FRAUD) has woven everyone tightly together into one big knot. It wasn’t just Bear-Stearns, but the entire system of globally interlinked financial markets and Crony Capitalism that got bailed out! Again, the Insiders win, and the People lose!

The ‘moral hazard’ here is that Wall Street knows they will get bailed-out the next time their high-risk, highly leveraged ventures fail. Oh sure, Paulson and Bush promised ‘sweeping changes’ with new regulations and powers for the Fed, but Wall Street will find a new away around them.

In Nov-2009 Sen. Dodd, Chairman of the Senate Banking Committee, unveiled a sweeping regulatory reform bill that would strip the Federal Reserve of nearly all of its power to oversee banks. It was quickly watered down.

It all comes back to the unspoken core problem; Fake Money. Without the hundreds of billions of ‘liquidity’ the Fed poured into the financial system since the ‘90s, these games couldn’t be played. The toys they play with are the fake sub-prime home mortgages, plus other loose-money-based securities.

In the past, we could keep spending this fake money worldwide (by both people and government) because the US$ was still the world's primary  'reserve currency' (anyone would accept it as payment, and hold assets denominated in it) because despite our problems, others have been worse (past tense; others are becoming attractive, namely the Euro, Yen, and Yuan).  The US$ now has competition! Our formerly strong economy set the confidence level that the dollar won't become worthless, (but in early 2008 it started falling because the US is bankrupt due to debt and spending, with no cure in sight. For fear of starting world-wide panic by selling too much, those countries who own a lot of US$ (trillions in China, Japan, etc. due to payments for exports to the US) can't afford to dump them as their value declines, but history shows us that something always triggers panic selling, and a crash in value. Due in part to its mercantilist policy of ‘pegging’ the yuan (at 6.83) to the falling dollar. China now leads the world in value of annual exports as of Dec-2009 (passing Germany), and also in foreign reserves at $2.4 trillion, $799 bill. (33%) of which are in US Treasury securities.

For example, as of mid 2008, individuals and businesses worldwide started to avoid transactions, investments, and savings in US$. They feared ongoing loss of market value in dollar-denominated assets. They were right, and this is how worldwide crashes in a currency can start!   As should be expected, in late-2009, China and others started to: 1. Use their own currency for international trade, and 2. Reduce their 'reserves' of US$ (slowly, to avoid a panic).

Governments play the 'hold-and-hope' game with 'other people's money', but people and businesses avoid a failing currency since their own money and assets are at risk!! The crash could start from the bottom up, as merchants and producers refuse to accept dollars !

One of the risks foreign governments fear is that the US will pay off the debt they own (U.S. bonds, etc.) by using cash created out of thin air. This would greatly reduce the value of the dollar, and is a form of default. They should be concerned. The US has huge debts (some are even 'off the books', such as future obligations of Social Security, Medicare, etc.; see Table 1 on p. 28) so our 'leaders' prefer inflation so they have more (albeit of less value) money to pay debts. Deflation (less money in circulation; more value per dollar) would help recovery from the coming 2010 depression, but that would eliminate the easy payoff of debt by the US. It’s called being 'between a rock and a hard place', caused by the short-term pleasure of fake money. 

Causes of the Sep-2008 Wall Street Debacle

The US economic problems have been brewing since extreme abuse of the US dollar started in 1971 with Nixon’s cutting of its last link to gold. Roberts and Miller showed vision in their writings below.

As written by Paul Craig Roberts Ph. D. on May 07, 2002 in #3 ‘Time Running Out for the Dollar?’ of his prescient seven-part series of articles ‘No -Think Nation ’ on America’s imperiled future: “The U.S. current account deficit is running at an annual rate of 4% of Gross Domestic Product. That’s about $1 billion per day. For a number of years the large U.S. current account deficit has been accompanied by a strong dollar. Could the dollar’s strength be coming to an end? Since January the dollar has declined almost 6% in value against the Euro, which has been a weak and uncertain currency since its introduction. Is this a harbinger that a large dollar overhang is beginning to worry those who are holding our currency?”

His concerns were correct, as shown by the crash of 2008 and the plans in 2009 by other major nations to replace the US dollar as the world’s reserve currency. The Dec. 5, 2009 issue of the Wall Street Journal had an article ‘Requiem for the Dollar’ by free-market oriented Investment Advisor James Grant (‘Grant’s Interest Rate Observer’, www.grantspub.com) that confirmed the decline of the Dollar’s strength, and recommended gold money as a solution to avoid further damage from government meddling.

Donald W. Miller, Jr., M.D. warned us in his prescient article ‘A Fourteen Point Plan for a Post-Wilsonian America’, which he published on September 28, 2001 at www.LewRockwell.com : “Likewise, if we do not wish to be mired in the coming economic depression for a prolonged period of time, as happened with the last one in the 1930s, which lasted twelve years, we must substantially reduce government spending, taxes, and regulatory compliance costs. Federal spending has grown eight times faster than the economy since the last depression. Over the last forty years federal expenditures on regulatory activity have increased 2.7 times faster than economy – a 14 per cent per year annual growth rate, compounded. Government regulations currently consume $977 Billion annually, siphoning off 13 per cent of the economy, which is $3,300.00 per man, woman, and child. In order for our country to regain economic health we must make sure that the free-market private sector once again becomes, as it was before our nation assumed the burdens of empire, the largest and fastest growing segment of the economy.” (see web site www.DonaldMiller.com)

The rush of home loan defaults and bank problems started in late 2007, and peaked in Sep-2008. The underlying cause was Fed manipulation of interest rates, as described above.The excess supply of low-interest money, delivered to lenders by the Fed and its pals at FreddieMac and FannieMae, was the ‘mother’s milk’ of market distortion.  Of course, our Wars for Empire (not defense) in Afghanistan and Iraq added to the spending spree (which pours unproductive money into the economy), that we can no longer afford.

Kudos are due for leaders who raised the warning flags early, despite opposition from both Bushes and Clinton, and lack of support from ’vote-for-me’ fellow Congress members.  Since 1976, Rep. Ron Paul MD (R-TX-14, first elected in 1976 with 2 gaps totaling 14 years; born 1935) has always been the strongest fighter in Congress for more liberty and less government. His Libertarian philosophy calls for sound money (redeemable for gold), and he wants to abolish the Federal Reserve Bank (HR-2755), and associated GSEs Fannie, Freddie, the World Bank, IMF, BIS, etc. He wants to at least make the Fed subject to audit by his HR-1207, which has 317 cosponsors as of late 2009, and a similar bill SR-604 in the Senate. Rep. Barney Frank is doing all he can to derail it, even though it is now an amendment on his “Financial Stability Improvement Act of 2009″, bill HR-3996. Stay tuned!  As the ranking Member of the’ Domestic and International Monetary Policy’ committee, Dr. Paul has introduced many bills to restore sound money. His newest one was HR 4248 on Dec. 9, 2009, the ‘Free Competition in Currency Act’ that ends legal tender laws and allows  competing currencies. Passage would be a huge step forward, and crucial to the goals of this book! He gained mainstream support on January 19, 2010 when Pat Buchanan gave him credit for being the principled promoter of policies that are good for the US. As far back as 1993, legendary House Banking Committee Chairman, the late Henry B. Gonzalez (D-Texas, CD-20, 1961-1999; lived 1916-2000), fought to make the Federal Reserve and GSEs more accountable. Next, Richard Baker (R-LA, CD-2006, since 1987; born 1948), since 2000, has been engaged in pushing the biggest reform bill of his congressional career, trying to protect taxpayers from potential losses by the GSEs Fannie Mae and Freddie Mac. Then in May, 2006, Sen. Chuck Hagel (R-NE, 1996-2009; born 1946) wrote a letter, co-signed by 19 other Senators, asking Majority Leader Frisk for support of his 2005 bill S-190 ‘Federal Housing Enterprise Regulatory Reform Act’ that would protect taxpayers from potential losses by the same GSEs. He got no support, and the bill died. Then disaster struck in 2008, as predicted!

A major facilitator to start this mess was the Community Reinvestment Act (CRA), a 1977 federal law pushed by Pres. Carter that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as ‘redlining.’ The purpose of the CRA is to provide credit, including home ownership opportunities, to underserved (unqualified?) populations and commercial loans to small businesses.

The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB). In 1995, as a result of interest from President Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs (that is, forcing lenders to make more subprime loans!!). These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for five years. Thus in 2002, the regulators opened up the regulation for review and potential revision.

The Clinton Administration's regulatory revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers (i.e., 'subprime', unqualified!) for home loans. Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide Financial Corp. (set up as an ‘off brand’ by Bank of America, then purchased in Jan-2008 when CW got in trouble), which was aggressive and did not mitigate loan risk with savings deposits (ie, borrowers must have deposits) as did traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans ('subprime', high risk for banks). The revisions allowed the securitization of CRA loans containing subprime mortgages (ie, packaging good and bad debt together and calling the bunch 'AAA'. This is FRAUD by the rating firms; see below!!. The first public securitization of CRA loans started in 1997 by Bear Stearns, and it helped break them in Sep-2008!. The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent (a flood of money into high risk).

A major factor was sloppy, incomplete, fraudulent, self-serving (to get and keep customers) work by credit rating firms such as Standard and Poors, Fitch, and Moody’s, who were complicit in the chain of perpetrators who falsely  labeled bad debt as AAA. 

In 2003, the Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty. That perception enabled them to issue debt at significantly lower rates than their competitors. The changes were generally opposed along Party lines and eventually failed to happen

Among banks and the regulatory agencies, there was a consensus that data collection, recordkeeping, and reporting requirements imposed a heavy burden on small community institutions. As a result of a 2002 review of the CRA regulations, and revision of an initial Federal Deposit Insurance Corporation (FDIC) proposal following a public commenting period that was largely negative, the FDIC, Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB), made substantive changes to the implementation of regulations for the CRA for banks (not Thrifts). Credit for above two paragraphs to: (http://en.wikipedia.org/wiki/Community_Reinvestment_Act) . 

In the 1980s, groups such as the activists at ACORN (‘Association of Community Organizations for Reform Now’, www.acorn.org) began pushing charges of "redlining" - claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants. This allowed various studies to be ginned up that seemed to validate the original accusation.

In fact, minority mortgage applications were rejected more frequently than other applications - but the overwhelming reason wasn't racial discrimination, but simply that minorities tend to have weaker finances. A study in 1992 proved that bias was not the problem. Yet the harm was done and banks loosened their rules to avoid lawsuits.

The 'Troubled Assets Relief Program' (TARP) was a 3-page note introduced by Paulson and Bush in Oct-2008 in a panic mode based on predictions of a sudden crash in the economy.  They wanted $500 billion with no questions asked, and no liability. Congress converted it to a pork-laden 500+ page tome that still had little oversight. They and the recipients have refused to account for how the first $385 bill. was spent! The so-called 'panic' urgency is now being viewed by many as a lie used by Paulson and Bush to bail out firms run by their friends and campaign donors, and the voters who own their stock. It is grossly unfair to well-managed firms who now must continue to fight competitors (run by greedy jerks or fools) who should have failed. The huge debts incurred by the Treasury and Fed to pay for the bailouts have created a large risk of future reduction in value of the US dollar (due to rapid and excess expansion of the money supply; i.e., Monetary Inflation). Stay tuned!

The Bad News

Here is the bad news from leading analysts about possible collapse of the US Economy and Dollar. 

1. Walter J. "John" Williams has been a private consulting economist and a specialist in government economic reporting for more than 25 years. He started ‘Shadow Government Statistics’ (http://www.shadowstats.com/) in 2004 because government reporting was so false and incomplete. His analyses and commentaries have been featured widely in the popular domestic and international media. In an Aug-2010 interview article ‘Economy Heading for a Systemic Collapse into Hyperinflationary Great Depression’ (http://www.marketoracle.co.uk/Article21676.html) he discusses how the failing US economy and Dollar could soon descend into sudden hyperinflation (loss of over 90% of purchasing power of dollar in a few days), and force people to barter for food and supplies. Unlike the 2007 start of hyperinflation in Zimbabwe, where they used dollars as a ‘backup’ currency, the US has no such choice. He predicts barter and chaos, with precious metal coins (legal tender with low face value, and bullion) becoming the only useful ‘money’ (see more on P. 88), valued by weight, until the government gets settled (in some form; fascist, ultra-liberal, etc.??). He recommends having a month or two of food (canned, dried) and a means to purify water as a means of survival until things (food delivery, banks) start working again.  

2. Similar predictions have been made by Dr. Marc Faber, of Marc Faber Ltd. (http://www.gloomboomdoom.com/). 

3. Dr. Paul Craig Roberts sees the possibility of neighborhood self-defense clans emerging from the chaos in ‘The Year America Dissolved’ (http://www.vdare.com/roberts/100726_dissolved.htm). Again, survival gear (including guns) and food would be needed. In his articles ‘The Collapsing US Economy ‘ (http://www.informationclearinghouse.info/article21714.htm, ‘The End of American Hegemony (http://www.creators.com/opinion/paul-craig-roberts/the-end-of-american-hegemony.html), and ‘How the US Economy Was Lost’ http://informationclearinghouse.info/article22087.htm), he finds a major depression likely.

4. In 2002, Congress created the ‘US Northern Command’ (NorthCom) to work with local police nationwide for homeland defense. See (http://www.northcom.mil/about/index.html). This is an unprecedented incursion of the military into domestic law enforcement! They expect ‘social unrest’ as more people worry about the War on Terror, and now (2010) about lost jobs, homes, and maybe soon, hunger.  Arrests will be made simply for complaining loudly (claiming inciting to riot?). Major detention camps (jails) have been built to hold ‘troublemakers’. 

The above bad news fits the pattern of a declining empire, and thus applies to Empire-USA. See my empire analysis at Part 5 in the left margin of my site Forward-USA.org, and at http://theburningplatform.com/blog/tag/dave-redick/, and

http://www.activistpost.com/2010/08/phases-of-empire.html#more . 

As discussed on P. 27 (see ‘Key Point’), the crash of the US economy and dollar have been delayed by the fact that the dollar is the world’s primary reserve currency (held by others as ‘good as gold’), and countries that own a lot of dollars (China, Japan, S. Korea, etc.) don’t want it to crash. However they are also tired of our abuse where we create dollars out of thin air to pay for imports. Conversely, other nations must buy dollars to pay for most imports, and face declining exchange rates if they have expanded their money supply too much. Thus Russia, China and others are discussing a ‘basket of currencies’ to replace the dollar. If this happens, the dollar will start a slide to lower reserve status and have declining value. It will crash fast or slow depending on how events develop; but it WILL crash, as all fake money eventually does. 

It all comes back to how distortions of the free-market by the government always do more harm than good, often to the intended beneficiaries.  

Very few people understand, or care about, the above economic and currency issues. They prefer bread and circuses, as we crash!! SAD. 

Politicians Use Fake Money to Keep Their Jobs 

Politicians hate to have the government run out of money. They need it to fund projects as gifts to voters and campaign donors that help them win elections, and continue their lush lifestyles of fun and power. Most are ushers at the trough; ‘Slip me $5 and come to the front of the line and get $100 from the trough.’ A good return on investment ! This is why political campaigns raise and spend so much money; the donors give it (a bribe) in expectation of a big payback ! This is true of any country, but is worst when there is a central bank to provide fake money for paybacks (base-metal coins and paper have no redeemability to a valuable commodity such as gold). As discussed above, our central bank, the unconstitutional, privately owned, secretive, Federal Reserve System (Fed), was created secretly by bankers for long-term control and profits, but in the short-term they knew they would need it for their planned entry into WW1 (was the sinking of the Lusitania a planned trigger?). Since then the US dollar’s (US$) purchasing power has dropped by 95% (20:1)! All governments ALWAYS abuse this access to an unlimited supply of money by creating too much, thereby reducing, or destroying, its purchasing power. Those few people who warn of such abuse are called kooks and dinosaurs by the elite in power, who also call gold a ’barbarous relic’. This elite includes most ‘economists’ since they are often dependent on government funds for their pay and grants.  

Robert Murphy, Ph.D. (http://www.consultingbyrpm.com/), a free-market oriented, honest, economist, offered the following comments in Dec-2009 on the ominous trend toward government control of the US economy and our personal affairs.

 “In the past year, the government has seized control of more than half of the nation’s mortgages, it has taken over one of the world’s biggest insurers, it literally controls major car companies, and it is now telling financial institutions how much they can pay their top executives. On top of this, the feds are seeking vast new powers over the nation’s energy markets (through the House Waxman-Markey “Clean Energy and Security Act” and pending Kerry-Boxer companion bill in the Senate) and, of course, are trying to “reform” health care by creating expansive new government programs.

For anyone who thinks free markets are generally more effective at coordinating resources and workers, these incredible assaults on the private sector from the central government surely must translate into a sputtering economy for years. Any one of the above initiatives would have placed a drag on a healthy economy. But to impose the entire package on an economy that is mired in the worst postwar recession, is a recipe for disaster.” (see the rest of this excellent article at http://www.lewrockwell.com/murphy/murphy165.html )

Dr. Murphy also mentions the alleged “Texas Summit of March 2005”, that refers to the “Security and Prosperity Partnership (SPP) of North America,” which came out of a meeting in Waco, Texas between President George W. Bush, Canadian Prime Minister Paul Martin, and Mexican President Vicente Fox. Many informed observers claim that the SPP is a prelude to a North American Union (NAU), comparable to the European Union, and issuance of a replacement currency, called the ‘Amero’ (comparable to the Euro) for all three nations. If (when?) the US dollar crashes, this bailout conversion could be falsely presented by our lying leaders as a positive step to strengthen our international position

It has been a fun party since 1944, but our era of financing wars, Empire-USA, foreign aid, imports, and homeland spending with fake money is about to end. Other nations are tired of, and can’t afford, our ‘exorbitant privilege’ of being both a fiat currency and the world’s primary reserve currency, which allows us to create trillions of free new dollars to pay our bills to other nations, and their exporters, in our own currency. Other nations must buy US$ for these payments, and face exchange rates.