A Banking System That Serves the
excerpted from the book
Web of Debt
The Shocking Truth About Our Money
System And How We Can Break Free
by Ellen Hodgson Brown
Third Millennium Press, 2007,
William Jennings Bryan, in his Democratic Party nomination speech,
We believe that the right to coin money
and issue money is a function of government... Those who are opposed
to this proposition tell / us that the issue of paper money is
a function of the bank and that the government ought to go out
of the banking business. I stand with Jefferson... and tell them,
as he did, that the issue of money is a function of the government
and that the banks should go out of the governing business ....
[W]hen we have restored the money of the Constitution, all other
necessary reforms will be possible, and... until that is done
there is no reform that can be accomplished.
The 300-year fractional-reserve Ponzi scheme has reached its mathematical
end-point. The bankers' chickens have come home to roost, and
only a radical overhaul will save the system.
... The private banking system can no
longer be saved with a stream of accounting-entry "reserves"
to support an expanding pyramid of "fractional reserve"
lending. Either the banks will have to be nationalized, as in
Japan, or they will have to move into some other line of work.
We've seen the roller-coaster result when the Fed has been allowed
to manipulate the money supply by arbitrarily changing interest
rates and reserve requirements. The Great Depression was blamed
on Fed tinkering.
Why does the money supply need to be manipulated
by the Federal Reserve? Consumer loans are self-liquidating: the
new money they create is eventually paid back and zeroes out.
But that result is skewed by the charging of interest, and by
the fact that the burgeoning federal debt never gets repaid but
just keeps growing. The money supply expands because government
securities (or debt) are sold to the Federal Reserve and to commercial
banks, which buy them with money created out of thin air; and
it is this unchecked source of expansion that has to be regulated
by artificial means. In a system without a federal debt and without
Instituting a system of government-owned banks may sound radical
in the United States, but some countries have already done it;
and some other countries are ripe for radical reform. Rodney Shakespeare,
author of The Modern Universal Paradigm (2007), suggests that
significant monetary reform may come first in the Islamic community.
Islamic reformers are keenly aware of the limitations of the current
Western system and are actively seeking change, and oil-rich Islamic
countries my have the clout to pull it off.
... The Islamic Republic of Iran has a
state-owned central bank and has led the way in adopting the principles
of the Koran as state government policy, including interest-free
lending. In September 2007, Iran's President advocated returning
to an interest-free system and appointed a new central bank governor
who would further those objectives. The governor said that banks
should generate income by charging fees for their services rather
than making a profit by receiving interest on loans. 2
That could be a covert factor in the persistent
drumbeats for war against Iran, despite a December 2007 National
Intelligence Estimate finding that the country was not developing
nuclear weapons, the asserted justification for a very aggressive
stance against it. We've seen that a global web of debt spun from
compound interest is key to maintaining the "full-spectrum
dominance" of the private banking monopoly currently controlling
international markets. A paper titled "Rebuilding America's
Defenses," released in September 2000 by a politically influential
neoconservative think tank called the Project for the New American
Century, linked America's "national defense" to suppressing
economic rivals. The policy goals it urged included "ensuring
economic domination of the world, while strangling any potential
'rival' or viable alternative to America's vision of a 'free market'
economy." We've seen that alternative models threatening
the dominance of the prevailing financial establishment have consistently
been targeted for takedown, either by speculative attack, economic
sanctions or war. Iran has repeatedly been hit with economic sanctions
that could strangle it economically.
In Sweden and Denmark, interest-free savings and loan associations
have been operating successfully for decades. These banks are
cooperatively owned and are not designed to return a profit to
their owners. They merely provide a service, facilitating borrowing
and lending among their members. Costs are covered by service
charges 4 and fees.
Interest-free lending would be particularly
feasible if it were done by banks owned by a government with the
power to create money, since credit could be extended without
the need to make a profit of the risk of bankruptcy from bad loans.
When purchases are made with a credit card, Your signature turns
the credit slip into a negotiable instrument, which the merchant
accepts because the credit card company stands behind it and will
pursue legal remedies if you don't pay. But the bank doesn't actually
lend you anything. It just facilitates and guarantees the deal.
You create the "money" yourself; and if you pay your
bill in full every month, you are creating money interest-free.
Credit could be extended interest-free for longer periods on the
same model. To assure that advances of the national credit got
repaid, national banks would have the same remedies lenders have
now, including foreclosure on real estate and other collateral,
garnishment of wages, and the threat of a bad credit rating for
defaulters; while borrowers would still have the safety net of
filing for bankruptcy if they could not pay. But they would have
an easier time meeting their obligations, since their interest-free
loans would be far less onerous than the 18 percent credit charges
A common objection to getting the government involved in business
is that it is notoriously inefficient at those pursuits; but Betty
Reid Mandell, author of Selling Uncle Sam maintains that this
reputation is undeserved. She says it has resulted largely because
the only enterprises left to government are those from which private
enterprise can't make a profit. She cites surveys showing that
in-house operation of publicly-provided services is generally
more efficient than contracting them out, while privatizing public
infrastructure for private profit has typically led to increased
costs, inefficiency, and corruption.
A system of truly "national" banks would return to the
people their most valuable asset, the right to create their own
money. Like the monarchs of medieval England, we the people of
a sovereign nation would not be dependent on loans from a cartel
of private financiers. We would not need to pay income taxes,
and we might not need to pay taxes at all.
Richard Russell, Dow Theory Letter, April 2005
When the US government needs money, it
either collects it in taxes or it issues bonds. These bonds are
sold to the Fed, and the Fed, in turn, makes book entry deposits.
This "debt money" created out of thin air is then made
available to the US government. But if the US government can issue
Treasury bills, notes and bonds, it can also issue currency, as
it did prior to the formation of the Federal Reserve. If the
U.S. issued its own money, that money could cover all its expenses,
and the income tax wouldn't be needed. So what's the objection
to getting rid of the Fed and letting the US government issue
its own currency? Easy, it cuts our the bankers and it eliminates
the income tax.
Hans Schicht, in a February 2005 article titled "The Death
of Banking and Macro Politics
If prime ministers and presidents would
only be blessed with the most basic knowledge of the perversity
of banking, they would not go onto their knees to the Central
Banker and ask His Highness for loans .... With a little bit of
brains they would expropriate all banking institutions .... Expropriation
would bring enough money into the national treasuries for the
people not to have to pay taxes for years to come.
Commercial bank ownership is held as stock shares, and the shares
are listed on public stock exchanges. The government could regain
control of the national money supply by simply buying up some
prime bank stock at its fair market price.
... At the end of 2004, the total book
value (assets minus liabilities) of all U.S. commercial banks
was reported at $850 billion. "Book value" is what the
shareholders would receive if the banks were liquidated and the
shareholders were cashed out for exactly what the banks were worth.
Shares trade on the stock market at substantially more than this
figure, but the price is usually no more than a generous two times
"book." Assuming that formula, around $1.7 trillion
might be enough to purchase the whole U.S. commercial banking
Too much for the government to pay?
Not if it were to create the money with
accounting entries, the way banks do now.
But wouldn't that be dangerously inflationary?
Not if Congress were to wait for a deflationary
crisis; and we've seen that such a crisis is now looming on the
horizon. The next correction in housing prices is expected to
shrink the money supply by about $2 trillion. Fed Chairman Ben
Bernanke suggested in 2002 that the government could counteract
a major deflationary crisis by simply printing money and buying
real assets with it. Buying the banking industry for $1.7 trillion
in new Greenbacks could be just what the good doctor ordered.
Over 97 percent of the money supply is now created as commercial
Banking institutions supported by taxpayer money can and should
be made public institutions operated for the benefit of the taxpayers.
The 2006 report by the Office of the Comptroller of the Currency,
[found] that 97 percent of U.S. bank-held derivatives were in
the hands of just five banks; and that the first two banks on
the list were JPM [J P Morgan] and Citibank.
JPM [J P Morgan] and Citibank have many branches and an extensive
credit card system. Recall that JPM now issues the most Visas
and MasterCards of any bank nationwide, and that it holds the
largest share of U.S. credit card balances.
John Hoefle, EIR
Major financial crises are never announced
in the newspapers but are instead treated as a form of national
security secret, so that various bailouts and market-manipulation
activities can be performed behind the scenes...
The Fed is actively involved in looting
the American population for the benefit of giant U.S. and global
financial institutions, and the global casino. Few Americans have
any idea the extent to which the Fed and its system reach in to
their pockets on a daily basis and the extent to which their standard
of living has been eroded by the financier-led deindustrinlization
of the United States.
Dean Baker of the Center for Economic and Policy Research in Washington
Gambling on horse races is taxed at between
3.0 and 10.0 percent. Casino gambling in the states where it is
allowed is taxed at rates between 6.25 and 20.0 percent. State
lotteries are taxed at a rate of close to 40 percent. Stock market
trading is the only form of gambling that largely escapes taxation.
This is doubly inefficient. The government has no reason to favor
one form of gambling over others, and it is far better economically
to tax unproductive activities than productive ones.
... From an economic standpoint, the nation
is certainly no better off if people do their gambling on Wall
Street rather than in Atlantic City or Las Vegas. In fact, there
are reasons to believe that the nation is better off if people
gamble in Las Vegas, since gambling on Wall Street can destabilize
the functioning of financial markets.
As Richard Russell observed, if the U.S. issued its own money,
that money could cover all its expenses, and taxes would not be
necessary. If the Federal Reserve were made what most people think
it now is - an arm of the federal government - and if it had been
vested with the exclusive authority to create the national money
supply in all its forms, the government would have access to enough
money to spend on anything it needed or wanted.
How much is the U.S. work force under-employed today? the first
half of 2006, the official unemployment rate was 4.6 percent;
but critics said the figure was low, because it included only
people applying for unemployment benefits. It did not include
those who were no longer eligible for benefits, those who had
given up, or those whose skills and education were under-utilized
- people working part-time who wanted to work full-time, engineers
working as taxi drivers, computer programmers working as store
clerks, and so forth. According to Williams' "Shadow Government
Statistics" website, the real U.S. unemployment figure in
early 2006 was a full 12 percent.
In the nineteenth century, the corporation was given the legal
status of a "person" although it was a person without
heart, incapable of love and charity. Its sole legal motive was
to make money for its stockholders, ignoring such "external"
costs as environmental destruction and human oppression.
[Third World] debts could be canceled simply by voiding them out
on the banks' books. No depositors or creditors would lose any
money, because no depositors or creditors advanced their own money
in the original loans. According to British economist Michael
Rowbotham, writing in 1998:
[O]f the $2,200 billion currently outstanding
as Third World, or developing country debt, the vast majority
represents money created by commercial banks in parallel with
debt. In no sense do the loans advanced by the World Bank and
IMF constitute monies owed to the "creditor nations"
of the World Bank and IMF.
If the money is owed to commercial banks [by Third World countries],
it was money created with accounting entries. Rowbotham observes
that Third World debt represents a liability on the banks' books
only because the rules of banking say their books must be balanced.
He suggests two ways the rules of banking might be changed to
liquidate unfair and oppressive debts:
The first option is to remove the obligation
on banks to maintain parity between assets and liabilities, or,
to be more precise, to allow banks to hold reduced levels of assets
equivalent to the Third World debt bonds they cancel. Thus, if
a commercial bank held $10 billion worth of developing country
debt bonds, after cancellation it would be permitted in perpetuity
to have a $10 billion dollar deficit in its assets. This is a
simple matter of record-keeping.
The second option, and in accountancy
terms probably the more satisfactory (although it amounts to the
same policy), is to cancel the debt bonds, yet permit banks to
retain them for purposes of accountancy. The debts would be cancelled
so far as the developing nations were concerned, but still valid
for the purposes of a bank's accounts. The bonds would then he
held as permanent, non-negotiable assets, at face value.
Third World debt could be eliminated with
the click of a mouse!
As long as currencies can be devalued by speculators, Third World
countries will be exporting goods for a fraction of their value
and over-paying for imports, keeping them impoverished. The U.S.
dollar itself could soon be at risk. If global bondholders start
dumping their bond holdings in large quantities, short sellers
could fan the flames, collapsing the value of the dollar just
as speculators collapsed the German mark in 1923.
To counteract commercial risks from sudden
changes in the value of foreign currencies, corporations today
feel compelled to invest heavily in derivatives, "hedging"
their bets so they can win either way. But derivatives themselves
are quite risky and expensive, and they can serve to compound
the risk. Some other solution is needed that can return predictability,
certainty and fairness to international contracts. The Bretton
Woods gold standard worked to prevent devaluations and huge trade
deficits like the United States now has with China, but gold ultimately
failed as a currency peg. The U.S. government (the global banker)
had insufficient gold reserves for clearing international trade
balances, and it eventually ran out of gold. Gold alone has also
proved to be an unstable measure of value, since its own value
fluctuates widely. Some new system is needed that retains the
virtues of the gold standard while overcoming its limitations.
Web of Debt