ELLEN BROWN – WEB OF DEBT
A NOTED COLUMNIST AND AUTHOR DETAILS HOW THE BANKS ARE TURNING YOU IN TO A DEBT SLAVE AND HOW THE AMERICAN PEOPLE CAN TAKE BACK THE POWER OF CREATING MONEY.
from THE Q & A with Ellen Brown interviewed by Mark Johnson
in HUSTLER Magazine – February 2010
In 1933, President Roosevelt summed up the truth about power in America: “A financial element in the large centers has owned the Government ever since the days of Andrew Jackson.” That financial element was—and still is—the banking system, headed by a private cartel known as the U.S. Federal Reserve. Over the years Roosevelt’s truth has been echoed many times by politicians and scholars trying to break the bankers’ stranglehold. Now, as the Obama Administration continues to bail out the banks, we may be facing the economic endgame. In her eye-opening new book The Web of Debt, attorney Ellen Brown zeros in on the fraudulent core of our imploding economy: Banks have been using accounting tricks to create money out of thin air, charging interest on it and siphoning off the profits. Brown stresses that the only feasible way to rein in the private banking cartel is to set up a competitive system of public banks, owned by the people, that act in the common interest. This would be the first step toward giving We the People back the power to create our own money.
HUSTLER: How is our money currently created?
ELLEN BROWN: All of our money is created as a debt to private banks. We have no actual money in our monetary system except for coins, which are created by the government. Coins compose a tiny fraction of the money supply. The rest is created by banks in the form of loans. That includes paper dollar bills or Federal Reserve Notes, which compose about 3% of the money supply. Federal Reserve Notes are created by the Federal Reserve, a privately owned banking corporation, and lent to the government and to other banks. But 97% of all money exists only in ledgers, not as actual circulating currency.
When I go into a bank and ask for $100,000 to buy a house, where does that money come from?
They will write your mortgage up on one side of their books as an asset to themselves because you will pay them money over time. Then they will write the same sum on the other side of their books as a liability because that amount becomes your account that you write checks on. This is called double-entry bookkeeping. They have created a plus $100,000 and a minus $100,000, which comes out to zero. They’ll say that their books balance. The bookkeeping entries on the liability side are what circulate in the economy as “money.” Money has actually been added to the money supply. And that money creation is at interest, so there is always more money owed back than is put out. The money that banks lend is not from preexisting deposits. It is new money that did not exist until it was lent.
But if I write a check to the mortgage company, someone is taking that out as cash somewhere along the line.
The bank can pay out money because it operates under what’s called a reserve requirement. Banks are supposed to keep 10% of their assets in the form of cash reserves. Let’s say they have $1 million in outstanding loans; they should have $100,000 in actual money that they could pay out immediately.
Long ago, when we were on the gold standard, it was discovered that people came for their gold only 10% of the time. Our reserve requirement still reflects the fact that 90% of the people won’t come for their money. The 10% kept in reserve comes from depositors. This money is not lent out. The banks use it to create loans under the system of “fractional reserve banking.”
Say they start with $10,000 in bank assets. They’re allowed to lend 90% of that, so they lend $9,000. It’ll go into another bank somewhere, and that bank is allowed to lend 90% on top of that and so on. The deposit keeps multiplying until the original $10,000 is turned into accountability and disclosure to the public.
The power to create money is given to Congress in the Constitution.
When does the Fed decide to print more money?
They print money when the banks need it to meet the banks’ cash reserve requirements. Most people think the government prints the money. The government owns the machinery that prints the dollars, but it’s the Federal Reserve that commissions them to print the dollars.
That’s where the deception is. The Fed tells our printers to print it, and the Fed pays the cost of printing. So they get it for pennies on the dollar, then lend it to us at full face value. The income tax was originally set up to pay the interest on the debt incurred to the Federal Reserve. Very little of the interest now actually goes to the Federal Reserve. But when it was first set up, that was the intent of the bankers that got the law passed. The government passed both laws the same year, 1913: the 16th Amendment for the income tax and the Federal Reserve Act.
The Federal Reserve Act initiated the current system of creating money?
That’s when it was formalized, but we’ve had banker-created money all of our formal existence. In 1791, Alexander Hamilton—our first Treasury Secretary—started the first U.S. bank. It was originally 80% privately owned, and then the government sold the other 20%, so it wound up being 100% privately owned. Thomas Jefferson was opposed to the idea. He considered Hamilton’s plan traitorous and unconstitutional. For a hundred years before that, Americans had money issued by the colonial governments. It worked really well. We flourished all through the colonial period at a time when the British were suffering from the ravages of the Industrial Revolution.
The bank of Pennsylvania—in Benjamin Franklin’s province—was the ideal colonial model. Franklin was considered the father of paper money. He raved about it and said it was responsible for the abundance in the colonies. The government would issue a certain amount of money and then lend it to the farmers at 5% interest.
The government would also issue a little extra and spend it on public works, like building roads. Then they had enough money in the system to cover principal and interest as the loan money went out and came back, without having to inflate the system. During that time the Pennsylvania colonists paid no taxes, had no government debt, and there was no price inflation—a brilliant, self-contained, sustainable system.
A major factor that led to the American Revolution was that King George told us we could no longer print new issues of our own money. The worst part was we had to pay our taxes in gold to England. That was why the colonists were so upset about the taxes. It wasn’t just that there was a tax on tea. It was that we had to pay this tax in gold, which we didn’t have. The farmers had to borrow it from the British bankers. The colonists wound up in foreclosure. They were losing their farms. So they just went back to printing their own money because they had to. They needed a money supply. It was an act of rebellion. Tom Paine called this government-issued paper money “a cornerstone of the Revolution.”
Was that money backed by gold or silver?
No. It was backed by the full faith and credit of the government. The system was started in 1691 when the governor of Massachusetts, who didn’t have gold or silver, gave out government receipts to his soldiers, saying, “Go and trade with this; it will be honored for your service to the community.” That worked. The colonies paid for the Revolutionary War with paper money. Unfortunately, it was easily counterfeited. The British were sitting in the harbor with printing presses on ships, madly running their presses.
After the war, even if the government had tried to issue paper dollars, nobody would have accepted them because they were so heavily devalued during the war. So Hamilton resorted to a ruse where he took the gold that the government had—which wasn’t that much—and put it in the bank and started issuing paper bank notes, saying that they were redeemable in gold. That was the so-called gold standard.
The bankers knew people would only come 10% of the time for their gold, so they could issue ten times as many notes as they had gold. Suddenly they had ten times more money. The problem was that the banknotes were lent to the government by private bankers, putting us into this whole debt syndrome we’re in now.
Lincoln also printed “greenbacks” to finance the Civil War. What happened to that idea?
Lincoln tapped into the same cornerstone that had gotten the impoverished colonists through the Revolution: He authorized the government to issue its own paper money. But private bankers sought to eliminate Lincoln’s “greenbacks” since they weren’t under their control. Lincoln was shot, and the bankers pressured Congress to pass the National Banking Act, which allowed them to replace the “greenbacks” with their own privately issued currency.
What would be the most workable reform of the banking system?
We need state-owned banks. With a public, state-owned bank, your profits go back to the community. You don’t have a parasite pulling profits out the way you do with private banks. The whole point of a corporation is to make money for the stockholders and management. If you’re a public entity, you don’t have to worry about profits to your shareholders, and your shareholders and customers don’t have to be nervous about losing their money because you’ve got a huge pool backed by the state. You can create many times your deposits in loans, to fund government projects, helping the community, and all the profits go back to the center—the state bank.
Any sort of public entity can own a bank. A university like UCLA could own a bank. They could take all their revenues, put them in their bank, create many times that sum in loans and build a stadium. The profits from the stadium would go back and pay off the loan.
They could do it interest-free.
Why don’t they?
I don’t think they know they can do it; we’ve been kept in ignorance for so long. In the 1890s, people actually knew the banks were $100,000 or more, distributed among several banks. It’s like a mirror trick. The problem is if you get rid of the first dollar, the whole mirror effect collapses.
Banks need to generate debt to create money?
Yes, essentially all of our money comes from loans. Our current private banking system is a pyramid scheme. Banks have to continually suck new borrowers in because they never put as much money out as they want back. They put out ten; they take back 11. They put out 11; they take back 121/2. So in order to create that extra money, you always have to find somebody else who will borrow. They’re scrambling to find debtors. This is the scheme they use for everything from mortgages to credit cards. Our central bank, the Federal Reserve, authorizes the activity of creating money out of nothing.
Is the Fed part of the private banking system?
The Federal Reserve is not actually federal. It is composed of 12 branches, which are private corporations owned by a consortium of banks. We, the public, do not own one share of stock in the Federal Reserve. Our President appoints the head of the Federal Reserve, but once appointed, he’s pretty much on his own.
The only leverage Congress really has is to modify or eliminate the Federal Reserve Act. The question is, can this secretive private cartel be trusted with so much unregulated power? It would be cheaper and safer to give the power to create dollars to Congress itself, with full creating money because there was no Federal Reserve. It was obvious that when you went to the bank, they were giving you a bank note supposedly backed by their own gold. You knew that it was privately issued money. Today we’ve been led to believe the government issues the money and that they’re the problem. We’ve been sucked into supporting the banking beast when we could walk away and form our own credit system.
Has this idea of public banking been tested?
It has. One state owns its own bank: North Dakota. It’s also one of only two states that are currently able to meet their budgets. The Bank of North Dakota was set up during a populist movement in 1919. By law, all of the state’s revenues go into its own state-owned bank. These then serve as the deposit base for many times that sum in loans, and the excess profits go back to the state.
They don’t publicly say they’re creating credit out of nothing on their books, but that’s how all banks work; many authorities have said so. North Dakota now has the lowest unemployment rate in the country, it has plenty of money for things like student loans and sustainable energy development, and it’s generally not feeling the pinch of the credit crisis at all.
What’s preventing a system like that from being instituted nationwide?
Corruption and multimillion-dollar salaries. You can’t change the system until it collapses. But that’s the point we’re at now. It has collapsed.
Would a public banking system still be competitive enough on an international scale?
A public banking system could be more competitive than private banks. Banks create credit on their books, and a government bank could do exactly the same thing—without all the toxic assets that are preventing the banks from making loans now, and without having all the profits going out to a parasitic banking elite.
You could set up a public banking system that could start fresh. You could still let the private banks operate. They do that in India. It used to be that the private Indian banks were preferred because they were profit-generating, but now suddenly everybody’s rushing to the public banks because they’re more secure.
Aren’t the people who are making money off the current private banking system going to fight a public system tooth and nail?
Sure, but what can they say if we’re playing by their rules? We just want to join in the game. We could just set up public banks to fund infrastructure, to fund the stimulus program. Let the private banking system alone. Don’t try to prop it up and don’t try to bring it down. Just see which one works better. I’ll place a wager that it’s going to be the public system and that everyone’s going to rush to the public system when they see how well it works.
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