EVIL ONLY EXISTS TO THE EXTENT GOOD MEN DO NOTHING
PART 2
Federal Reserve System Operates on Three False Premises
The whole purpose of establishing the Federal Reserve System was to prevent
depressions, stabilize the currency, and protect the savings and checking deposits
of the people in the custody of the banks.
However, there are three things that the Founding Fathers identified as outright
enemies to any sound money system, and the Federal Reserve contains all three of
them.
The first thing they said the nation should avoid is turning over to a group of
private bankers the right to print the official currency of the nation. They said this
right is inherent in the people and belongs to the people's government. Whenever
this right has been delegated to private bankers, they have always used it to abuse
the people and gradually devour the wealth of the nation. It will be recalled that
Jefferson wrote:
If the American people ever allow private banks to control the issue of
currency, first by inflation, then by deflation, the banks and
corporations that will grow up around them will deprive the people of
all property until their children will wake up homeless on the continent
their fathers conquered. (Quoted in ibid., p. 247.)
Abraham Lincoln also warned about possible abuses by private bankers. After
the National Bank Act was passed in 1863, he wrote:
I see in the near future a crisis approaching that unnerves me and
causes me to tremble for the safety of my country. Corporations [of
banking] have been enthroned, an era of corruption in high places will
follow, and the money power of the country will endeavor to prolong
its reign by working upon the prejudices of the people, until the wealth
is aggregated in a few hands and the Republic destroyed. (Quoted in
ibid., p. 9.)
When the U.S. Prints Its Own Currency It Has to Pay Interest on It
The second deception in the whole Federal Reserve System is the fact that the
private banks which own the stock in the Federal Reserve System charge the
United States interest for borrowing the country's own currency!
The Federal Reserve scheme provides not only that all U.S. currency shall be
printed as Federal Reserve notes, but that if the government wants to use these
notes it must give the Federal Reserve IOUs in the form of government bonds on
which interest will be paid until the bonds have been redeemed.
The question immediately arises, "Well, what did the banks loan to the
government in exchange for these bonds?" The answer is, "Nothing, absolutely
nothing." The banks paid for the printing of their Federal Reserve notes and gave
them to us, but they are not redeemable in gold, silver, or anything else of value.
They are just paper, backed by virtually nothing. The question next arises, "Then
why are they able to charge us interest when all they are doing is printing our own
currency?"
The answer is that in 1913 the Congress gave the Federal Reserve the legal
"right" to print our money, and that right is "as good as gold." Therefore, if we
want to use the Fed's money, we have to borrow it and give them federal IOUs for
the amount obtained. And, of course, each IOU (government bond) is something
How the Federal Reserve System Operates and why it has failed
on which interest must be paid.
This whole arrangement is so totally irrational that the former chairman of the
Banking and Currency Committee, Congressman Wright Patman (D-Texas), asked
Marriner S. Eccles, the Utahn who served as chairman of the Federal Reserve
Board from 1934 to 1948, the following:
"Mr. Eccles, how did you get the money to buy these two billion dollars of
government bonds?"
Mr. Eccles: We created it.
Mr. Patman: Out of what?
Mr. Eccles: Out of the right to create credit money.
A Denunciation of This Second Fallacy in Government Financing
Since it is the government's right to create money in the first place, why should it
have to borrow its own money from the Federal Reserve banks and give interest
bearing bonds or IOUs in exchange for the money?
A modern scholar, H. S. Kenan, has written:
Government, possessing the power to create and issue currency and
credit as money and enjoying the right to withdraw both currency and
credit from circulation by taxation or otherwise, need not, and should
not borrow capital at interest as the means of financing governmental
work and public enterprise. The government should create, issue, and
circulate all the currency and credit needed to satisfy the spending
power of the government and the buying power of consumers. The
privilege of creating and issuing money is not only the supreme
prerogative of government, but it is the government's greatest creative
opportunity. (Kenan, Federal Reserve Bank, p. 202; emphasis added.)
By creating and issuing its own money, Kenan said the people could avoid a
"debt" economy which bankers instinctively promote. He wrote:
The taxpayers will be saved immense sums in interest, discounts, and
exchanges. The financing of all public enterprises, the maintenance of
stable government and ordered progress, and the conduct of the
Treasury will become matters of practical administration. The people
can and will be furnished with a currency as safe as their own
government. Money will cease to be master and become the servant of
humanity. Democracy will rise superior to the money power. (Ibid., p.
202.)
The Third Fallacy of the Federal Reserve Is "Fractional" Banking
As we mentioned earlier, fractional banking was invented in Europe around four
hundred years ago. It allows a bank to set up a "reserve" to cover any claims which
happen to come in, and then to go ahead and loan many times more money on
credit than the "reserve" in the bank. By this means the bank loans out and charges
interest on considerable credit it doesn't even have. For everybody else, it is a
fraud to loan, rent, or sell something which does not exist. Fractional banking
should have been outlawed many years ago.
One of the most dangerous devices employed by the Federal Reserve under
fractional banking is its power to bounce the level of required reserves up and
How the Federal Reserve System Operates and why it has failed
down so as to control the money supply and the interest rates. The Congress which
passed the Federal Reserve Act assumed that this would be done in the interest of
the public, but as we shall see later, the opposite occurred.