Chapter IV
The Legalized Crime Of Banking
I reprint the first 11 pages of a 16-page pamphlet printed July 4, 1951. It is the full story of the creation of money by the Reserve Banks, with all of the camouflage torn away. The enormity of the crime of banking strikes you a stunning blow when you read that the bankers profited in the last World War over a trillion dollars, and the people lost that amount, plus the lives of many of our manhood's best, and billions in property destruction. Read this story as a starter of that completer story to follow.
When you tear away from money the many confusing false statements bankers have used to camouflage, to obscure their corrupt and thieving practices, you will find that money is not a mysterious thing. They have kept men's minds confused, knowing it is in confusion that they are safest from the discovery of their crimes.
They drilled into our minds that only a fool will try to understand money so well that even their victims and slaves hurl at one who tries to explain money to them, "He's a nut; gone crazy on money," and they flee from the man who would liberate them! Aye more! They will hold the bankers' coats while the latter crucify him!
Let's remove the camouflage and expose not only the crimes of banking, but the simplicity of money
The Creative Acts of Banks1. The Government does not create nor issue money. Banks create and issue all our money
2. Coins and currency are not money-just tokens. Our money is bank credit in the form of bank deposits.
3. Banks do not lend cash, currency-coins or bills. They do not lend their own capital, surplus or profits. Not their depositors' deposits; nor their own credit; nor the nation's credit. Period. Bankers do not lend money or anything; they only buy notes (your note), mortgages, bonds, securities, money, or other investment obligations; and they pay for them with bank credit in the form of new bank deposits which they create at the time they make the purchase.
In a hearing in Congress, in February, 1943, Cong. Wright Patman asked Marriner S. Eccles., Chairman of the Board of Governors of the Federal Reserve System, ". . . the U.S. Bonds ($20,000,000,000) the banks hold today - they created the money to buy those bonds, did they not?" And Mr. Eccles replied, "The banking system as a whole creates the (bank) deposits as (at the time) they make loans and investments, whether they buy Government bonds, or whether they buy utility bonds, or whether they make farmers' loans.."
4. Strictly speaking the term "Bank Deposits" is erroneous. You have "Bank Credits," and they were created by the banks at the time they bought your note or any other investment obligation. Nothing was deposited, therefore there could not be bank deposits.
5. You do not have cash, coins and bills, on deposit. You own only the cash in your possession. You bought it from the bank, paying for it with bank credits to your account. You do not deposit cash in the bank. You sell the cash back to the bank, and it pays for it with new bank credits.
Quoting from the booklet, "The Federal Reserve System - Its Purposes and Functions," published in May, 1939, by the Board of Governors of the Federal Reserve System; "Treasury currency . . . is placed in circulation through Federal Reserve Banks, the Banks giving the Treasury credit in its chequeing account for the amount. The Reserve Banks keep a large stock of cash on hand, principally Federal Reserve notes which are their own (private corporation) liabilities, printed by the Government at the expense of Reserve Banks (30c per $1,000). There are two principal ways by which any individual gets bills and coins. Either he draws it out of his bank and has it charged to his account (buys it); or he is paid for his labour, his services, or his goods with money that has been drawn out of a bank (bought) by some one."
6. There is no gold standard. There never was. All of it was a hoax. We have no standard, measure of the value of money, the dollar. It is a private corporation dollar with no substance of value behind it. It is just a bank credit transferable by cheque wherewith customers of banks make the great bulk of their monetary payments. Its value as with spuds is based on supply "on the market." Cheap money as with cheap spuds indicates glutted market.
7. The terms Bank Reserves, Bank Credits, Re-discount, etc., are fictitious ponies bankers stable as ringers. They are figments of bankers' imagination, 'funds' that banks are empowered to create. The act of creation is one giving the promises of banks in exchange for your note or some other investment obligation. See page 85 of the Reserve booklet.
8. Proof that all you know about money and banking is false is found on pages 39-40 of Reserve booklet:
"The aggregate deposits in the banking system as a whole represent mainly funds lent by banks or paid by banks for notes, mortgages, and other forms of investment obligations. It may seem that it should be the other way round - that bank loans and investments would be derived from bank deposits instead of bank deposits being derived from loans and investments (well, bankers have told you that they loan their depositors' deposits, haven't they?); and it is true that deposits would not grow out of loans (and investments) if currency were to be used by the public for monetary payments to the exclusion of bank deposits transferable by cheque. But as it is, the public in general prefers to have its monetary funds, including what it borrows, on deposit in banks rather than in the form of currency in its own possession. The result of this preference is that the proceeds of loans (and investments) go on deposit to be disbursed by cheque, and aggregate deposits are increased. . . . a bank's purchase of investments, i.e., notes, mortgages, bonds, etc., is an extension of credit just as loans do."
On page 55: "Loans and purchases of securities by the Federal Reserve authorities are one of the important sources of member bank reserves; member bank reserves in turn are the basis of member bank credit; that is, of the loans and investments of member banks. And member bank credit is a source of the bank deposits transferable by cheque wherewith business men and other persons make the bulk of their monetary payments."
On page 56: "The reserves which member banks are required to maintain are only a fraction of their deposits (ranging from 5% to 25%). Suppose banks were required to maintain 20% and that they had 20% and no more. Then if their deposits were to be increased by $500,000,000, they would have to have their reserves increased by $100,000,000. Accordingly, $100,000,000 of Federal Reserve bank credit obtained by the purchase of securities by the Federal Reserve authorities would increase their reserves sufficiently to enable the banks to expand their own credit by $500,000,000," and this would enable them to make loans and buy securities to the amount of $500,000,000, which would increase the bank deposits $500,000,000."
On page 85: "Federal Reserve Bank credit, under the law, has a limited and special use-as a source of member bank reserve funds. It is itself a form of money. It does not consist of funds the Reserve authorities GET somewhere in order to lend, but constitutes funds that they are empowered to CREATE." To create is to bring substance out of a void, out of nothingness.
Quoting from same Reserve booklet, page 70, the creative steps are given in succinct form: "Suppose that the Reserve authorities were of the opinion that more loans might advantageously (to bankers) be made and the bank should be provided with additional reserves so that it could make them. Suppose they purchased $20,000,000 of securities (corporation stock) in the open market. The sellers of the stock would deposit in the commercial bank the $20 million cheque (drawn against no deposits - Reserve authorities created $20 million by writing the cheque) they receive in payment. The commercial bank in turn would deposit the cheque in its reserve account at its Reserve Bank. Having the $20,000,000 additional reserves, the commercial bank, by making loans (or buying securities), could increase its deposits to five times as much, or $100,000,000 the $20 million being the 20% reserves required against the $100 million of new deposits."
Analysing this story we find there are five steps in the process of creating bank deposits:
1. Reserve authorities buy corporation securities or Government Bonds, giving to the corporation a cheque against no funds in payment.
2. The corporation deposits the cheque in its home bank, creating new bank deposits.
3. The bank re-deposits it in its Reserve Bank, creating new bank reserves which are credited to its reserve account on the Reserve Bank's books.
4. The commercial bank enters on its books as bank credit a sum five times its reserves on Reserve books.
5. The bank creates the $100 million new bank deposits by making loans to its customers or by buying investment obligations, in above example.
Summarizing, we reveal these astounding figures:
Corporation securities offering 6% $ 20 million Reserve cheque in payment. 20 million New bank deposits to corporation. 20 million New bank reserves, credit of bank. 20 million New bank credits on its books. 100 million New bank deposits to cr. of cust. 100 million New active monetary values. $140 million
In the process the banks created $120 million bank deposits, came into ownership of the $20 million corporation stock and $100 million in personal notes, mortgages, bonds etc. They will re-sell the corporation stock and add the $20 million bank deposits they receive for them to their profit account, for the stock did not cost them a thin dime. In due course of time the bankers get bank deposits for all loans and will re-sell all securities, and add this $100 million plus interest to their account, making a total of $120 million plus interest and dividends the bankers add to their profit accounts when the cycle is completed.
The $20 million Reserve cheque, the $20 million corporation stock, $20 million bank reserves, the $100 million bank credit—none of it cost the bankers one thin dime; therefore the $100 million in notes, mortgages, etc., which they bought with the bank credit cost them not one thin dime. Then the $120 million profit they added to their account cost them not one thin dime. Their customers got the use of the $100 million at heavy interest cost, for just a short time, then it became the permanent assets of the bankers. The whole process was just simple bookkeeping.
That's how Sir Josiah Stamp meant bankers would with the flick of a pen create enough money to buy the world back again!"
The United States Government issued more than $250 billion U.S. bonds during World War II. The Federal Reserve Banking System bought every bond, giving the Government deposit credit on the books of the Reserve Banks. The Federal Reserve Banking System is a 100% private corporation, "federal" in name only.
Let's summarize the magic touch of bankers. The Treasury wrote cheques totalling $250 billion. The recipients deposited these cheques in commercial banks, creating $250 billion deposits to the credit of those who served the Nation, or sold the United States goods. Banks sent them to Reserve Banks, increasing their reserves $250 billion. Then the banks wrote on their books $1.25 trillion additional bank credits, which they could lend or use to buy securities, which would add $1.25 trillion in new bank deposits. These cheques of the Government first created $250 billion deposits then created $250 billion bank reserves, which ballooned into $1,250 billion Bank Credit!
In due time the commercial banks will collect all loans and re-sell all securities. This will transfer from their customers' deposit accounts $1.25 trillion to the banks' profit account. Now let's total up banks' war profits:
U.S. Bonds $ 250,000,000,000 Deposits to banks' accounts. 1,250,000,000,000 The price-of-the World-War-II total. $1,500,000,000,000
Adding the $250 billion deposits that the banks paid the Government for the bonds and we find the war created $1,750,000,000,000 monetary assets, and only the $250 billion the Reserve Banks paid the Government escape their assets, but they have the U.S. Bonds, which cost them not one thin dime.
And they sell the U.S. Bonds daily which will finally transfer the $250 billion deposits they gave for the Bonds - and the complete ownership will be theirs!
There Sir Josiah was vindicated in one war. With a flick of fountain pens the bankers created, in five years, $1.75 trillion in monetary values! and at the end of the cycle securities and deposits are their assets. And none of it cost the bankers one thin dime.
They are mad men madly plunging the World into World War III - Creditalism's Armageddon.
The people pay for the wars in materials, human sacrifice - the cold corpses and mangled living bodies of their sons, in anguish, toil, sweat, tears and blood yet they plod back to empty larder in a roofless home, and before they can eat or buy material to build their home and a lot to rest it on, they must fall upon their knees before these bankers, who contributed no materials, no sweat, few tears and little blood: who made $1.75 trillion just by selling Uncle Sam the Nation's own credit, for enough of these $1.75 trillion of bank credit to build their little cottages. With cold indifference the bankers said, "You have no credit. You must get the Government to indorse your notes." That to the men who had fought, while these bankers stole from them and the rest of us (legally) $250 billion in U.S. bonds and $1.25 trillion in bank credit.
Beef steaks selling at $1.1 a pound, $30 land selling for $400, a $1234 cottage selling for $5275, is the result of this increase of bank deposits, inflation of money. High prices are not inflation: they grow out of the inflation of money. Price rises should keep pace with money increases. The Government's price controls is an effort, in obedience to the orders of the Reserve Banks, to compel the people to accept, for their goods and services, a cheap dollar. Only the deposits in chequeing accounts reflect the money supply. That's why bankers, aided and abetted by the Government, beat down wages, then take every pay day huge sums as taxes; fight for higher utility profits; urge you to put your money into savings accounts, and urge you to purchase U.S. Bonds and corporation securities. A hungry house wife drools as she sees the thick juicy $1.1 steak, touches it shyly, and lifts a soup bone into the shiny grocery cart, and hurries away. If all deposit dollars were demand deposits, and there were no price controls, steaks would cost $11 a pound and $300 salary would be $3,000 a month!
The worthless German mark would be worth more! Why the difference? The German marks, were printed, in the hands of the people; the American dollars are figures on bankers' ledgers. The American bankers are set to follow Germany's lead. Rumnl has said, "Banks will not bust as in the 30's; as often as the depositors ask for cash, greenbacks will be handed out to them." These will be Federal Reserve notes, which cost them only 30c per $1,000, and they will pay Uncle Sam the thirty cents with new deposit dollars, which cost the bankers not one thin dime.
The greenbacks you get will be fiat money, redeemable in its kind, like giving a hot cheque for a hot cheque! Look at a Federal Reserve note. Read, ""Redeemable in Lawful Money." Not in silver, Not in gold. It is lawful Money. "On demand" the banker or Treasury of the United States, would hand you another Reserve [corporation fiat] note. But the Government has already printed for the Reserve Banks $21,964,687,524 (May 31, 1957 circulation statement of United States Money), Federal Reserve Gold Certificates, not for circulation, which bankers hold. This gives them title to our entire gold. It cost them just to have them engraved $8 million. And they paid this with new hot deposits. In this way bankers got title to $21,964,687,524 (billion) of gold absolutely free!
Congressman Wright Patman said before, the Ways and Means Committee of the House, February 13, 1943:
"I am opposed to the U.S. Government, which has the sovereign and exclusive power of creating money, paying private bankers for the use of its money. The private banking corporations do not hire their own money to the Government; they hire only the Government's money, credit, to the Government, and collect an interest annually."
It is now approximately $10 billion annually. They got $250 billion U.S. Bonds gratis. The people must pay the bonds, too!
Congressman Jerry Voorhis said:
"Banks should lend money, not create it. The Government should create money, but not lend it."
The Constitution says:
"The Congress shall have the power to coin money, regulate the value thereof."
But it nowhere empowers Congress to re-delegate this power to private corporations.
There is a solution of this problem. It requires no revolutionary change - just a change of control and of management. The present system is dangerous. Utterly fails to give us a sound stable money. Invites wild speculation and ill-advised and wasteful investments.
Corporations water their stock as much as 168 times their physical values (See the Borah Committee Report). It is unconstitutional. Our proposed change is just following the simple, plain mandate of the Constitution, eliminating the wrongs of banking, and giving us a sound, non-fluctuating-in-buying-power-and-volume dollar. It does no man a wrong. It gives no man an unfair advantage over another, no man a special privilege. It stimulates legitimate businesses, places a premium on honest labour and industry, protects the weak against the strong, and cuts the shackles of economic bondage from the masses and saves them from trillions in debt and billions in interest payments. It is Constitutional Admittedly so.
Had we made change in 1933, and the Treasury had taken credit for $250 billion, we would not owe the $279,764,369,348 (as of February 28, 1956) bonds with the $10 billion annual interest payments. Banks would not hold gratis $1,750 billion in bank credit. We would have just the $279 billion new, and excess deposits which the $10 billion interest we now pay would cancel out in 25 years. As it is, we'll pay in interest the $279 billion and still owe the banks the $279 billion in bonds, along with the $1,750 billion they got in addition to the bonds.
The banks render two essential services: 1. lending credit, or money; 2. keeping deposits, clearing and cashing cheques. The first is a private property right and should be reserved to the people; the second is a public right and must be reserved to the Nation.
The system of keeping the people's money credits, cashing and clearing their cheques, if divorced from the lending of money, would give us the best medium of exchange, money, the world has ever devised. And, if the Nation carefully limits its volume to the amount needed to carryon the business of the Nation on an annual basis, it will be the most fluid and the soundest money on earth.
(Note: Perhaps I should explain why I used different figures in different summations of the costs of World War II. I did it that I might play with the $250 billion, and the official $276 billion. I used the 20% figures as the percentage of deposits to reserves, as the Reserve Book did, but would have been closer to the 'truth had I used the ratio of 7 instead of 5; and now the Reserve Banks are asking Congress to let them loan 10 times their reserves. Of course that would have doubled all of my totals, if I had used 10 instead of five. The alarming fact, and not the exact figures, was my object always. - The Author.)