Chapter XI
More of the Steps in the Creation of Money

First, there is the Reserve, authorities power to write a cheque against no funds.

Page 85 of Reserve Booklet: "Federal Reserve Bank credit . . . does not consist of funds that the Reserve authorities "get" somewhere in order to lend, but constitute funds that they are empowered to create.  The process of creation is one of giving the promises of the Federal Reserve Bank — in the form of Federal Reserve Notes and Reserve deposits — in exchange for the promises made by others to the Federal Reserve Banks, the reason for the exchange being that the Federal Reserve Banks' promises are recognized BY LAW as having a particular monetary utility not possessed by the promises of individuals or of private institutions."

That simply means that the Federal Reserve authorities can write a cheque against no funds or give the sellers of securities to the Reserve Banks deposit credits on their books.  These securities are (a) U.S. Bonds, (b) Corporation stocks, or (c) investment obligations, which the member banks may sell (or deposit with them) — and the member banks get; credit to their reserve funds. If the Reserve authorities should pay for the securities (promises of others to pay) with Federal Reserve notes, instead of just giving the seller deposit credits on its books to the seller, it would mean nothing, because the Bureau of Engraving and Printing (the Treasury) prints reserve notes for Reserve Banks at a cost of only 30 cents a $1,000.  To follow that course would be both perfectly silly and useless;  for the seller of the investment obligations would have no use for the cash, he would just deposit the money in the bank, receive deposit credit against which he could write cheques.

The Reserve Banks are now very careful to say, "We buy U.S. Bonds and pay for them with Reserve notes."  Bankers are fighting desperately to hide the fact, that, in reality, they are lending no funds; but create funds every time the Reserve authorities buy investment obligations, or make a loan, and every time any commercial bank buys investment obligations, or makes a loan.  Just as Congress, by law, empowered the Reserve authorities to write a cheque against no funds; the Reserve Act empowers commercial banks, who are member banks — and there are some 8,000 (total 14,537) other State banks and trust companies who do business as branches or under trusteeship of member banks) to write a cheque against no funds.

A congressman wrote me that he used to think that when the Reserve Banks, which are the fiscal agents of the Government (keeping its deposits and clearing the Government's cheques paid to customers for materials and services) bought U.S. Bonds, that the Reserve Banks just gave the Government credit in its deposit account for the bonds; but now he has learned that "Instead money is created in the form of Federal Reserve notes taken from the Treasury's Bureau of Engraving and Printing, and used to buy United States Government Bonds."  He has been brain washed.

The Congressman did say this: ". . . when Government bonds are bought for the 12 Federal Reserve banks, the capital stock and surplus of the banks is not used for this purpose, and funds of the Reserve banks are not used for this purpose, and the deposits of member banks are not used for this purpose."

The Congressman is wool-gathered in the assertions that the Reserve banks use Reserve notes (greenbacks in daily circulation) to pay the Government for the bonds.  He is not wool-gathered in his statement that they do not use capital, surplus or bank deposits for banks do not, never did lend their capital, their surplus or their depositors' deposits.

But let's note how silly the Congressman's assertion that the Reserve authorities get from the Government Reserve (free) notes, and then hand them back to the Government in payment for the U.S. Bonds.  The Government prints these bonds for the Reserve Banks at a cost of only 30 cents a $1,000 and the Treasury keeps them in storage, just like a printer would keep a customer's letterheads in storage, doling them out to the customer as he called for them. The Government took blank paper, and printed some gobbledegook on both sides and presto it is money.  The: paper is 21/2" by 6" and it may be a $1 bill, a $5 bill, a $10 bill, a $20 bill, or a $50 bill on up.  It is a fiat of a private corporation, made legal tender by printing "The United States of America " promising to pay the bearer Five Dollars, and in very small 4 point type, legend for all debts, public and private and is redeemable in lawful money at the United States Treasury, or at any Federal Reserve bank."

The Government has printed for the Reserve Banks $27,371,374,795, which was blank paper, but when printed in bills, the above value was affixed on them. So the below-cost cost of the printing amounted to $8,181,412.20.  How would you like to hand Uncle Sam say $30 and he would hand you $100,000?  Well that is what he does for the poor, impoverished, full of-pity bankers.

Now about that money (Federal Reserve notes) the Treasury hands the Reserve banks that they may hand it back to the Government in payment for the bonds.  Of course that would be all right, because the Government would hand it right back to the bankers and say, "Just give me deposits for the money — can't use cash in my business; always pay with cheque."

But you see the bankers can say that "we pay cash for U.S. Bonds; and they could say that Uncle Sam printed that "cash" for just 30 cents, a $1,000 (but they don't); so it didn't cost us anything."  Then they could add: "Why, the old geezer just took deposit credit for the 30 cents, and the deposit credits just cost the trouble of writing them on the books, and clearing the old geezer's cheques — yep, they don't grow dumber than that Old Uncle Sam."  They only whisper that behind closed doors.

Let's, borrow $1,000 from your local bank.  You sign the note, put on top of it chattels worth $3,000, then pay credit insurance for a $1,000 — all for the banker.  (If you don't pay, the Insurance company will, finally) — and you hand all (note, mortgage, insurance policy) to the banker, and the banker will count out to you very carefully, $1,000 in Reserve notes, which cost the bank nothing; and you will hand them right back to him, and say, "I prefer deposits; taking that much money out would be dangerous; some one might rob me — any way, I always pay with cheque because that gives me a good receipt to show I have paid my bills."

Silly way to lend deposits, isn't it?  But a Congressman said that that is the way the Government borrows money from the Reserve Banks.  The truth of the matter is that 99 percent of all money borrowed, and paid to customers for investment obligations, is deposits (on the books of banks) transferable by cheque from [begin page 132] buyer to seller.  And the Reserve booklet says: Page 39, "The aggregate deposits in the banking system as a whole (are) funds lent by banks or paid by banks for securities."

Let's get back to that summation I was going to make of the processes of the creation of money (bank deposits).

Second, the Reserve authorities give a corporation its cheque (remember against no funds) for its stock, $10,000,000 worth.

The corporation deposits this cheque in its Austin bank, and the bank gives it deposit credits, $10,000,000.  These are new deposits, increasing the total deposits $10,000,000.  The Austin bank sends the cheque to its Reserve Bank in San Antonio and the San Antonio Reserve Bank gives the Austin bank credit in its reserve fund, $10,000,000.

Third, The Austin bank now has $10,000,000 added to its, reserves.  It can lend five times the $10 million, which would be $50 million, and when its customers borrowed the whole bank credit, or apart of it, and the bankers used the balance to buy investment obligations, and they perhaps would, the Austin bank's deposits would be increased $50 million.

That's the whole story.  That is all there is to the creation of money, the customers' deposits.  First, a Reserve cheque is written; Second, it is deposited in a bank; Third, it clears through the bank's Reserve Bank, and the Reserve Bank gives Austin $10 million reserve credits; Fourth, the Austin Bank lends five times its reserve fund, or buys investment obligations with it, creating in this way $50 million additional bank deposits to the credit of customers of the bank.

When these notes are paid off, and they resell or collect the investment obligations they buy, then the $50 million will be their cash assets, growing out of the fact that a corporation deposited a Reserve cheque with them.  Can you find in the whole chain where the Austin Bank paid one thin dime for its reserves, its bank credit, its $50 billion in notes, etc.?

Now I have written many words in an effort to let you see how bankers have euchered the Government out of the Nation's credit — taken over the creation of money and the control of credit.  How the Government must borrow from the private corporations.  The story is astounding in its volume and implications.

At the end of World War II the Government had issued $250 billion in bonds.  At the beginning of the war, the previous bonded indebtedness was a mere $46 billion.

Mr. Patman had tried to get Congress in 1943 to adopt a resolution which would make all bonds owned by banks non-interest bearing; and said at the time that "we are entering a war that will probably cost us $300 billion."  Then the bonded debt of the United States increased as a result of World War II, over $250 billion, falling $50 billion short of Mr. Patman's fears.  The Reserve authorities bought the entire $250 billion, and then sold part of the $250 billion to persons and corporations.  They prefer this for two reasons:

First, it lets them say that the people let the Government have the money to fight the war; Second, they got the bonds as a free gift from the Nation, so when they sold them to the people, as many of them as they did sell, they converted the bonds into deposits to the bank's credit.  That's why they fought Mr. Patman's desire to make bonds into two classes: (a) those to sell to the people directly; (b) the rest to sell to the bankers directly.  Had this been done the bankers would have been deprived of one of their richest revenue sources; for as often as they sell a bond (and they could not sell a bond if it did not bear interest) they add the price to their deposits; and as often as they buy a bond back, they give new deposits for the bonds; thus they get them back from the people just as they got them from the Government, free.

The Reserve Act gave the Reserve Banks arbitrary and absolute control of credit, enabling them to increase bank loans or restrict the flow to a trickle. Their chief method is to increase or decrease the ratio between a member bank's reserves, and its deposits.  But often they do this by ordering banks to raise interest rates and refuse to make loans.

When we have good times, they open the floodgates, bankers begin to lend bank credit frantically, and a gullible people begin to borrow, and spend like drunken sailors.  Employment increases, goods flowing from industries become a torrent, and riding merrily along on a "debt dollar" the people coast up and down life's highways exhilarated by speed and "wealth."  But, when the Reserve board decides they have enough of such human joy, good eating, cavorting hither and yon, they can arbitrarily "dry up" the banking funds, and borrowers walk away without deposit slips and a cheque book.  Industries slow down, men are laid off, cash becomes hard to get, and men with holes in the soles of their unpolished shoes, tramp the streets, besiege employment offices, looking for work. . . and vacations with pay become "periods" without work; and hunger gnaws at the vitals of men, women and children; and the smiles of good times become frowns, dazed looks, and melancholia becomes an epidemic.

We are now in the midst of one of these criminal squeezes.  Word went out to bankers, "No more loans, except to the elect; raise the interest rate; make credit too expensive to use, hard to get."

We are today helplessly watching bloodless corporations set the tables for another catastrophe which will make the 1929-1934 debacle, in retrospect, just a holiday.

These are the men who sit tri-weekly in the offices of the Board of Governors of the Federal Reserve System, "grapple with the problem: whether to pump more money into citizens' pockets, or siphon it out; give us inflation, or hair-curling depression. . . They are the seven members of the Federal Reserve System's governing board, and the presidents of the twelve Federal Reserve Banks, scattered about the country."  Those words were quoted from the Saturday Evening Post, July 20th, 1957 issue.  It does not name the 19 (only 19 men from our 171 million people) men who compose this group.  It does give a photograph of them in action; and graciously prints the picture and gives the name of the President of the Board of Governors of the Reserve System: "William McChesney Martin, Jr." and he looks exactly like any small town banker, no smarter and perhaps no dumber.

These nineteen just ordinary men, swelled into national and international largeness by their positions, hold good times and bad times for all of us, in their hands.

The terrible fact is: Profits, their profits, is both their god and patron saint, and this obsession blinds them to every human value, shuts from their view the 171 million of us who must eat or go hungry at their will.  If banks, small, individual banks, fail through their "stringency" or lack of credit, imposed by these 19 men, in the language of their progenitors, "they ought to fail they are not needed."  If businessmen go broke, and farmers lose all, in the language of their progenitors, "They ought to lose they are too rich and too independent."  If you remind them that this act will cause wide-spread hunger, the children of the workers will have no bread, they will, as smugly as Queen Catherine, say, "Then let them eat cake."

Nothing, nothing, nothing concerns them but profits.  And, as they did in 1837, 1873, 1893, 1907 and 1929-1934, they will not hesitate to wreck the country, rob millions of their property, their life's savings, that they may take title to billions of dollars worth of property, because the debtors can't pay their mortgages.

They are the visible forms of Private Corporations, a "bloodless person," a soulless person, a conscienceless person, a cruel, thieving person, nerveless, eyeless, deaf; never hears the cries of hungry children, nor sees the sad, hopeless, full-of-despair eyes of the millions of bread winners walking the streets begging for bread.

Yet, you learn all of this, then say, "But we can not trust Congress, our elected men and women, the 531 of them, who are under oath to do justice to every human being in the Nation, and whom you choose to represent you?"

How absurd.  You had rather be ruled by kings whom you had no part in their annointing, 19 of them, than to trust your Congressmen.  Yet you know, if the Congressmen do you an injustice, you can hire another man to represent you; but whatever evil these 19 may do there is nothing you or the President can do about it.  Only Congress can do something about it.  The Constitution of the United States says they must do something about it; for it says that Congress shall have "power to coin (create) money, regulate the value thereof."

The depository system would eliminate all the fictitious "funds" you find shifting about from bank to bank, from Reserve account to Reserve account. The keeping of the people's deposit credits, cashing and clearing cheques, would be reduced to simple bookkeeping, deposit-keeping.  It matters not in which depository the cheque was presented for deposit, there would be just the simple crediting deposit account of the receiver of the cheque, and the debiting of the deposit account of the giver of the cheque.  There would be no clearing houses nor "central depository" through which cheques drawn on one depository and deposited in another would have to clear.  There would be no "funds" shifting from one depository to another-only figures representing deposits would increase in one depository and decrease in another, dollar for dollar.  Figures on the books, plus the cash out of the depositories, would be the total and complete representation of our volume of money.

Cash in the vaults of the Treasury or in the depositories would never be reckoned as a part of the total volume of money only the cash in the hands of the people would be a part of the total money supply there might be a trillion dollars in total minted coins and printed bills, while the total money supply might never be over $500 billion, yet that would mean nothing, because as long as the cash remained in vaults of the Treasury and the depositories, it would be dead.

There would be no shifting of cash from one depository to another to "cash cheques".  If a depository ran short of cash to hand out to its depositors, the Treasury would supply it whatever additional amount needed; and should a depository pile up too much cash in its vaults, it would just let it lie there subject to the orders of the Treasury.  No depository would keep books against any other depository.  It would not be concerned where deposits from its books went, or from which depository deposits came.  It would simply total each night, total deposits on its books, and that would be that.

I have said elsewhere that the change over from the banking system to the depository system would not injure any small businessman.  I should explain that it would not if he was using an honest dollar, not a stock-market or phoney dollar.

Texas is plastered with several layers of "insurance company's, policies." Thousands of these are doing business with the most spurious stocks as their "fund" securing the policy holders.  Within the last 15 months Texas has shocked the Nation with its infamous U.S. Guaranty, and Trust company, which had dealt in stock, pyramided spurious assets, only to crash. . . the president did a very worthy thing, he shot a hole through his head.  Then there came the hydra-headed BenJack Cage's finagling, and he lost to the Unions and thousands of stock holders in his many companies millions of dollars, and so powerful are these crooks that he came back from Brazil only after two Texas district attorneys promised him practical immunity from punishment, and at this time he is in Texas having a Roman holiday with grand juries and House and Senate "investigation committees."  He has made monkeys of all of them — and the press hangs on his "mighty" words.

When Congress takes over the creation of money and the regulating its value, the keeping of the people's deposit credits, cashing and clearing their cheques, this thing can not happen.

You will not witness what is happening all over the United States, a "squeeze" placed on the "little man" by 19 sinister men who meet tri-weekly with the power to shut off money from those whom they wish to destroy — and definitely now they propose to utterly wipe out the little fellow as an independent operator.  Mass production lies have so clouded the people's minds that now they are saying "Get a job with some big corporation, and behave yourself, and your future security is assured."  I see here in Austin the big contractor going right on with his many-million-dollared development projects, while the little fellow is searching for a job with the big fellows.

This is an apt side light.  We commiserate the Russian people under the stateism that directs everything and compels everyone to labour at some task. We forget that the masses under the Tzar were vassals of princes who owned the lands and the villages and cities.  These vassals worked for the barest necessities of life-stones on the great estates.  We are headed back to that situation.  This cheap, phoney dollar bankers are flooding the nation with is being used to buy up the land, and thousands of families are being driven from the land, into the slums of cities, to be a burden on the Government.

The 19 Reserve men (they claim legal authority) symbols of the Russian regime, hold the power of life and death over us all.  We use different terms to describe our activities, but they are parallel with Russian power and disregard of the rights of the masses.  The power of these men, the destructive influence of the phoney dollar, will be swept away, and only the honest, eager-to-serve-mankind associations of men will be able to survive, and they shall prosper because the Congress will see that no legitimate enterprise, essential to the well-being of the Nation, will suffer for lack of funds.

Spurious insurance companies, faking trust companies, innumerable 'trust estates, and the gambling in stock markets, wheat pits, cotton markets, the casinos — these barnacles on our ship of state will be roughly scraped off that the old "Constitution" may again sail grandly and proudly in the sea of nations.