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Chapter 6
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"THE MONEY FAILURE" Chapter VI Micah 3:11 "Well, I imagine that only a handful of people in the entire country suspected what calling in the silver was going to mean or what had caused this measure to be taken." "I certainly don't see how it could possibly be connected with my being abandoned in a cave by four good friends. Nothing short of losing their lives would have prevented any of them from releasing me." "It very certainly could be, David, but you will have to listen carefully to understand how it came about. This misuse of the Federal Reserve Bank system was the source of America's international money problems. Calling in the silver preceded by about six months the event which brought chaos to America." "Are you trying to tell me that America's money problems somehow could have caused my friends to lose their lives while I was asleep? It will be hard for me to imagine that!" "Yes, David, along with millions of other Americans." "Impossible!" "Would you like to know how it happened?" "Very much." "All right. Many people, certainly your bankers and political leaders, knew that America's inflation was causing the disruption of international exchange but very few understood what had gone wrong." "Well, now that's true." "Of course, there was a tiny minority who understood exactly where the trouble lay but they were party to it and carefully concealed what they knew." "Did the Common Market countries, the European Economic Community have something to do with it?" "By all means." "Did they cause it?" "Oh, no! Rather you could say that the drawing together of the European nations and Japan into an economic coalition was forced by the conditions that America's bankers and great conglomerate corporations created." "Why do you say that?" "Because it was a matter of necessity for them which was so compelling that they were able to set aside centuries of differences to do it. All of Europe would have been drained and their economy devastated if they had not joined together to stop America's abuse of the world's economic systems." "How could our Federal Reserve bank laws have permitted us to do that?" "The Federal Reserve system was originally intended to generate sound currency backed by any useful commodity rather than only one particular commodity, gold. This was to free currency issue from the abuses that resulted when small groups gained control over the supply of gold." "I don't see how you could possibly know such details on a subject like this, especially since you say it is history of some two hundred years ago." "When you learn how we teach history, David, you will easily understand how I can know these things and many other subjects equally obscure to you now." "I never did know much about banking. Can you give me a better picture of what you just said by using different words?" "After the Federal Reserve Bank law was enacted, actual products, wheat, barley, automobiles, shoes, or any legitimate commodity became the basis for issuing money. The Federal Reserve Bank was established for the purpose of relating the issue of money to actual commodities in general instead of its being backed only with gold or silver." "How was that a change?" "Until then, only a producer of gold had the legal right to have his commodity, gold, minted directly into money or to get paper money in exchange for its gold." "Hmmm! I seem to remember some history about free silver minting and the political controversy over silver and gold. But how did the new law change things?" "Previously, a farmer mortgaged his farm against the money he hoped to get from his crops in order to pay the expenses of harvesting. Manufacturers had to mortgage their facilities when they had a large contract in order to pay their labor and material costs before they received payment for goods which they had delivered." "What was wrong with that?" "It was more than just unfair. The whole money system in America was privately owned and operated. This meant that small groups were constantly vying with each other for control of the nation's money supply. The value of the currency could be manipulated up and down by the faction currently dominating the market. A farmer who borrowed currency of a certain value might be required to pay back currency of a much higher value and, being unable to pay, lose his land." "Just a moment! What do you mean; the money system was privately owned?" "Oh, it was still privately owned after the Federal Reserve Bank law was enacted, just as it was before. The only difference was that it would be government supervised to keep it an honest and fair business." "The Federal Reserve Bank was privately owned? You must be mistaken. That doesn't seem possible. I can hardly believe that." "Very few people understood the money system in your time, David. Even among newspaper editors and key figures in government there was little understanding of how it was owned and operated. The name `Federal Reserve Bank,' led people to assume that it was a branch of the government rather than a privately owned bank system." "Well," I said, "I can see that I certainly knew next to nothing about our money system." "Few people did, David." "If a privately owned bank could manipulate the value of the money it loaned, I can see how vulnerable the farmer or manufacturer who mortgaged his property was," I said. "The Federal Reserve Bank law was specifically intended to change that. The idea behind the original Federal Reserve Bank law of 1914 was to set up a wonderfully fair and honest system which used a currency that had no value in itself. In the same way that paper money had been issued as a gold certificate, the new money was a commodity value certificate. While they still called paper money "gold certificates" to maintain public confidence and for the benefit of international trading, yet the principle had been altered. Only a small percentage of gold was to be held for a reserve to satisfy any demand for gold in exchange for gold certificates." "You mean that the Federal Reserve Bank system was intended to create a form of valueless paper money to replace money that actually had value like gold?" "Well, of course, gold certificates had no value in themselves either, but were redeemable in gold." "And you say this was a good idea?" "A great advancement." "Why?" "Well, first let's put the new paper money and the gold certificates on par with each other. They were both paper and equally valueless in themselves." "Yes, but one could get gold for the gold certificates, so it was not valueless." "In the same way, one could get potatoes, shoes or machinery for the new paper money, so it was not valueless either. And they still called them gold and silver certificates, so the public never even knew there was any difference. They were still redeemable in precious metal for anyone who wanted it." "All right, but why was this an advancement?" "With the old system, a small group could gain control over the supply of gold, and then manipulate its value upward and downward. As individuals and businesses and governments borrowed money from those who had control of it, they were manipulated out of all they owned. By this means the common people were kept in a state of impoverished peasantry, great fortunes became the heritage of the few, and even the government became subservient to those few." "Well, I'm not sure that I understand all that you are saying, but you mean that the Federal Reserve Bank law set out to correct a great injustice with its new kind of worthless paper money. And, then somehow failed miserably?" "The principle upon which it was based was not the cause of the failure." "Doesn't paper money always bring inflation?" "Not if the system is honest. The new paper currency was intended to provide a media of exchange whose face value was solidly based on actual production. Instead of inflation, this currency would have been increased in its buying power with every improvement in production methods. The wages of the working people would have been increased by the deflation of the value of all commodities including gold in relation to their currency. With every advance of technology which reduced the number of man hours to produce an item, the wage earner's money would have gained in value." "Well, I guess it worked wonderfully well in America at first. Tell me how the law so improved things." "All right. The basic idea was that money should be issued in an amount that represented the value of some produced goods. The goods were given the same status as gold as a form of wealth." "But gold doesn't wear out or get used up like food," I said in surprise, "so how could money be issued against things that are used up?" "The new law took this into account in a manner that was very simple and practical. If a manufacturer or a farmer had a contract to deliver a certain amount of goods for a set price to be paid within sixty to ninety days after he delivered them, he could have the money issued which the goods were worth simply by furnishing the receipts to show he had delivered the goods and assigning the contract for the payment owed him to the bank in exchange for credit or currency. As soon as the goods were paid for by the customer, then the producer's liability was cleared for the money that was issued against his produce for his temporary use. This way the money was taken right back out of circulation as soon as it had served the purpose of paying cash to workers and meeting production expenses." "You mean that the original Federal Reserve Bank law made it unnecessary for manufacturers to borrow money that someone else owned to pay their bills because provision had been made to issue currency against the value of their goods so they could get it immediately?" "Yes, but not one hundred percent of it. Producers could get this currency only after they had delivered the goods and had commercial paper, that is, the receipts and contracts to show they had delivered the goods. They signed over to the bank their contracts and received cash." "Well, David, you just must understand that we are talking about two separate banks. The Federal Reserve Bank was the banker's bank. It was set up like a corporation and owned by the banking industry through stocks. It issued the money to them for a low service charge, not interest. When the money was issued to a customer, the local bank's service charge was deducted as well as the Federal Reserve Bank charge and the banks called this `discounting the note.' When the Federal Reserve Bank accepted the commercial paper collected by the local banks and issued currency against them, it was called rediscounting. The difference between the local bank discount rate and the lower rediscount rate of the central bank was the margin for profit for the local bank." "They shouldn't have called the charges `interest.'" "The intent, as far as the inaugerators of the Federal Reserve Bank Act was concerned, was that only a small legally established charge or rediscount rate should have been required simply to defray expenses. This banker's bank was not for profit making. And the charges were to pay for the clerical help and maintain the organization, not as interest at all in the former sense. The new law had been carefully thought out by some brilliant and eminently fair minded men. They had set out to free the farmers and all producers of goods from enslavement and subservience to the money manipulators. Competition between local banks was supposed to determine that there would be only a minimum service charge rate that a customer would be required to pay for having money issued to him against his Commercial Paper. This system for issuing money was originally conceived and set up by Alexander Hamilton. The system that Hamilton originally established was destroyed by Andrew Jackson because of the political corruption which led to its use to influence elections." "Well, when you start talking about service charges and interest, I'm sure the public never knew there was any difference. The money system has always been so encased in puzzling terms that I'm sure few people have ever really understood it. You are making it sound like a good system and yet say it caused the wholesale devastation of America. What happened?" "The Federal Reserve Bank law was amended. The specific portion of it dealing with the issue of money was changed to furnish capital for speculation. Soon it had become so corrupt that you might say that America's privately owned central banking system, misleadingly named "The Federal Reserve Bank," was given license to counterfeit money." "But where does the Treasury Department come into the picture. Doesn't the government print the money and mint the coins?" "The Treasury Department was only a servant to the privately owned Federal Reserve Bank System just like the post office served the public according to its rules and regulations. It issued currency to the Federal Reserve System when they prepared the paperwork properly to show that they had been assigned the securities." "Then how could you call it counterfeit?" "It was the same as counterfeit because it was an issue of money that represented no production of goods." |