How Washington Really Works, Part 4

Of three iron triangles of power I describe in this five-part series, this one is the most complicated. That's because not one person in a thousand knows how the Federal Reserve System (Fed) works. For that reason, this installment is mainly about the Federal Reserve System.
Each of the twelve branches of the Fed is called a Federal Reserve Bank. That’s a misnomer, because the Fed is not federal in the sense of being part of the federal government; it has no reserves, and the Fed isn't really a bank. The U.S. Constitution grants Congress the power to “coin money,” but, in 1913, Congress presumed to pass that legal power to a banking cartel and called it the Federal Reserve System.
The Fed has the power to create paper currency out of thin air (not backed by anything of value) and lend it to the U.S. Treasury. This paper currency is, in fact, certificates of debt (promissory notes), with the promise that the American taxpayer will repay the debt.
If paper currency is not backed by anything of value, from where does it get its value? It gets it from the value of paper currency already in circulation. Let's say you have $100 in your wallet out of, say, $10 trillion in circulation; and the Fed prints another $10 trillion and puts it into circulation. Because there is twice as much paper currency to pay for the same amount of goods and services, the $100 in your wallet is now worth only half what it was worth before.
You lose money twice: once when Congress borrows the money for you to repay; and a second time, when the value of the currency in your wallet drops. It's as though a thief has taken $50 out of your wallet and left you with an IOU stating that you—not the thief—will have to “repay” the debt “owed” to the thief. (Think about that the next time you think about the $multi-trillion bailouts.)
Look at the left side of the triangle above. The taxpayer pays interest for borrowing something that had no value at the time the Fed loaned it to the U.S. government.
During the War Between the States, Abraham Lincoln refused to finance the war on borrowed money. There was no Fed at the time, of course, but Lincoln recognized that fractional lending and the use of promissory notes as “paper money” amounted to the kind of double taxation I've just described.
Instead, the federal government rather than the bankers issued its own paper currency. This inflation of the currency was a form of invisible tax, in that it raised money by reducing the value of currency already in circulation. Nonetheless, there was no debt for the taxpayers to repay. Here's how Lincoln described his policy:
“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.”
- Abraham Lincoln
The following are from two other Lincoln quotes: "I have two great enemies, the southern army in front of me and the financial institutions, in the rear. Of the two, the one in the rear is the greatest enemy..... I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and 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 all wealth is aggregated in a few hands, and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war.” Abraham Lincoln- In a letter written to William Elkin
As strange as it seems, the Federal Reserve has never been audited in its entire 97-year history. Establishment shills have consistently beaten back attempts to make the Fed accountable to the American people, but this may soon change. On a bi-partisan 43-26 vote, the House Finance Committee approved HR1207—a bill to audit the Fed. The House passed HR1207 (known as S604 in the Senate) by an overwhelming margin.
Did your congressman vote to make the Fed accountable to the American people? Or is he beholden to powerful special interests? Click here and find out.

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How Banking Really Works

(Or Sachs, Lies, and Video Clips)

Henry Ford once said that, if the American people knew how the banking system really worked, there would be a revolution. Let me tell you how the banking system really works.
Most people think that it works pretty much like commerce. In fact, the British use the same word for rent and borrow. They hire a car and hire money. In practice, there’s no comparison.
When you rent a car, the car rental place gives up some of the value of a car (wear and tear on the vehicle) in exchange for your money. Your money has value because of the time and effort you sacrificed to get it.
In short, both you and the car rental place are giving up something of value (cost) to gain something of value (reward.) All commerce is based on the three elements of Social Exchange Theory: cost, trust, and reward.
In banking, the cost is almost entirely one sided. That’s because banks have the power to create money out of thin air. Banks can create “money,” but they can’t create value.
Let’s skip over the history of banking, which, I’m sure, every one of you has heard.
Dollars no longer take the form of silver or gold. They may not even be in the form of something tangible, such as a check. Because of the intangible nature of money these days, bankers can monkey with it in ways that’ll curl your hair.
For every dollar that’s deposited in a bank, the bank can lend thirty dollars or more. The ability to lend more money than they actually have is called fractional lending.
Where do they get these extra dollars? They create them out of thin air, based on the supposed authority granted to them by Federal Reserve Bank (the Fed.) This cartel isn’t federal any more than Federal Express is. It has no reserves, and it’s a privately owned banking cartel rather than a single bank.
Any value assigned to this “money” comes from dollars already in circulation. With each dollar that’s created out of thin air, each dollar already existing becomes worth less until, finally, it becomes worthless. (Compared to the value of the dollar in 1929, today’s dollar is valued at less than four cents.) It’s a form of invisible taxation, and not one American in a thousand is aware of it.
It doesn’t cost a bank any more to lend $30,000 than it does to lend $1,000. By contrast, a car rental place can rent out only one car—not thirty or more—for each car that it has. The car rental place is limited to getting rental fees for each car they have; but banks can gain interest payments on thirty times the amount of money they have on deposit.

Now let’s look at how this applies to the “bailouts” of Goldman Sachs and other banksters. I placed the word bailout in quotes because Goldman Sachs and the other banksters suffered no losses; thus, no losses needed to be covered.
They created money out of thin air (being fiat money, it had no intrinsic value) and loaned it to people to buy houses (which, of course, have value.) The borrowers agreed to repay the fiat money with money they had earned through the sweat of their brow. Thus, they borrowed something with no intrinsic value and agreed to repay it with something that had value—plus interest.
Remember Social Exchange Theory: cost, trust, and reward? Those loans didn’t cost the banks anything, yet they’re expecting value in return.
Goldman Sachs then set up a parallel system in which they made bets that their own system would collapse. So what happened when the system collapsed?
Well, it’s not as if the borrowers never repaid anything. Goldman Sachs and the other banksters did get some money that had value as repayment for money that the banksters had created out of thin air. When the borrowers fell behind in their payments, the banksters also received the houses—which had value—and those who had bet that the system would collapse thus made hefty profits when the system did collapse.

Then Goldman Sachs and the other banksters went crying to congressmen who had received hefty campaign contributions from them. Congress then voted to embezzle trillions of dollars (which have value, as the taxpayers had worked to earn them or must work to repay them) to “compensate” the banksters on their supposed losses.
It’s reasonable to ask, “If all this is true, why did Bear Stearns and other corrupt outfits go bankrupt?” They went bankrupt because even banksters have financial obligations that have to be met with real money. Not everyone can be played for saps. Each time a borrower defaults on a loan, the bankster can expect fewer real dollars to meet his obligations.
Who controls this corrupt system? It’s controlled by the Federal Reserve—the same privately owned banking cartel I mentioned earlier. Under the United States Constitution, the Congress has complete responsibility for coining money, borrowing against the credit of the United States, and paying it back.
In 1913, Congress voted to violate the Constitution by placing this responsibility into the hands of a few large banks. It was about that time that Mark Twain said that congressmen were idiots. Since idiots can’t be trusted to handle money (I’ve often wondered: If a fool and his money are soon parted, how did the fool and his money get together in the first place?) Congress voted to place that responsibility in the hands of bankers.
The rationale for the Federal Reserve System was that bankers’ expertise was needed to avert another crisis like the Panic of 1908. When Congress voted to create the Fed, then Congressman Charles Lindbergh (the father of Lucky Lindy) said, “Now depressions will be scientifically created.”
The Panic of 1908 is largely forgotten, but everyone has heard of the Great Depressions of the 1930’s and the present day.

Maybe it’s a silly question, but, since the Federal Reserve is in control of all of America’s money supply, shouldn’t the Fed be audited once in awhile? Yes, I believe so. That's why HR1207 was introduced. Maybe it’s a sillier question, but, since the Federal Reserve has completely failed in the only purpose given for its existence, do we really need it? Congressman Ron Paul and many others say, “No.”

Recommended reading: The Creature from Jekyll Island. Despite its flippant-sounding title, it’s the most important book pertaining to the Federal Reserve that I’ve ever read. Of necessity, I’ve breezed through a lot of important points concerning the Fed. The Creature from Jekyll Island will fill you in on the details. If you can’t find the book and still can’t trust Internet purchases enough to buy it on line, click here to begin watching the twelve-part You Tube videos by G. Edward Griffin.