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 Washington Really Works: Part 5

(This is the last of a five-part series)
The diagram you see above is just a sketch of how power and influence are exchanged in Washington. The exchanges are explained in parts 2-4 in this series, in which iron triangles of power are illustrated. This diagram shows only bilateral relationships that indirectly add up to a power establishment.
The diagram doesn’t show interlocking directorates among businesses and banks or the blurring of distinctions between commercial banks and investment banks. It doesn’t show the investments that individual congressmen or individuals elsewhere on the diagram have in others in the diagram.
As a precaution against tendencies toward monopoly, federal law prohibits banks in the same city from having interlocking directorates. That law was passed in the days of green eye shades and paper ledgers. In the age of Internet and Excel, all banks are virtually in the same city.
In 1933, Congress wisely passed the Glass-Seagall Act, separating commercial banks, investment banks, and insurance companies. For the next 66 years, the Glass-Seagall Act served as a deterrent to some of the worst abuses that had led to the Great Depression. Insurance company representatives could proudly claim that no insurance company in American history ever went bankrupt.
Then, on November 12, 1999, the curtain rang down on sanity and then came Act Two. The ironically titled Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act (or more formally, (Pub.L. 106-102, 113 Stat. 1338) was passed. Phil Gramm now holds the dubious distinction of being the Father of the Current Financial Crisis.
None of these three perps are still at the scene of the crime. Leach and Bliley dropped out of sight, and Phil Gramm became a lobbyist for malefactors of great wealth. Astonishingly, Gramm was 2008 presidential candidate John McCain’s chief economics adviser. McCain admitted that he didn’t know much about economics, but that was ridiculous. It’s like admitting that you don’t know much about surgery and asking Jack the Ripper to perform an operation on you.
Phil Gramm also holds the dubious distinction of ending insurance company bragging rights about never having experienced bankruptcy. Courtesy of the Gramm-Leach-Bliley Act, American International Group (AIG) became heavily involved in credit default swaps and collateralized debt obligations. (Don’t feel embarrassed for not understanding those terms. Fed Chairman Allan Greenspan admitted that he didn’t understand them either but that they must be good for the economy. In 2008, Greenspan was the one who ended up feeling stupid. When McCain picked Gramm to advise him, McCain really was stupid.) Courtesy of Phil Gramm and his unindicted co-conspirators, AIG became the first insurance company in American history to be nationalized to save it from going bankrupt.
You may be wondering if the wheeler dealers in Washington are at least as sophisticated as the average teenage Facebook user. That is, do they, like their pimpled counterparts in cyberspace, do networking or participate in meet-up groups? Well, yes, they have several of them. That’s another phenomenon that the diagrams in this series don’t show; and that will be the subject of a future article.
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