The Federal Reserve Fraud
November 22, 2008
This post on the fraud perpetrated by the Federal Reserve
is part of my series on the redistribution of wealth from the
poor and middle class to the wealthy. It’s going to be a
long one, because the federal reserve system is complicated –
made that way on purpose to hide the fact that wealthy investors
control our money supply, contrary to what the government says.
In fact, the FED’s official web site says, “The
Federal Reserve System is not ‘owned’ by anyone and
is not a private, profit-making institution,” and also says,
“Reserve Banks issue shares of stock to member banks. However,
owning Reserve Bank stock is quite different from owning stock
in a private company. The Reserve Banks are not operated for
profit, and ownership of a certain amount of stock is, by law,
a condition of membership in the System. The stock may not be
sold, traded, or pledged as security for a loan; dividends are,
by law, 6 percent per year.”
Yes, it is “quite different from owning stock in a private
company” when your stock value is guaranteed and the 6 percent
return (higher at times) is risk-free. Who else gets that kind
of stock? But the owners of these shares are “for profit”
companies. In fact, 100% of its shareholders are private banks.
None of its stock is owned by the government. I wish I could
own shares in a non-profit-making institution that shoveled billions
of dollars my way in addition to giving me a risk free 6% on
my investment!
You see, this goes far beyond that 6% risk-free return. Members
can borrow money which the federal reserve creates. They get
the money at about 1% at the moment (the “fed funds’
rate), and if they want, they can immediately invest in U.S.
bonds that pay close to 4%. That profit, which is obviously huge
if they borrow enough, is paid by taxpayers. Now you might think
the last point is irrelevant, since someone will own those bonds
that we pay the interest on. That’s not true, though, as
I’ll explain in a moment.
First we have to understand how the federal reserve gets its
money. Most of its income comes from interest on U.S. government
bonds. It also makes money on foreign currency investments, fees
for services provided to depository institutions (check clearing,
funds transfers, etc) and interest on loans to depository institutions.
After expenses, the Federal Reserve turns the rest of its earnings
over to the U.S. Treasury, thus enabling them to claim they are
not a profit making enterprise – just the shareholders make
profits. (Could you say this with a straight face?)
Let’s look closer at the big income source, those U.S.
bonds. Here’s how that works, as well as I can explain it
after reading more than a thousand pages in various books about
the Federal Reserve.
1. The government creates bonds (IOUs) and sells them. This
is how they borrow money.
2. The Federal Reserve Open Market Committee decides in secret
when to expand the countries money supply by buying U.S. Bonds
on the open market.
3. The New York Federal Reserve Bank buys the bonds from whomever
is selling them on the open market.
4. The Fed pays for them with electronic credits to the seller’s
bank. These are based on nothing tangible, but are just created.
This is why it is said that the FED creates money “out of
thin air.” That bank credits the seller’s bank account,
of course
5. The banks use these deposits as reserves, and are allowed
to loan out ten times the amount of their reserves to new borrowers.
That money is deposited in banks (borrow to buy a house and the
seller deposits the money in his bank, etc).
So if the FED buys a billion dollars in bonds, it can be turned
into over 10 million dollars in bank deposits. Essentially the
FED creates 10% of this new money and the banks create the other
90%. This is how the FED expands the money supply when they deem
it necessary.
By the way, they create currency as necessary too. Look at those
bills in your pocket and you’ll see that they are not issued
by a government, but are “federal reserve notes.” But
most new money created is simply in the form of bookkeeping entries
– they don’t have to lose a few percentage points in
printing costs that way.
Now, I have to add that I cannot fully explain this because
it gets much more complicated. A simple version that economists
and money analyst agree on: The FED creates money out of thin
air to buy bonds that it then collects interest on, and yes,
it is inflationary. The value of every dollar held by the poor
and middle class is reduced in time from this activity, with
the profit going to FED members, meaning ultimately to the wealthy
owners of those member banks. The two important points:
1. The United States Constitution (Article I, Section 8, Clause
5) provides that Congress shall have the power to coin money
and regulate the value thereof, yet the government no longer
can issue money, or control the flow of money. That power now
belongs to private corporations: the 12 regional Federal Reserve
Banks (primarily controlled by the New York Federal Reserve Bank).
2. The “FED” creates money, and loans it to the
government, charging interest (they buy bonds).
Now, to understand how this transfers wealth from poor to
rich, we start with a question: “What if the government
printed money instead of borrowing it?” For example, suppose
we had paid for the Interstate Highway System by printing the
money needed? Naturally this would reduce the value of currency
in circulation. We call that inflation, and recognize it when
prices rise.
Notice, however, that the price would have been paid by everyone
who owns dollars, and would have been paid only once. In other
words, if you print 50 billion dollars the net long-term effect
is to reduce the value of existing dollars by that much. But
when we borrow 50 billion we pay perhaps hundreds of billions
extra in interest on it for decades to come. Who gets that extra
money we pay? Owners of the debt.
Now, who is one of the biggest owners of that debt? The New
York Federal Reserve Bank. But it’s worse than that. They
have been granted the power to create the money to buy those
government bonds. So the FED devalues the dollars we have, and
then the government take parts of what’s left through taxation
to pay those debts the FED bought with their created money. In
other words, all of us – those who pay taxes and even those
who are too poor – pay for things many times over because
of the way the system is structured.
Of course those of us who mistrust government may not like
the idea of the government being in charge of money. But what
makes us think that The Reserve Bank’s directors –
two thirds of whom are elected by member banks – will ignore
THEIR voters and serve only OUR interests?
Finally, I don’t want to get into all the conspiracy
theories. Yes, it seems true that John Kennedy died shortly after
expressing an interest in having the government retake control
of the currency, but we can make all sorts of speculative theories
and there is no evidence that his assassination is related. I
couldn’t even confirm if he really signed “Executive
Order 11110,” which supposedly stripped the Federal Reserve
Bank of its power.
In any case, we don’t need to assume bad motives on the
part of the FED and its shareholders. It’s enough to know
that it’s a system which creates trillions in debt upon
which we pay the interest, and a system that robs our money of
value through inflationary practices which cost some while benefitting
others. It’s an example of a massive transfer of wealth
from the poor and middle class to wealthy owners of member banks.
Those facts alone are enough to see that it is an unjust institution.
It’s time to get rid of the Federal Reserve System.
Note: Speculation is all over the internet as to which wealthy
families or individuals benefit most, but I couldn’t even
find a list of member banks and their owners or stockholders
on the federal reserve web site. Apparently all national banks
are members, and state banks can be. I wish I could say more
about the details of how this all works, but none of the important
questions are answered clearly by any government sources, and
many of theories online about the system are probably invented.
Nonetheless, it is clear from the facts that the Federal Reserve
is a fraud foisted on the American people by and for the benefit
of private bankers.
Note: This is part of a series. You can find all of
the pages listed and linked to here:
The Redistribution
of Wealth to the Wealthy
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