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  • Frog Farmer
    Every court case uses the word dollar . This is a somewhat old article, but instructive. Regards, FF ... How your money - and life are controlled by
    Message 1 of 2 , May 2, 2007
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      Every court case uses the word "dollar". This is a somewhat old
      article, but instructive.

      Regards,

      FF
      ----------

      How your money - and life are controlled by
      America's banking system By Anne Williamson

      It is well enough that people of the nation do
      not understand our banking and monetary system,
      for if they did, I believe that there would be a
      revolution before morning. � Andrew Jackson

      Congress passed the Federal Reserve Act on the
      22nd of December 1913, and from that day forward
      the United States of America ceased to be a
      republic. The population, having been deprived of
      meaningful citizenship through the establishment
      of the corporate state the Reserve Act enabled,
      were essentially made into serfs of the nation's banking system.
      When a popular columnist, engaged in an argument
      in favor of President George W. Bush's proposed
      tax cut, wrote recently, "The nation's economic
      product is not the government's property," he
      should have added, "It belongs to the banks."
      Each year, fewer and fewer Americans realize the
      essential meaning and purpose of the statutory
      obligation by which each of them who enjoys an
      income files returns with the Internal Revenue
      Service. In the course of filing the income tax,
      Americans provide government with the most
      intimate details of their financial life and
      daily existence, along with a check for a
      significant percentage of their annual income and
      a signed statement relinquishing their Fifth Amendment rights.
      The banks that comprise the Federal Reserve
      System get the cash as payment for interest
      charges on the national debt which generations of
      politicians' promises, delusions and ambitions
      created, and the government gets the information
      along with the signed confession.
      Consequently, the newly plucked taxpayer is
      rendered ever more vulnerable to the government's
      intrusive demands and coercive powers.
      Understandably, in striving to understand how
      this sorry state of affairs ever came to be, some
      Americans who do grasp the insidious nature of
      the financial and political world that has arisen
      since the establishment of the Federal Reserve
      System have looked to various historical
      intrigues, legends and curious personalities to
      explain it. While the pursuit of conspiracy
      theories is compelling research for cold winter
      nights that does deliver up eye-popping facts,
      such efforts are not particularly useful to any
      attempt to regain American liberty. (Read "Birth of a swindle,"p. 5.)
      Rather, a broad understanding of the Federal
      Reserve System's workings within the general
      context of its historical development is
      information that can be truly helpful, not only
      to the restoration of liberty, but also to the
      beneficial organization of any individual's financial affairs.
      If the consequences of the Federal Reserve System
      are thought of as the chains that bind the
      American people, then an understanding of the
      economics of money and banking is the key that
      can release the lock that holds tight those chains.
      The golden era
      A financial system is theoretically designed to
      enable an economy to function smoothly and
      predictably, but political actors work to ensure
      that the control of the system and the lion's
      share of economic rewards remain in the hands of
      a relative few. Though the mechanics of finance -
      banking, paper currencies, gold-backed and fiat
      currencies - were first developed in Europe
      centuries ago, the paper fiat system became fully
      global only with the emergence of the United
      States as a world power early in the 20th century.'
      The U.S. - the world's largest economy and the
      venue for the world's largest pool of investment
      capital -functions as the system's engine, which
      is fueled by the U.S. dollar, the world's reserve currency.
      Currency, or money, is a store of value, a unit
      of account, and a medium of exchange. Money gives
      man instantly available savings, and a tool for
      planning his work while freeing him from the
      inefficiencies and encumbrances of barter. It is
      the very oxygen of a market economy, circulating
      via a banking system that works to take money
      from people who wish to save their money and
      gives it to those who believe they can employ those savings profitably.
      All money is born of a commodity - anything
      tangible from grain to gold. Any asset will do,
      just so long as it is so scarce and so prized
      that others will exchange their own goods or
      labor for it. Gold has been the most successful
      and popular medium of exchange and store of value
      for millennia, a commodity for which men have
      willingly exchanged their products, whether it be
      their labor alone or the material result of their labors.
      Government, which produces nothing of economic
      value, is the odd man out in the game of wealth
      creation. Its survival and well-being depend upon
      taxation, levied through directly coercive means,
      which if onerous enough can lead to government's
      most worrisome and costly problems: revolution
      and civil war. To avoid this, in addition to
      direct taxation, indirect confiscation - realized
      through cunning - is employed to fund the state.
      When kings found themselves financially
      embarrassed, they would call in all coinage for
      re-minting, replacing 10 percent or more of gold
      (or silver) with a base metal, thereby increasing the royal treasury
      while
      simultaneously picking the pockets of their
      subjects through debasement of the currency. This
      practice increased the available amount of money,
      but not the amount of goods, which causes
      inflation. (As economists define it, "too much
      money chasing too few goods.") Inflation
      constituted the royal bonus since inflation
      favors debtors, meaning that debts acquired at
      one value for money are repaid with money of
      lesser value. Men of commerce added to the
      confusion by clipping and trimming coins, the
      collected shavings eventually being melted down
      in order to retrieve whatever precious metals the clippings contained.

      BIRTH OF A SWINDLE As a writer who has researched
      convoluted subjects such as Russian history,
      Canadian railroads, foreign aid, the IMF and the
      particulars of finance capitalism, I have had
      considerable experience in tracking down the
      details of alleged conspiracies. Generally, I
      have found that only 10 to 15 percent of any
      which one can be confirmed, which is enough to
      keep the theories alive, generation to
      generation. Nonetheless, it won't do to discount
      or mock conspiracy theorists; after all, the
      founders of the Fed did exhibit some mighty
      peculiar behavior. The core group, which was
      connected principally to J.P. Morgan's, Jacob
      Schiff's and David Rockefeller's banking
      interests, got themselves up in disguise and
      journeyed from Manhattan to the railroad station
      in Hoboken, N.J. At Hoboken, they boarded J.P.
      Morgan's private railway car using assumed names.
      From Hoboken, the eager team of would-be
      counterfeiters traveled in a sealed railway
      carriage to Morgan's vacation home on Jekyll
      Island, off the coast of Georgia. It was on
      Jekyll Island that the scheme to swindle the
      American people out of sound money by
      establishing the Federal Reserve was
      accomplished. However, if the Fed is a conspiracy,
      then it is an open one. All the information I
      have regarding the Fed was drawn from the public
      record. No one slipped an envelope filled with
      juicy tidbits under my door; no one drew me aside
      to whisper confidentialities in my ear. Not that
      the Fed doesn't have secrets. It does. All
      financial institutions do. The point is that
      secret information is not necessary to understand
      the institution's purposes � or to advance a
      cogent argument for its elimination.
      As society evolved and liberty spread, both
      practices came to an end. The Englishman John
      Locke argued that money was a form of property.
      Since a man would lend out property - money -
      and, at a later date in the normal course of
      business, would have the property - money -
      returned to him, money therefore had to reflect
      an enduring value if justice were to prevail and
      commerce were to flourish. Money, Locke asserted,
      could not be the abused tool of kings.
      The people were readily persuaded. The monopoly
      of minting was wrestled from the crown, and
      government became instead a regulator of weights
      and standards and banks began minting their own
      coinage in accordance with government-mandated
      standards. The practice of clipping and trimming
      coins was eliminated when minters put a milled edge to coins.
      Overall, both man and freedom profited. Having
      the issue of taxation front and center before the
      citizenry ensured that the public's natural
      desire to retain as much of its wealth as
      possible in a form that maintained value worked
      as an evolutionary stimulus for notions of
      responsible government and as a brake on the
      state's natural inclination toward the grandiose
      and the despotic. The most successful episode of
      this political evolution was the American
      Revolution, which began as a protest against
      unfair taxation and ended with the idea of "the
      consent of the governed" triumphant.
      Yet despite that victory of citizen over state,
      the problem of an ambitious, nonproductive and
      ever-encroaching government not only remains, but
      looms ever-larger and more menacingly over all Americans today.
      Legal counterfeiting?
      Government's success in usurping citizens'
      liberties and privacy lies in having seduced the
      public into returning to it the monopoly of money
      creation through central banking. In contrast to
      a privately run system, central banking evolves
      always into a system that breaks the link between
      money and gold, thereby giving the state the power of issuing unlimited
      debt.
      Central banking is not the beginning, but the
      culmination of the industry's development, which
      began as a warehousing service. By definition,
      banking is a magnificent opportunity to deceive.
      However, honest and dishonest bankers alike are
      obliged to be seen as trustworthy in order, to
      establish their businesses. Consequently, the
      trick of unsound banking is at the heart of the banking business.
      The first bankers were gold warehousemen whose
      clients were storing their wealth - gold � for a
      fee, an arrange ment known as deposit banking.
      Over time, an honest warehouseman's receipts came
      to be traded in lieu of any depositor's actual
      gold, and such receipts were, in effect, the
      first paper currencies which were financial
      instruments denoting value, or wealth (gold).
      Loan banking developed next. Instead of paying a
      storage fee, depositors began to lend their gold
      through the warehouseman, thereby receiving a fee
      (interest) from the borrower minus the
      warehouseman's middleman cut. Competition among
      warehousemen insured that the fee for such labor remained modest.
      The essential difference between the two
      transactions defines sound banking. Deposit
      banking secures a savers' wealth (gold), but no earnings accrue therein
      and storage fees are incurred. At a loan bank,
      the saver, in essence, was extending a commodity
      contract so that the goods he had forsworn -
      through the act of depositing his gold rather
      than exchanging it for goods he himself would
      consume � could be used by a certain borrower who
      was willing to pay interest for the depositor's
      abstention, as expressed by his deposit of gold,
      for a mutually agreed period of time.
      In other words, it is a loan banking system which
      liberates and organizes savers' accumulated
      wealth to become a community's or a nation's
      investment capital. All parties to the
      contractual relationship of loan banking benefit
      from the transaction; the banker gets his fee and
      maintains his business, the saver gets his
      interest payment and is thereby rewarded with
      increased wealth for his abstention, and the
      borrower gets his opportunity to create wealth.
      And all members of the community benefit from the
      increased choice of goods, services and
      opportunities that result from each individual's
      economic development, or wealth creation.
      In both deposit and loan banking, the number of
      gold-deposit tickets is equal to the amount of
      gold on deposit. So far so good, and were it not
      for gold's fungibility2, we'd still be innocent as lambs.
      Alas, a banker is a thinking creature. Knowing
      that no depositor wanted the exact same gold
      coins in return for his deposit ticket, the
      banker also came to notice that under normal
      demand not everybody came to get their gold at
      the same time, and further, fewer and fewer
      wanted to withdraw actual gold. They were all too
      busy trading bankers' gold receipts.
      So, why not print up some additional gold deposit
      receipts and lend them out for interest?
      This mischief is, of course, simple
      counterfeiting -the essence of unsound banking.
      Counterfeiting additional gold deposit receipts
      creates two problems. The first is a legal one:
      two claimants to one asset. Classical economist
      Hans-Hermann Hoppe notes sardonically that fake
      deposit receipts can be thought of as "titles in
      search of property" and asks: "What if an
      increase in demand for automobiles were to be
      satisfied by printing more titles to automobiles,
      but the number of cars remained unchanged?"
      The second problem is economic, and is known
      among classical economists as "malinvestment,"
      which means that more business investment is
      stimulated than what is warranted in light of
      actual savings. (Who hasn't noticed the
      unfinished skyscraper standing cold and silent
      for many a moon, the marginal coffee shop or hair
      salon that was shuttered almost as quickly as it opened?)
      When the banker counterfeits, he is, in effect,
      stating that he has possession of gold (savings,
      or investment capital) that he does not have.
      Therefore, no one is forsaking the goods that the
      banker is, in fact, fraudulently leasing to the
      borrower! Further, the entire community or nation
      is deceived because the banker's counterfeiting
      allows a community or nation access to money
      without the concomitant forswearing of resources,
      thereby violating the essential rule upon which sound banking is based.
      When the accumulating investment errors are
      inevitably corrected by the hard reality of the
      lack of resources to sustain the excess
      investment the banker's counterfeiting
      stimulated, a community or nation is confronted
      with the dreaded "bust" of the "business cycle."
      We all know the final result of the bankers'
      counterfeiting from watching Saturday afternoon
      shoot`em ups. It's the scene where the
      townspeople congregate outside the bank on Main
      Street and, with shaken fists, demand loudly and
      fruitlessly their deposited savings, which were
      theoretically consumed by equally misled
      borrowers, but which most probably were trousered
      along with the borrowers' interest payments. This
      phenomenon is known as a "bank run."
      Bank runs are ruinous too for bankers, who are,
      after all, engaged in a service business, which
      if it is to flourish must be based on both
      proximity and trust. Consequently, bankers agreed
      among themselves to print very few fake receipts,
      so that in the normal course of business all
      demands would be satisfied. By maintaining high
      reserves, the bankers calculated, no one of them
      would be stuck in the quicksand of "adverse
      clearing," which occurs when bankers cannot honor
      claims among themselves on behalf of their client
      pool, whose individual members make deposits
      unevenly among the bankers' individual
      institutions. In the new system known as
      "fractional reserve banking," only the
      incompetent and the criminal would suffer the
      indignity of a bank run �or so it was imagined.
      Out of thin air
      Bankers soon made common cause with politicians,
      and the fruit of their association is central
      banking. Here is how central banking worked when
      it was still based on the gold standard, the
      penultimate stage of development before central
      banking degenerated into a worldwide system of fiat currencies.
      It involves the creation of three inverted pyramids:
      Initially, on top of the central bank's gold
      reserves and the commercial banks' reserve
      accounts that those banks are required by law to
      deposit with the central bank, the central bank
      creates an inverted pyramid of far more currency
      titles (dollars) than it has assets of value
      (gold). The phony currency titles are genuine
      counterfeits the central bank printed out of thin air.
      Each commercial bank in the system then forms
      another inverted pyramid on top of its own
      reserve account with the central bank and,
      thereafter, an additional inverted pyramid on its
      own in-house reserves. All the monies in the
      central bank's two pyramids are ones that the
      central bank first printed out of thin air. The
      banks are then allowed to create "checkable
      money" at a proportion of usually 10 to one. This
      checkable money is what forms each commercial
      bank's individual in-house pyramid.
      Checkable money is an accounting entry alone.
      Banks lend this "checkable money," which the
      central bank doesn't even bother to print. (For
      an example to clarify this difficult point, read
      "How $ 1,000 becomes $ 10,000.")
      But what happens under such a system when a
      commercial bank's customers all want to write
      checks for their entire deposits at the same
      time? Nothing much, and that is the problem.
      Instead of being forced to declare bankruptcy and
      liquidate its assets for the benefit of deceived
      depositors and shareholders � as happens in a private banking
      system � the government declares a bank holiday.
      The central bank then prints a fresh batch of
      fiat dollars, and after it has accumulated enough
      colorful slips of paper (property titles) for the
      bank to make good on its obligation, the bank
      reopens and cashes the depositors' checks. This
      is what is meant by the definition of a central
      bank as "the lender of last resort," an
      arrangement that transforms banks into quasi-public utilities.
      What the pacified and beguiled depositors fail to
      understand is that the new money is worth less in
      terms of value � purchasing power � than what
      their vanished deposits entitled them to. The
      advantages of this system to bankers are obvious.
      What is not so obvious is that central banking
      allows the politicians' empty promises and their
      ensuing confiscations to continue unimpeded. Both
      financial discipline and public accountability
      are undermined, despite the growing danger to the citizenry.
      Under central banking, the alarm of a bank run
      isn't sounded, and the populace is left to sleep
      until the inevitable system-wide bust victimizes
      the entire population, rather than the customers
      of just one profligate bank. The local problem is
      allowed to run uncorrected until it becomes a
      regional one, or a national one, or even in
      today's globalized world � an international one.

      HOW $1,000 BECOMES $10,000 Here's how an ordinary
      transaction involving a citizen, the Fed and a
      commercial bank works: The central bank buys,
      usually, old existing government bonds, though in
      principle it can buy any public asset, through
      what are known as the Fed's "Open Market
      Operations." When the Fed makes a purchase, the
      Fed writes a check on the Federal Reserve System
      out of thin air. The recipient � let's say, a
      private citizen who sold a warehouse business for
      $1,000 to the Fed � goes to his commercial bank
      and deposits the central bank's check. The
      commercial bank of the depositor then takes the
      check to the central bank, and says, 'Put it into
      my reserve account,' thereby increasing the
      bank's required reserves with the central bank,
      which then allows it to pile a multiple of
      checkable money created out of thin air on top of
      the actual note value of the original check
      created out of thin air from the central bank. So
      out of a $1,000 deposit in a bank, $100 goes to
      the vaults, $200 to the bank's reserve account
      with the central bank, and the remainder is
      exploded into $10,000 of checkable money the bank can lend.

      Confidence game
      This merging of the interests of bankers and
      politicians has fueled suspicion, resentment,
      alarm and a treasure trove of conspiracy theories
      the world over. In the United States, the central
      bank is the Federal Reserve System about which
      one critic has commented, "The Federal Reserve
      System is not Federal; it has no reserves; and it
      is not a system, but rather, a criminal syndicate."
      It is no wonder that what is surely history's
      most successful confidence game should be
      described with such incendiary words. Central
      banking is essentially a cheesy,
      government-sponsored pyramid scheme. The Federal
      Reserve is not Federal in that it is a privately
      owned "bank of issue." That's right, the Fed
      is not a government agency, but rather, a
      consortium of private banks that politicians
      empowered to emit the national currency in 1913.
      The current chairman, Alan Greenspan, though he
      was selected by a series of U.S. presidents and
      his appointments confirmed by Congress, is in
      fact an employee of the banking consortium who
      are the Fed's shareholders. Though required to
      give periodic testimony before Congress with
      particular attention paid to employment rates and
      price stability, the Fed chairman is not
      responsible to the U.S. president, the U.S.
      Congress or even the American people, nor is the
      health of the U.S. economy or of the stock market
      any chairman's responsibility. The chairman's
      only responsibility is to protect the U.S.
      banking system, while acting as a central planner
      in that it is the chairman who sets the most
      important price in a market economy, i.e., the
      price of money. (When Greenspan bailed out Wall
      Street's sexiest hedge fund, Long Term Capital
      Management or LTCM, in the autumn of 1998, his
      ministrations were inspired by concern for the
      health of the U.S. � and international � banking
      system, not that of the New York Stock Exchange.)
      Why, then, did the political leadership of this
      country ever agree to relinquish its
      constitutional power as mandated in Article 1,
      Sec. 8, Clause 5 "to coin money and regulate the
      value thereof" in favor of a consortium of
      private banks? And why does the current
      leadership continue to use taxpayer resources to
      fund the Internal Revenue Service, the fruit of
      whose efforts goes to those private banks as
      interest payments for a debt created out of thin air?
      State-sanctioned currency counterfeiting
      satisfies the critical need of providing funds to
      pay for the promises politicians give to citizens
      in return for their votes. A government's
      inflationary "profits" made in the operation of
      its monopoly system of money creation is, in
      addition to revenues raised from direct taxation,
      all the modern state has to meet its obligations.
      Politicians know that were citizens taxed
      directly for their easy, big-ticket promises, citizens would not
      consent to the bargain because the confiscatory
      rate required to meet the obligations their
      promises create would be intolerable, leaving the
      big spenders competing for public office to face
      either certain defeat at the polls or taxpayer riots and rebellions.
      In short, the Federal Reserve System is the
      modern version of the medieval royal prerogative
      of currency debasement reinstated and
      institutionalized. The banking consortium's
      profits (interest as collected by the IRS) are
      today's more lucrative alternative to the ancient
      practice of coin clipping. The bottom line is
      that while citizens are kept distracted by the
      task of keeping the taxman off the front porch, the
      government slips undetected into their homes through
      the back door and quietly robs them night and day.
      It is the slow leeching of the dollar's value
      through the operations of the Federal Reserve
      that explains why the dollar in a baby boomer's
      pocket is worth but the nickel in his
      grandfather's purse. This means that on top of
      all the taxes � income, usage, death, import,
      excise and licenses and fees � that three
      generations of Americans have paid, they have
      been assessed an additional 95 percent which the
      silent, unfelt hand of currency debasement
      collected from them � thanks to the Fed.
      But how did governments ever manage the feat of
      so completely hornswoggling their citizens? Generally, two things
      happen.
      First, a government convinces the public that
      only the government should print money on the
      basis that otherwise, with many printers, the
      public might well be cheated. However, it is the
      very competition among minters (banks) that
      ensures honesty. (Otherwise, there would be no
      private jewelers, only a chain of
      government-operated jewelry stores.)

      [FF Notes: Natural Colored Gemstones, the last free market, prices in
      FRNs went up 800% last year in Bangkok,Thailand, where most stones are
      cut and polished.]

      After that,
      a government proclaims either one bank's or a
      select group of banks' note issues acceptable for
      tax payments, i.e., "legal tender." Thus begins the game.
      Over time, this state-sponsored confidence game
      evolves until one day the government first
      acquires a money monopoly (central banking) and
      then later breaks the link between paper money
      and gold, thereby creating a fiat currency. In
      the United States, a fiat dollar is known as a Federal Reserve Note.
      The question of whether or not the nascent
      Republic would engage in central banking was very
      much a live issue to the Founders. The Federalists, those
      advocates of a strong, central government and of
      a central bank, warred against the hard-money,
      free-market Jeffersonians for decades.
      (Read "Jefferson on constitutionality of national bank," p.10.)
      Alexander Hamilton did, in fact, establish a
      First Bank of the United States, which was
      followed by a Second Bank after the War of 1812,
      but it was Andrew Jackson who fought a titanic
      battle during the 1830s for its elimination � and
      succeeded. Over the next 80 years, the bankers
      and their big government allies schemed and plotted, but to no avail.
      The Federal Reserve System was instituted only
      after powerful financial interests, mostly
      associated with J.P. Morgan, Jacob Schiff and
      David Rockefeller, succeeded in what was a
      decades-long effort to highjack the progressive
      movement at the end of the 19th century, a
      century whose second half was plagued by
      something known as the National Banking System.
      This post-Civil War system centralized the
      nation's banks in a sort of halfway house along
      the road to central banking, and it involved
      state banks and national "policing" banks.
      Of course, nobody policed anybody, and the
      bankers' lucrative practice of pyramiding money
      grew apace. Consequently, speculative booms,
      panics and bank runs marked America's financial
      landscape throughout the second half of the 19th
      century. Quite understandably, populist and reform movements gained
      ground.
      Yes, the politicians and the bankers allowed, the
      system did need perfecting, and they � the
      bankers and the politicians � would do the perfecting.
      GREENSPAN'S IMPOSSIBLE CHOICE A key argument for
      the existence of the Fed is that it helps to
      smooth the peaks and valleys allegedly created by
      the tumult of capitalism. But this simply isn't
      true. The Fed's elastic money never smoothed any
      crisis ever. The Fed's "provision of liquidity in
      a crisis" only masks the imbalances which the
      Fed-induced money flood created in the economy,
      thereby delaying the bust and inevitably
      magnifying its negative consequences. The Fed's
      intervention into the market compromises the
      information that producers and investors rely
      upon the market to deliver. One mistaken decision
      is followed by another and yet another, and
      unwise debt is incurred for projects that should
      not have been begun, until the cleansing process
      of recession wrenches the excesses from the
      economy, thus restoring the credibility of market
      signals. Otherwise, the simple alchemy of
      counterfeiting more money would increase the
      supply of goods, which it doesn't. Again,
      counterfeiting more money only hides �temporarily
      � economic imbalances, which are left to develop
      further and therefore grow worse. Truly, in the
      money game, the piper is always paid, on time �
      or later, with the "interest rate" of sheer human
      misery compounded many times over. When Alan
      Greenspan bailed out LTCM, for instance, and
      allowed the failed firm to reject a capable buyer
      (Warren Buffet), he was bailing out his cronies
      and his employers � and in doing so he magnified
      the ill-effects the Fed's manipulations had
      created and on account of which, in part, LTCM
      had floundered. Just over two years later, the
      U.S. dollar had all the elasticity of great
      grandmother's last girdle. Should Greenspan chose
      to lower interest rates at the Fed's next meeting
      in late March, he will thrust wide the doors for
      the foreigners' exit, leaving the burden of an
      additional one-third of the national debt to
      Americans to fund alone. On the other hand,
      should Greenspan choose to raise interest rates,
      he will kill the highly-indebted economy he himself created.
      The grand seduction
      One misunderstanding about capitalism is that
      business is at odds with government and wants to
      see its reduction. Not hardly. It is
      entrepreneurs and citizens alone who feel the
      weight of leviathan. Successful businessmen are
      always, as day follows night, statists or
      enthusiasts for (and willing collaborators with)
      government's involvement in the economy, because
      they rely upon government's minions to provide
      them with subsidies from the public purse while
      protecting their markets and industries from the leaner men of free
      enterprise.
      In return, business funds the politicians'
      election campaigns. Not infrequently this
      protection involves the politician's throwing
      government business to his campaign donor.
      Upon exposure, corruption and favoritism lead to
      the inevitable public outcry for "reform," which
      invariably concludes with a scheme in which the
      government wolf is authorized to guard the
      citizenry's chickens. (The Federal Reserve Act
      was, in fact, a banking reform bill!) Not
      sometimes, but always and continuously, central
      banking allows government to reward its
      supporters, because the first to get new money �
      politicians, bankers, government contractors and
      patronage employees � are the ones who benefit.
      Folks lower down on the food chain get a dubious
      benefit, i.e., the higher prices the first
      recipients' spending of the new money created.
      (Read A looting lesson by Bill and Hillary,"p. 11.)
      To sell the scheme to the public and the
      government alike, the bankers claimed that if
      only they had "a lender of last resort" � a
      central bank � all the alarming booms and busts
      of their industry would be cured. Of course, what
      the bankers were asking was that the government
      allow them to unlock the shackles of honest banking.
      Once Uncle Sam understood that the scheme did not
      require the government to back up all the
      property titles (dollars) the bankers intended to
      issue with property (gold) and that the bankers
      would be satisfied with pieces of colored paper, the deal was struck.
      The next task was to convince a public committed
      to free markets and minimal government that
      salvation � from the repetitive boom-and-bust
      business cycle that unsound banking had created
      �lay in central banking. But how to seduce an
      entire nation? (Read "Greenspan's impossible choice.")
      Elastic money
      The key was convincing the public that the nation
      needed an "elastic" money supply to fuel dynamic
      and expanding American business. Under the tent
      of a congressionally created National Monetary
      Commission, the rising class of academic economic
      experts prepared the way for today's multilateral
      elite by helping "educate" the electorate about the need for banking
      reform.
      Many of these experts had received their Ph.D.s
      in German universities, where they had become
      admirers of Bismarck's Germany and its emerging
      statist system. Just as the Russian
      intelligentsia had been seduced by the German
      philosopher Hegel (Marx is often described as
      "Hegel stood on his head"), so too was America's
      nascent scholarly class � but the Russians got
      communist ideology and the Americans a socialist
      creed masquerading as "progressive reform." (Read "FDR created
      dependency")
      What the heirs of those early academic "experts,"
      our secular society's answer to the priestly
      class, want is the same things their predecessors
      wanted �cushy jobs, the diversion of public funds
      to their own, frequently obscure and mostly
      culturally destructive endeavors, and a platform
      for their mind-boggling, self-serving social
      prescriptions. Consequently, nearly every Ivy
      League academic economist is trained in one
      strain or another of Keynesianism, an economic
      school founded by John Maynard Keynes.
      Keynes provided the theoretical work, which holds
      government to be an appropriate and effective
      economic agent, capable of staving off recession
      and deflation with public spending. Academics do
      at least know who butters their bread; each and
      every one lends tireless support to Keynesianism and the
      associated practice of central banking, which is
      the engine of government's relentless expansion.
      Wall Street's grandees promoted themselves as men
      of wealth and sound judgment devoted to public
      service, whose enormous wealth allowed them the
      luxury of absolute probity in financial matters.
      In fact, they were allied with their relatives in
      the political elite in Congress, under the
      leadership of people like Sen. Nelson W. Aldrich,
      John D. Rockefeller Jr.'s father-in-law, who had
      long been preparing the ground for dispensing
      with the constitutional barriers between "public"
      (government) and "private" financial sectors in
      order to effect an unholy merging of the
      interests (and functions) of the state and the "church" of finance.
      This powerful "educational" campaign waged by the
      elites and the media in America led to
      establishment of the Federal Reserve in 1913. The
      long-term results undermined not only the
      public's desire for sound public finance, but
      also the rights of citizenship itself.
      Ever since the government achieved the ability to
      issue unlimited debt, it has exploited the
      boom-and bust cycle central banking creates in
      order to discipline the financial sector's
      foot soldiers and whipsaw voters into acceding to
      statist programs. In short, government has no
      greater tool for the quiet manipulation of the
      citizenry than central banking. This strategy
      created a global American imperium, while funding
      the entitlements expected by permanent
      constituencies, whose number includes big
      business, the military-industrial complex and
      assorted ethnic, racial and sexually perverse
      subgroups (who are said to be either needy or
      victimized and in whose name and for whose
      alleged benefit socialist-minded elites, like
      Hillary Clinton, presume to claim political power).
      FDR CREATED DEPENDENCY Bismarck's defense of
      compulsory social security, established in 1881,
      provides insight as to why "progressives" and
      their political sponsors declared him "the
      greatest statesman of the 19th century":"Whoever
      has a pension for his old age is far more content
      and far easier to handle than one who has no such
      prospect. Look at the difference between a
      private servant and a servant in the chancellery
      or at court; the latter will put up with much
      more, because he has a pension to look forward
      to" (author's emphasis). Government pension
      programs made the masses less independent
      everywhere, including the United States.
      Additionally, in the U.S., Social Security was
      the government's first truly successful attack on
      the traditional family by breaking the contract
      of mutual support between generations within
      families. FDR, we see once again, was not a
      creator, but an imitator � of both Mussolini and Bismarck.
      How the Fed manipulates elections
      The Federal Reserve System pumps money out before
      a presidential election (beginning usually 18
      months before the polling date) to create a happy
      Wall Street carnival that is most usually blown
      away by inflationary winds at some point in the
      newly elected president's four-year term. Auburn
      University's Roger Garrison explains the process,
      citing three recent examples:
      "In 1975, President Ford was told the time had
      come to start printing money to create the
      optimal conditions for his reelection, but Ford
      refused, since he was already presiding over a
      reasonably satisfactory economy and failed to
      perceive his own reelection as a cause for
      inflating the money supply. President Carter, who
      was elected in lieu of Ford's error, hit the
      ground printing money. His mistake was that he
      started the game too early, so that two and a
      half years later, about the time he should have
      started printing, we had double-digit inflation.
      He reduced the lag between money printing and
      inflation to practically zero so that by the end
      of the Carter presidency a Wall Street Journal
      headline might well read, 'Fed to Expand
      Money Supply, Interest Rates Rise' He got the
      cycle so out of whack that the time span normal
      between stimulation and discipline became so
      brief that the cycle collapsed upon itself. The
      next president to screw up the cycle was George
      Bush, who thought with the tremendous approval
      ratings he'd garnered after the Gulf War in 1991,
      there was no need for him to play the game. By
      the time he brought in James Baker, who knew the
      game well, it was too late, and the stimulation
      occurred under Clinton in late January 1993."
      And what did these three men have in common?
      "They all lost," Professor Garrison notes.
      The government's annual shortfalls are covered
      through the government's choosing between three
      strategies: domestic borrowing through Treasury
      bond sales (leading to higher interest rates);
      foreign borrowing also through Treasury bond
      sales (leading to overpriced dollars, which crush
      exports); or the direct increase of the money
      supply (leading to inflation), each of which
      distorts markets and their signals, thereby
      increasing the difficulty of business planning
      while unsettling the population generally.
      Professor Garrison observes that even the tax
      code is less destructive than government's
      sleight-of-hand with deficit spending, since the
      code is public and an investor or a businessman
      can account for it when planning for the future.
      Nothing so smothers a market as uncertainty. When
      businesses are unable or do not plan, they fail.
      And what does the Fed deliver? An endless
      guessing game regarding the unpredictable
      potential policy choices of a single man.
      Unsurprisingly, the regnant emperor of central
      banking, Chairman Greenspan, is a man justly
      famous for his skills of stupefaction. All
      financial journalists write fawning descriptions
      of the emperor's unprecedented ability to speak
      in measured, mind-numbing pronouncements while
      saying nothing at all. Any man who presides over
      an audit-free, de facto unsupervised empire whose
      janitors alone earn annual salaries of $140,000
      and that includes a small army of 25,000
      employees, 47 Learjets and small cargo planes,
      fleets of vehicles, an art collection so prized it has the
      services of a full-time curator, and $451 billion
      in assets is not about to misplace a single
      word." For the central banker, mystery is truly father to the miracle.
      The miracle's busy elves are other bankers, of
      which there are two kinds: investment bankers and commercial bankers.
      Investment bankers underwrite deals, and they,
      not commercial bankers, are most active in the
      securities markets. The bread and butter of all
      securities markets are bonds; therefore,
      investment bankers have a vested interest in
      promoting deficits and in forcing taxpayers to
      redeem government debt. The investment bankers
      are the first people to get their hands on new
      money � a government bond is a marketable
      instrument � and thus skim the cream off the top.
      Remember, those who receive new money first get
      the greatest benefit, while those further down the queue get the higher
      prices
      the lucky ones' early spending created.
      Less than a dozen Wall Street investment banks
      underwrite 80 percent of government issue; they
      constitute an oligarchy. For many decades, the
      bond business was just what you'd expect:
      stately, but dull. Bond dealers were vaguely
      respected, but known to be well-connected players in an insiders' game.
      Otherwise, the history of investment banking is a
      ruthless one of bottomless greed and boundless
      vanity � the very things that get something done
      in this world; scoundrels, after all, have their uses.
      Investment bankers are the eyes and the ears of
      markets. They are the people who make the
      financial game's big deals by knowing the needs
      and capabilities of a wide range of players.
      Commercial bankers are dullards in comparison, taking in money and
      making loans, printing up the extra bit on the
      side �same old, same old. The glamour's all with
      the guys the industry calls "hunters and skinners."
      Blood money
      The desire of bankers for government bonds to
      sell began to drive American foreign policy in
      the 1890s. What investment bankers have always
      wanted, besides government debt to underwrite,
      was foreign debt to underwrite, along with new
      markets and natural resources from abroad. Their
      success in influencing government has enabled the
      bankers and their presidents, from William
      McKinley (who set out to Christianize the
      Philippines) to Bill Clinton and presumably
      George W Bush, to use America's wealth to
      subsidize and force-feed export markets and
      investment outlets as well as to guarantee Third World government bonds.
      There were lots of early adventures � in Latin
      America and Cuba, the Philippines and Japan � but
      they were mere floating craps games compared to
      the big casino the remainder of the 20th century became.
      It was in 1915 that American investment banks
      developed an appetite for war profits that they
      saw would enable them to correct the domestic
      financial reverses their extensive investments in
      railroads had begun to suffer. War bonds and the
      financing of munitions and war materiel was just
      the sort of project financing their European
      cousins had been doing systematically for
      centuries. Wall Street's most prominent
      financiers managed the trick by first engineering
      the election of the vain but eminently malleable
      Woodrow Wilson by having Teddy Roosevelt's
      third-term presidential bid on the Bull Moose
      ticket split the Republican vote, and then by
      placing key personnel in Wilson's administration.

      While satisfying commercial bankers had required
      only the lifting of America's wallet, investment
      bankers � who had learned to look to government
      to protect their interests � promoted policies
      that required blood. They solve their problems
      routinely by having their hirelings habitually
      serve in the government on a convenient
      revolving-door basis. Their heirs, relations,
      lawyers, industrial consultants, academic
      experts, publicists, sycophants and other
      business associates have been an integral part of
      American public life throughout the last century,
      shuttling back and forth between Washington and
      Wall Street, the Council on Foreign Relations,
      the Trilateral Commission (insider groups of
      well-placed lawyers, financiers, publishers and
      their obedient academic pets who routinely devise
      the requisite belligerent policies) and the State
      and Defense Departments respectively.
      During wartime, nations have gone off the gold
      standard in order to sustain their war efforts
      with paper money. It was the Fed, governed by
      Wall Street's Benjamin Strong, an anglophile and
      a House of Morgan ally, that allowed the U.S. to
      inflate money and credit, finance loans to the
      Allies, and float massive deficits. Strong
      compounded the problems of the U.S. war debt by
      supporting, for nine years, the mismanagement of
      the British sterling's postwar return to gold,
      then the world's reserve currency, by devaluing
      the dollar through printing paper dollars at a
      furious rate. American credit fueled a Wall
      Street bonanza of speculation domestically and a
      worldwide trading boom. When the export of
      American capital ended just prior to the stock
      market crash of 1929, the shortage of money
      reduced purchases, which, in turn, reduced
      production and led to the loss of markets.
      What had began as a crisis in American financial
      markets spread to the world and became a crisis
      of industry. America's economy was already
      fueling the world's, and when America stumbled,
      so did everybody else. Nations erected trade
      barriers while speculative capital � or what
      economists call "hot money" � roamed the world
      seeking quick, fast profits exploiting an
      epidemic of currency devaluations, exchange
      controls, protective tariffs, trade quotas and volume restrictions.
      Everything nations did to stop the contagion only
      made things worse. By 1932, worldwide
      unemployment exceeded 30 million. One year later,
      on Jan. 30, 1933, by entirely legal means, Adolf
      Hitler became chancellor of the German Republic.
      The ultimate pyramid scheme
      The Fed's paper-money binge had stimulated
      American banks to over-lend, and to the horror of
      the American people, 5,000 went belly up between
      1929 and 1932. After the declaration of a
      "banking holiday," Roosevelt (who had campaigned
      in 1932 � fraudulently as it turned out � on a
      platform of reducing government) issued a
      presidential directive that citizens turn over
      all gold to the government or face fines and
      imprisonment. All citizens were ordered to
      exchange their gold for fiat money and were told
      that compliance was their patriotic duty. (Read "No insurance?")
      Once the deed (an act of wealth confiscation
      comparable in magnitude to that of Vladimir
      Lenin's in 1917) was done, only then did
      Roosevelt repudiate the gold standard and declare
      the citizens' confiscated gold to be the property
      of the federal government. Thereafter, foreigners
      alone could exchange their paper dollars for
      gold. Having removed sound money's "golden
      handcuffs," Roosevelt secured the enduring power
      of limitless domestic debt for the government.


      NO INSURANCE? Having confiscated the
      population's gold, FDR threw the masses a bone by
      establishing the Federal Deposit Insurance
      Corporation, or FDIC, which the government
      maintained would insure the people against future
      banking losses. How true is this? Not very. In the
      case of bank failure, as has been shown, the
      government simply socializes the loss among all
      citizens by printing money to cover the renegade
      bank's obligations. But conceptually, the FDIC
      itself is a fraud, because insurable risks are
      those in which the incidence of calamities can be
      predicted in large numbers, but not individual
      cases. As celebrated economist Murray Rothbard
      notes: "The very essence of the 'risks' or
      uncertainty faced by the business entrepreneur is
      the precise opposite of the measurable risk that
      can be alleviated by insurance. ... But actions
      and events on the market, while often similar,
      are inherently unique ... and not subject to
      grouping into homogeneous classes measurable in
      advance. The entrepreneur is precisely the person
      who faces and bears the inherently uninsurable
      risks of the marketplace. But if no business firm
      can ever be 'insured,' how much more is this true
      of a fractional-reserve bank!" For more detail,
      see pg.'s 134-137 of The Case Against the Fed.

      None of FDR's statist policies, many of which
      mirrored those of Benito Mussolini's corporate
      state, dented the disaster the Fed had created.
      The economy got cracking only with the nation's
      military build-up in 1938. But if the 32nd
      president wasn't much good at curing economic
      crises, he did have a firm grip on one of
      history's oldest maxims: The state creates war
      and war creates the state. Wall Street � again � saw salvation in war.
      It was economist Murray Rothbard, the most
      preeminent student of Austrian economists Ludwig
      von Mises and Fredrich von Hayek, who summed up the
      era in the run-up to World War II:
      "During the 1930s, the Rockefellers pushed hard
      for war against Japan, which they saw as
      competing with them vigorously for oil and rubber
      resources in Southeast Asia and as endangering
      the Rockefellers' cherished dreams of a mass
      'China market' for petroleum products. On the
      other hand, the Rockefellers took a
      noninterventionist position in Europe, where they
      had close financial ties with German firms. The
      Morgans, in contrast, as usual deeply committed
      to their financial ties with Britain and France,
      once again plumped early for war with Germany,
      while their interest in the Far East had become
      minimal. World War II might therefore be
      considered as a coalition war: The Morgans got
      their war in Europe, the Rockefellers theirs in Asia."'
      Once half a million Americans were sacrificed in
      assisting one dictator to defeat another in
      Europe, the financial and political elites
      envisioned a wider horizon. Thus began the
      building of the national security welfare state
      with its attendant standing armies (U.S. national
      forces and NATO), an oversized bureaucracy of spies,
      vast domestic spending schemes
      and so on. Half a century of profits earned
      through warmongering was not enough. For the
      political and financial elite, nothing short of
      the very planet itself would do.
      And, thanks to the Fed's pyramid scheme, keeping
      the U.S. federal government's money game afloat
      requires nothing short of a global monetary
      hegemony, since any pyramid scheme remains viable
      only so long as its base continues to expand.
      The International Monetary
      Fund was created in the fading days of World War II for
      just this unadvertised purpose - that is, the expansion
      of the Fed's monetary base and the preservation of its
      dollar pyramid scheme. So mismanaged were all these
      costly efforts that, in time, the funding requirements of
      fighting the War on Poverty and a real one in Vietnam
      forced Richard Nixon to close the gold window in
      1971. As a consequence, today all currencies are redeemable
      in nothing but paper and the world is now in the 30th
      year of what can only be considered a vast monetary experiment.

      Fifty-six years after the defeat of Adolf Hitler
      and Emperor Hirohito, and over a decade after the
      collapse of the Berlin Wall, the U.S. federal
      government is a colossus, and the national debt
      is not six trillion dollars, but in excess of 20
      trillion dollars when the costs of still
      unfunded, government-provided pension and medical
      commitments are taken into account. Such perverse
      results are possible only because the Federal
      Reserve System is an empire accountable to no one � by design.
      The political elites insist that the Fed is
      "independent" and will remain so. After all, we
      are told, the nation's finances are so critical
      to us all that the key decisions the Fed makes
      cannot be tainted by loathsome political
      considerations. Of course, the Fed is said to be
      independent. No political entity � neither
      Congress nor the president � would ever want to
      loose a scapegoat for government-created
      financial disasters of such unparalleled utility
      like the allegedly independent Fed.
      When interest rates change, depending upon whose
      ox is gored � importers or exporters, banks or'
      manufacturers, business or labor � their
      respective champions in Congress will either beat
      their chests while cursing the Fed, or nod their
      heads sagely and opine how good it is that the
      Fed is "independent" and is therefore free to
      operate wisely in the entire nation's interest.
      When the newspapers speculate that "The Federal
      Reserve may raise rates because of fears the
      economy is overheating," it's all a chimera �
      like a barking cat � which is how economist
      Thomas DiLorenzo describes the syndrome. The Fed
      exists in order to create inflation for the
      benefit of political and financial elites. The
      proof of this can be seen in the fact that money
      growth in nation states never matches or
      undershoots GNP growth, as one might expect, and
      the surplus growth of money always goes to
      financial institutions. And even though inflation
      erodes the value of money as a result, it is a
      problem only for the poor and the middle class,
      as real interest rates' assure the continued growth of the wealthy.
      Greenspan bucksBut
      what tines all this mean in the terms of today?
      The dress rehearsal of Federal Reserve Chairman
      Alan Greenspan's most spectacular magic act �
      "Tonight! The End of Inflation!" � ended badly in
      1987. During his first term, President Reagan
      chose not to interfere with exchange rates, and
      that, combined with large foreign purchases of
      U.S. debt, caused the dollar to strengthen,
      depressing U.S. exports. Political pressure to
      deflate the dollar's value increased.
      From 1985 through 1987, increasing the money
      supply deflated the dollar. While the Fed was
      inflating, the dollar began dropping � rapidly.
      Fear that the foreigners (who were buying a big
      chunk of the huge national debt) would sell their
      U.S. stocks and bonds and take their money home
      caused the dollar's value to drop even more
      rapidly while forcing up interest rates.
      Greenspan brought down the curtain and stopped
      printing money. Since domestic interest rates had
      been kept low � thanks to foreign participation
      in American debt markets and domestic money that
      would have bought U.S. bonds that went instead to
      equities � share values had been driven to
      dizzying heights. Once the money pump was turned
      off, overvalued corporate stock plummeted and
      Black Monday hit Wall Street in October 1987.
      Quick as Ariel, Greenspan leapt forth to prime
      the money pump and managed to delay the recession
      until 1990. Meanwhile, the nation's commercial
      banks, flush with the new money emitted in the
      late 1980s, had gone overboard on real-estate
      lending, and by 1990 they were teetering on
      collapse as the loans went bad. The "Emperor of
      the Fed" stepped in and told them that to avoid
      annoying further the American people � who were
      then bearing the burden of the $420 billion
      savings and loan bailout � with yet another
      financial meltdown, he would throw them a
      lifeline and sell them �and only them �
      government debt at a discount, thereby allowing them to recapitalize.
      The supply of new money was decreased, and what
      there was of it was funneled to the commercial
      banks for recapitalization purposes until 1992,
      when James Baker signaled Greenspan to turn the
      pump on again to get George Bush reelected. Baker
      so signaled, but too late; the benefits arrived
      only in time for the inauguration of Bill Clinton
      as the 42nd president of the United States the following January.
      By 1993, everybody was in the money. The banks
      were recapitalized and ready to lend. In the
      interim, however, the corporate world had taken
      note of all the money lying about and decided
      that instead of taking loans from commercial
      banks, it would be much better to float their own financial paper and
      corporate bonds on Wall Street. And they did. In
      the first half of the 1990s, commercial banks
      earned greater profits from currency speculation
      than they raked in from corporate lending.
      So easy were the times, the American financial
      community couldn't absorb all the new Greenspan
      bucks. Lots of folks then decided to bet on a
      promising newcomer named Emerging Markets. The
      chairman �ever mindful of 1987 � grew nervous and
      jacked up interest rates three percentage points,
      thereby dumping the bond market and drawing
      adventuresome dollars back home. After that,
      Mexico tanked in late 1994, and the Fed was
      forced to organize a $40 billion loan to Mexico.'
      The bailout was courtesy of the U.S. Treasury's
      Exchange Stabilization Fund, which is available
      to the Treasury Secretary at his discretion,
      subject to presidential approval, and is intended
      for the support of the U.S. dollar.
      The purpose of the Mexico bailout? To sustain the
      dollar pyramid while rescuing the clients of
      their Wall Street cronies who had so
      over-invested in dollar-denominated Mexican bonds
      (tesobonos) that certain, well-connected
      investment banks' very survival was at stake.
      (Read "Citizens' gold becomes 'mad money")
      Across the shining Pacific, Japan had problems
      too. The Japanese "bubble economy" fell on hard
      times in the late '80s. Bank lending that
      accepted real estate as collateral drove up
      Japanese real-estate values in the late '80s,
      creating a "bubble." A large number of those
      banks' loans became non-performing, the value of
      Japanese equities nose-dived, lending declined,
      and the banks found themselves looking into an
      abyss. The fear was that lots and lots of banks
      would start going under and they would be forced
      to sell their U.S.Treasury bonds to pay their debts.
      If Japanese bankers were to cash out of U.S.
      debt, Greenspan would have had to raise interest
      rates in order to attract the money from U.S.
      savings to make up the difference, leaving
      enterprise hungry and thereby endangering the
      re-election of Bill Clinton and his own reappointment for a third term.
      Luckily, Japanese misfortunes found the U.S. to
      be a boon companion in misery. U.S. financial
      markets were badly dented by the effects of the
      Mexican peso's collapse. Since NAFTA had
      essentially tied the dollar to the peso, the peso
      acted as a drag on the U.S. currency. In the
      spring of 1995, when the value of the dollar was
      plummeting, the American-educated Japanese
      finance minister, Eisuke "Saka" Sakakibara, a
      former colleague of Lawrence Summers at Harvard,
      came to call on Treasury Secretary Robert Rubin.
      Saka told Rubin and Summers that Japan, in need
      of a cheaper yen to revitalize sagging exports,
      would absorb the dollars Alan Greenspan would
      need to print to get Clinton re-elected and to
      secure Clinton's selection of him for a third
      term as chairman of the Fed. Japan would emit yen
      to buy new U.S. Treasury bonds with the dollars
      they would buy from the Fed and with those they
      had accepted in exchange for their exports to the U.S.


      CITIZENS' GOLD BECOMES 'MAD MONEY' The Exchange
      Stabilization Fund soon became the Clinton
      administration's "mad money," which its minions
      at Treasury spread around the globe to prop up
      other nations' currencies and banking systems.
      Thus was what is known as "moral hazard" � the
      encouragement of negative behavior by insuring
      against its consequences � introduced into the
      world's financial system. If you have ever
      wondered where the gold for the U.S.'s initial
      contribution to the IMF and for the establishment
      of the Treasury Department's much-abused Exchange
      Stabilization Fund originated, then wonder no
      more. American savers living in 1913 provided
      this bonanza to the political class thanks to
      FDR's gold confiscation policy. Any American
      whose family has been here for four generations
      can take a certain sorry pride in knowing that
      Robert Rubin and Larry Summers magnanimously
      squandered their ancestors' savings on their profligate pals in faraway
      lands.


      The result, Saka said, for Japan would be a
      weaker yen, revitalized exports, and recovering
      banks. For the U.S., low interest rates, lots of
      cash floating around in the American economy and
      on board America's flagship, the USS Emerging
      Market, a reversal of the dollar's decline � and
      the reappointment of Greenspan as emperor in the
      spring of 1996, all topped off by Clinton's
      reelection.` It worked! (For the Americans, that
      is. Japan, unhappily, remains mired in deflation even today.)
      After cutting the deal with Saka in the spring of
      1995, Greenspan lowered interest rates right on
      schedule, 18 months before the presidential
      election. Despite having full employment of
      between 5 percent and 6 percent, he kept lowering
      rates while selling dollars to the Japanese who
      then used those dollars to buy U.S. government
      debt. Greenspan thereby effectively used the
      Japanese to draw off excess U.S. liquidity
      through their dollar and T-bill purchases. Large
      multilateral loans to Russia, Eastern Europe, Asia and Latin America
      through
      the IMF and the World Bank enhanced the effect of
      keeping things frothy at home while allowing the
      export of the Fed-created excess liquidity.
      With foreign volunteers eating U.S. inflation,
      the remainder of the nation's newly printed
      dollars were free to feed the market with what
      was believed would be only benign and happy
      consequences. Mutual funds were standing at the
      ready to capture the savings of America's
      households. Washington policy hacks and Wall
      Street market gurus proclaimed "emerging markets"
      as the very thing to sop up America's excess gravy.
      Investors, emboldened by the Mexican bailout,
      preceded to hurl their dollars at foreign markets
      in expectation of high returns while oblivious to the
      risks they were taking, fully convinced that even
      if there were risks, their investment decisions
      were essentially indemnified by the Fed. Over the
      next two and a half years the volume of
      international financial flows tripled. Even
      Russia's USAID-built equities market managed a
      breathless 156 percent climb in 1996, and its
      bond market was hot enough to fry eggs.
      'Irrational exuberance'
      Everything was going just swimmingly � the
      information revolution was driving up
      productivity, the Capital Goods Index remained
      stable, and inflation was nowhere to be seen. In
      fact, times were so good for so many that "Wall
      Street" became a daylong television show on CNBC
      whose scenario forbade the use of four-letter
      words like "sell." The important thing to the
      show's advertisers �financial firms � was only
      that more and more average people's savings were
      drawn into the Wall Street casino.
      People gave up gainful employment to become day
      traders on the Internet, re-mortgaged their homes
      and their cars, and took out business and
      high-interest consumer loans while borrowing
      against their pension funds in order to buy
      stock, SO good were the returns. (And, since
      foreigners were buying so much U.S. debt and the
      times were so good, domestic dollars piled onto
      equities, just as they had in 1987.) But
      companies, by definition, are collections of
      capital goods and, in fact, asset inflation was
      the engine for much of the rise in stock prices.
      Once Clinton was safely past the post, the
      emperor of the Fed came onstage,
      declaiming,"Look! Look! I have no clothes!" but
      the shows' translators insisted he had only
      muttered something about "irrational exuberance,"
      Investors stamped their feet in solidarity and
      cried out, "It's 1996, not 1987!"They were right!
      Beginning in 1995, and continuing through 1996,
      1997, 1998 and 1999 and into the second quarter of
      2000, tens of millions of shareholders worldwide
      read in their morning papers extraordinary
      reviews of a fabulous new star the emperor had
      discovered. Miss Goldilocks Economy was currently
      starring in the stellar revue, Not Too Hot, Not
      Too Cold, citizens read. While dabbing the stray
      spot of marmalade from the corners of their lips,
      shareholders could look up the values of their
      mutual funds and sigh in sweet contentment.
      What Americans did not read was that
      price-to-earnings ratios of 100 to 1 for inflated
      stock meant businesses would have to deliver
      exponential profits for decades if those
      purchases were ever to deliver a return. Further,
      millions of inexperienced investors did not
      understand the significance of the fact that as
      much as a third of the firms' profits in which
      they were investing did not result from the sale
      of the services and/or products each produced,
      but from the firms' speculative profits in the
      Wall Street bubble. And, just as Boris Yeltsin
      allowed the looting of Russia to garner political
      support and retain power, Bill
      Clinton stuffed the pockets of high-dollar
      campaign donors, his immediate entourage of shady
      lawyers and the corporate state's most strident
      advocates, and key legislators' family members
      and associates with public credit.
      Meanwhile, American business hid wage inflation
      through the use of bonuses and stock options,
      which distort the true worth of corporate shares
      and which themselves became a quasi-currency.
      Worse, corporate managers rewarded themselves by
      using their firms' cash flows and/or commercial
      bank loans to liquidate managements' share options instead of making
      further
      capital investments for their firms' future
      profitability. The wildly popular concept of
      shareholder value forced corporate managements to
      boost profits per share in the shortest possible
      time, causing management to rely upon ill-advised
      mergers and acquisitions for immediate profits
      (and for which they often went into deeper
      indebtedness), massive accounting write-offs
      along with dubious accounting gimmicks and
      questionable business practices, such as loaning
      customers the money to purchase their products, to get the job done.
      All these gambits allowed profits per share to
      increase and thus gave bubblevision "analysts" a
      cause to tout, but did nothing to advance capital
      investment, which is what develops long-lived
      profitable businesses for shareholders and
      workers alike. The only significant investment
      business pursued was in information technology,
      but so much was spent on computers,
      the Internet and telecommunications that the
      result is an overcapacity that will take years to work off.
      The mutual fund industry kept profits and share
      prices up through a process of share rotation,
      meaning Mutual Fund A buys stock from Mutual Fund
      B, which waits until Mutual Fund C purchases the
      same stock at a higher price and so on and so
      forth. Thus did share prices rocket upwards.
      Since mutual funds value their individual
      investors' accounts on a "market-to-market" basis
      to determine their Net Asset Value (NAV) at the
      close of the New York markets each day, investors
      were able to use the paper value of their shares
      as collateral for bank loans. Yet those shares'
      real value would require liquidation to be
      certain. Since the shares were not liquidated, and
      most have subsequently fallen in value, the na�ve
      investor is left with an unaffordable loan, which
      threatens to become non-performing. (This
      expansion of consumer credit based on unrealized
      stock market gains compares to the excessive
      employment of margin accounts in the late 1920s.)
      Banks, which once lent money based on their
      deposits while reserve requirements worked
      somewhat effectively
      (Message over 64 KB, truncated)
    • Tim Wallace
      Here s the same article without extra line breaks, and with the original sidebars: *** The Fed: How your money -- and life -- are controlled by America s
      Message 2 of 2 , May 3, 2007
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        Here's the same article without extra line breaks, and with the original
        sidebars:

        ***

        The Fed: How your money -- and life -- are controlled by America's banking
        system

        By Anne Williamson
        Copyright 2001, WorldNetDaily.com, Inc.

        It is well enough that people of the nation do not understand our banking
        and monetary system, for if they did, I believe that there would be a
        revolution before morning. --Henry Ford


        Congress passed the Federal Reserve Act on the 22nd of December 1913, and
        from that day forward the United States of America ceased to be a republic.

        The population, having been deprived of meaningful citizenship through the
        establishment of the corporate state the Reserve Act enabled, were
        essentially made into serfs of the nation's banking system.

        When a popular columnist, engaged in an argument in favor of President
        George W. Bush's proposed tax cut, wrote recently, "The nation's economic
        product is not the government's property," he should have added, "It belongs
        to the banks."

        Each year, fewer and fewer Americans realize the essential meaning and
        purpose of the statutory obligation by which each of them who enjoys an
        income files returns with the Internal Revenue Service. In the course of
        filing the income tax, Americans provide government with the most intimate
        details of their financial life and daily existence, along with a check for
        a significant percentage of their annual income and a signed statement
        relinquishing their Fifth Amendment rights.

        The banks that comprise the Federal Reserve System get the cash as payment
        for interest charges on the national debt which generations of politicians'
        promises, delusions and ambitions created, and the government gets the
        information along with the signed confession.

        Consequently, the newly plucked taxpayer is rendered ever more vulnerable to
        the government's intrusive demands and coercive powers.

        Understandably, in striving to understand how this sorry state of affairs
        ever came to be, some Americans who do grasp the insidious nature of the
        financial and political world that has arisen since the establishment of the
        Federal Reserve System have looked to various historical intrigues, legends
        and curious personalities to explain it. While the pursuit of conspiracy
        theories is compelling research for cold winter nights that does deliver up
        eye-popping facts, such efforts are not particularly useful to any attempt
        to regain American liberty. (Read "Birth of a swindle.")

        #1: BIRTH OF A SWINDLE

        Rather, a broad understanding of the Federal Reserve System's workings
        within the general context of its historical development is information that
        can be truly helpful, not only to the restoration of liberty, but also to
        the beneficial organization of any individual's financial affairs.

        If the consequences of the Federal Reserve System are thought of as the
        chains that bind the American people, then an understanding of the economics
        of money and banking is the key that can release the lock that holds tight
        those chains.


        The golden era

        A financial system is theoretically designed to enable an economy to
        function smoothly and predictably, but political actors work to ensure that
        the control of the system and the lion's share of economic rewards remain in
        the hands of a relative few. Though the mechanics of finance - banking,
        paper currencies, gold-backed and fiat currencies - were first developed in
        Europe centuries ago, the paper fiat system became fully global only with
        the emergence of the United States as a world power early in the 20th
        century.

        The U.S. - the world's largest economy and the venue for the world's largest
        pool of investment capital - functions as the system's engine, which is
        fueled by the U.S. dollar, the world's reserve currency.

        Currency, or money, is a store of value, a unit of account, and a medium of
        exchange. Money gives man instantly available savings, and a tool for
        planning his work while freeing him from the inefficiencies and encumbrances
        of barter. It is the very oxygen of a market economy, circulating via a
        banking system that works to take money from people who wish to save their
        money and gives it to those who believe they can employ those savings
        profitably.

        All money is born of a commodity - anything tangible from grain to gold.
        Any asset will do, just so long as it is so scarce and so prized that others
        will exchange their own goods or labor for it. Gold has been the most
        successful and popular medium of exchange and store of value for millennia,
        a commodity for which men have willingly exchanged their products, whether
        it be their labor alone or the material result of their labors.

        Government, which produces nothing of economic value, is the odd man out in
        the game of wealth creation. Its survival and well-being depend upon
        taxation, levied through directly coercive means, which if onerous enough
        can lead to government's most worrisome and costly problems: revolution and
        civil war. To avoid this, in addition to direct taxation, indirect
        confiscation - realized through cunning - is employed to fund the state.

        When kings found themselves financially embarrassed, they would call in all
        coinage for re-minting, replacing 10 percent or more of gold (or silver)
        with a base metal, thereby increasing the royal treasury while
        simultaneously picking the pockets of their subjects through debasement of
        the currency. This practice increased the available amount of money, but
        not the amount of goods, which causes inflation. (As economists define it,
        "too much money chasing too few goods.") Inflation constituted the royal
        bonus since inflation favors debtors, meaning that debts acquired at one
        value for money are repaid with money of lesser value. Men of commerce
        added to the confusion by clipping and trimming coins, the collected
        shavings eventually being melted down in order to retrieve whatever precious
        metals the clippings contained.

        As society evolved and liberty spread, both practices came to an end. The
        Englishman John Locke argued that money was a form of property. Since a man
        would lend out property - money - and, at a later date in the normal course
        of business, would have the property - money - returned to him, money
        therefore had to reflect an enduring value if justice were to prevail and
        commerce were to flourish. Money, Locke asserted, could not be the abused
        tool of kings.

        The people were readily persuaded. The monopoly of minting was wrestled
        from the crown, and government became instead a regulator of weights and
        standards and banks began minting their own coinage in accordance with
        government-mandated standards. The practice of clipping and trimming coins
        was eliminated when minters put a milled edge to coins.

        Overall, both man and freedom profited. Having the issue of taxation front
        and center before the citizenry ensured that the public's natural desire to
        retain as much of its wealth as possible in a form that maintained value
        worked as an evolutionary stimulus for notions of responsible government and
        as a brake on the state's natural inclination toward the grandiose and the
        despotic. The most successful episode of this political evolution was the
        American Revolution, which began as a protest against unfair taxation and
        ended with the idea of "the consent of the governed" triumphant.

        Yet despite that victory of citizen over state, the problem of an ambitious,
        nonproductive and ever-encroaching government not only remains, but looms
        ever-larger and more menacingly over all Americans today.

        Legal counterfeiting?

        Government's success in usurping citizens' liberties and privacy lies in
        having seduced the public into returning to it the monopoly of money
        creation through central banking. In contrast to a privately run system,
        central banking evolves always into a system that breaks the link between
        money and gold, thereby giving the state the power of issuing unlimited
        debt.

        Central banking is not the beginning, but the culmination of the industry's
        development, which began as a warehousing service. By definition, banking
        is a magnificent opportunity to deceive. However, honest and dishonest
        bankers alike are obliged to be seen as trustworthy in order to establish
        their businesses. Consequently, the trick of unsound banking is at the heart
        of the banking business.

        The first bankers were gold warehousemen whose clients were storing their
        wealth - gold -- for a fee, an arrangement known as deposit banking. Over
        time, an honest warehouseman's receipts came to be traded in lieu of any
        depositor's actual gold, and such receipts were, in effect, the first paper
        currencies which were financial instruments denoting value, or wealth
        (gold).

        Loan banking developed next. Instead of paying a storage fee, depositors
        began to lend their gold through the warehouseman, thereby receiving a fee
        (interest) from the borrower minus the warehouseman's middleman cut.
        Competition among warehousemen insured that the fee for such labor remained
        modest.

        The essential difference between the two transactions defines sound banking.
        Deposit banking secures a savers' wealth (gold), but no earnings accrue
        therein and storage fees are incurred. At a loan bank, the saver, in
        essence, was extending a commodity contract so that the goods he had
        forsworn - through the act of depositing his gold rather than exchanging it
        for goods he himself would consume -- could be used by a certain borrower
        who was willing to pay interest for the depositor's abstention, as expressed
        by his deposit of gold, for a mutually agreed period of time.

        In other words, it is a loan banking system which liberates and organizes
        savers' accumulated wealth to become a community's or a nation's investment
        capital. All parties to the contractual relationship of loan banking benefit
        from the transaction; the banker gets his fee and maintains his business,
        the saver gets his interest payment and is thereby rewarded with increased
        wealth for his abstention, and the borrower gets his opportunity to create
        wealth. And all members of the community benefit from the increased choice
        of goods, services and opportunities that result from each individual's
        economic development, or wealth creation.

        In both deposit and loan banking, the number of gold-deposit tickets is
        equal to the amount of gold on deposit. So far so good, and were it not for
        gold's fungibility , we'd still be innocent as lambs.

        Alas, a banker is a thinking creature. Knowing that no depositor wanted the
        exact same gold coins in return for his deposit ticket, the banker also came
        to notice that under normal demand not everybody came to get their gold at
        the same time, and further, fewer and fewer wanted to withdraw actual gold.
        They were all too busy trading bankers' gold receipts.

        So, why not print up some additional gold deposit receipts and lend them out
        for interest?

        This mischief is, of course, simple counterfeiting - the essence of unsound
        banking.

        Counterfeiting additional gold deposit receipts creates two problems. The
        first is a legal one: two claimants to one asset. Classical economist
        Hans-Hermann Hoppe notes sardonically that fake deposit receipts can be
        thought of as "titles in search of property" and asks: "What if an increase
        in demand for automobiles were to be satisfied by printing more titles to
        automobiles, but the number of cars remained unchanged?"

        The second problem is economic, and is known among classical economists as
        "malinvestment," which means that more business investment is stimulated
        than what is warranted in light of actual savings. (Who hasn't noticed the
        unfinished skyscraper standing cold and silent for many a moon, the marginal
        coffee shop or hair salon that was shuttered almost as quickly as it
        opened?)

        When the banker counterfeits, he is, in effect, stating that he has
        possession of gold (savings, or investment capital) that he does not have.
        Therefore, no one is forsaking the goods that the banker is, in fact,
        fraudulently leasing to the borrower! Further, the entire community or
        nation is deceived because the banker's counterfeiting allows a community or
        nation access to money without the concomitant forswearing of resources,
        thereby violating the essential rule upon which sound banking is based.

        When the accumulating investment errors are inevitably corrected by the hard
        reality of the lack of resources to sustain the excess investment the
        banker's counterfeiting stimulated, a community or nation is confronted with
        the dreaded "bust" of the "business cycle."

        We all know the final result of the bankers' counterfeiting from watching
        Saturday afternoon shoot 'em ups. It's the scene where the townspeople
        congregate outside the bank on Main Street and, with shaken fists, demand
        loudly and fruitlessly their deposited savings, which were theoretically
        consumed by equally misled borrowers, but which most probably were trousered
        along with the borrowers' interest payments. This phenomenon is known as a
        "bank run."

        Bank runs are ruinous too for bankers, who are, after all, engaged in a
        service business, which if it is to flourish must be based on both proximity
        and trust. Consequently, bankers agreed among themselves to print very few
        fake receipts, so that in the normal course of business all demands would be
        satisfied. By maintaining high reserves, the bankers calculated, no one of
        them would be stuck in the quicksand of "adverse clearing," which occurs
        when bankers cannot honor claims among themselves on behalf of their client
        pool, whose individual members make deposits unevenly among the bankers'
        individual institutions. In the new system known as "fractional reserve
        banking," only the incompetent and the criminal would suffer the indignity
        of a bank run -- or so it was imagined.

        Out of thin air

        Bankers soon made common cause with politicians, and the fruit of their
        association is central banking. Here is how central banking worked when it
        was still based on the gold standard, the penultimate stage of development
        before central banking degenerated into a worldwide system of fiat
        currencies.

        Central banking involves the creation of three inverted pyramids:

        Initially, on top of the central bank's gold reserves and the commercial
        banks' reserve accounts that those banks are required by law to deposit with
        the central bank, the central bank creates an inverted pyramid of far more
        currency titles (dollars) than it has assets of value (gold). The phony
        currency titles are genuine counterfeits the central bank printed out of
        thin air.

        Each commercial bank in the system then forms another inverted pyramid on
        top of its own reserve account with the central bank and, thereafter, an
        additional inverted pyramid on its own in-house reserves. All the monies in
        the central bank's two pyramids are ones that the central bank first printed
        out of thin air. The banks are then allowed to create "checkable money" at
        a proportion of usually 10 to one. This checkable money is what forms each
        commercial bank's individual in-house pyramid.

        Checkable money is an accounting entry alone. Banks lend this "checkable
        money," which the central bank doesn't even bother to print. (For an example
        to clarify this difficult point, read "How $1,000 becomes $10,000")

        #2: HOW $1,000 BECOMES $10,000

        But what happens under such a system when a commercial bank's customers all
        want to write checks for their entire deposits at the same time? Nothing
        much, and that is the problem.

        Instead of being forced to declare bankruptcy and liquidate its assets for
        the benefit of deceived depositors and shareholders -- as happens in a
        private banking system -- the government declares a bank holiday. The
        central bank then prints a fresh batch of fiat dollars, and after it has
        accumulated enough colorful slips of paper (property titles) for the bank to
        make good on its obligation, the bank reopens and cashes the depositors'
        checks. This is what is meant by the definition of a central bank as "the
        lender of last resort," an arrangement that transforms banks into
        quasi-public utilities.

        What the pacified and beguiled depositors fail to understand is that the new
        money is worth less in terms of value -- purchasing power -- than what their
        vanished deposits entitled them to. The advantages of this system to
        bankers are obvious. What is not so obvious is that central banking allows
        the politicians' empty promises and their ensuing confiscations to continue
        unimpeded. Both financial discipline and public accountability are
        undermined, despite the growing danger to the citizenry.

        Under central banking, the alarm of a bank run isn't sounded, and the
        populace is left to sleep until the inevitable system-wide bust victimizes
        the entire population, rather than the customers of just one profligate
        bank. The local problem is allowed to run uncorrected until it becomes a
        regional one, or a national one, or even in today's globalized world -- an
        international one.


        Confidence game

        This merging of the interests of bankers and politicians has fueled
        suspicion, resentment, alarm and a treasure trove of conspiracy theories the
        world over. In the United States, the central bank is the Federal Reserve
        System about which one critic has commented, "The Federal Reserve System is
        not Federal; it has no reserves; and it is not a system, but rather, a
        criminal syndicate."

        It is no wonder that what is surely history's most successful confidence
        game should be described with such incendiary words. Central banking is
        essentially a cheesy, government-sponsored pyramid scheme. The Federal
        Reserve is not Federal in that it is a privately owned "bank of issue."
        That's right, the Fed is not a government agency, but rather, a consortium
        of private banks that politicians empowered to emit the national currency in
        1913.

        The current chairman, Alan Greenspan, though he was selected by a series of
        U.S. presidents and his appointments confirmed by Congress, is in fact an
        employee of the banking consortium who are the Fed's shareholders. Though
        required to give periodic testimony before Congress with particular
        attention paid to employment rates and price stability, the Fed chairman is
        not responsible to the U.S. president, the U.S. Congress or even the
        American people, nor is the health of the U.S. economy or of the stock
        market any chairman's responsibility. The chairman's only responsibility is
        to protect the U.S. banking system, while acting as a central planner in
        that it is the chairman who sets the most important price in a market
        economy, i.e., the price of money. (When Greenspan bailed out Wall Street's
        sexiest hedge fund, Long Term Capital Management or LTCM, in the autumn of
        1998, his ministrations were inspired by concern for the health of the U.S.
        -- and international -- banking system, not that of the New York Stock
        Exchange.)

        Why, then, did the political leadership of this country ever agree to
        relinquish its constitutional power as mandated in Article 1, Sec. 8, Clause
        5 "to coin money and regulate the value thereof" in favor of a consortium of
        private banks? And why does the current leadership continue to use taxpayer
        resources to fund the Internal Revenue Service, the fruit of whose efforts
        goes to those private banks as interest payments for a debt created out of
        thin air?

        State-sanctioned currency counterfeiting satisfies the critical need of
        providing funds to pay for the promises politicians give to citizens in
        return for their votes. A government's inflationary "profits" made in the
        operation of its monopoly system of money creation is, in addition to
        revenues raised from direct taxation, all the modern state has to meet its
        obligations. Politicians know that were citizens taxed directly for their
        easy, big-ticket promises, citizens would not consent to the bargain because
        the confiscatory rate required to meet the obligations their promises create
        would be intolerable, leaving the big spenders competing for public office
        to face either certain defeat at the polls or taxpayer riots and rebellions.

        In short, the Federal Reserve System is the modern version of the medieval
        royal prerogative of currency debasement reinstated and institutionalized.
        The banking consortium's profits (interest as collected by the IRS) are
        today's more lucrative alternative to the ancient practice of coin clipping.
        The bottom line is that while citizens are kept distracted by the task of
        keeping the taxman off the front porch, the government slips undetected into
        their homes through the back door and quietly robs them night and day.

        It is the slow leeching of the dollar's value through the operations of the
        Federal Reserve that explains why the dollar in a baby boomer's pocket is
        worth but the nickel in his grandfather's purse. This means that on top of
        all the taxes -- income, usage, death, import, excise and licenses and fees
        -- three generations of Americans have paid, they have been assessed an
        additional 95 percent which the silent, unfelt hand of currency debasement
        collected from them -- thanks to the Fed.

        But how did governments ever manage the feat of so completely hornswoggling
        their citizens? Generally, two things happen.

        First, a government convinces the public that only the government should
        print money on the basis that otherwise, with many printers, the public
        might well be cheated. However, it is the very competition among minters
        (banks) that ensures honesty. (Otherwise, there would be no private
        jewelers, only a chain of government-operated jewelry stores.) After that,
        a government proclaims either one bank's or a select group of banks' note
        issues acceptable for tax payments, i.e., "legal tender." Thus begins the
        game.

        Over time, this state-sponsored confidence game evolves until one day the
        government first acquires a money monopoly (central banking) and then later
        breaks the link between paper money and gold, thereby creating a fiat
        currency. In the United States, a fiat dollar is known as a Federal Reserve
        Note.

        The question of whether or not the nascent Republic would engage in central
        banking was very much a live issue to the Founders. The Federalists, those
        advocates of a strong, central government and of a central bank, warred
        against the hard-money, free-market Jeffersonians for decades. [SIDEBAR #3]

        Alexander Hamilton did, in fact, establish a First Bank of the United
        States, which was followed by a Second Bank after the War of 1812, but it
        was Andrew Jackson who fought a titanic battle during the 1830s for its
        elimination, and succeeded. Over the next eighty years, the bankers and
        their big government allies schemed and plotted, but to no avail. The
        Federal Reserve System was instituted only after powerful financial
        interests mostly associated with J.P. Morgan, Jacob Schiff and David
        Rockefeller succeeded in what was a decades-long effort to highjack the
        progressive movement at the end of the 19th century, a century whose second
        half was plagued by something known as the National Banking System. This
        post-Civil War system centralized the nation's banks in a sort of halfway
        house along the road to central banking, and it involved state banks and
        national "policing" banks.

        Of course, nobody policed anybody, and the bankers' lucrative practice of
        pyramiding money grew apace. Consequently, speculative booms, panics and
        bank runs marked America's financial landscape throughout the second half of
        the 19th century. Quite understandably, populist and reform movements
        gained ground.

        Yes, the politicians and the bankers allowed, the system did need
        perfecting, and they -- the bankers and the politicians -- would do the
        perfecting.


        The grand seduction

        One misunderstanding about capitalism is that business is at odds with
        government and wants to see its reduction. Not hardly. It is entrepreneurs
        and citizens alone who feel the weight of leviathan. Successful businessmen
        are always, as day follows night, statists or enthusiasts for (and willing
        collaborators with) government's involvement in the economy, because they
        rely upon government's minions to provide them with subsidies from the
        public purse while protecting their markets and industries from the leaner
        men of free enterprise.

        In return, business funds the politicians' election campaigns. Not
        infrequently this protection involves the politician's throwing government
        business to his campaign donor.

        Upon exposure, corruption and favoritism lead to the inevitable public
        outcry for "reform," which invariably concludes with a scheme in which the
        government wolf is authorized to guard the citizenry's chickens. (The
        Federal Reserve Act was, in fact, a banking reform bill!) Not sometimes,
        but always and continuously, central banking allows government to reward its
        supporters, because the first to get new money -- politicians, bankers,
        government contractors and patronage employees -- are the ones who benefit.
        Folks lower down on the food chain get a dubious benefit, i.e., the higher
        prices the first recipients' spending of the new money created. (Read "A
        looting lesson by Bill and Hillary.")



        #4: A LOOTING LESSON BY BILL AND HILLARY

        To sell the scheme to the public and the government alike, the bankers
        claimed that if only they had "a lender of last resort" -- a central bank --
        all the alarming booms and busts of their industry would be cured. Of
        course, what the bankers were asking was that the government allow them to
        unlock the shackles of honest banking.

        Once Uncle Sam understood that the scheme did not require the government to
        back up all the property titles (dollars) the bankers intended to issue with
        property (gold) and that the bankers would be satisfied with pieces of
        colored paper, the deal was struck.

        The next task was to convince a public committed to free markets and minimal
        government that salvation -- from the repetitive boom-and-bust business
        cycle that unsound banking had created -- lay in central banking. But how
        to seduce an entire nation? [SIDEBAR #5]


        Elastic money

        The key was convincing the public that the nation needed "an elastic" money
        supply to fuel dynamic and expanding American business. (In fact, under a
        gold standard the relatively stable amount of money in an economy is a boon,
        since prices adjust by falling most usually several percent a year.) Under
        the tent of a congressionally created National Monetary Commission, the
        rising class of academic economic experts prepared the way for today's
        multilateral elite by helping "educate" the electorate about the need for
        banking reform in order to defeat the nonexistent problem of "static money".

        Many of these experts had received their Ph.D.s in German universities,
        where they had become admirers of Bismarck's Germany and its emerging
        statist system. Just as the Russian intelligentsia had been seduced by the
        German philosopher Hegel (Marx is often described as "Hegel stood on his
        head"), so too was America's nascent scholarly class -- but the Russians got
        communist ideology and the Americans a socialist creed masquerading as
        "progressive reform." (Read "FDR created dependency.")


        #6: FDR CREATED DEPENDENCY


        What the heirs of those early academic "experts," our secular society's
        answer to the priestly class, want is the same things their predecessors
        wanted -- cushy jobs, the diversion of public funds to their own, frequently
        obscure and mostly culturally destructive endeavors, and a platform for
        their mind boggling, self-serving social prescriptions. Consequently, nearly
        every Ivy League academic economist is trained in one strain or another of
        Keynesianism, an economic school founded by John Maynard Keynes.

        Keynes provided the theoretical work, which holds government to be an
        appropriate and effective economic agent, capable of staving off recession
        and deflation with public spending. Academics do at least know who butters
        their bread; each and every one lends tireless support to Keynesianism and
        the associated practice of central banking, which is the engine of
        government's relentless expansion.

        Wall Street's grandees promoted themselves as men of wealth and sound
        judgment devoted to public service, whose enormous wealth allowed them the
        luxury of absolute probity in financial matters. In fact, they were allied
        with their relatives in the political elite in Congress, under the
        leadership of people like Sen. Nelson W. Aldrich, John D. Rockefeller Jr.'s
        father-in-law, who had long been preparing the ground for dispensing with
        the constitutional barriers between "public" (government) and "private"
        financial sectors in order to effect an unholy merging of the interests (and
        functions) of the state and the "church" of finance.

        This powerful "educational" campaign waged by the elites and the media in
        America led to establishment of the Federal Reserve in 1913. The long-term
        results undermined not only the public's desire for sound public finance,
        but also the rights of citizenship itself.

        Ever since the government achieved the ability to issue unlimited debt, it
        has exploited the boom-and-bust cycle central banking creates in order to
        discipline the financial sector's footsoldiers and whipsaw voters into
        acceding to statist programs. In short, government has no greater tool for
        the quiet manipulation of the citizenry than central banking. This strategy
        created a global American imperium, while funding the entitlements expected
        by permanent constituencies, whose number includes big business, the
        military-industrial complex and assorted ethnic, racial and sexually
        perverse subgroups (who are said to be either needy or victimized and in
        whose name and for whose alleged benefit socialist-minded elites, like
        Hillary Clinton, presume to claim political power).

        How the Fed manipulates elections

        The Federal Reserve System pumps money out before a presidential election
        (beginning usually 18 months before the polling date) to create a happy Wall
        Street carnival that is most usually blown away by inflationary winds at
        some point in the newly elected president's four-year term. Auburn
        University's Roger Garrison explains the process, citing three recent
        examples:

        "In 1975, President Ford was told the time had come to start printing money
        to create the optimal conditions for his reelection, but Ford refused, since
        he was already presiding over a reasonably satisfactory economy and failed
        to perceive his own reelection as a cause for inflating the money supply.
        President Carter, who was elected in lieu of Ford's error, hit the ground
        printing money. His mistake was that he started the game too early, so that
        two and a half years later, about the time he should have started printing,
        we had double-digit inflation. He reduced the lag between money printing
        and inflation to practically zero so that by the end of the Carter
        presidency a Wall Street Journal headline might well read 'Fed to Expand
        Money Supply, Interest Rates Rise.' He got the cycle so out of whack that
        the time span normal between stimulation and discipline became so brief that
        the cycle collapsed upon itself. The next president to screw up the cycle
        was George Bush, who thought with the tremendous approval ratings he'd
        garnered after the Gulf War in 1991, there was no need for him to play the
        game. By the time he brought in James Baker, who knew the game well, it was
        too late, and the stimulation occurred under Clinton in late January 1993."


        And what did the three men have in common?

        "They all lost," Professor Garrison notes.

        The government's annual shortfalls are covered through the government's
        choosing between three strategies: domestic borrowing through Treasury bond
        sales (leading to higher interest rates); foreign borrowing also through
        Treasury bond sales (leading to overpriced dollars, which crush exports); or
        the direct increase of the money supply (leading to inflation), each of
        which distorts markets and their signals, thereby increasing the difficulty
        of business planning while unsettling the population generally. Professor
        Garrison observes that even the tax code is less destructive than
        government's sleight-of-hand with deficit spending, since the code is public
        and an investor or a businessman can account for it when planning for the
        future.

        Nothing so smothers a market as uncertainty. When businesses are unable or
        do not plan, they fail. And what does the Fed deliver? An endless guessing
        game regarding the unpredictable potential policy choices of a single man.

        Unsurprisingly, the regnant emperor of central banking, Chairman Greenspan,
        is a man justly famous for his skills of stupefaction. All financial
        journalists write fawning descriptions of the emperor's unprecedented
        ability to speak in measured, mind-numbing pronouncements while saying
        nothing at all. Any man who presides over an audit-free, de facto
        unsupervised empire whose janitors alone earn annual salaries of $140,000
        and that includes a small army of 25,000 employees, 47 Learjets and small
        cargo planes, fleets of vehicles, an art collection so prized it has the
        services of a full-time curator, and $451 billion in assets is not about to
        misplace a single word. For the central banker, mystery is truly father to
        the miracle.

        The miracle's busy elves are other bankers, of which there are two kinds:
        investment bankers and commercial bankers.

        Investment bankers underwrite deals, and they, not commercial bankers, are
        most active in the securities markets. The bread and butter of all
        securities markets are bonds; therefore, investment bankers have a vested
        interest in promoting deficits and in forcing taxpayers to redeem government
        debt. The investment bankers are the first people to get their hands on new
        money -- a government bond is a marketable instrument -- and thus skim the
        cream off the top. Remember, those who receive new money first get the
        greatest benefit, while those further down the queue get the higher prices
        the lucky ones' early spending created. Further, Wall Street earns hundreds
        of billions a year from the transaction costs entailed by moving around the
        fiat money the commercial banks create. Though the Fed makes a profit per
        se, and a statutorily limited dividend of 6 percent is paid annually to the
        Fed's bank shareholders, the real money deal for Wall Street is in
        transaction costs.

        Less than a dozen Wall Street investment banks underwrite 80 percent of
        government issue; they constitute an oligarchy. For many decades, the bond
        business was just what you'd expect: stately, but dull. Bond dealers were
        vaguely respected, but known to be well-connected players in an insiders'
        game.

        Otherwise, the history of investment banking is a ruthless one of bottomless
        greed and boundless vanity -- the very things that get something done in
        this world; scoundrels, after all, have their uses.

        Investment bankers are the eyes and the ears of markets. They are the
        people who make the financial game's big deals by knowing the needs and
        capabilities of a wide range of players. Commercial bankers are dullards in
        comparison, taking in money and making loans, printing up the extra bit on
        the side -- same old, same old. The glamour's all with the guys the
        industry calls "hunters and skinners."

        Blood money

        The desire of bankers for government bonds to sell began to drive American
        foreign policy in the 1890s. What investment bankers have always wanted,
        besides government debt to underwrite, was foreign debt to underwrite, along
        with new markets and natural resources from abroad. Their success in
        influencing government has enabled the bankers and their presidents, from
        William McKinley (who set out to Christianize the Philippines) to Bill
        Clinton and presumably George W. Bush, to use America's wealth to subsidize
        and force-feed export markets and investment outlets as well as to guarantee
        Third World government bonds.

        There were lots of early adventures -- in Latin America and Cuba, the
        Philippines and Japan -- but they were mere floating craps games compared to
        the big casino the remainder of the 20th century became.

        It was in 1915 that American investment banks developed an appetite for war
        profits that they saw would enable them to correct the domestic financial
        reverses their extensive investments in railroads had begun to suffer. War
        bonds and the financing of munitions and war materiel was just the sort of
        project financing their European cousins had been doing systematically for
        centuries. Wall Street's most prominent financiers managed the trick by
        first engineering the election of the vain but eminently malleable Woodrow
        Wilson by having Teddy Roosevelt's third term presidential bid on the Bull
        Moose ticket split the Republican vote, and then by placing key personnel in
        Wilson's administration.

        While satisfying commercial bankers had required only the lifting of
        America's wallet, investment bankers -- who had learned to look to
        government to protect their interests -- promoted policies that required
        blood. They solve their problems routinely by having their hirelings
        habitually serve in the government on a convenient revolving-door basis.
        Their heirs, relations, lawyers, industrial consultants, academic experts,
        publicists, sycophants and other business associates have been an integral
        part of American public life throughout the last century, shuttling back and
        forth between Washington and Wall Street, the Council on Foreign Relations,
        the Trilateral Commission (insider groups of well-placed lawyers,
        financiers, publishers and their obedient academic pets who routinely devise
        the requisite belligerent policies) and the State and Defense Departments
        respectively.

        During wartime, nations have gone off the gold standard in order to sustain
        their war efforts with paper money. It was the Fed, governed by Wall
        Street's Benjamin Strong, an anglophile and a House of Morgan ally, that
        allowed the U.S. to inflate money and credit, finance loans to the Allies,
        and float massive deficits. Strong compounded the problems of the U.S. war
        debt by supporting, for nine years, the mismanagement of the British
        sterling's postwar return to gold, then the world's reserve currency, by
        devaluing the dollar through printing paper dollars at a furious rate.
        American credit fueled a Wall Street bonanza of speculation domestically and
        a worldwide trading boom. When the export of American capital ended just
        prior to the stock market crash of 1929, the shortage of money reduced
        purchases, which, in turn, reduced production and led to the loss of
        markets.

        What had began as a crisis in American financial markets spread to the world
        and became a crisis of industry. America's economy was already fueling the
        world's, and when America stumbled, so did everybody else. Nations erected
        trade barriers while speculative capital -- or what economists call "hot
        money" -- roamed the world seeking quick, fast profits exploiting an
        epidemic of currency devaluations, exchange controls, protective tariffs,
        trade quotas and volume restrictions.

        Everything nations did to stop the contagion only made things worse. By
        1932, worldwide unemployment exceeded 30 million. One year later, on Jan.
        30, 1933, by entirely legal means, Adolf Hitler became chancellor of the
        German Republic.

        The ultimate pyramid scheme

        The Fed's paper-money binge had stimulated American banks to over-lend, and
        to the horror of the American people, 5,000 went belly up between 1929 and
        1932. After the declaration of a "banking holiday," Roosevelt (who had
        campaigned in 1932 -- fraudulently as it turned out -- on a platform of
        reducing government) issued a presidential directive that citizens turn over
        all gold to the government or face fines and imprisonment. All citizens
        were ordered to exchange their gold for fiat money and were told that
        compliance was their patriotic duty. [Sidebar # 7]

        Once the deed (an act of wealth confiscation comparable in magnitude to that
        of Vladimir Lenin's in 1917) was done, only then did Roosevelt repudiate the
        gold standard and declare the citizens' confiscated gold to be the property
        of the federal government. Thereafter, foreigners alone could exchange
        their paper dollars for gold. Having removed sound money's "golden
        handcuffs," Roosevelt secured the enduring power of limitless domestic debt
        for the government.

        None of FDR's statist policies, many of which mirrored those of Benito
        Mussolini's corporate state, dented the disaster the Fed had created. The
        economy got cracking only with the nation's military build-up in 1938. But
        if the 32nd president wasn't much good at curing economic crises, he did
        have a firm grip on one of history's oldest maxims: The state creates war
        and war creates the state. Wall Street -- again -- saw salvation in war.

        Economist Murray Rothbard, the most preeminent student of Austrian
        economists Ludwig von Mises and Fredrich von Hayek, summed up the era in the
        run-up to World War II:

        "During the 1930s, the Rockefellers pushed hard for war against Japan, which
        they saw as competing with them vigorously for oil and rubber resources in
        Southeast Asia and as endangering the Rockefellers' cherished dreams of a
        mass 'China market' for petroleum products. On the other hand, the
        Rockefellers took a noninterventionist position in Europe, where they had
        close financial ties with German firms. The Morgans, in contrast, as usual
        deeply committed to their financial ties with Britain and France, once again
        plumped early for war with Germany, while their interest in the Far East had
        become minimal. World War II might therefore be considered as a coalition
        war: The Morgans got their war in Europe, the Rockefellers theirs in Asia."


        Once half a million Americans were sacrificed in assisting one dictator to
        defeat another in Europe, the financial and political elites envisioned a
        wider horizon. Thus began the building of the national security welfare
        state with its attendant standing armies (U.S. national forces and NATO), an
        oversized bureaucracy of spies, vast domestic spending schemes and so on.
        Half a century of profits earned through warmongering was not enough. For
        the political and financial elite, nothing short of the very planet itself
        would do.

        And, thanks to the Fed's pyramid scheme, keeping the U.S. federal
        government's money game afloat requires nothing short of a global monetary
        hegemony, since any pyramid scheme remains viable only so long as its base
        continues to expand.

        The International Monetary Fund was created in the fading days of World War
        II for just this unadvertised purpose - that is, the expansion of the Fed's
        monetary base and the preservation of its dollar pyramid scheme. So
        mismanaged were all these costly efforts that, in time, the funding
        requirements of fighting the War on Poverty and a real one in Vietnam forced
        Richard Nixon to close the gold window in 1971. As a consequence, today all
        currencies are redeemable in nothing but paper and the world is now in the
        30th year of what can only be considered a vast monetary experiment.

        Fifty-six years after the defeat of Adolf Hitler and Emperor Hirohito, and
        over a decade after the collapse of the Berlin Wall, the U.S. federal
        government is a colossus, and the national debt is not six trillion dollars,
        but in excess of 20 trillion dollars when the costs of still unfunded,
        government-provided pension and medical commitments are taken into account.
        Such perverse results are possible only because the Federal Reserve System
        is an empire accountable to no one -- by design.

        The political elites insist that the Fed is "independent" and will remain
        so. After all, we are told, the nation's finances are so critical to us all
        that the key decisions the Fed makes cannot be tainted by loathsome
        political considerations. Of course, the Fed is said to be independent. No
        political entity -- neither Congress nor the president -- would ever want to
        loose a scapegoat for government-created financial disasters of such
        unparalleled utility like the allegedly bindependent Fed.

        When interest rates change, depending upon whose ox is gored -- importers or
        exporters, banks or manufacturers, business or labor -- their respective
        champions in Congress will either beat their chests while cursing the Fed,
        or nod their heads sagely and opine how good it is that the Fed is
        "independent" and is therefore free to operate wisely in the entire nation's
        interest.

        When the newspapers speculate that "The Federal Reserve may raise rates
        because of fears the economy is overheating," it's all a chimera -- like a
        barking cat -- which is how economist Thomas DiLorenzo describes the
        syndrome. The Fed exists in order to create inflation for the benefit of
        political and financial elites. The proof of this can be seen in the fact
        that money growth in nation states never matches or undershoots GNP growth,
        as one might expect, and the surplus growth of money always goes to
        financial institutions. And even though inflation erodes the value of money
        as a result, it is a problem only for the poor and the middle class, as real
        interest rates assure the continued growth of the wealthy.

        Greenspan bucks

        But what does all this mean in the terms of today?

        The dress rehearsal of Federal Reserve Chairman Alan Greenspan's most
        spectacular magic act -- "Tonight! The End of Inflation!" -- ended badly in
        1987. During his first term, President Reagan chose not to interfere with
        exchange rates, and that, combined with large foreign purchases of U.S.
        debt, caused the dollar to strengthen, depressing U.S. exports. Political
        pressure to deflate the dollar's value increased.

        From 1985 through 1987, increasing the money supply deflated the dollar.
        While the Fed was inflating, the dollar began dropping -- rapidly. Fear that
        the foreigners (who were buying a big chunk of the huge national debt) would
        sell their U.S. stocks and bonds and take their money home caused the
        dollar's value to drop even more rapidly while forcing up interest rates.

        Greenspan brought down the curtain and stopped printing money. Since
        domestic interest rates had been kept low -- thanks to foreign participation
        in American debt markets and domestic money that would have bought U.S.
        bonds that went instead to equities -- share values had been driven to dizzy
        heights. Once the money pump was turned off, overvalued corporate stock
        plummeted and Black Monday hit Wall Street in October 1987.

        Quick as Ariel, Greenspan leapt forth to prime the money pump and managed to
        delay the recession until 1990. Meanwhile, the nation's commercial banks,
        flush with the new money emitted in the late 1980s, had gone overboard on
        real-estate lending, and by 1990 they were teetering on collapse as the
        loans went bad. The "Emperor of the Fed" stepped in and told them that to
        avoid annoying further the American people -- who were then bearing the
        burden of the $420 billion savings and loan bailout -- with yet another
        financial meltdown, he would throw them a lifeline and sell them -- and only
        them -- government debt at a discount, thereby allowing them to
        recapitalize.

        The supply of new money was decreased, and what there was of it was funneled
        to the commercial banks for recapitalization purposes until 1992, when James
        Baker signaled Greenspan to turn the pump on again to get George Bush
        reelected. Baker so signaled, but too late; the benefits arrived only in
        time for the inauguration of Bill Clinton as the 42nd president of the
        United States the following January.

        By 1993, everybody was in the money. The banks were recapitalized and ready
        to lend. In the interim, however, the corporate world had taken note of all
        the money lying about and decided that instead of taking loans from
        commercial banks, it would be much better to float their own financial paper
        and corporate bonds on Wall Street. And they did. In the first half of the
        1990s, commercial banks earned greater profits from currency speculation
        than they raked in from corporate lending.

        So easy were the times, the American financial community couldn't absorb all
        the new Greenspan bucks. Lots of folks then decided to bet on a promising
        newcomer named Emerging Markets. The chairman -- ever mindful of 1987 --
        grew nervous and jacked up interest rates three percentage points, thereby
        dumping the bond market and drawing adventuresome dollars back home. After
        that, Mexico tanked in late 1994, and the Fed was forced to organize a $40
        billion loan to Mexico. The bailout was courtesy of the U.S. Treasury's
        Exchange Stabilization Fund, which is available to the Treasury Secretary at
        his discretion, subject to presidential approval, and is intended for the
        support of the U.S. dollar.

        The purpose of the Mexico bailout? To sustain the dollar pyramid while
        rescuing the clients of their Wall Street cronies who had so over-invested
        in dollar-denominated Mexican bonds (tesobonos) that certain, well-connected
        investment banks' very survival was at stake. (Read "Citizens' gold becomes
        'mad money'")


        #8: CITIZENS' GOLD BECOMES 'MAD MONEY'


        Across the shining Pacific, Japan had problems too. The Japanese "bubble
        economy" fell on hard times in the late '80s. Bank lending that accepted
        real estate as collateral drove up Japanese real-estate values in the late
        '80s, creating a "bubble." A large number of those banks' loans became
        non-performing, the value of Japanese equities nose-dived, lending declined,
        and the banks found themselves looking into an abyss. The fear was that lots
        and lots of banks would start going under and they would be forced to sell
        their U.S. Treasury bonds to pay their debts.

        If Japanese bankers were to cash out of U.S. debt, Greenspan would have had
        to raise interest rates in order to attract the money from U.S. savings to
        make up the difference, leaving enterprise hungry and thereby endangering
        the re-election of Bill Clinton and his own reappointment for a third term.

        Luckily, Japanese misfortunes found the U.S. to be a boon companion in
        misery. U.S. financial markets were badly dented by the effects of the
        Mexican peso's collapse. Since NAFTA had essentially tied the dollar to the
        peso, the peso acted as a drag on the U.S. currency. In the spring of 1995,
        when the value of the dollar was plummeting, the American-educated Japanese
        finance minister, Eisuke "Saka" Sakakibara, a former colleague of Lawrence
        Summers at Harvard, came to call on Treasury Secretary Robert Rubin.

        Saka told Rubin and Summers that Japan, in need of a cheaper yen to
        revitalize sagging exports, would absorb the dollars Alan Greenspan would
        need to print to get Clinton re-elected and to secure Clinton's selection of
        him for a third term as chairman of the Fed. Japan would emit yen to buy new
        U.S. Treasury bonds with the dollars they would buy from the Fed and with
        those they had accepted in exchange for their exports to the U.S.

        The result, Saka said, for Japan would be a weaker yen, revitalized exports,
        and recovering banks. For the U.S., low interest rates, lots of cash
        floating around in the American economy and on board America's flagship, the
        USS Emerging Market, a reversal of the dollar's decline -- and the
        reappointment of Greenspan as emperor in the spring of 1996, all topped off
        by Clinton's reelection. It worked! (For the Americans, that is. Japan,
        unhappily, remains mired in deflation even today.)

        After cutting the deal with Saka in the spring of 1995, Greenspan lowered
        interest rates right on schedule, 18 months before the presidential
        election. Despite having full employment of between 5 percent and 6 percent,
        he kept lowering rates while selling dollars to the Japanese who then used
        those dollars to buy U.S. government debt. Greenspan thereby effectively
        used the Japanese to draw off excess U.S. liquidity through their dollar and
        T-bill purchases. Large multilateral loans to Russia, Eastern Europe, Asia
        and Latin America through the IMF and the World Bank enhanced the effect of
        keeping things frothy at home while allowing the export of the Fed-created
        excess liquidity.

        With foreign volunteers eating U.S. inflation, the remainder of the nation's
        newly printed dollars were free to feed the market with what was believed
        would be only benign and happy consequences. Mutual funds were standing at
        the ready to capture the savings of America's households. Washington policy
        hacks and Wall Street market gurus proclaimed "emerging markets" as the very
        thing to sop up America's excess gravy.

        Investors, emboldened by the Mexican bailout, preceded to hurl their dollars
        at foreign markets in expectation of high returns while oblivious to the
        risks they were taking, fully convinced that even if there were risks, their
        investment decisions were essentially indemnified by the Fed. Over the next
        two and a half years the volume of international financial flows tripled.
        Even Russia's USAID-built equities market managed a breathless 156 percent
        climb in 1996, and its bond market was hot enough to fry eggs.

        'Irrational exuberance'

        Everything was going just swimmingly -- the information revolution was
        driving up productivity, the Capital Goods Index remained stable, and
        inflation was nowhere to be seen. In fact, times were so good for so many
        that "Wall Street" became a daylong television show on CNBC whose scenario
        forbade the use of four-letter words like "sell." The important thing to
        the show's advertisers -- financial firms -- was only that more and more
        average people's savings were drawn into the Wall Street casino.

        People gave up gainful employment to become day traders on the Internet,
        re-mortgaged their homes and their cars, and took out business and
        high-interest consumer loans while borrowing against their pension funds in
        order to buy stock, so good were the returns. (And, since foreigners were
        buying so much U.S. debt and the times were so good, domestic dollars piled
        onto equities, just they had in 1987.) But companies, by definition, are
        collections of capital goods and, in fact, asset inflation was the engine
        for much of the rise in stock prices.

        Once Clinton was safely past the post, the emperor of the Fed came onstage,
        declaiming, "Look! Look! I have no clothes!" but the shows' translators
        insisted he had only muttered something about "irrational exuberance."
        Investors stamped their feet in solidarity and cried out, "It's 1996, not
        1987!" They were right!

        Beginning in 1995, and continuing through 1996, 1997, 1998 and 1999 and into
        the second quarter of 2000, tens of millions of shareholders worldwide read
        in their morning papers extraordinary reviews of a fabulous new star the
        emperor had discovered. Miss Goldilocks Economy was currently starring in
        the stellar revue, Not Too Hot, Not Too Cold, citizens read. While dabbing
        the stray spot of marmalade from the corners of their lips, shareholders
        could look up the values of their mutual funds and sigh in sweet
        contentment.

        What Americans did not read was that price-to-earnings ratios of 100 to 1
        for inflated stock meant businesses would have to deliver exponential
        profits for decades if those purchases were ever to deliver a return.
        Further, millions of inexperienced investors did not understand the
        significance of the fact that as much as a third of the firms' profits in
        which they were investing did not result from the sale of the services
        and/or products each produced, but from the firms' speculative profits in
        the Wall Street bubble. And, just as Boris Yeltsin allowed the looting of
        Russia to garner political support and retain power, Bill Clinton stuffed
        the pockets of high-dollar campaign donors, his immediate entourage of shady
        lawyers and the corporate state's most strident advocates, and key
        legislators' family members and associates with public credit.

        Meanwhile, American business hid wage inflation through the use of bonuses
        and stock options, which distort the true worth of corporate shares and
        which themselves became a quasi-currency. Worse, corporate managers
        rewarded themselves by using their firms' cash flows and/or commercial bank
        loans to liquidate managements' share options instead of making further
        capital investments for their firms' future profitability. The wildly
        popular concept of shareholder value forced corporate managements to boost
        profits per share in the shortest possible time, causing management to rely
        upon ill-advised mergers and acquisitions for immediate profits (and for
        which they often went into deeper indebtedness), massive accounting
        write-offs along with dubious accounting gimmicks and questionable business
        practices, such as loaning customers the money to purchase their products.

        All these gambits allowed profits per share to increase and thus gave
        bubblevision "analysts" a cause to tout, but did nothing to advance capital
        investment, which is what develops long-lived profitable businesses for
        shareholders and workers alike. The only significant investment business
        pursued was in information technology, but so much was spent on computers,
        the Internet, and telecommunications that the result is an overcapacity that
        will take years to work off.

        The mutual fund industry kept profits and share prices up through a process
        of share rotation, meaning Mutual Fund A buys stock from Mutual Fund B,
        which waits until Mutual Fund C purchases the same stock at a higher price
        and so on and so forth. Thus did share prices rocket upwards. Since mutual
        funds value their individual investors' accounts on a "market-to-market"
        basis to determine their Net Asset Value (NAV) at the close of the New York
        markets each day, investors were able to use the paper value of their shares
        as collateral for bank loans. Yet those shares' real value would require
        liquidation to be certain. Since the shares were not liquidated, and most
        have subsequently fallen in value, the naïve investor is left with an
        unaffordable loan, which threatens to become non-performing. (This
        expansion of consumer credit based on unrealized stock market gains compares
        to the excessive employment of margin accounts in the late 1920s.)

        Banks, which once lent money based on their deposits while reserve
        requirements worked somewhat effectively to check excessive lending, today
        "securitize" those loans, meaning they bundle them into a bond and sell that
        bond to investors, leaving them free to lend again based on the same
        deposits and reserves. This leaves the original lender with the riskiest
        part of the loan, but still free to loan far more money than traditional,
        prudent banking would allow. And then there are the $100 trillion in
        derivative contracts that could unwind in the greatest financial contagion
        of all time.

        Government inflation statistics further skewed the economic picture, since
        the Cost of Living index was stripped of the costs of energy and of food.
        Now, if only the population would agree to live au naturel in the wild, the
        U.S. could truly defeat inflation forever and ever! More seriously,
        underestimating inflation allowed the government to reduce its costs by
        cheating pensioners and disabled folk of the Social Security increases to
        which they are entitled by statute. Herein lies the dirty, dark secret of
        the government's "surplus," made worse by the fact that the government
        spends the surplus revenues collected on behalf of future pensioners for
        annual spending - sending a paper I.O.U. to the Social Security "trust
        fund." (These I.O.U.s will have to be made good on the backs of tomorrow's
        workers should baby boomers be so lucky as to escape a quiet,
        Medicare-sponsored program of euthenasia.)

        The government also relied on a statistical innovation known as "hedonic
        measures," which might be thought of as being to statistics what eubonics
        are to linguistics. Hedonic measures are really just "feel-good
        statistics". These largely nonsensical number-crunching capers have
        permitted the government to conclude publicly that productivity has
        increased simply because of advances in computer chips and processing
        speeds. (If I build a car capable of going 500 miles per hour, it is of no
        use to me if I do not have the roads -- a costly infrastructure -- to
        support a vehicle traveling at such speeds. What use is more and more
        information arriving at greater and greater speeds so long as human
        intelligence is limited in what it can absorb and process profitably?)

        Through it all, the Bubblemaniacs (Greenspan, Rubin and Summers) conspired
        with Bill Clinton to unleash the greatest expansion of cash, credit and
        government favor in world history. Through massive reliquifications
        stimulated by the LTCM collapse, the Y2K scare, the excessive ambitions of
        government-sponsored agencies (Fannie Mae and Freddie Mac) and of government
        financing agencies -- many of which were established under FDR's
        Mussolini-inspired government -- credit exploded. Consequently, it rained
        money on their political patrons and supporters through the Export-Import
        Bank of the United States, the Overseas Private Investment Corporation, the
        International Finance Corporation, the World Bank, the International
        Monetary Fund, the U.S. Aid to International Development, the Trade
        Development Agency and various country enterprise funds, all of which
        deliver plum assignments to the "expert" crowd.

        The ensuing economic distortions and imbalances have grown so significant
        that, while in the 1920s two dollars of credit produced a single dollar of
        GNP growth, today a dollar's GNP growth requires four dollars in credit.
        Since 1998, credit has expanded three times faster than GNP. Yet the result
        was a Time magazine cover for the Bubblemaniacs, touting them as "The
        Committee to Save the World," and Clinton's retention of the presidency in
        the wake of his impeachment by the House.

        But for the citizenry, there is nothing but the imminent threat of a
        collapsing mountain of debt beneath which almost all Americans are living.
        Yet, having built an economy that is dependent upon whether or not grandma
        wants to break out her MasterCard and charge yet another imported electric
        hair curler set at Wal-Mart, if consumers were suddenly to begin behaving
        wisely by paying off their debts and re-filling the family cookie jar, the
        economy would collapse. Since America has continued to fuel the world by
        running up an annual trade deficit of $3.7 billion, the likelihood that
        every single person on the planet will now pay the price of Bill Clinton's
        second term is great indeed.

        In the autumn of 1998, the American savings rate turned negative. Though the
        savings rate did recover slightly, it was never really a significant number
        and by the fourth quarter of 2000, Americans spent many tens of billions of
        dollars more than they earned. Since 1972, there have been few if no true
        wage gains for American workers and the biggest bite out of their salaries
        today goes to government, more than what they pay for food, education,
        insurance, clothing and shelter combined. Most citizens today are managing
        only by taking out more high-priced consumer loans and by re-mortgaging
        their homes, driving down their equity. And while Washington sounds a
        golden horn trumpeting the budget surplus (attained in part by the many
        taxable events the populations' frenetic share trading triggered), consumers
        should understand that what is really an accounting fiction was possible
        only by their willingness to go into debt themselves while blithely
        suffering over-taxation in silence.

        Let us recall that the only investment of which any nation can be certain is
        the population's savings. But the American people actually spend more than
        they earn -- there are no savings. Instead, there is only debt. And thanks
        to the deceit of central banking, the population has no awareness that
        without actual savings there can be no capital investment. The most basic
        rule of sound banking and finance has been violated on a scale heretofore
        unseen. No one forsook anything and instead the American people have
        cannibalized their own future. And that means there is yet one more
        economic lesson Americans are doomed to learn.

        The emperor's clothes

        Though the U.S. dollar is an instrument of debt, it is backed by the "full
        faith and credit of the U.S. government," a phrase which translates in
        pragmatic terms into the "labor and assets of the American people." As
        corporate profits fall along with their share values and Greenspan lowers
        rates in hopes of goosing the economy, there will be literally no foreign
        volunteers to eat U.S. inflation and fewer and fewer foreigners will
        countenance the currency risk that will suddenly be inherent in the U.S.
        bond market to holders of euros and yen. Foreigners will flee U.S. markets,
        leaving much of the U.S. debt they now hold for Americans to shoulder
        without their assistance.

        The dollar's value will plunge and consequently the imports the U.S. economy
        has come to rely upon will skyrocket in cost for both business and
        consumers, while their own goods and services will become quite cheap.
        Profits will fall. Unemployment will rise. More and more factories and
        enterprises will be shuttered or, in order to survive, chose to move abroad
        to those venues offering cheaper labor costs, causing yet more unemployment.
        Tax receipts will dwindle and rates will rise. After an initial surge in
        the price level, the worst post-war deflation yet will take hold. But one
        item alone will stand
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