Header
                        
 
 

Modern Alchemy:

The Money Illusion

Part 2

By Dene McGriff

Introduction

The last article titled “Lies, Damned Lies and Statistics – U.S. Government Economic Reporting”, we looked at the whole issue of the twisted nature of government reporting and the origin of the Federal Reserve, which is neither “federal” nor does it have any “reserves.”  It just prints money out of whole cloth, literally.  How does it do it?  How is money created?  What really stands behind it?  What are bonds?  What does this all mean to me?  How is our money supply controlled?  What about interest rates?  How did the dollar become the standard currency for the whole world?

Who are we to believe?  Is the economy as rosy as the government reports and media pundits report?  Is housing going up forever?  Will our spending binge go on forever?  Do we have to produce anything or is it just okay to consume (70 percent of our economy)?  Why shouldn’t the world take care of us? 

I know this may be boring to some, but you should understand how the system works because it affects you every day of your life.  Alan Greenspan, the Chairman of the Federal Reserve, pretends to be a befuddled old man trying to figure out what is happening and talks in “Greenspan-speak”, a language that few can truly decipher.  In the next two parts, I am going to prove to you that the government, the Federal Reserve, and Greenspan know exactly what they are doing.   How does this work?  What does it all mean in practical terms?  In this section we are going to look at how money works.  In the next part, we will look at what is happening right now, how the economy is being manipulated and how it is likely to affect us.  The final part will conclude with a look at the mystery commercial empire spoken of in Revelation 18 and how this all fits together.

Once you understand how the system works and how it has been managed over the years, you will be amazed that you never saw it before.  I am going to try and explain the workings of the economy in simple readable terms that anyone can understand.  You recall the story of the king who asked his scholars to boil down economics to the essence.  They pour through all the great texts and come back with a single volume that explains it all – “Too complicated,” says the king.  “Make it easier or off with your heads.  Economics is too complicated.”  The scholars go back and come back with a chapter and then a single page.  “I still don’t get it,” says the king!  “Off with your heads.”  At that moment, a young understudy passes him a note that says, “There is no free lunch!”  “Ahh,” says the king, “Now I understand” and he rewards the young man with riches beyond measure.

It may sound trite, but it is true – “There is no free lunch”!  The debt eventually has to be paid.  The books have to balance!  You can’t keep running up massive government debt, trade deficits and personal and business debt without eventually having to pay the piper.

The economists of our day are like the theologians and doctors who speak in Greek or Latin so you won’t understand.  It almost seems that economists strive to keep it from the average person to grasp so they couch their explanations in impossible to understand terminology.  The modern day priests of the dollar temples called banks would have you believe they have it under control.  Just trust them.  You do so at your own risk. 

I am not into conspiracy theories per se but if any man came to realize that if it were possible to create money and control its supply, what do you think he would do?  So who controls the money supply of the world?  How does the system work?  What is the money based on?  Who makes decisions about the amount, its worth, etc?  There is a legal cabal, a banking cartel, of three piece suited men who are pulling the strings behind the scenes manipulating the world monetary system.  I am not the first to have seen this, but I do hope to explain it in plain English so you can understand.

There is some special corrupting quality about money which the Bible calls “the root of all evil.”  (I Timothy 6:10)  In his book “Secrets of the Temple: How the Federal Reserve Runs the Country,” William Greider observes:

“Money confers social and political power, naturally.   Those who have more of it than others use their wealth to dominate or control other human beings who have little or none.  But money also gives power to a secret self, enabling it to pursue its own self-gratification in a singular fashion…

“Money, therefore, contains a continuous illusion of immortal power – the psychic vehicle for defeating time itself by controlling the future.  It is only an illusion; no mortal ever conquers time…

“Thus, on a psychic plane, the Wall Street investor accomplishes what the alchemist could not – creating gold from dross, real wealth from mere paper, a living organism from raw numbers…

To demystify the Federal Reserve, one first had to understand that money did not require religious faith or buried fantasies or impenetrable technicalities.  Money was, above all, a political question – a matter of deliberate choices made by the state.”  (William Greider, Secrets of the Temple, pp. 235, 236, 238, 242)

The Federal Reserve

Let’s go back to the Federal Reserve, which is one of the keys to understanding what is really happening today.  I would highly recommend two books that go into the subject in more depth than you probably care about: 1)  “Secrets of the Temple: How the Federal Reserve Runs the Country” by William Greider and 2)  “The Creature from Jekyll Island: A Second Look at the Federal Reserve” by G. Edward Griffen.  There is much more written on the subject but these two cover it pretty well.

The Federal Reserve is a Central Bank.  They never wanted to call it one because even by the turn of the twentieth century, they had a reputation for meddling in the economy and messing things up.  European banks experimented with paper money called “fiat money” going back several hundred years.  It always ended badly because governments and banks just couldn’t control their printing presses and even when the currency was based on gold or silver, they couldn’t resist devaluing it until it was worthless.

Americans argued about the merits of fiat money and central banking from the beginning.  Alexander Hamilton was a champion of paper money but James Madison and Thomas Jefferson looked on it as the worst curse the country could ever have.

Below are some famous quotes regarding money and central banking:

Banking establishments are more dangerous than standing armies.” Thomas Jefferson

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."
James Madison

"The modern banking system manufactures money out of nothing. The process is, perhaps, the most, astounding piece of sleight of hand that was ever invented. Banks can in fact inflate, mint, and un-mint the modern ledger-entry currency."
Major L.L.B. Angus

"Banking was conceived in iniquity, and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen, they will create enough deposits, to buy it back again. However, take it away from them, and the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But if you wish to remain slaves of Bankers, and pay the cost of your own slavery, let them continue to create deposits."
Sir Josiah Stamp, (President of the Bank of England in the 1920's, the second richest man in Britain)

"While boasting of our noble deeds, we are careful to control the ugly fact that by an iniquitous money system, we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery."
Horace Greeley

"Whoever controls the volume of money in any country is absolute master of all industry and commerce."
President James A. Garfield

"Those who create and issue money and credit direct the policies of government and hold in the hollow of their hands the destiny of the people."
Sir. Reginald McKenna, former President of the Midland Bank of England

"Paper money eventually returns to its intrinsic value--- zero."
Voltair (1694 - 1778)

"Give me the power to issue a nation's money, then I do not care who makes the law."    Anselm Rothschild


As we said in the last article, and as chronicled so well in “The Creature from Jekyll Island,” the plan for a U.S. Central Bank, was hatched by seven bankers in a clandestine meeting held on Jekyll Island in November, 1910.  The bankers represented the major American and European banks (Morgan, Rothschild, Rockfeller, Warburg and Kuhn-Loeb).  The plan was hatched and over the next two years, it was packaged and repackaged so that Congress and the public would buy it.

The Federal Reserve is a private corporation, owned by member banks.  This is the classic cartel that seeks to maximize profits by minimizing competition and use the police power of the government to enforce the cartel agreement.  This forces the public to pay higher prices and protects the members from the banking failures that had plagued the industry in the past. 

The cartel that formed the Fed could not use the term “central bank” because it had a bad image in the mind of the public and legislators at the time.  They got around this by having seven regional banks instead of one “central” bank and by calling it the “Federal Reserve”, implying that it was a governmental entity with reserves.  Of course it was and still is a private cartel dominated by the New York bankers.  As a UCLA professor and Hoover Institute Fellow, Antony Sutton, said, “The Federal Reserve System is a legal private monopoly of the money supply operated for the benefit of the few under the guise of protecting and promoting the public interest.”  (Ibid, Griffin, p.23)

The Money is an Illusion

Over the centuries man has used many things for money – cattle, seashells, camels, coffee, jewels and precious metals.  Before money, there was Barter – two people trading something the other wanted.  Commodities and finally metals in the form of coins were introduced.  Paper money originated with the goldsmith who gave receipts to wealthy citizens for storage and safekeeping.  The goldsmiths realized that the receipt could be used in commerce since it could be redeemed in gold from the goldsmith.  Thus, modern banking was born.  Then they realized that the demands for redemption were relatively small so long as they kept a minimum in reserve.  Thus fractional-reserve banking was born.  If they kept ten or fifteen percent on hand, they would have enough to redeem any demands on the bank.  For centuries, European privately owned banks would issue paper bank notes backed by gold reserves.  The system was transferred to America.  Gradually, the value was transferred to the demand deposits which were redeemable by personal drafts or checks and gold was all but forgotten.

During the 18th, 19th and early 20th Centuries, periodic failures plagued the banking industry.  Experiments with fiat (paper) money always ended in inflation and devaluation of the currency.   After the Civil War, the National Bank Act tried to regulate bank notes issued by state banks but the public at large had little confidence in this chaotic banking system.  Then along comes the Federal Reserve Act in 1912 to restore order and public confidence in the monetary system. 

Now when the Federal Reserve began, the paper money was backed by gold or silver up to a small portion of the face amount.  The problem is that the fractional reserve tends to become smaller and smaller until it is reduced to nothing.  And even to this day, fiat money is the way governments create money without taxation.  It has nothing of tangible value to offset it so let the printing presses roll

The Alchemy of the Federal Reserve

Money is created out of absolutely nothing.   Most texts teach that money is created first by someone making a deposit and then the bank waits for someone to come along and borrow it.  That is not true.  Money is created the instant it is borrowed.  In other words, debt creates money.  The government creates bonds (debt), gives them to the Fed which uses that debt to create money.  There is no other value attached to it.  It is the act of borrowing which causes it to spring into existence.  “Banks are creating money based on a borrower’s promise to pay (the IOU)….Banks create money by ‘monetizing’ the private debts of businesses and individuals.” (I Bet You Thought, Federal Reserve Bank of New York, p. 19).  Now I am going to quote from Griffin’s book to explain how the process works.  Money creation is a circular concept and hard to grasp so please stay with me.  Once you get it, it is absolutely shocking!

“The entire function of this machine is to convert debt into money.  It’s just that simple.  First, the Fed takes all the government bonds which the public does not buy and writes a check to Congress in exchange for them.  (It acquires other debt obligations as well, but government bonds comprise most of its inventory.)  There is no money to back up this check.  These fiat dollars are created on the spot for that purpose.  By calling those bonds “reserves,” the Fed then uses them as the base for creating 9 additional dollars for every dollar created for the bonds themselves.  The money created for the bonds is spent by the government, whereas the money created on top of those bonds is the source of all the bank loans made to the nation’s businesses and individuals.  The result of this process is the same as creating money on a printing press, but the illusion is based on an accounting trick rather than a printing trick.  The bottom line is that Congress and the banking cartel have entered into a partnership in which the cartel has the privilege of collecting interest on money which it creates out of nothing, a perpetual override on money which it creates out of nothing, a perpetual override on every American dollar that exists in the world.  Congress, on the other hand, has access to unlimited funding without having to tell the voters their taxes are being raised through the process of inflation.  If you understand this paragraph, you understand the Federal Reserve System.  (Griffin, The Creature from Jekyll Island, p. 193)

 “The federal government adds ink to a piece of paper, creates impressive designs around the edges, and calls it a bond or Treasury note.  It is merely a promise to pay a specified sum at a specified interest on a specific date…this debt eventually becomes the foundation for almost the entire nation’s money supply.  In reality, the government has created cash, but it doesn’t yet look like cash.  To convert these IOUs into paper bills and checkbook money is the function of the Federal Reserve System.

An instrument of government debt is considered an asset because it is assumed the government will keep its promise to pay…so the Federal Reserve now has an ‘asset’ which can be used to offset a liability.  It then creates liability by adding ink to yet another piece of paper…the “Federal Reserve Check”…

There is no money in any account to cover this check.  Anyone else doing that would be sent to prison.  It is legal for the Fed, however, because Congress wants the money, and this is the easiest way to get it…The process is mysteriously wrapped up in the banking system…The Federal Reserve check is then deposited in one of the Federal Reserve Banks…

These checks become the means by which the first wave of fiat money floods into the economy.  (For detail, please see Griffin, pp195-197)

These Federal Reserve Checks become commercial bank deposits.  This is where it really gets fun.  Say the bank has a million dollars to loan out.  Ten percent is held in reserve and the $900,000, although loaned, becomes a deposit and thus an excess reserve which is loaned again.  Keep $90,000 out for reserve and they have another $810,000 to loan.  “It takes about twenty-eight times through the revolving door of deposits becoming loans becoming deposits becoming more loans until the process plays itself out”.  (ibid. p.199)  In the end, for every dollar the Federal Reserve creates, it becomes ten dollars in the banking system with a 10 percent reserve ratio.  This ratio can be decreased to 20-to-1 or even 50-to-1.

It is the huge expansion of money supply that causes inflation so the value of the dollar today compared to 1913 is about four cents.  The sale of government bonds to the banking system is inflationary and the huge expansion of money supply led to the stock market crash of 1929.  As we will see later, it also led to the 14 years of recession/deflation in surplus trading partners such as Japan where real estate and the stock market declined by 75 percent.  It also led to the stock and housing bubbles here in the states, which was primarily caused by foreign governments and private entities by U.S. equities, bonds – which came back into the economy and got multiplied and multiplied some more, forcing long term interest rates down even as the Fed was raising the short term rates.  The growing American trade deficit has caused devastation in the surplus countries and will eventually bring down the all mighty dollar.  Debt fuels the system – our debt, other’s debt, everyone’s debt!  But the end is creation of more and more currency that is worth less and less (thus many houses in California are now “worth” more than 100 times their original value).

Later we will see why excess money creation results in asset bubbles.  With a trade deficit of $2 billion a day or over half a trillion dollars a year, you have foreign governments printing money to buy US Treasury bonds which are multiplied by 10 or 20 times.  The first quarter of 2005, the nations GDP grew by $500 billion but the credit/debt by $2.9 trillion – nearly six times the GDP.  Money is coming into the U.S. economy like never before as other countries buy our debt and it has to go somewhere so it goes into assets (the stock market, real estate, etc.) and results in bubbles.

Back in the roaring twenties the U.S. economy was expanding like crazy as the U.S. exported more and more goods to war torn Europe.  In 1928, the Federal Reserve began to raise interest rates as a result of concern over speculation in the stock market and expansion of credit.  In the spring of 1929, John Maynard Keynes touted the management of the dollar and the Fed Chairman, Benjamin Strong boasted that the Federal Reserve System was a safeguard against the calamities of the past.  The public was comforted and the balloon expanded.  In August the Fed raised the discount rate to 6%, followed a few days later by the Bank of England.  Money supply began to contract.  Insiders were warned of the coming crash which dragged on until the 1940’s and World War II.

Why did the Federal Reserve act so dramatically following the 2001 market crash eventually lowering interest rates to 60 year lows of only one percent?  They are so afraid of the “D” words – Depression and Deflation, which are in a sense synonymous, the Fed will do anything to prevent it.  So they turn up the gas by lowering short term interest rates and increasing the money supply.  As money supply expands, the economy responds with investment whether in stocks, factories, housing until there is oversupply and over capacity in terms of production.  Rather than a precipitous drop, the Fed tried to stimulate the economy with tax cuts, free money and plenty of it – a cure that may prove to be worse than the disease in the long run.

Next we will look at the new tools and strategies available to the Federal Reserve.  Greenspan, Bush, Snow and their cronies may appear to be either clueless or confident but they have set the dollar and the nation on the road to ruin.  They know exactly what they are doing.  Greenspan, an ex-“gold bug,” is as dumb as a fox.  He understands the consequences, the bubbles, the deflation and inflation – all of which are caused by him on the monetary side and by the globalists and free traders on the other side and we can prove it!  The statistics are there – kept by the Fed itself and our government as well. 

There has never been a fiat currency in the history of mankind that has succeeded.  They have all been reduced to their true value, which Voltaire said, is “zero”.  The almighty dollar has had a great run as the reserve currency of the entire world since 1972 –  not to say that the world and the average American hasn’t benefited, but it is a system out of control, out of balance, and if as economists and statisticians say, “trends always regress to the mean,” we had better watch out.  That would mean a Dow of 2000, Nasdaq of 800, and an average house price of $110,000.  Stay tuned for part 3!

Home Page

Back to the Table of Contents

Go back to chapter 15

Go to chapter 17

 
Download PDF Footer Artwork