-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- Different Kinds of Banks Banks ordinarily represent depositories for the savings of the people. This accumulated capital then becomes available for loans to buy farms, build homes, construct factories and do a multitude of other things which are indispensable to a prosperous industrial society. Banks, therefore, are extremely important and represent the major source of investment capital needed to promote the growth of a nation and provide millions of new jobs for our ever-increasing population. But then there is a different kind of bank, a sort of super-bank, which represents far larger deposits of accumulated wealth. This type of bank is often referred to as the "central" bank of a particular country. Even though each bank of this type is privately owned, it often carries the name of the country it serves because the government of that country uses it as the depository for government funds and borrows from it in times of emergency. This privately-owned central bank therefore becomes the manager of money and credit for the entire country. It handles major investments in agriculture, industry, homes, and factories. It also provides the funds in time of war for the armaments of the nation. The money managers of central banks are in a very powerful position to manipulate the affairs of a country for good or for ill. Central Banks Suffer from Two Temptations The record shows that when the managers of a central bank in any particular country are looking around for ways and means to accumulate more wealth, they are often tempted by two things which are inherently evil and totally destructive to the foundation of civilized countries. One is to encourage an involvement in war so the nation will be forced to borrow heavily. Bonds (which are really government IOU's paying substantial interest) are considered to be a most valuable form of collateral assets in a central bank. The other temptation is to promote a cycle of "boom and bust" economics. This simply consists of starting a boom with generous loans at low interest and after a few years suddenly raising the interest rates, calling in loans, and bankrupting home-owners, industries, farmers and millions of people who had trusted the bank to continue its policies. Some economists, including Karl Marx, have tried to maintain that these boom and bust cycles are an inescapable characteristic of a free-market economy. The truth of the matter is that these so-called boom and bust cycles are primarily a phenomenon of manipulated economics, engineered by men who find themselves in an extremely powerful position to control money and credit but seem to lack the moral integrity to resist the opportunity to fleece the common people who have genuinely trusted them. We mention these problems right here at the beginning of our discussion because any study of central banking will disclose the highly visible profile of these two pernicious problems with which central banking has been continually involved. Wealthy money managers seem to have a strong proclivity toward both war-mongering and the manipulating of the economy in cycles of boom and bust. Having personally passed through several of these wars and cycles of boom and bust, this writer has been constantly on the lookout for any trends which might signify a repeat performance of this abusive use of power. The Latest Banking Invention-Making Money Out of Nothing In addition to the above, we have to mention one other problem which the central banks have invented to plague mankind. This consists of "making money out of nothing." This incredible device was invented almost by accident. Here is the story. Several hundred years ago the goldsmiths of Europe were under the necessity of building substantial vaults for their precious metals. As one might have expected, it wasn't long before many others asked to leave their gold in these vaults for safekeeping. The goldsmiths consented and gave each depositor a certificate which could be used to reclaim their precious metal at any time. These certificates were therefore considered "as good as gold" and soon circulated in business channels as though they were gold. . In fact, they were so much more convenient to handle than gold that very few depositors ever went back to the goldsmiths' except to make more deposits. In very short order it became entirely apparent to the goldsmiths that since only a small percentage of the depositors came back for their gold, the goldsmiths only had to keep enough on hand as a "reserve" to satisfy those who did come back. Realizing this, the goldsmiths decided they could safely issue considerably more gold certificates than the amount of gold "on deposit." By this set of fortuitous circumstances they had discovered how a shrewd goldsmith could issue certificates on gold he didn't have and thus become super-rich by "making money out of nothing." Furthermore , these spurious certificates could be used to buy up all kinds of tangible property or they could be loaned out on interest. Here indeed was the royal road to wealth. The Problem of a "Run on the Bank" Of course, it was important to keep a good "reserve" for those who did want to cash in their certificates, but this ordinarily involved only a fraction of the certificates in circulation. Thus "fractional banking" was born. It turned out, however, that once in awhile people would become suspicious that perhaps the goldsmith-banker didn't really have as much gold as he claimed. Then there would be a rush to cash in the certificates and get the available gold before it ran out. This is called a "run on the bank. " On such occasions the goldsmith-bankers usually tried to allay the fears of those who first demanded their gold by promptly hauling out the precious metal and redeeming the certificates. However, if the "run" continued they would not be able to keep up the pretense for long since the bank would run out of gold. When this happened the only alternative was to "close their doors" in disgrace and go out of business. Can You Sell a Horse Four Times in a Row? What the goldsmith-bankers were doing might be compared to a farmer who had a fine saddle horse in his corral. Along came a city dude who asked to buy the horse but wanted to have the farmer take care of him. The farme r agreed. Later the farmer noticed that the new owner never rode the horse except in the early morning. Another city dude came along and asked to buy the horse, saying that he only rode during lunchtime. Therefore the farmer felt fairly safe in selling the horse a second time. Later he sold the horse a third time to a fellow who claimed he only rode in the afternoon, and eventually, the horse was sold a fourth time to another city dude who claimed he only rode in the evening. This story would have had a wonderfully happy ending for the newly enriched farmer if it had not been for the fact that these four horse-lovers belonged to the same country club. All four of them got to bragging about their horses and finally decided they would get their horses and race them to see which one was best. Each of the dudes immediately went to the farmer to get his horse. This is called a "run" on the bank! How the Central Banks of Europe Learned to Avoid "Runs" on Their Banks As "fractional banking" became an established practice, it did not take long for the wealthy bankers of Europe to realize that if they were to prevent occasional runs on their banks by suspicious depositors who wanted their gold, they would have to work out a cooperative agreement with other banking families. It was agreed that if a bank had a "run," the other banks would quickly pool their gold and send it to the trouble spot until things cooled down. They learned from experience that if a bank could demonstrate that it did have plenty of gold to redeem its certificates, the people would regain confidence in the bank and re-deposit their gold. The yellow metal could then be returned to the various central banks from which it had been hastily gathered. Fractional Bankers Do Something Ordinary People Cannot Do It will be immediately realized that "making money out of nothing" is selling something the money-managers don't really have. We know it is considered a criminal fraud if a person sells a house he doesn't own. The same thing is true if he sells something which doesn't exist and never will exist. Then how do the bankers get away with it? The answer is rather amazing. Apparently the bankers saw the danger of their position and decided to protect themselves by getting the government in on the deal. They reasoned that the government certainly wouldn't prosecute the bankers if the government itself was getting a significant benefit from the operation. So this is what the bankers set out to achieve, first in Europe and then, more recently, in the United States. How this tricky game is played may be illustrated by the origin of the privately-owned Bank of England. The Story of the Bank of England In 1694 William III was involved in a war with France. He needed money a nd he needed it in large quantities. The British coffers were empty so he asked for vast loans of money from a super-rich Englishman named William Paterson and some of his wealthy friends. Paterson and his friends were perfectly agreeable to the loan providing they were allowed to do two things: 1. Set up a privately-owned bank to be called the Bank of England. 2. Receive authority from the king to issue their own bank notes or certificates as the official legal tender of England. Since the Paterson bank notes were what the king would be loaned to build and equip his armies, he readily agreed. This gave legal sanction to a private bank being authorized to print bank notes as the legal tender for the whole nation. Each bill promised to pay in gold "on demand," but the bankers actually had only a small fraction of the gold needed to cover the vast quantity of bank notes being printed. By this means the bankers brought the king in as a patron and beneficiary of a system of "fractionalized banking" or making money out of nothing. Nevertheless, it gave the king what he needed, and it gave the bankers what they wanted. What did it matter if the bankers were making money out of nothing? At least William would have the needed bank notes which merchants accepted as "money" and so he could buy the mercenaries and needed a rmaments to carry on his war with France! Governments take precisely the same attitude today. The king even went so far as to eliminate any possible competition for the so-called "Bank of England" by giving Paterson and his friends an official charter from the Crown and commanding the goldsmiths of London to immediately discontinue issuing receipts as depositories for precious metals. This drove most of the merchants to store their gold with the Bank of England. So this was the means by which a privately-owned bank became the official depository of the Crown, printed its own bank notes as the king's legal tender, and "legalized" its magic formula for "making money out of nothing." By any standard, William Paterson considered this fantastic achievement pure genius. It is interesting that right at the time William III was setting up his privately-owned Bank of England based on "fractional banking" the American colonists were moving in the opposite direction. How the American Colonists Developed A System of "Sound" Money Between 1690 and 1700 Massachusetts decided that money should be issued exclusively by the central authority of the government to represent the interests of the whole people. At the same time they set out to discover a "natural law" by which they could issue sound or stable money. When money is stable people are encouraged to invest because they know their money will have the same value when they get it back as it did when they loaned it. Furthermore, stable money encourages people to save because they know it will have the same value when they are old as it had when they put it in savings. Meanwhile, it will have earned a great deal of interest. Sound money is the only way to structure a sound economy. Historically, there are only two ways to make money stable. One way is to relate all currency to precious metals which maintain a reliable degree of stability in their value or buying power. The other is to maintain the same relative amount of money and credit in operation and only add to the money supply as fast as the growth of the productivity of the people will justify it. Massachusetts issued its own paper money and made it full legal tender July 2, 1692. This money could be used to pay all debts, public and private. It was used to cover public expenses, finance public works, and to lend to private citizens for long periods of time at a low rate of interest. Notice that these bills of currency were physically loaned out as though they were gold or silver. Furthermore, the treasurer of the colony loaned out currency at a modest interest rate and the proceeds from this inter est were paid into the treasury of the colony. This provided public revenue to the colony and greatly reduced taxes! Meanwhile, the colony paid no interest to anyone. Other colonies began following this same sound procedure and it soon resulted in a period of unrivaled prosperity for Colonial America. The Bank of England Invades America Then everything changed. The privately-owned Bank of England wanted to force the colonies to borrow "bank notes" from them. Beginning around 1720, the Parliament was induced by the Bank of England to suppress all colonial money. Many years of defiance on the part of the colonies finally terminated in 1749 when Parliament passed the Resumption Act requiring that taxes and contracts all had to be paid in gold or silver. Gold and silver were so scarce in the colonies that the results were disastrous. A deep depression ensued. Prices fell. Trade stagnated. This was one of the major causes of the Revolutionary War. Early Americans Learn a Bitter Lesson in How Not to Issue Money Following the Declaration of Independence, the American Congress began issuing their own paper money again but without any particular limitation. The States did the same. None of this money was tied to precious metal nor was it limited in quantity. Naturally, these "continental" dollars soo n inflated out of sight, eventually becoming worthless --worth less than a penny. Even after winning the Revolutionary War, this fatal monetary system almost resulted in the destruction of the United States as a nation. There was not only skyrocketing inflation but a deep depression and rioting. The New England States became so antagonistic toward developments that at one point they threatened to secede. This was the critical situation when the Constitution was finally put into operation to save the country. With the adoption of the Constitution, Jefferson hoped the nation would go back to the earlier procedure with government issuing its money based on a precious metal standard. The treasury could then set up branches for loaning money as was done prior to 1720. And as before, all payments of interest would go to the general funds of the nation, thereby greatly reducing the required taxes. The first of Jefferson's hopes were realized when the gold and silver standard was explicitly written into the Constitution (Article I, Section 1 0). However, his second hope was shattered when Alexander Hamilton was appointed Secretary of the Treasury and pushed through a private central bank similar to those in Europe. The First Bank of the United States Even though most of the stock in Hamilton's bank was privately owned by some of his associates in New York, it was called the Bank of the United States. This led people to assume it was a government bank. This same trick was used in 1913 when a group of bankers called their consortium of financial power the Federal Reserve System. But that story comes later. The advantages of the new bank was that it provided immediate credit resources for the nation which was otherwise bankrupt. This practical reality is what appealed to Washington first and foremost. He also recognized the dangers involved but felt these could be circumvented by the fact that the charter for the bank would end in 20 years. The disadvantages of the bank were vigorously protested by Jefferson and dispute with Hamilton became so heated that it finally led to Jefferson's resignation as Secretary of State. Critics of the new bank points out that: 1. The issuing of the charter for the bank was without any Constitutional authority. In other words, the bank was unconstitutional. 2. It was authorized to issue bank notes or paper money which was also without Constitutional authority. 3. It allowed this private central bank to loan out its bank notes for interest. 4. This private central bank was made exempt from paying any taxes. 5. It was unconstitutionally designed to collect taxes and serve as the depository of government funds instead of the U.S. Treasury. 6. The banking act also held the U.S. Government responsible or liable for the fiscal transactions of the bank. 7. Only one-fifth of the stock was owned by the government so policies and decision-making would always be in the hands of the private banks. Jefferson considered the whole scheme an unconstitutional threat to the basic fabric of the American civilization. He prophesied: "If the American people allow the banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and corporations that will grow up around them will deprive people of all property until their children will wake up homeless on the continent their father s occupied. The issuing power of money should be taken from the banks and restored to Congress and the people to whom it belongs." (Oliver Cusing Swinelll, The Story of Our Money, Forham Publishing Co., Hawthorne, California, 1964, p. 84) The Second Bank of the United States Dissatisfaction with the First Bank of the United States resulted in its charter expiring in 1811. However, the financial pressures of the War of 1812 resulted in demands for another entral bank. The Second Bank of the United States went into operation in 1816 with the U.S. government owning only 5% of the stock. The bank fulfilled its basic function during a period of relative prosperity and was popular with many people. However, President Jackson saw this small body of powerful bankers gradually building a financial kingdom at the expense of the American people and so he vetoed the act which would have extended the life of the bank with a new charter. Stockholders of the bank never forgave him for that. Nevertheless, the fiscal policies of Andrew Jackson resulted in the Government getting completely out of debt. He even ended up with a surplus of $35,000,000! Jackson made $28,000,000 available to the various States as "loans." There had never been anything like it before and certainly nothing like it since. The Bankers' Feud with Abraham Lincoln When the Civil War broke out the new President found the treasury empty and payments in gold had been necessarily suspended. Since supplies were desperately needed to mobilize and equip the Union Army, he appealed to the banks for loans. At that time there were 1600 banks chartered by 29 different States and altogether they were issuing 7,000 different bank notes. To the shocked amazement of President Lincoln, these banks demanded 28% yearly interest for any loans granted to the Federal Government in this hour of crisis. Lincoln immediately induced the Congress to let him borrow from the American tax payers without interest. This was done by having Congress authorize the issuing of Government notes (called Greenbacks) promising to pay "on demand" the amount shown on the face of the note. These notes were not issued as "dollars" but as promissory notes authorized under the borrow ing power of the Constitution. As the notes were gradually turned in for payment of taxes it allowed the government to pay off these notes in an orderly way without interest. Undoubtedly these notes helped Lincoln save the Union. Lincoln wrote: "...we finally accomplished it and gave to the people of this Republic the greatest blessing they ever had --their own paper to pay their own debts." (DwinelI, The Story of Our Money, p. 115) But the banks retaliated and open hostilities were launched against Lincoln's Greenbacks. By a variety of devious techniques, the Congress was in duced to pass several bills which seriously distorted everything the President was trying to accomplish. Circumstances finally forced him to issue bonds which the banks could buy with depreciated Greenbacks and then charge the Government substantial interest rates on the bonds. Even Chase, the Secretary of the Treasury joined the Bankers in their demand that the power to issue the nation's money be returned to them. In 1863, the Congress capitulated under the pressure of Wall Street and authorized the setting up of a privately-owned system of National Banks. Each bank was given virtually tax-free status and was allowed to print money. By 1939 there were 14,348 National Banks. After the end of the Civil War and Lincoln's death, the major banking in terests jockeyed the economy back and forth in a series of boom and bust disasters that finally set the stage for the biggest coup of all, the creation of the Federal Reserve System. The circumstances which created the climate for the U.S. adoption of a European-type central bank in the guise of the Federal Reserve System, evolved in an atmosphere of intrigue, political manipulation and a deliberately fabricated economic crisis. It would be virtually impossible to believe the unfolding of events unless the size of the prize and the desperation of the major money-managers to capture it, are allowed to account for the totally ruthless tactics employed. The record shows that in this instance there was certainly no honor among thieves. Probably one of the most shocking aspects of the nation's financial history during this period was the savage and unrelenting malevolence with which the top money-managers treated each other. In Western vernacular, it was the jungle law of "dog-eat-dog"." Furthermore, the record shows that when it came to abusing, deceiving and exploiting the small fry --the common people-- the same jungle code applied except that the common people were far more helpless because they didn't really understand what was happening to them. But in the circles of high finance all of the contestants vying for power knew exactly what was going on. Carefully and stealthily they maneuvered their way through the maze of the money markets seeking to squirm into some surprise position of superior legal advantage where they could annihilate one or more opponents. This was the game the money managers were playing when they triggered the crash of 1907. <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are not allowed. Substance—not soap-boxing! These are sordid matters and 'conspiracy theory'—with its many half-truths, misdirections and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. 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