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MONEY MAKES THE WORLD GO ROUND
BY
JacK Benz and David Schudel

The following articles were recently published by the Cayman Island news paper. I had emailed Jack Benz regarding the recent polls of Barack Obama. Jack responded with the following articles.

    Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
Part 7
Part 8
Part 9
Part 10  
 

News from the Cayman Islands
As We See It: Money makes the world go round (Part 1)

 
 

Published on Tuesday, December 16, 2008

Everyone senses with unease the obvious fact that there are serious problems with the international economic system. No one seems to understand what are its root causes, and what, if anything, they can do to protect themselves.

We all see rampant devaluation and inflation causing the prices of energy, food and practically everything we buy and use continuing to spiral up and out of control. We see the currency in our pockets being devalued by the day, and buying less and less.

We are held captive by this unfathomable force, which every day tightens its grip on our lives and the future of our children and grand children. We tend to despair at the hope of getting our leaders to do something to get economic forces back to some sort of equilibrium leaving the future a bit more predictable.

Towards this end we hope this and the series or articles to follow will answer your questions, in a simple, direct and easy to understand manner and give you a definitive understanding of exactly what is and has been causing the festering situation we call inflation.

What is Money?

First, what exactly is money?

The Oxford dictionary defines money as “Coin and promissory documents representing it”. It is, in essence, anything, which the public accepts as having a fixed value by everyone in that society.

The Yap Islanders used large circular stones with the centers carved out, rural Tibetans used yak dung, Roman soldiers were paid in salt (hence the word salary), and even pins were used until they were mass machine produced, and were naturally referred to as “pin money”.

In 1100AD King Henry I created the tally stick, a polished stick of Hazelwood or poplar. The tally stick was notched down one side with as many notches as was the denomination. The stick was then split down the centre with one side longer than the other.

The longer piece was called the Share, and was retained by the person paying the money. He therefore became the “Shareholder”. The short end of the stick called the “foil” was retained by the person receiving the money’.

In the case of taxes (the tally being the only money accepted by the crown) the king retained one half, and the payer the other half. This form of currency lasted until 1826, and was the basis that created the British Empire. Believe it or not the original shares of the Bank of England were purchased with a tally sticks.

The tally stick, although quite successful as money, was attacked by the moneychangers, the goldsmiths, and by the Bank of England itself. This was because the tally system was outside of their control. They offered the metal coin as an alternative, and both systems coexisted for over seven hundred years. The word tally is still used commonly today when accounts are required to balance.

Most of us think of money in terms of coins and notes. There is, though, a very specific difference between them. Real money is gold or silver coins and is so designated. Notes or currency are paper money substitutes for this real money. Remember this difference, as it is very important when understanding what money is or should be. Paper substitutes are currency or cash not money.

The pound sterling was exactly what the name implied, one pound in weight of sterling (92.5% silver), or 240 silver pennies, or 20 silver shillings. It’s a sad commentary that those 240 silver pennies are now replaced by a quarter ounce brass coin. A classic example of devaluation by a base metal of real money.

Over the centuries, gold and silver have been universally accepted as being real money by every society on the planet. No one thinks twice about the value of a silver dollar, a gold sovereign, a Kruger rand or a $20 gold piece. More importantly, they have held their value with very little change in actual buying power since the time of Pharaoh.

If this is true, why do we not use gold or silver as money today?

Why do we use paper currency instead?

Well originally, the goldsmiths who were the early bankers, would warehouse people’s gold or silver for them, and issue paper receipts for the metal on deposit.

These receipts were redeemable into gold at the goldsmith’s shop, when the holder presented it. Obviously, gold was hard to carry, store, and maintain security over. A paper receipt was much easier to use when paying for purchases just as paper money is today.

After a while, the goldsmith noticed that only a small percentage of the gold that they held in their vaults was ever actually redeemed. The certificates continued to circulate through the economy, as does currency today.

They became de facto banks although they were not aware of this until their hoard of gold grew over time. They suddenly realized that they could issue additional certificates on the gold that they had on deposit, charging interest on the paper currency they issued, although no real money existed or was actually on deposit. So was born the world’s least known confidence game, “fractional reserve banking and lending”.

In other words, creating currency out of thin air, and lending it out at interest with nothing to back the loan except the hope that the goldsmith had sufficient gold in his vaults to cover any calls for redemption. We now call this “a run on the bank”. This system continues to be used by the world’s banks right up to the present day.

The goldsmiths and present day bankers loaned out as much as 40 times the value of the actual gold they held as real money in their vault. You can readily see that they did not just collect, say 6%, on the actual gold reserve, but forty times 6% or 240% in actual return on the original gold being held. One can therefore understand why banking is such a profitable business.

Next week we will delve into money going back to ancient Rome, and why Jesus threw the moneychangers from the temple. We will delve into the story of how money is what the banks say it is, not what it really is. I welcome our readers to the wonderful world of how money is manipulated, and of avarice and greed on a global scale.

This is going to be a bumpy ride.

News from the Cayman Islands
As We See It: Money makes the world go round (Part 2)
Published on Tuesday, December 23, 2008

 The trouble we are having today with our economic system has its origins in ancient Rome, circa 48 BC. Julius Caesar took from the money changers the power to coin money. He proceeded to coin silver for the benefit of all and then established massive construction projects and public works.

By making money plentiful, he won the love, and support of the common people. But the money changers hated him for usurping their power to control the money supply. For this affront they plotted his assassination.

Upon his murder, the money changers came back into control, and immediately the supply of coin dried up. Taxes increased, as did corruption, and eventually the money supply was reduced by 90 percent. This of course led to the common people losing their land, homes, and businesses while the money changers benefited and their control became absolute.

In 30 AD, Jesus Christ perpetrated the only violence ever attributed to him. He threw the money changers out of the temple in Jerusalem, and effectively signed his own death warrant for this act.

It was necessary for Jews to pay a temple tax, and the only coin that was acceptable for this was the silver half shekel -- a coin that did not bear the image of a Pagan emperor and was therefore acceptable to God. The only problem is that the moneychangers had cornered the market on these coins and were selling them at inflated prices. This infuriated Jesus, so he took the bold action of bodily throwing them from the temple, as their actions violated the sanctity of God’s house.

This obviously did not sit well with the money changers, and they immediately called for his death and within days he was crucified. The rest of the story, of course, is history. The moral of this story is never get on the wrong side of the bankers.

Around 1024, the money changers, who were by then known as goldsmiths, totally controlled the money supply of medieval England. This is when paper money or gold receipts were first used and circulated through the economy as currency representing gold deposited. These were the early bankers.

In 1100 the tally stick arrives on the scene, and Henry1 put the goldsmiths temporarily out business. (See last week’s column)

In 1225, Thomas Aquinas was born, and became the leading theologian of the Catholic Church. He argued that charging interest was immoral as it was double charging (charging for the money and then for the use of the money). Church law in the Middle Ages forbade charging interest, as a crime called usury.

In 1509 Henry VIII ascended the throne of England, and separated England from the Roman Church, therefore breaking any connection with Church law, and usury is once again allowed. Under Henry, the goldsmiths wasted no time in reasserting themselves over the control of England’s money. Henry was the first to debase his money, by making it one-third silver and two-thirds copper. Even then they learned how to cheat the people.

In 1553, Queen Mary, a staunch Catholic, again tightened usury laws The goldsmiths were not at all amused by her actions, and they promptly tightened the money supply and threw the econom into chaos.

In 1558, Queen Elizabeth took the throne and control of coining money through the public treasury, once again putting the goldsmiths out of business.

In 1609, the moneychangers in the Netherlands created the world’s first central bank in Amsterdam and so our problems began.

In 1642, Oliver Cromwell had his Civil War, financed by the goldsmiths, and in gratitude he allowed them to take over the money supply of England. They consolidated their power, and for the next few decades plunged England into a series of costly wars. They also took over a square mile of central London to create the City of London, or financial district.

In 1688, the English moneychangers had a series of squabbles with the Stuart kings, Charles and James, and they conspired with their Dutch counterparts to finance an invasion of England by William of Orange. The invasion was successful and, in 1689-94, William III was crowned King of England.

Following 50 years of costly wars, the English government officials went hat in hand to the goldsmiths to help them pay for their folly. The goldsmiths agreed to extensive loans, if the government sanctioned the set up of a privately owned central bank. This bank was named the “The Bank of England”. The name deceptively hid the fact it was privately owned, giving the bank the aura of a governmental entity
As mentioned in last week’s column, these goldsmiths started loaning money, which they actually didn’t have on deposit but charged interest for these loans. This became what is known today as “fractional reserve lending”, and is at the heart of today’s so called credit crunch.

The banks today leverage their deposits up to 40 times to make loans and collect interest with money produced out of thin air. This works quite well as long as people don’t demand their money. When they do, it creates a lack of cash or liquidity, then a lack of confidence and finally a “run on the bank”. This inevitably ends in what we are now experiencing throughout the world in the form of bank failures.

When we have a financial crisis of recession or depression, it is described as “the business cycle”. In actuality, it has been created by the Federal Reserve (central bank), the Treasury and the bankers manipulating the money supply and the interest rates, creating conditions of boom and bust.

Our next installment will go into the “King of the Goldsmiths” and the worldwide effort of international bankers to create their greatest achievement: the control of the world’s money supply through the set up of privately owned central banks.

I do hope that you have not been unduly bored with the mass of historical details that, although greatly truncated, are necessary to fully understand where we are today and where we are going tomorrow.

News from the Cayman Islands
As We See It: Money makes the world go round (Part 3)
Published on Tuesday, December 16, 2008

In the year 1743, Amschel Moses Bauer opened a small coin shop/counting house in his hometown of Frankfurt, Germany. It was nondescript except for a sign over its entrance depicting a Roman Eagle on a red shield.

The business began to be known as the Red Shield firm, or Rothschild in German. When his son Mayer Amschel Bauer inherited the business, he decided to change his name to Rothschild. And so began the Rothschild banking dynasty, and the fortune purported to be the largest in the world, even to this day.

Amschel very rapidly learned that the profits to be made by loaning to governments and kings far outstripped lending to private individuals. Not only were the loans far larger, but they were secured by the taxes of the country taking the loan.

Mayer had 5 sons who he meticulously schooled in the art of money creation. He then sent them out all over Europe to expand the Rothschild business.

His first son, Amschel Mayer, stayed in Frankfurt to run the main office. His second, Solomon, was sent to Vienna. The third, Nathan, went to London. His fourth, Carl, went to Naples and lastly, Jacob, went to Paris.

In 1785, Amschel bought a 5-story home in Frankfurt, which was shared with the Schiff family. This house was known as “Green Shield.” The Rothschild and Schiff families would, over many years, play a major role in both European and American banking.

The Rothschild’s started dealing with European royalty when they became friendly with Prince William of Hess, known to be the wealthiest man in Europe. At first the family assisted William with speculation in precious coins. Later, when Napoleon chased William into exile, William sent £550,000 sterling to Nathan Rothschild in London. He instructed Nathan to buy British Government Bonds.

Contrary to his instructions, Nathan used the money for his own purposes. He invested in war industries, which were making enormous profits with Napoleon running amok all over Europe.

William returned to London in 1815 just prior to the battle of Waterloo, and demanded his money back from Nathan. The Rothschild’s returned William’s money with interest, but not the enormous profits they had made on the use of these funds.

Nathan who was obviously the cleverest of the Rothschild’s, later bragged that in the 17 years he had been in England he had increased the £20,000 stake he had received from his father 2500 times. By the mid 1800s, they dominated European banking and became the wealthiest family in the world.

Nathan’s biggest coup was actually at the battle of Waterloo, where he had sent a representative to observe and send back the early results of the winner of that battle. His representative got the information to Nathan, that Britain had won, a day before the official results were received. Nathan dropped hints that the French had won the day and the markets fell drastically, only to be bought back by the Rothschild’s.

What is interesting is that the French part of the family loaned money to Napoleon, while Nathan loaned the British the money they needed. Obviously by hedging their bets, the family still won not only a fortune, but control of the Bank of England. As you can see War is the most profitable business bankers can involve themselves in.

Their investments included Cecil Rhodes, who created the South African diamond business. In America they financed Harriman and Vanderbilt in railroads, and the Carnegie family in steel. Little known is that J.P. Morgan only owned 19% of his own banking firm: the other 81% was owned by the Rothschild’s.

By 1850 James Rothschild, the heir of the French wing of the family, was found to be worth 600 million French Francs; 150 million francs more than all of the other French bankers put together.

Probably the most notable quotes made by the Rothschild’s are:

“Let me issue and control a nation’s money and I care not who writes its laws” -- Mayer Rothschild.

“If my sons did not want wars, there would be none” -- Guile Schnaper, wife of Mayer Rothschild.

“I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man who controls Britain’s money supply controls the British Empire and I control the British money supply” -- Mayer Rothschild.

“Teach those impudent Americans a lesson. Bring them back to colonial status” -- Nathan Rothschild.
And a British Prime Minister:

“Rothschild is Lord and Master of the money markets of the world and of course virtually lord and master of everything else” -- Benjamin Disraeli.

News from the Cayman Islands
As We See It: Money makes the world go round (Part 4)
Published on Tuesday, January 6, 2009

What exactly is central bank?

It could be the Bank of England, the European Union Central Bank, or the Federal Reserve or for that matter hundreds of other national central banks. These institutions all have essentially the same function.

They supposedly act at the behest of the government to create the country’s currency, set its interest rates, make a nation’s monetary policy and set foreign exchange rates. This all sounds good on paper but, in practice, the best interest of the country is rarely served.

What must be understood is that almost all central banks are privately owned by international banks. This means they are operated for the profit of the owners, not for the interests of the nation. Countries set up their central banks in this manner, as they all operate on a fiat paper money system. Fiat money is not backed by gold or silver, but made as legal tender by decree. Governments constantly need the infusion of cash to make up the shortfall between tax collections and their spending. International bankers, through their connection with other countries, supply the extra cash to the governments at interest.

By the end the 1600s, British politicians had practically bankrupted Britain after 50 years of almost continuous wars with France and the Netherlands. They had to go hat in hand to the international moneylenders to beg for funds to pay for these wars, and pursue their own political purposes. The price was high. They had to create a government sanctioned, privately owned central bank that could issue Britain’s currency. It was to be the world’s second privately held central bank (The first was the Bank of the Netherlands) and was to called the Bank of England (BOE) so as to deceive the general public into believing it was a government entity.

Like any other private corporation, the investors, who were never identified, were supposed to put up £1.25 million of initial capital. Only £750,000 was ever subscribed. Despite that, the Bank was duly chartered in 1694. The government was allowed to borrow as much money as they wanted as long as they secured the debt by direct taxation of the British people, plus the interest demanded by the Bank.

Legalization of the BOE amounted to printing the nation’s currency for private gain. Almost every country on the planet now has a privately held central bank, using the BOE as a model. The power of these central banks is such that they very rapidly take over control of a nation’s money supply and thus its economy.

Nations do need central banks to organize and control their currency and economies, but why should they be in the hands of private bankers?

Surely the central bank needs to be under the control of a parliament and treasury. The central bank is actually a hidden tax on the people. The nation sells bonds to the central bank, which issues currency to government to pay for things Government does not want to tax the people for. In essence it turns debt into cash. The bonds are purchased with money that the central bank creates out of thin air. The more money in circulation makes the money in your pocket worth less. This is better known as inflation or devaluation, which originates only from government spending policies.

The beauty of the scheme is that not one person in a thousand understands what is actually going on. Government hides its machinations behind complex sounding economic gibberish.

With the formation of the Bank of England (BOE), the nation was suddenly drowning in an ocean of newly printed currency. Overnight, prices doubled, money was being loaned for anything and everything, just as government has done today to create the sub-prime mortgage bubble. By 1698, government debt rose from the original £1.25 million pounds to over £16 million. To pay for this, taxes were increased and then increased again.

With the economy firmly in the hands of the BOE, there began a wild series of booms and depressions, exactly what a central bank claims to prevent. Since then, the pound has rarely seen stability and has dropped in purchasing power ever since.

By the mid-1700s, the British Empire was nearing the height of its power around the world. Britain had fought four costly wars in Europe and government was in debt to the tune of over £140 million, a staggering sum for its time.

To help pay the interest on this debt, King George attempted to place onerous taxes on the American colonies but they went unheeded. The colonies printed their own money called colonial scrip. Scrip was controlled carefully thus keeping its purchasing power and avoiding interest or inflation.

Although scrip was paper money without backing, it was issued with the faith and credit of the colonial governments, and not only worked admirably, but also drew the various colonies together as a united group. America had learned the secret of money.

In response, the British Parliament hurriedly passed the Currency Act of 1764, which prohibited scrip and ordered future taxes to be paid in gold or silver coin. Depression set into the American colonies and revolution was now only a matter of time.

By 1775, the American colonies had been totally drained of gold and silver by taxes and printed new paper money called the Continental. At the start of the Revolution, the supply stood at $12 million. By the end it had risen to over $500 million. The obvious result was rampant inflation. A pair of shoes sold for $5,000, making the currency virtually worthless. A favorite saying was that if something was worth a Continental, it was worth nothing. George Washington quipped that “it took a wagon load of money, to buy a wagon load of provisions.”

Towards the end of the revolution, the Continental Congress became so desperate for money that they allowed Robert Morris to open a privately owned central bank called the Bank of North America. The charter required $400 million in gold, which Morris raised through questionable practices. Like the BOE, the bank was given a monopoly over US currency and its value plummeted. In 1785, the charter of the bank was not renewed.

In 1791, the moneychangers struck again. Congress gave Alexander Hamilton and Morris a twenty-year franchise for the privately owned First Bank of the United States, with the idea that it would bring stability and eliminate inflation. In the first five years the government borrowed £8.2 million and prices rose by 72%. Thomas Jefferson the new Secretary of State lamented:

“I wish it were possible to obtain a single amendment to our Constitution taking from the federal government their power of borrowing.”

In 1811, due to political and public pressure, the Senate cancelled the charter, and killed the bank. Yet, in 1816, Congress chartered the Second Bank of the United States, a duplicate of the previous bank. The primary stockholders were never disclosed, although it is know that a third of the shares were sold to foreigners. In this year, Rothschild had taken control of the BOE and also had a majority share in the Second Bank of the United States.

Central banks were here to stay; their network already starting to stretch around the world. With a finger on the pulse of the money, they also held the heartbeat of the nations of the world.

Next week we will see Andrew Jackson the hero of the Battle of New Orleans, battle the new central bank.

News from the Cayman Islands
As We See It: Money makes the world go round (Part 5)
Published on Tuesday, January 13, 2009

Andrew Jackson is primarily remembered as the hero of the Battle of New Orleans (Jan.8, 1815). The battle was fought in vain as the British had already signed the Treaty of Ghent bringing the war of 1812 to an end on December 24, 1814. Sadly the news did not arrive until mid-February and thousands on both sides lost their lives needlessly.

Despite this, Jackson became a national hero, which helped his nomination by the Democratic Party, and his election win in 1828. But I get ahead of my story.

It is still 1811 and the international bankers are fighting to get a renewal bill through congress extending the charter of the First Bank of the United States for 20 more years. James Madison, a staunch enemy of the Bank, sends his Vice President George Clinton to break the tie in the Senate putting a final end to the bill.

In 1812, after 5 years of degenerating relationships between the US and the British, the US declares war and sends troops into Canada. This does not stop the international bankers from attempting to reconstitute a privately held US Central Bank. In 1816, a year after the war ended, the US Congress passes another bill allowing another central bank. It is a carbon copy of the previous one, and is called The Second Bank of the United States.

By 1828 the American public is unsurprisingly fed up with the bank and its efforts to swindle the American taxpayer. The Democrats nominate Andrew Jackson, the Senator from Tennessee, as their candidate on an anti-bank platform. Jackson is quoted as saying to Martin Van Buren, “The bank is trying to kill me, but I will kill it!” Jackson is elected by a landslide. During his first term to root out supporters of the bank, he fires 2000 of the government’s 11,000 employees. In 1832, the bank asks for a renewal of its charter four years early. Congress passes the renewal and sends the bill to the President who promptly vetoes the legislation.

Congress is unable to override his veto.

Jackson then stands for reelection with a campaign slogan, “Jackson and No Bank”. The bankers poured over $3 million into the campaign of Henry Clay, his opponent, yet Jackson won reelection by an enormous landslide.

Even though he won, Jackson knew that it was only the beginning of a long and arduous fight to get rid of the bank and its supporters. He appoints Roger B Taney as Secretary of the Treasury, and instructs him to start pulling out Government deposits in the Second Bank.

Nicolas Biddle president of the Bank refuses to cooperate with the government, and starts to reduce the money supply so as to bring on a full scale depression. By so doing he tries to force the hand of congress to override the President and renew the charter. When this does not work, Biddle blamed Jackson for the depression.

Sad to say the bankers were able sway public opinion against Jackson even to the point of having him publicly censured in 1835, the first time a President had ever been so censured. Public opinion though started swinging back in Jackson’s favor when Biddle openly boasted that he intended to crash the American economy. On April 4, 1835, by a 134 to 82 vote, the Senate refused to renew the banks charter. This vindicated Jackson’s stance and won him the nation’s approval.

An investigative committee was told to subpoena the bank’s records; Biddle refused to comply and was later arrested and charged with fraud. He was tried but acquitted, and died in 1844 still under serious investigation. The charter of the bank ran out in 1836, and it died a natural death.

Jackson’s obvious legacy was that he was able to get rid of the central bank. The Bank though finally resurfaced in the form of the Federal Reserve in 1913. His other legacy, not as well known, was the fact that he was the only president to ever pay off the national debt which he accomplished on January 8th 1838, just before leaving office. That year, on January 30, an overseas paid assassin Richard Lawrence tried to kill Jackson, but both of his pistols misfired, and Jackson retired to his home in Nashville, Tennessee, the “Hermitage”, to live out his life quietly.

Although it took 75 years to bring the Federal Reserve into existence, those 75 years were fraught with constant attempts to bring about a privately owned US central bank.

It is 1854 a new political party, “The Republicans” are being formed in small white school house in Ripon, Wisconsin. Six years later they will nominate and elect Abraham Lincoln 16th president of the United States. After only one month in office, the nation is hurled into a massive Civil War, brought about by secession of the Southern States from the Union.

The general impression is that the war was brought about by an attempt of abolitionists to free the slaves. Lincoln was very much against slavery but even he said, “My paramount objective in this struggle is to save the Union and it is not either to save or to destroy slavery.”

Reasons for the war are debated but one was that the South was in a dire economic situation brought on by Northern industrialists raising protective tariffs preventing the South from buying cheaper European goods. Europe retaliated by stopping cotton imports from the South thereby strangling the Southern economy. This is what the international bankers saw as an opportunity to divide and conquer America.

To further these ends the bankers loaned France 210 million Francs to invade Mexico and station troops along the US southern border. The British were not idle, as they stationed 11.000 troops in Canada along the northern frontier. Both actions were in direct violation of the Monroe Doctrine.
Lincoln knew he was in trouble, the nation was fragmenting, and two hostile European powers were involving themselves in the internal affairs of the U.S.

He needed money, so he and his Secretary of the Treasury, Solomon P. Chase, went to New York to seek out the money lenders. They were quoting 24% to 36% interest, so Lincoln said “no thank you” and returned to Washington where he called on Col. Dick Taylor of Chicago and appointed him to find a solution. When asked what he would do Taylor replied, “ Why Lincoln that’s easy, just get Congress to pass a bill authorizing the printing full legal tender treasury notes. Pay your soldiers and go ahead and win your war with them.”

Lincoln was not sure that the public would accept them, but Taylor said “The people or anyone else will not have any choice in the matter. If you make them full legal tender they will have the full sanction of the government, and be just as good as any money, as Congress is given that express right by the Constitution”.

In 1862 Lincoln printed $450,000,000 worth of this new currency. The bills were printed green on the reverse side, so as to differentiate between the currencies then in circulation and they were called “Greenbacks”. They were printed at no interest to the government and were used to pay the troops, buy the supplies and won the war for Lincoln and the Northern armies.

The Greenback dollar was so successful that it remained in circulation until the 1980’s when it was finally retired. Barrack Obama, who reveres Lincoln, should take a note from Lincoln’s view on currency and have the treasury print a new Greenback with the full faith and credit of the US government as legal tender. It worked admirably before; it would work again.

Abraham Lincoln said “The government should create Issue and circulate all the currency and credits needed to satisfy the spending power of the government and the buying power of consumers. By the adoption of these principals the taxpayer will be saved immense sums of interest. The privilege of creating and issuing money is not only the supreme prerogative of the Government but is the governments greatest opportunity”.

Next week the 75 years leading up to the Federal Reserve.

News from the Cayman Islands
As We See It: Money makes the world go round (Part 6)
Published on Tuesday, February 10, 2009

 The bank is gone, but not forgotten

Lincoln has just finished printing the first lot of greenbacks, and the international bankers are already hatching a new scheme to control the currency of the United States. Lincoln would be one of two presidents to issue debt free United States Treasury Notes, the other was JFK when, by Executive Order No. 11110, he issued $2 bills with silver backing. They were short lived and, after JFK’s assassination, they were quickly withdrawn from circulation. Both presidents should be honored for showing the courage, in attempting to free the currency from debt.

The bankers though have no time to dilly-dally. In 1863 Lincoln needs further congressional approval to print more greenbacks. Instead Congress, at the behest of the banking interests, forces Lincoln to accept the “National Banking Act” which they push through Congress. The Act allowed the entire US money supply to be created out of debt by forcing the national banks of each state to buy bonds from the US Treasury and issue them as reserves for banknotes. This was not a central bank, but it gave the international bankers monopoly over US currency.

On top of this, the banks were allowed to operate virtually tax free. This banking scam was best explained by John Kenneth Galbraith, a well known liberal economist, when he said, “In numerous years following the Civil War the government ran a heavy surplus. It could not however pay off its debts or retire its securities, because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply.”

This is the problem in the USA today. It has a debt based money supply, with the private bankers at the Federal Reserve holding the debt and collecting perpetual interest on it. We cannot pay off the debt, for if we did, we would immediately destroy all currency in circulation. Lincoln had the right idea when he issued debt-free greenback currency. We should do so again and as soon as possible.

Solomon P. Chase, Lincoln’s ex-Secretary of the Treasury stated, “My agency in promoting the passage of the National Banking Act was the greatest financial mistake of my entire life. It has built up a monopoly which affects every interest in the country.”

International bankers wanted to establish a gold standard in the United States, which they could control. This was in direct opposition to Lincoln’s policy of issuing debt-free greenbacks based solely on the good faith and credit of the United States. With Lincoln’s assassination, the bankers were able to proceed with their plan and within eight years, were able to demonetize silver (which was plentiful in the Western US) and set up a gold standard.

Remember, Lincoln had printed and circulated large sums of debt-free greenbacks, which were contrary to what the bankers wanted. To get rid of the greenback they passed through Congress on April 12, 1866 the “Contraction Act”. This Act allowed the Secretary of the Treasury to withdraw from circulation quantities of the greenbacks over a 20 year period. The result was that the buying power of the average citizen was reduced by 760 percent. Such a contraction of the currency caused serious recessions and depressions, despite the United States being in one of the greatest social, economic, industrial and territorial expansions the country had ever witnessed. By 1876, one third of the workforce is unemployed. This was greater than the Great Depression which never ran over 25 percent.

Let me give you an idea of how this contraction actually affected the normal consumer. In 1866, there was $1,800,000,000 in circulation, which worked out as $50.46 per capita. One year later, in 1867, that amount had dropped to $1,300,000,000 or $44.00 per capita. Nine years later, money in circulation had dropped precipitously to less than $600,000,000 or $14.60. By 1886, the money supply was down to $400,000,000 or $6.57 for every man woman and child. You can see the country was being starved for currency.

The problem became so severe that Congress set up the United States Silver Commission to investigate. The Commission published a damning report, and placed the blame squarely on the banks and contracted money supply. Congress refused to free up the money supply, and in 1877 riots broke out from Pittsburgh to Chicago. The bankers collectively decided to hang tough and not give an inch, because they knew they were now firmly in control. The American Bankers Association and its members did everything in their power to influence the press and the Congress to stop the return of the greenback.

Things got so bad that finally Congress passed the Bland-Allison Act in 1878 allowing the minting of a limited number of silver dollars. This guaranteed that money returned to the economy. The bankers didn’t like it but they started issuing loans again and, by 1881, the post-Civil War depression finally ended.

The central issue of the presidential campaign of 1892 is the issue of more silver money.

Senator William Jennings Bryan of Nebraska, made his famous “Crown of Thorns and Cross of Gold” speech at the Democratic Convention in Chicago, where he is nominated as their candidate for president. His speech electrifies the convention and the country. “We will answer their demand for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.”

McKinley is backed by the bankers, because he supports the gold standard. He wins the election, albeit by a very small margin.

It is 1907 and the banking interests now go into top gear to create what will become the Federal Reserve. Rothschild agent Jacob Schiff gives a speech before the New York Chamber of Commerce threatening the nation when he says: “Unless we have a Central Bank with adequate control of credit resources, this country is going to undergo the most severe and far reaching money panic in its history.” The 1907 panic occurs, with a massive fall in the New York Stock Exchange.

J.P. Morgan owned only 19 percent of his own company, the other 81 percent was owned by the British Rothschild interests. Allegedly, Morgan and his friends secretly crash the stock market. He is aware that thousands of small banks are grossly over extended because of fractional reserve lending and they have only about 1 percent cash reserves. Within a few days runs on the banks all over the country become the norm.

J.P. Morgan then steps in to become the “Guardian Angel” of the banking system, funny when it is said that he and his cohorts have actually created the money panic. Morgan manages to coordinate, using his own reserves and pledges from other banks, $25 million to shore-up the NYSE. As a direct result of this injection, the NYSE was saved and the immediate panic ended. (Morgan didn’t go unrewarded though and was offered a railroad company at a fraction of its actual value). He is now assigned the task of point man in this charge to create what will become the Federal Reserve.

Morgan was lauded, by of all people, Woodrow Wilson, then president of Princeton University. Wilson said: “All this trouble could have been averted if we had appointed a committee of six or seven public spirited like J.P. Morgan to handle the affairs of our country” Can you believe this?

President Theodore Roosevelt, as a reaction to the panic, created the National Monetary Commission, which was charged with making recommendations to Congress so that money panics would not happen again. Surprise, surprise, guess who was appointed to the Commission. You guessed right, J.P. Morgan his friends and cronies. Dracula was now in charge of the blood bank. The Commission of course recommends to Congress the establishment of a privately owned Central Bank.

The chairman of the committee was Rhode Island Senator Nelson Aldrich. Aldrich is a key player in this story and we will see him next week as one of the seven in the “Conspiracy at Jekyll Island.” This is where this entire story gets really interesting.

News from the Cayman Islands
As We See It: Money makes the world go round (Part 7)
Published on Tuesday, February 17, 2009

The Conspiracy at Jekyll Island

The word Conspiracy frightens almost everyone, including yours truly. Conspiracy often connotes “political conspiracy” and in the top echelons of government it is not only hard to comprehend but is usually ignored out of hand as the machinations of a sick mind or ‘conspiracy theorist’. The conspirators are thereby insulated from exposure by the totally unbelievable nature of the conspiracy itself. All they need do is laugh off the charges as ridiculous and, unless there are provable allegations, they can just go ahead with what they are doing indefinitely or until the conspiracy is finally exposed for what it is.

Jekyll Island is one of the four barrier islands off the coast of Brunswick, Georgia, and in February of 1886 the developers of the island sold off 53 of the 100 shares for $600 each. They completed the clubhouse in January of 1888 and, considering the price paid by this very wealthy group of financiers, it was probably the best investment they had ever made.

By 1910 it had become a winter resort frequented by the American super-rich. These billionaires of their day came to Jekyll Island in the depth of winter to enjoy the good life, the warm weather and camaraderie of their fellows. Yet in November 1910 the island took on a special significance. It was to become the meeting place of the seven conspirators who plotted the creation of the Federal Reserve.

Ah, but let me get on with my story

Picture a group of seven international financiers, representing over 25 percent of the world’s total wealth, stealing out of New York under cover of darkness on a private railway car owned by Senator Nelson Aldrich of Rhode Island. This group was cautioned not to use their last names, not to dine together, and not even speak to one another until the railway car had left the Northern New Jersey station. They would travel hundreds of miles south to the coast of Georgia, to be transported by launch to a deserted island populated only by a few trusted servants.

The group consisted of Nelson W. Aldrich, (senior senator from Rhode Island along with his personal secretary Arthur Shelton), Dr Abraham Piatt Andrew, (assistant Secretary of the Treasury), Frank Vanderlip (President of the National City Bank of New York who were representing William Rockefeller and Kuhn Loeb & Co.), Paul Warburg (Kuhn Loeb, New York, representing the Rothschild’s), Benjamin Strong (aide to JP Morgan), Henry P. Davidson (senior partner with JP Morgan & Co.) and Charles D. Norton (president of JP Morgan Bankers Trust Company).

They would live on Jekyll Island for nine days using duck hunting as a cover, never once using their last names, and most would use only code names. They became known as the “First Name Club”. The fear was that the servants would leak the names of the people at this meeting to the press.

These seven were to produce what would be known as the Aldrich Currency Report, which would become the foundation of the USA’s new currency system and the Federal Reserve. We cannot over emphasis the importance of secrecy regarding this meeting, because if any of this information had leaked to the press, their proposed Federal Reserve System would have never come into being.

The outcry from the public would have had such a negative effect, that their entire effort would have been stillborn.

Any public admission that the Jekyll Island meeting ever took place had to wait until Frank Vanderlip confirmed the fact in a February 9, 1935, edition of the Saturday Evening Post. He stated, “I was as secretive, indeed as furtive, as any conspirator. Discovery we knew must not happen, or else all our time and effort would be wasted. If it were to be exposed that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress.”

After hammering out what would become the framework for the Federal Reserve, this group quietly and independently returned to New York and Washington to start the public relations campaign that would become vital for public acceptance of this legislation? To this end, the group immediately set up a $5 million dollar educational fund to create the assistance of professors at top universities to endorse the bill and to lobby the press for favorable reportage.

The new central bank would be very similar to the three previous central banks in that it would be given a monopoly over US currency, and be able to create that currency out of “thin air”. Most important, to give it the aura of legitimacy and to make sure that the public believed that it was run by the government, it was to be controlled by a board of governors appointed by the President and approved by the Senate. This would be an inconvenience, not insurmountable, as the bankers had the money to control their choices for seats on the board.

Since Aldrich had demanded his name be attached to the legislation, the Congress, and public quickly connected it with the bankers. It was immediately identified as the “Bankers Bill.” The bill lost the trust of both Congress and the public and had to be withdrawn from consideration.

The group now did a bit of fast footwork and switched their support from the Republican to the Democratic Party and Woodrow Wilson, who had been given intense indoctrination by the Democratic leadership of New York.

Louis T. McFadden chairman of the House Banking and Currency Committee explained, “The Aldrich Bill was roundly condemned in the Democratic platform when Woodrow Wilson was nominated. The men who ruled the Democratic Party promised the people that if they were elected there would be no central bank established while they held the reins of government. Thirteen months later that promise was broken and the Wilson administration signed the Federal Reserve Act.”

Congressman Charles A Lindbergh Sr. from Minnesota, and farther of Lucky Lindy the Aviator stated, “The act establishes the most gigantic trust on earth. When the President signs this bill the invisible government of the monetary power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed. The worst legislative crime of the ages is being perpetrated by this banking and currency bill.”

Interestingly enough, a few weeks earlier in October, Congress finally passed a bill legalizing a direct income tax on the people. This was pushed through Congress by Senator Aldrich and was more commonly known as the 16th Amendment to the Constitution. It was as an integral part of the Federal Reserve legislation, as the bank had to be guaranteed its interest payments just like the Bank of England had done centuries before. What better way but to put a direct tax on the people for this purpose.

More interesting is that the 16th amendment was never ratified by three-quarters of the states, so it never became the law of the land. Most tax resistors give the lack of ratification as the reason they refuse to pay income tax. According to the lawthatneverwas.com, Government has no legal right to collect an income tax. In 1895, the Supreme Court had already declared an income tax law (similar to the 16th amendment) as unconstitutional and, in 1909, a similar corporate tax law was deemed unconstitutional.

Wilson won the Presidency, and now JP Morgan, Paul Warburg, Bernard Baruch along with the banking establishment went into top gear by introducing the plan, which by they had finally named the Federal Reserve System. It was reintroduced under the new name of the “Glass-Owens Bill” which was touted to be radically different than the Aldrich bill.

In fact the two pieces of legislation were almost carbon copies of each other. Frank Vanderlip in his 1935 article in the Saturday Evening Post said, “Although the Aldrich Federal Reserve Plan was defeated when it bore the name Aldrich, nevertheless its essential points were all contained in the plan that was finally adopted as the Federal Reserve System.”

By 1913 the Congress was nearing a final vote on the Glass-Owens bill. The debate was not going well for the banks with many Senators intimating the bill was corrupt and deceitful. However the bill passed the House of Representatives and cleared the banking committee of the Senate on December 22. 1913.

Now here comes the trick. It is December 23, 1913, and although the Senate has not been recessed, all but three senators (including Nelson Aldrich), leave for home and the Christmas holidays. Because the Senate is still technically in session and because of a little known and never used procedural trick, these three senators pass by what is known as a “Consent Vote” the Federal Reserve Act. By a vote of just three, the Act is voted into the law of the land and has been there now for 96 years.

Next week we will examine what has happened since 1913, and why the present crisis we find ourselves in can be traced directly back to the Federal Reserve and its actions over the last hundred years.

News from the Cayman Islands
As We See It: Money makes the world go round (Part 8)
Published on Tuesday, January 6, 2009

The Federal Reserve Legacy

Since its creation in 1913, it is without question the longest running central bank the
United States has ever had to endure. After 96 years the nation is still saddled with its legacy, and the enormous debt it has created. Enough of my words; let us look at what has happened to the US economy since its creation.
 

First off, let’s get to the matter of who actually owns the Federal Reserve. The US government has never owned one share of stock in the Fed. It is 100% privately owned by the following international banks: Rothschild Bank of London, Warburg Bank of Hamburg, Rothschild Bank of Berlin, Lehman Brothers of New York, Lazard Brothers of Paris, Kuhn Loeb Bank of New York, Israel Moses Seif Banks of Italy, Goldman Sachs of New York, Warburg Bank of Amsterdam, and Chase Manhattan Bank of New York, There are a number of other minor shareholders too numerous to mention, but the above represent the majority share holders.

Next let us examine how the Fed creates money out of thin air, as everyone needs to fully understand how this process works:

1.    The Federal Open Market Committee approves the purchase of United States government bonds.

2.    The Federal Reserve then purchases the bonds.

3.    The Federal Reserve pays for these bonds with electronic credits to the seller’s bank. These credits are based on nothing.

4.    The bank uses these deposits as reserves. They can then loan out at interest 10 times the value of these reserves to new borrowers

Bonds are simply promises to pay (government IOUs). People buy bonds so as to guarantee themselves a secure rate of interest. At the end of the term the government pays the amount of the bond plus interest, and the bond is destroyed. So far so good. Now let’s look at how this works in the real world.

The Fed buys $1,000,000 of bonds and turns it into $10,000,000 in bank accounts. The bonds create 10% of this new total and the banks create the other 90%.

To reduce the amount of money in circulation the process is simply reversed. The Fed sells these bonds to the public, and the money flows out of the purchaser’s local bank. Loans from bonds must be reduced by 10 times the amount of the sale thus reducing the money in the economy by 10 million dollars.

This benefits the bankers coming in or going out, as the Fed is the sole monopoly producer of money. It allowed the bankers to create 90% of our money supply based on the system of fractional reserve banking, and allowed them to loan out (with interest) this money 90% of which is based on nothing concrete.

The system puts centralized control of the nation’s money supply in the hands of (and for the profits of) a few individuals. The system is a win-win deal for the banks and the Federal Reserve, and we (the people) keep paying perpetual interest on this debt, which is thrust upon us our government. We are given no say in the matter; we just receive the bill for the interest.

One year after the passage of the Federal Reserve Act, Congressman Charles Lindbergh Sr. outlined how the Fed created the so-called ‘business cycle’. “To create high prices, all the Federal Reserve Board will do will be to lower the rediscount rate producing an expansion of credit and a rising stock market. When businessmen are adjusted to these conditions it can check prosperity in mid career by arbitrarily raising the rate of interest. It can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by a greater rate variation and in either case it posses inside information on financial conditions and advance knowledge of the changes up or down. They know in advance when to create panics to their advantage. They know when to stop panics, as inflation or deflation works equally well for them.”

In 1916, just before the US entered World War I, President Woodrow Wilson, who had championed the cause of the Federal Reserve Act, admitted his own stupidity and the gravity of the damage he had done to America by unleashing the Federal Reserve on the American people when he stated, “We have come to be one of the worst ruled, one of the most completely controlled governments in the civilized world - no longer a government of free opinion, no longer a government by a vote of the majority, but a government of the opinion and duress of a small group of dominant men. Some of the biggest men in the United States in the field of commerce and manufacture are afraid of something. They know there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had best not speak above their breath when they speak in condemnation of it”.

In 1920, Warren G Harding is elected US president on the Republican ticket. This period will be known, as the “Roaring Twenties” and despite World War I having saddled the country with and immense debt ten times larger than that of the Civil War, the American economy was growing on a fast track. Gold had poured into the US during the War and continued during the ‘20s.

The reason for this growth was that Harding reduced taxes domestically and increased tariffs on imports to record levels. This fuelled internal production and kept the money at home.

In 1921, Thomas A. Edison, inventor of the incandescent light, commented in a New York Times article on December 6, that, “If our nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. It is absurd to say that our country can issue 30 million dollars in bonds and not 30 million in currency. Both are promises to pay, but one promises to fatten the usurers and the other helps the people”. I believe this says it all.

On August 2, 1923, President Harding dies under mysterious circumstances aboard a train. The cause was givens as either food poisoning or a stroke although no autopsy was performed. His vice president, Calvin Coolidge, succeeds him. Coolidge continues Harding’s high tariff, and tax cutting policies. These policies are so successful that the economy continued to grow and the war debt was reduced by 38%, down to 16 billion dollars. This was when the Fed started flooding the country with money, increasing the supply by 62%.

News from the Cayman Islands
As We See It: Money makes the world go round (Part 9)
Published on Tuesday, March 3, 2009

The depression and its aftermath

Back on October 28 of last year I wrote a column entitled “The D Words (Depression and Deflation)”. Those of you, who missed it should check the archives and read it. It makes an excellent primer for this column. I said in that article that the world’s leadership was not willing to accept the fact that we were sliding into a depression, and that by ignoring this would be the worst thing possible. In the subsequent four months, everything I said then is becoming a most uncomfortable reality.

Whether we accept it or not, the world is sliding uncontrollably into the same situation it faced in 1930-31. The only difference is the economic situation today is far worse than it was then and the problem is we persist in using the same unworkable solutions. They didn’t work then, and they won’t work now.
Albert Einstein, the bushy haired scientist, is attributed as saying, “Insanity is doing the same thing over and over, each time expecting a different result”. I am beginning to believe our leaders fit this quote perfectly.

1930-31 was a very grim time for everyone. The USA had just seen the stock market crash, and then it continued to drop with seemingly no bottom in sight. Unemployment in another 3 years would level off at around 25%. The popular song of the day was “Brother can you spare a dime”. You couldn’t even buy a beer for a dime because Prohibition was the law of the land. These were unhappy times and they would continue for ten years.

The only way we came out of this economic morass was Pearl Harbor and World War II. After that it took five more years of blood, sweat and tears until finally we arrived at 1946-47 and a consumer-driven prosperity. The US had gone through over 15 years of hard times of the worst possible kind.

Enough of my crying the blues; let’s get on with the story…

In 1924, shortly before his death, Woodrow Wilson said about his relation to the Federal Reserve: “I have unwittingly ruined my country.”

In April of 1929, Paul Warburg sent out a memo to his friends and business associates that a collapse and depression was being planned for later that year. It is no coincidence that the biographies of the Wall Street giants, Rockefellers, Morgan, Joe Kennedy, Bernard Baruch got out of the market completely and turned their profits into cash and gold, shipping it off to London.

In August 1929, the Fed started tightening the money supply. On 24 October, the New York bankers called their 24-hour brokerage loans. Brokers and customers were forced to sell their stocks irrespective of price to meet margin calls. The result was the great crash of 1929, better known as Black Thursday.

Congressman Louis T. McFadden chairman of the House Banking committee candidly laid the blame for the crash: “It was not accidental. It was a carefully contrived occurrence. The international bankers sought to bring about a condition of despair, so that they might emerge as rulers of us all.”

Despite the claims of the Federal Reserve that they would protect the country from depression and inflation, it continued to contract the money supply. In just a few weeks, 3 billion disappeared and in a year 40 billion was gone. It appeared to be gone, but in fact the money did not disappear, it was only transferred from one set of hands to another. Bankrupt corporations and homes don’t disappear, they just change ownership. A perfect example of this was Joseph F. Kennedy, father of the president, who was worth 4 million in 1929, and 100 million in 1935. I wonder how that happened at height of the depression?

In 1996, Milton Friedman, the Nobel Laureate economist put it this way: “The Federal Reserve definitely caused the Great Depression, by contracting the amount of currency in circulation by 1/3 from 1929 to 1933.”

It is 1928 and the Republican Herbert Hoover takes the presidency from Calvin Coolidge at the worst possible time in history. There is a parallel between Hoover’s election and Barack Obama’s. Both presidents are captives of history over which neither one has control.

Hoover is one year in office when the market crashes (the depression is now known as Hoover’s depression). There is very little he can do, and the public wants results that are not forthcoming. He is at best filling the office until the 1932 election, where he will face the Democrat Franklin Delano Roosevelt, the Governor of New York. It is preordained that Roosevelt sweeps into power on a wave of popular approval, the same as the new president is receiving today. Everyone is looking for a quick fix, a magic bullet and a return to “a chicken in every pot, a car in every garage”. Sorry to say that was not in the offing – a sign of what we are facing today.

Roosevelt, in his inaugural address, made the following statement, “Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. The money changers have fled from their high seats in the temple of our civilization.”

Later that year, Roosevelt outlawed the holding of gold by any American citizen. This was effectively a confiscation, but the government did pay $20.60 an ounce for all that was turned in. Small town America did not trust Roosevelt after this act. You either turned in your gold or were fined $10,000, and given a 10-year prison sentence. When asked, no Congressman, nor the President, nor the Secretary of the Treasury would accept the blame for having written the order. The only thing that was said was that, “It was what the experts wanted.” I wonder who those experts were.

By 1935, the Fort Knox Gold Depository was completed, and over 700 million ounces of the bright shiny stuff was moved in. This represented at the time 70 percent of the world’s gold. Roosevelt started off by telling everyone, “The only thing we have to fear, is fear itself.” If it had only been that easy. At least Prohibition was repealed in 1933 and the 10-cent beer returned to everyone’s relief. At least the pain could be made bearable!

Roosevelt, just as Obama is doing today, created a dozen new agencies like the WPA, FDIC, FHA, NRA, and on and on and on. Just like the Stimulus Bill will try to do, it injected money into the economy, to get people into jobs working primarily for the government by building dams, roads, parks, post offices and every other form of infrastructure. There is nothing wrong with this except it is the private economy that creates wealth, not government that only consumes it.

This is why the Depression lasted over ten years when it should have been gone and forgotten in no more than three or four at worst. (Remember the currency at that time was backed by gold and silver, it isn’t today.) The public works programmes did produce useful and needed infrastructure, but at what cost?

It didn’t create a return of confidence in the economy, and the USA stumbled along into the late thirties.

What brought the economy back, were not Roosevelt’s public works programmes, but rather preparations for war. They had committed to Lend Lease for the British and the various war industries were ramping up production to produce the tools. By the time of Pearl Harbor, the USA had not completely re-armed itself, but it had created jobs, and a massive armament industry. Getting up to speed for all out war was now priority one. Car production stopped and guns, ships, tank and bomber production moved onto the fast track. We were off and running to win a war, which was thrust upon us and we were going to win no matter what.

During the first three weeks of 1944, 730 delegates from 44 allied nations, met at the Mount Washington Hotel, in Bretton Woods, New Hampshire, to hammer out an international agreement of how the world’s economy would be operated once the war ended. The main agreement was that international currencies would be set against each other at fixed rates and would not vary more than 1 percent. This would be pegged to the price of gold at $35 an ounce. Since the US dollar was convertible to gold internationally, the dollar could be considered as “good as gold”. The dollar was therefore settled on as the world reserve currency, and henceforth international dealings would be transacted in dollars. Even today, the price of oil is quoted only in US dollars.

The Bretton Woods agreement for all of its high hopes only lasted until 1971. In that year the United States dropped convertibility of the dollar to gold or silver. Currencies at that point floated, and they still float today with no relation to reality. With the end of Bretton Woods, the world’s currencies were now all fiat money with no convertibility to anything but more paper. The world had embarked on the road to perdition.

World War II had lasted a little over six years and ended with the start of the atomic age. In the process, the world’s debt had risen to astronomical heights, with the US going from 43 billion to over 257 billion (an increase of 598 percent). Japan increased 1,348 percent, France 583 percent and Canada up 417 percent.

What saved the USA was the money earned during the war, as there was nothing to spend it on. With the war over, there was suddenly an orgy of post war spending for consumer goods not seen in five years. There was a car in every garage, and a chicken in every pot.

The dollar was backed by silver and internationally by gold. It was the strongest currency in the world. The Marshall Plan was rebuilding a devastated Europe, and all the major economies were accelerating, producing the tools of peace. The troops returned and they needed homes, appliances, cars, and all the good things everyone had to do without for five years. These were happy days, the best of times, and expectations ran high. There was work for everyone and the country embarked on consumerism with a vengeance.

But like everything, nothing this good could last forever.

In 1953, President Eisenhower orders an audit of the Fort Knox Gold Depository. As mentioned previously, the 700 million ounces of gold were found intact. This was the last time an audit was ever taken of the gold at Fort Knox, although Federal Law required a yearly audit. No one even mentioned another audit until years later during the Reagan administration.

In 1963, JFK starts issuing dollars carrying a red seal called “United States Note”. A lot of people believe he was printing large quantities of debt-free currency; essentially a reissue of Lincolns Green Backs. It is speculated this is the reason he was killed. On June 4, 1963, Kennedy issued executive order 11110 authorizing the US government the power to issue currency without going through the Federal Reserve. This order gave the Treasury the power to issue silver certificates against any silver bullion, silver or standard dollars in the treasury. For every ounce of silver in the US Treasury vaults, the government could introduce new debt free money into circulation.

With his assassination, this entire programme came to an abrupt halt and the currency already circulating was withdrawn and destroyed. So ends the last valiant experiment with debt-free money.

Next week we bring the story to a close at the critical point the US has arrived at. We do hope these ten columns have not bored you unduly, and most importantly we hope that you have a far better understanding of what is money and why it makes the world go round.

News from the Cayman Islands
As We See It: Money makes the world go round (Part 10)
Published on Tuesday, March 10, 2009

The End?

Well, finally, we get to the end our journey and this hopefully will be the last of this series of 10 columns. I admit the subject matter was dry and not particularly easy to understand but I have tried to make these columns as interesting and as informative as I possibly could.

What is important is that you now (hopefully) have a far better understanding of the currency that you carry in your pocket, how it’s created, what is happening to it and where we are all heading as far as money is concerned.

But now, on with the story…

The War had ended, prosperity had returned and everything was coming up roses. Again it was too good to last.

Joe Stalin had just developed his own atomic weapon, and felt like flexing his muscles in Korea. The USA felt that it had to defend the world in the name of democracy. It was 1951 when they mobilized forces under the UN flag for a so-called ‘police action’. The war ended with a divided Korea and a total stalemate. (After 58 years we still have our troops in South Korea defending it from its neighbor to the North). The police action ran up an immense debt, which the USA could ill afford then nor now.

The French had failed to win the war in Vietnam, so the US took their place, and proceeded to lose the war and run up more debt. The war finished with a quagmire from which the USA barely managed to extricate itself. While running up the bills in Vietnam, Lyndon Johnson was running up another enormous debt fighting the war on poverty at home. When all was said and done, Ole Lyndon figured he had better not run for another term.

It’s 1972 and Dick Nixon enters the White House with a crushing debt over his head created by his predecessors and his own ineptness. He suddenly realizes that he can no longer issue currency backed by silver and he is forced to abrogate the Breton Woods agreement. This action throws the country (and the world) into chaos. There is no longer an ‘as good as gold’ US dollar reserve currency. It is now a fiat paper-based currency, convertible into nothing but more paper. They had taken the final and fatal step toward destruction of the US dollar. What followed was devaluation and inflation on a grand scale right up to the present.

In 1973, the oil producing countries figure out the scam with the fiat dollar and that selling their oil at $3 barrel will not buy them what it used to. They put an embargo on oil and raised their prices to equal the devaluation of the dollar. As the dollar goes down oil and other commodities go up. Inflation (which is actually the value of the currency going down) becomes the norm with a 3% to 6% rate a year being expected.

Ronald Regan becomes the new president in 1981 and is immediately pressed by fellow conservatives to consider the reintroduction of the gold standard for US currency. He appoints a group called the ‘Gold Commission’ to investigate and report back to Congress the feasibility of this proposal. In 1982 the commission reports back with the shocking statement: “The US Treasury owns no gold at all”. The Federal Reserve, as collateral against the debt, now owned all the gold in Fort Knox. The gold had been sold to the Federal Reserve for $35 an ounce in 1974, and 9 years later it had appreciated 25 times to over $800 an ounce Oh what a friend we have in the Fed.

There are, surprisingly, 5 countries in the world that never got caught up in the privately owned Central Bank system: Iran, North Korea, Sudan, Cuba and Libya. All of them have the unique distinction of controlling their own destinies and their own currencies with no outside manipulation. This does not mean than any of them have a sought after internationally convertible currency, but it does at least allow them to plan their economies the way they want, and not pay international bankers for the privilege of doing so.

Examples of smaller third world nations that fell under the control of the IMF and the World Bank, and who lived to regret it, were Argentina, Bolivia, Tanzania, and even Brazil. These and other nations accepted loans to get themselves out of short term financial difficulties, only to be eventually thrown into dire economic problems, hyperinflation, massive unemployment, street riots, and bankruptcy. It was like the whole country using a credit card irresponsibly. In time the banks were taking over their water, gas and electricity utilities, dictating employment levels, prices charged by the utilities and even the budgets of the countries.

By 2001, Argentina was driven into bankruptcy. The peso was devalued wiping out the savings of the average Argentine, who now was so desperate that he started burning down Buenos Aires.

Tanzania’s GDP dropped from $309 to $210 per capita, standards of literacy fell and poverty increased to envelop 51% of the population. Tanzania with the willing help of the World Bank and the IMF pushed the country into abject poverty and bankruptcy.

The moral to the story is never trust the bankers to be beneficent when they loan money. They will do anything to get that money back with interest. When it comes to money, greed takes over and common sense, ethics and morality are left somewhere in a galaxy far, far away. My father told me a long time ago, “There are no friends in business.”

We now need to look at us, our friends, neighbors and fellow citizens, and how we survive in the depression that is right now enveloping all of us. Make no mistake the last time the USA stock market had over 50% of its value wiped out was 1929, the last time the USA had 10% unemployment was 1930. The last time Americans feared losing their jobs, cars and homes was 1931. The dates have changed, but the situation has not.

We are embarking on the same path as the Great Depression; the only difference is that conditions are now far worse than they were in the 30’s. The debt as a percentage of Gross National Product was 273% in 1929. Today, before all of these big spending programs kick in, it was running at 376%. In 1929, there was gold and silver behind the US Dollar. Today there is nothing to back the currency but PAPER.

Considering everything, the situation does not look particularly bright for a prosperous long-term future but don’t give up the ship yet. I don’t like giving advice, because people rarely take it anyway but here are my thoughts and I hope that you take them to heart:

First and foremost … THERE IS NO FREE LUNCH. Someone has to pay for it, and that someone is you. Government give you nothing that they have not already taxed you for. If you understand this basic fact of life, you are already half way to self-sufficiency.

The next thing of greatest importance is debt. Remember: DEBT IS POISON. Always look at your debts as the Albatross hanging around your neck just waiting for you to lose the income you expect will always be there. You need to get rid of any debt that you may have. This means mortgages, car or other loans, and, most importantly, credit card debt. Get rid of all credit cards. There is no sense in paying ultra-high interest to a bank every month especially if it is to buy things you don’t really need. The only type of plastic you should carry is a debit card. These deduct charges from your checking account as you make them and thank God you can’t run up debt with them.

Buy nothing you absolutely do not need, eat at home and plan no more foreign vacations. In a word tighten the belt, save what you can, spend nothing you don’t need, and live frugally.

Save your cash and realize that in the future, CASH IS KING. When everyone else is selling what they own for $.10 on a dollar, you will have the cash to buy tremendous values. The grim times ahead can be times of enormous opportunity if you have CASH. Don’t be foolish, “Save for the Rainy Day”, and stay dry, let the fools get wet.

If you just follow these three very simple pieces of common sense advice, you will survive and prosper through the worst of times.

I wish you all the best, but not of luck, as luck has nothing to do with it. It takes thought and planning to get your finances in order. I hope you look back at these years as a period in which you actually prospered. Meanwhile you will hear from me, from time to time, with updates as this long term story unfolds. Until then …

 

    Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
Part 7
Part 8
Part 9
Part 10  
 

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