bailouts and stimulus by bill denman

8/9/2019 Bailouts and Stimulus by Bill Denman

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BAIL - OUTSAND

STIMULATING THE ECONOMY

By: Bill Denman

INTRODUCTION

Congress recently passed legislationin support of Obamas plan to bail outbanks and the investment industry,stimulate the economy, and reverse thecurrent trend toward depression. Theamount of money necessary toimplement this socialist boon-doggle isfour trillion dollars. This raises severalquestions:

1. Where will the money come from tofund Obamas stimulus packageand bank bailouts?

2. Can national wealth be increased by issuing additional fraudulent money?

3. Will this simply lead to more stimulus money creation and eventually tohyperinflation?

4. Does stimulus legislation violate the U.S. Constitution?

5. Will our freedom be lost?

SOURCE OF MONEY?

Where will government get the money to fund this boost the economy project? Itcan not come from direct taxes but it will come from indirect taxes. If governmentcollected direct taxes to fund its projects, it would simply transfer purchasing power fromtaxpayers to government. The purchasing power of taxpayers would be reduced byexactly the same amount as the increase in government spending. There would be no net

increase in demand for products and no stimulation of the economy.If taxpayers deposit their surplus money in a bank savings account, the bank will lend

it and it will still be spent. On the other hand, if taxpayers put money in their mattress orpiggy bank, demand for products will decrease and prices will fall; this is what iscurrently happening. If government confiscates this surplus money by direct taxation itwill create a demand for products at a subdued pre-depression level and there will still bea fall in prices. When government spending injects the surplus money into the economy,many recipients will hoard it and government spending will not achieve its intendedeffects. The anticipated economic boom will be suppressed and the trend towardsdepression will continue. This is exactly what happened during the 1930's depression.Documentation of this is contained in my articleDepression 1". This brings us to the


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reality of the current situation.

In order to stimulate the economy, massive amounts of NEWLY CREATED moneymust be injected into the economy. Furthermore, the method of injecting it is vitallyimportant. If government spends the money on pork barrel projects it will not have thedesired effect. It requires massive government projects such as building roads, expandeddefense contracts, and other construction, which requires additional demand formanpower, machinery, materials, etc.

The newly created money can only come from one source the Federal Reserve System(FED). The FED is the only entity in the United States that is authorized by Congress toengage in legalized counterfeiting. A loan to government is created by simply enteringnumbers in the governments account (see Treasury Secretarys statement in AppendixA). The government then proceeds to write checks to fund the economic stimulusprojects. This process was described in an article written by a former Secretary of theTreasury (see Appendix A for his statement).This debt, plus interest, must be repaid by taxpayers in the future. However, repaymentof the debt is only part of the overall disaster created by Obamas stimulus project.

The projected $4 trillion cost of Obamas replace the infrastructure program issimply seed money for the creation of $40 trillion or more. The current FED reserve rateis 10% and this means that for every $100 deposited in a checking account, the bankingsystem can create $1000 of new money (see Appendix B for documented proof of this). Inother words, the money deposited in checking accounts is multiplied by a factor of 10. Tentimes $4 trillion is $40 trillion and it could be more. We will return to this issue later.

BANK BAIL-OUTS

Bank bail-outs are undoubtedly the biggest scam in the history of the world. Theprocess is simply this:

1. The FED creates fraudulent money and gives it to banks and real estate investmentagencies such as Fanny Mae and Freddie Mac who make real estate loans.

2. The federal government instructs lending agencies to lower their requirements so thatpeople with low income can buy homes.

3. Predictably, a real estate boom is created and lots of people buy homes which theycommit to pay off with Adjustable Rate Mortgages (ARMS) they can not afford.

4. When the automatic mortgage rates begin to adjust upward, many of these people cannot keep up their payments and default on their loan.

5. The banks repossess the homes and a real estate panic develops which spreads to otherareas of the economy.

6. Real estate prices plummet and other home owners find that the value of their homeis less than they owe on it. The home can no longer be used as an ATM to fund otherpurchases and demand for other products declines.

7. The decline in demand leads to closed factories and rising unemployment.

8. Banks have mountains of real estate mortgages that are almost worthless and begin to


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fail.

9. The specter of unemployment and bank failures begin to haunt those who are stillemployed and they cut back on spending and begin to save in their mattresses. Theyalso stop accumulating debt and since issuing debt is the method used by the FED tocreate money (see Appendix C), there is a major reduction in the rate of fraudulentmoney creation. This leads to a further reduction in demand and moreunemployment.

10. The FED, with the cooperation of the U.S. Treasury Department, begins to bail-out thebanks with massive injections of newly created fraudulent money.

11. President Obama begins his magic cure by dramatically expanding governmentspending and applying a technique learned in earlier associations with ACORN.ACORN (Association of Community Organizers for Reform Now) has been organizingwhat it calls homesteading efforts in a half-dozen major U.S. cities. This means thatpeople move into homes that banks have repossessed. They dont own the homes butthey occupy them and the banks apparently are not evicting them. This should comeas no surprise since ACORN was one of Obamas pet projects before becomingPresident. Is it likely that the banks will oppose a project supported by a man whonow holds the purse strings to the bank bail-outs? (Additional information aboutACORN was presented by Will Grigg during a radio station KBGN 1060 broadcast inCaldwell, Idaho, on February 24, 2009). These activities removes homes from the gluton the market and this creates the false appearance of a rebound in the real-estatemarket. This paves the way for profitable real estate investments when the economicstimulus package begins to take effect.

12. The FED bails out the banks to compensate for their losses in the real estate businessso why should they worry about ACORN activities.

13. Who will pay for these bail-outs? Taxpayers! The new money created by the FED andloaned to the government for bank bail-outs is legally counterfeited money that causesprices to rise. Thus in addition to paying off the governments debt, the public paysthe higher prices caused by the newly created money to fund the governmentsprojects.

Summarizing:

The FED creates money by book-keeping entries which causes a boom/bust in realestate. People who bought homes using this easy money lose the homes and the moneyinvested in them. The banks repossess the homes. The FED creates more money to bailout the banks. The ACORN people move into the vacant homes without any moneyinvested and simply occupy them. This reduces the number of homes on the market and

moves the real estate industry closer to a profitable market. Taxpayers pay the debtincurred because of the money loaned to government by the FED. Isnt this a nice scamfor everyone -- except taxpayers!

CREATING WEALTH

In his essay Abundance and Scarcity, the French political economist Frdric Bastiatmade the statement that:

Wealth consists in an abundance of commodities


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This is obviously true and it does not say that wealth consists in an abundance offraudulent money. As we shall see, fraudulent money consumes wealth. To help clarifythis we will examine an illegal counterfeiting operation.

Suppose John Doe has a money printing press in his basement and can print as muchas he wants. He prints twenty five $1000 bills and buys a car with them. Is this $25,000a medium of exchange? Absolutely not! John did not create any product to exchangefor the car, he simply used fraud to steal the car. But the $25,000 is purchasing power

John bought a car with it and the car dealer will use it to buy other things. Thus the$25,000 will circulate through the economy as purchasing media and cause prices to rise,but there will always be a $25,000 deficit in commodities and prices will rise! In otherwords, John steals not only from the car dealer, he steals from the entire communitybecause of the depreciating purchasing power of everyones money.

Counterfeiting by the FED operates the same way and has exactly the same effect froma basic economics viewpoint. The only difference is that FED has a legal monopoly on thecounterfeiting business and they dont need printing presses to create money they justenter numbers in books.

In the foregoing example it is obvious that Johns theft has removed a commodity fromthe economy without producing any to exchange this is known as capital consumptionwhich is the opposite of capital formation. In other words, there is no balance in trade,as would exist in an honest money system. Honest money is simply a medium ofexchange which facilitates the exchange of commodities. Both parties to the exchangemust produce a commodity before the exchange can take place. In both the fraudulentmoney creation systems of John Doe and the FED there is no exchange of commodities atthe time the money is issued just creation of fraudulent money that steals from theproducers in society.

Its true that this fraudulent money circulates as purchasing media John bought a carwith it and the dealer will use it to purchase other things. But this purchasing media willnever be media of exchange because there will always be a deficit in commodities the carfor which John exchanged NO commodity he just stole it by fraud. Any society that triesto live by consumption without production is doomed to fail catastrophically.

When a bank makes a loan to someone for the purchase of a home, it just creates themoney by entering numbers in computers. At that point in time there are no newcommodities created as backing for the newly created money. Thus the loan creates anadditional demand for an existing supply of products and this drives prices up and thepurchasing power of everyones money down. Additionally, the bank gets a lien againstreal property the home purchased by the debtor. In principle this is no different than thecar purchased by John. Furthermore, this loan of fraudulent money is a lien against thedebtors future production. In other words, the bank just creates money that has nothing

backing it at the time of the loan but must be repaid with money obtained by the futureproductive labor of the debtor. In other words, the debtor is enslaved.

ECONOMIC BOOM

Give me a money printing press and the authority to print unlimited amounts ofmoney (this is what the Federal Reserve Act of 1913 did for international bankers) and Iguarantee that a TEMPORARY economic boom will be created.

If that kind of activity is really beneficial why doesnt government simply give


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everyone a printing press and let them print all the money they want? The answer isobvious: everyone would stop working, all commodities would rapidly disappear fromthe market and everyone would begin starving. Thus government grants a monopoly onthe counterfeiting business to a few favored individuals (owners of the FED). However,the end result of their activities is the same as described above it just takes longer,transfers the wealth of the nation to the counterfeiters, and the rest are enslaved.

When fraudulent money is created, legally or illegally, and injected into the economy

there is an increase in demand for an already existing supply of commodities. To meet thisincrease in demand, businessmen compete with each other in hiring new employees,buying new machinery and purchasing additional natural resources. This competitiondrives prices higher and an economic boom begins. Prices rise until the increased moneysupply balances the supply of commodities. When balance is once again established, thedepreciated purchasing power of money will not buy any more commodities than it wouldbefore the addition to the money supply people simply pay more money for the sameamount of commodities. Since supply and demand are once again balanced there can beno further increase in demand because the existing money supply is not sufficient tosupport it at the higher prices. Businessmen then find themselves with too manyemployees because demand is now back where it was before the artificial boom startedand the newly hired employees are a burden instead of an asset. Unemployment begins,

frightened consumers stop consuming and begin saving and this results in furtherunemployment.

This further reduces demand, prices begin to fall as businesses unload surplusinventory, and a panic develops. If monetary authorities (the FED and government)intervene by pumping more fraudulent money into the economy it will simply create moreinstability and make matters worse in the long run. However, short term effects may beanother economic boom that wastes natural resources on things people would notwillingly pay for and cause misallocation of labor, for example: bureaucratic boon-dogglesthat pay people to not farm euphemistically called the land bank.

Since the fraudulent money used to create the boom simply enables debtors to

consume existing commodities without giving any in exchange at the time of initial moneycreation, the process obviously consumes capital. Its true that future production isnecessary to pay off the debt and this partially replaces the consumed commodities. Anation can not forever consume capital faster than it is replaced. Thus this process is selfdestructive, as the American people are beginning to discover. Lets examine this processa little closer:

A bank creates $25,000 by a book-keeping entry and lends it to John Doe for thepurchase of a car. When John drives the car off the dealers lot, the amount of commoditiesavailable in the market has been reduced by $25,000 because neither the bank nor John hasproduced that amount of commodities. In other words, the $25,000 is not a medium ofexchange because no exchange of a commodity for a different commodity took place just consumption. Its true that in the future john will produce $25,000 worth ofcommodities in order to pay off the loan. But the initial purchase is an increase in demandagainst an existing supply. Since demand has increased but supply hasnt at that point intime, prices rise and everyones money loses value. In other words, the bank hasauthorized John to steal a $25,000 car. Of course John isnt aware of this because the bankdidnt tell him that the $25,000 is counterfeit and that they have a legal monopoly on thecounterfeiting business. Furthermore, this is capital consumption because the naturalresources (steel, oil that plastics are made from, glass, etc.) plus the depreciation of toolsand facilities used to make the car have been consumed. (See Appendix B for a


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the higher prices and are forced to reduce consumption. This continues until consumptionreturns to pre-inflation levels. When this balance occurs, two things happen: (1)prices stoprising because there isnt enough money to support a further rise and (2) the demand forcommodities returns to pre-inflation levels because the depreciation in the value of thecurrency simply means that it takes more money to buy the same amount of commoditiesthan it did before the inflation. At this point the monetary authorities must make adecision between further inflation (expansion of the money supply) or a depression.

Since allowing a depression to develop is political suicide for the party in power, thedecision is always to avoid the depression by further injections of fraudulent money. Butthis time it takes more money to get the same economic stimulus because of the higherprices caused by the previous injection. Thus each time a balance returns between moneyand commodities, the increase in the money supply must be greater than that used in theprevious injection in order to perpetuate the artificial boom and prevent a depression. Thisprocess continues until hyperinflation develops and the value of the currency isdepreciating (prices are rising) so fast that noone will accept it in exchange forcommodities. This is exactly what happened in France in 1795 and in Germany in 1923.

Money is the life-blood of any highly developed division-of-labor society. As theinjections of fraudulent money continue, the life-blood of the nation becomes so thin that

it spews out of all the orifices of the social body and it collapses for want of nourishment(commodities). In other words, hyperinflation is economic and social suicide. Lets stopthe suicide NOW before its too late.

IS THE STIMULUS CONSTITUTIONAL?

NO! ABSOLUTELY NOT! Article 1, Section 8 of the U.S. Constitution says:

The Congress shall have Power ... To coin Money, regulate the Value thereof,and of foreign Coin, and fix the Standard of Weights and measures;

Coining money is simply a metal stamping process and regulating the value thereof

is determining the size, weight and fineness of the coin and stamping that information onits face. In other words, this section simply authorizes Congress to establish the standardsand provide a service to the owners of gold and silver bullion by establishing facilities forminting coins. This is why it is in the section on the Standard of Weights and Measures.It does not authorize Congress to interfere in the free market economy by purchasingbullion, converting it into coins and then issuing them. This is reinforced by Section 14 ofthe 1792 Coinage Act which is simply an implementation of Article 1, Section 8.

The Coinage Act of 1792 says:

Section 14. And be it further enacted, That it shall be lawful for any person or persons tobring to the mint gold and silver bullion, in order to their being coined; ... And as soonas the said bullion shall have been coined, the person or persons ... shall upon demandreceive ... coins of the same species of bullion which shall have been so delivered, ...

In other words, anyone who owns gold and silver bullion (not just the miningcompanies) can take it to the mint and have it converted into certified coins and thenSPEND THEM INTO CIRCULATION. It is not necessary to have government, or banks,issue currency.

Honest money is simply a medium of exchange. This means its a tool which facilitates


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the exchange of commodities. But who produces the commodities? Certainly notgovernment it consumes commodities without producing any to exchange. We do notelect public officials to produce commodities, they are elected to provide protection forthose who do. Since protection is a service provided to society, government is entitled tothe money necessary for providing that service. The problem is, and has always been, howto keep government from destroying those upon whom it depends for its sustenance andis supposed to protect the producers in society.

ARE WE FREE ??

Money represents the fruits of labor, which is simply the application of human energyto the conversion of natural resources into useable commodities. Since human energybelongs exclusively to the individual, the results of its application (commodities) alsobelong exclusively to the individual. This is the source of property, which moneyrepresents. If we do not control the fruits of our labor we are not free, even though wemay still be able to move about. When we allow others to control our money, we give upour freedom.

We have allowed government and an international cabal of bankers to control our

money, so we have given up our freedom. We work ceaselessly to pay our debts and thosethat government owes to the bankers who control us and therefore we are not free. Ourtwentieth President, James A. Garfield was absolutely right:

Whoever controls the volume of money in any country is absolute master of allindustry and commerce.

But commerce is simply an interaction between producers in society. Theseproducers are people who have lost control over the fruits of their labor and therefore areslaves because the FED controls the volume of money in our country. Our government issimply the collection agency for the international slave masters. If you still think you arefree, try starting your own business without the permission of government.

Obamas stimulus package is nothing more than an accelerated slave raid and theburden of our chains will become more than we can bear. Society will collapse intoanother dark age, many will perish along the way, and those who survive will live inmisery.

At this stage of decline there is no way to avoid a major reduction in our standard ofliving, we have already eaten the seed corn, but the plunge into another Roman typedark age CAN BE PREVENTED. It will require a major effort to change the thinking ofpeople about money, political philosophy and morality nothing short of this will suffice.If the freedom that results in a high standard of living is not worth the effort to re-educateourselves in the underlying fundamental principles, then our destiny is automaticallydetermined.

In other words we still have a choice: accept the lumps that are rightfully ours becauseof our past lethargy and work our way out of the depression, or continue on the presentpath to oblivion. It appears that Thomas Jeffersons prediction is being fulfilled: (emphasisadded)

Our rulers will become corrupt, our people careless. A single zealot maycommence persecutor and better men be his victims. It can never be too often


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repeated, that the time for fixing every essential right on a legal basis is while ourrulers are honest, and ourselves united. From the conclusion of this war we shallbe going down hill. It will not then be necessary to resort every movement to thepeople for support. They will be forgotten, therefore, and their rights disregarded.They will forget themselves, but in the sole faculty of making money, andwill never think of uniting to effect a due respect for their rights.

From Jeffersons Writings, Query XVII, 1781.

Men seem to reach a point of darkness where they must decide whether to turn the lightsback on or slip into a darkness where no lights remain. Lets turn the lights back on!

The battle is for mens minds. If we lose this battle the consequences will be terrible.Lets CHANGE THE THINKING OF PEOPLE to light the candle of freedom again!


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APPENDIX A


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APPENDIX B

THE FEDERAL RESERVE SYSTEM DETAILS

The information provided herein

comes from a book titled The FederalReserve System Purposes andFunctions authored by the Board ofGovernors of the FED. The adjacentfigure is a copy of the books cover. Onpage 23 of this book (shown on the nextpage), a table is provided which givesa detailed description of the reserverate technique of creating money,which will be analyzed in detail.

The United States is divided into 12Federal Reserve Districts with a mainreserve bank and several branch banksin each district (see Map in AppendixD). For example Idaho andWashington are in district 12 and themain reserve bank for that district is inSan Francisco. Commercial banks inIdaho deal with the FED branch bankin Portland and commercial banks in

Washington deal with the FED branchin Seattle. These FED branch banksserve as the bankers bank for localcommercial banks and provide manyservices for them. One of theseservices is calculating the reserveswhich each commercial bank must have on deposit with its FED branch bank.

Before we begin our analysis, two misleading features in the table on the page 12 needto be clearly understood.

1. In the comments above the columns of numbers, the statement is made that A memberbank at which $100 is deposited needs to hold $20 in reserves at the Reserve Bank. Theremaining $80 can be lent. This gives the impression that the local commercial bankdeducts $20 from the $100 and deposits it with its reserve bank. This is utterly andabsolutely false, as we shall see.

2. The Board of Governors has the authority to manipulate reserve rates between thelimits specified in the Federal Reserve Act. The reserve rate in this example is 20%and up until the Monetary Control Act of 1980 this would be a possible rate, but was


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never used. Until 1980, thelegal limit on checking accountreserve rates ranged from 7% to22%. The Board of Governorscould set the rate anywherewithin this rage. On Aug. 31,1959 it was 18%, the highest rate

in history. During the sameperiod the reserve rate on timedeposits (savings accounts)ranged from 3% to 6% itsbeen 3% for many years. TheMonetary Control Act of 1980changed the reserve rate onchecking accounts to a range of3% to 14% the current rate is10%. Thus todays actual figuresare much worse than those

shown in the adjacent table. TheMonetary Control Act of 1980changed the reserve rate on timedeposits (savings accounts) to arange of 0% to 9% it iscurrently 3%.

Now lets examine the adjacenttable which is page 23 in theFED book referenced above.

In the column titledTransactions, on the line Bank1, under the second columnheading Amount deposited inchecking accounts, we see that$100.00 is deposited. In the third column with the heading Amount lent, we see $80.00.Since the reserve rate in this example is 20% of the $100 deposit, the amount in column 4under Amount set aside as reserves on deposit at Reserve Banks is $20 (20% of $100).However, this column heading is misleading, as will be explained in the example below.

Its important to keep in mind that we are talking about checking account money.People put money in checking accounts when they expect to spend it soon (usually bywriting a check against it). If they intended to save it, they would have put it in a savingsaccount (where the 3% reserve applies - more about that later). The following examplewill illustrate the money creation process shown in this table.

Lets suppose spender A deposits $100 in his checking account and the next daywrites a $100 check against his deposit to buy a lamp. If the bank had deducted $80 fromhis account and loaned it to debtor B, as shown in column 3, As check would bounce


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when the store manager deposited it. Needless to say, spender A would be on the banklike a wet blanket and close his account. Thus we see that the $80 can not come from the$100 deposit. Where does it come from? Due to FED regulations, the local commercialbank is authorized to simply create an additional $80 based on the $100 deposit. In otherwords, if debtor B wants to borrow $80 after spender A makes his deposit, the bankis authorized to create the $80 by lending it.

Next lets move to the last column, the title of which is misleading. The column islabeled Amount set aside as reserves on deposit at Reserve Banks. This gives the impressionthat $20 out of the $100 deposit is set aside as reserves at a Federal Reserve Bank for thelocal commercial bank. Hmmm, lets see now, $80 loaned to debtor B and another $20deposited in the FED Bank as reserves for the commercial bank $80 + $20 = $100 andthere is nothing left in spender As checking account to cover his $100 check simplycan not happen; the statements at the top of the table are simply a deliberate attempt tomislead the reader.

As we saw in a previous paragraph, the $20 reserve can not be deducted from spenderAs checking account. The FED simply creates another $20 by crediting the local

commercial banks reserve account at the Federal Reserve Bank in the amount of $20. Thuswe see that the total amount of new money created by the local commercial bank ($80 loan)plus that created by the FED ($20 reserves) equals the original $100 deposit ($80 + $20 =$100). At this point we see that the banking system has created a new $100 equal to theinitial checking account deposit.

Now lets return to the table on the previous page. Notice that the $80 created by thebank and loaned to debtor B has been deposited in Bs checking account, as shown incolumn two, line 2 under Amount deposited in checking accounts. Usually when someoneborrows money from a bank, they must set up a checking account with the lending bank

and the bank simply credits Bs checking account in the amount of the loan ($80). Thebank (and the FED) see this as a new $80 deposit and the 20% reserve applies. Thereforein column three we see an additional $64 (20% of $80 is $16 and $80 minus $16 is $64) isloaned and the FED credits the commercial banks reserves with an additional $16.00.Thus in columns 3 & 4, on the line identified as 2 under Transactions, we see that thebanking system has created an additional $80 ($64 loan + $16 reserves) but in this case theoriginal $80 was created by the loan in Transaction 1" (column 3, line 1) and it is notbacked by any products at the time of the loan. At this point, the banking system hascreated an additional $180 based on the initial $100 deposit and no new products havebeen created as backing for this $180. We are assuming that spender A producedproducts as backing for the $100 (even though this may not be true as we shall see later).

The total new demand for products is now $280 (initial $100 deposit plus $180 createdby the banking system) for $100 worth of products. Of course $280 chasing after $100worth of products is what drives prices up. It will undoubtedly be objected that thereserves created by the FED for the local commercial bank are not chasing products. Inorder to see that they are, we would have to examine what happens when the localcommercial bank borrows its reserves from the FED and loans them into circulation. Thatwould take us into details about the Discount Rate and FED Funds Rate, which is notpractical here.


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If you look at the bottom of column 4 in the table on page 12, you will see that thereserves created by the FED for the local commercial bank is equal to the amount of theinitial $100 deposit. The difference is that the initial $100 deposit had products backingit up whereas this $100 reserve has absolutely nothing backing it up. The commercial bankcan borrow this newly created $100 and start the money creation process all over again.Remember that spender A has already spent his $100 and withdrawn that amount ofproducts from the market.

At the bottom of column 3, we see that $400 of NEW LOANS have been made by thebank in addition to the $100 IN RESERVES which have been created by the FED. $400 +$100 = $500 of newly created money without anything to back it up at the time of creation.Thus we have $600 (the initial $100 deposit plus the $500 created by the banking system)chasing the original $100 worth of products (ignoring the time element). $600 chasing $100worth of products is what drives prices up and the value of the dollar down.

The time element is very important in understanding the basic economics involved inthis money creation system and is often overlooked. Its true that debtor B will have toproduce enough products in the future to repay the loan but at the time of the loan, he

withdraws $80 worth of products from the market when none have been created to backit up. This is additional demand against an existing supply of products and drives pricesup and the value of the money down. In other words, total demand has increased by$500 but the supply has not at the time of money creation .

A more complete analysis will show that debtor B will be in the process of creatingproducts to repay the $80 he borrowed while others are borrowing newly created moneyat later points in time. Thus, by the time the 50 transactions (see the section titled ReserveCalculations below for this figure) necessary to create the $500 are completed, people whoborrow earlier in the cycle will be producing products to repay their loans. Thus, the

quantity of products to back up the newly created money is increasing as the creationprocess proceeds. Even so, the overall situation is much worse than this analysis indicatesbecause we have not considered parallel bank transactions based on the initial $100 depositor the bank float. Also, there are many cases where the initial $100 deposit will not bebacked by any products at all (explained later).

The present reserve rate is 10%, not 20%, therefore banks can create $1000 of newpurchasing media for each $100 deposit in a checking account (see the two websites belowfor more detail on reserve requirements) .

http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=cecbaa57a8b0cf4fa51822d63209c117

&rgn=div8&view=text&node=12:2.0.1.1.4.0.2.9&idno=12

http://www.federalreserve.gov/monetarypolicy/reservereq.htm#table1

[Those who are mathematically inclined will recognize that the figures in the table onpage 12 form a geometric progression and the amount created can be determined for anyreserve rate by calculating the sum of the progression. The equation for doing this isprovided in the section titled Reserve Calculations for those interested in exploring theeffects of reserve rate changes. Working with these equations reveals why the FED usually
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relies more on discount rate and FED funds rate manipulations than on the reserverate. As the reserve rate is decreased, the number of transactions required to complete thecycle increases dramatically. As the number of transactions increases it becomes verydoubtful if the money creation cycle will ever be completed because of the commercialbank reporting period. These details are not explained here because the purpose of thisarticle is to promote a general understanding of how the legalized counterfeiting machine(FED) creates the money.]

When the FED Board of Governors arbitrarily reduce the reserve rate, the amount ofmoney that can be created from each deposit increases, except as noted in the previousparagraph. Furthermore, reducing the reserve rate makes more money available tocommercial banks immediately. If the reserve rate is reduced from 10% to 9.5 %, thismeans that, at the time of reduction, the banks have a half percent more in reserves at theFED than necessary to meet reserve requirements. These excess reserves can beimmediately withdrawn by the commercial bank and loaned into circulation. Nationwidethis amounts to a lot of money.

Conversely, increasing the reserve rate reduces the amount of money created. If the

FED wants to follow a tight money policy and create a recession, it can increase thereserve requirement and the banks will have to scramble to come up with the additionalmoney to deposit in their reserve account at the FED to meet the higher reserverequirement. This withdraws money from circulation and reduces economic activity a recession begins. However, this technique is rarely used; discount rate (not explainedherein) manipulations accomplish the same thing.

Between the time that Congress passed the Federal Reserve Act and President Wilsonsigned it, Congressman Lindberg warned the American people that the Federal Reservewould: (emphasis added)

... establish the most gigantic trust on earth. When the President signs the act,the invisible government by the money power ... will be legitimized. The newlaw will create inflation whenever the trusts want inflation. From now on,depressions will be scientifically created.

Congressman Charles Lindberg, Sr.

It was mentioned earlier that the reserve rate on savings accounts is 3%. Lets suppose

saver C deposits $100 in his savings account. With a 3% reserve requirement, the bank

can lend $97 of this $100. This $97 loan is placed in someones checking account where the

10% reserve requirement applies. So 97% of the savings account deposits (time deposits

in bankers jargon) are used for creating new money by the same process as checking

account deposits the only difference is that an initial checking account deposit (from a

savings account loan) is slightly less $97 instead of $100. With a 10% reserve rate on

checking accounts, this means that the banks can only create $970 of new money from a

$100 deposit in a savings account.

Now we can begin to understand what Josiah Stamp meant when he said:


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The modern banking system manufactures money out of nothing. Theprocess is perhaps the most astounding piece of sleight of hand that was everinvented. Banking was conceived in inequity and born in sin .Bankers own theearth. Take it away from them but leave them the power to create money, andwith a flick of a pen, they will create enough money to buy it back again . Takethis great power away from them and all great fortunes like mine will disappear,for then this would be a better and happier world to live in . But if you want tocontinue to be the slaves of bankers and pay the cost of your own slavery,then let bankers continue to create money and control credit.

Sir Josiah Stamp, president of the Bank of England and the secondrichest man in Britain in the 1920s, speaking at the University ofTexas in 1927.

Understanding how this fraudulent money-creation system works can be very usefulfor personal financial planning. If you hear that the FED is reducing the reserve rate (orthe discount rate, or FED funds rate) you automatically know that prices will rise and thevalue of the dollar will decline.

STEALING REAL PROPERTY

He who steals from a citizen, ends his days in fetters and chains; but he whosteals from the community ends them in purple and gold.

Marcus Porcius Cato The Elder (234 - 149 B.C.) Held several offices inthe Roman Empire and was elected censor in 184 B.C. Acted as censustaker, assessor, and inspector of morals and conduct.

The point is that the banks use fraud (legally counterfeited money) to obtain title toreal property. People who borrow from the banks must provide collateral as backing forthe loan if the debtor defaults on the loan, the bank gets the property. The sub-primemortgage debacle is a prime example of this. The FED simply created (counterfeited) the

money used by Freddie Mac, Fannie Mae, FHA, banks, and other lending institutions, togrant loans to people who could not afford them. In spite of all the hullabaloo aboutbanking problems, you can rest assured that the big banks will come out smelling like arose after all, the FED can create as much money as necessary to bail them out, like theydid in the stock market crash of 1987. Bernanke is presently doing exactly that heinjected $40 billion into the banking system in December, 2007; another $60 billion inJanuary, 2008 and has made it clear that he will create whatever funds necessary to avoida depression. Remember, before taking office he said he would drop dollars out ofhelicopters to prevent deflation (falling prices in his false usage of the term).

RESERVE CALCULATIONS

where Sis the sum, a equals the initial amount deposited ($100 inthis case), r equals one minus the reserve requirement expressed asa decimal (1 - 0.2 = 0.8 in this example), and nequals the numberof terms in the progression, which is the number of deposits thatmust be made to generate the maximum amount of newly createdmoney.


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From the table on page 12, we would have the following definitions of terms in theequation:

a = 100 (The amount deposited in transaction 1 in the table.)

The reserve rate is 20% which expressed as a decimal is 0.2. (see note 1 at the bottomof the table; demand deposit is bankers jargon for checking account deposit.)Therefore:

r = 1 - 0.2 = 0.8

If we let n = 50 (Transactions) then:

S = $499.99 (pretty close to $500)

In the table on page 12, the Board of Governors of the FED only carried their exampleto 20 transactions (n = 20) and the resulting sum was $494.29 they made up thedifference by alluding to deposits in Additional Banks in order to keep the examplesimple. This brings up another point: it is not necessary that all these transactions take

place in the same bank. The businessman who sold spender A the lamp may deposit hischeck in a different bank than the one that As check is written against. This does notmake any difference in the final outcome since all banks are operating under the samecentral bank rules and regulations.

APPENDIX C

Statements made during hearings of the House Committee on Banking and Currency,September 30, 1941. Members of the Federal Reserve Board call themselves Governor.Governor Eccles was Chairman of the Federal Reserve Board at the time of these hearings.

Congressman Patman: How did you get the money to buy those two billion dollarsworth of Government securities in 1933?

Governor Eccles: Out of the right to issue credit money.

Patman: And there is nothing behind it, is there, except our Governments credit?

Eccles: That is what our money system is. If there were no debts in our money

system, there wouldnt be any money.


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APPENDIX D

Revised December 30, 2009

bailouts and stimulus by bill denman

Documents