|Gracchus is an
employee of the federal government who works in sight of the Washington
Monument in Washington, D.C.|
Note: Few people realize that true fiat money spent directly into circulation by the government is the best, most democratic form of currency. The last such money used in the United States was the Greenbacks. The money today which is introduced into circulation by the Federal Reserve is not fiat money. Rather it is a kind of pseudo-money based on a debt pyramid which originates with the national debt.
Introduction All men are created equal, and all men have an equal right to the utilization of money as a social medium of exchange. The greatest crime of our age is the domination and control of money by the private banking industry through the Federal Reserve. The disastrous condition of the U.S. economy today starts and ends with our monetary and fiscal system, as described in the following analysis. As nothing in this sphere can be understood without a knowledge of history, the focal point of any meaningful study must be an impartial look at how things have gotten so bad over time. But there are positive elements too which can guide us to a solution. The story begins in colonial days.
U.S. Monetary History: Chronological Summary
1692 - Massachusetts colonial legislature authorizes payment of state obligations with fiat paper money, followed during the coming decades by the legislatures of New Jersey, Virginia, Pennsylvania, etc. These currency issues make commerce possible in the face of constantly disappearing metallic coinage due to the unfavorable balance of trade with Great Britain. Fiat paper money created by law and spent into circulation by government is a true democratic currency.
1706 - Bank of England is founded by European financiers who entered England with William of Orange in 1688 and are affiliated with the Dutch and British East India Companies. This is the beginning of the British funded national debt, which grows from £5 million in 1706 to £136 million in 1777 to £276 million in 1786. A "funded debt is one where only interest is paid, never the principal. The principal, held by the bank in the form of government securities, then becomes part of the reserve against which the bank lends. The bank purchases the securities through fictitious debit entries. The entire system is fraudulent and corrupt and mortgages the future of the nation to private banking interests. The need to service this mammoth debt launches over two centuries of British military and economic imperialism.
1729 - Benjamin Franklin articulates the theory of fiat money in A Modest Inquiry into the Nature and Necessity of a Paper Currency. He writes, "The riches of a country are to be valued by the quantity of labor its inhabitants are able to purchase, and not by the quantity of gold and silver they possess.
1763 - British Parliament, at the urging of Anglo-Dutch financiers and American colonial merchants and creditors, outlaws issuance of paper currency by the colonial legislatures. Contraction of the currency results in economic depression and is a cause of the Revolution.
1774 - Despite the tyrannical Parliamentary prohibition on new currency issues, $22 million remains in circulation. Franklin, serving as agent of the Pennsylvania Assembly in London, proposes a plan whereby colonial American legislatures would loan paper money into circulation using interest-bearing notes, so that earned interest could be shared with the home country in lieu of Parliament-imposed taxes. The plan is turned down by the British government.
1775-1776 - Continental Congress authorizes printing of Continental currency. Inflates due in part to massive British counterfeiting in New York City and opposition of Tories, but serves to keep Washington,s army in the field.
1776 - Adam Smith, writing in The Wealth of Nations, states that a funded national debt, as with the Bank of England, leads to degradation of the currency (i.e., inflation), which governments favor because they will be able to pay interest with money of lesser value. This observation holds true to this day.
1778 - Articles of Confederation adopted which authorize Congress to "emit bills of credit; i.e., fiat paper money.
1778-89 - Faced with depreciation of Continental currency, Franklin in Paris negotiates French loans to help finance the Revolution.
1782 - Businessmen in Philadelphia found the Bank of North America, which floats loans to Congress. First system of fractional reserve banking in the U.S.
1783-87 - Post-war economic depression leads farmers, laborers, and debtors to demand new issues of state-authorized paper money. Lack of circulating currency a major cause of Shays,s Rebellion in Massachusetts.
1787 - Constitutional Convention held in Philadelphia. More than half of the delegates are investors or speculators in public securities that would be benefited by new Constitution. The document gives Congress right to levy taxes and borrow on the credit of the United States; also to coin money and regulate its value. Reference to bills of credit is omitted, except that states are banned from issuing them.
1788 - Constitution is ratified with the understanding that Congress will immediately amend it with a Bill of Rights.
1789 - George Washington becomes 1st president. Alexander Hamilton is Secretary of the Treasury and Thomas Jefferson Secretary of State. James Madison of Virginia pushes a Bill of Rights through Congress over objections of Federalist members. Hamilton assumes leadership of the Federalists and proposes a funded national debt like the British and a national bank like the Bank of England. Hamilton is bitterly opposed by Jefferson, who argues that a national bank was explicitly rejected by the Constitutional Convention and would in fact be unconstitutional, as power to create one was not given to Congress by the Constitution. Hamilton argues the "implied powers" doctrine, which President Washington reluctantly accepts, allowing potential unbridled expansion of federal government power, without reference to any Constitutional limitation. (The implied powers doctrine states that Congress may take any measure necessary to implement a designated Constitutional power, even if the measure itself is not specified.) The funded debt and the Bank of the United States are passed by Congress, but are viewed by Jefferson and his party, soon to be called Republicans and later Democrats, as a virtual coup-d,etat by Hamilton and the Federalists in imposing British monarchical institutions on the U.S. Hamilton is candid in his attempts to bind the financiers who control the money power to the new government, even if it involves what he acknowledges as corruption. Hamilton gains Congressional approval of federal assumption of state Revolutionary War debt which leads to huge windfalls for speculators. Hamilton views his financial policies as necessary to create an American "empire." These controversies in the first Washington administration are the origin of the American two-party system down to today, with one party being heavily influenced by what Van Buren later called the Money Power and the other more concerned with the rights and interests of ordinary people.
1789-1800 - Period of Federalist domination of the national government, with Hamilton leader of Federalist Party and Jefferson head of the Republican. First Bank of the United States operates through investors purchasing Treasury bonds, then using them as capital to fund bank shares. Bank then issues paper currency through fractional reserve lending, which Hamilton candidly calls "a substitute for money. U.S. Mint established to mint gold or silver coin for individuals presenting bullion, offering an alternative national currency to bank notes. Metallic coinage continues as important component of U.S. currency system until the 1930s.
1800 - "Civic Revolution" of 1800, with election of Jefferson and destruction of the Federalist Party. Total victory of what will be named the Democratic Party takes place in the executive and legislative branches. Federalists gain dominance of judicial branch by departing President Adams' last-minute appointment of John Marshall as Chief Justice. Democrats dominate American politics until 1860, except for a couple of minor interludes under the Whigs. Power of the Democrats is based on the numerical superiority of farmers and town laborers which Jefferson and successors are able to organize effectively. Sharp cutbacks in Federal expenditures allow Jefferson to balance the federal budget every year of his presidency.
1811 - Charter expires on First Bank of the United States. No national bank during the next five years. By now, state-chartered banks are issuing paper money through lending. Continuing unfavorable balance of trade leads to ongoing drainage of metallic currency. Federal Treasury issues fiat paper money from 1811-1816 to help fill the gap in currency.
1816 - President Madison signs legislation for Second Bank of the United States to bring more order to the currency and act as fiscal agent for the Treasury. Bank gains notoriety for corruption, favoritism, and bribery of politicians.
1830 - Gold and silver specie in circulation amounts to only 1/30 to 1/50 of GDP, showing continuing need in the U.S. for paper currency.
1832 - President Andrew Jackson vetoes bill to renew charter of Second Bank of the United States, though it continues on basis of original 20-year charter.
1834 - Jackson removes federal funds from the Second Bank and deposits them in state banks. Later pulls federal funds from banking system altogether and creates system of "sub-treasuries, which continues until 1913.
1835-1855 - Federal government again issues paper fiat currency.
1836 - Charter of Second Bank expires, ending early era of national banks. Until 1861, Federal government has largely balanced budgets from import, tariff, and excise revenues, with some sale of Treasury bonds to fund Mexican War. State bank currencies provide paper money at varying rates of exchange to supplement coinage and Treasury-issued paper money.
1837 - Paper bank notes in circulation reach $149 million from $10 million four years earlier.
1848 - Discovery of gold in California increases coinage in circulation and fuels expansion of trade and manufacturing.
1861 - Civil War begins. Congress imposes first U.S. income tax and sharply increases excise taxes. New York bankers, also acting as agents for European bankers, demand extortionist concessions from Lincoln in floating of bonds. Lincoln refuses terms. Congress authorizes $450 million in Greenbacks, not immediately redeemable in specie, which are spent into circulation in payment of government war obligations. Subsequent efforts to withdraw Greenbacks by bank-oriented Congressmen fail. Ordinary citizens recognize that it is the Greenbacks, a true democratic currency, which have saved the union.
1862 - Federal government begins to directly market war bonds to citizens.
1863-4 - Lincoln succeeds in getting national bank legislation through Congress. Creates system of national banks which may issue paper debt-based currency and through which government bonds may be sold. State bank currency taxed out of existence.
1865-1900 - Post-Civil War era sees insufficient currency to fuel all aspects of economy. Farmers are particularly hard-hit with price deflation driving down market prices of their commodities and leading to frequent default on mortgages. Status of silver coinage against gold declines, with nations worldwide starting to go onto gold standard. By end of the century, relief takes place from discoveries of gold in South Africa and Alaska and improved ore extraction methods. Fractional reserve banking system in U.S. recognized as unstable, especially at state level. Runs on banks produce panics. General trend to concentration and centralization of banking in large cities, especially New York, Chicago, and San Francisco. Much U.S. industrial expansion fueled by reinvestment of profits rather than through banking system. In 1900, U.S. currency consists of $346 million in Greenbacks (by now redeemable in gold), $484 million in Treasury-issued silver certificates, $76 million in coined or bullion silver, and $331 million in national bank notes. Thus of a money supply of $1.237 billion, only 27 percent is bank-issued debt currency. Data show continuing necessity of Greenbacks as part of national currency system and non-inflationary impact of Greenback policy.
1900-1913 - By the end of the 19th century, and despite tremendous economic changes, the U.S. has enjoyed a century of relative monetary and fiscal stability through a combination of fiat, metallic, and bank-issued currencies. This is about to change disastrously, as financial and industrial capitalism begin to merge, culminating in the creation of business trusts, including the Money Trust under the Morgan and Rockefeller banking interests.
1913 - Federal Reserve System created by Act of Congress and signed by President Woodrow Wilson, who later regrets doing so. This is a counterrevolution by the Money Power after 113 years of federal fiscal responsibility, which now restores Hamilton,s system based on the Bank of England. The Federal Reserve is a privately-owned and operated central banking system acting under nominal Congressional charter. The system is established whereby the Federal Reserve issues debt-based currency by purchasing Treasury securities in the open market through fictitious debit entries in order to increase reserves of the member banks which can then expand lending.
1917 - Huge growth begins in the U.S. national debt through Federal Reserve financing of World War I. Massive post-war inflation caused by the Federal Reserve-generated debt doubles the consumer price index, virtually destroying the value of remaining Greenbacks and Treasury silver certificates.
1920-29 - "Roaring 20s" see massive financing of stock and real estate speculation by the Federal Reserve and the banking industry, combined with ongoing decline in farm income due to decade-long price deflation and foreclosures.
1929 - Stock market crashes when the Federal Reserve deflates the currency in order to ship a significant portion of U.S. gold reserves to the Bank of England. Great Depression begins with unprecedented unemployment and economic distress. Banks purchase huge amounts of U.S. assets at bankruptcy prices, forming the basis for many modern fortunes.
1932 - President Hoover creates Reconstruction Finance Corporation (RFC), which moves to recapitalize failing non-Federal Reserve banks in rural areas and small towns. RFC loan programs have major impact over next 20 years, with loans to railroad industry, farmers, exporters, state and local governments, and wartime industries. $50 billion lent by 1953, often at interest rates of only two percent.
1933 - Franklin D. Roosevelt inaugurated as president. Calls national banking holiday. Ends gold redemption for U.S. currency. Calls in citizen-held gold coin and bullion, which is purchased by the government at below-market prices.
1933-40 - Roosevelt uses RFC, Public Works Administration, CCC, and other programs to attack depression and provide employment through massive infrastructure investment. Modern U.S. physical economy comes into existence, including public schools and hospitals, dams, municipal water and sewage systems, rural electrification, etc. Expansion financed through income taxes and borrowing. Congress passes Thomas Amendment, which authorizes new issues of Greenbacks, though Roosevelt does not do so. In depths of Depression, U.S. banks utilize reserves based on growing U.S. national debt to make massive loans to Europe, especially Nazi Germany.
1940-45 - National debt grows by 418 percent to 20th century high of 120 percent of GNP.
1946 - Post-war Bretton Woods agreements stabilize international currency exchange rates until they are abolished in 1972. U.S. establishes CIA as secret foreign intelligence service to spearhead imperialistic policies reminiscent of Great Britain,s of the past two centuries.
1946-60 - Post-war demobilization channels economic activity into civilian economy, leading to continued industrial expansion, which begins to stall out by the time Kennedy is elected president in 1960.
1953-1954 - CIA-sponsored coups in Iran and Guatemala signal start of modern era of U.S. domination of Middle East and Latin America.
1960 - Retiring President Dwight D. Eisenhower warns nation against growing power and dominance of military-industrial complex.
1962 - President John F. Kennedy reforms tax system to channel more money into industrial investment. Massive manned space program formulated in part as economic stimulant. Kennedy,s policies to increase federal direction of U.S. economy are strongly opposed by Wall Street banking interests.
1963 - Kennedy is assassinated by conspiracy, followed by escalation of Vietnam War.
1964-80 - National war mobilization starting with Vietnam War leads to steady price inflation which peaks in 1980 but continues afterwards. From 1965-95, U.S. prices inflate more than 400 percent.
1972 - U.S. abrogates Bretton Woods agreements, destabilizing international currencies and leading to era of international currency speculation. President Nixon takes final steps to remove U.S. from gold standard.
1980-83 - Federal Reserve announces policy to combat inflation by contracting money supply through increasing interest rates. Rates top out at over 20 percent, which plunges nation into worst recession since the 1930s, exposing failure of Fed,s "monetarist" approach. Billions in assets are acquired by financial institutions at bankruptcy prices. U.S. industrial and infrastructure capacity are devastated, including destruction of steel industry. Major decline of government infrastructure investment at all levels. Beginning of "service" vs. industrial economy.
1983-90 - Era of leveraged buyouts and mergers, combined with collapse of savings and loan industry, leading to sell-off of U.S. assets, with further erosion of industrial base and foreign acquisition of businesses. Reagan tax cuts, combined with tax base erosion, result in unprecedented growth in national debt, exposing total failure of "supply-side" economics. Renewal of recession leads to election of Bill Clinton as president in 1992 over George Bush.
1992-2001 - Federal Reserve restores loose money policy after fiasco of the 1980s but now repeats mistakes of the 1920s by overseeing massive bank lending for stock market and real estate speculation, along with huge loans abroad. Temporarily creates jobs through gigantic stock "bubble. Laundering by U.S. banks of international drug money and other criminal proceeds also begins to pump large amounts of cash into the economy.
1992 - International financiers and speculators commence looting of assets of former Soviet Bloc nations in manner similar to U.S. sell-off of 1980s.
1994 - Despite economic upturn, U.S. industrial jobs are not restored. NAFTA and related trade agreements lead to massive export of even more American industrial jobs.
1998 - American Society of Civil Engineers estimates $1.8 trillion infrastructure maintenance deficit, including roads, bridges, water systems, school buildings, hazardous waste removal, etc.
1998-1999 - President Clinton achieves federal budget surplus through fiscal discipline combined with taxes on capital gains resulting from stock bubble.
2000 - Stock bubble bursts, leading to stockholder losses of $2 trillion, wiping out retirement funds, etc., and eroding tax revenues at all levels of government. George W. Bush designated as president by Supreme Court after Florida vote-counting debacle.
2001 - U.S. economy in recession. Total U.S. debt of all types reaches $29.5 trillion, or 72 percent of GDP. Annual principle and interest payments amount to 40 percent of GDP. Recession begins. Attacks on World Trade Center and Pentagon by alleged terrorists provide pretext for U.S. invasion of Afghanistan.
2001-2002 - Nations designated by President Bush as "axis of evil (Iraq, Iran, and North Korea), have been moving toward Euro for denomination of oil and foreign trade, threatening stampede of oil-producing nations. U.S. intervention fails in abortive coup in Venezuela, the only Western hemisphere OPEC nation. State and local borrowing deficit (amount borrowed less amount paid back) reaches $127 billion, up from $38 billion in 1993. Threatened loan default by Argentina is shored up by massive emergency loans by International Monetary Fund.
2003 - Export of jobs continues as recession produces rising unemployment despite productivity increases from automation. Domestic economy fueled in part by home refinancing due to lower interest rates which are offset by inflation of home prices, threatening home ownership by future generations. Two-thirds of state governments face bankruptcy or massive budget cuts. Foreign holdings of Treasury securities reach 45 percent as dollar declines against Euro and other foreign currencies, threatening recall of foreign investment. Banks continue to pump laundered drug money and other criminal proceeds into securities markets. U.S. national debt reaches $6.4 trillion, of which 43 percent is held by Social Security and other trust funds, all endangered by growing insolvency of the federal government. $400 billion FY 03 budget shortfall forecast, expected to exceed $500 billion in FY 04. Congress authorizes increase in debt ceiling of $900 billion and approves $80 billion appropriation for Iraq war and $350 billion income tax cut mainly benefiting wealthier taxpayers. Massive federal debt drives U.S. into state of perpetual warfare in desperate scramble to maintain value of dollar abroad, just as happened with Britain and its own national debt under the Bank of England. Following exaggerated claims about Iraqi possession of weapons of mass destruction, President Bush orders invasion.
What is happening today is simply the playing out in modern terms of the imperialistic and corrupt financial and monetary system installed by Secretary of the Treasury Alexander Hamilton in 1789 in order to produce an American empire. Hamilton,s plans were thwarted by the Civic Revolution led by Thomas Jefferson and the Democrats in 1800, leading to 113 years of relative fiscal responsibility, an era that ended with the coup d,etat carried out by the Money Trust and its Bank of England allies through creation of the Federal Reserve in 1913. As a result, we are today what Martin Van Buren said of the Hamiltonian era: "a bank-ridden society. Franklin Roosevelt and John Kennedy struggled against the Money Power, which reasserted itself when the latter was assassinated in 1963 and has gained increasing control of all aspects of the national economy. The 1980s saw the failure of both monetarist and supply-side policies to achieve prosperity by squeezing the money-supply and accelerating production. But there was not enough prosperity to buy what was being produced.
When the Democrats came in during the 1990s, they engineered fictitious prosperity through a loose money policy based on debt, speculation, and laundered drug money. That policy also failed. Today, we have the result"the New American Empire, desperately driven by a massive national debt and trying to escape reality by perpetual foreign wars, just as happened under the Bank of England in Britain from 1706 to 1944, when that Bank was finally nationalized. The question now is whether we want to live under that Empire, or return to an America "by, of, and for the people. If so, the monetary system which drives the whole mechanism must be changed. Note too that this issue is not new. During much of the 20th century, many intelligent people opposed the Federal Reserve System, including two chairmen of the House Banking and Currency Committee, Wright Patman and Henry Gonzales, who both introduced legislation to abolish it. It,s only been during the last 25 years or so that American politicians, including all of the current Democratic Party presidential candidates, have been brain-dead on the subject.
In fact the U.S. economy is cash-starved. The solution to the problem is monetary reform, starting with nationalization of the Federal Reserve, and creation of a democratic currency system operated by the Treasury patterned after the Greenbacks, which were the most effective currency in U.S. history. This would be a revolution analogous to Jefferson's Civic Revolution of 1800. Now, as then, the centerpiece of the revolution must be monetary and fiscal reform. For an excellent modern treatment of the subject, see a new book entitled The Lost Science of Money by Stephen Zarlenga, director of the American Monetary Institute. Whether the people of the United States have the will to accomplish such a revolution remains to be seen. It may depend on how miserable they become under the current system, while some make the mistake of calling for a return to the mythical days of a gold/silver standard. It should be noted that the states could make the required changes on their own through a constitutional convention. Such a convention could be called and amendments ratified without the approval of any branch of the federal government.
Whether by law or constitutional amendment, the following reforms should be implemented:
#61623 - Treasury must begin to directly issue United States currency as legal tender. This funding should enter into circulation through Treasury-approved programs of funding of infrastructure programs administered through the state governments. Funding would be through grants or low-interest loans to be used for education, health care, transportation, energy generation, water and sewer systems, etc. Programs may be accomplished through state and local public agencies or public-private partnerships as appropriate. A specified proportion of such funding should be spent on American-made products.
#61623 - A national system of public-private savings banks should be established to channel local resources obtained through Treasury funding into local lending activities. Existing state or national banks could apply for membership provided they meet certain criteria of funding local needs.
#61623 - The Federal Reserve should be reconstituted as a central national clearinghouse of funds transfer and a federal government fiscal agent, but the national Federal Reserve System of member banks must be abolished, with regulatory duties subsumed under the national banking system overseen by the Comptroller of the Currency.
#61623 - The present system of liquidity creation by central bank purchase of Treasury securities must be abolished.
#61623 - The federal government must balance its budget annually through tax revenues, with the provision that if a short-term deficit is necessary under a declared national emergency, funding may be accomplished through direct sale of Treasury securities to the non-banking public.
#61623 - The existing national debt should be paid off and all debt to the Federal Reserve System wiped off the books.
#61623 - Banks operating under a fractional reserve system must be strictly regulated to prevent lending for speculation and to prohibit lending to foreign governments.
#61623 - Existing laws against money laundering should be strictly enforced.
#61623 - The United States should take the lead in promoting restoration of a system of fixed foreign exchange rates.
#61623 - The ability of the president to make war without authorization of Congress should be further defined and restricted.
#61623 - Operations of war abroad by a secret intelligence establishment should be abolished.