This is <<http://www.howto-ville.com/Money%20Section/ellenbrownrebuttal.html>> Put up on April 2nd, 2009. It should be considered a draft that will be worked on in the weeks ahead. This prints out as 17 letter-size pages. This is about Ellen Brown's article from http://www.webofdebt.com/articles/dollar-deception.php ......................."DOLLAR DECEPTION: HOW BANKS SECRETLY CREATE MONEY / Ellen Brown, July 3rd, 2007 Although I admire and respect Ellen Brown more than I can say, I think Ms. Brown is presenting a very unfair, poorly reasoned, shallow, lopsided case against Fractional Reserve Banking (FRB). I feel obligated to attempt to correct what I think are somewhat dangerous positions that will lead many people to continue to misunderstand the basics of money and banking. Over the long run it is very important that this subject be fairly debated in public with the hope that the debate will lead to a better common understanding of what has long been confusing to most people and undertaught in our schools. From Wikipedia -- The term gold bug is a (sometimes pejorative) term used to describe investors who are very bullish on buying the commodity gold. The term was popularized in the 1896 US Presidential Election, when William McKinley supporters took to wearing gold lapel pins, gold neckties, and gold headbands in a demonstration of support for gold against the “silver menace”. I think it is now often used to describe money reformer's who are afraid the U.S. money supply is about to collapse. (mrc) |
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Ellen Brown's article is in this column. From http://www.webofdebt.com/articles/dollar-deception.php DOLLAR DECEPTION: HOW BANKS SECRETLY CREATE MONEY (1) Ellen Brown, July 3rd, 2007 |
Martin Carbone's (mrc) rebuttal is in this column. (1) The following article by Ellen Brown would lead one to think that Fractional Reserve Banking (FRB) is (A) a shell game, (B) mischief and (C) theft (D) that robs people of their money and (E) the greatest scam ever perpetrated. See those words within the article in the left column. (highlighted in red by mrc) I disagree. In my opinion, FRB is very clever and worthwhile system of banking that has evolved to its present state and has many features that make it invaluable to a economic system as a wealth generator that more-or-less keeps lenders and borrowers prudent and honest. See "Downside Leverage" which shows how the lenders are kept prudent by the system. As far as i know, nobody has ever acknowledged that natural, built in control of fractional reserve lending. Am i the first person that ever noticed this feature? Had this feature been widely recognized, I contend lending banks would never have had the right to sell-off loans they made to Fannie Mae and Freddie Mac. That selling-off created a situation where lenders did not have any skin in the game and did not much care if the loans went bad. That, I believe, directly led to the inevitable money and banking collapse of 2008. |
It has been called "the most astounding piece of sleight of hand ever invented." The creation of money has been privatized, usurped from Congress by a private banking cartel. Most people think money is issued by fiat by the government, but that is not the case. Except for coins, which compose only about one one-thousandth of the total U.S. money supply, all of our money is now created by banks. Federal Reserve Notes (dollar bills) are issued by the Federal Reserve, a private banking corporation, and lent to the government.1 Moreover, Federal Reserve Notes and coins together compose less than 3 percent of the money supply. The other 97 percent is created by commercial banks as loans.2 (A) Don't believe banks create the money they lend? Neither did the jury in a landmark Minnesota case, until they heard the evidence. First National Bank of Montgomery vs. Daly (1969) was a courtroom drama worthy of a movie script.3 Defendant Jerome Daly opposed the bank's foreclosure on his $14,000 home mortgage loan on the ground that there was no consideration for the loan. "Consideration" ("the thing exchanged") is an essential element of a contract. Daly, an attorney representing himself, argued that the bank had put up no real money for his loan. The courtroom proceedings were recorded by Associate Justice Bill Drexler, whose chief role, he said, was to keep order in a highly charged courtroom where the attorneys were threatening a fist fight. Drexler hadn't given much credence to the theory of the defense, until Mr. Morgan, the bank's president, took the stand. To everyone's surprise, Morgan admitted that the bank routinely created money "out of thin air" for its loans, and that this was standard banking practice. "It sounds like fraud to me," intoned Presiding Justice Martin Mahoney amid nods from the jurors. In his court memorandum, Justice Mahoney stated: Plaintiff admitted that it, in combination with the Federal Reserve Bank of Minneapolis, . . . did create the entire $14,000.00 in money and credit upon its own books by bookkeeping entry. That this was the consideration used to support the Note dated May 8, 1964 and the Mortgage of the same date. The money and credit first came into existence when they created it. Mr. Morgan admitted that no United States Law or Statute existed which gave him the right to do this. (B) A lawful consideration must exist and be tendered to support the Note. The court rejected the bank's claim for foreclosure, and the defendant kept his house. (C) To Daly, the implications were enormous. If bankers were indeed extending credit without consideration – without backing their loans with money they actually had in their vaults and were entitled to lend – a decision declaring their loans void could topple the power base of the world. He wrote in a local news article: This decision, which is legally sound, (D1) has the effect of declaring all private mortgages on real and personal property, and all U.S. and State bonds held by the Federal Reserve, National and State banks to be null and void. This amounts to an emancipation of this Nation from personal, national and state debt purportedly owed to this banking system. Every American owes it to himself . . . to study this decision very carefully . . . for upon it hangs the question of freedom or slavery. Needless to say, however, the decision failed to change prevailing practice, although it was never overruled. It was heard in a Justice of the Peace Court, an autonomous court system dating back to those frontier days when defendants had trouble traveling to big cities to respond to summonses. In that system (which has now been phased out), judges and courts were pretty much on their own. Justice Mahoney, who was not dependent on campaign financing or hamstrung by precedent, went so far as to threaten to prosecute and expose the bank. He died less than six months after the trial, in a mysterious accident that appeared to involve poisoning.4 (D2) Since that time, a number of defendants have attempted to avoid loan defaults using the defense Daly raised; but they have met with only limited success. (E1) As one judge said off the record: If I let you do that – you and everyone else – it would bring the whole system down. . . . I cannot let you go behind the bar of the bank. . . . We are not going behind that curtain!5 (E2) From time to time, however, the curtain has been lifted long enough for us to see behind it. (F) A number of reputable authorities have attested to what is going on, including Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920s. He declared in an address at the University of Texas in 1927: The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this 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 to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit. (G) Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta in the Great Depression, wrote in 1934: We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon.6 Graham Towers, Governor of the Bank of Canada from 1935 to 1955, acknowledged: Banks create money. That is what they are for. . . . The manufacturing process to make money consists of making an entry in a book. That is all. . . . Each and every time a Bank makes a loan . . . new Bank credit is created -- brand new money.7 (H) Robert B. Anderson, Secretary of the Treasury under Eisenhower, said in an interview reported in the August 31, 1959 issue of U.S. News and World Report: [W]hen a bank makes a loan, it simply adds to the borrower's deposit account in the bank by the amount of the loan. (I) The money is not taken from anyone else's deposit; it was not previously paid in to the bank by anyone. It's new money, created by the bank for the use of the borrower. (J) How did this scheme originate, and how has it been concealed for so many years? To answer those questions, we need to go back to the seventeenth century. The Shell Game of the Goldsmiths (2) (K) In seventeenth century Europe, trade was conducted primarily in gold and silver coins. Coins were durable and had value in themselves, but they were hard to transport in bulk and could be stolen if not kept under lock and key. Many people therefore deposited their coins with the goldsmiths, who had the strongest safes in town. The goldsmiths issued convenient paper receipts that could be traded in place of the bulkier coins they represented. These receipts were also used when people who needed coins came to the goldsmiths for loans. The mischief (3) began when the goldsmiths noticed that only about 10 to 20 percent of their receipts came back to be redeemed in gold at any one time. They could safely “lend” the gold in their strongboxes at interest several times over, as long as they kept 10 to 20 percent of the value of their outstanding loans in gold to meet the demand. They thus created “paper money” (receipts for loans of gold) worth several times the gold they actually held. (L1) They typically issued notes and made loans in amounts that were four to five times their actual supply of gold. At an interest rate of 20 percent, the same gold lent five times over produced a 100 percent return every year, on gold the goldsmiths did not actually own and could not legally (4) lend at all. If they were careful not to overextend this “credit,” the goldsmiths could thus become quite wealthy without producing anything of value themselves (5) . Since only the principal was lent into the money supply, more money was eventually owed back in principal and interest than the townspeople as a whole possessed. (L3) They had to continually take out loans of new paper money to cover the shortfall, causing the wealth of the town and eventually of the country to be siphoned into the vaults of the goldsmiths-turned-bankers, while the people fell progressively into their debt. 8 (6) Following this model, in nineteenth century America, private banks issued their own banknotes in sums up to ten times their actual reserves in gold. This was called “fractional reserve” banking, (L2) meaning that only a fraction of the total deposits managed by a bank were kept in “reserve” to meet the demands of depositors. But periodic runs on the banks when the customers all got suspicious and demanded their gold at the same time caused banks to go bankrupt and made the system unstable. (7) In 1913, the private banknote system was therefore consolidated into a national banknote system under the Federal Reserve (or “Fed”), a privately-owned corporation given the right to issue Federal Reserve Notes and lend them to the U.S. government. These notes, which were issued by the Fed basically for the cost of printing them, came to form the basis of the national money supply. (8) Twenty years later, the country faced massive depression. The money supply shrank, as banks closed their doors and gold fled to Europe. Dollars at that time had to be 40 percent backed by gold, so for every dollar’s worth of gold that left the country, 2.5 dollars in credit money also disappeared. (9) To prevent this alarming deflationary spiral from collapsing the money supply completely, in 1933 President Franklin Roosevelt took the dollar off the gold standard. (10) Today the Federal Reserve still operates on the “fractional reserve” system, but its “reserves” consist of nothing but government bonds (I.O.U.s or debts). The government issues bonds, the Federal Reserve issues Federal Reserve Notes, and they basically swap stacks, leaving the government in debt to a private banking corporation for money the government could have issued itself, debt-free. (11) M3, the broadest measure of the U.S. money supply, shot up from $3.7 trillion in February 1988 to $10.3 trillion 14 years later, when the Fed quit reporting it. Why the Fed quit reporting it in March 2006 is suggested by John Williams in a website called “Shadow Government Statistics” (shadowstats.com), which shows that by the spring of 2007, M3 was growing at the astounding rate of 11.8 percent per year. Best not to publicize such figures too widely! The question posed here, however, is this: where did all this new money come from? The government did not step up its output of coins, and no gold was added to the national money supply, since the government went off the gold standard in 1933. This new money could only have been created privately as “bank credit” advanced as loans. (12b) The problem with inflating the money supply in this way, of course, is that it inflates prices. More money competing for the same goods drives prices up. The dollar buys less, robbing people of the value of their money. (13) This rampant inflation is usually blamed on the government, which is accused of running the dollar printing presses in order to spend and spend without resorting to the politically unpopular expedient of raising taxes. But as noted earlier, the only money the U.S. government actually issues are coins. (14) In countries in which the central bank has been nationalized, paper money may be issued by the government along with coins, but paper money still composes only a very small percentage of the money supply. In England, where the Bank of England was nationalized after World War II, private banks continue to create 97 percent of the money supply as loans. 9 (15) Price inflation is only one problem with this system of private money creation. (16) Another is that banks create only the principal but not the interest necessary to pay back their loans. Since virtually the entire money supply is created by banks themselves, new money must continually be borrowed into existence just to pay the interest owed to the bankers. A dollar lent at 5 percent interest becomes 2 dollars in 14 years. That means the money supply has to double every 14 years just to cover the interest owed on the money existing at the beginning of this 14 year cycle. The Federal Reserve’s own figures confirm that M3 has doubled or more every 14 years since 1959, when the Fed began reporting it. 10 That means that every 14 years, banks siphon off as much money in interest as there was in the entire economy 14 years earlier. (17) This tribute is paid for lending something the banks never actually had (the right?) to lend, making it perhaps the greatest scam ever perpetrated, since it now affects the entire global economy (18). The privatization of money is the underlying cause of poverty, economic slavery, underfunded government, and an oligarchic ruling class that thwarts every attempt to shake it loose from the reins of power. (19) This problem can only be set right by reversing the process that created it. Congress needs to take back the Constitutional power to issue the nation’s money. (20) “Fractional reserve” banking needs to be eliminated, limiting banks to lending only pre-existing funds. (21) If the power to create money were returned to the government, the federal debt could be paid off, taxes could be slashed, and needed government programs could be expanded. (22) Contrary to popular belief, paying off the federal debt with new U.S. Notes would not be dangerously inflationary, because government securities are already included in the widest measure of the money supply. (23) and (24) The dollars would just replace the bonds, leaving the total unchanged. If the U.S. federal debt had been paid off in fiscal year 2006, the savings to the government from no longer having to pay interest would have been $406 billion, enough to eliminate the $390 billion budget deficit that year with money to spare. The budget could have been met with taxes, without creating money out of nothing either on a government print press or as accounting entry bank loans. However, some money created on a government printing press could actually be good for the economy. (24) It would be good if it were used for the productive purpose of creating new goods and services, rather than for the non-productive purpose of paying interest on loans. (25) When supply (goods and services) goes up along with demand (money), they remain in balance and prices remain stable. New money could be added without creating price inflation up to the point of full employment. In this way Congress could fund much-needed programs, such as the development of alternative energy sources and the expansion of health coverage, while actually reducing taxes. (26) |
(A) -- I accept everything written in this paragraph as being basically true. But parts of it are either (a) inconsequential, (b) presented in a sensational way, (c) misleading or (d) not related to anything of significance as far as Ms. Brown's article goes. (mrc) (B) Mr. Morgan’s admission that “no United States Law or Statute existed which gave him the right to do this”, was, in my opinion, blatantly erroneous. How did he know that to the level needled to be accepted into the courts records? Laws can either be based on statutes -- or on “common law”, which is based on precedents and long standing common practice within the community where the court is based. Since antiquity, money has been “ created out of thin air” by bankers. See a link to a .pdf of Wright Patman’s 141-page book: “A Primer on Money”, pages 27 and on at the following URL. (C) That court decision was obviously erroneous, because it was based on erroneous testimony. (mrc) (D1) The decision was NOT “legally sound”. Ellen Brown is a lawyer and she should know that. And since it is obviously in error -- why study it? Except to understand how errors can be multiplied and cause much trouble. (D2) Notice what I think is a clear implication that the judge was murdered. This is the stuff that people who love conspiracies swallow whole. I, of course, have no proof that the judge wasn't’t murdered and for all I know, he might have been murdered. (mrc) Since that time, a number of defendants have attempted to avoid loan defaults using the defense Daly raised; but they have met with only limited success. (E1) Of course they had "limited success", which I take to mean that the defense mostly failed, that defense is bogus. Ms. Brown is a lawyer and should know better than to leave the episode at this point, where a casual reader would probably think the defense has some validity. I think Ms. Brown knows that she is presenting this case in a very unfair way that tends to subvert the public's understanding of the law. Shame on her. (E2) I hope Ms. brown does not leave that "off the record" remark be the last word on this case. It gives the impression that the court, or at least one judge, was participating in a conspiracy to screw the public by abetting the "(A) shell game (B) mischief and (C) theft that (D) robs people of their money". See (1) above -- near the top of this column. (F) To bring this matter up to date, the curtain was emphatically (but not dramatically) thrown aside when Wright Patman’s book was published in 1964. Every rational, thinking person who is interested in this subject should do their best to expose the double, triple or compound hoax that surrounds the subject of the creation of money. The following is difficult for me to explain -- so slow down and read it slowly The first hoax is that “money “can’t be legitimately created out of thin air”, the second hoax is that “nobody knows the truth that money is created out of thin air” and the third hoax is that creating money out of “thin air” is perverse and illegitimate and the source of slavery, pauperism and other terrible things. The facts are that (1) money IS created out of thin air and (2) it is not hard to understand that and (3) that creation of money out of thin air is a wonderful boon to society -- for without it -- we could never have created all the wealth that money has made possible. Nobody has ever figured a better way to turn the visions of entrepreneurs into the reality of marketable products. Without created money -- most important ideas would die on the vine of dreams. Ms. Brown, being the intelligent, educated person she is, certainly should know this. By the way, I once thought money was the greatest invention ever made -- but I have since come to believe that money was not “invented” -- it evolved in the same way that all the apparently magical things in nature evolved (probably, in my view under the direction of a divine hand). (mrc) (G) I am absolutely certain Ms. Brown thinks she is doing good by repeating that incendiary statement -- "conceived in inequity and born in sin" hoping to galvanize the public into action -- but I claim she is doing way more harm than good with things like "BORN IN SIN" -- [large / bold emphasis added by (mrc)]. I herewith suggest she should immediately turn her efforts to explaining, with her considerable writing skills, that the creation of money is not mysterious and it can be managed for the common good. I believe it is not the basic system of money creation that is at fault. The fault lies in (A) the three hoaxes (discussed above) that are being perpetuated by people like Ms. Brown and (B) poor, incompetent management of our banking system which would be very easy to correct if we properly focused on that management. By the way -- the one good thing that has arisen out of our recent monetary and banking collapse is, in my opinion, that we all know that virtually anyone who was involved with money and banking over the last 20 years was feckless and incompetent. (mrc) (H) The above information is undoubtedly what Mr. Towers believes and most of it is absolutely true -- but certain parts are misleading and not true. For instance, “we are without a permanent money system”. In my opinion that is a silly claim that can’t be justified. It only serves to create fear in everyone who reads those words. I do not see any “tragic absurdity” or “hopeless position”. What I see is a basically good system that is being poorly run by incompetents. That can be corrected. (mrc) (I) As far as I am concerned, Mr. Anderson’s statements are facts and we should not be worried by those facts. Does Ms. Brown think those facts are ominous? (mrc) (J) I see this as being a wonderful thing. As long as the money is not taken from someone else’s deposits -- no third party can lose any money (mrc) (K) The following is more-or-less taken directly out of Patman’s, “A Primer On Money”. It certainly is interesting that both Ms. Brown and I use Patman’s words to bolster our arguments. (mrc) The Shell Game of the Goldsmiths (2) Ms. Brown could very easily have titled this article “The “Wonderful Discovery of the Goldsmiths” and explained what the discovery was and how it worked, leaving it up to the reader to decide if their discovery was indeed a shell game, and if it was, did it do more harm than good?. In my opinion FRB was, perhaps, the greatest monetary discovery of all time, it essentially made possible the use of paper money and freed humankind from the tyranny of a finite quantity of gold being used as the sole standard of the wealth of a person or a nation. (mrc) (L1) I do not believe the words in this paragraph are a direct quote from Patman. For instance Patman wrote “... this gold ... being loaned ... was not his to lend. He did not own it”. But Ms. Brown writes “... on gold the goldsmiths did not actually own and could not legally lend at all” Ms. Brown has no right to change Patman’s words. She probably does not know what the laws were in the 17th century and she does not know what the goldsmith was doing was "not legal". Ms. Brown is a lawyer and must know that whether something is legal or not must be decided in a court and not by a writer’s hunch. (mrc) Whether the Goldsmith “could not legally lend at all can’t be substantiated unless Ms. Brown can quote the laws that existed when the Goldsmiths were doing this. (mrc) Would you still call the practice illegal? Even though since 1913 it has been set up by the government and operated according to government rules? If not. why do you say the goldsmiths were operating illegally?(mrc) (L2) FRB made it possible to create money by monetizing debt backed by (a) proper collateral, such as land, other property or the income stream of a going profitable enterprise and (b) the promise of trustworthy lenders to use the money to create wealth with the proceeds of the loan and repay the loan with interest. Without this wonderful invention. I doubt that humankind would have been able to finance the amazing increase in real wealth that grew out of the industrial revolution -- there simply would not have been enough gold to “back” all the industrial ventures that were required to commercialize all of our inventions. It is quite obvious that society would have foundered on a lack of capital, had Gold been the only source of capital. (mrc) It is worth noting, at this point, that it only makes sense to talk about the money supply and the value of money in a nation as it relates to the true wealth of that nation. If there is a given amount of money in a nation (A) but stupid lazy people with poor land and no assets -- that money will be worth little. If however, nation (B) has the same given amount of money -- but intelligent hard working people with lots of good land and natural resources, that money will be very valuable and worth much. It is foolish to talk about the value of money in any given nation without, at the same time, knowing almost everything about the assets of that country. (mrc) I do not believe Patman used the word “mischief” -- but it appears from Ms. Brown’s writing that he did. (L3) I can’t find those words in Patman’s book. But I have seen them and others like them repeatedly on the internet. They are bogus. If in fact the goldsmith was careful to lend money only to people who intended to create wealth with the loan and if they did that and created wealth with a market value in excess of the loan -- all the loans cold be paid back and there would be no overall shortfall and there would be no transfer of wealth from the people to the goldsmiths because of that shortfall. This bogus argument is reprehensible for a number of reasons, not the least of which is that it sows anger and class hostility. I just put “the interest was not created” into Google search and got 417 responses. A lot of people are swallowing this nonsense. (mrc) also see (6) below (N) I now notice that Ms. Brown was not quoting from Patman’s book (reference #1) at this point, but from (reference #8). In any case the argument is bogus. The mischief began when the goldsmiths noticed that only about 10 to 20 percent of their receipts came back to be redeemed in gold at any one time. They could safely “lend” the gold in their strongboxes at interest several times over, as long as they kept 10 to 20 percent of the value of their outstanding loans in gold to meet the demand. They thus created “paper money” (receipts for loans of gold) worth several times the gold they actually held. They typically issued notes and made loans in amounts that were four to five times their actual supply of gold. At an interest rate of 20 percent, the same gold lent five times over produced a 100 percent return every year, on gold the goldsmiths did not actually own and could not legally lend at all. If they were careful not to overextend this “credit,” the goldsmiths could thus become quite wealthy without producing anything of value themselves. Since only the principal was lent into the money supply, more money was eventually owed back in principal and interest than the townspeople as a whole possessed. They had to continually take out loans of new paper money to cover the shortfall, causing the wealth of the town and eventually of the country to be siphoned into the vaults of the goldsmiths-turned-bankers, while the people fell progressively into their debt.8 (O) This is all more or less mostly true -- but it is presented in a way that it appears totally illegitimate. Part of it is based on a verbal sleight of mind by Ms. Brown. Please allow me to pick it apart. (mrc)
I do not see this as mischief -- I think it was a great discovery. The Goldsmiths literally created wealth out of nothing but an idea and a little nerve. As long as (a) their loans to borrowers were good and (b) covered by proper collateral and (c) the people who borrowed the money (d) created new wealth with the loans and (e) paid the loans back promptly in accordance with their loan contract, there would be no problem. And even if the borrower defaulted, the goldsmith could seize his assets and recover most of the loan. And if the goldsmith was wise, all of his loans would have been in paper and no gold would ever have been lost. (mrc) (4) "(C)ould not legally"? That is quite an assumption. Was FRB against the law? Please show us the statutes or the cases that said the goldsmiths were operating illegally. Their loans and paper money were always, in total, good as long as everyone lived up to their monetary contracts. In the absolute worst case scenario, if the goldsmith was the victim of a bad loan or a run on his bank, he would just need some time to call back his loans -- and I am certain most of his loans to his borrowers allowed him to call loans in the event of a run. He was never in danger. (mrc) At #8 in the left column you tell that FRB was set up by the government in 1913 and operated according to government rules (this was probably done to codify existing common practice?). Would you still call the practice illegal? If not. why do you say the goldsmiths were operating illegally? (mrc) (5) But they did create enormous value by contributing their human energy, nerve, creativity and considerable mental labor. They set up their vault, and a company, collected and paid for their starting gold, paid employees, maintained their premises, found borrowers, did due diligence to make sure the borrowers were trustworthy and had worthwhile collateral, drew up valid contracts, studied the law to make sure the contracts were valid, bought insurance on the loan, put their reputation on the line, and ran the risk of not getting paid. To say nothing of their discovery of this wonderful system itself. (mrc) Where would the borrowers have gotten the loans if it were not for the brilliant efforts of the goldsmiths? There was never enough gold available to satisfy all the demands of entrepreneurs who were looking for funding for their next big thing. If it were not for goldsmiths and fractional reserve banking, many worthwhile ideas of entrepreneurs and courageous risk takers would have died on the vine of dreams. Sadly, potential national wealth would have died with those ideas. (mrc) When an entrepreneur creates wealth, that wealth must be shared with the entire nation if it is to create a profit for the entrepreneur. It is only when the public votes with their dollars on the merit of the new product or service that income and profits are generated. (mrc) Aren't we lucky we live in a democratic, capitalistic country where there are no restrictions by caste, birth, background or even education as to who can open a bank? I contend It is fairly easy to open a State Chartered bank in the United States. All it takes is a little study, a little guts and some hard work. (mrc) Fractional reserve banking has worked well in every country that used the system and It truly allowed the creation of great wealth in those systems. The failures that occurred from time-to-time were usually, I think, caused by (a) bad managers who were either incompetent or scoundrels and (b) poor regulation -- but the system itself was not at fault. (mrc) The only place where fractional reserve banking always creates problems is where it is not known. In those struggling 3rd- and 4th-world countries where they do not know how to start a banking system, international carpet baggers swoop in and convince the locals that they should borrow money from foreign banks in order to get their economy going. (mrc) By the way -- the United States is currently acting like a deranged, third-world country by borrowing money from foreigners and paying $400 Billion dollars / year in interest payments when it has the absolute right to create whatever money it needs. If the United States does not have the right to create money -- who does? (mrc) (6) This is a spurious argument - often used illegitimately by intellectually dishonest people who should know better than to use it, or shallow thinking people who heard the argument made by others and do not know that it is ridiculous. Where has there ever been shown that the total wealth of all the townspeople was less than that of all the paper money in existence? The fact that interest adds up is no problem as long as the borrower has half a brain and is certain he will create more wealth than the interest he will pay. (mrc) -- also see (L-3) above Some people make money by lending money and charging interest and others make money by charging more than their costs for any service or product. If this argument would hold for interest, it would also hold for profits and we would come to the conclusion that business profits are somehow improper and they would increase the money supply beyond the control of the monetary system. (mrc) (7) This ignores the fact that any bank that had a run could have called back all of its loans and would not have gone bankrupt. As long as they were primarily dealing in paper money and they guarded their gold, no gold would have been lost. Certainly in modern times, if a nation is using FRB and there is no gold backing for the paper money -- a run on a bank would not cause any problems. That is one of the wonderful advantages of paper money -- it protects banks and nations from the bad effects of bank runs. (mrc) Would Ms. Brown still call the practice illegal? Even though it was set up by the government and operated according to government rules? If not. why did Ms. Brown previously say the goldsmiths were operating illegally?(mrc) (8) Ms. Brown is now striking out in a new argument. As far as I can tell, it has nothing to do with Goldsmith banking or the basic principles of FRB banking. I will agree that Federal Reserve System (not Fractional Reserve Banking) is an abomination and should be done away with. But that does not mean there is anything wrong with FRB. Don't get mixed up because "Federal Reserve" and "Fractional Reserve" both have the words "F ... al Reserves" in their titles. (mrc) (9) That has historical interest -- but is beside the point of this discussion. We are no longer on the gold standard. (mrc) Most of this is true, but it does not mean fractional reserve banking was at fault, or that there is anything wrong with FRB. The depression could have been caused by bad management, poor regulation and any number of reasons. The recital in the preceding paragraph does not even reliably hint at cause of the depression. (mrc) (10) Hooray for him -- I think he is widely recognized by everyone except modern Republicans as being one of our greatest Presidents (mrc) (11) This is a worthwhile argument against the Federal Reserve running our money supply and I agree completely with that -- but that is not an caused by FRB. (mrc) (12a) Much (most?) of what is written here is simply a recitation of certain facts that are in no way related to "Theft By Inflation". (By the way, I have found that lawyers with shaky cases often spew forth complicated statistics and arguments that sound ominous but have nothing whatever to do with case at hand -- I think that is what is happening here). I can find nothing in this paragraph that is the least bit of a problem. The is the way our system works and there is nothing wrong with it as long as the loans are prudently backed by (a) good collateral or a secure income stream and (b) they lead primarily to the creation of new wealth by the borrowers. (mrc) Without knowing what the increase was in national wealth during that period, it is pointless to imply that too much money was created. Because the government does not know what the nations wealth is at any given time -- it is impossible to say whether or not we have too much or too little money. No sensible businessman would try to keep his books that way -- his books always show the wealth his company owns -- they are called assets. It is only by looking at assets and liabilities (or income and expense) over a given period of time can he determine whether the company made a profit or not. (mrc) (12b) The posing of the question "where did all this new money come from? " is typical of another trick used by intellectually dishonest lawyers. If it did indeed come from loans -- that is no problem unless it can be shown that the loans did not create more wealth than the value of the loans. Ms. Brown makes no attempt to show that. I claim she does not have a clue to how much new national wealth was generated in the period under discussion. What Ms. Brown does is, in a roundabout way, is call our attention to the inadequacy of our national bookkeeping system where the value of our national assets are never really known. Every significant corporation in the country always has the company's best estimate of its assets clearly shown on its balance sheet. The U.S.A. does not try to estimate, as far as I know, what various national assets such as the Colorado river, our highway system, our beaches, our research programs, our patents or the NASA space program are worth. (mrc) (13) It does not create inflation if the newly created money leads to a creation of wealth by the borrower over and above the cost of the loan - including interest. (mrc) Ms. Brown, I contend has not shown that any money was “robbed”. I think that is a technical word that has a specific legal meaning and it should not be bandied around negligently just to rile people up (mrc). Without knowing what the increase was in national wealth during any period, it is pointless to imply that too much money was created. Because the government does not know what the nations wealth is at any given time -- it is impossible to say whether or not we have too much or too little money. No sensible businessman would try to keep his books that way -- his books always show the wealth his company owns -- they are called assets. It is only by looking at assets and liabilities (or income and expense) over a given period of time can he determine whether the company made a profit or not. (mrc) (14) I do not think anything prohibits the government from lending money directly and thereby creating money just as a bank does -- please correct me if I am wrong. And, in any event, any bank chartered by the federal government or any State is essentially creating money in the name of the federal government. It happens every day. (mrc) Inflation can be caused by any number of things other than too much money. For instance it can be caused if the people in a nation have more money than they need for a decent standard of living. In that case each worker might demand more wages -- because he feels so comfortable and that demand for ne wages would serve to drive inflation -- because wages are a major part of the price of all goods. Others might blame the cost of land, or the perceived value of land. Henry George treated this as a fact in his landmark book “Progress and Poverty”. He claimed, and I believe, that all goods and services have the price of land built into the price of the goods and services -- because all good and services need land on which to be produced. Either the manufacturer / provider owns the land and has built-in costs like taxes and maintenance or he rents the land and and has rental costs Those costs are almost as significant as labor costs. It does not make sense to blindly blame inflation on a surfeit of money. (mrc) (15) I have no idea how this relates to the discussion at hand, (mrc) I believe it is simply wrong for our banking and money system to be controlled by an essentially uncontrollable private organization of bankers from whom we borrow money and pay interest. It is equally wrong for our money system to be controlled by private individuals who we the people can't vote out of office. No other arguments are needed to make this point (mrc) Ms. Brown has never shown that the goods did not increase in proportion to the added money, What if all the created money was used to create new wealth such as highways, corn or any number of things that people consider wealth? That simple oversight, I believe destroys Ms. Brown's basic argument. This would not be a problem if only Ms. Brown felt that way -- but that error has been made and is being endlessly made by the general public who has never been taught what fractional reserve lending has going for it. (mrc) (17) These statistics mean little unless you also tell me the value of all the wealth in the country at those tow points. Talking abut the value of money without knowing the value of all the wealth in the country makes no sense in my opinion. Also, the last sentence preceding (17) has no justification. It assumes the banks siphon all the interest -- that is an illogical statement. The money taken by the lenders as interest could very well have been considered to have come from the money paid by consumers for the wealth generated by the loans. This is another of those illegitimate arguments that multiplies itself from website to website and acquires a veneer of believability by those who do not look carefully at the argument (mrc) This is complete nonsense if you do not take the fact that new wealth should have been created with the loan money. We contend that any intelligent and prudent banker should know that the primary reason for lending should be the creation of new wealth -- and the banker should not make loans to anyone who will not be using that loan money wisely to create new wealth. (mrc) If banks are making loans to people that do not create wealth with those loans -- that is a perversion of banking and should not be allowed. It is obvious that will lead to trouble -- primarily because it is that wealth creation that is so important to our continuing prosperity. The banks should be operating under automatic controls that will automatically put individual banks out of business if they make bad loans. The Fractional Reserve System has such controls built into it because of the built in "Downside Leverage". Be sure to read about the subject at the link. (mrc) (18) Ms. Brown is repeating herself by saying the banks were lending something they never had the right to lend. (19) Although I strongly agree that the money-creating powers should immediately be removed from the private Federal Reserve and returned to Congress, it does not do much good to make such wild unsupported claims that imply the problems of " poverty, economic slavery, underfunded government, and an oligarchic ruling class that thwarts every attempt to shake it loose from the reins of power." would be solved if that were to happen. Until the money and banking system has good management and a logical internal quality control system -- plus a set of rigidly enforced regulations, nothing will fix the system. You simply can't change the names of the managers and expect better results. (mrc) Once again, Ms. Brown accuses some one thing, in this case “privatization of money” as being the underlying (and therefore the most important?) cause of some really terrible things. We think she comes nowhere near proving any of those charges. The same thing would probably have happened regardless of who controlled the money. It is not the basic system that is at fault -- it is the management of the system. Does Ms. Brown think it is (1) the Fractional Reserve System per se that is basically at fault or the privatization of that system or (3) something else? We claim that it is entirely a matter of management and regulatory controls and not who that management is. (mrc) (20) If Ms. Brown would remove the dogmatic "only" I can partially agree with her. But there are easier ways to correct the problem. The easiest way is to simply get common people into the act who will form State-Chartered banks where the State will set the rules in the charter (which is basically a contract with the private bankers) that will tell what the banks can and can't do. The banks could then ignore the regulations set up by the Federal Reserve and go about creating money through loans that will benefit all of us. (mrc) For banks now within the Federal Reserve Banking System, Congress could easily assert itself and change whatever Federal Reserve rules and regulations are incompatible with the will of the people as expressed by the legislative words of Congress. If you say Congress can't change those rules. I say "Baloney". All they need is the will. If they have the will, they will find the way. (mrc) (21) In my opinion eliminating the fractional reserve system would be a terrible mistake and would almost immediately destroy our economy. I humbly suggest that Ms. Brown just doesn't understand how the FRB system should be used. If I haven't destroyed that myth previously in this writing by showing that it is not the fault of the FRB system -- but is the fault of the management of that system -- challenge me, and I will double my effort. Can Ms. Brown show us any country that uses such as system and profits thereby? Without having such proof -- It would be foolhardy to scrap a proven workable system for a potentially monstrous chimera. (mrc) Communist and socialist countries have, I think, tried to keep money constant and/or increase the money supply by a pre-conceived formula. Their economies have always failed and will, I believe always fail. The (a) natural controls of a free market for goods and services and (b) the use of entrepreneurial capital, combined with (c) fractional reserve banking, are, I believe necessary for a vital economy. (mrc) In my view that is simply an impossibility, if you want to create new wealth, to hold the money supply constant and eliminate fractional reserve lending. How will entrepreneurs raise the money they will need to make their dreams into a reality? Furthermore -- how will anyone make a profit on anything without your claiming that the profit is illegitimate and serves to do all those terrible things you attribute to the FRS and the privatization of money? (mrc) It seems axiomatic that the money supply must be increased to balance the new wealth that is created in a productive society in order to keep that society in balance. If we create new wealth without the almost simultaneous creation of new money -- the entire system would be out of balance. Where would people get the money to buy that new wealth? I am guessing that there would probably be deflation without end as people with money would obviously wind up with the whip hand and would effective control all the wealth producers by deciding where to place their money. Deflation would, in my opinion, be much worse for the common man that inflation. (mrc) Deflation would be the horrible obverse of inflation where money becomes worthless. In deflation, money becomes worth infinitely more than anything else. (mrc) In the case of inflation -- at least labor can, in a capitalistic democracy, chose to ask (or bargain) for more money for its services and landowners can ask for more for their land rent. In inflation -- it is only those people who have their wealth tied up in money that are more or less powerless to adjust to inflation. You probably never read that before -- but I believe it is an inescapable obvious fact. A person with skills does not have to worry in an inflation, because there will always be a market for skills -- but a man with only money has starvation to fear if his money becomes worthless through inflation. The rich are terribly afraid of inflation -- that is why you read so much about the dangers of inflation. The sensible poor don’t worry much about inflation -- because they wind up working for starvation wages no matter how valuable or worthless money is when compared to the nation's wealth. The poor can always retreat to barter if inflation goes skyward. Are the rich going to do well in a barter society? What are the going to offer when their money is worthless? (mrc) (22) That is all it would take? Just put Congress directly in charge of the existing system and allow them to create money directly? (mrc) Does Ms. Brown claim this can all be done by the government using a fractional reserve system -- or without a fractional reserve system? If she did it with a fractional reserve system -- how would that system be different from the system we have now? Has the government ever proven itself to be good managers? Actually I think they have -- they manage wars quite well -- except recently. In my personal experience -- I found the Coast Guard to be very well managed in my three years of service. It was managed way better than any school I went to or any corporation I worked for. Only in small companies have I found true efficiency. (mrc) If she did it without a fractional reserve system -- where would new money come from to balance new wealth that is created -- or would she simply insist that wealth should no longer be created-- because it would be a threat to our stability? Who would create money and who would decide how to get it into the society. I think Communist and Socialist countries simply create whatever money the government decrees and places it wherever the government thinks best. Do you think Ms. Brown would want us to adopt one of those ...isms? Please note. although I do not recommend it, I believe Congress, with the encouragement of the President can take that power back simply by passing legislation to that effect. If The fed would mount a campaign to stop that -- portraying themselves a protectors of the people, I think they would lose that argument and the people of the country would overwhelmingly side with Congress and the President. If that proved problematical -- it should be a simple matter to prove to the Supreme Court that the transfer of Constitutionally assigned powers from congress to private people who are not bound by the checks and balances inherent in the Constitution --- is --- unconstitutional. That might not be a bad idea -- if Congress were to tel us what specific changes they would make to have the Money and Banking system work more perfectly. It would not be difficult to do. (mrc) (23) This is a straw man. A sham argument that can easily be defeated. Often used by lawyers who are out of ammunition. (mrc) (24) Now you are on the right track, Ms. Brown. I claim the US government can, by immediate Congressional legislation or by Presidential action, take back the complete power to create money from the Fed and simply create whatever money is needed to pay off the national debt. In plain English -- I think it is stupid for our country to ever borrow money. Obviously, we have the right to create whatever money we need as a Nation. Every country has always had that sovereign right. If the United States of America does not have the right to create money -- who does? (25) We agree on that. (26) That is a great goal -- but it can't be reached given the suggestions and arguments made by Ms. Brown. I believe it can (a) all be done by (b) private companies and (c) the existing banking system under (d) existing laws, (e) using narrow, state-charted private banks which (f) naturally have the right to create whatever money that can be used wisely by (g) the public and (h) the private sectors of our country. (mrc) See the simple plan at my website. (mrc) |