It’s All About the Money

Dave Volek, on WriterBeat.com, wrote an article January 12, 2019 on The Money Masters, a 3.5-hour YouTube presentation on historical manipulators of wealth.  Volek’s article and the subsequent comment thread were enlightening, with contributions from people apparently well versed on the subject.  My own interest in how all this works rests on readings such as The Creature from Jekyll Island:  A Second Look at the Federal Reserve, by G. Edward Griffin, Wealth of Nations, by Adam Smith, The Robber Barons, by Matthew Josephson, Confessions of an Economic Hit Man, by John Perkins, and Hamilton, by Ron Chernow, among others, as well as business news in various periodicals and newspapers for a couple of decades.  Commentators on Dave’s article linked to other on-line videos, some of which I also watched, but I ended up with more questions than answers.

These are the links to the article and videos referenced below:

Dave Volek:  http://writerbeat.com/articles/28727-The-Money-Masters

The Money Masters:  https://www.youtube.com/watch?v=gFj_cqNBaZY

Money as Debt:  https://vimeo.com/131985511

America:  Freedom to Fascism:  https://www.youtube.com/watch?v=O6ayb02bwp0&app=desktop

THE MONEY MASTERS

The Money Masters, made in 1996, gave an overview of historical attempts to own and control wealth.  The usual culprits were mentioned: Alexander Hamilton, the Rothschilds, the banking cartels, including the Federal Reserve, among others.  It mentions the link between central banking and the income tax.

But there was an agenda, because the makers stressed reform of the banking system in favor of the government’s printing its own money and bypassing debt and the Fed.  I believe Mefobills on WriterBeat advocated the same, calling it “sovereign finance,” and according to him, that’s how Canada financed its transcontinental railroad debt-free.  As William Still, the creator of The Money Masters confirmed, anything that can be accepted in payment of taxes constitutes legal tender.  If I remember right, that’s how states in the early days (before the Constitution) gave legitimacy to their currencies.  Apparently, that’s how Maduro in Venezuela plans to legitimize his block-chain petro, backed by oil.

The documentary is spotty and ultimately unsatisfying. It hinted at things I knew; and tied concepts together in a time line that was instructive; and it served the purpose of showing how the international bankers manipulated historical events to create wars, for instance, and to determine the winners and losers.  Napoleon’s battle at Waterloo was given as an example, and the Bolshevik revolution in Russia.  The documentary claims that in WWII, the Rothschild branches in England, France and Germany, respectively, loaned money to those governments, and of course profited from all.  It said the arrangements were that the war’s winners would cover the debts of the losers.  The reason given for overthrowing the Tsar in Russia was that he refused a central bank.

While I can accept all this so far, I question the premise that a government has any better financial sense than a banker.  Both are profiting from other people’s energy/money and have theoretically infinite power over it.  The documentary says—correctly—that a debt-based dollar with the Federal Reserve as go-between has no more value than a dollar created by the government, except the latter is interest free.  It suggests the federal government could lend its own dollars to states and localities interest-free for local projects.  The problem, says the documentary, is the usury of interest—especially to profiteers like the Fed.  It also condemns fractional reserve banking and gives a good explanation of how that works.

But who’s to say government-determined projects are in taxpayers’ best interests?  It still constitutes a debt to the government, even if your property is flooded by a dam the government deems necessary.  Would Savannah borrow from the federal government as liberally as it sells bonds to finance its replacement of school gym floors or to replace grass with astro-turf on the sports fields?  Wouldn’t taxpayers be just as obligated, even if the loans carried no interest?  That would give the taxing powers license to borrow for ever more wild-eyed projects.

MONEY AS DEBT

A commentator on Dave Volek’s article, Logical Man, recommended Money as Debt, so I watched that 45-minute video, too.  It had the same theme as The Money Masters and the same agenda.  Essentially both denounced interest and claim the government should issue interest-free money to lend to smaller governments (states and municipalities) for infrastructure projects and the like.

Money as Debt (which should be “Debt as Money”) gives a good scenario of why interest on principal perpetrates an ever-increasing debt bubble.  If principal is created as bank credit, where does interest come from?  All those debtors must scramble to pay interest or go bankrupt and lose their assets.  A typical strategy for the bankers is to generate new loans to cover the interest on old loans, thus including old interest in new principal.  The Creature from Jekyll Island describes this in some detail.

Money as Debt claims that without debt there would be no money, an argument I’ve heard before.  That’s only because we live in a stupid system built on living beyond one’s means, starting with the government(s).  Second, the government exists to fund itself through extortion and war, so it spends a goodly portion of its income creating mayhem around the world that it then extorts more money to repair.

While The Money Masters disparages the gold standard—it’s too easy to corner the gold market—I believe some kind of standard is necessary to keep government within limits.  What’s to stop any government at any level from printing or borrowing unlimited funds to justify government contracts to friends and business associates, as now?  The specious argument that gold is too easy to corner assumes a fixed price.  Even if the central banks hold most of the gold now, it does them no good sitting in vaults, especially if they’re not allowed to print IOUs instead of selling the gold itself.

If the federal government decides to go to war, or wars, as now, who could stop it?  Would states and localities be required to pay for it, as now?

The pundits make a distinction between government finance and individual finance.  They presume that’s okay, even though all acknowledge the government is corrupt.  But to spend without permission, and especially to go into debt in other people’s names, is a reprehensible practice and symptomatic of the autocratic paternalism of all governments today.  Those who buy bonds collude with the deception and become willing conspirators in exchange for their purchased position in the “ruling class.”  I could say the same for stock purchasers, who also understandably want something for nothing in the form of dividends.  Here we have people actively contributing to destruction of the planet to “grow the economy” while actually depleting it.

But no one addresses such sticking points as the effect of the petrodollar or that paying off a debt contracts the money supply, as does writing off a debt, as happens in bankruptcy.  No one can know how much money is out there, especially as every country has its own.  China and Russia are talking about (and may have enacted) gold-backed currency.  This may be a factor in US demonization of these two governments.

No one but me suggests that credit is destructive, whether it charges interest or not.  Unlimited credit provides unlimited opportunity to do stupid things, and if you’re a government, those stupid things cost everyone and benefit only a few.  Then there are the government contractors, which in my ideal society would not be allowed.

AMERICA:  FREEDOM TO FASCISM

I ended up watching a 2.5-hour video by Aaron Russo entitled America:  Freedom to Fascism, made about 2006.  This was also recommended by a commentator, Jeffry Gilbert, on Dave Volek’s The Money Masters post.  Russo’s video is about the income tax and goes into some detail refuting the belief that there’s a law requiring wage earners to file.  The 16^th amendment, he claims, imposed no new taxes, something affirmed in at least five Supreme Court rulings since 1913.  According to the Constitution, two types of taxes are allowed:  direct and indirect.  Direct taxes must be apportioned by population.  The Supreme Court has defined “income” as profits from a corporation, not wages, which it defines as receipts from sale of time or labor.

Russo interviewed people like former US Congressman Ron Paul, several former IRS agents, a restaurant owner who was targeted by the IRS for presumed drug dealing, and several people from an organization called “Tax Honesty.”  Most interesting was an interview with a former commissioner for the IRS, who wrote the tax code and who now works for a high-powered law firm.  This guy could not or would not answer whether there’s a specific law requiring people to file.  He essentially said Supreme Court rulings saying the 16^th imposed no new taxes were obsolete and irrelevant.  Yet the IRS code says it’s a voluntary tax.

All this was linked to the Federal Reserve, and the video’s ultimate agenda was to abolish the Fed, which Congress has the power to do.  Russo raised the question of whether there is any gold left in Ft. Knox.  Some believe the gold is being held as collateral in the Fed’s New York office basement against the national debt.

Russo also mentioned the federal government’s obligation/responsibility to coin and issue its own money.

In any case, I surprise myself by piercing other peoples’ (and general) assumptions, on which the whole authoritarian power structure rests.  The primary assumption is that the masses are stupid, childlike, and don’t know what’s good for them.

 

Hamilton’s Legacy

As the rich get richer and the poor get poorer, pundits and philosophers theorize about the problems of income inequality, social stratification, and legal injustice.  Proposed solutions flow thick and fast, most advocating government intervention or denouncing government de-regulation since the Great Depression.

The American myth of freedom, democracy, and capitalism dies hard, but the United States has never been free, democratic, or even capitalistic, unless it was before the Europeans arrived.  Stratification of society was built into the system with the arrival of the English and their traditions of monarchs and minions, the French and Spanish, and their long histories of battle and inbreeding among themselves on the European continent.

The American experiment may have represented a break from the past, but it carried with it the same patriarchal patterns of its forebears.  The “Founding Fathers” ultimately adopted a government structure that varied only slightly from that of its British progenitors.

Many US citizens don’t know the difference between the Declaration of Independence, which we celebrate on July 4 every year, and the Constitution, which was drafted in secrecy and signed on September 17, 1787, over eleven years after the Declaration announced the United States’ independence from Britain.

In that eleven year gap, the Revolutionary War had been fought and won.  The now free colonies were struggling with debts to soldiers, domestic, and foreign investors.  The individual states had taxing power, but the loosely formed union did not.  Some states were paying off their debts, but others were lagging.  John Adams had been sent to London to negotiate credit for the fledgling country, and Thomas Jefferson had been sent to France for the same purpose, to replace Benjamin Franklin, who was aging and ill.

James Madison of Virginia and Alexander Hamilton of New York led the effort to revise the Articles of Confederation with a new Constitution that would create a strong central government, supersede state governments, and have the taxing power to pay war debts.  Once gathered at what became the Constitutional Convention in Philadelphia, though, each delegate learned the intent was to completely re-write the Articles and was sworn to strict secrecy. George Washington was unanimously elected president.  Madison sat by his side taking notes and was later acknowledged as having written the Constitution.  Alexander Hamilton was a strong advocate for a centralized government, brilliant and opinionated, an open admirer of the British model, including the monarchy, and wanted to reproduce the British system in the states.  He also extolled wealth and privilege, claiming the masses could not be trusted to manage their own affairs.  Madison was of the same general opinion.

While he initially opposed the Constitution, Hamilton later became its strongest advocate and promoter.  He induced Madison and John Jay to write with him what became the Federalist Papers, a series of anonymous essays distributed to newspapers to promote ratification by the states.  For ratification, the Philadelphia conventioneers chose to bypass state legislatures and rely on specifically convened  ratification conventions.

Hamilton played an early and profound role in shaping the early American government.  According to his biographer, Ron Chernow*, he was an illegitimate child of a dissolute couple, born in 1755 or 1757 on the British island of Nevis in the West Indies.  After his father abandoned the family and his mother died, he was employed at age 13 as a clerk and bookkeeper for wealthy British traders on St. Croix, also in the West Indies.  His employers traded in a variety of goods, but at least one shipment a year was of African slaves.  Those employers eventually financed Hamilton’s migration to the New York colony in 1773, where periodic shipments of slave-produced sugar covered his expenses.

Hamilton, who was dashing and gifted, quickly made his way into New York society, courting and marrying a daughter, Elizabeth, of the prominent Philip Schuyler.  He enlisted in George Washington’s Continental Army, gained Washington’s confidence and became his personal secretary during the Revolutionary War years.  Later, Washington granted him his one and only command, at the battle of Yorktown, where Continental and French forces defeated British General Cornwallis to win the Revolutionary War.

After the war ended, Hamilton practiced law in New York City and involved himself in politics.    He also involved himself in banking, writing the constitution for the Bank of New York in 1784, as agent for his brother-in-law, John B. Church, who was in Britain acting as a member of Parliament.  It was New York’s first bank and exists today as BNY-Mellon, billed as having the longest continually traded stock on the New York Stock Exchange.

After the Constitution was ratified, George Washington became the first US president, elected in 1788.  John Adams was elected vice president, and Hamilton became Washington’s first Treasury Secretary.  Thomas Jefferson, who was still in France, was appointed Secretary of State and confirmed by the Senate before he knew of his appointment.

Hamilton went to work immediately to take control of the nation’s finances.  The day after his confirmation as Secretary of the Treasury, he arranged for a $50,000 loan from the Bank of New York—of which he was a director–to pay salaries of Washington and Congress.  He then arranged for another $50,000 loan from the Bank of North America.  The Hamilton Tariff Act of 1789 was Congress’ second official move, after establishing rules for taking oaths of office.

By 1790, Hamilton was busy working on a plan for the federal government to assume state debts from the Revolutionary War.  In the Constitutional Convention the question of assumption had split—like the slavery issue—essentially along North-South lines, because Southern states had paid off much of their debt, while northern states, like New York, had not.  The issue dovetailed with questions about the ultimate location of the nation’s capital.  Madison, silently backed by George Washington, negotiated for a Potomac River location near Washington’s Mount Vernon plantation in exchange for agreeing that the federal government would assume the states’ debt.

Meanwhile, Hamilton was busy creating the First Bank of the United States, a central bank that could issue credit, capitalized at $10 million, 20% owned by the government and 80% owned by shareholders.  He was also looking for other sources of income and convinced Washington and Congress to support an excise tax on whiskey.  He introduced legislation for the whiskey tax on December 13, 1790 and for the central bank December 14, 1790.  At that point, Washington’s main source of income came from whiskey distillation.

Both James Madison and Thomas Jefferson vigorously opposed the central bank, calling it unconstitutional.  Madison and Hamilton had been allies before, but this difference in interpretation of the Constitution caused a rift that never healed.  Jefferson and Madison wrote letters back and forth condemning the mad stock speculation that greeted the public offering of central bank stock, and the fact that people in the Northeast could talk of nothing else.  Once again, critics claimed Hamilton demonstrated a preference for rich Northerners, as he only offered the stock through three banks, in Boston, New York, and Philadelphia.  Also, opponents pointed to the fact that three-fourths of investors were foreign.  Thirty of the approximately 85 Congressmen bought shares.

Hamilton’s assistant Treasury Secretary, William Duer, could be called one of the nation’s first inside traders.  Philip Schuyler, who would become Hamilton’s father-in-law, had previously done business with Duer and had encouraged him to move from Antigua to New York.  Duer became an early friend when Hamilton immigrated to the continent.  But Duer turned out to be an inveterate gambler and stock speculator who was blamed for causing the Panic of 1892 through debt-backed stock speculation in First Bank of the United States stock. His method was to borrow heavily to make trades, hoping to sell at peak prices, but he ran out of cash and couldn’t make payments on his debts.  People panicked and started selling stock.  Hamilton then used the Treasury’s sinking fund to buy government securities anonymously, to stem the panic.

As a result of the crisis, to restore confidence, and to encourage people to start investing again, 24 stock brokers and merchants formed the New York Stock Exchange in May, 1792, by signing the so-called “Buttonwood Agreement,” under a buttonwood tree on Wall Street.  The signers agreed to trade only with each other, and to charge one-quarter percent commission on trades.  Available stock was limited to insurance companies, the Bank of New York, the First Bank of the United States, and Hamilton Bonds that Hamilton had decided to issue to pay Revolutionary War debt.

The United States has operated as a triumvirate of government, banking, and the stock market ever since.  The “Framers” of the Constitution were wealthy businessmen, planters, bankers, lawyers, and merchants, who designed a structure for exerting control over the population through laws and taxation.  While the Declaration of Independence set the states free, the Constitution bound them in economic slavery to a new taxing authority.  The links to the banking system and the New York Stock Exchange initiated the “public-private partnerships” that define the United States today.

If, in the 21^st century the rich are getting richer and the poor getting poorer, it’s probably fair to say it was designed that way.  The Framers knew what they were doing.

 

*  The recent Broadway hit Hamilton is based on Chernow’s book, Alexander Hamilton, 2004.

The Creature from Jekyll Island: Notes and Thoughts

The Creature from Jekyll Island:  A Second Look at the Federal Reserve
by G. Edward Griffin, first published 1994.
Notes and Thoughts on the first three chapters.

           The Creature from Jekyll Island is astounding in its implications.  It reveals that the money lending game is essentially between banks, with debt fueling the pump.  Powered by individual as well as government debt taken on in  taxpayers’ names, it makes me wonder whether unborn taxpayers can be obligated by federal debt.  Also, if the Fed were abolished, might all this artificial debt cancel itself out?

The book starts with a cameo of a secret meeting on Jekyll Island, Georgia, in 1910 that led to the Federal Reserve Act in 1913.  Nelson Aldrich, Senator from Rhode Island and father-in-law to John D. Rockefeller, Jr., hosted the private rail trip for six other movers and shakers in the banking and finance industries.  These men were to arrive at the train station separately, go by first names only, and say they were going duck hunting.  The regular staff at JP Morgan’s Jekyll Island Club was given a vacation.  Carefully selected others served the men while they were there.

The men were: 1.  Aldrich, who was also Republican “whip” in the Senate, chair of the National Monetary Commission, and a business associate of J. P. Morgan; 2.  Abraham Piatt Andrew, Assistant Secretary of the US Treasury;  3.  Frank A. Vanderlip, president of the National City Bank of New York, the most powerful bank at the time, and representing William Rockefeller and the international investment banking house of Kuhn, Loeb, and Company;  4.  Henry P. Davison, senior partner at JP Morgan Company;  5.  Charles D. Norton, president of JP Morgan’s First National Bank of New York;  6.  Benjamin Strong, head of JP Morgan’s Trust Company;  7.  Paul M. Warburg, partner in Kuhn Loeb and Company, a member of the Rothschild banking dynasty in England and France, and brother of Max Warburg, head of the Warburg banking consortium in Germany and the Netherlands.

When Griffin says the Fed creates money out of nothing, he is not entirely accurate.  Rather, the Fed creates debt out of nothing to lend to Congress and calls it money, because it is backed by congressional promises of future taxpayer earnings (through the income tax, established earlier the same year, 1913).  The incredible credit is then passed off as currency, and no one is the wiser.

Until now.  The lie continues that US taxpayers are obligated by congressional guarantees, but we are not morally obligated to pay that debt.  Unfortunately, since their strategy has included putting everyone on the payroll—in one form or another—everyone is implicated in the scam and terrified of its inevitable unraveling.

Obviously the easiest solution is for individuals to get out of debt.  When debts are paid off, the money vanishes into the red hole it came from, the money supply shrinks, and deflation gives everyone except banks, debtors, and governments—the biggest debtors of all–more buying power.

Griffin gives a good summary at the end of each chapter, thereby simplifying this 600 page tome.

Chapter 1:  “The Journey to Jekyll Island” tells how the skeleton of the Federal Reserve System was worked out at Jekyll Island in 1910 by RI Senator Nelson Aldrich and six other men representing the most powerful banking interests in the Western world.  These included US banks under JP Morgan and John D. Rockefeller; English and French banks under Kuhn, Loeb and Company, representing Rothschild interests in Europe; and Germany and Netherlands banks by the powerful Warburg family.

Author Griffin refers to it as a banking cartel, in which powerful competitors align to prevent other competition and use the government’s police power to enforce their monopoly.  Griffin hints without actually saying that descendants of these five banking dynasties still control the Fed.  These are Morgan, Rockefeller, Rothschild, Warburg, and Kuhn-Loeb.

He says the Jekyll Island meeting had five objectives:  1. Stop the growing competition from the nation’s other banks;  2.  Obtain a franchise to create money through debt;  3.  Get control of all the banks’ reserves so the more reckless ones would not be exposed to currency drains and bank runs;  4.  Get taxpayers to cover the cartel’s losses;  5.  Convince Congress the purpose was to protect the public.

Chapter 2:  “The Name of the Game is Bailout.”  The crucial point is that all the money created through the banking system since the Federal Reserve Act is backed only by debt, primarily by Congress’ obligating taxpayers’ future earnings.  A defaulted loan, thereby, costs the bank little in tangible value.  Therefore, the goal is to continue receiving interest on the loan by lending more (future) money to cover it.  This is especially true with large loans.  With extremely large loans the cartel gets the federal government to guarantee the loan, should the borrower default.  If this tactic fails and the bank is forced into insolvency, the FDIC is used to pay off depositors.  Small banks pay disproportionately for this “insurance” and are least likely to be bailed out, should disaster hit.

Because money is created out of nothing for the purpose of lending, huge sums are dispersed through the economy, devaluing the existing currency and causing inflation.

Griffin does not say that the income tax, passed earlier in the same year, 1913, was the funding source by which the federal government would pay perpetual interest to the Fed on the national debt.  This method mirrored the 1790-1791 creation of the whiskey tax and the nation’s first central bank, a double whammy on taxpayers, devised by Alexander Hamilton and George Washington.  (This from Alexander Hamilton, by Ron Chernow, 2004)

Chapter 3:  “Protectors of the Public.”  This chapter gives multiple examples of previous federal bailouts, beginning with Penn Central in 1970, Lockheed in 1970, the Commonwealth Bank of Detroit in 1974, New York City in 1975, Chrysler in 1978, the First Pennsylvania Bank of Philadelphia in 1979, and Chicago’s Continental Illinois in 1982.  Continental was the first electronic bank run.  It was the nation’s seventh largest bank at the time, with $42 billion in assets, with multiple loans out to high-risk business ventures and foreign governments.  Here the Federal Reserve becomes the “lender of last resort,” meaning it creates money out of nothing to cover, in this case, $4.5 billion in bad loans, and passing costs on to taxpayers in the form of inflation.

And this book has 26 chapters.  Stay tuned . . .