Venetian moneylenders began to sell debt issues to other lenders and to
1500 Belgium exchange
dealt exclusively in promissory notes and bonds.
"Slavery is likely to be
abolished by the war power and chattel slavery destroyed.
This I and my European
friends are glad of,
for slavery is but the owning of
labor and carries with it the care of the laborer, while
the European plan led by England is for
capital to control labor by controlling wages.
This can be done by controlling the money.
Debt is a means to control the volume of money.
this BONDS must be used.
We are now waiting
for the Secretary of the
Treasury to make his recommendation to Congress.
It will not do to
allow the Greenback, as it is called, to circulate as money
any length of time, as we cannot control that." - Hazzard Circular, 1862, Bank
International bankers take
Banking Act specifies the entire US money supply will be printed out of
debt by the national banks through the purchase of US treasury bonds by issuing
them as assets backing treasury banknotes.
US treasury bonds, or
T-bills, are guaranteed by the US government.
As long as the US
government is solvent US treasury bonds
A US treasury bond, or treasury note, is
a promissary note.
A promissary note is
a promise to pay a specified amount on a specified date.
include an interest payment for
the use of capital while held.
A bond is a debt security, paper
collateral for the loan.
A bearer bond is a bond or debt security issued
by an incorporated entity.
Bonds issued by corporations are
corporate bonds or junk
"In years following the war,
the federal government ran
a heavy surplus.
It could not however pay off its debt, retire its
securities, because to do so meant there would be no bonds to back the
national bank notes.
To pay off national debt was to
destroy the money supply." - John Kenneth
1861 Moses Taylor, Chairman of the Loan Committee to
finance the Union in the Civil War, offers the government $5,000,000 of US
treasury bonds at 12% at a 33% shaving to continue financing the Civil War.
It is suggested Abraham Lincoln go to Congress to requestingthe passage
a bill authorizing the printing of full legal tender treasury
"To pay the soldiers the Government issued Treasury notes,
authorized by act of Congress, July 17, 1861, for $50,000,000, bearing no
These notes circulated at par with gold.
agents inspired the American banks to offer to Lincoln a loan of up to $150
But before they had taken much of the loan, the banks broke
down and suspended specie payments in December 1861.
They wished to
blackmail Lincoln and demanded the 'shaving' of government paper to the extent
of 33%, an extortion
which was refused.
A bill drafted for government issue of $150 million,
which should be full legal tender for every debt in the US, passed the House of
Representatives Feb. 25, 1862, and was hailed with delight by the entire
The Wall Street bankers were
furious." - Arthur Cherep-Spiridovich
1893 "The interests of national banks require immediate
financial legislation by Congress (the US Government).
certificates, and Treasury bonds (all government money) must be retired, and
National Bank Notes made the only money.
This will require the
authorization of $500 million to $1 billion of new bonds as the basis of
At once retire one-third of your currency and call in
one-half of your loans.
Be careful to make a monetary stringency among
your patrons, especially among influential businessmen.
extra session of Congress to repeal the purchasing clause of the Sherman
Law, and act with other banks of your city in securing a large petition to
Congress for its unconditional repeal per accompanying form.
personal influence with your Congressmen, and particularly let your wishes be
known to your Senators.
The future life of national banks depends upon
immediate action, as there is an increasing sentiment in favor of government
legal-tender notes and silver coinage."- "The Panic Circular", American
Bankers' Association 1893
"Traditional money systems depend on faith
general ignorance to stay afloat." - Jason Rohrer
"The truth is that no bank lends as much as
a penny of the money deposited with it.
Every bank loan or overdraft is a creation of entirely new money
(credit) and is a clear addition to the amount of money in the community.
It is no more than a record in a bank ledger
or computer and is actually the creation of new money out of nothing." -
"The bank-debt currency system we have today is founded
That's the motivation for banks to create
money in the first place.
Creating money is only a side effect,
irrelevant to the commercial bank, of their main purpose of earning a profit.
Another effect is the necessity of perpetual economic growth and
conversion of all
common wealth into
private monetary wealth." -
"It started with
bankers initially provided safekeeping services by making a profit from vault
storage fees for gold and coins deposited.
People would redeem their
"deposit receipts" whenever they needed gold or coins to purchase something,
and physically take the gold or coins to the seller who, in turn, would
deposit them for
safekeeping, often with the same banker.
Everyone soon found that it
was a lot easier simply to use the deposit receipts directly as a means of
These receipts, promissary notes, were acceptable as
money since whoever held them could go to the banker and exchange them for gold
Then, bankers discovered that they could make loans merely by
giving their promise to pay, or bank notes, to borrowers.
In this way,
banks began to create money.
More notes could be issued than the gold
and coin on hand because only a portion of the notes outstanding would be
presented for payment at any one time.
A fractional reserve of gold and
coin had to be kept on hand to redeem whatever volume of notes was presented
Transaction deposits are the modern counterpart of bank
It was a small step from printing notes to making book entries
crediting deposits of borrowers, which the borrowers in turn could "spend" by
writing checks." - Chicago Federal Reserve, Modern Money
fractional reserve banking
system, such as the fiat paper
system used internationally, the debt
has to continue to climb until, at some point, it must be
Debtors can never aquire
enough capital to fully pay off their debt.
In a closed fractional
reserve system money is only printed through loans like the ones granted by the
When $10 is deposited $100 is loaned out.
Assume an annual
interest rate of 10%.
The borrower is required to pay $110 back to
the bank, but $10 is still held as reserves by the bank and only $100 has been
put out into circulation.
Where does the extra $10 to be paid as
interest come from?
"Imagine the first bank which prints and lends out
For its efforts it asks for the borrower to return $110 in one
year; that is it asks for 10% interest.
The bank has created
a mathematically impossible
The only way in which the borrower can return 110 of the
bank's notes is if the bank prints and lends more.
The result of
creating 100 and demanding 110 in return, is that the collective borrowers of a
nation are forever chasing a phantom which can never be caught; the
mythical $10 that was never
The debt is in fact, unrepayable.
Each time $100 is
printed, the nation's overall indebtedness to the system is increased by $110.
The only solution at present is increased borrowing to cover the
principal plus the interest of what has been borrowed." - Roger Langrick
refer to "the business
cycle," "boom and bust,"
"tech bubble" and "housing bubble" in order to
distract - as "asset bubbles" are real.
intermarry and building international
Frederick Soddy defines banks: "Institutions which pretend to lend money,
do not lend it, but create it, and when it is repaid, de-create it and have
achieved the physically impossible
miracle thereby, not only of getting something for nothing but also of
getting perennial interest from it."
The money changers soon discovered
that their control of this fraudulent
paper promissary note money supply, as
there was more paper in circulation than in
deposits, gave them
control over the economy and the assets of many of those who had borrowed
The money changers exacted their control of the economy and
their wealth accumulation by manipulating the
money supply - easy money and
tight money - economic
contraction and expansion.
"What we have found over
the years in the marketplace is that derivatives have been an extraordinarily
useful vehicle to transfer risk from those who shouldn't be taking it to
those who are willing to and are capable of doing so." - Alan Greenspan
"Clearly, derivatives are a
centerpiece of the crisis, and Alan Greenspan was the leading proponent of
the deregulation of derivatives."
- Frank Partnoy 10/08/08
"The derivatives market is $531 trillion, up from
$106 trillion in 2002 and a relative pittance just two decades ago. Alan
Greenspan banked on the good will of Wall Street to
self-regulate." - Peter S.
Investment banks are able to "balance" and prove
adequate reserves by "securitizing" loans which allows investment banks to
move those loans off the balance
There are two ways to securitize a
sell the securitized loan as a 'corporate' bond (originally
made popular by Michael Robert Milken* as
securitization: use of derivatives to get rid of the risk of default (with
credit default swaps) and
lock in the interest rate due on the loan (with
Once an investment bank securitizes a loan that it is
off the balance
Once a loan has been moved
off the balance sheet the capitalization ratio improves and the
investment banks can make even more
Investment banks print
trillions of dollars of credit without maintaining adequate capital reserves
(leveraged up to 33 to 1 - 3.3 times
higher than the traditional fractional reserve of 10 to 1) by providing
sub-prime mortgages, student loans and credit card
loans to millions of loan applicants who have no documentation, no income,
no collateral and a bad credit history for enormous short term
banks did this without tying up any of their capital reserves while
purchasers of the
commercial paper that there was no risk of default!
"Bankers are in the debt business, and if
governments are allowed to create enough money to
keep themselves and
their constituents out of debt, lenders will be out of business.
The central banks charged
with maintaining the banking business therefore insist on a stable currency at
all costs, even if it means slashing services, laying off workers, and soaring
debt and interest burdens.
For the financial business to continue to
boom, governments must not be allowed to create money themselves, either by
printing it outright or by borrowing
it into existence from their own government-owned banks." - Ellen
Federal Reserve issues stock which is held by
over 2,900 banks.
The Federal Reserve pays a 6 percent dividend which
amounted to $1.637 billion in 2012, the last year of available data.
Fed Open Market Committee creates money out of
Most "currency" is now in the form of electronic
spreadsheets, rather than paper records such as ledgers.
Open market operations are conducted
simply by electronically increasing or decreasing ('crediting' or 'debiting')
the amount of currency that a bank has in its reserve account at the central
bank in exchange for a fungible instrument -
an entry in an electronic
magically appears when the balance in a reserve account is increased.
The newly printed currency is
then used by the central bank to purchase on the open market fungible instruments which may or
may not be backed with tangible financial assets, such as US bonds, foreign
currency, or gold.
central bank sells fungible instruments on
the open market, the amount of currency
the purchasing bank holds decreases, effectively destroying
The US Treasury sells marketable securities - T-Bills,
promissary notes, bonds, and Treasury Inflation-Protected Securities
(TIPS) to the public through regular public auctions to raise the cash needed
to operate the US government and to refund maturing
Marketable securities are fungible financial
securities are simply government IOU's.
Marketable securities can be bought, sold or
transferred after they issue.
securities are purchased in order to get a secure rate of interest.
At the end of the term of the
the US Treasury repays the principle, plus interest and the
marketable security is
destroyed - ie. the fungible instrument is deleted from the electronic
For example one of the twelve Fed banks -
Boston, New York,
Richmond, Atlanta, Chicago,
St. Louis, Minneapolis, Kansas City, Dallas,
San Francisco - that make up the Federal Reserve system exchanges a fungible
instrument for $1,000,000 of marketable securities with the US Treasury.
When the fractional
reserve is 10% - $10,000,000 can then be loaned on a $1,000,000 purchase of
marketable Treasury securities.
Regional Federal Reserve Banks then issues
loans to regional member banks.
To reduce the amount of money in
circulation this process is simply reversed.
When the Federal Reserve
sells marketable securities to the public the money flows out of regional
When the fractional reserve is 10% - regional loans must be then
reduced by ten times the amount of the US Treasury marketable securities.
A purchase of $1,000,000 in marketable securities results in a
$10,000,000 reduction of currency in the regional economy when fractional
reserve rules are observed.
"The financial system has been turned
over to the Federal Reserve Board. That board administers the finance system by
authority of a purely profiteering
group." - Charles A Lindbergh Sr.Federal Reserve
controls the amount of currency in circulation in two ways.
way the Federal Reserve controls the amount of currency in circulation is
through the purchase and sale of marketable
The second way the Federal Reserve controls the amount
of currency in circulation is through the interest rate it charges its member
But the Federal Reserve also controls the interest rate on the
marketable securities through the purchase and sale of
US Treasury offers more marketable securities
than the rate of demand of those
marketable securities then
the Federal Reserve can step in and purchase the excess capacity to
keep interest rates low or the Federal Reserve
can refuse to purchase those marketable
securities and the interest rate on those
marketable securities will
increase to draw in needed capital.
When interest rates go up less
currency is loaned out and less currency in
the system creates contraction - recession or depression.
policy, set by the privately owned and operated Federal Reserve, is highly
independent of effective political control.
Federal Reserve is
subservient only to Bank of
municipal debt bonds
Christopher "Kit" Taylor, the former chief regulator and
executive director of the
Municipal Securities Rulemaking Board from 1978 to 2007, said the
members of the board wouldn't allow the group to
set rules on credit default swaps and derivatives for the $2.69 trillion
municipal bond market.
"The big firms didn't want us touching derivatives.
'Don't talk about it, Kit.'
I saw bankers looking out for their self
interest in my years at the MSRB.
attitude changed from,
'What can we do for the good of
the market,' to, 'What can we I do to ensure the future of my
The profit wasn't in the
underwriting, it was in
Right up until the day we went to real-time disclosure, I was
getting calls from bankers wanting to delay it.
The only ones who
benefited from delaying transparency were those who profited from the trades."-
Christopher "Kit" Taylor
1975 Congress set up the Municipal
Securities Rulemaking Board to make rules for firms that
underwrite, trade and
sell municipal debt.
The board, funded by member firms, generates
$22.2 million in fiscal 2008..
self-regulatory organization, members of the industry are granted the authority
to supervise their own practices.
A 15-member board oversees the
organization and 10 of the directors are from
Wall Street firms.
Enforcement is handled by the Securities and Exchange Commission.
August 1983 Washington Public Power Supply
System bonds to build five nuclear reactors default.
January 2010 Las Vegas Monorail bonds default.
November 9, 2011 Jefferson County Commission voted 4 to 1 to
declare bankruptcy on roughly $4 billion in
2011 28 defaults totaling $522
June 28, 2012 Stockton files for Chapter
2012 21 defaults on muni debt
totaling $978 million, according to Richard Lehmann, publisher of Distressed
Debt Securities Newsletter.
July 18, 2013 Detroit
files for bankruptcy on a municipal debt
of $20 billion.
Aug 04, 2015 Puerto Rico defaults
on a $58 million bond.
July 1, 2016 Puerto Rico
defaults on $ 2 billion bond.
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