Sunday, October 19, 2008


Ellen Brown, Global Research - All the king's men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on "fractional reserve" lending, which allows banks to create "credit" (or "debt") with accounting entries. Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply has been created by banks in this way. The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough "money" (or "credit") to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 – until the whole world has now become mired in debt to the bankers' private money monopoly. As British financial analyst Chris Cook observes:

"Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth's resources."

The parasite has finally run out of its food source. But the crisis is not in the economy itself, which is fundamentally sound - or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people's money. Fortunately, we don't need the credit of private banks. A sovereign government can create its own.

Today's credit crisis is very similar to that facing Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Corporation as a federally-owned bank that would bail out commercial banks by extending loans to them, much as the privately-owned Federal Reserve is doing today. But like today, Hoover's plan failed. The banks did not need more loans; they were already drowning in debt. They needed customers with money to spend and to invest. President Roosevelt used Hoover's new government-owned lending facility to extend loans where they were needed most - for housing, agriculture and industry. Many new federal agencies were set up and funded by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae (the Federal National Mortgage Association, which was then a government-owned agency). In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country up with the infrastructure it needed to become the world's industrial leader after the war.

The RFC was a government-owned bank that sidestepped the privately-owned Federal Reserve; but unlike the private banks with which it was competing, the RFC had to have the money in hand before lending it. The RFC was funded by issuing government bonds (IOU.s or debt) and relending the proceeds. The result was to put the taxpayers further into debt. This problem could be avoided, however, by updating the RFC model. A system of public banks might be set up that had the power to create credit themselves, just as private banks do now. A public bank operating on the private bank model could fan $700 billion in capital reserves into $7 trillion in public credit that was derivative-free, liability-free, and readily available to fund all those things we think we don't have the money for now, including the loans necessary to meet payrolls, fund mortgages, and underwrite public infrastructure. . .

This was the sort of banking scheme used in Benjamin Franklin's colony of Pennsylvania, where it worked brilliantly well. The spiraling-interest problem was avoided by printing some extra money and spending it into the economy for public purposes. During the decades the provincial bank operated, the Pennsylvania colonists paid no taxes, there was no government debt, and inflation did not result.

Like the Pennsylvania bank, a modern-day federal banking system would not actually need "reserves" at all. It is the sovereign right of a government to issue the currency of the realm. What backs our money today is simply "the full faith and credit of the United States," something the United States should be able to issue directly without having to draw on "reserves" of its own credit. But if Congress is not prepared to go that far, a more efficient use of the earmarked $700 billion than bailing out failing banks would be to designate the funds as the "reserves" for a newly-reconstituted RFC.


At October 19, 2008 4:54 PM, Anonymous wellbasically said...

For a steady currency, the money supply has to equal the GDP. As production increases so too does the money supply. Money is only possible if there is a national debt, because the government buys up some of the debt and hands out cash for it. That's the only way we have cash.

This article has the signs of either a "goldbug" who only wants people to use gold coins, or a liberal who doesn't like that people borrow money. Economically it doesn't make sense. This person is basically opposed to the idea that the banks can enter their loans under "credits" and so balance their books.

At October 20, 2008 8:32 AM, Anonymous Anonymous said...

EVERY AMERICAN should go read The American Monetary Act at this site:


It is INSANE that we don't simply take illegitimate power to create our money out of private hands that never had any right whatsoever to have that gift that enslaves this nation!

The answer is so simple!!

Monetary dot org explains so well what people need to become aware of!

Sam? You would do a great good to sticky that site's address up on your main page!

At November 28, 2008 1:18 PM, Anonymous Anonymous said...

Good ideas. The government owned bank would probably be more politically acceptable than the complete abolishment of our private central bank. Fundamentally, the US government absolutely needs to reclaim the right to print money from the private banking system.

The government doesn't need to issue debt at all. All government issued printed money that is not guaranteed by any other asset IS already government debt. The idea that the government should pay interest is ridiculous, and that interest money is tax dollars that are mostly going to the banking elite and foreign countries.


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