excerpted from the book

Web of Debt

The Shocking Truth About Our Money System And How We Can Break Free

by Ellen Hodgson Brown

Third Millennium Press, 2007, paperback

p336
Banks create money all the time. The chief reason the U.S. government can't do it is that a private banking cartel already has a monopoly on the practice.

p336
Growth in M3 is no longer officially being reported, but by 2007, reliable private sources put it at 11 percent per year. That means that over one trillion dollars are now being added to the economy annually. Where does this new money come from? It couldn't have come from new infusions of gold, since the country went off the gold standard in 1933. All of this additional money must have been created by banks as loans. As soon as the loans are paid off, the money has to be borrowed all over again, just to keep money in the system; and it is here that we find the real cause of global scarcity: somebody is paying interest on most of the money in the world all of the time. A dollar accruing interest at 5 percent, compounded annually, becomes two dollars in about 14 years. At that rate, banks siphon off as much money in interest every 14 years as there was in the entire world 14 years earlier.

That explains why M3 has increased by 100 percent or more every 14 years since the Federal Reserve first started tracking it in 1959. According to a Fed table titled "M3 Money Stock," M3 was about $300 billion in 1959. In 1973,14 years later, it had grown to $900 billion. In 1987,14 years after that, it was $3,500 billion; and in 2001, 14 years after that, it was $7,200 billion. To meet the huge interest burden required to service all this money-built-on-debt, the money supply must continually expand; and for that to happen, borrowers must continually go deeper into debt, merchants must continually raise their prices, and the odd men out in the bankers' game of musical chairs must continue to lose their property to the banks. Wars, competition and strife are the inevitable results of this scarcity-driven system.

The obvious solution is to eliminate the parasitic banking scheme that is feeding on the world's prosperity. how? The Witches of Wall Street are not likely to release their vice-like grip without some sort of revolution; and a violent revolution would probably fail, because the world's most feared military machine is already in the hands of the money cartel. Violent revolution would just furnish them with an excuse to test their equipment. The first American Revolution was fought before tasers, lasers, tear gas, armored tanks, and depleted uranium weapons.

Fortunately or unfortunately, in the eye of today's economic cyclone, we may have to do no more than watch and wait, as the global pyramid scheme collapses of its own weight. In the end, what is likely to bring the house of cards down is that the Robber Barons have lost control of the propaganda machine.

p337
Richard Russell publisher of The Dow Theory Letter

The creation of money is a total mystery to probably 99 percent of the US population, and that most definitely includes the Congress and the Senate. The takeover of US money creation by the Fed is one of the most mysterious and ominous acts in US history .... The legality of the Federal Reserve has never been "tried" before the US Supreme Court.

p353
Vernon Parrington summarized Greenbackers' position in the 1920s

To allow the bankers to erect a monetary system on gold [gold standard] is to subject the producer to the money-broker and measure deferred payments by a yardstick that lengthens or shortens from year to year. The only safe and rational currency is a national currency based on the national credit, sponsored by the state, flexible, and controlled in the interests of the people as a whole.

p354
Stephen Zarlenga in 'The Lost Science of Money'

All of the plausible sounding gold standard theory could not change or hide the fact that, in order to function, the system had to mix paper credits with gold in domestic economies. Even after this addition, the mixed gold and credit standard could not properly service the growing economies. They periodically broke down with dire domestic and international results. [In] the worst such breakdown, the Great Crash and Depression of 1929-33,... it was widely noted that those countries did best that left the gold standard soonest.

p354
Machiavelli, in the sixteenth century

He who introduces a new order of things has all those who profit from the old order as his enemies, and he has only lukewarm allies in all those who might profit from the new.

p362
99 percent of the U.S. money supply is owed back to private lenders with interest, and the money to cover the interest does not exist until new loans are taken out to cover it. Just to maintain our debt-based money supply requires increasing levels of debt and corresponding levels of inflation, creating a debt cyclone that is vacuuming up our national assets. The federal debt has grown so massive that the interest burden alone will soon be more than the taxpayers can afford to pay. The debt is impossible to repay...

p364
Al Martin cites a study authorized by, the U.S. Treasury in 2001, finding that for the government to keep servicing its debt as it has been doing, by 2013 it will have to have raised the personal income tax rate to 65 percent. And that's just to pay the interest on the national debt. When the government can't pay the interest, it will he forced to declare bankruptcy, and the economy will collapse.

Martin writes:

The economy of the rest of the planet would collapse five days later .... The only way the government can maintain control in a post-economically collapsed environment is through currency and rough military might, or internal military power...

p365
Mike Whitney, in an April 2005 article in Counter Punch

If the major oil producers convert from the dollar to the euro, the American economy will sink almost overnight. If oil is traded in euros then central banks around the world would be compelled to follow and America will be required to pay off its enormous $8 trillion debt.

p366
In 1933 Franklin Roosevelt pronounced the country officially bankrupt, exercised his special emergency powers, waved the royal Presidential fiat, and ordered the promise to pay in gold removed from the dollar bill. The dollar was instantly transformed from a promise to pay in legal tender into legal tender itself. Seventy years later, Congress could again acknowledge that the country is officially bankrupt, propose

p368
If the Fed can buy back the government's bonds with a flood of newly-printed dollars, leaving the government in debt to the Fed and the banks, why can't the government buy back the bonds with its own newly-printed dollars, debt free?

p373
What would happen if the Social Security crisis were resolved by simply cashing out its federal bond holdings with newly-issued U.S. Notes? Would dangerous inflation result? The likely answer is that it would not, because the Social Security fund would have no more money than it had before. The government would just be returning to the fund what the taxpayers thought was in it all along. The bonds would be turned into cash, which would stay in the fund where it belonged, to be used for future baby-boomer pay-outs as intended.

p373
The Fed owns about ten percent of the government's outstanding securities. If the government were to buy back these securities with cash, that money too would no doubt stay where it is, where it would continue to serve as the reserves against which loans were made. The cash would just replace the bonds, which would be liquidated and taken out of circulation. Again, consumer prices would not go up, because there would be no more money in circulation than there was before.

That is one way to deal with the Federal Reserve's Treasury securities, but an even neater solution has been proposed: the government could just void out the bonds. Recall that the Federal Reserve acquired its government securities without consideration, and that a contract without consideration is void.

What would the Federal Reserve use in that case for reserves? Article 30 of the Federal Reserve Act of 1913 gave Congress the right to rescind or alter the Act at any time. If the Act were modified to make the Federal Reserve a truly federal agency, it would not need to keep / reserves. It could issue "the full faith and credit of the United States" directly, without having to back its dollars with government bonds.

p375
Foreign central banks are reducing their reserves of U.S. securities whether we like it or not. The tide is rolling out, and U.S. bonds will be flooding back to U.S. shores. The question for the U.S. government is simply who will take up the slack when foreign creditors quit rolling over U.S. debt. Today, when no one else wants the bonds sold at auction, the Fed and its affiliated banks step in and buy them with dollars created for the occasion, creating two sets of securities (the bonds and the cash) where before there was only one. This inflationary duplication could be avoided if the Treasury were to buy back the bonds itself and just void them out. Congress could then avoid the debt problem in the future by following the lead of the Guernsey islanders and simply refusing to go into debt. Rather than issuing bonds to meet its costs, it could issue dollars directly.

p376
The stock market is casino of people with money to invest.

p378
Once the government reclaims the power to create money from the banks, it will no longer need to sell its bonds to investors. It will not even need to levy income taxes. It will be able to exercise its sovereign right to issue its own money, debt-free. That is what British monarchs did until the end of the seventeenth century, what the American colonists did in the eighteenth century, and what Abraham Lincoln did in the nineteenth century.

p380
Federal Reserve Chairman Ben Bernanke, in a speech in Washington DC, 2002

The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars it wishes at essentially no cost.

p381
The Japanese government actually owns its central bank, the Bank of Japan.

p384
The Fed manipulates markets with accounting-entry money funneled through its "primary dealers" - a list of about 30 investment houses authorized to trade government securities, including Goldman Sachs, Morgan Stanley, and Merrill Lynch.' These banks then use the funds to buy government bonds, in the sort of maneuver that might be called money laundering" if it were done privately.

p385
What has allowed government to become corrupted today is that it is actually run by the money cartel. Big Business holds all the cards, because its affiliated banks have monopolized the business of issuing and lending the national money supply, a function the Constitution delegated solely to Congress. What hides behind the banner of "free enterprise" today is a system in which giant corporate monopolies have used their affiliated banking trusts to generate unlimited funds to buy up competitors, the media, and the government itself, forcing truly independent private enterprise out. Big private banks are allowed to create money out of nothing, lend it at interest, foreclose on the collateral, and determine who gets credit and who doesn't. They can advance massive loans to their affiliated corporations and hedge funds, which use the money to raid competitors and manipulate markets.

... These giant cartels can be brought to heel only by cutting off their source of power and returning it to its rightful sovereign owners, the people themselves. Private enterprise needs publicly-operated police, courts and laws to keep corporate predators at bay. It also needs a system of truly national banks, in which the power to create the money and advance the credit of the people is retained by the people. We trust government with sweeping powers to declare and conduct wars, provide for the general welfare, and establish and enforce laws. Why not trust it to create the national money supply in all its forms?

p385
The bottom line is that somebody has to have the power to create money... There are only three choices for the job: a private banking cartel, local communities acting separately, or the collective body of the people acting through their representative government. Today we are operating with option #1, a private banking cartel, and it has brought the system to the brink of collapse. The privately-controlled Federal Reserve, which was chartered specifically to "maintain a stable currency," has allowed the money supply to balloon out of control. The Fed manipulates the money supply and regulates its value behind closed doors, in blatant violation of the Constitution and the antitrust laws. Yet it not only can't be held to account; it doesn't even have to explain its rationale or reveal what is going on.

... The fiat currency of the national community has the full force of the nation behind it. And even if the politicians in charge of managing it turn out to be no less corrupt than private bankers, the money created by the government will be debt-free. Shifting the power to create money to Congress can relieve future generations of the burden of perpetual interest payments to an elite class of financial oligarchs who have advanced nothing of their own to earn it.