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The Federal Reserve Fraud

November 22, 2008

This post on the fraud perpetrated by the Federal Reserve is part of my series on the redistribution of wealth from the poor and middle class to the wealthy. It’s going to be a long one, because the federal reserve system is complicated – made that way on purpose to hide the fact that wealthy investors control our money supply, contrary to what the government says.

In fact, the FED’s official web site says, “The Federal Reserve System is not ‘owned’ by anyone and is not a private, profit-making institution,” and also says, “Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.”

Yes, it is “quite different from owning stock in a private company” when your stock value is guaranteed and the 6 percent return (higher at times) is risk-free. Who else gets that kind of stock? But the owners of these shares are “for profit” companies. In fact, 100% of its shareholders are private banks. None of its stock is owned by the government. I wish I could own shares in a non-profit-making institution that shoveled billions of dollars my way in addition to giving me a risk free 6% on my investment!

You see, this goes far beyond that 6% risk-free return. Members can borrow money which the federal reserve creates. They get the money at about 1% at the moment (the “fed funds’ rate), and if they want, they can immediately invest in U.S. bonds that pay close to 4%. That profit, which is obviously huge if they borrow enough, is paid by taxpayers. Now you might think the last point is irrelevant, since someone will own those bonds that we pay the interest on. That’s not true, though, as I’ll explain in a moment.

First we have to understand how the federal reserve gets its money. Most of its income comes from interest on U.S. government bonds. It also makes money on foreign currency investments, fees for services provided to depository institutions (check clearing, funds transfers, etc) and interest on loans to depository institutions. After expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury, thus enabling them to claim they are not a profit making enterprise – just the shareholders make profits. (Could you say this with a straight face?)

Let’s look closer at the big income source, those U.S. bonds. Here’s how that works, as well as I can explain it after reading more than a thousand pages in various books about the Federal Reserve.

1. The government creates bonds (IOUs) and sells them. This is how they borrow money.

2. The Federal Reserve Open Market Committee decides in secret when to expand the countries money supply by buying U.S. Bonds on the open market.

3. The New York Federal Reserve Bank buys the bonds from whomever is selling them on the open market.

4. The Fed pays for them with electronic credits to the seller’s bank. These are based on nothing tangible, but are just created. This is why it is said that the FED creates money “out of thin air.” That bank credits the seller’s bank account, of course

5. The banks use these deposits as reserves, and are allowed to loan out ten times the amount of their reserves to new borrowers. That money is deposited in banks (borrow to buy a house and the seller deposits the money in his bank, etc).

So if the FED buys a billion dollars in bonds, it can be turned into over 10 million dollars in bank deposits. Essentially the FED creates 10% of this new money and the banks create the other 90%. This is how the FED expands the money supply when they deem it necessary.
By the way, they create currency as necessary too. Look at those bills in your pocket and you’ll see that they are not issued by a government, but are “federal reserve notes.” But most new money created is simply in the form of bookkeeping entries – they don’t have to lose a few percentage points in printing costs that way.

Now, I have to add that I cannot fully explain this because it gets much more complicated. A simple version that economists and money analyst agree on: The FED creates money out of thin air to buy bonds that it then collects interest on, and yes, it is inflationary. The value of every dollar held by the poor and middle class is reduced in time from this activity, with the profit going to FED members, meaning ultimately to the wealthy owners of those member banks. The two important points:

1. The United States Constitution (Article I, Section 8, Clause 5) provides that Congress shall have the power to coin money and regulate the value thereof, yet the government no longer can issue money, or control the flow of money. That power now belongs to private corporations: the 12 regional Federal Reserve Banks (primarily controlled by the New York Federal Reserve Bank).

2. The “FED” creates money, and loans it to the government, charging interest (they buy bonds).

Now, to understand how this transfers wealth from poor to rich, we start with a question: “What if the government printed money instead of borrowing it?” For example, suppose we had paid for the Interstate Highway System by printing the money needed? Naturally this would reduce the value of currency in circulation. We call that inflation, and recognize it when prices rise.

Notice, however, that the price would have been paid by everyone who owns dollars, and would have been paid only once. In other words, if you print 50 billion dollars the net long-term effect is to reduce the value of existing dollars by that much. But when we borrow 50 billion we pay perhaps hundreds of billions extra in interest on it for decades to come. Who gets that extra money we pay? Owners of the debt.

Now, who is one of the biggest owners of that debt? The New York Federal Reserve Bank. But it’s worse than that. They have been granted the power to create the money to buy those government bonds. So the FED devalues the dollars we have, and then the government take parts of what’s left through taxation to pay those debts the FED bought with their created money. In other words, all of us – those who pay taxes and even those who are too poor – pay for things many times over because of the way the system is structured.

Of course those of us who mistrust government may not like the idea of the government being in charge of money. But what makes us think that The Reserve Bank’s directors – two thirds of whom are elected by member banks – will ignore THEIR voters and serve only OUR interests?

Finally, I don’t want to get into all the conspiracy theories. Yes, it seems true that John Kennedy died shortly after expressing an interest in having the government retake control of the currency, but we can make all sorts of speculative theories and there is no evidence that his assassination is related. I couldn’t even confirm if he really signed “Executive Order 11110,” which supposedly stripped the Federal Reserve Bank of its power.

In any case, we don’t need to assume bad motives on the part of the FED and its shareholders. It’s enough to know that it’s a system which creates trillions in debt upon which we pay the interest, and a system that robs our money of value through inflationary practices which cost some while benefitting others. It’s an example of a massive transfer of wealth from the poor and middle class to wealthy owners of member banks. Those facts alone are enough to see that it is an unjust institution. It’s time to get rid of the Federal Reserve System.

Note: Speculation is all over the internet as to which wealthy families or individuals benefit most, but I couldn’t even find a list of member banks and their owners or stockholders on the federal reserve web site. Apparently all national banks are members, and state banks can be. I wish I could say more about the details of how this all works, but none of the important questions are answered clearly by any government sources, and many of theories online about the system are probably invented. Nonetheless, it is clear from the facts that the Federal Reserve is a fraud foisted on the American people by and for the benefit of private bankers.

Note: This is part of a series. You can find all of the pages listed and linked to here:

The Redistribution of Wealth to the Wealthy

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Federal Reserve Fraud