Web of Debt By Ellen Hodgson Brown

Notes made by Russell Faure-Brac 3/8/2014

Foreword

  • A network of private bankers has taken over the creation and control of the international money system with the intent of gaining absolute control over the planet. The lifeblood of this power elite is money and its weapon is fear. Their power can be used to enslave nations and ensure perpetual wars. Internationally they and their governmental partners use fraudulent economic tools to weaken or defeat opponents without a shot being fired.

Introduction

  • The current monetary scheme is a hoax because there is virtually no real money in the system, only debts. Except for coins, which are issued by the government and make up less than 0.01% of the money supply, the entire US money supply now consists of debt owed to private banks for money they created with accounting entries on their books.

Tangible currency (cash consisting of coins and dollar bills) together make up less than 3% of the US money supply. The other 97% exists only as data entries on computer screens and all of this money was created by banks in the form of loans. (Chapters 2 and 17)

  • There is a simple solution that could make the country solvent again. The federal debt could be paid, income taxes could be eliminated, and social programs could be expanded.
  • The Federal Reserve Bank is not actually federal. Its twelve branches are privately owned by a consortium of very large multinational banks. (Chapter 13)
  • Except for coins, the government does not issue money. Dollar bills (Federal Reserve Notes) are issued by the Federal Reserve Bank, which distributes them in various ways to banks, which then lend them to the government, individuals and businesses at interest. (Chapter 2)
  • The money that banks lend is not recycled from pre-existing deposits. It is new money, which did not exist until it was lent. (Chapters 17 and 18)
  • The American banking system, which at one time extended productive loans to agriculture and industry, has today become a giant betting machine using complex, high-risk bets know as derivatives. They can be and have been used to manipulate markets, loot businesses and destroy competitor economies. (Chapters 20 and 32)
  • The US federal debt has not been paid off since the days of Andrew Jackson [and never will]. Only the interest gets paid, while the principal portion continues to grow. (Chapter 2)
  • The federal income tax was instituted to coerce taxpayers to pay the interest due to the banks on the federal debt. If the money supply were to be created by the government rather than by the banks, the income tax would be unnecessary. (Chapters 13 and 43)
  • There is a way out of this mess if government takes the money-issuing power back from the banks. (Chapters 8 and 24)

 

Section I. From Gold to Federal Reserve Notes

  • No notes

 

Section II.  The Bankers Capture the Money Machine

  • Hedge funds – are private funds that pool the assets of wealthy investors, with the aim of making “absolute” returns – making a profit whether the market goes up or down. They are usually run in offshore banking centers such as the Cayman Islands to avoid regulation. They were originally set up to “hedge” the bets of investors insuring against currency or interest rate fluctuations, but they quickly became instruments of manipulation and control. By 2005 they were often responsible for over half the daily trading on the stock market, giving them an enormous amount of control overt what the markets would do. Derivatives are key investment tools of hedge funds. [see derivatives]

 

Section III.  The Bankers Net Spreads Over the Globe

  • Before 1973 Third World debt was manageable and contained, financed mainly through public agencies like the World Bank, which invested in projects promising solid economic success. But things changed when private commercial banks got into the game. They were not in the business of “development” but in the business of loan brokering (loan sharking). The banks preferred stable governments for clients, generally meaning governments controlled by dictators. In many cases the dictators used the money for their own ends, without significantly bettering the condition of the people; but the people were saddled with the bill.

The screws were tightened in 1979 when the Fed under Chairman Paul Volker hiked interest rates to crippling levels after foreign dollar-holders began dumping their dollars in protest over foreign policies of the Carter administration [which would have…because]. Within weeks Volker allowed the US interest rates to triple to over 20%, forcing global interest rates through the roof, triggering a global recession and mass unemployment. By 1982 the dollar’s status as the global reserve currency [define] had been saved but the entire Third World was on the brink of bankruptcy.

That was when the London and New York banks brought in the IMF to enforce debt repayment. Public spending for health, education and welfare in debtor countries was slashed, following IMF orders to ensure that the banks got timely payment on their loans. The banks also brought pressure on the US government to bail them out from the consequences of their imprudent loans, using taxpayer money and US assets to do it. The results were austerity measures for Third World countries and taxation for American workers to provide welfare for the banks. The banks were thus emboldened to keep aggressively lending.

 

Section IV.   The Debt Spider Captures America

  • Derivatives – Actually debt is not money; credit is. Credit is what’s yours (the money the bank has in its accounts). Debts are debits that you owe to other people (the depositors).  It’s the credit that the banks have on their balance sheet that they use to loan out money.
  • To keep money in the economy, new debt must continually be created. When commercial borrows (you and I) aren’t creating enough money by borrowing it into existence, the government must take over that function by spending money it doesn’t have, justifying its loans in any way it can. These new loans don’t necessarily have to be paid back (in fact, the government doesn’t pay them back). New money just has to be circulated, providing a source of funds to pay the extra interest that wasn’t lent into existence by the original loans. pg. 306 web
  • Governments and central banks have a number of ways to get more money into the system [pump liquidity into the system]:

1)    Drastically lower interest rates, encouraging borrowers to borrow more and go further into debt.

2)    Institute tax cuts to put more money in people’s pockets.

3)    Authorize military research, public works projects, space exploration and other projects that will justify massive government borrowing that never gets paid back.

4)    Engage in a war as a pretext for borrowing, preferably a war that will drag on.

  • Rigging financial markets – “Maintaining investor confidence” means keeping investors in the dark about how shaky the economy really is.

 

Section V.  Taking Back the Money Power

  • Abundance – An aspect of a free market is the freedom to steal, which is why economics must be tempered with the Constitution and the law.
  • Federal debt – We cannot simply grow our way out of the national debt.
  • Liquidating the federal debt – 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 US” directly, without having to back its dollars with government bonds. 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.
  • Helicopter money – The usual objections to returning the power to create money to Congress are that a) it would be inflationary and b) it would give a corrupt government even more power. But government-issued money would actually be less inflationary than the system we have now (see chapter 44); and it is precisely because power and money corrupt that money creation needs to be done by a public body, exercised in full view and with full accountability. If the people’s money isn’t being spent for the benefit of the people, we can vote our representatives out.

What hides behind the banner of free enterprise today is a system in which giant corporate monopolies have used their affiliated baking trusts to generate unlimited funds to buy up competitors, the media and the government itself, forcing truly independent private enterprise out.

 

Section VI.  A Banking System That Serves the People

  • National banking system – Some say the government should stay out of the banking business. The counter argument is that the issue of money is a function of the government and the banks should get out of the governing business.
  • Interest – Interest serves some useful functions. It encourages borrowers to repay their debts quickly, discourages speculation, compensates lenders for foregoing the use of their money for a period of time and provided retired people with a reliable income.
  • Nationalizing the whole banking system is a bit radical for current Western thinking. A more realistic model would be a dual lending system, semi-private and semi-public. The government would be the initial issuer and lender of funds and private financial institutions would recycle this money as loans. Private lenders would still earn interest, just not as much. The money supply would therefore still need to expand to cover interest charges, just not by as much.
  • A truly interest-free banking system might work. Sweden and Denmark have interest-free savings and loans associations that have been operating successfully for decades. They are cooperatively owned and are not designed to return a profit to their owners. They merely provide a service, facilitating borrowing and lending among their members. Costs are covered by service charges and fees.
  • A common objection to getting government involved in business is that it is notoriously inefficient at those pursuits; but this reputation is undeserved. The only enterprises left to government are those from which private enterprise cannot make a profit.  In-house operation of publicly provided services is generally more efficient than contracting them out, while privatizing public infrastructure for private profit has typically led to increased costs, inefficiency and corruption.
  • Banks that are public agencies would have a number of practical advantages that could actually make them more efficient in the marketplace than their private counterparts.

1)    A government bank could advance loans without keeping reserves. It would just be advancing credit.

2)    A truly national bank would not need to worry about going bankrupt

3)    It would not need an FDIC (Federal Deposit Insurance Corporaation) to insure its profits.

4)    It could issue loans impartially to anyone who satisfied its requirements, in the same way that the government issues drivers licenses to anyone who qualifies now.

5)    Loans could be issued at an interest rate that was modest and fixed, returning reliability and predictability to borrowing. The Federal Reserve would no longer have to tamper with interest rates to control the money supply indirectly, because it would have direct control of the national currency at its source.

  • Bailout – When the US government needs money, it either collects it in taxes or it issues bonds. These bonds are sold to the Fed and the Fed, in turn, makes book entry deposits. This debt money created out of thin air is then made available to the US government. But if the US government can issue Treasury bills, notes and bonds, it can also issue currency as it did prior to the formation of the Federal Reserve. If the US issued its own money, that money could cover all its expenses and the income tax wouldn’t be needed. So what’s the objection? Easy, it cuts out the bankers.
  • Banking is the government’s business by constitutional mandate, entrusted to Congress by the Founding Fathers. If Congress is going to take back the power to create money, it will have to take control of the lending business, since most of the money supply is now created as loans.
  • The over-the-counter derivative scheme masks the insolvency of a bank as it is largely hidden from public view. One way to bring it into the light be would be for Congress to impose a “Robin Hood” tax on all financial transactions. A Robin Hood tax, or just a derivatives tax, might do more than just raise money for the government. It could actually kill the derivatives business, since even a very small tax leveraged over many trades would make them unprofitable.

A tax on derivatives could be a useful tool, but the ideal government would be one that was self-sustaining, without imposing either taxes or a mounting debt on its citizens. If the US issued its own money, that money could cover all its expenses, and taxes would not be necessary.

  • Third world debt – In the nineteenth century, the corporation was given the legal status of a “person” although it was a person without heart, incapable of love and charity. Its sole motive was to make money for its stockholders, ignoring such “external” costs as environmental destruction or human oppression The US government, by contrast, was designed to be a social organism with heart. The Founding Fathers stated that the function of government is to “provide for the general welfare.”
  • If the major corporate banking entities that are now in control of the nation’s money supply were made agencies of the US government, they could incorporate some of these humanitarian standards into their business models; and one important humanitarian step these public banks would be empowered to take would be to forgive unfair and extortionate Third World debt. Most Third World debt today is held by US-based international banks [like BofA and Wells Fargo]. If those banks were made federal agencies (either by purchasing their stock or by acquiring them in receivership if they go bankrupt, the US government could declare a “Day of Jubilee’ – a day when oppressive Third World debts were forgiven actress the board. That could have a number of benefits including a reduction in terrorism (and a reduction in the need for current rates of defense spending). “Career terrorists” are signing up for that radical employment because it pays a salary when no other jobs are available.
  • The US has actually been looking for a way to cancel Third World debt. It just hasn’t been able to reach agreement with its fellow IMF members on how to do it. The IMF wants to shift the burden of payment from the debtor countries to the wealthier donor countries. However the debts could be canceled simply by voiding them out on the bank’s books. No depositors or creditors would lose any money because no depositors or creditors advanced their own money in the original loans.
  • If the money is owed to commercial banks, it was money created with accounting entries. The debt represents a liability on the bank’s books only because the rules of banking say that their books must be balanced [explain that assets = liabilities + net worth?].  An option would be to remove the obligation on banks to maintain parity between assets and liabilities. Thus if a commercial bank held $10 billion worth of developing country debt, after cancellation it would be permitted in perpetuity to have a $10 billion dollar deficit in its assets. This is simply a matter of record keeping.

 

Afterword – Collapse of a Ponzi scheme – Our financial woes are a direct result of a monetary scheme in which money is created by private banks and lent into the economy at interest. The power to create the nation’s money and credit needs to be vested in the people themselves, as it was in the early American colonies. Possible roads to that result include:

1)    Nationalize the Federal Reserve, making it an agency of the Treasury authorized to issue Federal Reserve Notes for direct congressional use.

2)    Mandate that the Fed buy US securities (or debt)…

3)    Thaw the credit squeeze at the state level by forming state-owned banks on the model of the Bank of North Dakota.

4)    Nationalize bankrupt banks considered “too big to fail,” making them public services like libraries and courts. Nationalizing just one major bank having branches around the country could be sufficient to establish a public banking system nationwide.

 

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