The creation of money has been privatized, usurped from Congress by a private banking cartel.
Most people think money is issued by fiat by the government, but that is not the case. Except for coins, which compose only about one one-thousandth of the total U.S. money supply, all of our money is now created by banks. Federal Reserve Notes (dollar bills) are issued by the Federal Reserve, a private banking corporation, and lent to the government.1
Moreover, Federal Reserve Notes and coins together compose less than 3 percent of the money supply. The other 97 percent is created by commercial banks as loans.2
Don't believe banks create the money they lend? Neither did the jury in a landmark Minnesota case, until they heard the evidence. First National Bank of Montgomery vs. Daly (1969) was a courtroom drama worthy of a movie script.3
Defendant Jerome Daly opposed the bank's foreclosure on his $14,000 home mortgage loan on the ground that there was no consideration for the loan. "Consideration" ("the thing exchanged") is an essential element of a contract. Daly, an attorney representing himself, argued that the bank had put up no real money for his loan.
The courtroom proceedings were recorded by Associate Justice Bill Drexler, whose chief role, he said, was to keep order in a highly charged courtroom where the attorneys were threatening a fist fight. Drexler hadn't given much credence to the theory of the defense, until Mr. Morgan, the bank's president, took the stand.
To everyone's surprise, Morgan admitted that the bank routinely created money "out of thin air" for its loans, and that this was standard banking practice.
"It sounds like fraud to me," intoned Presiding Justice Martin Mahoney amid nods from the jurors.
In his court memorandum, Justice Mahoney stated:
Plaintiff admitted that it, in combination with the Federal Reserve Bank of Minneapolis,... did create the entire $14,000.00 in money and credit upon its own books by bookkeeping entry. That this was the consideration used to support the Note dated May 8, 1964 and the Mortgage of the same date.
The money and credit first came into existence when they created it. Mr. Morgan admitted that no United States Law or Statute existed which gave him the right to do this. A lawful consideration must exist and be tendered to support the Note.
The court rejected the bank's claim for foreclosure, and the defendant kept his house.
To Daly, the implications were enormous. If bankers were indeed extending credit without consideration - without backing their loans with money they actually had in their vaults and were entitled to lend - a decision declaring their loans void could topple the power base of the world.
He wrote in a local news article:
This decision, which is legally sound, has the effect of declaring all private mortgages on real and personal property, and all U.S. and State bonds held by the Federal Reserve, National and State banks to be null and void.
This amounts to an emancipation of this Nation from personal, national and state debt purportedly owed to this banking system. Every American owes it to himself... to study this decision very carefully... for upon it hangs the question of freedom or slavery.
Needless to say, however, the decision failed to change prevailing practice, although it was never overruled.
It was heard in a Justice of the Peace Court, an autonomous court system dating back to those frontier days when defendants had trouble traveling to big cities to respond to summonses. In that system (which has now been phased out), judges and courts were pretty much on their own. Justice Mahoney, who was not dependent on campaign financing or hamstrung by precedent, went so far as to threaten to prosecute and expose the bank. He died less than six months after the trial, in a mysterious accident that appeared to involve poisoning.
Since that time, a number of defendants have attempted to avoid loan defaults using the defense Daly raised; but they have met with only limited success.
As one judge said off the record:
If I let you do that - you and everyone else - it would bring the whole system down... I cannot let you go behind the bar of the bank... We are not going behind that curtain! 5
From time to time, however, the curtain has been lifted long enough for us to see behind it. A number of reputable authorities have attested to what is going on, including Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920s.
He declared in an address at the University of Texas in 1927:
The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin... Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again...
Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in... But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.
Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta in the Great Depression, wrote in 1934:
We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system.
When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon.
Graham Towers, Governor of the Bank of Canada from 1935 to 1955, acknowledged:
Banks create money. That is what they are for... The manufacturing process to make money consists of making an entry in a book. That is all... Each and every time a Bank makes a loan... new Bank credit is created - brand new money.
Robert B. Anderson, Secretary of the Treasury under Eisenhower, said in an interview reported in the August 31, 1959 issue of U.S. News and World Report:
[W]hen a bank makes a loan, it simply adds to the borrower's deposit account in the bank by the amount of the loan. The money is not taken from anyone else's deposit; it was not previously paid in to the bank by anyone. It's new money, created by the bank for the use of the borrower.
How did this scheme originate, and how has it been concealed for so many years? To answer those questions, we need to go back to the seventeenth century.
Dollar Deception: How Banks Secretly Create Money