"The Federal Reserve Banks create money out of thin air to buy Government Bonds from the U.S. Treasury . . . [creating] out of nothing a . . . debt which the American people are obliged to pay with interest."
Patman was outraged at the inequity of this practice and boldly agitated for Congress to nationalize the privately-owned Federal Reserve, a move that would have allowed the government to issue the national money supply directly. Needless to say, however, this proposal met with strong opposition. Nationalization did not happen, but the Fed did have to compromise. According to Jerry Voorhis:
"As a direct result of logical and relentless agitation by members of Congress, led by Congressman Wright Patman as well as by other competent monetary experts, the Federal Reserve began to pay to the U.S. Treasury a considerable part of its earnings from interest on government securities. This was done without public notice and few people, even today, know that it is being done. It was done, quite obviously, as acknowledgment that the Federal Reserve Banks were acting on the one hand as a national bank of issue, creating the nation's money, but on the other hand charging the nation interest on its own credit – which no true national bank of issue could conceivably, or with any show of justice, dare to do."
Voorhis went on, "But this is only part of the story. And the less discouraging part, at that. For where the commercial banks are concerned, there is no such repayment of the people's money." Commercial banks, he explained, do not rebate the interest, although they also "'buy' the bonds with newly created demand deposit entries on their books – nothing more."6
Voorhis noted that the Constitution provides, "Congress shall have the power to coin money [and] regulate the value thereof." Whether "to coin money" means "to issue money" has been debated; but as President Andrew Jackson observed, if anyone was given the power to issue money, it was Congress, not a private banking elite. For a full century before the American Revolution, the colonists funded a period of unprecedented prosperity and productive enterprise with paper money issued directly by their own local governments or government-owned banks. According to Benjamin Franklin, it was chiefly to get that power back after King George halted the practice that the colonists fought the Revolution.7 They won the war but lost the money-creating power to a private banking cartel. We the people now have an opportunity to get that innovative funding system back, and we can do it without having to convince a faction-ridden Congress that they need to do anything so controversial as nationalizing the Federal Reserve or even passing new legislation. All that is required is a shift in emphasis, a shift the Federal Reserve has been making lately itself. The Fed routinely turns government bonds into dollars in order to expand the amount of currency in circulation; it has now begun doing that with corporate debt; and Fed officials are talking about doing it with long-term federal securities. According to a January 28, 2009 Associated Press report:
"With its key lending rate to banks already near zero, the Fed pledged anew to use 'all available tools' to revive the economy. Specifically, the Fed said it is 'prepared' to buy longer-term Treasury securities if the circumstances warrant such action."8
Traditionally, government debt has been "monetized" by the Fed only to provide the bank reserves necessary to cover check cashing and clearing. This tool is now being recommended "to revive the economy." Obama's stimulus package is also intended to revive the economy. Combine the two and you have a package that stimulates the economy without adding to the impossible burden of an exponentially-increasing debt.
But Wouldn't That Be Inflationary?
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
6
4
2
