That was the reason for the secrecy at the meeting. Now we know something very important about the Federal Reserve that we didn't know before, but there's much more to it than that. Consider the composition of this group. Here we had the Morgans, the Rockefellers, Kuhn, Loeb & Company, the Rothschilds and the Warburgs. Anything strange about that mixture? These were competitors. These were the major competitors in the field of investment and banking in those days; these were the giants. Prior to this period they were beating their heads against each other, blood all over the battlefield fighting for dominance in the financial markets of the world. Not only in New York but London, Paris and everywhere. And here they are sitting around a table coming to an agreement of some kind. What's going on here? We need to ask a few questions.
This is extremely significant because it happened precisely at that point in American history where business was undergoing a major and fundamental change in ideology. Prior to this point, American business had been operating under the principles of private enterprise--free enterprise competition is what made American great, what caused it to surpass all of the other nations of the world. Once we had achieved that pinnacle of performance, however, this was the point in history where the shift was going away from competition toward monopoly. This has been described in many textbooks as the dawning of the era of the cartel and this was what was happening. For the fifteen year period prior to the meeting on Jekyll Island, the very investment groups about which we are speaking were coming together more and more and engaging in joint ventures rather than competing with each other. The meeting on Jekyll Island was merely the culmination of that trend where they came together completely and decided not to compete--they formed a cartel.
I need to define that word so that you will know what I mean when I use the word cartel. It is a group of independently owned businesses which come together for the purpose of reducing or eliminating competition between themselves to enhance their profit margin or to secure their positions in the market. They do this by various means one of which is price fixing--no competition on price. There are other means. If we were forming a cartel here I might insist that I get the north and you can have the south and we won't compete. Or I would say I'll produce the gizmo and you can have the widget and we won't compete or we'll share patents and processes and whatever we do we agree to eliminate competition between ourselves. The more layers of agreement that we put one on top of the other, the more we become encased in this cartel structure and we become as one insofar as the market is concerned even though within that grouping we are separately owned.
This is just as true with a banking cartel as it is with any other industry. We come to the conclusion when we analyze the nature of the Federal Reserve System how it operates, read the Federal Reserve Act, place it against the context of the historical background and we come smack to the realization that the Federal Reserve System although it parades around looking as though it's a government operation of some kind, is merely a cartel of banks right under our noses and it is protected by law. I sometimes get the impression that it's been there dangerously operating all these years and we didn't even know it. I saw a video some years ago about the lava tubes in Hawaii. They are very impressive because apparently once in a while the ground will just break out, a hole will fall down and you can look into the hole and you see that there's a river of lava actually flowing just a few feet under your feet and you don't even know it's down there unless something breaks through and you hope you're not on the piece that breaks through. I got the feeling that this is how the Federal Reserve has been operating right under our feet; this cartel has been running and we didn't even know it because that fact has been carefully concealed from us.
Conclusion number 2 about the Federal Reserve System, a very important thing that we didn't know is the cartel. There's even more to it than that. Perhaps the third ingredient is the most important of all and that is the realization that this cartel went into partnership with the government. Now we have hold of something extremely significant. Cartels often go into partnership with governments because they need the force of law to enforce their cartel agreement but in this case they did it in spades.
Whenever a partnership is formed there has to be a benefit to the partners otherwise they don't form it. So we need to ask the question what is the benefit, the payoff, for these two partners? Why did they go into it? Why did the government go into a partnership like this and why does the banking cartel? In answering those questions we finally come to grips with the reality of what this creature from Jekyll Island is. Let's take a look at that; what's the payoff to these two partners? In order to see that we'll have to examine in some detail the mechanism by which the Federal Reserve System creates money. This is a real interesting study. I call it the "Mandrake Mechanism" named after that comic-book character of the 40s, Mandrake the Magician, who could create something out of nothing and then wave his cape and it was back into the void again. That's a pretty descriptive phrase for the way the Federal Reserve System does it.
Let's take a look at it and see how they create money through the Mandrake Mechanism. I am going to do this in a very simplified form. I want to warn you that it's going to sound like it's too simple. It's not. I'm going to strip out all the banking terminology, all the banker language, all the accounting phrases that need to be defined and speak in very plain English that anybody can understand. It may sound to you as though I've simplified it too much and I want to assure you that in spite of the simple language everything I'm going to tell you is absolutely 100% technically accurate. The other thing I want to warn you about is don't try and make sense out of this because it can't be done; this does not make sense and you'll blow a fuse trying to make it make sense. Just remember that it is a scam and if you keep that fact in mind then you'll have no trouble comprehending what's going on.
Here's how it works. It starts with the government side of the partnership, it starts in Congress which is spending money like crazy. It spends far more money than it takes in. It is spending way beyond its income. How can it do that? Basically this is what happens. Let's say Congress needs an extra billion dollars today so it goes to the treasury and says "we want a billion dollars" and the treasury official says "you guys have got to be kidding, we don't have any money here, you spent it all a long time ago, everything that we've taken in taxes you fellows have spent by March." Congress says "we thought that was true but we thought we'd stop by just in case somebody sent some more in." They get together and they go down the street and they get the idea that we'll borrow the money. So they stop at the printing office and they don't print money at the printing office, they print certificates and they're very fancy things with borders on the edge with an eagle across the top and a seal at the bottom and it says "US Government Bond" or "Note" or "Bill" depending on the length of the maturity of it. If you hold it up to the light it really says "IOU" because that's what it is. They print these things up and it looks very impressive and then they offer them to the private sector; they're hoping that people will come up and loan money to the federal government and a lot of people do and are anxious to lend money to their government. Why? Because they've been told by their investment advisors that that's the most sound investment that you can make. Why? We've all heard that these loans are backed by the full faith and credit of the US government. They're not quite sure what that means but it sure sounds good. I'd like to explain for you who are in doubt what that means. The full faith and credit of the US government means that the government solemnly promises to pay back that loan plus interest if it has to take everything you and I have in the form of taxes in order to do it, it's going to do it. It will take everything we have if necessary to hold its pledge. People don't realize that they're putting themselves on the line, they're going to get their own money back minus a substantial handling fee.
Plenty of money is loaned to the government but never enough. Congress needs more money than that. They say not to worry. They go further down the street to the Federal Reserve building. The Fed has been waiting for them, that's one of the reasons it was created. By the time they get inside the Federal Reserve building the officer of the Fed is opening his desk drawer. He knows they're going to be there and he's ready and he pulls out his checkbook and he writes a check to the US Treasury for one billion dollars or whatever the amount is that they need. He signs the check and gives it to the treasury official.
We need to stop here for a minute and ask a question. Where did they get a billion dollars to give to the treasury? who put that money into the account at the Federal Reserve System? The amazing answer is there is no money in the account at the Federal Reserve System. In fact, technically, there isn't even an account, there is only a checkbook. That's all. That billion dollars springs into being at precisely the instant the officer signs that check and that is called "monetizing the debt," that's the phrase they throw at you. That means they just wrote a check, a big rubber check. If you and I were to do that we would go to jail but they can do it because Congress wants them to do it. In fact, this is the payoff, this is the benefit to the government side of this partnership, this is how the government gets its instant access to any amount of money at any time without having to go to the taxpayer directly and justify it or ask for it. Otherwise, they would have to come to the taxpayer and say we're going to raise your taxes another $3,000 this year and of course if they did that, they would be voted out of office real fast. They like the Mandrake Mechanism because it's a no questions asked source of money. You may have noticed that it's been many years since Congress has even discussed what anything costs, it's not an issue. It doesn't make any difference what the cost is because regardless of the overrun they know they can go down the street to the Federal Reserve and by law the officer has to write that big check and give it to them and they're off and running.
There in a nutshell is the reason the government likes the Mandrake Mechanism--easy instant access to any amount of money of any kind without the taxpayer being involved directly in the loop. But what about the banking side? This is where it really gets interesting. Let's go back to that billion dollar check. The treasury official deposits the check into the government's checking account and all of a sudden the computers start to click and it shows that the government has a billion dollar deposit meaning that it can now write a billion dollars in checks against that deposit which it starts to do real fast. For the sake of our analysis, let's just follow $100 out of that billion in a check that for some reason they write to the fellow that delivers the mail to our door. The postal worker gets a check for $100 and he looks at this thing and he can't imagine in his wildest dreams that that money didn't exist two days ago anywhere in the universe. It's spendable so he wouldn't even care if you told him. He deposits it now into his personal checking account. Now we're finally out of the Federal Reserve and out of the government's check and we're into the private banking system. We're in finally to that part of the partnership which is involved in the cartel. A $100 deposit has now been made in the local bank and the banker sees that and runs over to the loan window and opens it up and says "attention, everybody, we have money to loan, someone just deposited $100." Everyone is overjoyed at that because that's one of the reasons they come to the bank, they come to borrow money. That's a sign of national health if you're in debt so they're anxious to know that the bank has money to loan, they line up for these loans. They heard the banker and they say $100 that's not very much and he says not to worry we can loan up to $900 based on that $100 deposit. How can that be done? It gets complicated the way they do it and I'll tell you in very simple terms. The Federal Reserve System requires that the banks hold no less than 10% of their deposits in reserve. The bank holds 10% of that $100 in reserve, $10, and it loans this first fellow in line $90. What does he do with it? He wants to spend it so he puts it into his checking account. In fact it probably goes directly into his checking account. Let's assume that they gave it to him and he puts it back, when he puts it back it's a deposit isn't it?
Only a $100 deposit but $900 in loans and that deposit is still there. Where did the $900 come from and the answer is the same--there was no money. This springs into existence precisely at the point at which the loan is made. Notice the difference, an important distinction is when the money is created out of nothing for the government it is spent by the government. On the banking side, however, when it's created out of nothing it's not spent by the banks it is loaned by the banks to you and to me and we spend it. Notice that when they loan it to us we have to pay them interest on it. Think about this for a minute. This money was created out of nothing and yet they collect interest on it which means that they collect interest on nothing. Not too shabby! What a concept, why didn't I think of that! I wish I had a magic checkbook like that where I could just write checks all day long and didn't have to have any money any place just checks, loan it to you folks and you're silly enough to pay me interest on it. That's how it works.
Now you see what the benefit is to the banking cartel for being involved in this Federal Reserve System, interest on nothing. The process doesn't end there, however. It has consequences to you and to me. I've heard some people say "isn't that interesting, these fellows are sure smart, I guess they deserve to be rich." It's as though we're out of the loop, it doesn't affect us any, they got rich but we're ok. Well no, they got rich alright but they got it by taking it from us. How does that work? Let's follow this.
This newly created money goes out into the economy and it dilutes down the value of the dollars that were already out there. It's like pouring water into a pot of soup, it dilutes the soup. So by throwing more and more money into the economic soup out there the money gets weaker and weaker and weaker and we have the phenomenon called inflation which is the appearance of rising prices. I emphasis the word "appearance" because in reality prices are not rising at all. What we're seeing is that the value of the dollar is going down, that's the real side of the equation. If we had real money based on gold or silver or anything tangible that couldn't just be created out of thin air, it could be based on microphones, that they couldn't just create with the stroke of a pen, you would see then that prices would remain stable over a long period of time.
To illustrate that point, it's interesting to know that if we had lived in ancient Rome with a one ounce gold coin we would've been able to buy a very fine toga, a hand-crafted belt and a pair of sandals--that was the price in Rome. Today, if we have a one ounce gold coin what can we buy with it? We can go into any men's store and buy a very fine suit, a hand-crafted belt and a pair of shoes. The price of these items hasn't changed in thousands of years when expressed in terms of real money but when expressed in terms of these things we carry around in our pockets called Federal Reserve notes which is not really money at all, fiat money anyway, the prices keep going up and up and up because the value of those units keeps going down and down and down because they keep making more and more and more of them and dumping them into the economic soup.
That's still not the end of the process. We lost some purchasing power through this process called inflation. We lost something and very few people ask the question "who got it"? It's as though nobody got it, we all lost it, it's like it evaporated and went up to heaven somewhere. No, somebody got it. For every loser there's a winner. Or I should say for every fifty losers there's one winner that gets it all. Somebody got it. Who? Those people that got our lost purchasing power are the ones who were right up at the point where the fresh money was injected into the economic pot of soup. The ones that got the money first gained because they had full purchasing power at that instant when the money was created. By the time they spent it and gave it to you and you spent it on something and gave it to him and by the time that it got out to the edge of the pot where most of us are it's diluted. The ones that were right up at the nozzle got our lost purchasing power. Who are they? Obviously the government was up there first. Remember the billion dollar check, the very beginning of this process went to the government and they spent it instantly and that money went out into the economy and that was the beginning of this ripple effect. Who else? The next ones were the people who were up at the loan window. They got the money that was freshly created by the banking system because they were the borrowers. We all know that in times of inflation borrowers gain, this is no mystery. We've been told and advised to borrow money and stay up to the hilt in debt because you borrow in dollars but because of inflation you can pay back with 50 cent pieces.
So everybody knows about this part of it. What they forget is that the alleged benefits of doing this are surrendered to the bank in the form of interest payments. They're really not gaining that much. The gain that they are getting through the inflation process they're having to give to the bank in the form of interest on nothing. And it seems that they're gaining because they have these paper profits. The value of this real estate is going up and up and up or the value of my stock is going up and up and up but it's all paper. As far as purchasing power is concerned it's not going up, up, up at all. Nevertheless they're still having to pay for that illusion in the form of interest payments on nothing.
Then comes the inevitable contraction of the economy. People don't realize that the economy moves traditionally like a sawtooth--it goes up gradually for a long period of time and seems like forever it's going to go up, you can plan on it forever and don't worry about it and then clunk! it falls down very quickly and then it starts the next long climb and people forget that every once in a while it comes down very abruptly. When it contracts people are extended out there and they can't service their debt and make the payments and they lose their assets.
Another interesting thing about this is that when the bank loans you money which it created out of nothing, it costed nothing to make it, it wants something from you. It wants you to sign on the dotted line and pledge your house, your car, your inventory, your assets so that in case for any reason you cannot continue to make your payments they get your marbles, they get all of your assets. They're not going to lose anything on this. Whether it's expansion or contraction, inflation or deflation the banks are covered and we like sheep go right along with it because we haven't figured it out, we don't know that this is a scam. Of course we have no choice either right now because it's all enforced by law. We have no escape. We have no choice but it's even better that we don't understand it because we can't complain about it either. There you have it.
The two groups that got our lost purchasing power--is anyone surprised?--the two members of the partnership, the government and the banking cartel. The two groups that comprise the Federal Reserve System.
This lost purchasing power which is going from us to them is a tax. We don't think of it as a tax but it is. We have no escape from it. In fact, it's more a tax than the income tax or the excise tax which you can escape in one way or another. You can't escape this one. There are no deductions, no exemptions, everyone pays it and it is the most cruel, unfair tax of all because it falls most heavily on those who can least afford to pay it. It falls on those on fixed incomes, those who are retired. Anyone who has saved their money is paying this tax in direct proportion to the degree to which they have been frugal. It's a tax even though we don't think of it as that and it's time to think of it as that. It's a tax that goes from us to the government and to the banking cartel.
Let's summarize. What is the benefit to the members of the partnership? The government benefits because it is able to tax the American people any amount it wishes through a process which the people do not understand called inflation. They don't realize they're being taxed which makes it real handy when you're going for re-election. On the banking side they're able to earn perpetual interest on nothing. I emphasis the word "perpetual" because remember when the loan is paid back it's turned around and loaned out to somebody else. Once that money is created the object of the bank is to stay "loaned up" as they say. In reality the banks can never stay 100% loaned up and that ratio varies a lot but the objective is to stay loaned up to whatever extent is possible. Generally speaking once this money is created in the loan process it is out there in the economy forever, perpetually earning interest for one of the members of the banking cartel which created that money.
There you have in a condensed form a crash course on the Federal Reserve System and I can assure you that you know more about the Federal Reserve
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