Money Facts

Sponsored by The People's Dominion

"The borrower is servant to the lender."
(Proverbs 22:7)

The following are excerpts from "MONEY FACTS 169 Questions and Answers on Money - A Supplement to A Primer on Money", prepared by the Subcommittee on Domestic Finance, House of Representatives, 88th Congress, 2d Session:

Question 1 - "Who has the right to create money in the United States?"

Answer - "Under the Constitution, it is the right and duty of Congress to create money. It is left entirely to Congress."

Question 2 - "To whom has the Congress delegated this money-creating right?"

Answer - "To the banking system, that is, to the Federal Reserve System and to the commercial banks in the country."

Question 6 - "Does Congress supervise Federal Reserve policymaking?"

Answer - "No. In practice, the Federal Reserve is "independent" in its policy-making. The Federal Reserve neither requires nor seeks the approval of any branch of Government for its policies. The System itself decides what ends its policies are aimed at and then takes whatever action it sees fit to reach those ends."

Question 7 - "What problems are raised by an "independent" Federal Reserve?"

Answer - "There are two major problems. One is the problem of political responsibility for the country's economic policies. The other is the problem of final control over the Government's action in the economic sphere."

Question 8 - "What is the problem of political responsibility?"

Answer - "Since the Federal Reserve is independent it is not accountable to anyone for economic policies it chooses to pursue. But this runs counter to normally accepted democratic principles. The President and Congress are responsible to the people on election day for the past economic decisions. But the Federal Reserve is responsible neither to the people directly nor indirectly through the people's elected representatives. Yet the Federal Reserve exercises great power in controlling the money-creating activities of the commercial banks."

Question 35 - "Has the United States gone off the gold standard?"

Answer - "Yes, except in its international transactions."

Question 38 - "To whom does the Constitution give the power over money?"

Answer - "The Congress. The Constitution provides "the Congress shall have power to coin money, regulate the value thereof." The Supreme Court has interpreted this clause, again and again over a period of 150 years, to mean that "whatever power there is over the currency is vested in Congress."

Question 41 - "What is fractional reserve method of banking?"

Answer - "The fractional reserve method of banking originated with the goldsmiths - the predecessors of our present bankers. It is the method of banking used today. Briefly, it is a system whereby bankers maintain as reserves only a fraction of the amount needed to meet all claims against them. (The vast bulk of the claims against the banks are the deposits you and I hold. These are obligations which the bank must pay on demand.) The goldsmiths struck upon this method by noticing that the people who deposited gold with them for safekeeping only claimed a small portion of this gold at any one time. Therefore, the goldsmiths realized that they could lend out a good portion of the gold left with them. They then made loans, which in fact were not gold but warehouse receipts for gold. These receipts circulated as money. Notice, the gold - actually certificates of ownership - being loaned by the goldsmith was not his to lend. He did not own it, In other words, the goldsmith wrote receipts to people who were not depositing gold, i.e. to borrowers. So receipts for more gold meet the claims against him. This is the fractional reserve system. When the banks of the United States kept their reserves in gold, their reserves amounted only to a small fraction of the amount of money they had issued, all of which was guaranteed to be redeemable in gold."

[Editor's note: Could this be the reason many goldsmiths were taken out to a tree and hung, when the people discovered the fraud that had been perpetrated upon them?]

Fraud - "A false misrepresentation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives or is intended to deceive another . . . A generic term, embracing all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get advantage over another by false suggestions or by suppression of the truth, and includes all surprise, trick, cunning, dissembling, and any unfair way by which another is cheated . . . `Bad faith' and `fraud' are synonymous, and also synonymous of dishonesty, infidelity, faithfulness, perfidy, unfairness, etc. . . ." (Black's Law Dictionary, 6th Edition)

Question 47 - "Where does the Federal Reserve get the money with which to create bank reserves?"

Answer - "It doesn't `get' the money, it creates it. When the Federal Reserve writes a check, it is creating money . . . The Federal Reserve is a total moneymaking machine. It can issue money or checks. And it never has a problem making its checks good because it can obtain the $5 and $10 bills necessary to cover its check simply by asking the Treasury Department's Bureau of Printing and Engraving to print them."

Question 69 - "If the Government can issue bonds, why can't they issue money and save the interest?"

Answer - ". . . There is little opposition to the Government's printing bonds and then permitting the banks to create the money with which to buy those bonds; but proposals that the Government itself create the money instead of the bonds have always set off tremendous political upheavals. For example, Abraham Lincoln set off a political furor when he insisted upon having the Government issue $364 million in money, the so-called "greenbacks" instead of issuing interest-bearing bonds and paying interest on the money."

Question 70 - "If the Government issued more money instead of Government bonds, isn't there a danger that the Government would issue to much money and cause inflation?"

Answer - "No. It is no more or less inflationary for the private banks to create $1 billion of new money than it is for the Government to create $1 billion of new money . . ."

Question 91 - "What are the sources of revenue of the Federal Reserve?"

Answer - "By far the largest is interest on its holdings of U.S. Government securities. This accounts for almost 99 percent of the Federal Reserve income."

Question 125 - "Do private banks enjoy a special relationship with the Federal Government?"

Answer - "Yes, a very special relationship. The business of banks is to lend money. The profits comes from the difference between the cost of creating money and the price they charge borrowers for that money. Now the cost of creating money is negligible . . . The banks do not pay a license fee or a payment charge for their reserves. Thus the raw materials the banks use cost them nothing . . . Further, the Federal Government provides private banks with the protection from competition and the hazard of failure."

Question 131 - "Do private banks perform a service in buying Government bonds?"

Answer - "No, because they create the money - an obligation of Government - simply to buy bonds guaranteed by the Government. There is no risk involved . . . Their reward for buying bonds with money they create is the "subsidized" profits they enjoy."

Question 132 - "What is the burden of U.S. Government bonds, held by the private banking system?"

Answer - "The burden is the heavy bond interest payments, borne by the taxpayers, that go to private bankers when the same amount of money could be created by an agency of the government. Then the taxpayers would not bear this tremendous cost on Government bonds purchased with the reserves given to private bankers."

Question 161 - "Are the effects of money policy so unique that the monetary policymakers need to be free from all accountability?"

Answer - "No. It is hard to see what is so mysterious about monetary policy. Everyone is affected by tax and expenditures and by foreign policy. In both areas, the Government must take `unpopular action.' Raising taxes is unpopular. Sending men to fight in Korea is unpopular. No one suggests that we should have an independent `defense policy board' or an independent `tax policy board.' Why then an independent money policy board?"

Question 163 - "Is the Federal Reserve independence inefficient?"

Answer - "Absolutely . . . It is pure luck if the motor is not constantly stalling. We have not always been lucky. This is no way to run economic policymaking . . . Controlling the economy should come from one, and only one source - which must be the Congress in our democracy."

The following are excerpts from "MONEY FACTS 169 Questions and Answers on Money - A Supplement to A Primer on Money", prepared by the Subcommittee on Domestic Finance, House of Representatives, 88th Congress, 2d Session:

Question 164 - "Is the trustee notion of monetary policymaking alien to America democracy?"

Answer - "Of course. The claim that the people do not know what is good for them, and therefore a small group of men should be given the power to make decisions and then to take action without being held accountable to the people is 100 percent undemocratic. The essence of democracy is that the people decide for themselves, through their elected officials, what is good or bad for them. Further, to give monetary control to a group like the Federal Reserve is to hand over enormous power unfettered by responsibility to anyone. In a democracy, especially the American form, the holders of power, almost without exception, are responsible to the people, through their elected officials in the use of this power. The Federal Reserve's ideas that they should be considered trustees rather than stewards runs counter to anything that Americans have believed about power and responsibility since the founding of the Republic."

Question 165 - "Who favors Federal Reserve independence?"

Answer - "The private banks who control the System, together with some allies - notably, Wall Street newspapers and other members of the financial community."