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Our Money, Our State, Our Future---Creating the State Bank of Virginia

Following are an articles authored by Dr. Ellen H. Brown summarizing the origins of Money in America and the independence of the State Bank of North Dakota (BND). Her brilliant precise of money and banking is a forward to the article on the BND a success story that she and others have championed for the past three years which urges every state to create its own state bank to gain complete control of its monetary policy rather than remain at the mercy of the central banking system otherwise known as the Federal Reserve.

Dr. Brown has been castigated by the banking system for presenting banking as a predatory industry. You be the judge as you look around your region at the thousands of foreclosures; homes and businesses which could have been spared were the banking system not so predatory, greedy, and unregulated. Could an alternative system have prevented the current situation? Yes. We have only to look at the state of North Dakota to see what is possible.http://www.banknd.nd.gov/about.jsp

Part I

Dollar Deception - How Banks Secretly Create Money
By Ellen Brown

It has been called "the most astounding piece of sleight of hand ever invented." 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

Legal Proof

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 is now being 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.4

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

The Insider’s Confessions

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."6

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."7

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.

The Shell Game of the Goldsmiths

In seventeenth century Europe, trade was conducted primarily in gold and silver coins. Coins were durable and had value in themselves, but they were hard to transport in bulk and could be stolen if not kept under lock and key. Many people therefore deposited their coins with the goldsmiths, who had the strongest safes in town. The goldsmiths issued convenient paper receipts that could be traded in place of the bulkier coins they represented. These receipts were also used when people who needed coins came to the goldsmiths for loans.

The mischief began when the goldsmiths noticed that only about 10 to 20 percent of their receipts came back to be redeemed in gold at any one time. They could safely "lend" the gold in their strongboxes at interest several times over, as long as they kept 10 to 20 percent of the value of their outstanding loans in gold to meet the demand.

They thus created "paper money" (receipts for loans of gold) worth several times the gold they actually held. They typically issued notes and made loans in amounts that were four to five times their actual supply of gold. At an interest rate of 20 percent, the same gold lent five times over produced a 100 percent return every year, on gold the goldsmiths did not actually own and could not legally lend at all. If they were careful not to overextend this "credit," the goldsmiths could thus become quite wealthy without producing anything of value themselves.

Since only the principal was lent into the money supply, more money was eventually owed back in principal and interest than the townspeople as a whole possessed. They had to continually take out loans of new paper money to cover the shortfall, causing the wealth of the town and eventually of the country to be siphoned into the vaults of the goldsmiths-turned-bankers, while the people fell progressively into their debt.8

Following this model, in nineteenth century America, private banks issued their own banknotes in sums up to ten times their actual reserves in gold. This was called "fractional reserve" banking, meaning that only a fraction of the total deposits managed by a bank were kept in "reserve" to meet the demands of depositors. But periodic runs on the banks when the customers all got suspicious and demanded their gold at the same time caused banks to go bankrupt and made the system unstable.

Victory of the Master Thieves

In 1913, the private banknote system was therefore consolidated into a national banknote system under the Federal Reserve (or "Fed"), a privately-owned corporation given the right to issue Federal Reserve Notes and lend them to the U.S. government. These notes, which were issued by the Fed basically for the cost of printing them, came to form the basis of the national money supply.

Twenty years later, the country faced massive depression. The money supply shrank, as banks closed their doors and gold fled to Europe. Dollars at that time had to be 40 percent backed by gold, so for every dollar's worth of gold that left the country, 2.5 dollars in credit money also disappeared. To prevent this alarming deflationary spiral from collapsing the money supply completely, in 1933 President Franklin Roosevelt took the dollar off the gold standard. (In the financial meltdown the banks seized hundreds of billions in assets at foreclosure and bargain basement prices.)

Today the Federal Reserve still operates on the "fractional reserve" system, but its "reserves" consist of nothing but government bonds (I.O.U.s or debts). The government issues bonds, the Federal Reserve issues Federal Reserve Notes, and they basically swap stacks, leaving the government in debt to a private banking corporation for money the government could have issued itself, debt-free.

Theft by Inflation

M3, the broadest measure of the U.S. money supply, shot up from $3.7 trillion in February 1988 to $10.3 trillion 14 years later, when the Fed quit reporting it. Why the Fed quit reporting it in March 2006 is suggested by John Williams in a website called "Shadow Government Statistics" (shadowstats.com), which shows that by the spring of 2007, M3 was growing at the astounding rate of 11.8 percent per year. Best not to publicize such figures too widely! The question posed here, however, is this: where did all this new money come from? The government did not step up its output of coins, and no gold was added to the national money supply, since the government went off the gold standard in 1933.

This new money could only have been created privately as "bank credit" advanced as loans.

The problem with inflating the money supply in this way, of course, is that it inflates prices. More money competing for the same goods drives prices up. The dollar buys less, robbing people of the value of their money.

This rampant inflation is usually blamed on the government, which is accused of running the dollar printing presses in order to spend and spend without resorting to the politically unpopular expedient of raising taxes.

But as noted earlier, the only money the U.S. government actually issues are coins. In countries in which the central bank has been nationalized, paper money may be issued by the government along with coins, but paper money still composes only a very small percentage of the money supply.

In England, where the Bank of England was nationalized after World War II, private banks continue to create 97 percent of the money supply as loans.9

Price inflation is only one problem with this system of private money creation. Another is that banks create only the principal but not the interest necessary to pay back their loans. Since virtually the entire money supply is created by banks themselves, new money must continually be borrowed into existence just to pay the interest owed to the bankers.

A dollar lent at 5 percent interest becomes 2 dollars in 14 years. That means the money supply has to double every 14 years just to cover the interest owed on the money existing at the beginning of this 14 year cycle. The Federal Reserve's own figures confirm that M3 has doubled or more every 14 years since 1959, when the Fed began reporting it. 10
That means that every 14 years, banks siphon off as much money in interest as there was in the entire economy 14 years earlier. This tribute is paid for lending something the banks never actually had to lend, making it perhaps the greatest scam ever perpetrated, since it now affects the entire global economy. The privatization of money is the underlying cause of poverty, economic slavery, underfunded government, and an oligarchical ruling class that thwarts every attempt to shake it loose from the reins of power.

Restoring to Financial Sovereignty to America

This problem can only be set right by reversing the process that created it. Congress needs to take back the Constitutional power to issue the nation's money. "Fractional reserve" banking needs to be eliminated, limiting banks to lending only pre-existing funds. If the power to create money were returned to the government, the federal debt could be paid off, taxes could be slashed, and needed government programs could be expanded.

Contrary to popular belief, paying off the federal debt with new U.S. Notes would not be dangerously inflationary, because government securities are already included in the widest measure of the money supply. The dollars would just replace the bonds, leaving the total unchanged. If the U.S. federal debt had been paid off in fiscal year 2006, the savings to the government from no longer having to pay interest would have been $406 billion, enough to eliminate the $390 billion budget deficit that year with money to spare.

The budget could have been met with taxes, without creating money out of nothing either on a government print press or as accounting entry bank loans. However, some money created on a government printing press could actually be good for the economy. It would be good if it were used for the productive purpose of creating new goods and services, rather than for the non-productive purpose of paying interest on loans.

When supply (goods and services) goes up along with demand (money), they remain in balance and prices remain stable. New money could be added without creating price inflation up to the point of full employment.

In this way Congress could fund much-needed programs, such as the development of alternative energy sources and the expansion of health coverage, while actually reducing taxes.
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1 Wright Patman, A Primer on Money (Government Printing Office, prepared for the Sub-committee on Domestic Finance, House of Representatives, Committee on Banking and Currency, 88th Congress, 2nd session, 1964).
2 See Federal Reserve Statistical Release H6, "Money Stock Measures" (February 23, 2006); "United States Mint 2004 Annual Report," www.usmint.gov; Ellen Brown, Web of Debt, www.webofdebt.com (2007), chapter 2.
3 "A Landmark Decision," The Daily Eagle (Montgomery, Minnesota: February 7, 1969), reprinted in part in P. Cook, "What Banks Don't Want You to Know" (June 3, 1993).
4 See Bill Drexler, "The Mahoney Credit River Decision," www.worldnewsstand.net/money/mahoney-introduction.html.
5 G. Edward Griffin, "Debt-cancellation Programs" (December 18, 2003).
6 In the Foreword to Irving Fisher, 100% Money (1935), reprinted by Pickering and Chatto Ltd. (1996).
7 Quoted in "Someone Has to Print the Nation's Money . . . So Why Not Our Government?", Monetary Reform Online, reprinted from Victoria Times Colonist (October 16, 1996).
8 Chicago Federal Reserve, "Modern Money Mechanics" (1963), originally produced and distributed free by the Public Information Center of the Federal Reserve Bank of Chicago, Chicago, Illinois, now available on the Internet; Patrick Carmack, Bill Still, The Money Masters: How International Bankers Gained Control of America (video, 1998).
9 James Robertson, John Bunzl, Monetary Reform: Making It Happen (2003), page 26.
10 Board of Governors of the Federal Reserve, "M3 Money Stock (discontinued series)."

Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In "Web of Debt," her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://www.webofdebt.com and http://www.ellenbrown.com Her eleven books include the bestselling "Nature's Pharmacy," which has sold 285,000 copies.
Article Source: http://EzineArticles.com/?expert=Ellen_Brown

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Part II

An Idea Virginians May wish to Ponder and Discuss

Why can't we follow the example of N. Dakota and Florida in the pursuit of a solution to the credit crunch? Talk about raising taxes and further cuts in programs are traditional inside-the-box, catch-22 approaches to a shortfall in revenue. These are temporary palliatives, which create more problems than they resolve.

What is needed is an outside-of-the-box solution with the exception that it is not new and has been successful in only one state. Today, N. Dakota has a budget surplus of more than $1.3 billion for a population of approximately 700,000.

Economist Farid Khavari, a Democratic candidate for governor of Florida in 2010, is proposing a Bank of the State of Florida (BSF) that would take full advantage of the potential of a bank charter. It would not only act as a depository for the state’s funds but would actually make loans to Floridians at much lower interest rates than they are getting now. It would do what the State Bank of North Dakota does now.

Among other benefits, a state bank could open up frozen credit markets, save homeowners many thousands of dollars in payments, produce major revenues for the state, and allow the state’s own debts to be refinanced at much lower rates. All those benefits are possible, says Khavari, because of the “fractional reserve” banking system used by all banks when they make loans.

As he explained in a July 29 article in Reuters: “Using the fractional reserve regulations that govern all banks, we can earn billions per year for Florida’s treasury, while saving thousands of dollars per year for Florida homeowners…For $100 in deposits, a bank can create $900 in new money by making loans. So, a state bank can pay 6% for CDs, and make mortgage loans at 2 percent. For $6 per year in interest paid out, the state bank can earn $18 by lending $900 at 2 percent for mortgages.

“A state bank can be started at no cost to taxpayers, and will be a permanent engine driving the state’s economy. We can refinance state and local projects at 3 percent, saving taxpayers billions and balancing state and local budgets without higher taxes.”

The state would earn $15,000 per $100,000 of mortgage, at a cost of about $1,700; the homeowner would save $88,000 in interest and pay for the home 15 years sooner. “A state bank will save people about seven years of their pay over the course of 30 years, just on interest costs,” Khavari said. “We should work to support ourselves and our families, not the banks…What we have now…makes everyone work for a few greedy fat cats.”

Earlier Models

This sort of healthy public competition for the private banking monopoly has earlier precedents, going back to the colony of Pennsylvania in Benjamin Franklin’s day. Before Pennsylvania founded its own bank, the province was having difficulty attracting settlers, because there was a shortage of money with which to conduct trade. The settlers could get credit only by borrowing from British bankers at a hefty 8% interest, and even those loans were hard to come by.

The provincial government then got the bright idea of printing its own paper money and lending it to the farmers at 5% interest. When credit became cheaper and more freely available, the local economy flourished.

North Dakota is also one of only two states (along with Montana) on track to meet their budgets by 2010. It currently has the lowest unemployment rate in the country and the largest budget surplus it has ever had, tallying in at $1.3 billion.

Why this cold and isolated farming state should be doing so well when other states are teetering on bankruptcy has been the subject of several TV commentaries, including a spoof by Conan O’Brien on NBC’s Tonight Show, which attributed it to theft from tourists by local farmers. But North Dakota’s real secret seems to be that it has escaped the Wall Street credit debacle. The state has generated its own credit through its own publicly-owned bank for nearly a century.

The BND’s website (http://www.banknd.nd.gov/about.jsp) states that the bank was originally formed to create additional competition in the credit industry, while providing a local source of capital for state investment and development. The BND avoids opposition from other banks by partnering with them in loan projects.

According to the bank’s website: “The primary deposit base of the BND is the State of North Dakota. All state funds and funds of state institutions are deposited with the bank as required by law…Use of the banks’ earnings are at the discretion of the state legislature. As an agent of the state it can make subsidized loans to spur development…[It] underwrites municipal bonds for all of the political units in the state, and has been one of the leading banks in the nation in the number of student loans issued. The bank also serves as the state’s ‘Mini Fed’…As a result of the banks’ services, it enjoys widespread support among the public and the independent banking community.”

Bringing the Model Current

The private banking system is in systemic failure, and the public is waking up to the fact. We have been fleeced by Wall Street; banks are not providing loans; and our savings are no longer secure. The publicly owned Bank of North Dakota has provided an alternative model that has worked remarkably well for nearly a century. The BND has been around for so long, however, that skeptics can write off the state’s remarkable success to other factors. A modern-day public bank that quickly turned its flagging local economy around could set a precedent that was irrefutable. If Virginia were to establish a successful public banking model, it could blaze a trail out of the economic wilderness for local governments everywhere.

If you would like to learn more about this alternative please visit the State Bank of North Dakota web site above, read Dr. Brown’s seminal work, The Web of Debt, or visit her web site www.webofdebt.com.

You may also leave comments at http://ideas.virginia.gov/node/add/idea.

Another scam

And just because you have money in your account does not mean you don't get charged an overdraft. If your paycheck entered your account in the morning and you went grocery shopping in the afternoon knowing you've just been paid and have the money, guess what, your bank will re-arrange the credits and debits, extracting the debits first, charging the overdrafts, then applying the credits. They can rearrange any transactions made in a twenty-four hour period for "accounting purposes."