Rip-Off By The Federal Reserve

Politics / US Politics Sep 04, 2010 - 07:04 AM GMT

Best Financial Markets Analysis Article Liberty writes: The Federal Reserve uses euphemistic smoke and mirrors to obscure their operations. With full knowledge the following is not the way the Fed/government describes the system, allow me to offer a different analysis of their mathematical operation.

Congress can pay for federal expenses with funds collected from taxes, but Congress is never satisfied with this amount. The desire to buy votes/campaign contributions from special interest groups induces congress-critters to spend more, and this is identified as deficit spending. To create this make-believe money requires the assistance of the Federal Reserve.

Congress will give the Fed a security (bill, bond, or note) and the Fed will accept the document as an asset of one of the twelve FR Banks. The Fed will then establish a line of credit for the U.S. government for the same amount and list the liability as Federal Reserve Notes. Presto !! Fiat money has just been created for Congress to spend. Ref: 2009 Annual Report to Congress by the Board of Governors, page 448. http://www.federalreserve.gov/boarddocs/rptcongress/annual09/pdf/ar09.pdf The accumulated securities that are not redeemed add up to the national debt.

The fiat money is identified as a legal tender. A "legal tender" is something that is required by law to be accepted as payment for a debt---it is compelled satisfaction for, but not payment of, the debt.

If the Fed retained all of the securities (now over $13 trillion, i.e., over $40,000 for every man, woman, and child in the U.S.), the public would quickly complain that interest payments (approximately $400 billion annually) were for no benefit and the inflationary pressure would also be obvious. The Fed therefore wants to sell a major portion of the securities so it has arranged with the Treasury department to act as auctioneer for selling to the Primary Dealers. The PD submit sealed bids. Since the security has a fixed face value and interest rate, the higher the bid, the lower the interest rate for the buyer.

There is not $40,000 in circulation for every man, woman, and child. It is manifestly clear that such a value can only be visualized as an unrestricted claim on the potential earnings of the citizenry. The citizen has been reduced to an indentured servant, or slave, compelled to work for the company store and still face an increasing amount of debt. There is no possible relief. If the earnings of a citizen are subject to confiscation by taxation, the government can take the entirety and bestow what pittance Congress in their benevolence may grant.

The Primary Dealers are branches of the huge international banks/finance centers. Seven Wall Street agencies include Bank of America, Citigroup, J.P. Morgan, Morgan Stanley, Goldman, Jefferies, and Fitzgerald. Foreign agencies of Barclays, HSBC, Credit Suisse, UBS, Deutsche, BNP Paribas, RBS, Daiwa, Mizuho, Nomura, and RBC of Canada are also included. Whether these are the entities that Bloomberg is attempting to identify by FOIA as recipients of bail-out funds now in the 2nd Circuit Court of Appeals remains to be seen.

The Fed recently obtained $700 billion bailout funds. It begged Congress for money and Congress gave them $700 billion in securities and the Fed swapped the securities to GSE/international bankers for toxic MBS's. The Annual Report lists Assets of $776 billion securities and $908 billion Government Sponsored Enterprise Mortgage Backed securities out of $2.2 trillion total assets. Whether the bailout money was a quid pro quo to avoid lawsuits for fraud is beyond the scope of this writing. The continued mutual benefit of programs should evidence Wall Street and the Fed constitutes a Siamese twin.

The touted concept that the Treasury's auction is used to obtain money to run the government is absurd. How could the government sell trillions of dollars of securities if the money was not already in circulation? Such a methodology cannot conceivably create fiat money in the hands of citizens to buy the securities to fund Congress.

The math is going to get more detailed. If the Fed sold all of the securities at face value, there would be no money left in circulation. The money that was created by the securities would all be taken out of circulation and returned to the vaults of the Fed. The operation is identical to the FOMC selling or buying of securities to alter the amount of money in circulation.

The value of any securities not sold by the Fed is still in circulation and becomes the Reserves for commercial banks. The Reserves (known as base money) are then multiplied via loans from commercial banks utilizing the fractional reserve practice. The Fed currently holds about $750 billion of $12.5 trillion issued securities. Ref. http://www.fms.treas.gov/bulletin/b2009_3.pdf. Chart OFS-1.

Observe that the amount of money created by the security is the amount of the principal but the amount promised to be repaid is the principal AND the interest. The interest is never created but payment is required by the agreement. It is impossible. The linear expansion of base money via fractional reserves to create commercial loans does not change this. If, hypothetically, all money in circulation was used to pay off the securities issued by Congress, all bank Reserves would be wiped out and the commercial loans would collapse---and every dollar of interest accumulated from day one would still be outstanding---but there would be no money outside of the Fed's vaults to pay it.

There are more skullduggeries involved. Let us assume a newly established sovereign nation is setting up a usury based economy with the issuance of 100 unit securities, a five year maturity, and an annual interest rate of 20 percent over a span of five years. The identifications of Congress and the Fed will be used to convey the images.

Upon the issuance of the first security, Congress has 100 units to spend. At the end of the year, Congress/Treasury has to pay 20 units to the Fed for interest. If the nation had to pay off the security at the end of the first year, the bankruptcy is obvious. There have never been 120 units created. Twenty units could be removed from society but that would leave only 80 units in circulation, cause great financial hardships, and still leave an impossible obligation to redeem a 100 unit security. The solution is to put off the interest payment until the next issue of securities for the second year. The interest is paid from the principal created by the second issue.

During the second year there are 200 units in circulation but the actual rate of interest on the second issue is not 20 percent. Since 20 units had to be paid to the security holders, congress only received 180 units to spend (100 + 80) but they are committed to pay 40 units of interest on the security at the end of the second year. The interest rate of 40 divided by 180 is 22.2 percent. Considering the second year alone, the interest is 20 divided by 80 or 25 percent.

When the security for the third year is issued, the interest of 40 units for the first two years securities will not be available for congress. Congress will receive only 60 units for public projects but will have to pay 20 units interest at the end of the year. The 240 units received by congress (100 + 80 + 60) will require 60 units of interest at the end of the third year. The cumulative interest rate (60 divided by 240) is 25 percent. The interest rate for the third year alone (20 divided by 60) is 33.3 percent.

At the start of the fourth year, the security will have to cover the interest charge for the three prior years of 60 units. Congress will receive 40 units for government spending. The 280 units received by congress (100 + 80 + 60 + 40) will demand 80 units of interest at the end of the fourth year. The cumulative interest rate (80 divided by 280) is 28.5 percent. The interest rate for the fourth year alone (20 divided by 40) is 50 percent.

The security issued for the fifth year will pay the 80-unit interest for the prior four years. Congress will have 20 units to splurge. The 300 units received by congress (100 + 80 + 60 + 40 + 20) will require 100 units of interest at the end of the fifth year. The cumulative interest rate (100 divided by 300) is 33.3 percent. The interest rate for the fifth year alone (20 units received--20 units in interest) is 100 percent.

At the beginning of the fifth year, 500 units of indebtedness have been issued on the full faith and credit of the nation for securities that must be eventually redeemed. 300 units have been available to congress for spending. 200 units have been given to the Fed as interest and another 100 units in interest will be due the security holders at the end of the fifth year.

In addition, 100 units must be found to redeem the maturing security issued the first year. This factor alone makes it obvious that more debt must be incurred to continue the scheme.

Beginning the first day into the sixth year (with no new securities being issued), after paying the 100 units of interest for the fifth year and redeeming the 100 unit security issued the first year, the 300 units that had been available to Congress (over the years) has been reduced to 100 units net gain. In the meantime, the Fed or security holders have collected 300 units in interest, gained 100 units in the redeemed security for the first year, and still have a claim on the citizenry for 400 units of outstanding securities that will accumulate an additional 200 units of interest before redemption---a grand total of 1000 units. And there was no initial investment put at risk by the Fed.

The inescapable whirlpool of usury debt can only avoid obvious default by increasing the value of future securities. Increasing the value of issued securities merely postpones the inevitable result.

A high rate of interest has been selected for the example to minimize repetitive calculations. A ten percent interest rate will consume 100 percent of the security value in ten years; a five percent interest rate will take twenty years. Lower rates of interest merely require more years to reach the same inherent bankruptcy. (Actually, bankruptcy occurs the first year, but then again, since the debt can never be paid off, the entire scheme is based upon fraud. A contract based upon fraud is void from its inception.)

An economic scheme that utilizes later investors to pay the interest due earlier investors is identified as a Ponzi scheme. This is precisely the scheme that has been presented above. The scheme will survive only as long as more principal is generated to pay the interest. This action only postpones the ultimate time of a much larger reckoning. If purchasers of the new debt cannot be found, the interest must be paid from previously generated principal and the scheme quickly collapses like any Ponzi scheme. Astute investors will demand a higher rate of interest than inflation (resulting from the creation of new principal) or they will suffer a loss of actual wealth. The increase in interest will always be greater than the increase in principal because of compounding effects; i.e., the more the principal increases, the more the interest increases.

[Current economic conditions find entities with surplus funds buying short-term securities at near zero interest rates to minimize the potential loss of value during a chaotic stock market. The drop in short-term interest rates corresponds with the movement of funds out of the equity markets. Low interest Federal Fund rate for banks was established to boost the economy as the housing bubble imploded (from easily available over-sized loans) and threatened the collapse of the banking industry (so now they are going to make the loan-trap even easier to fall into).

However, recent auctions have found Primary Dealers bidding such low prices on long term securities (which would have raised the interest rates) that the Fed ate more than 50 percent of the auction (by slipping in shill bids) to keep the interest rate artificially low. The Fed usually purchases 5 to 10 percent of an issue. The PD would have taken a haircut from anticipated inflation if they had accepted a low interest rate on long-term securities with a high bid. On the other hand, the bond market could crash if the Fed had allowed interest rates to escalate. People remember what high interest rates did in the 80's. The Fed is trying to manipulate / control the market and the gyrations are increasingly wilder. Bill Fleckenstein in GREENSPAN'S BUBBLES writes of how the Fed suppressed interest rates to create a false prosperity that devastated the construction industry.]

A newspaper article a couple of years ago found the annual increase in interest to be 15 percent while the budget only grew 7 percent. More currently, the budget has been increasing much faster to fund/conceal the rapid growth in interest requirement. Professor Bob Blain, Southern Illinois University, Edwardsville has graphed the exponential growth in debt from 1915 to be irregular only during the 1930's. It was that period when the Fed repeatedly made margin calls on the banks to force gold certificates and gold coins out of circulation---which repeatedly deepened the recession. This was followed by the U.S. being manipulated into WW II by Wall Street and flooding the economy with fiat Federal Reserve Notes. The future will see ever-increasing demands for debt---and interest---and war is the cause celebre. Ref. JFK, AND THE UNSPEAKABLE by James Douglas.

In 1790 during Congress' consideration of Alexander Hamilton's proposal to pay the national debt with a usury based obligation placed upon the citizens, congressman James Jackson, after lengthy reflection on the devastation similar plans had imposed on European countries and cities, included the following observations to Congress:

"Let us take warning by the errors of Europe, and guard against the introduction of a system followed by calamities so universal.The funding of the debt will occasion enormous taxes for the payment of the interest.(such a system) must hereafter settle upon our posterity a burthen (sic) which they can neither bear nor relieve themselves from." Ref. ANNALS OF CONGRESS, Vol. 1, 1790, pp. 1141-2.

In actual practice within the United States, a collection of taxes for part of the government spending is well known. Payment of part of the government expenses by taxation does not alter the government's usury program; for analytical analysis, they can stand alone. The current pattern of increasingly larger deficit spending is the escalation as the climax of chaos beyond description approaches.

Footnotes:

Dr. Bob Blain, Emeritus Professor of Sociology at Southern Illinois University, Edwardsville, in a paper "Revisiting U.S. Public and Private Debt" published in 2008 observes the exponential increase in national debt from 1915 and the destruction inflicted upon historical societies by usury based monetary systems.

Benjamin Ginsberg, in FATAL EMBRACE, recently documented numerous historic occasions in which a usury debt based economic system (but not so identified) has resulted in the "financiers" facing public fury including deportation, confiscation of estates, and physical harm to the individuals involved.

Bill Fleckenstein in GREENSPAN'S BUBBLES writes of how the Fed suppressed interest rates to create a false prosperity that devastated the home construction industry.

By Liberty

liberty@asimplewebaddress.com

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Comments

Olde Reb
26 Mar 11, 10:49

rip off by the federal reserve

Dear friend,

I want to thank you for the support you have expressed by posting the RIP OFF BY THE FEDERAL RESERVE article of several months ago. It has inspired additional research and development of the writing.

The conclusion of the research has surprised even me. It would previously have been considered irrational to believe the Fed reaped $8.4 trillion from their operation last year, but the conclusion appears inescapable. And the operation is a simple bookkeeping maneuver by the FRB of NY that is never exposed in the ANNUAL REPORT TO CONGRESS. The question of whether this is embezzlement is up to Congress. If the citizens express their knowledge and awareness of the blatant theft, Congress will have to investigate.

I have pasted a copy of the recent edition of the RIP OFF article. Perhaps it may be of interest.

Reb

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RIP-OFF BY THE FEDERAL RESERVE

Revised 3/14/2011

PREFACE: This mathematical analysis shows how:

1. The present practice in the U.S. of creating book-entry money via T-securities (deficit spending) in the amount of the principal of the security, with a promise to repay the principal PLUS the interest, is impossible. The interest is never created; the debt is perpetual and must continually be increased or the economy will collapse from de-leveraging;

2. All other fiscal obligations of the nation must be curtailed while the growth in debt will escalate. The exponential growth of the interest and snow-balling debt will increase until the entire wealth of the nation, and of future generations, is inadequate to fund it;

3. ALL money created by Treasury securities goes into the pocket of the Fed ($8.4 trillion for 2010). Not only does the Fed receive the interest (if not sold), but also the value of the security upon maturity (or by sale). Congress has temporary benefit of $1.4 trillion deficit money (until maturity) during 2010;

4. The operation is, as in any Ponzi scheme, predestined for inherent national bankruptcy when buyers to roll over the debt cannot be found. As the scheme becomes visibly precarious, the interest rate will sky-rocket and accelerate the collapse.

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The Federal Reserve uses euphemistic smoke and mirrors to obscure their scam. With full knowledge the following is not the way the Fed/government describes the system, allow me to offer a different analysis of their operation.

Congress will give the Fed a T-security (bill, bond, or note) and the Fed will accept the document as an asset of one of the twelve FR Banks. The Fed will then establish a line of credit for the U.S. government (a book entry) in the same amount and list the liability as Federal Reserve Notes. Voila !! Fiat money has just been created for Congress to spend. Ref: 2009 Annual Report to Congress by the Board of Governors, page 448. http://www.federalreserve.gov/boarddocs/rptcongress/annual09/pdf/ar09.pdf The accumulated securities that are not redeemed add up to the national debt.

If the Fed retained all of the securities (assets), the public would quickly complain that interest payments (approximately $400 billion annually) are of no benefit and the inflationary pressure would also be obvious. The Fed therefore wants to sell a major portion of the securities so it has arranged with the Treasury department to act as auctioneer for selling to the Primary Dealers. The PD submit sealed bids. Since the security has a fixed face value and interest rate, the higher the bid, the lower the interest rate for the buyer.

The Fed recently obtained $700 billion bailout funds. Secretary Paulson begged Congress, on actual bended knee, to give the Fed money and Congress gave them $700 billion in securities and the Fed swapped the securities to GSE (Freddie and Fannie)/international bankers for toxic MBS‘s---and rescued Paulson’s $800 million in Goldman stock by bailing out AIG.

The Annual Report lists Assets of $776 billion securities and $908 billion Government Sponsored Enterprise Mortgage Backed securities out of $2.2 trillion total assets. Whether the bailout money was a quid pro quo with the PD to avoid lawsuits for fraud is beyond the scope of this writing. The International Bankers do not lightly suffer transgression. The continued mutual benefit of programs, paid for by taxpayers, should evidence Wall Street and the Fed/international bankers constitutes a Siamese twin.

The value of any securities not sold by the Fed is still in circulation and becomes the Reserves for commercial banks. Commercial banks, as an aggregate, have no other source of reserves. All money in circulation is originated from T-securities. The reserves, derived from Treasury checks deposited throughout the world, are then multiplied via loans by commercial banks utilizing the fractional reserve practice. The System Open Market Committee (SOMC) selling and buying of securities alters the reserves--with high leverage. The Fed currently holds about $750 billion of $12.5 trillion issued securities. Ref. http://www.fms.treas.gov/bulletin/b2009_3.pdf. Chart OFS-1.

Observe that the amount of money created by the security is the amount of the principal but the amount promised to be repaid is the principal AND the interest. The interest is never created but payment is required by the agreement. It is impossible. The linear expansion of base money via fractional reserves to create commercial loans does not change this. If, hypothetically, all money in circulation was used to pay off the securities issued by Congress, all bank reserves would be wiped out and the commercial loans would collapse---and every dollar of interest on the national debt accumulated from day one would still be due---but there would be no money outside of the Fed’s vaults to pay it.

There are esteemed economists who contend the fractional reserve multiplier is a major cause of inflation. The concept is questionable. Assuming the amount of base money and the multiplier factor remain constant, the creation of fractional reserve money reaches a ceiling that cannot be exceeded until more base money (from T-security issues) is added. The multiplier factor is a mere linear increase of the base money that the Fed can alter by SOMC transactions.

The debt created by usury based sovereign debt is perpetual; it can never be paid off. The contract cannot be culminated. Any contract that cannot be culminated is an act of fraud. A contract based upon fraud is invalid upon its inception. It would appear the national debt is not legally enforceable. (A debt incurred by a state or municipality is not a sovereign debt as used in this analysis. Such a debt is akin to a commercial loan and is completely repayable---but may be evidence of unwise administration and result in default.)

There is more skullduggery involved. Let us assume a newly established sovereign nation is setting up a usury based economy and will issue 100 unit securities, a five year maturity, and an annual interest rate of 20 percent over a span of five years. The identifications of Congress and the Fed will be used to convey the images.

Upon the issuance of the first security, Congress has 100 units to spend. At the end of the year, Congress/Treasury has to pay 20 units to the Fed for interest. If the nation had to pay off the security at the end of the first year, the bankruptcy is obvious. There have never been 120 units created. Twenty units could be removed from society but that would leave only 80 units in circulation, cause great financial hardships, and still leave an impossible obligation to redeem a 100 unit security. (This economic diminution would be akin to a contemporary balanced budget.) The solution is to put off the interest payment until the next issue of security for the second year. The interest is paid from the principal created by the second issue.

At the end of the fifth year, 100 units must be found to redeem the maturing security issued the first year (that “loaned” 100 units to the government) in addition to 100 units of interest that must be paid. Congress has an obligation to pay 200 units. This factor alone makes it obvious that more debt must be incurred to continue the scheme. The inescapable whirlpool of usury debt can only avoid obvious default by increasing the value of future securities. Increasing the value of issued securities merely postpones the inevitable result.

As the sixth year approaches, the Fed holds 500 units of securities that must be redeemed by the Treasury before year eleven. The Fed has already received 200 units as interest while Congress retains 300 units from those securities. Before year eleven, the securities will accumulate an additional 300 units of interest payable to the Fed. That accounts for the entire 1000 units of securities and interest that have been involved over the five years. (Each of the five 100 unit securities involved 100 units of interest.)

Do not let the subtly of the numbers escape you. As the example demonstrates, the Fed receives the total value of the security and the interest if it does not sell the security. Only 500 units were created by the securities but 1000 units were somehow acquired by the Fed. The only way for Congress to get the funding is to issue a 200 unit security at the end of the fifth and subsequent years and ALL of the value will be instantly due to the Fed. The scheme is not only perpetual but it must increase in size to continue. And of course, when the 200 unit security matures, the value will belong to the Fed. And then a larger security must be issued to pay for the 200 unit security and the accruing interest further down the road. This is the methodology of any Ponzi scheme. The increase in the required size of deficit spending must be large enough to make the interest payment a relatively acceptable percentage to minimize public hostility. (In 2009, the 200 unit roll-over value reached $7.0 trillion with an additional $1.4 trillion debt for deficit spending. Ref. Post).

A government publication has noted the fiscal policy insecurity: “(T)his growing gap between (Government’s) receipts and total spending …cannot be sustained indefinitely.” http://www.fms.treas.gov/frsummary/frsummary2010.pdf page 3 of 12.

If the security is sold at auction, as approximately ninety percent of them are, the Fed receives the value of the security from the Primary Dealer and the ultimate purchaser is then reimbursed by the Treasury at maturity. Either way, the Fed eventually receives the value of the security. The value of all redeemed T-securities is a clear profit for the Fed, along with the value of all securities sold to/held by Primary Dealers, funds, nations, states, or financial institutes.

But 5 year securities are a slow game. If we shifted our attention to 13 week bills, or even four-week bills, each obligation will quickly mature and must repeatedly be rolled over. Each new issue is profit for the Fed. If time lapse between bid and issue dates are ignored, the roll-over of four week 100 unit securities can be repeated thirteen times within a year. The gain of 1300 units of profit for the Fed only involves 100 units of national debt.

Low interest rates will reduce gain for security investors but will provide cheap money for commercial banks to loan. Much of the interest from T-securities held by the Fed must be returned to the government as a result of 1970’s legislation, so the Fed has little motivation to raise rates to make more money--they receive the value of the security.

The total value of auctions in 2010 was $8.4 trillion. Approximately $6 trillion matured in less than one year. http://www.treasurydirect.gov/instit/annceresult/press/preanre/2010/2010.htm ; http://www.treasurydirect.gov/RI/OFAuctions?form=histQuery .

The handling of auction funds is the responsibility of the Fed. Ref. GAO FINANCIAL REPORT TO SECRETARY OF TREASURY, Nov 2010, page 17. http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_ann2010.pdf. This writer concludes the sales are credited to an account of the Fed and not to an account of the Treasury. There is no inflation if it is otherwise.

The $8.4 trillion in income does not reveal itself in the ANNUAL REPORT TO CONGRESS; Ref. Tables 10 and 11, pages 454 to 462 REPORT for 2009. Id. (Auctions are not Open Market transactions. Securities that are not sold are assigned to SOMC.) This $8.4 trillion is concealed from Congress and the public.

The NY Fed also handles redeeming the securities. Ref. ACCOUNTING FOR TREASURY SECURITIES AT THE FEDERAL RESERVE BANK OF NEW YORK , GAO /AFMD-84-10, May 2, 1984, page 9 of 30, http://archive.gao.gov/d5t1/124060.pdf. The report does not identify the account that is being used to redeem the securities. This writer concludes the payments are debited to an account of the Treasury and not to an account of the Fed.

Confirmation of the Fed’s handling is found in their ANNUAL REPORT: BUDGET REVIEW 2010, “The Reserve Banks auction, issue, maintain and redeem securities…(and handle) paper U.S. savings bonds and book-entry marketable Treasury securities.” p 5.

“Aha!” exclaims a disciple of the Fed. “The above analyze proves the fallacy of the theory. The $8.4 trillion is obviously being used to pay the redeemed securities and the sale and redemptions are off-setting.” And thus would the Fed beguile the naïve. Indeed, the Treasury’s receiving the value from auctions for that purpose is widely proclaimed in media publications. Treasury financial statements also claim “borrowing from the public” finances government operations. However, direct transfer of money from the public cannot, in any way, expand the monetary system or result in the creation of fiat money (i.e., inflation) any more than can the payment of taxes by a private entity. The label is deliberatively misleading. The confusion actually confirms the scenario developed herein.

When $8.4 trillion in securities is transferred from the Treasury to the Fed, there is a credit on the account of the Treasury (but is considered a liability in a Fed account titled federal reserve notes) and an asset entry in an account of the Fed (titled T-securities). The Treasury’s $8.4 trillion book-entry is used to pay the $7 trillion redeemed securities with $1.4 trillion being available for deficit spending by Congress. The T-securities possessed as an asset by the Fed are sold at auction and the $8.4 trillion belongs to the Fed. Where the value from the auctions is entered into the books of the Fed, and to where the $8.4 trillion goes, is not available information. This is how the fiat money of inflation is created as detailed earlier. It is assured that the IRS knows nothing of this income.

Similar historic banking operations declared they loaned the value of the security to the king and therefore they should receive interest from the loan. The pretense is a sham. Congress and the Fed have agreed they are going to rip-off the public by devaluating the currency. Each party acquired purchasing power from the scheme. Congress gave a promise to pay (a security) which was quickly sold by the Fed and the Fed gave a promise to pay the government’s checks with fiat book-entry money (printing press money, i.e., FRN‘s, a legal tender.). It is an acknowledgement of debt that can never be paid because there is no lawful money available; there is only more debt of an under-capitalized federal corporation.

To get the scheme started and financed by third parties, it must have the appearance that interest is their source of profit and a gain must be made from the brokerage difference. A prime concern for the Fed under these conditions would be the difference in the value credited to the Treasury account and the value received from the auction. If the value of securities purchased by the public is transmitted directly to the Treasury, there cannot be any inflation, but then there is no gain to the Fed from book-entry money. The percentage taken by the Fed for profit can even be variable but is hidden without an audit.

Perhaps we are catching a glimpse of how the Fed may have been started. If the Fed was created by Congress as a brokerage firm to sell government bonds to the public, it would be a simple arrangement with minimal investment or risk. The currency in circulation in 1913 was non-interest bearing U.S. Notes. After the operation has been set up and the New York Federal Bank is handling the accounting, it would be a simple shift of accounting procedures to have the T-securities accepted by the FR Bank as owner instead of as a broker. The difference allows the Bank to create fiat money (inflation or Federal Reserve Notes) as a profit for the Bank. Whether this falls within the parameters of embezzlement depends upon many conditions.

The 1913 congressional report of objects of the legislation by Senator Glass included the statement “(3) Furnishing an elastic currency…of bank notes…” Perhaps the enumerated powers of the Federal Reserve Banks at 12 USC section 341, paragraph Eighth, might be stretched to authorize such practice. However, the courts have repeatedly concluded the profits of the Fed belong to the United States. Ref. Scott v FRB of Kansas City, 405 F3d 532, 535; In Re Hoag Ranches, 846 F2d 1227. The fact that the income is not reported is suggestive of subterfuge.

To put $8.4 trillion in perspective, the 2010 operation of the U.S. government involved $3.4 trillion and that includes the $1.3 trillion deficit. The entire amount of taxes collected by the U.S. government was only $2.1 trillion.

Good luck on trying to follow this sequence in the accounting records. Even Enron, World Com, and Bernie were able to cook the books---and they were audited. The annual audit of the Fed follows accounting guidelines established by the Fed. It is assured the receipts and disbursements for T-security auctions are not examined. But the methodology of the Fed may be identified: the accounting records do not reflect “securities purchased under agreements to resell.” Ref. Table 9A, note 4, Annual Report.

If asked “Who owns the T-securities that are sold at the auctions--the Fed or the U.S. government?” a Fed representative will respond “The securities are a liability of the government.” An astute observer will note the inquiry was avoided; it was not answered.

A high rate of interest has been selected for the example to minimize repetitive calculations. A ten percent interest rate will return 100 percent of the security value in ten years; a five percent interest rate will take twenty years. Lower rates of interest merely require more years to reach the same inherent bankruptcy. (Actually, bankruptcy occurs the first year irrespective of the interest rate, but then again, since the debt can never be paid off, the entire scheme is based upon fraud. A contract based upon fraud is void from its inception.)

An economic scheme that utilizes later investors to pay the interest due earlier investors is identified as a Ponzi scheme. This is precisely the scheme that has been presented above.

A newspaper article a couple of years ago informed us the annual increase in interest to be 15 percent while the budget only grew 7 percent. That reflects the exponential growth of interest. More recently the deficit has been increasing much faster to fund/conceal the rapid growth in interest requirement---and to rescue financial institutes from default. Professor Bob Blain, Southern Illinois University, Edwardsville has graphed the exponential growth in debt from 1915 to be irregular only during the 1930’s.

In 1790 during Congress’ consideration of Alexander Hamilton’s proposal to pay the national debt with a usury based obligation placed upon the citizens, congressman James Jackson, after lengthy reflection on the devastation similar plans had imposed on European countries and cities, included the following observation to Congress:

“Let us take warning by the errors of Europe, and guard against the introduction of a system followed by calamities so universal…The funding of the debt will occasion enormous taxes for the payment of the interest…(such a system) must hereafter settle upon our posterity a burthen (sic) which they can neither bear nor relieve themselves from.” Ref. ANNALS OF CONGRESS, Vol. 1, 1790, pp. 1141-2.

In actual practice within the United States, a collection of taxes for part of the government spending is well known. Payment of part of the government expenses by taxation does not alter the government’s usury program; for analytical analysis they can stand alone. The current pattern of increasingly larger deficit spending is the escalation as the climax of chaos beyond description approaches.

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