Money, Banking, and Lending

Money, Banking, and Lending

Part One: The Situation We’re In Today

I’ve never been a fan of Alexander Hamilton (which I’ll elaborate on some in the next paragraph).  In fact on occasion I have had an impulse to start an article, maybe even a story, portraying Aaron Burr as the hero he really was.  (Burr did have an impressive background and potential, but I’ll resist that digression at this time.)  The point I wanted to make is that we can thank Hamilton for our national debt, the Fed, the non-government issue and control of money despite the Constitution, banks bleeding the public with usury, the ever-growing cost of a standing army, and most forms of federal spending…among other irksome institutions.  They were all his idea originally. 

In fact I’ve seen the HBO series John Adams and am pleased to see they have portrayed Hamilton as the nerdy, scheming, trouble-making, underhanded, militaristic, social-climbing, sneaky, ill-tempered jerk he really was.  And they didn’t even mention the Whiskey Rebellion and the federalized army of tax collectors, which the ATF credits as its origin.  The attitude toward Hamilton in John Adams is actually quite unusual in such dramatizations.  As a rule he is just another Founding Father and is religiously respected as such.  Fortunately this is not a debate board as I realize there are some who think more highly of Hamilton than I do.  I’ll admit he did have his virtues too…kind of.

Hamilton believed that a national debt was some kind of international distinction if not recognition.  Everybody had one…or something like that.  (I’m guessing at his reasoning here.)  What that led to, regardless of his reasoning, is that we as a nation and a free and independent people were obliged to borrow money from private bankers, be charged interest rates set by those lenders, which future generations will continue to pay eternally until it become the biggest item in the whole of our budget thus displacing more worthy projects, and ultimately making it necessary to keep on borrowing and borrowing and borrowing until we as a nation are broke.  (We tend to do that as individuals too, in case no one has noticed.)  The alternative could have been for the government to issue its own money—our own money—as the Constitution demands.  Interest could have been unnecessary if the supply had not been for profit.  When someone makes a $2500 house payment, and about $2200 is interest, consider what could have been done with all that money, or how quickly the house could have been paid off thus actually making someone the owner.

In the beginning we actually did that.  As Benjamin Franklin put it when asked by the Brits how there could be no poor and no unemployed in the Colonies, he replied: "It is because, in the Colonies, we issue our own paper money. We call it Colonial Script, and we issue only enough to move all goods freely from the producers to the Consumers; and as we create our money, we control the purchasing power of money, and have no interest to pay."

Now we have the Federal Reserve, which issues money, sets interest rates, and operates through privately owned banks.  Our money is not our money.  It is not issued by Congress as the Constitution demands.  Today the almighty dollar is becoming worthless.  Some call that inflation.  I call it losing value.  Gold was $35 an ounce at one time (which is a story in itself, which I’ll skip at this point); not long ago oil was going at ten or twelve bucks a barrow.  Today oil is about a hundred and twenty bucks, and gold is up around a thousand bucks an ounce.  At the pumps gas is $4 a gallon and rising; and asparagus is $4 dollars a pound.  The dollar is tanking.  Oil producers around the world are beginning to prefer the euro.  That didn’t just happen to us by chance.  It is the product of greed, corruption in very high places, and just plain ignorance on the part of everyone from the lowliest voter to all those economists and other experts who couldn’t see it coming, and when it did, made all the wrong choices.  Wherever you find yourself, it is a matter of choices you made along the way—that includes voting.

Of all the bullshit going down in this current political campaign, there was only one candidate who tried to make the right call.  Those who supported him were quite earnest while it lasted, but the media and others thought he was foolish.  In my opinion his supporters were also a bit more intelligent than your average voter, which may have been his real downfall.  This candidate wanted to get rid of the Federal Reserve.  That was Ron Paul.  Had he accomplished that goal, he would have been in some pretty good company when it comes to wanting to get private banks out of the people’s business of issuing their own money.  By that I mean presidents like Abraham Lincoln and John F. Kennedy.  There were others along the way too, but those are pretty vivid examples for most people; and the facts of the matter are a matter of history, specifically the “greenback” and the “silver certificate,” respectively.  Also they were both assassinated, an unfortunate “coincidence”…if you believe in coincidence.  (Don’t be surprised if I mention that a few more times.)

First of all there is Jefferson, our third President, who tried to warn us.

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations which grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.--Thomas Jefferson

Somehow that seems rather timely today, particularly the part about ending up homeless when we have all these big corporate lenders foreclosing on people’s homes all over the country.  The big question is, I suppose, where did these lenders come from and how did we allow this situation to happen?  The answer is probably disputable, but I do have my own take on it all.  It’s a long story, as I see it, with several elements to it, but a big factor is the gross misinterpretation of the Constitution wherein the Supreme Court found in the Fourteenth Amendment “personhood” for corporations, with all the rights of human individuals.  I have written considerably on the subject, particularly in Part One of my Blog, most specifically in an article on the interpretation of original intent in the Constitution.  I’m not going into detail on that aspect here, but this is a good coverage of its history: http://wm-monje.com/blognew/main.php?file=article14.htm .  That much is only one factor in the whole of the problem, however.  The element approached in this writing is money itself, how it became a commodity, meaning the product in the business of lending, and how money can create more money, who controls it and how and why.  I also hope to review as best I can where it came from and how it developed over time.  In that endeavor I’ll also try to work in a bit of American history as it relates to the issuance of money.

"I place economy among the first and most important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt." -- Thomas Jefferson

There are two major areas of indebtedness: One is our national debt; the other is our own personal and private debt.  Unless you have a mortgage to pay, credit cards are probably the nation’s greatest personal indebtedness.  Some have both, and most people are making some kind of car payment.  Keep in mind I am not talking so much about what may be owed to keep a body alive these days, I am addressing the extremes of the added cost of interest payments…and frequently late payments as well.  It is the money people don’t actually count as what they still owe.  If you make minimum payments on a thousand bucks, you owe a hell of a lot more than a thousand bucks—you owe thousands, depending on the interest rate.

Up until about 1970 we actually had well-written laws against usury.  In most cases, being state laws, the limit was ten percent or less.  If you go back a few decades, say to the forties or fifties, ten percent would have been outrageous.  Interest rates in most states today are virtually unlimited.  Getting rid of usury laws was a change in state laws to accommodate credit card companies, an enterprise which the soon-to-be-up-to-their-ass-in-debt-for-life public was eager to embrace.  No one objected to the end of usury laws if they could buy now and pay through the nose later.  Twenty-six states have no limit at all on what credit card companies can charge in interest.  Even if your home state has usury protection laws, only the laws of the state the card issuer is in apply, and they will be doing business in a no-protection state for sure.

More recently Congress has bent over for the administration and its cronies and big political campaign contributors by changing bankruptcy laws to protect the big credit card companies, not the citizens who are victims of these vultures.  That’s another story too, but you can find it online if it means anything to you.

Regarding beginnings, it was in 1970 that the state of South Dakota did away with existing usury laws and officially invited Citibank to set up shop in their state.  As a result it was probably a good move for the state itself, bringing in business, money, and hiring personnel…but I have my doubts about the wellbeing of the credit-burdened individuals the new industry created.  Today credit card companies all set up their headquarters in what they call “debtor friendly” states…although it seems to me they are friendly to the creditor, not the debtor.  Usury laws, by the way, also include fees of all sorts, such as late fees, which today are pretty much whatever the company asks.  As far as I can find out, Arkansas is the only state that still has usury laws on fees.  If you’re late with a payment anywhere else, the payment will cost more, considerably more—whatever the creditor wants to charge you.  Then as a further punishment they will raise the interest rate, frequently close to 20%, sometimes more.  And minimum payments will keep a person in debt indefinitely, probably for the rest of his or her life, with every slightly late payment raising the interest rate, ultimately owing more, with larger payments than the borrower ever bargained on.

It’s easy to see why money lending is biblically immoral.  And some people get uptight about homosexuality or masturbation.  They should read the Bible again and give the priority of these moral considerations some serious thought.

As for the mortgage business, what seems to look like a reasonable interest rate, at present down to six percent or less in some cases, still amounts to one hell of a lot of money every month.  The interest on a home loan of $300,000, which is relatively low in present California, is $1500 a month, or about fifty bucks a day.  That’s before anything at all in the monthly payment comes off the principle.  Maybe it was because I was working to support a family in the sixties and you could get by fairly well on an income of fifty bucks or less a day back then, but fifty or sixty dollars or more a day for interest is an awful lot of money, even today, when you consider it is only profit for the lender, not money off the balance. 

When people fall for an “optional payment plan,” meaning, among other options, they can pay interest only, they are merely giving the lender a lot of money but still owe the same amount.  If the plan has a “minimum payment,” meaning less than the interest alone, they are literally going deeper in debt, not paying off a loan, which should be the objective of making payments.  If it is an “adjustable interest,” that means the interest rate could go up, which means when the payments go up, even less is coming off the principle.  That is the most basic cause of the current mortgage crisis, which is coming back to bite the lenders.  They got a low rate to begin with, but it kept going up.  At the heart of it all is greed, and mindless greed at that—ignorant, illogical and not thought through because the lenders themselves didn’t seem to realize they would have their own day of reckoning.  When a lender breaks a home-loan borrower and has to repossess the house, he is stuck with a property that will probably never get the overvalued price of what he loaned in the first place.  The borrower goes bankrupt, then the lender.  Everybody loses.

Another part of the greater picture, besides the lending institutions themselves going broke, is the whole so-called “money market” ploy.  I always figured the term was an advertising gimmick promising sudden and lavish wealth, kind of like fabulous bodies and splendorous romance through “weight-loss programs” or “exercise machines,” but maybe it’s more like plastic surgery.  It wasn’t just individuals that were dragged into risky speculations that seemed to promise fabulous returns on their investments.  Without getting into all the in and outs of derivatives, junk bonds, interest rate swaps and other investment enticements, there were also, and continue to be, whole municipalities and counties on the verge of bankruptcy because of the whole “money market” hyperbole, which actually started with S and Ls, one of the fed’s (taxpayers) all-time biggest bailouts. 

To sum things up in the middle of this writing, I would say it all boils down to greed, avarice, materialism, self-indulgence, a kind of financial insatiability, particular with those who have the most to start with, and a total disregard for, if not ignorance of, any and all consequences.  It’s almost like someone who looks at the person on the top of a pyramid scheme and convinces himself he can get there too.  No one, not even the Fed itself, seems to give a thought to where all that money is going to come from.  I would say when you can no longer find enough losers to satisfy all this greed, everyone has lost.

It all had to start at some point in history, where, we will probably never know for sure.  Historically, however, there is a development there, and there have been warnings from some rather wise individuals.

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance". -- James Madison, our fourth President.

Regarding our present state of affairs, and in particular a president who has trashed the Constitution, which, I believe, is a product of corruption in high places and a general ignorance and uneducated indifference among the voting public: "It is only when the people become ignorant and corrupt, when they degenerate into a populace, that they are incapable of exercising their sovereignty. Usurpation is then an easy attainment, and an usurper soon found. The people themselves become the willing instruments of their own debasement and ruin."  James Madison, our fifth President.

I don’t pretend to be a historian but I do research that which interests me enough to write about it.  There is a history and record of the origins of money and banking.  Some of it, as it has been presented by some, may or may not be, at least in part, conspiracy theory, which means some of it may be disputable.  There are known facts, however, the problem being what some may make of those facts.  It’s a fact, for instance, that Lincoln and Kennedy tried to issue our own money—Lincoln with his greenbacks, and Kennedy with his silver certificates.  They were assassinated.  Make of that what you will.  Jackson also shut down the national bank and drew in an assassination attempt from a screwball who really blew it.  All were “lone, crazed gunmen.”  Some people, as I’ve said, may make something of those known facts, which may or may not be so, but which does not change the fact that they all went up against the bankers.  What that means is that these assassinations will always be a subject of dispute: Did they or did they not take place because these men went up against the bankers?  I tend to lean toward “Hell yes.”

The big discussion, not to mention a review of history itself, is whether or not the government should be the entity issuing money, otherwise known as currency or the coin of the realm.  In our country it is the government, the Congress of the United States of America, as spelled out clearly in our Constitution, Article One; Section 8, fifth paragraph: “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.”  In all its simplicity—“To coin Money”—it is, nevertheless, quite distinctive.  Only Congress, our government, can create our money.  We were never meant to job it out to interests that did not represent the people themselves.  So what the hell is the Federal Reserve?  It isn’t the government, certainly not Congress.  But I’ll get back to that.  There is a history of where money came from, and that includes the ongoing discussion of who gets to create and control it.

Part Two: Where Money and Banking Came From

 Anyone ever heard of “tally sticks,” originated by Henry the First, which served as money for seven hundred and twenty-six years?  That’s a very long time when you compare it to other historical durations, such as empires or all that has taken place since 1282 or 726 years ago.  Chances are you’ve never heard of tally sticks.  It's an item the bankers would have us all forget, particularly the Bank of England, but you can still find it online.  Check it out.  The truth is out there.  The historical fact is that the system worked very well for England for 726 years, a record in the recent history of successful monetary systems.  What’s more it was a form of money issued by the government itself, in this case the King.  The currency was not under the control of and to the benefit of money lenders.  It was simply and rightfully a means of exchange the people trusted and found convenient for centuries. 

On the other hand, in little over two hundred years the US dollar has had and continues to have a shaky history.  Today it not holding up well against either the euro or the yen. .Most of all, it simply doesn’t purchase much anymore.  That would seem to indicate it has lost considerable value, although economists don’t really see it that way.  There was a period, however, when we did have government-issue money that did, in fact, work quite well.  It was state issued script in what were our original colonies.  It served the purpose of exchange, with only enough to keep markets fluid.  No one was making money on money during that period. 

Remember, as Benjamin Franklin put it when asked by the Brits how there could be no poor and no unemployed in the Colonies, he replied: "It is because, in the Colonies, we issue our own paper money. We call it Colonial Script, and we issue only enough to move all goods freely from the producers to the Consumers; and as we create our money, we control the purchasing power of money, and have no interest to pay."<<

Money as we know it has no real value, only trust.  And trust in whom?  Bankers. 

There’s a lot of history involved, but keeping it simple you could say banking started with goldsmiths, mostly just because they had good safes, back around the years 1000 to 1100.  Actually, banking more or less dropped into their laps.

At one time people used gold and silver, and many people had various amounts of it.  But it wasn't really very secure.  They did not have the facilities to secure it.  So—and it must have seemed like a good idea at the time—they left it with goldsmiths.  Why?  Goldsmiths had really good safes—that’s all.  Of course, when they put precious metal in a goldsmith's safe, the goldsmith would give them a receipt.  So, all was well.  No problem.  But then, because a receipt was good for gold or silver, people, just because all that paper was simply handier than metal, started to use the receipts for exchange—like paper money.  Well, it didn't take long for the goldsmiths to discover what their receipts were worth.  So, what did they do?  They started issuing receipts for gold and silver they did not have in their safes.  No one cared.  It was as good as gold and silver.  And that, essentially, is how bankers came into existence.  They printed money, loaned it out at interest, and because of the interest, they had to print more to cover the interest.  They issued IOUs, and the whole world spends their markers as if it were gold, quite literally…even if the gold wasn’t really there.

If this were a debate board I am sure someone would say, “It is not as simple as that,” at least in reference to banking today, and then give us some doubletalk learned from an economics and/or history professor who couldn’t balance his or her own checkbook, but if someone did present such a debate, I would have to say, “Yeah, it really is as simple as that.”  It’s all that doubletalk by experts—and you see it daily on TV or in the newspapers—that keeps us in the dark.  God forbid someone make it simple to understand.  Money issued with interest by private parties is a racket, and that is why the poor get poorer and the rich get richer.

The issuing of money in contemporary times has never been a government enterprise, at least not for long; it has always been privately issued and controlled by bankers.  In our country it ended up as the Federal Reserve.  Today we have the World Bank internationally calling all the shots; they decide who gets how much and what will it cost them in the long run.  That’s whole nations we’re talking about.  We have lenders who will end up owning whole nations, or at least whatever collateral they may have, such as natural resources, like oil, rice or water.  Water, incidentally is the big target of international corporations, meaning the complete rights to all water in a country, and the right to sell it at their own price, probably as a recommendation and financing from the World Bank. 

Look out for the World Bank.  They aren’t doing anyone any favors.

Demanding interest is in fact demanding payment of money that doesn’t yet exist.  The Fed has led us to believe that high interest will control inflation, but I will argue it is what created inflation in the first place.  The only way to control inflation is by not issuing more than is necessary to support what should be a growing economy.  Only the government issuing the money supply, serving the public and commerce only, not for profit in monies that don’t yet exist, is the only way to get a handle on the economy.  That would be in the interest of everyone and a product of the work and economy they will generate.

Governments would only issue enough to service an expanding commerce.  Money, otherwise, is created by charging interest, which is only of benefit to bankers who get to print it like those goldsmiths issued receipts for gold they did not have.  

Consider this (one more time):  People used to keep their gold and silver safe by leaving it with goldsmiths because they had secure safes.  They got receipts from the goldsmiths.  The receipts were as good as gold but easier to carry around, so they used them for exchange, meaning money.  Then the goldsmiths printed receipts for gold they didn't have and loaned it out.  They called it “fractional reserve banking,” which sounded good.  In fact, it sounded so good, they still practice it.  It means they can lend money they don’t have (not to mention none of it is backed up with gold anymore).  And it is as simple as that.  Award winning economists still write books on what a great idea fractional reserve banking is, despite the obvious lack of logic going in.  (I never though logic and economics had much in common.)  That means a bank today only needs one tenth in reserve of what they loan out.  That’s one tenth in paper money, forget gold or silver.  That was set by the Federal Reserve.  That means that if they loan money to ten people at ten percent interest, based on reserves, they are making one hundred percent interest on the return of actual reserves because they don't have the nine tenths.  That is the same as goldsmiths when they started issuing receipts for gold they never received, which in my book is just plain crooked. 

What a racket, huh?  But who notices?  Who cares?  It's just the way it is.  They don't ask: “Well, where are the other nine tenths of the money they loan out?”  The answer is, they just have to print receipts…more money.  Once it's in circulation, despite the lack of any reserve of real value, it is, literally, as good as gold…we seem to think.  What's more, everybody wants those receipts for reserves that don't exist yet, and will even mortgage their house on a repayment plan of interest only, meaning they aren't paying back a dime of what they borrowed, are not paying down the balance on their house one cent, but are making monthly payments of hundreds, even thousands of dollars, that don't exist and never did so the bankers—Federal Reserve—will I have to print it.

Imagine I were a multibillionaire and everyone knew it, if I were to play poker and I lost a pot but owed five thousand dollars because I didn't have it on me, I could take out a notepad and write, “IOU five thousand dollars,” and sign my name.  It would, literally, be as good as gold just about anywhere.  I might never see that marker again because the whole world doesn't doubt I could redeem it.  In fact, I could probably buy anything with an IOU and never have to redeem a dollar of it.  Well, that's what the Fed does.  A Federal Reserve note is a marker, an IOU.  For what?  For another IOU, and that's all it's good for.  They just keep writing—or printing, as the case may be—IOUs   That's all they do.

Part Three: A Bit of American History

There were Jefferson and Madison who opposed bankers issuing money and believed only Congress could do so as stated in the Constitution.  Then there was Andrew Jackson.

“If the people only understood the rank injustice of our money and banking system there would be a revolution before morning.”  Andrew Jackson

Nicolas Biddle was, no doubt, a genius.  He could have graduated from the University of Pennsylvania at age thirteen, but was not allowed.  He had quite an illustrious career in fine arts, linguistics, diplomacy, politics, and so on.  Ultimately he wound up as President of the Central Bank under President Monroe, which issued money for the United States government at the time…for interest, of course. 

The Bank lost its federal charter in 1836.  Andrew Jackson was president at the time, and was the first, last and only president to every pay off the national debt.  Jackson ran his campaign on the promise not to renew the charter of the Second National Bank.  The first Bank was a creation of Hamilton, but its congressional charter had expired in 1811 under President Madison who had opposed it along with Jefferson.  Biddle said of Jackson: “This worthy President thinks that because he has scalped Indians and imprisoned Judges, he is to have his way with the Bank.  He is mistaken.”  That was actually a threat to use the bank to cause economic havoc, just to make his point, not to mention demonstrate the power of the bank, on which he followed through.

Under Biddle’s control, before the vote to renew the charter, the bank withdrew its money supply.  The economic crisis that did follow gave Jackson a hard time for a while, including from Congress, although the people themselves were pretty much still behind their president.  They did not like the idea of a bank, not Congress, as the Constitution reads, cranking out the coin of the realm.  Biddle, however, got caught bragging about causing the crisis deliberately, which didn't go over well, even with Congress, although he was personally loaning money to congressmen.  So the House voted not to renew the charter, and to have a committee investigate Biddle, but he refused an audit and a look at his correspondence, especially with congressmen.  Biddle also bragged about the power of the bankers in Europe who were behind him, but that didn't go over real well either.  Biddle was tried, but acquitted. 

In my opinion Biddle probably set the die for bankers in general.  It is very doubtful that those getting extremely rich at this time of economic despair in this country give a damn about anyone but themselves.  And when their greed catches up with them, they have an administration they put in place to bail them out.  The rest of us be damned.

There was also an assassination attempt against Jackson, the first against an American president…by a crazed, lone gunman, of course--and maybe he really was, at least according to all reports, including being found not guilty by reason of insanity.  Using a pistol that misfired, then backed up with a second one that also misfired, wasn't exactly the swiftest of assassins.  Jackson beat him with his cane.  That’s the whole story, they say, and probably is.  Of course, we have official reports on Kennedy too, so who will every really know?  Maybe they just didn't have the system down pat yet, with backup shooters.  But who better to dupe into a crazed lone gunman than a guy who's crazy to start with?  History now tends to vilify Jackson some, and glorify Biddle.  I guess there are two sides to every story.

Then there was Abraham Lincoln.  The banking business in Europe was fearful of a prosperous and “united” United States.  It was in their interest to finance the Civil War, and they didn't care much which side, but tended to lean toward the South.  Lincoln, however, did not borrow money.  He printed a fiat government script to pay his armies, referred to as “greenbacks.”  It was, however, legitimate and constitutional, meaning the Constitution actually expected Congress to print and coin money, the only failing, as Jefferson noted, was their ability to also borrow money.  But the greenbacks were not excessive, only what was needed--in lieu of barrowing from international bankers.  He issued four hundred and fifty million in greenbacks, without interest, which was accepted and circulated without much problem or concern to the people.  Confidence in money is all it takes to make it real.  After his assassination, unlike the attempt on Jackson, there really was fairly solid evidence that it was a conspiracy, at the time, probably comparable to the Kennedy assassination as conspiracy, but not as well circulated and, ultimately, it went down in history as just another crazed, lone gunman. 

"Then there was Kennedy.  Ever hear of a bill called a “silver certificate”?  I personally remember them.  It was the intention of Kennedy to strip the Federal Reserve of its ability to loan money to the federal government.  He did that by executive order--EO 11110, to be exact.  It meant the Treasury backed up a total of four-point-three billion in silver bullion, either with paper silver certificates, which resembled present money, or in actual silver dollar coin.  Some people still have a few Kennedy silver dollars in their collection.  Immediately after his assassination, the certificates were recalled and destroyed and replaced by “Federal Reserve Notes,” which is simply a marker, an IOU against nothing at all.  And once again, we have a crazed, lone gunman who put an end to him and all his endeavors.

In 1964, Lynden B. Johnson, then president, said, "Silver has become too valuable to be used as money."  You can’t much blame him for going along with the Fed.  Then he gave us a war that demanded the printing of more money, which, of course, caused considerable inflation.  What a sweetheart.  But hey, nobody blew his brains out.  He may not have been our wisest president, but he wasn’t stupid.