Fed's First Foray Into Unsecured Loans (I Just Need a Few Billion Till Friday)

The Federal Reserve is working with the US Treasury on plans for a dramatic move into unsecured lending in the hope that this extreme step could help bring credit markets back to life.

As well as unsecured lending to banks, this could lead to the Fed directly purchasing commercial paper or funding a special purpose vehicle set up to do this.

Any unsecured lending would be a radical departure for the Fed. Central banks the world over almost never make unsecured loans, and the Fed has never done so in its history.

It would allow the Fed to address two key problems in the financial system directly: the freezing of the term interbank money market, which covers all but overnight borrowing, and the rapid contraction of the commercial paper market.

However, the US central bank does not believe it has the legal mandate to make unsecured loans on which there is a reasonable likelihood of some loss. So it needs the Treasury to guarantee losses on the loans, probably under new authorities granted by Congress last week with the passage of the $700bn (€518bn, £402bn) Paulson plan.

The Fed and Treasury are working together on how that might work but were not ready to announce it on Monday.

The Creature from Jekyll Island
A Second Look at the Federal Reserve
October 28, 2006

From a Radio Interview

JIM: You hear a lot of talk about the Federal Reserve today: “the Fed
is supposed to be an inflation fighting institution.” In fact, much
of today’s headlines about interest rates and Fed comments are that
the Fed is concerned about inflation, and the Fed is a stabilizing
influence in our economy. My next guest doesn’t believe that’s the
case.

Joining me on the program is G. Edward Griffin, he’s a writer and
documentary film producer with many successful titles to his credit.
He is well known for his talent for researching difficult topics, and
presenting them in clear terms that all can understand. He has dealt
with such diverse subjects archaeology, ancient earth history, the
Federal Reserve System, and the international banking system. We’re
here to talk about his book today, The Creature from Jekyll Island.

Mr. Griffin, when investors or citizens hear stories about the Fed -
like the Fed met today, they left interest rates but one Fed governor
is concerned about inflation - it usually portrays the Fed as an
inflation fighting organization, when in fact it is really an
inflation-creating institution. Doesn’t this create a problem of
perception?

The Federal Reserve - An Inflation-Creating Institution

G. EDWARD GRIFFIN: Yes, I think that’s the understatement of the
century, Jim. It’s a problem of perception; it’s a problem of
reality. You see the problem is that people do not understand what
the Federal Reserve system is. It’s not really their fault - I mean
you’re not born with this information; and you either get it in
school, or through the media or something like that. Well, the truth
of the matter is that the Federal Reserve system is a cartel. That’s
kind of a shocking statement for most people - a cartel. If somebody
had told me that, let’s say 10 years ago, I would have thought they
were kind of off their rocker. But the fact of the matter is the
Federal Reserve System is a cartel, no different than a sugar cartel,
or an oil cartel, or a banana cartel - this happens to be a banking
cartel. And they have gone into partnership with the Federal
government to enforce their cartel agreements. Now, that’s the hard
reality.

We’ll come back to this topic I suppose shortly here, and illustrate
how this is so, but just assuming for the moment that this is so, and
if you’re the head of a cartel - a banking cartel in this case - and
you had to go before the public or Congress and justify your moves,
you have to make it sound as though it’s in the interests of the
public, otherwise the public would not go along with it. What would
happen, for example, if the Federal Reserve Chairman were to make a
speech and he said, “well, we raised the interest rates today because
we wanted to improve the profit picture of our member banks.” Now,
that wouldn’t go over too well. So they always have to say, “we
raised or lowered interest rates” - or whatever they’re going to do,
because they’re concerned about inflation, or they’re concerned about
employment or unemployment; they’re concerned about world factors. In
other words, you see, they’re concerned about you folks - and that
makes it all very good. And that’s the game that goes on, Jim. And so
they have to make it sound as though all of these machinations are
being done somehow in the interests of the general public. [3:51]

JIM: Now, Ed, in your book there’s an exchange published in Britain’s
Punch magazine going back to 1957. You featured it in the beginning
of your book as an appropriate mental exercise to limber the mind for
the material in the book. For example, it starts out with a
question: “what are banks for?” - answer: “To make money.”
Question: “For the customers?” - “No, for the banks.” - “Why doesn’t
bank advertising mention this?” - “It would not be in good taste.”

Why don’t we limber our listeners minds as we begin this process.

The Truth About Banks and Their Partnership with The Fed

EDWARD: Well, I think that quotation from Punch is certainly a
classic, isn’t it? People really have a funny opinion about banks.
They think somehow they’re great conservative institutions - after
all, they have a lot of money and they spend some of it decorating
their bank buildings in a very serious décor; bankers usually dress
well, they wear suits and ties, and they have serious expressions on
their faces. So we get the impression bankers are very conservative,
solid, conscientious human beings, when in fact - when you really
look at what banking is as it’s practiced today - it’s one of the
greatest scams of all history. And the putting on of this appearance
of great seriousness is part of the mechanism by means of which they
make the scam possible.

Now, when I say scam, let’s get down to nitty-gritties here, Jim.
We’re talking about the fact that the banks create money out of
nothing, and then they collect interest on it. Now that’s the basic
scam. When a bank loans you money that money doesn’t exist prior to
your walking into the bank. He has the authority of law - a moment
ago, I said the Federal Reserve System went into partnership with the
Federal government, so the government is their partner, and so the
government has written laws to make this scam quite legal, that banks
can do things now that were you and I to do them we’d go to jail. But
the banks can do them because they have their partner in government
that says, “Ok, the banks, and only the banks, can do this.” And one
of those things is that the banks can lend money that they don’t
have, and they can collect interest on it. And that’s how money comes
into creation in the United States and most of the Western world.

Let me give you an example. I mentioned that the cartel is a
partnership between the banks and the Federal government. Now, when
people form a partnership it’s usually because each party has
something to gain, otherwise they wouldn’t do it. So the question is:
why did the banks go into this partnership, and why did the Federal
government go into the partnership? So the answer to both questions
is this mechanism that I’m just describing here - this mechanism by
which money is created literally out of nothing - and that benefits
each of these partners in different ways.

Here’s how it works. Let’s start with the government side of the
partnership. Let’s say that the government needs to have much, much
more money to spend than it is taking in in taxes - and of course,
that’s the common reality today. Politicians like to spend money
because the more they spend for benefits, for the voters, the more
votes they get; but they don’t like to raise taxes because the more
taxes they raise the fewer votes they get. So the politician is
always struggling to find ways to spend money but not get it from the
tax payer through taxes. Well, how do you do that, how can you spend
more money than you take in? The answer is very simple: you borrow
it. Well, that’s the same with you and I - if we want to spend beyond
our income, if we have some credit we can go to the bank and borrow
money. Well, that works for a while but sooner or later the loan has
to be paid back plus interest. And so, you and I can do that only for
very short periods of time, and for limited amounts of money. But in
the case of the Federal government, it’s unlimited amounts of time
and unlimited amounts of money.

So here’s how it goes. Let’s say the Federal government wants to
borrow some money, more than it’s taking in in taxes. So the first
thing it does is it goes to the open market, and it offers to borrow
the money from individuals like you or me, or from institutions,
corporations, other countries and so forth. Peope loan money to the
Federal government in return for bonds or Treasury notes, or bills,
depending on the length of time the loan has to be repaid. So now the
government has more money than it takes in in taxes. Now, just like
you and I, however, the time comes when that money has to be paid
back, plus interest. Lo and behold, when that happens they still
don’t have enough money to pay for what they want to do through
taxes. So now, they have to go and borrow some more money to cover
the original loan plus the interest that’s due. And this process goes
on, over and over and over again, and we have this phenomenon called
the rising national debt - it just goes on forever. There is no limit
to what the politicians are seemingly able to borrow.

Now, the money that comes from the private sector - you and me and
savings institutions, retirement plans, other countries, and so
forth - that money is already inexistence but there’s never enough of
that. They need more - the government needs more than what they can
get from people who already have money to lend to them. And so now,
the spillover comes when they want more than they can get that way
they go now to the Federal Reserve System. And by prior agreement,
the Federal Reserve will create whatever amount of money is necessary
at that point, and appear to lend it to them. I say appear to lend it
to them because what they’re really doing is they’re creating it for
the Federal government, but they call it a loan, when in reality it’s
not a loan it’s a service: they’re creating money out of nothing for
the Federal government.

So the Treasury official goes to the Federal Reserve and says: “Ok, I
need another billion dollars today. We didn’t take enough in taxes to
cover this, and not enough people in the private sector loaned us the
extra money, so we need more money. We need another billion dollars,
please.” And the Federal Reserve says, “Ok, here it is.” And the
Chairman of the Federal Reserve writes him a check - of course,
that’s figuratively speaking, it’s all done by computer, but let’s
just imagine the Chairman of the Fed writes a check to the Federal
government for a billion dollars. The government now has that check,
deposits it into its own checking account, and begins to write drafts
against it. And this money that was given to the Federal Reserve did
not exist before that point. It was created completely out of thin
air, just the same as if the Federal government had gone to the
printing presses and printed it. But in this case they didn’t, they
went to the banks and got a loan of money that didn’t exist before.

And it gets so complicated that people don’t understand it, so they
think somehow it’s wrapped up with the banking system, therefore the
money must have existed prior to that when in reality it did not. So
that’s how money comes into existence for the government. They can
always rely on their partner in the Federal Reserve to create
whatever amount may be necessary for them, so they don’t even have to
go to the private sector to borrow it. It’s just guaranteed to be
available anytime. Now, that’s why the government’s into this
arrangement. You could see the advantage there. But this is really
the tip of the iceberg. If we just stop there as many observers
do, “my, isn’t that terrible, that they create money out of nothing
for the government and the government pays interest on nothing,”
that’s child’s play compared to the real story.

Now, I’m going to cover the next part. That takes care of the
government, why are the banks in this thing? Well, lets follow that
money, that was created out of nothing for the government and see
where it goes. It goes into the private banking system. Let’s take
$1000, for example, that has been paid to a postal worker who
delivers our mail. He’s working for the Federal government. Now, he’s
got $1000 in a pay check that came out of that billion dollars that
was created out of nothing and presented to the Federal government.
So now we’re just going to trace a thousand dollars of it that comes
to the postal worker. He’s got a paycheck now, he doesn’t imagine
that that money didn’t exist a moment ago or yesterday, and he
doesn’t care, it looks like a good check to him - banks will accept
it, everybody will cash it. So he takes it down to his local bank at
the end of the street there and deposits it into his private checking
account. Now things speed up. The money is out of the Federal Reserve
government context and goes into the commercial banking system as a
deposit.

Now if I were a president of that particular bank that got that
deposit, I could in a sense go to the people out there in the bank
lobby and say: “Attention, everybody, I have some good news. This
gentleman here just deposited a thousand dollars into our venerable
bank.” And that’s good news, because a lot of people in the bank are
there to borrow money, so they know when the bank has money to loan
that usually means lower interest rates and everybody’s happy. So
somebody might ask me, “well, how much did this person deposit?”

And I would say, “he deposited $1000.”

And then this person would say: “Well, that’s not enough, I want to
borrow $9,000 on this car I’m looking at, and $1000 isn’t going to
cut it.”

And I would have to say just like this article from Punch when he’s
talking to the depositor in the bank, “don’t worry about it, this
banking business is more complicated than you can possibly imagine.
We can lend you the $9,000, even though we only had $1000 deposited.”

And if anybody asks how is that possible, the answer is: “don’t worry
about it, it’s possible, it’s legal, we can do it. We create the
extra $9,000 out of thin air. The $1000 is deposited and we can
create up to $9,000 on every $1000 that’s put into our bank.”

And that money literally comes out of thin air, at the time the loan
is made. That means for every billion dollars that’s created out of
nothing for the Federal government to spend, an additional $9 billion
is created by the private banking system out of nothing to loan to
people like you and me and corporations and so forth. Now, we use
that money for our purposes - the bank doesn’t benefit from that
money, they loan it to us. But we pay the bank interest on that money
just as though it was real money that existed that somebody was
sacrificing to make available to us as a loan. We really think we’re
borrowing money that somebody has put into the bank on deposit, and
the interest rate is justified because we have to pay that person for
the sacrifice he made of making that money available to us, when in
fact the money was created out of nothing. And so we are paying
interest on nothing. Now that is the scam that I’m talking about.
That is how all of our money comes into existence, not only in the
United States but in the entire Western world. And if that isn’t a
scam, I can’t imagine what would be. [16:26]

A Legalized Cartel?

JIM: Well, let’s go back to the beginning when the Fed was created,
because what I find rather interesting in this period of time was
around the turn of the century you had a lot of negative sentiment
against monopolies, cartels, the oil trusts and the money trusts.
Theodore Roosevelt’s Administration was moving against the big oil
trusts such as Standard Oil. How did the money trusts manage to
create a monopoly for itself, in a period when government was moving
against monopolies? In essence, what was created here was a legalized
cartel. So how did that originate in a period when they were moving
against such trusts? - that’s their genius I think

EDWARD: Well, that is their genius, and it’s a device that we have
seen used over and over again - not just in banking, but in every
sphere of economic activity. And the answer to that question is that
the government is not moving against these monopolies, it’s just that
they appear to be moving against these monopolies. And it’s a sleight
of hand trick, I mean it’s a magician’s trick, they simply appear to
be doing something when in reality they are doing something else. As
I mentioned before if the Chairman of the Federal Reserve were to
say, “well, we are taking this measure today in order to improve our
profit picture,” then the public would be very angry and very alert
to the situation, and demand some changes be made. But if the
Chairman can say, “we’re concerned about inflation and therefore
we’re increasing interest rates,” then everybody goes back to sleep.

So what happened at the turn of the century is that there was a
public outcry against the concentration of political - of economic
power, I should say, and also that was a Freudian slip, it certainly
included political power but the public didn’t know that. The public
was concerned about the concentration of economic power in the hands
of a few very large investment firms and banking firms on Wall
Street. And so they were demanding that their elected representatives
pass legislation which would curtail that power and make sure it was
limited on behalf of the best interests of the people.

So the people who were running the banking system, and who had very
powerful influence in Washington DC, decided that if this is what the
public wanted that they would get at the head of the parade, and they
started calling for it. And they made sure that their people were the
ones who drafted the legislation that was offered to the public as
the solution. So what we had is a very interesting thing in which the
people who created the problem were called upon to write the
legislation to solve the problem. And they told the American people
that’s what they were doing when in reality they were writing
legislation to continue the problem, and to consolidate their power
in the future.

That is the reason that the Federal Reserve Act was written on Jekyll
Island; and that’s the reason I named my book The Creature From
Jekyll Island, is because the Federal Reserve Act was not drafted in
the halls of Congress, it was drafted in secret on this private
island off the coast of Georgia which was completely owned in those
days - it was a private club actually called the Jekyll Island club -
by a small group of billionaires from New York: people like JP
Morgan, and William Rockefeller, and their business associates. And
so the banking fraternity went to Jekyll Island, to this very private
club, and for 7 days they sat around a table there in private -
smoked a lot of cigars I’m sure and drank some good whiskey - and
drafted the Federal Reserve Act.

And for years later they denied that they had ever been to Jekyll
Island to do such a thing, and of course later it all came out. It’s
a matter of well documented history now, but they denied it. They
didn’t want people to know that the legislation which was being
offered to break the grip of the money trusts, which was the phrase
they used in those days, the didn’t want the people to know the
legislation to break the grip of the money trusts was written by the
money trust. Obviously, if the public had known that then the scam
would have been out in the open and the legislation never would have
passed. [21:08]

What About Secrecy?

JIM: One of the things that you talk about in the book, all of this
secrecy at Jekyll Island, as you just referred to, even today there’s
a bit of secrecy associated with the Fed moves. But prior to the
Fed’s existence, banks had to exercise prudence and caution in their
lending in case of a bank run if they were considered unsound. With
the passage of the Federal Reserve Act creating the Fed, it was no
longer necessary for banks to practice caution; and what we have now,
or seen created since the Fed, they’ve gotten more reckless. I mean
what do you have to worry about if you’re guaranteed a bailout.

EDWARD: Exactly, and that’s one of the reasons that these people said
that they were meeting on Jekyll Island - in secret. One of the
objectives they had for the creation of the Federal Reserve System
was to create a structure which would have a hand in the public
purse, so that when the banks got into trouble they would be able to
draw upon tax payers’ support to bail them out, and they would do so
under the banner of protecting the public. It’s a very clever ploy.

But you know, whenever let’s say some of these banks make outrageous
loans to Third World countries that they know that those countries
are not going to repay, they know that there’s no capacity in that
little country to repay these gigantic loans, but they loan it
anyway. Why do they do that? They do it because they know when the
time finally comes to fish or cut bait, Congress will vote to pay the
loans for those countries. They’ll come to the taxpayer and say, “you
know, if Mexico can’t pay its loans to the banks, why there could be
a great economic collapse there. In fact, that country may even turn
communist, or something like that. And we don’t want a hostile
country on our borders. So it’s in the best interests of the United
States, it’s in the best interests of you folks, the American
taxpayers, to dig in a little deeper and cover the debts for the
banks so we can keep these loans going.” They have done this so many
times that it’s amazing.

But even when the loans are not to Third World countries, but to
large corporations inside the United States like Chrysler or Penn
Central, or some huge corporation or even New York City, and these
enterprises can no longer keep paying their interest to the banks,
then the banks go to their partners in Congress and say, you
know: “We’ve got to have taxpayers cover this debt to keep those
payments coming because, you know, we don’t want Chrysler to go out
of business. Look at all the people that would be put out of work,
and no income coming for those families, babies wouldn’t have milk,
it would be terrible.” The story goes on and on. “So we’ve got to
have the taxpayer put up the money, guarantee the loan, make sure the
banks don’t suffer for making the bad loan in the first place, and
we’ll do it all in the name of protecting you folks.” [24:17]

Is The Fed a Stabilizer?

JIM: Ed, I began this interview with this myth that the Fed is an
inflation -ighting institution. Another myth is the Fed was created
to stabilize our economy. Looking at history, it sprang from the bank
panic of 1907. However, since its inception we have seen more
frequent recessions, a depression, stock market crashes and more
importantly, and I think this is a key for listeners to understand,
the dollar has lost over 90% of its purchasing power.

EDWARD: Well, yes, that is the inevitable consequences of creating
money out of nothing. And the people that created this mechanism in
the first place knew that that was going to happen; and they had to
sell it to the American people anyway, so they didn’t tell the
American people that’s what would happen. They told them, “yup, it’s
for you folks, we’re going to put into position an institution that
will guard against inflation, protect the economy,” knowing all the
time that they were lying through their teeth; that they were going
to fatten their own pockets at the expense of the taxpayer. And these
people still know that that process is going on and they still lie
through their teeth to the American people. [25:33]

JIM: Another critical factor here to understand when viewing our
present financial system is all money in the system, as you have
pointed out, has been created out of nothing. So when a bank loses
money, it costs the bank little of anything tangible. The key here to
survival is to avoid large write-offs where bad loans exceed the
equity.

EDWARD: Well, that’s it, exactly - because they can write down the
loans a little bit. In fact, I’m sure that many of these loans that
they make in the beginning are in anticipation that there will be
some writedowns along the line - that’s just common business
practice. But the end game however is not just writing it down and
extending it and rolling it over and keeping it going, it’s actually
getting the bailout from the taxpayers. But I think people need to
realize that banks really don’t want you to pay back their loan. They
don’t make any money when you off the loan; they make money only when
you pay interest on the loan - that’s where the income stream comes
from. So they’d be just as happy as can be if you just rolled over
your loan and paid interest only every month, which is of course
what’s happening increasingly in the mortgage market today. That’s
very much to the banks’ benefit, because that just means you keep
sending them money every month forever, and that’s all they care
about is getting that free money forever. Even though it was created
out of nothing in the beginning it comes back to them and it has
purchasing power - dwindling purchasing power - but in the meantime
they’ve got it and you don’t. So the banks need the loans and they
will do anything to perpetuate the loan. They can write it down, roll
it over, get it paid off by the taxpayer, but they must keep those
loans going. [27:22]

JIM: Well, let’s go beyond the scope of the United States, let’s go
back to the creation of the Bretton Woods system towards the end of
World War II. The concept as it was put forth was to facilitate
international trade and stabilize exchange rates. The unannounced
goals, Ed, as you point out in your book, were much different.
Explain the difference between the public goals and the undisclosed
goals.

EDWARD: Well, there were a lot of goals going on at that time. The
main thing that was happening at Bretton Woods is that the nations of
the world were falling very heavily under the influence of the
Keynesians, the collectivists and the international banking
fraternity. And they wanted to create - not all at once, but they
wanted to create a system that would eventually evolve into a global
currency and a global monetary system that would be completely
without backing of gold or silver. Because when money is backed by
something tangible like gold or silver then the amount of money that
can be brought into existence is limited by the quantity of the
commodity that is backing that currency. So it severely limits the
banks and the politicians in their ability to create money.

So the goal at Bretton Woods was to make it sound like it was all in
the interests of you folks around the world to stabilize
international commerce for you folks, and to do all these good things
for you folks. But the real goal was to bury the concept of a gold or
silver-backed currency every where in the world, and to create an
international currency which would be entirely flexible - as the word
that they used, meaning it could be created completely out of nothing
at the political whims of those who were in charge of this global
system. This was the beginning of the economic side of building a new
world order as they called it since then, and it has been unfolding
pretty steadily exactly according to plan. [29:35]

World Bank and the IMF

JIM: You know as we look at this and the extensions of this whole
program, wasn’t the World Bank and the IMF really an international
version of the game called `the bailout’?

EDWARD: Well, yes, I think that’s a good analysis. The whole process
has been to step this thing up from national to international
mechanisms. These people, even though they may be American citizens,
or British citizens or citizens of France, or what have you, their
minds have driven them to become internationalists. Their real
loyalties are not to their respective countries, but to an
international concept, an international currency, monetary system and
government. So that’s what’s been happening. If you just look at the
surface and read their speeches, it sounds pretty good, but if you
realize what their motives were and then of course you don’t have to
guess about it anymore because hindsight tells us that’s a correct
analysis. We’ve been moving steadily away from national currencies
which were backed by gold and silver - steadily in the directions of
international currencies which are backed by nothing at all. [30:45]

Why Do Central Bankers Hate Gold?

JIM: Why don’t you talk about something else that’s an anathema to
most central bankers, and that’s the supremacy of gold. I think a lot
of people know that central bankers aren’t very fond of it even
though they own it and loan it. And why does gold guarantee stability
and actually give us more of that than the present fiat system we
have now?

EDWARD: Yes, bankers and politicians hate gold as a backing for
currency, because as I mentioned a moment ago that if you have a
currency that has to be backed by a quantity of gold or silver you’re
limited in how much currency you can create and put into circulation.
And that’s anathema to politicians and bankers. They want more and
more of it. And so they’ll try and convince it’s for you folks to
have more and more of it so that the economy can prosper, but in
reality any amount of silver or any amount of gold behind a currency
will work as well as any other amount. The available quantity merely
determines the preciousness or the value of any one particular unit.

Now, I’m getting a little bit ahead of myself, your question is more
generic than that, and it’s a good question because you see when
money is backed by gold, say, let’s say there is a piece of paper out
there that says this piece of paper can be exchanged at the bank or
at the Federal government for 1 ounce of 999 gold - let’s just call
this piece of paper the `oz,’ Ok. It’s not a dollar, it’s called an
oz because it can be exchanged for 1 ounce of gold. That means that
you can take the oz and you know right away what you can buy with it.
You can buy approximately whatever takes the same amount of effort to
create 1 ounce of gold, because that gold has to be dug up out of the
earth, it has to be refined, it has to be put into a little circle
and assayed to determine its purity, and stamped with various designs
and now we have a 1 ounce gold coin. There’s a certain amount of
human effort required to produce that, and so you can take that and
exchange it for let’s say, anything of material value that takes
approximately the same amount of human effort to produce it.

I think one of the best examples is the fact that if you lived in
Ancient Rome and you had a 1 ounce gold coin at that time, you could
have purchased a handcrafted belt, a very fine toga and a pair of
sandals - that was the price: 1 ounce of gold. Today, thousands of
years later, if you’ve got a 1 ounce gold coin with no numismatic
value, just a plain old bullion coin, 1 ounce of gold, you can
exchange that for Federal Reserve notes and then immediately go into
a men’s store and buy a nice suit, a handcrafted belt and a pair of
shoes. The value of that gold has not changed in terms of money for
thousands of years because it takes the same amount of human effort
to produce a nice suit, a handcrafted belt and a pair shoes -
approximately the same - as it does to produce a one ounce of gold
coin. The miners’ efforts and the refiners’ efforts and so forth, all
added together, the human effort on both sides on that equation
remain approximately the same. And that is why monetary systems that
are backed by something that can’t be created out of nothing -
something of intrinsic value - that always is a very stable monetary
system over a long period of time.

But once you take that connection away and say, “oh, we don’t need to
back this piece of paper by anything,” this oz now doesn’t have
anything behind it except a signature from the Secretary of the
Treasury, and some words across the top of it that say Federal
Reserve note - whatever that means - now all of a sudden these things
can be produced without limit and the quantity increases faster than
the expansion of goods and services. And the first thing you know, it
doesn’t take one oz to buy a suit, belt and a pair of shoes, it takes
two, and then it takes four, and then it takes twenty-four, then it
takes one hundred, and so forth, which is why as you mentioned a
moment ago, since the creation of the Federal Reserve System the
value, the purchasing power, of the dollar has dropped by over 90%.
That means that the government and the banks, this partnership - this
cartel that we’re talking about called the Federal Reserve System -
has literally taken your purchasing power. They have taxed you in a
way that you didn’t even know it. Inflation is a hidden tax, it’s a
tax that is just as real as the income tax or any other tax, in fact
it’s even more real because you can’t escape it - I mean there’s no
deduction; it falls on people who can least afford to pay it more
heavily. It’s one of the worst taxes imaginable. Inflation is a tax
and it’s a direct tax as a result of this cartel called the Federal
Reserve System. [36:14]

Bankers and War

JIM: You know, one aspect of your book that you find throughout the
19th and 20th Centuries, and you go on to chronicle this, is the
international link between large banking family interests. For
example, you talk about how the Rothschilds financed both sides of
the Napoleonic wars. And in your history of how this system unfolds,
we find bankers doing the same thing throughout the wars of the 20th
Century. In fact, a good portion of your book describes the role
bankers have played in financing both wars and revolutions.

EDWARD: That’s true. One of the least appreciated facts of history, I
think, is that all the wars since the creation of money - paper money
and that kind of thing - all wars have been exacerbated by the
bankers who make money available so easily to finance both sides.
It’s just a fact of history - I’m sure if they couldn’t create money
out of nothing, if it weren’t possible to use this hidden tax called
inflation to raise money for wars, I doubt if many wars would be
thought. There would be some kind of skirmishes I suppose, some
limited battles, but most people would not tolerate.I don’t think the
American people would tolerate the war in Iraq today if they really
had to pay for it in taxes. They don’t yet know that they’re paying
for it through inflation - they’ll find out - but if the tax man
came to them and said, “look, we need to double your taxes this year
because we’ve got this war in Iraq, and we’re fighting terrorism in
Iraq, so we need twice the amount of money that we took last year,” I
think most, most Americans would say, “no, let’s look at this again.”
So, the reason banking is so important to wars is that it makes wars
relatively easy to finance by the warring governments and the bankers
have known this for a very long time. And as you mentioned, the
Rothschilds were the first ones who really showed up on the
historical horizon and loomed very large, and we find they were
financing both sides of many wars.

Another aspect of that is when you make a loan to somebody and they
refuse to pay it, if you’re dealing with a deadbeat within the nation
you can call on the courts or the local laws and the local police and
say, “look, this guy broke his contract with me, he’s got to pay back
that loan, or we’re going to put him in jail.” So that’s how they
enforce their loans within a nation. But when you are making a loan
to a king, or to a government, and that government or the king
says, “we’re not going to pay you,” what do you do? You can’t send
the police to the king and say, “pay up or else,” because he controls
the police, he controls the military. So the banks worked that out a
long time ago: if you don’t pay up and you’re a government they’ll go
finance some other government and create an enemy and invade you if
you don’t pay, and you’re suddenly ousted by some other government or
some revolutionary movement. Banks, on an international level, are
very good at financing enemies of the states. So they do finance both
sides of many conflicts, simply as a means of making sure that both
sides pay up on their international loans. [39:52]

Is it Inflation or Deflation Ahead?

JIM: There’s a big debate in the financial community today, and it’s
whether we’re going to experience inflation or deflation. As I look
at it, I don’t think I can remember last when we ever had real
deflation. But when you have a fiat system where you are able to
prevent defaults, or let’s say a bank loses a lot of money because of
bad loans, they can create money out of nothing and just replenish
the banks as they did in 90 and 91. As you look at the way the system
works today and you see the amount of money that we’re printing -
last year we created or this year we’re creating almost $4.4 trillion
of new credit in our system - do you see inflation or deflation on
the horizon?

EDWARD: Well, to me, it’s pretty clear - it’s inflation. I don’t see
how you can see deflation in any of this because they have lifted the
floodgates and there’s no limit to the amount of fresh money that
they’re pushing out. I think there’s going to be more of that in the
future. But the question is still good because there comes a time
even though they’re pushing money into the economy, people are still
losing jobs and losing purchasing power, so these two opposing forces
are fighting each other and it’s hard to say which ones will be the
most devastating. But nevertheless, in my view, I think that the
effects of deflation will be more than overcome by the counter
effects of inflation, and that in net, we will have an inflationary
experience. [41:36]

Can the US Change Course?

JIM: I want to go back to the founding of our Republic. Our Founding
Fathers, through the Constitution, prohibited States and the Federal
government from issuing fiat money because of their bitter experience
that they saw with hyperinflation during the revolutionary war. What
they did was put in place a product which I believe was collective
genius. How do we ever get back to this? Is it possible to get back
to a sound money system given where we are today?

EDWARD: It’s possible, but when you think of the requirements, it’s
pretty staggering, Jim. It’s possible of course, all that it takes -
ha, here we go - all that it takes is that the American people
understand the problem that we have today, and have the discipline,
and elect Congressmen to office that will have the discipline to
bring about the necessary changes. That’s all it takes - in other
words, all it takes is a miracle.

I don’t think that the American public - I don’t see any evidence of
it at least so far - is really catching on to the scam, at least in
sufficient numbers to bring about some kind of political wave of
reform. And I certainly see no evidence in Washington, DC that our
elected representatives have any indication that even if they did
understand it of going against it. Because you must understand that
many of them hold their positions of office largely as a result of
being cooperative with these banking sources. So for them to turn
against the hand that feeds them I don’t think is very realistic to
think that’s going to happen.

How do we replace these people in Washington? We replace them simply
by having candidates who are independent of this mechanism, and
they’re not on the scene. And if they were independent the public
wouldn’t vote for them because they would be portrayed in the press
as madmen. The public - we always get back to that - must understand
this banking scam so that when the propaganda comes out and tries to
convince them that anyone who opposes the Federal Reserve System is
some kind of a fruitcake, the public must be able to withstand that
propaganda and say: “Ah! We know that he’s not a fruitcake after all.
He’s the guy we want.” So we have a lot of work to do ahead of us, so
the answer to your question is it’s possible, but at the present time
the locomotive is running in the opposite direction. [44:12]

Doomsday Mechanisms

JIM: I want to fast forward to one of the final chapters of your book
where you talk about the doomsday mechanisms. One of the
characteristics of our present time is the extent to which the
Americans and their governments are mired in debt; you take a look at
what the national debt is - over $9 trillion and still growing; we’re
running almost 800 to $900 billion worth of trade deficits. And if
you take a look at that today, as you point out in your book, you
find some interesting statistics: there are more people working for
government than for all the manufacturing companies in the private
sector; there are more bank regulators than bankers; there are more
farm bureau workers than farmers; more welfare administrators than
recipients; and there are more citizens receiving government checks
than there are paying income taxes. I see that as a problem that’s
very difficult to fix - there’s a vested interest here.

EDWARD: It is very difficult to fix because it looks like it has gone
past the point of no return. When you give people the opportunity to
vote themselves whatever they want through a majority vote and
finally that number has reached more than the majority then that
minority is doomed. The minority of honest working people who are not
trying to get something for nothing are being pressured more and
more, they’re squeezed more and more. I think everybody now knows
that the middle class is in great retreat in America.

Prior to the establishment of the Federal Reserve the middle class
was rapidly growing, the gap between the top and the bottom was
getting narrower and narrower, and we were really moving into a very
wonderful system based on free market economies. But since the
creation of the Federal Reserve, and some other things too might add,
the trend has reversed. So now the middle class is getting wiped out.
The middle class is the ones who are paying the taxes, the middle
class is the one that is doing the work, and as that gets wiped out
and gets smaller and smaller, there comes a time when there’s no
heartbeat left in the system. The system will not have the strength
to continue and at that point all we’ll have is just raw naked
force: government telling you what you must do or else go to prison -
that’ll be the driving force. I’m afraid we see it coming closer and
closer unless we turn this thing around very soon. [46:45]

JIM: Let’s go forward and talk about your pessimistic scenario,
because you just mentioned it’s gone well beyond repair. It sounds
like your pessimistic scenario is the course that’s going to unfold
in the future.

EDWARD: If we go on the basis of the trends, we have to say that is
coming. If you just sort of plot this on a mental chart in your mind
you can see that line is heading straight toward total government,
government is growing every year; new laws are being passed every
day; personal liberties are being reduced every day. This represents
almost a straight line chart if you were to put it on a piece of
paper. So you have to say unless something changes, that line is
going to continue to go in the same direction it’s going now, until
finally we have more and more and more government, more government,
more government - and then all of a sudden we reach the end of that
line and it’s total government, which is totalitarianism. So unless
the trend changes there’s no doubt that we are headed right smack dab
into totalitarianism.

So the question is - and we come to the optimistic scenario - what
will it take to change that trend, what is it going to take that line
and bend it back down and start reducing the size of government? And
as I mentioned before, the only thing that will do that is an
awakening on the part of the American people that first of all
they’re in a mess because of the growth of government - many people
think we’re in a mess because government isn’t big enough. You
know, “hey, we’ve got a problem - let’s have more laws.” That’s the
thinking that’s gotten us into the problem we’re at. And these
potential tyrants that are just wringing their hands in anticipation
and glee expecting to have total control over our lives, are counting
on the American people jumping at every problem that lies ahead, and
saying, “oh golly, we need more laws, more government.” They’re just
waiting for the Boobus Americanus to vote itself right into slavery.

Well, so what do we do to change that? That’s a hard one to answer,
and perhaps this is not the place to get into it, but I created an
organization about 4 years ago called Freedom Force International.
And it’s an organization that deals directly with this issue, and
these are people who are now in 30 countries around the world, by the
way, who have a plan to reverse this trend and get that chart moving
back in the other direction. It’s a big topic, Jim, perhaps some day
we can talk about it, but in the meantime if anybody’s interested in
how we think it can be done, I would urge them to come to our
website, and it’s a real easy one to remember: It’s called
www.freedomforceinternational.org - .org for organization. And I
think you would be very impressed by the plan that we have already
put into motion. [49:53]

JIM: I know you do a lot of documentaries and you’ve received rewards
for those. Have you ever thought of producing a documentary regarding
The Creature From Jekyll Island?

EDWARD: Yes, I have Jim and that would be a wonderful thing. It would
be rather expensive to do that, we don’t really have the resources
for that. There is a fellow by the name of James Jaeger who is the
President of Matrix Productions - I believe it’s called, you can find
them on the internet - and he in fact has made great strides in that
direction actually. I saw the preliminaries on it just a little while
ago, and it’s getting pretty close to complete. I think it’s a very
good documentary. So anybody that’s interested in that can look up
Matrix Entertainment or James Jaeger - I even think he’s got it on
the internet so you can look at it. [50:48]

JIM: Well, Mr. Griffin, if somebody wanted to get a copy of your
book, and by the way, I’d recommend to our listeners if they haven’t
read Mr. Griffin’s book, it’s an essential book to have in any
library to understand how the monetary system works, especially the
great, great chapters you have on a crash course on money, because
you’ll really gain an understanding. Mr. Griffin, how can they obtain
a copy of your book?

EDWARD: Well, the book is on the internet of course - Amazon has it,
I think most of the major bookstores have it. Although they’re often
not stocked in sufficient quantity so that when you walk in to a
Borders or some place like that they’ll say, “Oh yeah, we’ve got the
book but we’ll have to order it.” So it takes a little while. But the
fastest way is Amazon, or they can come directly to us. I would urge
that because we have a lot of other books and we have documentary
films and audio recordings on this topic too. So if all else fails,
come directly to the source which is Reality Zone, which is our
commercial operation, and that too is easy to remember: it’s
www.realityzone.com. [51:59]

JIM: Mr. Griffin I want to thank you for joining us here on the
Financial Sense Newshour. It’s good to talk to you again. We first
talked to you when this book came out many years ago, but it’s more
relevant today than ever.

EDWARD: Unfortunately that’s true.

JIM: And once again, thanks for joining us on the program, and would
you mind giving out your two websites once again?

EDWARD: Well, I’d be glad to do that, Jim. The commercial site where
the book and recordings and video documentaries can be obtained is
called Reality Zone, it’s www.realityzone.com; and then the
organization that I mentioned which is made up of people from all
over the world who are trying to do something about this
constructively, really make a difference, not just knowing about it
and complaining about it but actually doing something about it,
that’s called Freedom Force. And so that’s
www.freedomforceinternational.org.

JIM: And once again, the name of the book, if you’re looking it up on
Amazon, is called The Creature From Jekyll Island, by G. Edward
Griffin. Mr. Griffin, all the best to you sir, and much success.

EDWARD: Thank you very much, Jim, and the same to you.

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