Today was the last day to submit entries to the President’s Open Government Brainstorm page. I submitted the one below. The website has a place to vote (“Looks Promising!” “Not So Sure.”) If you feel like voting, the link is here —


The Constitution states, “Congress shall have the power to coin money and regulate the value thereof.” This power has been abdicated to private bankers. Today, 99.99% of our money is created by private banks when they make loans. This includes the Federal Reserve, a private banking corporation, which orders Federal Reserve Notes to be printed, and then lends them to the U.S. government. Only coins are actually created by the government itself. Coins compose only about 1-10,000th of the M3 money supply, and Federal Reserve Notes compose about 3% of it. All of the rest is created by banks as loans, something they do by simply writing numbers into accounts.

Congress could take back the power to create the national money supply by:
(a) Nationalizing the Federal Reserve.
(b) Reviving the Reconstruction Finance Corporation, a government-owned lending facility used by Roosevelt to fund the New Deal. Rather than merely recycling borrowed money as Roosevelt did, however, the RFC could actually create credit on its books, in the same way that banks do it today, by fanning its capital base into many times that sum in loans. Assuming $300 billion is left of the TARP money approved by Congress last fall, this money could be deposited into the RFC and leveraged into $3 trillion in loans. That’s based on a 10% reserve requirement. If the money were counted as capital, at an 8% capital requirement it could be leveraged into 12.5 times the original sum. That would be enough to fund not only President Obama’s stimulus package but many other programs that are desperately short of funding now.

Many references are available which will be furnished on request. See generally http://www.webofdebt.com/articles.

21 Responses

  1. Thanks for putting that proposal on the President’s brainstorming website. I urge all responsible, thinking citizens to vote for it. There are many other valuable proposals there too, such as:

    *Open Presidential debates to third parties.

    *Whistleblower protection

    *Instant runoff elections. (Author’s words: You live in Florida and your views line up more with Nader but you’re afraid to give your vote to Bush? Support instant runoff elections! It allows you a second choice candidate. If your choice is not in the top two your vote will go to you second choice…Gore! Then you can vote your conscience without being responsible for 8 years of SHRUB and Dick Cheney! If you are not satisfied with the 2 party monopoly stranglehold, not only of power, but of ideas and debate…then instant runoff voting is the only way these voices will ever be heard.)

    Seldom do ordinary citizens get an opportunity to input on matters like these.

    But the window of opportunity closes in just a few days. Then debate and discussion on the top vote-getters will begin.


  2. “…This includes the Federal Reserve, a private banking corporation, which orders Federal Reserve Notes to be printed, and then lends them to the U.S. government.”

    Both clauses of this sentence are incorrect.

    1. There are three major components of the Federal Reserve System: The Federal Reserve Board, the Federal Open Market Committee, and the twelve regional Federal Reserve Banks. None of these is a private corporation.

    The Federal Reserve Board is an agency of the federal government, and its employees are federal employees. The members of the Federal Reserve Board including its Chairman are appointed by the President of the United States subject to confirmation by the United States Senate.

    The twelve regional banks are not agencies of the United States government but they are not private corporations in the ordinary sense of what it means to be private corporations. Any profit that is earned by the regional banks is not accrued to the stockholders, but is rebated to the Treasury of the United States. Regional bank stock conveys a fixed six percent dividend, regardless of the profitability of the regional bank. Ordinary corporate stock is marketable, which means it may be sold. Regional bank stock is not marketable but must be held as a condition of membership in the regional bank, and must be surrendered to the regional bank if the member bank leaves the system. Banks must purchase a quantity of stock from the regional bank in proportion to their individual capital, but regardless of how much stock each individual bank may have, each bank has only one vote to the board of directors. With ordinary corporate stock the vote is proportional to the amount of stock held. And three members of each regional bank’s board of directors is appointed by the Federal Reserve Board, including the Chairman and Vice-chairman of each regional bank.

    2. The Federal Reserve Notes that the regional banks order to be printed are not for the purpose of lending to the federal government, but are made available to their member banks to supply to their customers. When member banks order Federal Reserve Notes, their respective reserve accounts are debited at face value for the notes so delivered.

    It’s all Federal Reserve credit: the reserve account balances, and the outstanding notes and coinage. There is much confusion on this point. The only difference is that the Federal Reserve credits the Treasury for the cost of printing of the notes, and the full face value of the coinage.

    • Private, closely held corporations are nonetheless creatures of the gov’t, so in that sense are public, as for PLCs. However, Federal Reserve Banks are not public corporations in the sense of a post office not paying local property tax, from which, according to the Federal Reserve Act, they are NOT exempt:
      Otherwise, the fact that they are made exempt from federal taxes proves that they are not federal gov’t entities: it’s unnecessary to exempt one’s own entities from taxes to which they were never subject in the 1st place.

      I voted for Ellen’s idea on the basis of option b); prefering to replace option a) with c) as in Ellen’s comment; or instead of nationalisation, implementing a parallel banking system based on US Notes for public uses, i.e. gov’t and the general public, while leaving FRNs for private uses, i.e. commerce, industry, finance, speculation. Prior to 1913, private national banks issued their own dollar bills which floated against US Notes, without computers or calculators, and the country didn’t grind to a halt. How better to backstop private central banking than with public banking decentralised to state central banks?

  3. This is why JFK got assassinated He started to coin money with USA notes rather than federal reserve notes

    • Silas Kline, on May 31st, 2009 at 5:17 pm Said: “Both clauses of this sentence are incorrect.”

      But only technically, if at all, Silas, not substantively.

      All really GOOD writers who are attempting to reach and enlighten lay audiences use the technique of reductionism, or simplification.

      On the other hand, there are those who use unnecessary complexity and “insider jargon” to hide truth and confuse “outsiders”. That is what the bankers and their gatekeepers (the lawyers and accountants, among others) have done for centuries in order to maintain their private control over the issuance, flow, and value of money, and to transfer wealth from the ordinary people up to the extremely wealthy financial classes.

      Einstein himself, who delved into the most complex realms imaginable, yet simplified them in words most people could grasp, said that complex things should be made as simple as possible in order for people to understand them, but “no simpler”. His meaning was clear. Understanding and comprehension are the goals. Some loss of accuracy is generally acceptable when explaining complex ideas to ordinary people, as long as the main ideas are not distorted.

      What Ellen wrote was essentially correct when considering her intended audience. It would be incorrect only if it were made to advanced students or experts in accounting or banking.

      A good teacher always gears the content to the level of background and comprehension of the student, and that is exactly what Ellen is doing here.

      Why would anyone want to criticize that?

  4. If, you agree with the content of “The Web of Debt”, I encourage you to alert everyone on your current email contacts list of Ellen’s submission to the Brainstorming website. Copy the URL above and paste it into your email message to your friends. Encourage them to vote for Ellen’s submission with an explanation of why it is so important. Our country will benefit greatly from Ellen’s submission being voted #1 among the 1350 submissions to date. Our country and we citizens must hope that this topic receives significant discussion in the next phase of the Brainstorming project. Please, accept my THANK YOU! for taking this action.


  5. Nice posting. Thanks.

  6. Ellen, great site. Rebecca Tobias referred it to me. Here is a little known remedy to taking back control from centralized corruption — check it out, it is real, has hit the Supreme Court and the more people that become aware of it, the larger the chances of making it into a reality.

    In your service,
    Byron DeLear

    Is America Too Top Heavy?

    Why Regulating Wall Street Isn’t Enough

    by Byron DeLear

    Our Founding Fathers were all about preventing tyranny as they were throwing off the yoke of the British Empire; the despotism of Crown and Church, they could see it a million miles away and designed our government to prevent it.

    Their remedy? Checks-and-balances, compartments of government self-regulated through inter-agency skepticism and scrutiny.

    Given the recent Wall Street bailouts in the amount of trillions upon trillions, deficit spending and skyrocketing debt, it seems as if an important protection to help Washington be more accountable is missing from the Founder’s design. But it isn’t. It just hasn’t been used.

    A consensus has emerged on how to fix the rules in our broken financial system – Regulation. This response to the worst financial crisis since the Great Depression sees the deregulation that had occurred in the banking and mortgage industry – combined with good ol’ fashioned greed – as the primary cause of the collapse. It follows then, that by restoring key corporate oversight, a future economic meltdown will be averted. Only regulating Wall Street won’t be enough.

    Wall Street had a silent partner in creating this mess: Washington, DC. Without the collusion between Wall Street and Washington, this debacle wouldn’t have been possible. The lobbyist driven repeal of important protections such as the Glass Steagall Act in 1999 or the unregulated mania of corporations like AIG, Bear Stearns or Lehman would never have occurred without a complicit Congress, essentially bribed to be asleep at the switch. We have witnessed, quite literally, the ‘Enron-nization’ of the American economy.

    In our nation’s history, the Federal government has offered top-down guidance to the States. Sometimes in the form of a moral check-and-balance as in the case of women’s voting rights or guaranteeing African-Americans entry into schools in the South. America became stronger through these interventions. But the reverse, a restraining check-and-balance to an excessive Federal government, is also necessary. When Washington has grown beyond its means, overreaching and incapable of self-correction, the people must intervene.

    This was the purpose of the convention clause of Article V of the US Constitution, to give the people an opportunity to offer solutions to a recalcitrant Congress unwilling or unable to act. When corruption has become institutionalized into the Federal government, the States can petition for a convention to propose amendments to the Constitution, a process occurring outside of Washington, bypassing the entrenched corruption. Before becoming law, amendments would have to be ratified by three-fourths of the States, eliminating any extreme or radical proposals.

    But ideas like a Balanced Budget Amendment, which would help to root out abuse and cronyism inherent in the system today, could be introduced and seriously debated through our nation’s first Article V Convention. Delegates would assemble, C-SPAN would cover it, we would all get educated a little more and our representative democracy reinvigorated. There is a critical reason why the convention clause exists, and the Framer’s put it there not to be ignored, but to provide a “peaceful alternative to a violent revolt” during times of strong popular frustration with the Federal government.

    Constitutional scholars believe we have been denied our right to a convention. To date, there have been 754 valid applications from all 50 States for an Article V Convention that have hit the doorstep of Congress, far surpassing the two-thirds threshold needed (34). The research documenting these applications was completed last year by an intrepid non-partisan group of legal experts, a retired Michigan Supreme Court Justice and impassioned citizens from every State. The Friends of Article V Convention (FOAVC.org) assert that Congress has not only failed in its non-discretionary duty to issue the call, but is purposefully quashing the convention as a perceived (and real) threat to its power.

    Aside from the partisan polemics surrounding the recent Tea Parties, it’s clear that millions of Americans of all political stripes are voicing deep concerns for the future of our country. They see the massive influence of lobbying power, industries writing their own laws, shameless earmark abuse and trillion dollar bailouts as the symptoms of a broken system.

    President Eisenhower once remarked about Article V,

    “Through their state legislatures and without regard to the federal government, the people can demand a convention to propose amendments that can and will reverse any trends they see as fatal to true representative government.”

    It may be time to finally heed the original design our Founding Fathers built into the law of the land for just such an occasion – they did have a couple things right after all.

    Byron Walker DeLear is an author, lecturer, former US Congressional Candidate in Missouri and co-founder of Friends of Article V Convention. He can be reached at: ByronDeLear@gmail.com

    Byron DeLear :: Is America Too Top Heavy?

    Radio Interview & Op-Ed with Byron DeLear “Is America Too Top Heavy?” — If you like, please join the conversation on the blog : http://blog.showmeprogress.com/showDiary.do?diaryId=2931

  7. Is this the right place to brainstorm on how to change the banks? Also, after reading the article, is Ellen saying that the public provides the seed money at 6% but the banks loan this money over 10+ times resulting in a rate of return in 40% (4% X 10) range? Thanks, I am just trying to get a handle on the US banking system.

    • This is the place! I don’t know where you got the 6% figure though or what article you mean. Best, Ellen

    • spinnaker: I commend your effort to understand the money system. However, your question, and the numbers cited indicate considerable confusion. If you really want to get a handle on the US banking system I urge you to obtain a copy of Ellen’s Book, Web of Debt, and read it, study it, and use it for a reference.

      This book clearly explains that everything about the banking system has been cloaked in secrecy and shrouded in mystery for hundreds of years, if not thousands. The very language of banking and economics has developed so as to obscure obvious meanings and serve as a kind of “code” to banking and financial “insiders”.

      In simplified terms: The taxpaying USG public does not provide any “seed money” for anything. It only guarantees the loans (T-notes/bills) that the government exchanges with the Fed for original money, or FRNs, or what you are thinking of as “seed money” or “reserves”. Lower member banks and state banks all create money from debt or credit by “monetizing” the debtor’s IOU and lending it back to them. They only need to keep a certain percentage of “reserves” on hand, now 8%, but often as low as nothing, depending on the way the assets are valued.

      So, if a bank receives 1000 in new deposits, it can loan 920 out as new money, retaining 8% or 80 as reserves. Then. if the borrower deposits that money with bank it can lend out 846 more to someone else. Repeating this process, the bank can create about another 10,000 in new interest bearing debt money.

      It should be easy to see why bankers don’t mind paying a few percent in interest on deposits when they can multiply the loans or debt-money they create from the deposits ten or more times over.

      It should also be easy to see why bankers want to retain the debt-money-creation process to themselves. However, the money-creation process is a sovereign right. It is one of those “inalienable rights” the founders left off their list, primarily because money was not clearly understood then, as now. Additionally powerful banking interests used all their power and influence to establish private central banks “of issue”. “Of issue” is code for the money creation power, or authority.

      All this and more will be clear to anyone reading Ellen’s peerless book, Web of Debt. If one really wants to understand how we are all being conned out of our rightful wealth and prosperity, knowing the information in Web of Debt is essential.


      • Thanks Jere! You write, “It is one of those ‘inalienable rights’ the founders left off their list, primarily because money was not clearly understood then, as now.” I think this is key. There are goldbugs who say the Constitution says “Congress shall have the power to COIN money”, and that’s all they meant for Congress to do. I think that’s true; the Founding Fathers were duped into thinking gold was the only sound money. But there was an immediate shortage of gold, so Hamilton did what he had to do — set up a private central bank so the government could “borrow” banknotes created on the “fractional reserve” system. We actually need to rewrite the Constitution.

  8. Agreed Ellen. It surely does need rewriting. The problem is “who would you trust to do that?” at this point in time? The bankers now have all the real power. Could we get an “improved” rewrite under these conditions? I think it unlikely. However, grassroots congressional legislation might be possible to “correct” past legislation, such as the Federal Reserve Act of 1913, The 1913 FRA transferred the top level money-creation power from congress to the Fed and FRS. (The bankers always had the money multiplication power via the fractional reserve system – only the original issuing authority was at issue in the FRA of 1913.)

    So legislation to transfer money-issuing authority back to the congress from the Fed would be a major step. It would surely face constitutional challenge from the banksters, and if the Supreme Court ruled favorably (for us) then it would be nearly as good as a USC rewrite, and far less risky in other matters.

    But IMO, real progress is more likely to come from working on state or community issued money, and getting state and local banking (or credit union) authorities established on a non-profit basis. These new or revised institutions could keep the debit/credit books on minimum-wage work hour deposits and withdrawals. Lines of “credit” on at least 30 days expected income could be treated the same as “credits”. More could be allocated based on real assets owned. Electronic debits and credits carded to such a system would not need to be called “money”, but it could serve the same purpose: to promote easy and debt-free commerce and trade.

    At least it could serve as money within the economic jurisdiction (state or local) being served. For inter-economic transactions either exchanges could be formed, or commodities could be used.

    Voila! We could have home-grown debt-free and low interest electronic “money” in the blink of an eye. There is nothing I can find in our constitution or valid laws that could prohibit such a system. These systems would immediately result in such a boon to the states and communities that used them that they would soon drive out the Fed and the international central and commercial banksters. The ground swell of citizen support for such a national system would force the money reform changes we seek.

    Seems like California, with the current crisis, would be the perfect place to start. 😉

    • Thanks for your advice. I’ll read Ellen’s book. I must have got the 6% confused with something else. I think in Canada, the Bank of Canada loan’s the money to the banks at let’s say 2% and then the banks loan it out at say 6%; this creates a spread of 4%. Since the money loaned out comes back into the banks, the banks can loan this money out ten times or more paying the depositors let’s say 2% interest. That’s where I get the 40% rate of return. What I don’t understand is it seems the depositors are the real providers of capital, not the shareholder’s in which the scenario I have provided contributed $0; is this thinking correct?

      • Hi, the capital requirement is separate from the “multiplier effect” that allows deposits to be lent and relent. The capital requirement is imposed by the Bank for International Settlements on its member banks. “Capital” is the money or assets owned by the bank itself, not its depositors — money from shareholders, real estate, etc. For ordinary loans, you need 8% capital, so $8 of capital allows you to generate $100 in loans. In the U.S. today, banks have gotten around the reserve requirement. They lend to anyone who walks in the door who is creditworthy, then worry if they have the “reserves” later; if they don’t have enough reserves, they borrow them. And that’s why the BIS imposed the capital requirement supposedly, to keep a check on the banks’ irrational exuberance; but you could look at it the other way: they want to keep control of the global money supply.

        • Thanks for the explanation. It still seems to me anyway like the depositors are putting up most of the money through the “multiplier” effect; no money from the depositors results in the end of the multiplier effect. I’m going to read your book Ellen and I will get back to you. Thanks.

          • Ellen’s explanation was a good one, as usual. I think your difficulty is in the terminology and concepts between initial capitalization and deposits. Of course stopping deposits would end the multiplier effect (absent shady banking games, like interbank lending).

            In any case, you will exceedingly profit from reading Ellen’s book, Web of Debt. She actually makes the whole banking story easy to read and comprehend.

            • Hi. I just got the book and I have a question about a statement on page 30 where it says “They lend by crediting the borrower’s account with a new deposit….The accounts of other depositor’s remain intact and their deposits fully available for withdrawal.” If this is the case why does the banking system need the FDIC to guarantee up to $250,000 per depositor? If the deposit is fully available for withdrawal there should be no runs on the bank because the depositors would just transfer their credits to another bank because their deposits would be fully guaranteed?

              Thanks in advance. If this is not the right place to ask these questions please let me know.

              • The FDIC insurance guarantee is to protect the depositor in case of bank failure. Ellen’s statement that “….The accounts of other depositor’s remain intact and their deposits fully available for withdrawal” does NOT mean that those specific funds remain there. It just means that the bank must be able to provide them if requested by the depositor.

                Hope that helps.

  9. Thanks Jere. I am just thinking that if the banks or the government were to print the money for the loans, the depositors’ deposits would be 100% guaranteed. Once the loans are repaid, the principal could be destroyed. Also, if there is a default, it would not affect the depositors.

    One point that I also get from Ellen’s book is that the money for the interest due on the loans are not printed. I have always been indoctrinated that capitalism creates new wealth; but does it? It seems that capitalism and communism are wealth redistribution activities. I say this because the profits that are made in capitalism are similar to the interest income to the banks that never gets printed. If governments could print these profits and use them for government services what would happen? Some would argue this would be inflationary; is it?

  10. This is some valuable information, I just wrapped up my paper for class and think I should go re-edit it lol. You may have just made me a regular 🙂

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