LETTER TO LAWYER THAT CAUSED A 20% SETTLEMENT

Dear ___________:
It is obvious that you and your paralegal do not understand the simple fact that there is no money in circulation and that you cannot demand paper instruments backed by credit. You obtained a money judgment, not a credit judgment. It is a principal of law universally accepted that a State judge cannot make a legal determination contrary to Article 1, Section 10 of the Constitution of the United States or Louisiana Revised Statute 1-53. All judicial judgments must comply with both.

You now have the problem of execution, which must be executed, by the very same trial court that lost subject matter jurisdiction via a vague order. There is no money to satisfy judgment and any attempt to seize property will be met with an injunction prohibiting sale upon the ground that the judgment obtained is absolutely null. Any motion for examination of judgment debtor will be met with a motion to quash the summons upon the same ground. This is my intent. Act as you feel compelled but be prepared to discuss money and payment in all future hearings.
In your letter you say, “We would be willing to accept payment in the full amount owed to our client (principal sum of $21,462.10).” 21,000 of what? What you are willing to accept is not the issue. The issue is what are you legally able to demand? What kind/species of money aggregate type (M1, M2, or, M3) was loaned and are you asking for a different type to be repaid? Below is a brief explanation and I shall expect a reply or we will let the Judge reply.

M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) travelers checks of nonbank issuers; (3) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (4) other checkable deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, credit union share draft accounts, and demand deposits at thrift institutions. Seasonally adjusted M1 is constructed by summing currency, travelers checks, demand deposits, and OCDs, each seasonally adjusted separately.


M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000), less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market mutual funds, less IRA and Keogh balances at money market mutual funds. Seasonally adjusted M2 is constructed by summing savings deposits, small-denomination time deposits, and retail money funds, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

M3 consists of M2 plus (1) balances in institutional money market mutual funds; (2) large-denomination time deposits (time deposits in amounts of $100,000 or more); (3) repurchase agreement (RP) liabilities of depository institutions, in denominations of $100,000 or more, on U.S. government and federal agency securities; and (4) Eurodollars held by U.S. addressees at foreign branches of U.S. banks worldwide and at all banking offices in the United Kingdom and Canada. Large-denomination time deposits, RPs, and Eurodollars exclude those amounts held by depository institutions, the U.S. government, foreign banks and official institutions, and money market mutual funds. Seasonally adjusted M3 is constructed by summing institutional money funds, large-denomination time deposits, RPs, and Eurodollars, each adjusted separately, and adding this result to seasonally adjusted M2.

An Elementary Explanation on Money.

What's a dollar? A simple question. Yet no court will render a determination.


IS A TUNA A FISH?
This is not hard, and even though elementary in my approach, it is a simple means to make a simple principle understandable...So again:


IS A TUNA A FISH?
To those who answered YES, I most certainly agree. Since a Tuna is a fish, wouldn't 10 (ten) Tuna have to be 10 fish? ABSOLUTELY!


IS AN APPLE A PIECE OF FRUIT?
YES an apple is a piece of fruit, and 10 apples would be 10 pieces of fruit. GREAT!


IS A DOLLAR A PIECE OF PAPER?
And if you answered YES to that question, then please answer the following:


IF A DOLLAR IS A PIECE OF PAPER, THAN WHY ISN'T 10 DOLLARS TEN PIECES OF PAPER?


If a dollar is a piece of paper, how could two halves, four quarters, ten dimes, twenty nickels or one hundred pennies BE A DOLLAR?


And for that matter, HOW CAN ONE PIECE OF PAPER BE TEN OF ANYTHING?


If I held an apple in my hand in such a way that you could only see one half of it and then proceeded to ask you : "What am I holding in my hand"? Would you answer "An apple"?

But what if, much to your surprise, I showed you the part of the apple that was concealed in my hand, and it had stamped on it : TEN APPLES - U.S. DEPARTMENT OF AGRICULTURE...? Would you still say I had an apple, or would you say now I really had ten apples? Think about this, for you do it every day! I believe intelligent people should answer questions correctly. And of course, just because the USDA stamped 10 on my apple, or the privately owned Federal Reserve prints 10 on their imaginary notes, certainly doesn't make one become ten AND YOU KNOW IT! The law says:

"United States money is expressed in dollars..." - Title 31, United States Code, Sec.5101.


And land in the USA is "expressed" in acres, so deeds to land are also expressed in acres - although an "acre" is not the land, nor is "dollar" the money BUT the UNIT OF MEASURE of gold and silver in coin form, ONLY when gold and silver are current AS the money! Gold and silver have been used AS money for a long time throughout history and for very good reasons including but not limited to: 1) relative scarcity; 2) doesn't rust or spoil; and, 3) has universal acceptance...again, we don't need any government to force us to accept gold or silver, but they have to force us to take paper.


A convenient unit of weight was needed to express gold and silver; the shekel of old later giving way to the troy ounce of today. But Americans officially in 1792 - [Coinage (Mint) Act of 1792, which the Boston Federal Reserve Bank states: ...is still the law..."] adopted the decimal system for weighing gold and silver, the "dollar" being the primary unit of measure.


Nevertheless, just as gravel is measured in cubic yards, sugar in pounds, and milk is expressed in quarts, so too, silver and gold were weighed in dollars. And since no tangible entity answers to a 'gravel cubic yard', 'sugar pound', or a 'milk quart' - it stands to reason no tangible commodity could answer to a gold or silver 'dollar'! And the reason you do NOT have a 'silver dollar' in your secret hiding place, is the same reason you do NOT have a 'milk quart' in your refrigerator - that is, NEITHER EXIST.


Intangible units of measure are not fashioned from tangible substances! So, why do you correctly say "a quart of milk", and incorrectly say "a silver dollar"? Accurate or lawful delivery [PAYMENT] of a substance or thing requires three elements or indicia: 1) Numeric quantity; 2) Unit of measure; and 3) the thing or substance being measured. In fact with out all three of the above indicia, no merchant can do business with any customer, anywhere - consider:
You own a deli with a fine array of meats and cheeses, etc...and I approach you with this request: "Could I please have 3 pounds please"? In order to fill my order you need all three indicia and I only gave you two - quantity = 3, unit of measure = pound, but I failed to tell you what the substance was, so you must ask; "3 POUNDS OF WHAT?" Then, once I tell you "smoked turkey breast", you have no problem filling my order. So, what do you do when I next order: "Could I please have pounds of Swiss cheese"? This time you must ask: "HOW MANY POUNDS of Swiss Cheese"? - Get it? By now, as a deli owner, you are wondering if I am not the dumbest person on earth, yet when I ask you how much is my total order, you say: "Ten dollars please"?, and if I asked you "TEN DOLLARS OF WHAT?" you'd be dumbfounded!


When we used gold/silver AS the money, you would have said: TEN DOLLARS OF GOLD (pricy shop you run!), and we could both conduct our business...So today - TEN DOLLARS OF WHAT? Dollars of dollars? Do we have "gallons of gallons"? See the scam, fraud and CON?
If you have ever seen a pre-1963 dollar bill of credit, you might have noticed the CONTRACT concealed in plain view: Who?: "The United States of America", Will do what/when: "Pay to the Bearer on Demand - ONE DOLLAR" What/where: "This note is legal tender for all debts, Public and Private, and is redeemable in lawful money at the United States Treasury, or at any Federal Reserve Bank."


"The terms 'lawful money' or 'lawful money of the United States' shall be construed to mean gold or silver coin of the United States." {Title 12 United States Code, Section 152]


Can a note that PROMISES to PAY ' LAWFUL MONEY' be the "Lawful money'?In the pre-1963 bills of credit, or notes, you had to look at three different places on the face of the bill, and read four different fonts/styles of print to see the contract concealed in plain view. Now, pull out a post-1963 bill of credit, any denomination if you like, and look closely at its face:


Who?: "THE UNITED STATES OF AMERICA - FEDERAL RESERVE NOTE - ONE DOLLAR (or 5, 10, etc...) THIS NOTE IS LEGAL TENDER FOR ALL DEBTS PUBLIC AND PRIVATE"


That's it! They removed the PROMISE and by doing so the bill magically became the thing once promised! UNDER YOUR NOSE! The modern day FEDERAL RESERVE NOTE promises nothing to no one ever! It can't be redeemed for anything, it is not "federal" embraces NO "reserves" and is NOT a "note".


The very first person who "spends" one into the market place will give nothing for it and get anything with it...YOU SLAVE, must work for it and if you hold onto it too long, will get nothing for it! Just as deeds to land cannot be the land, notes [promises to pay the money], or now, worse - imaginary notes with no promises to pay the money, cannot be the money.


Again - "So what - I can spend it" cry the slaves...But looking beyond their elementary short-sightedness, it should be obvious that for the creators of imaginary notes a phenomenal economic and political clout can be had...for the rest of us, serious problems.


"Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily, and while the process impoverishes many, it actually enriches some." Keynes on Inflation, 1980 Annual Report, FRB of Richmond, p.6.


Legalized theft of our wealth with imaginary money GIVEN PHYSICAL SUBSTANCE with paper and copper/nickel slugs creates a dilemma since fraud of this magnitude is difficult to conceal. Our master's solution: Charge interest on loans of nothing! Who would ever suspect a bank of creating imaginary principal when everyone thinks they need more of what they get for nothing?


But interest creates another problem. How does the non bank public return more 'funny money' to the banks than they pretend to lend??? How can all debtors repay the principal plus interest when banks only lend principal? In other words, how do we repay 4 eggs on a 3 egg loan - when the banks own all the chickens?


Our master's solution: Just encourage the next generation to climb aboard the treadmill. By borrowing new 'dollars' into circulation, they enable the first generation to earn that '4th egg'. This also gives the first generation an incentive to enslave their own offspring and escape foreclosure!


It is the nature of an imaginary monetary system that is ever expanding and all consuming to collapse. Public CONfidence in this self-destructive, "it's gonna kill us all" system is enhanced by: 1) fond memories of 'redeemable notes'; 2) interest levied on non-loans; 3) vaults and armed guards to protect bogus IOU's, and 4) public schools to delude students into exchanging assets [labor, wealth or production] for bank liabilities [notes and checks] and call it PAYMENT instead of THEFT!



NOW FOR A MORE SOPHISTICATED EXPLANATION.

In your letter you asked for $.


Professor Florian Cajori dealt with the $ sign question rather definitively more than 60 years ago in A History of Mathematical Notations and could get quite indignant on the subject. He noted in his book, "About a dozen different theories [on the $ sign's origin] have been advanced by men of imaginative minds, but not one of these would-be historians permitted himself to be hampered by the underlying facts." Among the deficient hypotheses:

1. The $ sign was originally the letters U and S superimposed. The idea here is that the original $ sign had two vertical lines, not one. Popular though this idea is, there is zero documentary evidence for it. Furthermore, Robert Morris, the Revolutionary War financier and the first U.S. official to use the sign, made it with a single vertical stroke.
2. It's a version of the letters IHS, the Greek abbreviation of the name Jesus. No further comment required.
3. It was originally a P combined with an 8. The dollar, you'll recall, is descended from the Spanish Mill Dollar, also known as the "piece of eight" because it consisted of eight reals. Plausible, and as we shall see not that far from the truth, but still wrong.
4. The $ sign was inspired by the Spanish "pillar dollar," which on one side had two columns signifying the "pillars of Hercules" at Gibraltar. These were represented in the dollar sign by the two vertical lines, with the S being some sort of scroll wrapped around them.



In reality, Professor Cajori contends in his book, the $ sign is an abbreviation for "pesos." Bear in mind that the Spanish dollar, also known as the peso de 8 reales, was the principal coin in circulation in the U.S. up until 1794, when we began minting our own money. In handwriting, "pesos" was usually abbreviated lowercase "ps," with S above and to the right of the P and with the hook on the latter written with one or two deep strokes. As time went on, the P and the S tended to get mashed together and the result was $. The dollar sign and the PS abbreviation were used interchangeably from around 1775 until the end of the century, after which the latter faded from view. Professor Cajori backs up his argument with examples from manuscripts of the period. It is thought by some that the changes from double stroke to single stroke dollar signs parallel changes from asset-backed currency to credit backed currency. It appears that nobody really knows or has any documentary evidence as to the meaning of the single and/or double line $ sign until one studies a one-dollar stamp. Close examination of such will immediately reveal that somebody certainly knows the difference between the symbol. A bill or judgment for a $ does not support an action. If someone knows what a $ is then the court must surely know because the judgment herein contains the single line $ sign and without clarification it is impossible for Clyde Scott to know what it means in this action. Therefore, clarification is mandatory so that I can comply with your PAYMENT request. I cannot tender a $ until I know what a $ is.


NOW FOR MY LEGAL POSITION


I am a student of monetary law and have studied this issue extensively for the last several years, and thus I sincerely believe that my views on this subject have weight, merit and authority. I have also requested my local public servants to provide to me a similar determination, but I have been unsuccessful in this respect. The conclusion I have reached in reference to this failure of public officials to answer these basis questions posed by citizens is that these officials have no knowledge of monetary law. Since I suspect that you likewise may have some misconception in your own mind concerning this topic, I would like to offer you my views and opinion, in a Christian spirit.



The common monetary unit in circulation in our country prior to and during the Revolutionary War was the Spanish Milled Dollar. This coin was so prevalent that the word “dollar” was commonly understood by all people to be a reference to this coin. When the Constitution was drafted in 1787 and later ratified by the states in 1788, the constitutional references to “dollars” in this instrument meant these coins.



During the period of time that the Articles of Confederation were in force, the Confederate Congress made a factual determination that the “dollar” was the basic monetary unit of our country. By 1792, the Congress under the Constitution made a factual determination that the “dollar” was a weight of silver consisting of 371.25 grains of pure silver: see 1 stat. 246. This was the first act of Congress in reference to the subject of money; and there have been additional congressional acts adopted since the Coinage Act of 1792, but these acts have culminated in such a fashion as to only cause confusion in the field of monetary law.



A recitation of all the coinage acts of Congress is pointless here, although I would be happy to provide these cites to you. Acts in this regard were adopted, among other times, in 1834, 1837, 1878, 1900, 1933, 1934, and 1967. But, in reference to decisive acts of Congress in reference to the term “dollar” it is acts passed in 1972 and 1976 by Congress which clearly lead to the confusion so prevalent today in regards to the subject of monetary law.



Louisiana follows the common law and, of course, the common law is most important in reference to the subject of monetary law. At common law, the monetary standard of a nation was immutable, meaning that it could not be changed by any legislative body. This principle is expounded by many common law authorities and is an established principle of law. This being the case, Congress lacks all power to change the ancient monetary standard of our nation, which is the “dollar” of silver defined in the Coinage Act of 1792.



I am fully cognizant of the fact that there exist many powerful and influential advocate that maintain that the monetary standard is mutable meaning that it can be changed by Congress. These partisans further maintain that all power over the monetary standard is vested in the hands of Congress. If you accept this premise, then it logically follows that a “dollar” is today a legal fiction. The last definition of a “dollar” via a federal statute was contained in the Par Value Modification Act of March 31, 1972, 86 Stat. 116 formally 31 U.S.C. section 449. Section 2 of this act defined a “dollar” as being equal to 1/38 of a fine troy ounce of gold; in the alternative, 38 “dollars” equaled an ounce of such fine gold. This definition of a gold “dollar” was in effect until October 19, 1976, when congress adopted the Act to Amend the Bretton Woods Agreement, 90 Stat. 2660. Section 6 of this act repealed section 2 of the Par Value Modification Act. Since that time, congress has totally failed, and refused to enact any legislation defining a “dollar”. If you accept the argument that congress possesses total control over the monetary standard, then you must also accept the proposition that a “dollar” is today a legal fiction. It is indeed odd that our entire economy and society operate upon an entity which is unknown and legally undefined.


Another point I would like to make with you concerns the Federal Reserve Note. Many people contend that Federal Reserve Notes are legal tender pursuant to 31 U.S.C. section 3103. But, notwithstanding this statute, one must look to the substance instead of the form to determine if such notes are really, legally, legal tender. The essential attribute of any legal tender currency is that it must be in fact an obligation of the United States. To be an obligation of the United States, Congress must have adopted an act authorizing the issuance of some quantity of these notes, and the same must be enforceable against the United States. However, I have not found any statute whereby congress has authorized any amount of these notes to be issued and since this is the case, such notes are not United States obligations and are not legal tender. Further, these notes are not enforceable against the United States. The ultimate hypocrisy is that these notes are not even enforceable against the banks, which issued them. I have studied the matter for 20 years and written an extensive brief on the point that Federal Reserve Notes are not a legal tender, which I will save to counter any erroneous position taken in any official determination.



I hope that the points I am making in this letter are perceptible to you. There is a real and substantial issue concerning what is legally a “dollar” with on one extreme it being contended that a “dollar” is a weight of silver and on the other extreme it being contended that a “dollar” is a legal fiction. Further, some people contend that Federal Reserve Notes are legal tender and others answer that they are not, and these people who contend otherwise, including myself, have the weight of law to support their argument. With such obvious confusion, it is only natural that I cannot pay a “dollar” of liability in any judgment or settlement.



It is a well-known fact that a court that does not have a remedy has no subject matter jurisdiction to create one unless such is contracted. In this instant there is no remedy because payment of a judgment in money of account expressed in “dollars” and pursuant to HJR-192 there are no lawful dollars in circulation. Since HJR 192 we can only discharge a liability with the approval of John W. Snow Secretary of the Treasury. If John W. Snow does not give his approval any judgment, settlement, or debt can only become an unenforceable and expensive nullity.


As a matter of law the money accounts of this state must be expressed in dollars or units, cents or hundredths, and mills or thousandths; and all accounts in banks and public offices, and all proceedings in the courts of this state, shall be kept in conformity herewith.

Since this state must express its judgment in “dollars” an official determination is mandatory to eliminate confusion and performance, so I can legally and lawfully pay, settle, or discharge the claim with “dollars” or by the Bill of Exchange remedy found in House Joint Resolution 192.


The matter is further complicated by the fact that the State is prohibited from making paper a tender in payment of debt. See Article 1, Section 10 of the Constitution of the United States. Which states:
“No State shall make anything but gold and silver coin a tender in payment of debt.”

A check with the Louisiana Secretary of State clearly shows that in his opinion Article 1, Section 10 is binding upon the State of Louisiana. So, as you can see, in view of these authorities, statutes, resolutions, and articles, I have no remedy or way to comply with the payment of “dollars” or the $ you requested and therefore must conditionally accept for value and return for value your presentment pending an official determination of a “dollar” expressed in your claim or tender a $1 Money Order each month until Congress puts money back into circulation. I have no duty to pay you or MBNA anything, unless you submit proof of claim that there is a way to pay the “dollars” you are demanding. Additionally, Every competent jurist knows that the created cannot possess a power that the creator did not have to give. The State of Louisiana does not have the power to make paper a tender in payment of debt and neither does any corporation created by the state or federal government. Such would be an act of ultra vires.



Years of research clearly show that the United States is without a dollar of “public or lawful money”. All we have today is the private Federal Reserve unbacked credit dollars which are not money or property and only confers the user an equitable interest but denies allodial title. It is no accident that the United States is without a dollar unit coin. In recent years the Eisenhower dollar coin received widespread acceptance, but the Treasury minted them in limited number, which encouraged hoarding. This same fate befell the Kennedy half dollars, which circulated as silver sandwiched clads between 1965-1969 and were hoarded for their intrinsic value and not spent. Next came the Susan B. Anthony dollar, an awkward coin which was instantly rejected as planned. The remaining unit is the privately issued Federal Reserve note unit dollar (which is not money see 105 So. 305 ‘1925’) with no viable competitors. Back in 1935 the Fed had persuaded the Treasury to discontinue minting silver dollars because the public preferred them over dollar bills. That the public money system has become awkward, discouraging its use, is no accident. It was planned that way. There is no way to plug a judicial judgment into a private money system pursuant to Article one, Section ten. I clearly would love to litigate any premise counter to these assertions.

Fractional Banking: Ignorance Of Legal Arguments

From: Jesus Huerta de Soto,Money, Bank Credit, and Economic Cycles - Auburn: Mises Institute, 2006

Theorists of fractional-reserve banking tend to exclude legal considerations from their analysis. They fail to see that the study of banking issues must be chiefly multidisciplinary, and they overlook the close theoretical and practical connection between the legal and economic aspects of all social processes.
Thus free-banking theorists lose sight of the fact that fractional-reserve banking involves a logical impossibility from a legal standpoint. Indeed at the beginning of this book we explained that any bank loan granted against demand-deposit funds results in the dual availability of the same quantity of money: the same money is accessible to the original depositor and to the borrower who receives the loan. Obviously the same thing cannot be available to two people simultaneously, and to grant the availability of something to a second person while it remains available to the first is to act fraudulently.156
Such an act clearly constitutes misappropriation and fraud, offenses committed during at least the early stages in the development of the modern banking system, as we saw in chapter 2.
Once bankers obtained from governments the privilege of operating with a fractional reserve, from the standpoint of positive law this banking method ceased to be a crime, and when citizens act in a system backed in this way by law, we must rule out the possibility of criminal fraud. Nevertheless, as we saw in chapters 1 through 3, this privilege in no way provides the monetary bank-deposit contract with an appropriate legal nature. Quite the opposite is true. In most cases this contract is null and void, due to a discrepancy concerning its cause: depositors view the transaction as a deposit, while bankers view it as a loan. According to general legal principles, whenever the parties involved in an exchange hold conflicting beliefs as to the nature of the contract entered into, the contract is null and void.
Moreover even if depositors and bankers agreed that their transaction amounts to a loan, the legal nature of the monetary bank-deposit contract would be no more appropriate.
From an economic perspective, we have seen that it is theoretically impossible for banks to return, under all circumstances, the deposits entrusted to them beyond the amount of reserves they hold. Furthermore this impossibility is aggravated to the extent that fractional-reserve banking itself tends to provoke economic crises and recessions which repetitively endanger banks’ solvency. According to general legal principles, contracts which are impossible to put into practice are also null and void. Only a 100-percent reserve requirement, which would guarantee the return of all deposits at any moment, or the support of a central bank, which would supply all necessary liquidity in times of difficulty, could make such “loan” contracts (with an agreement for the return of the face value at any time) possible and therefore valid.
The argument that monetary bank-deposit contracts are impossible to honor only periodically and under extreme circumstances cannot redeem the legal nature of the contract either, since fractional-reserve banking constitutes a breach of public order and harms third parties. In fact, because fractional-reserve banking expands loans without the support of real saving, it distorts the productive structure and therefore leads loan recipients, entrepreneurs deceived by the increased flexibility of credit terms, to make ultimately unprofitable investments. With the eruption of the inevitable economic crisis, businessmen are forced to halt and liquidate these investment projects. As a result, a high economic, social, and personal cost must be borne by not only the entrepreneurs “guilty” of the errors, but also all other economic agents involved in the production process (workers, suppliers, etc.).
Hence we may not argue, as White, Selgin, and others do, that in a free society bankers and their customers should be free to make whatever contractual agreements they deem most appropriate.157 For even an agreement found satisfactory by both parties is invalid if it represents a misuse of law or harms third parties and therefore disrupts the public order.
This applies to monetary bank deposits which are held with a fractional reserve and in which, contrary to the norm, both parties are fully aware of the true legal nature and implications of the agreement.
Hans-Hermann Hoppe158 explains that this type of contract is detrimental to third parties in at least three different ways. First, credit expansion increases the money supply and thereby diminishes the purchasing power of the monetary units held by all others with cash balances, individuals whose monetary units thus drop in buying power in relation to the value they would have had in the absence of credit expansion.
Second, depositors in general are harmed, since the credit expansion process reduces the probability that, in the absence of a central bank, they will be able to recover all of the monetary units originally deposited; if a central bank exists, depositors are wronged in that, even if they are guaranteed the repayment of their deposits at any time, no one can guarantee they will be repaid in monetary units of undiminished purchasing power. Third, all other borrowers and economic agents are harmed, since the creation of fiduciary credit and its injection into the economic system jeopardizes the entire credit system and distorts the productive structure, thus increasing the risk that entrepreneurs will launch projects which will fail in the process of their completion and cause untold human suffering when credit expansion ushers in the stage of economic recession.159
In a free-banking system, when the purchasing power of money declines in relation to the value money would have were credit not expanded in a fractional-reserve environment, participants (depositors and, especially, bankers) act to the detriment of third parties. The very definition of money reveals that any manipulation of it, society’s universal medium of exchange, will exert harmful effects on almost all third-party participants throughout the economic system.
Therefore it does not matter whether or not depositors, bankers, and borrowers voluntarily reach specific agreements if, through fractional-reserve banking, such agreements influence money and harm the public in general (third parties).
Such damage renders the contract null and void, due to its disruption of the public order.160 Economically speaking, the qualitative effects of credit expansion are identical to those of the criminal act of counterfeiting banknotes and coins, an offense covered, for instance, by articles 386–389 of the new Spanish Penal Code.161 Both acts entail the creation of money, the redistribution of income in favor of a few citizens and to the detriment of all others, and the distortion of the productive structure. Nonetheless, from a quantitative standpoint, only credit expansion can increase the money supply at a fast enough pace and on a large enough scale to feed an artificial boom and provoke a recession. In comparison with the credit expansion of fractional-reserve banking and the manipulation of money by governments and central banks, the criminal act of counterfeiting currency is child’s play with practically imperceptible social consequences.
The above legal considerations have not failed to influence White, Selgin, and other modern free-banking theorists, who have proposed, as a last line of defense to guarantee the stability of their system, that “free” banks establish a “safeguard” clause on their notes and deposits, a clause to inform customers that the bank may decide at any moment to suspend or postpone the return of deposits or the payment of notes in specie.162 Clearly the introduction of this clause would mean eliminating from the corresponding instruments an important characteristic of money: perfect, i.e., immediate, complete, and never conditional, liquidity. Thus not only would depositors become forced lenders at the will of the banker, but a deposit would become a type of aleatory contract or lottery, in which the possibility of withdrawing the cash deposited would depend on the particular circumstances of each moment.
There can be no objection to the voluntary decision of certain parties to enter into such an atypical aleatory contract as that mentioned above. However, even if a “safeguard” clause were introduced and participants (bankers and their customers)
were fully aware of it, to the extent that these individuals and all other economic agents subjectively considered demand deposits and notes to be perfect money substitutes, the clause referred to would only be capable of preventing the immediate suspension of payments or failure of banks in the event of a bank run. It would not prevent all of the recurrent processes of expansion, crisis and recession which are typical of fractional-reserve banking, seriously harm third parties and disrupt the public order. (It does not matter which “option clauses” are included in contracts, if the general public considers the above instruments to be perfect money substitutes.)
Hence, at most, option clauses can protect banks, but not society nor the economic system, from successive stages of credit expansion, boom and recession. Therefore White and Selgin’s last line of defense in no way abolishes the fact that fractional-reserve banking inflicts severe, systematic damage on third parties and disrupts the public order.163

Notes:

156 Hoppe, “How is Fiat Money Possible?—or, The Devolution of Money and Credit,” p. 67.

157 See, for example, White, Competition and Currency (New York: New York University Press, 1989), pp. 55–56, and Selgin, “Short-Changed in Chile,” p. 5.

158 Hoppe, “How is Fiat Money Possible?—or, The Devolution of Money and Credit,” pp. 70–71.

159 The multidisciplinary nature inherent in the critical analysis of the fractional-reserve banking system and the resulting importance of both legal and economic considerations in this analysis not only comprise the focal point of this book; Walter Block also highlights them in his article, “Fractional Reserve Banking: An Interdisciplinary Perspective,” published as chapter 3 of Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard, Walter Block and Llewellyn H. Rockwell, Jr., eds. (Auburn, Ala.: Ludwig von Mises Institute, 1988), pp. 24–32. Block points out the curious fact that no theorist from the modern, Fractional-Reserve Free-Banking School has built a critical, systematic case against the proposal of a banking system with a 100-percent reserve requirement.
In fact, except for a few comments from Horwitz, neo-banking theorists have yet to even attempt to show that a banking system with a 100-percent reserve requirement would fail to guarantee “monetary equilibrium” and an absence of economic cycles. See Horwitz, “Keynes’ Special Theory,” pp. 431–32, footnote 18.

160 Our position on this point is even more radical than the one Alberto Benegas Lynch takes in his book, Poder y razón razonable (Buenos Aires and Barcelona: Librería “El Ateneo” Editorial, 1992), pp. 313–14.

161 The following shall be punishable by a prison term of eight to twelve years and a fine of up to ten times the face value of the currency: 1. The creation of counterfeit currency. (Article 386 of the new Spanish Penal Code)
It is important to note that credit expansion, like the counterfeiting of money, inflicts particularly diffuse damage on society, and therefore it would be exceedingly difficult, if not impossible, to fight this crime based on each injured party’s demonstration of harm suffered. The crime of producing counterfeit currency is defined in terms of a perpetrator’s act and not in terms of the specific personal damage caused by the act.

162 Such “option clauses” were in force in Scottish banks from 1730 to 1765 and reserved the right to temporarily suspend payment in specie of the notes banks had issued. Thus, in reference to bank runs, Selgin states:
Banks in a free banking system might however avoid such a fate by issuing liabilities contractually subject to a ‘restriction’ of base money payments. By restricting payments banks can insulate the money stock and other nominal magnitudes from panic-related effects. (Selgin, “Free Banking and Monetary Control,” p. 1455)
The fact that Selgin considers resorting to such clauses to avoid bank runs is as significant in terms of the “solvency” of his own theory as it is surprising from a legal perspective that the attempt is made to base a system on the expropriation, albeit partial and temporary, of the property rights of depositors and note holders, who, in a crisis, would be transformed into forced lenders and would no longer be considered true depositors and holders of monetary units, or more specifically, perfect money substitutes. Let us remember a comment from Adam Smith himself:
The directors of some of those [Scottish] banks sometimes took advantage of this optional clause, and sometimes threatened those who demanded gold and silver in exchange for a considerable number of their notes, that they would take advantage of it, unless such demanders would content themselves with a part of what they demanded. (Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book II, chap. 2, pp. 394–95)
On option clauses, see Parth J. Shah, “The Option Clause in Free Banking Theory and History: A Reappraisal,” a manuscript presented at the 2nd Austrian Scholars Conference (Auburn, Ala.: Ludwig von Mises Institute, April 4–5, 1997), later printed in the Review of Austrian Economics 10, no. 2 (1997): 1–25.

163 It is interesting to note that many free-banking theorists fail to see that fractional-reserve banking is illegitimate from the standpoint of general legal principles, and instead of proposing the eradication of fractional-reserve banking, they suggest the banking system be completely privatized and the central bank be eliminated. This measure would certainly tend to check the practically unlimited abuses authorities have committed in the financial field, but it would not prevent the possibility of abuses (on a smaller scale) in the private sphere. This situation resembles that which would arise if governments were allowed to systematically engage in murder, robbery, or any other crime. The harm to society would be tremendous, given the enormous power and the monopolistic nature of the state. The privatization of these criminal acts (an end to governments’ systematic perpetration of them) would undoubtedly tend to “improve” the situation considerably, since the great criminal power of the state would disappear and private economic agents would be permitted to spontaneously develop methods to prevent and defend themselves against such crimes. Nevertheless the privatization of criminal activity is no definitive solution to the problems crime poses. We can only completely solve these problems by fighting crime by all possible means, even when private agents are the perpetrators. Thus we conclude with Murray N. Rothbard that in an ideal free-market economic system:
[F]ractional-reserve bankers must be treated not as mere entrepreneurs who made unfortunate business decisions but as counterfeiters and embezzlers who should be cracked down on by the full majesty of the law. Forced repayment to all the victims plus substantial jail terms should serve as a deterrent as well as to meet punishment for this criminal activity.
(Murray N. Rothbard, “The Present State of Austrian Economics,” Journal des Economistes et des Etudes Humaines 6, no. 1 [March 1995]: 80–81; reprinted in Rothbard, The Logic of Action I [Cheltenham, U.K.: Edward Elgar, 1997], p. 165)

The Nature of Money: the Federal Reserve Note’s Duality.

Last Saturday, I explored the “Hidden Forces” of “money”. This week, I’ll consider some of the questions surrounding the Federal Reserve Notes you carry in your wallet and call “money”.

I have photocopies of three letters allegedly from the Department of The Treasury discussing the nature of Federal Reserve Notes (FRN's). The dates on the first two letters are A.D. 1977 and A.D. 1982; the third letter's date is unclear.
I can't prove the photocopies are legiti¬mate, but I believe they are. Assuming these letters are legitimate, they offer an interesting (and bewildering) glimpse into the nature of our purported “money”. If you (or I) could fully understand these three letters, we’d be among the handful of people in the whole country who truly understand the “nature of money”. As a result, we’d probably be rich and powerful. We’d certainly be dangerous.
• The first letter is marked "Exhibit 0-8" and was apparently used in someone's trial, but the name of the recipient has been erased and is unknown to me. It's simply one of those document's that drift like autumn leaves across the internet. (The italicized highlights in all three letters are my additions.)

Department of the Treasury
Office of The General Counsel
Washington, D.C. 20220
Feb 18, 1977


Dear Mr. XXXXXX
This is to respond to your letter of November 23, 1976 in which you request a definition of the dollar as distinguished from a Federal Reserve note.
Federal Reserve notes are not dollars. Those notes are denomi¬nated in dollars, which are the unit of account of the United States money. The Coinage Act of 1792 established the dollar as the basic unit of the United States currency, by providing that "The money of account of the United States shall be expressed in dollars or units, dimes or tenths, cents or hundredths . . . ." 31 U.S.C. § 371.
The fact that Federal Reserve notes may not be converted into gold or silver does not render them worthless. Mr. Bernard of the Federal Reserve Board is quite correct in stating that the value of the dollar is its purchasing power. Professor Samuelson, in his text Eco¬nomics, notes that the dollar, as our medium of exchange, is wanted not for its own sake, but for the things it will buy.
I trust this information responds to your inquiry.
Sincerely yours,
Russell L. Munk
Assistant General Counsel
Note that FRNs are 1) not dollars; but 2) are “units of account”.
What’s a “unit of account”? It is not a “unit of value”. It is merely a number. That’s all. As you’ll read, if your FRNs are mere “numbers,” what are you paying taxes on?

• The second letter was written in 1982 from the Department of The Treasury to Bryon Dale—a very astute student of the American money system.
As Mr. Dale knew (and the letter confirms), in A.D. 1982, the federal government printed our paper money (FRNs) for $20.60 per thousand physical notes, then sold the Notes at cost to the Federal Reserve, which ultimately loaned the notes to the public at full face value—plus interest (the interest alone is typically more than the cost for printing the Note).
Under this arrangement, the Federal Reserve could buy a $100 FRN from our government for about a nickel, and ultimately loan it back to the American people at full face value ($100). Plus interest.
Quite a deal, hmm? How'd you like to have a monopoly that allowed you to buy mere pieces of paper for a nickel each and then lend 'em out for $100 each—plus interest?!
Given that the feds were selling $100 notes to the Federal Reserve for a nickel each, Byron Dale sent a $1 FRN to the Bureau of Engraving and Printing and offered to buy a freshly-printed $100 bill directly from the gov¬ernment for $1 FRN. That offer sounds silly, but technically, it was a much better deal than gov-co had from the Federal Reserve that (then) would only pay two cents for a $100 bill. I.e., Byron's $1 offer was roughly 50 times better than the Fed’s.
Here's government's response to Mr. Dale's "generous" offer:

Department Of The Treasury
Bureau Of Engraving And Printing
Washington, D.C. 20228
December 14, 1982


Mr. Byron C. Dale

Dear Mr. Dale:
This is in response to your letter of November 15, 1982 in which you enclosed a $1 Federal Reserve note and request to purchase a one hundred dollar bill.
The Bureau of Engraving and Printing produces the Nation's pa¬per currency and sells it to the Federal Reserve system for $20.60 per one thousand notes. The notes, however, are not money until they are monetarized and issued by a Federal Reserve Bank. To obtain notes, a Federal Reserve Bank must pledge collateral equal to the face value of the note. Collateral must consist of the following assets, alone or in any combination: 1) gold certificates, 2) special Drawing Right certificates, 3) U.S. Government securities, and 4) "eli¬gible paper," as described by Statute.
Federal Reserve Notes are obligations of the United States, and have a first lien on the assets of the issuing Federal Reserve bank. Money without backing is worthless, and in effect, you are suggest¬ing that currency be printed without the necessary collateral which is required of the Federal Reserve Bank.
I hope this information is helpful. Your $1 FR note is returned.

Sincerely,
M. M. Schneider
Acting Executive Assistant

Sadly, the Bureau of Printing and Engraving didn't take Mr. Dale's generous offer.
Although gov-co admitted that "Money without backing is worthless", it also as¬sured Mr. Dale that any mix of “assets” described as "gold certificates, special drawing Right certificates, U.S. Government securities, and 'eligible paper' as de¬scribed by statute" would provide the necessary backing to make FRNs worth something (as opposed to "worth¬less"). Note that all of these alleged “assets” that give the FRN worth are nothing but paper-debt instruments (IOUs). FRNs are not backed by real assets (like gold or silver); they’re backed by debt.

• Here's the third letter (date uncertain) from Treasury which discusses FRNs:

Department Of The Treasury
Washington, D.C. 20220
Gaylon L. Harrell
Latham, Illinois


Dear Mr. Harrell:
This is in response to your letter to me of August 10 in which you asked a further question about Federal Reserve notes.
Federal Reserve notes are legal tender currency (31 U.S.C. 5103). They are issued by the twelve Federal Reserve Banks pursuant to Sec¬tion 16 of the Federal Reserve Act of 1913 (12 U.S.C. 411). A commer¬cial bank which belongs to the Federal Reserve System can obtain Federal Reserve notes from the Federal Reserve Bank in its district whenever it wishes, but it must pay for them in full, dollar for dollar, by drawing down its account with its district Federal Reserve Bank.
The Federal Reserve Bank in turn obtains the notes from the Bureau of Engraving and Printing in the United States Treasury De¬partment. It pays to the Bureau the cost of producing the notes. The Federal Reserve notes then become liabilities of the twelve Federal Reserve Banks. Because the notes are Federal Reserve liabilities, the issuing Bank records both a liability and an asset when it re-ceives the notes from the Bureau of Engraving and Printing, and there¬fore does not show any earnings as a result of the transaction.
In addition to being liabilities of the Federal Reserve Banks, Fed¬eral Reserve notes are obligations of the United States Government (12 U.S.C. 411). Congress has specified that a Federal Reserve Bank must hold collateral (chiefly gold certificates and United States secu¬rities) equal in value to the Federal Reserve notes which that Bank receives (12 U.S.C. 412). The purpose of this section, initially en-acted in 1913, was to provide backing for the note issue. The idea was that if the Federal Reserve System were ever dissolved, the United States would take over the notes (liabilities) thus meeting the re¬quirements of [12 U.S.C.] 411, but would also take over the assets, which would be of equal value. The notes are a first lien on all the assets of the Federal Reserve Banks, as well as on the collateral specifically held against them (12 U.S.C. 412).
Federal Reserve notes are not redeemable in gold or silver or in any other commodity. They have not been redeemable since 1933. Thus, after 1933, a Federal Reserve note did not represent a promise to pay gold or anything else, even though the term "note" was re¬tained as part of the name of the currency. In the sense that they are not redeemable, Federal Reserve notes have not been backed by anything since 1933. They are valued not for themselves, but for what they will buy. In another sense, because they are a legal tender, Federal Reserve notes are "backed" by all goods and services in the economy.
I hope that this information is useful to you.
Sincerely,
Russell L. Munk
Assistant General Counsel

First, note that “Federal Reserve Notes” are not “dollars,” nor are they “notes”. The term “Federal Reserve Note” is merely a name for those green pieces of paper (whatever they are). Recall also that the second letter described FRNs as worthless. Then, note that the third letter declares paper “gold certificates” and “United States treasuries” to be of “equal value” to FRNs. This implies that, if the FRN is worthless, then, according to the Department of Treasury, paper “gold certificates” and paper U.S. treasuries are also intrinsically worthless.
But are FRN's really worthless?
The author of the third letter won’t quite say. He hedged his comments by saying "In the sense that they are not re¬deemable,” FRNs are worthless—but "In another sense, because they are a legal ten¬der, Federal Reserve notes are 'backed' by all goods and services in the economy." (But not the “Full faith and credit of the American People?)
Hmm. Sounds mysterious. "In the sense that" vs. "In another sense" . . . golly, which "sense" do you suppose is correct? Are FRNs worthless or are they not? And why do you suppose assistant General Counsel Munk wouldn't provide a straight answer but instead preferred the ambiguity of "in another sense"?
The answer to which "sense" applies is suggested in the first letter which declared the value of a FRN is in its "purchasing power," in "the things it will buy". Virtually every analyst agrees that due to inflation, the purchasing power of the A.D. 1933 $1 FRN has been reduced to less than a nickel. Therefore, while we can't truly say the FRN is "worthless" (it's still worth a couple of cents as compared to A.D. 1933), it's fair to say the FRN is almost worth¬less—and, given its persistent seven-decade-long decline—is "in that sense" likely to soon become "completely" worthless (i.e., "obviously worthless” even to the public). Thus, the time may be approaching when there'll be no more “greater fools” to take FRNs in trade for real property or services.

• Does this mean we should abandon our FRNs and start hoarding gold coins in a tin can buried in the back yard?
Seems so.
After all, even government subtly discourages use of FRN's by encouraging suspicions about anyone who pays his bills with cash. Aren't we a little embarrassed if we don't have credit cards? Think you can pay cash for a new home or car without arousing suspicions of the real estate agent or car dealer? For the past decade, laws have mandated that not only banks, but even merchants notify the feds if someone pays more than $10,000 in cash for any products or services. How valuable can paper FRNs be if even government discourages their use?
• According to the third letter: "Because the notes are Federal Reserve liabilities, the issuing Bank records both a liability and an asset when it receives the notes from the Bureau of Engraving and Printing, and therefore does not show any earnings as a result of the transaction."
(If a bank doesn’t show any “earnings,” what is its tax liability?)
Insofar as FRNs can be "recorded as both liabilities and assets,” their dual nature reminds me of esoteric theories of physics wherein matter can simultaneously be both waves and particles. These dualities seem irrational and bizarre.
It's easy to see that if you earn $100,000 in real, asset-based money (like gold or silver), your personal assets have increased, you’ve experienced real “income” and you may therefore be subject to income tax. It's also possible to imagine that if your "income" is denominated in a debt-based currency, you've actually suffered a loss and might be exempt from income taxes. But what about an income denominated in a currency that is both as¬set and liability? With double-entry book keeping, do payments in FRNs result in a “zero sum”? What is the tax liability on a zero sum?
• If, as the third letter claims, FRNs are both "liabilities" and "assets," what are they? Accounting units. Numbers. That’s all.
If the liabilities and assets inherent in each FRN are equal, then the value of any FRN is zero. I.e., if I have a $100 FRN that represents $100 in assets and $100 in liabilities—what is my FRN worth? Subtract the liabilities from the assets. If they're equal ($100 asset minus $100 liability), the answer's zee-ro.
So what is a FRN?
It's a unit of measure, no different from inches, feet, pounds, tons, and centigrams. It's a unit of account rather than a unit of value. It’s a mere number.
What is the proper tax liability on a number?
• Is the tax on “100,000” more than the tax on “1,000”?
It depends.
100,000 what? 1,000 what? The tax on 100,000 dollars is clearly more than the tax on 1,000 pennies. A tax on 1,000 pennies is greater than the tax on 10,000 grains of sand. The object of taxation should not be the unit of account (mere measurement; the intangible “number”), but rather the unit of value earned or received as a tangible asset.
Therefore, is the tax on $100 in gold-backed money the same as the tax on $100 FRN? Can I be lawfully taxed on the basis of an income denominated in units of account that the issuing Federal Re¬serve Bank leads me to believe are worth zero? If the Federal Re-serve Bank can count a FRN as both an asset and liability—a plus and a minus—can I do the same with my income and also have no earnings to be taxed?
Confusing? You bet.
My questions may sound ridiculous (and even dangerous unless you don’t mind going to jail). But—surprisingly—those questions are reasonable insofar as they are implicitly supported by law: 31 U.S.C. § 742 and 18 U.S.C. § 8.

RIP-OFF BY THE FEDERAL RESERVE

PREFACE: This mathematical analysis shows how:

1. The creation of credit/money via T-securities in the amount of the principal of the security, with a promise to repay the principal PLUS the interest, is impossible. The interest is never created; the debt is perpetual and must continually be increased or it will collapse. Any contract that cannot be culminated is an act of fraud and is void from its inception.

2. Because of the exponential growth of the interest in the Ponzi scheme, the interest will increase until it consumes the entire wealth of society. All other fiscal obligations of the nation must be curtailed to roll over the debt while the growth in interest will escalate.

3. ALL money created by Treasury securities goes into the pocket of the Fed. Not only does the Fed receive the interest (if not sold), but also the value of the security upon maturity (or by sale). Congress has temporary benefit of the fiat money (until maturity).

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

*********************************

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

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

Congress will give the Fed a T-security (bill, bond, or note) and the Fed will accept the document as an asset of one of the twelve FR Banks. The Fed will then establish a line of credit for the U.S. government in the same amount and list the liability as Federal Reserve Notes. Voila !! Fiat money has just been created for Congress to spend. Ref: 2009 Annual Report to Congress by the Board of Governors, page 448. www.federalreserve.gov/boarddocs/rptcong...nnual09/pdf/ar09.pdf The accumulated securities that are not redeemed add up to the national debt.

The public debt is now over $13 trillion, or over $40,000 for every man, woman, and child in the U.S. The value is $200,000 per person if the unfounded debt is included. Through no action of his own, or even an opportunity to reject the imposition, every resident of the United States has become obligated for a debt---for life---that cannot be relieved. It is manifestly clear that an obligation of $40,000 can only be visualized as an unrestricted claim on the future earnings of the citizenry. The citizen has been reduced to an indentured servant, or slave, compelled to work for the company store and still face an ever increasing amount of debt. There is no possible relief. If the earnings of a citizen are properly subject to confiscation by taxation, the government can take the entirety and return what pittance Congress in their largess may bestow. A nation of sovereign people has been reduced to haves and have-nots; the middle class has been eliminated.

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

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

The Fed recently obtained $700 billion bailout funds. It begged Congress, on actual bended knee, for money and Congress gave them $700 billion in securities and the Fed swapped the securities to GSE (Freddie and Fannie)/international bankers for toxic MBS‘s. The Annual Report lists Assets of $776 billion securities and $908 billion Government Sponsored Enterprise Mortgage Backed securities out of $2.2 trillion total assets. Whether the bailout money was a quid pro quo with the PD to avoid lawsuits for fraud is beyond the scope of this writing. The Mafia does not lightly tolerate transgression. The continued mutual benefit of programs, paid for by taxpayers, should evidence Wall Street and the Fed/international bankers constitutes a Siamese twin.

The touted concept that the Treasury’s auction is used to obtain money for Congress to spend is a cleverly designed disinformation. Such a methodology cannot conceivably create fiat money to fund Congress. Even when people know the government funds itself by printing money, they accept the illusion the government funds itself by “Borrowing from the Public.” Ref. www.fms.treas.gov/mts/mts0610.pdf , Table 2.

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

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

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

The debt created by usury based sovereign debt is perpetual; it can never be paid off. The contract cannot be culminated. Any contract that cannot be culminated is an act of fraud. A contract based upon fraud is invalid from its inception. It would appear the national debt is not legally enforceable. (A debt incurred by a state or municipality is not a sovereign debt as used in this analysis. Such a debt is akin to a commercial loan and is completely repayable.) One source claims the common law, and the UCC, declare that money loaned that is known not to be able to be paid back is an unenforceable loan.

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

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

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

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

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

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

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

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

Do not let the subtly of the fund transfers escape you. As the example demonstrates, the Fed receives the total value of the security and the interest if it does not sell the security. If the security is sold (at auction) as is it is in virtually all cases, the Fed receives the value of the security from the Primary Dealer and the ultimate purchaser is then reimbursed by the Treasury at maturity. Either way, the Fed eventually receives the value of the security. The value of all redeemed T-securities is a clear profit for the Fed, along with the value of all securities sold to/held by Primary Dealers, funds, nations, states, or financial institutes.


The total value of auctions in 2010 was $8.4 trillion. www.treasurydirect.gov/instit/annceresul...reanre/2010/2010.htm Approximately $6 trillion matured in less than one year.

The handling of auction funds is the responsibility of the Fed. Ref. GAO FINANCIAL REPORT TO SECRETARY OF TREASURY, Nov 2010, page 17. www.treasurydirect.gov/govt/reports/pd/f...feddebt_ann2010.pdf. This writer conclude the purchases are credited to an account of the Fed and not to an account of the Treasury.

The $8 trillion in income does not reveal itself in the ANNUAL REPORT TO CONGRESS; Ref. Tables 10 and 11, pages 454 to 462 REPORT for 2009. (Auctions are not Open Market transactions). This appears to be $8 trillion in profit that is concealed from Congress and the public.

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

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

The Fed’s receiving the value from auctions is disputed by public statements. Ref. www.forexpros.com/news/general-news/anal...rect-bidders-118760. Treasury financial statements also claim “borrowing from the public” finances government operations. Direct borrowing from the public cannot, in any way, expand the monetary system or result in the creation of fiat money; i.e., inflation. The label is deliberatively misleading.


By either of the two methods, the Fed has received the value of the security. The total value of all issued T-securities becomes a gain for the Fed. Good luck on trying to follow this sequence in the accounting records. Even Enron, World Com, and Bernie were able to cook the books---and they were audited. But the Fed explains: the accounting records do not reflect “securities purchased under agreements to resell.” Ref. Table 9A, note 4, Annual Report.


But even then, the scam is not over. If the perfidy is not discovered and terminated, there remains the necessity of Congress to fund the asserted obligations after the fifth year. If we resume the example during the fifth year, we find the Fed will have a 100 unit security and 100 units of interest due at the end of the fifth year (we will not calculate the accumulating six and seventh year obligations). The only way for Congress to get the funding is to issue a 200 unit security at the end of the fifth year and ALL of the value will be instantly due to the Fed. The scheme is not only perpetual but it must increase in size to continue. And of course, when the 200 unit security matures, the value will belong to the Fed. And then a larger security must be issued to pay for the 200 unit security and the accruing interest further down the road.

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

But 5 year securities are a slow game. If we shifted our attention to 13 week bills, or even four-week bills, we could visualize obligations that would mature, and must be repeatedly rolled over very quickly and accumulating brokers commissions.
People who have a counterfeiting printing press in their basement can live a lot better than their neighbors.

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

A newspaper article a couple of years ago informed us the annual increase in interest to be 15 percent while the budget only grew 7 percent. That reflects the exponential growth of interest. More recently the deficit has been increasing much faster to fund/conceal the rapid growth in interest requirement. Professor Bob Blain, Southern Illinois University, Edwardsville has graphed the exponential growth in debt from 1915 to be irregular only during the 1930’s. It was that period when the Fed repeatedly made reserve calls on the banks to force gold certificates and gold coins out of circulation---which repeatedly deepened the recession. This was followed by the U.S. being manipulated into WW II and flooding the economy with interest bearing fiat Federal Reserve Notes. Ref. America’s Great Depression by Murray N. Rothbard. The interest is paid by Congress to holders of T-securities. The future will see ever-increasing demands for debt---and interest---and war is the cause celebre. Ref. JFK, AND THE UNSPEAKABLE by James Douglas.

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

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

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