DEBT: How The Federal Reserve System Works

DEBT: How The Federal Reserve System Works

By TLB Contributing Writer: Dan Asmussen

In order to explain how the Federal Reserve system works, we must first consider the two ways that fiat currency obtains its value. One way is that the government sets its value and forces you to accept it. The other way is that an artificial “need” is created. Lets use cow-manure ($H*T) as an ‘appropriate’ example and see how it can be transformed into something precious and highly coveted:

  1. You need to fertilize a field and need 50 lbs of manure.

  2. Your cow can only produce 1 lbs a day, so you go to your neighbor and borrow 50 lbs of cow-manure.

  3. Your neighbor gives you the 50 lbs of cow-manure but tells you that you must pay him back with 100 lbs at the end of the month (interest).

  4. Your cow has only produced only 30 lbs of manure by the end of the month. You need an additional 70 lbs to pay back your debt.

  5. You go back to your neighbor and ask to borrow another 70 lbs of manure.

  6. You pay your neighbor back with the 30 lbs of cow-manure you actually have, plus the additional 70 lbs he lent you.

  7. You have paid back the debt of 100 lbs of cow-manure owed… but you had to borrow an additional 70 lbs of cow-manure to do it.

  8. For the 70 lbs of manure you borrowed from your neighbor, you must now pay back 140 lbs next month.

  9. Your cow still only produces 30 lbs per month, so you will have to borrow 110 lbs of manure at the end of next month to pay back your debt.

  10. You will never have enough manure to pay back all your debt. Cow-manure is now the most valuable thing in your life and you can never have enough of it. You will spend the rest of your life working for manure.

I just created a virtual monetary system based on SH*T… but not really. This is an illusion.

In reality, this system is actually based on debt and you can substitute anything in the place of manure including gold or paper. The key to making this system work, is to set a rate of interest that exceeds that which can actually be paid back. Hence you put the debtor on a “rat wheel” where they are running forever and never actually catch up (pay their debt).

Now lets take this example further and say we attach the rat-wheel to a “mill” so that the running actually produces something of value like flour for bread. You now have “productivity”. The goal of this system was never really to collect the debt. The goal of the system is to keep people working to pay off something that can never be paid off. Keeping the rat-wheel turning is “Productivity” and that is the end goal.

* NOTE * Under this paradigm, the ones who control the monetary system get richer and eventually own everything including you (they think of you as their “property”, a slave if you will… but more on that later.

It is of no relevance if you use gold, cow shit, or paper as your currency. The part that makes it work is debt. You always owe more then you have due to compounding interest. With individuals and corporations there is a limit to how much they can borrow because they must put up real assets as collateral. That is not the case with the Federal Government. The Federal Government can borrow and keep borrowing without limit except for a debt ceiling limitation or a balanced budget amendment.

There is no possible way for the Federal Government to ever pay back the debt to the privately owned Federal Reserve Bank, even if they raised taxes and cut all expenses, because the interest on over $20 trillion already owed is such a ridiculously high number. Once Debt is created, at no point in time is there ever enough currency in existence to pay off all principal and accumulated interest on it. Paying off all the debt is a mathematical impossibility because the money does not and can not exist.

The only way to fix this problem is the to change the computation for interest.

Interest is what keeps the debt growing.

Instead of Int = (debt x rate x term) It needs to be changed so that Int = (debt x rate x term) – (deflationary variable).

This would start to decrease the debt at a faster rate, but there is still a problem. As soon as the free market realizes that their is now more available money in circulation, due to decreased debt obligations, business will respond by raising prices to acquire some of that money.

However, the system has a built in fix. If new borrowers do not come in to borrow more money because borrowing money is too expensive (high interest rates), individuals and corporations will find themselves near default. Some will have to go out of business in order for others to survive. This is the painful truth that no one is willing to come to terms with.

In order to fix the system, you have accept deflation, recession, defaults and bankruptcies as part of the system. This is the fail-safe that was designed into the system to prevent inflation, but the banksters do not want any part of it. The (deflationary variable) I suggested above may ease the level of default. This deflation variable would work along with a prolonged recession to bring debt back under control.

No amount of tax increase or cost cutting can fix the problem because that is not how the system was designed to work. The system was designed to trap debtors into a life time of paying off an ever growing debt, (a mathematical impossibility) and the Federal Government has fallen into their own trap.

The Federal Reserve Banking System was designed to work as a Ponzi Scheme. When individuals, corporations and Government borrow money, they create “new” money. The bank rules allow local banks to create new money as long as it is backed by collateral. The new money is created electronically and is accompanied by a greater debt. Debtors depend on other borrowers to come in after them to create more money and do business with them so they can pay their debt off.

The reason the Federal Government is in default and will always be in default is because it has grown out of proportion to the other participants in the system. Cutting costs, raising taxes or raising the debt ceiling is just addressing the symptom temporarily. Smaller government has to be part of any real solution in addition to a change in how interest is compounded.

I personally believe that Government should not have the ability to create money at all. I think money is best created in the private sector. It is a more “capitalist” way to create money.

– You mine gold and mortgage it to the bank, you get new money created for your gold collateral

– You mortgage your house, you get new money created for your house collateral.

It does not matter what the collateral is… only real assets should create money. When you give back the money to the bank, you take back ownership (title) of your collateral and the money created is removed from the system. That is because the money is only a receipt for assets being held by the bank. The interest is not removed from the system because that was not created when the property was mortgaged. This system makes perfect sense.

Government should only be getting operating money through taxes and perhaps by borrowing “existing” money from the public. Government should not be creating new money for its own use… because government should not have anything of collateral to put up. All government assets belong to the citizens, not the government. The problem we have today revolves around a corrupt banking system, and a government that is controlled by the banksters.

Thomas Jefferson actually foresaw this, and gave us all a dire warning of what would happen if an institution like the Federal Reserve were to ever be created:

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” In a letter, May 28, 1816, to political philosopher and senator John Taylor, whose book An Inquiry into the Principles and Policy of the Government of the United States (1814) had argued against the harmful effects of finance capitalism.

Fast forward to June 4, 1963, when a little known attempt was made to strip the Federal Reserve Bank of its power to loan money to the government at interest. On that day President John F. Kennedy signed Executive Order No. 11110 that returned to the U.S. government the power to issue currency, without going through the Federal Reserve.

President Kennedy’s order gave the Treasury the power “to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury.” This meant that for every ounce of silver in the U.S. Treasury’s vault, the government could introduce new money into circulation. In all, Kennedy brought nearly $4.3 billion in U.S. notes into circulation. The ramifications of this bill are enormous even today.

With the stroke of a pen, President Kennedy was on his way to putting the Federal Reserve Bank of New York out of business. If enough of these silver certificates were to come into circulation they would have eliminated the demand for Federal Reserve notes. This is because the silver certificates are backed by silver and Federal Reserve notes are not backed by anything.

Executive Order 11110 could have prevented the national debt from reaching its current level, because it would have given the government the ability to repay its debt without going to the Federal Reserve and being charged interest in order to create new money. After President Kennedy was assassinated just five months later, no more silver certificates were issued, and the rest were all pulled out of circulation and destroyed, except for a few that made their way into the hands of collectors.

Of all the possible “theories” on why Kennedy was killed, this is the one in my opinion that makes the most logical sense, as the assassinations of Abraham Lincoln, James Garfield, and William McKinley have ALL been tied to their attempted prevention(s) of a Central Bank in the United States. The only President to have survived an assassination attempt by the Central Banks was Andrew Jackson. I am still researching for a banking connection regarding the attempt on President Reagan by John Hinkley Jr. but have not found any evidence to support it. The Grace Commission Report came out after the attempt on Reagan’s life, and it certainly would have given them cause. But getting back to Kennedy…

Below is a list of the committee members who served on the Warren Commission:

  • Earl Warren, Chief Justice of the United States (chairman) (1891-1974)

  • Richard Russell, Jr. (D-GA), U.S. Senator, (1897-1971)

  • John Sherman Cooper (R-KY), U.S. Senator (1901-1991)

  • Hale Boggs (D-LA), U.S. Representative, House Majority Leader (1914-1973)

  • Gerald Ford (R-MI), U.S. Representative (later 38th President of the United States), House Minority Leader (1913-2006)

  • Allen Welsh Dulles, former Director of the Central Intelligence Agency (1893-1969)

  • John J. McCloy, former President of the World Bank (1895-1989)

Take a look at the last person on the list and ask yourself why a former World Bank President is serving on a committee conducting a criminal investigation on the assassination of a United States President?

It’s interesting to note that the Executive Order Kennedy signed has never been repealed by any U.S. President and is still valid today. Why then has no president utilized it? Virtually all of the over $17 trillion in debt has been created since 1963, and if a U.S. president had utilized Executive Order 11110 the debt would be nowhere near the current level.

Perhaps the assassination of JFK was a warning to future presidents who would think to eliminate the U.S. debt by eliminating the Federal Reserve’s control over the creation of money. President Kennedy challenged the government of money by challenging the two most successful vehicles that have ever been used to drive up debt – war and the creation of money by a privately-owned central bank. His efforts to have all troops out of Vietnam by 1965 and Executive Order 11110 would have severely cut into the profits and control of the New York banking establishment.

Executive Order 11110 AMENDMENT OF EXECUTIVE ORDER NO. 10289


By virtue of the authority vested in me by section 301 of title 3 of the United States Code, it is ordered as follows:

Section 1. Executive Order No. 10289 of September 19, 1951, as amended, is hereby further amended-

By adding at the end of paragraph 1 thereof the following subparagraph (j):

(j) The authority vested in the President by paragraph (b) of section 43 of the Act of May 12, 1933, as amended (31 U.S.C.821(b)), to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury not then held for redemption of any outstanding silver certificates, to prescribe the denomination of such silver certificates, and to coin standard silver dollars and subsidiary silver currency for their redemption and — By revoking subparagraphs (b) and (c) of paragraph 2 thereof.

Sec. 2. The amendments made by this Order shall not affect any act done, or any right accruing or accrued or any suit or proceeding had or commenced in any civil or criminal cause prior to the date of this Order but all such liabilities shall continue and may be enforced as if said amendments had not been made.

John F. Kennedy The White House, June 4, 1963.

Black’s Law Dictionary defines the “Federal Reserve System” as, “Network of twelve central banks to which most national banks belong and to which state chartered banks may belong. Membership rules require investment of stock and minimum reserves.”

Who actually owns the Federal Reserve Central Banks? The ownership of the 12 Central banks, a very well kept secret, has been revealed:

  • Rothschild Bank of London

  • Warburg Bank of Hamburg

  • Rothschild Bank of Berlin

  • Lehman Brothers of New York

  • Lazard Brothers of Paris

  • Kuhn Loeb Bank of New York

  • Israel Moses Seif Banks of Italy

  • Goldman, Sachs of New York

  • Warburg Bank of Amsterdam

  • Chase Manhattan Bank of New York.

These bankers are connected to London Banking Houses which ultimately control the FED. When England lost the Revolutionary War with America (our forefathers were fighting their own government), they planned to control us by controlling our banking system, the printing of our money, and our debt.

As we all know, anyone who has a lot of money has a lot of power. Now imagine a group of people who have the power to create money. Imagine the influence you would have over other countries, or even governments, or Congress, or a two party political system, or even a President of the United States.

“Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Bauer Rothschild

“Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States” — Sen. Barry Goldwater (Rep. AZ)

“This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President [Wilson] signs this bill, the invisible government of the monetary power will be legalized… the worst legislative crime of the ages is perpetrated by this banking and currency bill.” — Charles A. Lindbergh, Sr. 1913

“The Federal Reserve bank buys government bonds without one penny…” — Congressman Wright Patman, Congressional Record, Sept 30, 1941

“We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it” — Congressman Louis T. McFadden in 1932 (Rep. Pa)

“The Federal Reserve banks are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this nation is run by the International bankers” — Congressman Louis T. McFadden (Rep. Pa)

“Some people think the Federal Reserve Banks are the United States government’s institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers” — Congressional Record 12595-12603 — Louis T. McFadden, Chairman of the Committee on Banking and Currency June 10, 1932

Now let’s take a look at a prophetic quote from President Abraham Lincoln shortly before he was assassinated in 1865 that echo the words of Thomas Jefferson some fifty years earlier, keeping in mind the fact that both JFK and Lincoln met the the same fate.

“The money power preys upon the nation in time of peace and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. I see in the near future a crisis approaching that unnerves me, and causes me to tremble for the safety of our country.

Corporations have been enthroned, an era of corruption will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people, until the wealth is aggregated in a few hands, and the republic is destroyed.”

Both President Lincoln and Kennedy knew the dangers of a banking system that, when unregulated and given the power to create money, had the potential to literally own the entire world. Is it not inconceivable that these same powerful group of elite individuals could also possess the power to destroy the entire world, and keep for themselves the fruits of our labor?

If this system continues, indeed we’re all going to wake-up homeless on the continent our fathers conquered, and remain debtor slaves for the rest of our lives.


About the Author: Dan Asmussen is an avid researcher, American Patriot and a contributor to The Liberty Beacon Project since its beginning (over 8 years). To find out more about what Dan thinks and knows, please click on the link: Read more outstanding articles by Dan Asmussen here




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