Creature From Jekyll Island by G. Edward

As part of the proposal, the borrower will agree to accept the direction of a third-party referee in adopting an austerity program to make sure that none of the new money is wasted. The bank also will agree to write off a small part of the loan as a gesture of its willingness to share the burden. This move, of course, will have been foreseen from the very beginning of the game, and is a small step backward to achieve a giant stride forward. After all, the amount to be lost through the write-off was created out of nothing in the first place and, without this Final Maneuver, the entirety would be written off. Furthermore, this modest write down is dwarfed by the amount to be gained through restoration of the income stream.

THE GUARANTEED-PAYMENT PLAY

One of the standard variations of the Final Maneuver is for the government, not always to directly provide the funds, but to provide the credit for the funds. That means to guarantee future payments should the borrower again default. Once Congress agrees to this, the government becomes a co-signer to the loan, and the inevitable losses are finally lifted from the ledger of the bank and placed onto the backs of the American taxpayer.

THE NAME OF THE GAME IS BAILOUT

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Money now begins to move into the banks through a complex system of federal agencies, international agencies, foreign aid, and direct subsidies. All of these mechanisms extract payments from the American people and channel them to the deadbeat borrowers who then send them to the banks to service their loans. Very little of this money actually comes from taxes. Almost all of it is generated by the Federal Reserve System. When this newly created money returns to the banks, it quickly moves out again into the economy where it mingles with and dilutes the value of the money already there. The result is the appearance of rising prices but which, in reality, is a lowering of the value of the dollar.

The American people have no idea they are paying the bill.

They know that someone is stealing their hub caps, but they think it is the greedy businessman who raises prices or the selfish laborer who demands higher wages or the unworthy farmer who demands too much for his crop or the wealthy foreigner who bids up our prices. They do not realize that these groups also are victimized by a monetary system which is constantly being eroded in value by and through the Federal Reserve System.

Public ignorance of how the game is really played was dramatically displayed during a recent Phil Donahue TV show. The topic was the Savings and Loan crisis and the billions of dollars that it would cost the taxpayer. A man from the audience rose and asked angrily: 'Why can't the government pay for these debts instead of the taxpayer?' And the audience of several hundred people actually cheered in enthusiastic approval!

PROSPERITY THROUGH INSOLVENCY

Since large, corporate loans are often guaranteed by the federal government, one would think that the banks which make those loans would never have a problem. Yet, many of them still manage to bungle themselves into insolvency. As we shall see in a later section of this study, insolvency actually is inherent in the system itself, a system called fractional-reserve banking.

Nevertheless, a bank can operate quite nicely in a state of insolvency so long as its customers don't know it. Money is brought into being and transmuted from one imaginary form to another by mere entries on a ledger, and creative bookkeeping can always make the bottom line appear to balance. The problem arises when depositors decide, for whatever reason, to withdraw their 34 THE CREATURE FROM JEKYLL ISLAND

money. Lo and behold, there isn't enough to go around and, when that happens, the cat is finally out of the bag. The bank must close its doors, and the depositors still waiting in line outside are ... well, just that: still waiting.

The proper solution to this problem is to require the banks, like all other businesses, to honor their contracts. If they tell their customers that deposits are 'payable upon demand,' then they should hold enough cash to make good on that promise, regardless of when the customers want it or how many of them want it. In other words, they should keep cash in the vault equal to 100% of their depositors' accounts. When we give our hat to the hat-check girl and obtain a receipt for it, we don't expect her to rent it out while we eat dinner hoping she'll get it back—or one just like it—in time for our departure. We expect all the hats to remain there all the time so there will be no question of getting ours back precisely when we want it.

On the other hand, if the bank tells us it is going to lend our deposit to others so we can earn a little interest on it, then it should also tell us forthrightly that we cannot have our money back on demand. Why not? Because it is loaned out and not in the vault any longer. Customers who earn interest on their accounts should be told that they have time deposits, not demand deposits, because the bank will need a stated amount of time before it will be able to recover the money which was loaned out.

None of this is difficult to understand, yet bank customers are seldom informed of it. They are told they can have their money any time they want it and they are paid interest as well. Even if they do not receive interest, the hank does, and this is how so many customer services can be offered at little or no direct cost. Occasionally, a thirty-day or sixty-day delay will be mentioned as a possibility, but that is greatly inadequate for deposits which have been transformed into ten, twenty, or thirty-year loans. The banks are simply playing the odds that everything will work out most of the time.

We shall examine this issue in greater detail in a later section but, for now, it is sufficient to know that total disclosure is not how the banking game is played. The Federal Reserve System has legalized and institutionalized the dishonesty of issuing more hat checks than there are hats and it has devised complex methods of disguising this practice as a perfectly proper and normal feature of THE NAME OF THE GAME IS BAILOUT

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banking. Students of finance are told that there simply is no other way for the system to function. Once that premise is accepted, then all attention can be focused, not on the inherent fraud, but on ways and means to live with it and make it as painless as possible.

Based on the assumption that only a small percentage of the depositors will ever want to withdraw their money at the same time, the Federal Reserve allows the nation's commercial banks to operate with an incredibly thin layer of cash to cover their promises to pay 'on demand.' When a bank runs out of money and is unable to keep that promise, the System then acts as a lender of last resort.

That is banker language meaning it stands ready to create money out of nothing and immediately lend it to any