This memorable advice was given by “Deep Throat” to Bob Woodward in a Washington garage in 1972 which led to the exposure of the illegal activities conducted by the Nixon administration. They included the Watergate break-in and eventually forced Nixon to resign from the presidency. The speculation about the identity of “Deep Throat” had been going on for decades but Bob Woodward, who did know it, followed the journalist’s code of ethics and never revealed the name. Bob Haldeman, Nixon’s chief of Staff, suspected all along that Mark Felt, then Deputy Associate Director of the FBI, was behind the leaks but told Nixon that their hands were tied. If they moved against Felt, he would air all the dirty laundry and the presidency would be finished. Felt’s motives can only be surmised. He did admit that he had wanted the FBI directorship but strenuously denied having been the leaker of information to the press. Only three years before his death in 2008 did he unburden himself of this load and admitted to the truth in public.

There was, however an additional irony to this case. Nixon was brought down, by Felt, ostensibly for having violated the Constitution by authorizing illegal wire-taps, search and seizure of US citizens suspected of having revolutionary plans, and similar malfeasance. But we must remember that these were the days of the Vietnam War protests, the Civil Rights movement and American cities had been going up in flames. As Associate Deputy Director of the FBI Mark Felt was intimately involved in searching out “enemies of the State” and had authorized on his own the search against members of the Weather Underground Organization.  These were “black bag jobs” which included breaking into people’s homes without a search warrant. They had occurred during 1972-1973; the same years when Felt blew the whistle on the Nixon White House activities. After Congressional hearings in 1978 a Grand Jury indicted Mark Felt along with another FBI member (Edward Miller) but he got away with a fine of $5000 and Miller with $3,500. During the trial ex-President Nixon testified for the defense in behalf of Felt and when President Reagan subsequently pardoned Felt and Miller, Nixon sent each of them a bottle of champagne with a note, “Justice ultimately prevails.”

The point of bringing this up now is two-fold. Nixon’s as well as Felt’s defense was: “when the President (the government) does it, it’s legal,” which explains his famous statement on TV “I am not a crook.” His detractors answered: “We are a country of laws, and have a Constitution which Presidents are sworn to uphold.” This is true, but what they fail to mention is that the Constitution has proved to be marvelously flexible and in actual practice we are not a “country of laws,” but one of lawyers and judges who decide at any given time what is or is not compatible with the Constitution. This brings me to the second point and the major topic of this essay: Money, which tends to be on most people’s minds in these debt-ridden days. You may now wonder: but what does this have to do with the Constitution? Until earlier last month I had no idea either but for an essay which deals with the causes of our current fiscal woes I had to educate myself on the source of our money. To my surprise I found out that the latter is actually regarded by some as unconstitutional. This obviously came as a shock and requires a fair amount of explanation.

When the first greenback I ever saw was handed to me by my mother for travel to this country, I noticed that it said on the front in large print The United States of America, but above in small print: Federal Reserve Note. I had no idea what the latter meant but assumed, probably like most everybody else, that “Federal Reserve” is part of the Treasury Department, therefore, the U.S. government, which in my naïve mind of those days could not possibly do anything wrong. After all if you can’t trust the government of the beacon of liberty to which all who want to better their lives are attracted, who can you trust? Obviously the 25 year old had other concerns at that time. He had as the saying goes to, “get a life.” As a fervent anti-communist I defended the Korean War, the Vietnam War, Reagan’s wars in Nicaragua and Grenada, but began to worry that things might not be the way they were presented in the media when we bombed Belgrade and “accidentally” the Chinese embassy. By that time I was about ready to retire from earning a living in academia and began to have the time to inquire into the behind the scenes activities which lead to the historical events that shape our lives. Nevertheless hope sprang eternal and I welcomed President Bush’s appointment, by one vote of the Supreme Court, which actually violated the Constitution, to the Presidency because I thought that after the scandals of the Clinton administration honesty and decency would be restored to the White House. But his response to 9/11, the cover-up of what really happened, and the two wars he launched under false pretenses, put a serious dent in my optimism in regard to how this country is really run. I began to study why things happened they way they did and put the results on the Internet over the past ten years.

For the present search as to why we are in the economic mess we find ourselves, I was aided by three books and Wikipedia, as well as government sources to check some of the assertions that were made in the books. The first one I read was: The Global Crisis. The Great Depression of the XXI Century. It contains a series of essays edited by Michael Chossudovsky and Andrew Gavin Marshall and was published in 2010. I have mentioned Chossudovsky and his website www.globalresearch.ca on an earlier occasion, suffice it to say here that Chossudovsky is a Professor of Economics (emeritus) at the University of Ottawa, with a left of center political orientation. The Initial “Overview” section pointed out that, “The 2008 financial meltdown has nothing to do with free market forces: it is characterized by financial warfare between competing institutional speculators.” The major culprits were: the financial instruments known as derivatives, the repeal of some Congressional oversight provisions in 1999; artificially low interest rates especially in the housing sector with the sale of fraudulent “insurance papers” against loss. Banks were overextended, some collapsed while others which were regarded as “too big to fail” had to be rescued by the Federal Reserve Board in order to prevent a repeat of the 1929 Great Depression.

This is, of course, the reason why “The Fed”, as it is popularly known, was created in the first place. The government website explains its functions:

“to address the problem of banking panics; to serve as the central bank for the United States; to strike a balance between private interests of banks and the centralized responsibility of government; to mange the nation’s money supply through monetary policy; to maintain the stability of the financial system and contain systemic risk in financial markets; to provide financial services to depository institutions, the U.S. government, and foreign official institutions, including a major role in operating the nation’s payment system; and to strengthen U.S. standing in the world economy.”

These are obviously laudable goals but looking at our current situation it is obvious that “the stability of the financial system and a strengthening of the U.S. standing in the world” have not occurred. On the contrary we have achieved a previously unknown low in the confidence of foreigners in our dollar to the extent that its role as the “reserve currency” of the world is in serious doubt. These are facts but the reasons which are given depend on the political orientation of authors. Those on the left blame lack of government regulation, those on the right too much government regulation and those in the middle are simply scratching their heads.

 Nevertheless, both the left and the right agree that there is something fundamentally wrong with the Fed. The third book I read is entitled: End the Fed. Its author is Ron Paul who used to be an obstetrician but has given up his medical practice for a life in politics because he thought that he could do more good on a wider scale. Although nominally a Republican he is at heart a libertarian who fully endorses the 18^th and 19^th century laissez faire principle which believes in Adam Smith’s invisible hand that guides the free market economies of the world to ever greater prosperity. Some more sober-minded people might argue that if this had been the case in the mid 19^th century Karl Marx would have had no reason to write Das Kapital. Furthermore, since the invisible hand was devoid of a conscience, the social legislation, which has been enacted over the past 150 years in countries around the world, was a necessity to bring a modicum of justice into the economic sphere rather than to reward laziness, as its detractors claim.

Dr. Paul has presidential aspirations and is at this time engaged in his third try towards that goal. I happen to like him because from the current crop of Republican candidates he is the only one (possibly with the exception of our former governor, Jon Huntsman), who speaks the unvarnished truth as he sees it. This includes that we have no business conducting all the wars we are engaged in. The media hailed Michele Bachman’s straw poll success in Iowa, which had no lasting meaning at all, but largely ignored the runner-up status of Ron Paul although he had garnered only 152 votes less than Bachmann out of a total of 16,892. 

In End the Fed published in 2009, Paul, whose official job is a Texas Representative to Congress made the following points: the institution is unconstitutional; as a result of its inflationary policies it has led since its inception in 1913 to a massive drop of the value of the dollar (currently 0.05 of the previous $1); our money is “fiat money” backed by nothing but thin air; the Fed itself has no capital but is simply a lending institution which lives on providing the greatest numbers of loans and thereby becomes the greatest debt creator. Although in theory Congress has oversight, this breaks down in practice because of exemptions. It is a bank created by bankers for bankers which privatizes gains and socializes losses. The bankers get their bonuses, as in the recent bailouts, for which we pay with our tax dollars. 

These are not mere allegations because he documents them in the book and as member of the House Banking Committee he had the opportunity to meet with and asks questions of Fed Chairmen: Volcker, Greenspan and Bernanke. To a particularly incisive question he was told by Bernanke that it would be “counterproductive” to answer it. With other words “bug off, you bother me.” How can this happen when he is by law responsible to Congress for his actions? This is where the government oversight comes in. Wikipedia tells us that the Federal Reserve System,

“has both private and public components, and can make decisions without the permission of Congress or the President of the U.S. . . . The seven-member Board of Governors is a Federal agency and is the main governing body of the Federal Reserve System. It is charged with the overseeing of the 12 District Reserve Banks and setting national monetary policy. It also supervises and regulates the U.S. Banking system in general. Governors are appointed by the President of the United States and confirmed by the Senate for staggered 14-year terms. The Board is required to make an annual report of operations to the speaker of the House of Representatives.”

Let us look at this statement for a moment longer. The Fed is part of the government but, since it is also private, government can’t tell it how to conduct its business. This strikes one as somewhat strange because it is our money, after all, which is at stake. On the other hand the analogy is with the Supreme Court. The President appoints the judges, the Senate confirms them, but then they are on their own to interpret the law as they see fit. In regard to the Supreme Court “We the People” have to obey and as far as the Fed is concerned, we have to pay. While the Supreme Court has nine judges, which guarantees a majority opinion, the Fed has seven governors (by the way at present only five, because two positions are vacant) and theoretically the 12 District Bank Directors also have their say. But we are not privy to their deliberations and it is obvious that the biggest Federal Reserve Bank i.e. that of New York will call the shots. There is an additional potential ominous aspect in this statement. The Fed not only supervises but “regulates” banks throughout the U.S.. It has a monopoly and can mete out favors or punishment to small banks as it pleases. All it is required to do is to tell Congress once a year what it has already done and there is of course no dearth of excuses that can make even atrocious malfeasance appear perfectly proper. In addition the Chairman of the Fed is intermittently requested to testify before Congress but as mentioned above, he can just refuse to answer when it comes to specifics.

All government agencies are, however, supervised by the General Accounting Office, GAO, and one would think that this agency would tell us if or when the Fed has engaged in improper activities. Far from it, and Ron Paul gives us the details. While title 31 chapter 7 of the Money and Finance section of the Code gives the GAO the power to audit all financial institutions, including the Fed, it carries this proviso 

“Audits of the Federal Reserve Board and Federal Reserve Banks may not [italics in the original] include: Transactions for or with a foreign central bank, government of a foreign country, or non-private international financing organization;

Deliberations, decisions, or actions on monetary matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;

Transactions made under the direction of the Federal Open Market Committee; or a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)-(3) of this subsection.”

To put it bluntly: we have a small group, an oligarchy, which decides in secret what to do with our money and when we want to know what they are doing we are told it’s none of our business. This statement is my own but in Ron Paul’s spirit. When I read this and similar information in Chossudovsky’s book I wondered: but what in all the world is the Treasury Department’s role in all of this. So I went to the Internet and now it gets quite Byzantine. 

The government website is rather detailed but abounds in generalities and under Mission we can read:

“Maintain a strong economy and create economic and job opportunities by promoting the conditions that enable economic growth and stability at home and abroad, strengthen national security by combating threats and protecting the integrity of the financial system, and manage the U.S. Government’s finances and resources effectively.”

 Well, that’s nice but not only has the department obviously failed to do so the statement is so similar to that of the Fed that one wonders why two organizations are needed to accomplish these goals rather than one.

Ok, let’s read on and see what else we can find. Under the headline Organization one can read,

“The basic functions of the Department of the Treasury include: Managing Federal finances; Collecting taxes, duties and monies paid to and due to the U.S. and paying all bills of the U.S.; Currency and coinage; Managing Government accounts and the public debt; Supervising national banks and thrift institutions; Advising on domestic and international financial, monetary, economic, trade and tax policy; Enforcing Federal finance and tax laws; Investigating and prosecuting tax evaders, counterfeiters, and forgers.”

This likewise suggests at least partial duplication of effort with the Fed and we are not much further in our quest towards understanding how these two systems interact. The next step, therefore, was to go to Wikipedia and now it gets “curious and curiouser” as Alice found out in Wonderland. We are told that,

 “The Fed serves both as a banker’s bank and as the government’s bank. As the banker’s bank, it helps to assure the safety and efficiency of the payment’s system. As the government’s bank, or fiscal agent, the Fed processes a variety of financial transactions involving trillions of dollars. Just as an individual might keep an account at a bank, The U.S. Treasury keeps a checking account with the Federal Reserve, through which incoming federal tax deposits and outgoing government payments are handled. As part of this service relationship, the Fed sells and redeems U.S. government securities such as saving bonds and Treasury bills, notes and bonds. It also issues the nation’s coin and paper currency. The U.S. through its Bureau of the Mint and Bureau of Engraving and Printing actually produces the nation’s cash supply and, in effect, sells the paper currency to the Federal Reserve Banks at manufacturing cost, and the coins at face value. The Federal Reserve Banks then distribute it to other financial institutions in various ways. During the Fiscal Year 2008, the Bureau of Engraving and Printing delivered 7.7 billion notes at an average cost of 6.4 cent per note.”

In other words: Although the Fed is our agent we have no say so in regard to how it uses our money for what purposes. As a “bankers bank and the government’s bank” there are dual loyalties with plenty of room for conflict. With this as background we can now look how the Fed came into being in the first place. This is explained in the second book I read, The Secrets of the Federal Reserve by Eustace Mullins. It can be downloaded for free on the Internet under http://www.whale.to/b/mullins5.html, or purchased through amazon. This book has a fascinating history because it is the only one which was officially burnt in Germany after the Nazi era (while Americans were in charge) and the author lost his job at the Library of Congress. Mullins (1923-2010) had served during the war in the US Air Force and thereafter joined the research staff of the Library in Washington DC. In the Foreword to the book he wrote:

“In 1949, while I was visiting Ezra Pound who was a political prisoner at St. Elizabeth’s Hospital, Washington, D.C. (a federal institution for the insane), Dr. Pound asked me if I had ever heard of the Federal Reserve System. I replied that I had not, as of the age of 25. He then showed me a ten dollar bill marked ‘Federal Reserve System’ and asked me if I would do some research at the Library. Pound was unable to go to the Library himself, as he was being held without trial as a political prisoner by the United States government.”

            This startled me because although I had heard Pound’s name as a renowned poet I didn’t know that we kept “political prisoners” in a mental hospital á la KGB. I, therefore, consulted Wikipedia again about what was reported on his life and here is the essence. Pound (1885-1972) was born in neighboring Idaho but soon moved to England. In 1915 he had become incensed over the senseless slaughter of WWI, which he blamed on usury and international capitalism. He moved to Italy, where he became enamored with Mussolini. He gave regular broadcasts on Italian radio on a variety of topics including the evils of capitalist society, Jews, and the Roosevelt administration. He persisted in doing so even after American participation in the war, and in 1945 voluntarily surrendered himself to the U.S. Army. After initial interrogations he was sent to a detention camp near Pisa on May 24. For about three weeks he was held in what was called “’death cells’—a series of six-by-six-foot outdoor steel cages lit up all night by floodlights. He was left there in isolation in the heat, denied exercise, eyes inflamed by dust, no bed, no belt, no shoelaces, and no communication with the guards, except for the chaplain.” After about two and a half weeks he broke down; was examined by psychiatrists and transferred to one of the officer’s tents. In November of that year Pound was repatriated to America and during his trial for treason his lawyer pleaded insanity. This resulted in his incarceration at St. Elizabeth’s but spared his life. Due to continued efforts of Mullins and highly respected American writers he was finally released from custody in 1958.

            When I read about the “steel cages,” Guantanamo immediately came to mind and it is obvious that little had changed since 1945. Mullins then mentioned that he had originally intended to write a detective novel but Pound had persuaded him to use the Fed book in the manner of a detective story which shows the strands from which the system emerged. Mullins had the background material at the Library, some financial support from Pound, and additional critical input from George Stimpson, founder of the National Press Club. He began his efforts to market the manuscript in 1950, but 18 publishers turned it down. The 19^th told him “I like your book but we can’t print it. Neither can anybody else in New York. Why don’t you bring in a prospectus for your novel, and I think we can give you an advance. You may as well forget about getting the Federal Reserve book published. I doubt if it could ever be printed.” Mullins didn’t give up. With the help of some of Pound’s friends, private printings did ensue and in 1955 a German edition was published in Oberammergau. The book was seized by the American authorities and all 10,000 copies burned. The book was subsequently rewritten and expanded. The current edition is dated 1991 and, needless to say, again privately published.

            With this information as background we can now look for what was so subversive in this book that it was not supposed to see the light of day. It contains 14 chapters which begin with the inception of the Fed and end with an August 1976 Congressional Study Report. Since the latter provides the gist of the information I shall give the essentials as presented by Chairman Henry S. Reuss (D-Wis),

“As the study makes clear, it is difficult to imagine a more narrowly based board of directors for a public agency than has been gathered together for the twelve banks of the Federal Reserve System. Only two segments of American society – banking and big business – have any substantial representation on the boards, and often even these become merged through interlocking directories. … Small farmers are absent. Small business is barely visible. … In Summary, the Federal Reserve directories are apparently representatives of a small elite group which dominates much of the economic life of the nation.”

            The reason why the book was relegated to relative non-existence resides in the fact that Mullins meticulously provided names, their family relationships and dates for how these few members of the “elite group” have created American history as we know it. Since this also involved the financing of political campaigns, including Hitler’s in January of 1933, it is clear that the establishment would do everything to suppress it. The main thesis could be summarized, in analogy to Michael Douglas statement in the movie Wall Street, “Greed is good,” as “War is good.” I shall not go into the merit of this statement but readers are encouraged to look at Mullins’ data and then form their own opinion. The book is meticulously referenced but one may not want to take the author’s conclusions at face value and I shall, therefore, limit myself to the genesis of the Fed.

            It began with a secret railroad trip during the night of November 22, 1910 from Hoboken NJ to Georgia’s Jekyll Island which had been purchased several years earlier by J.P. Morgan and friends as a winter retreat. They called it the Jekyll Island Hunt Club but duck hunting was not the main purpose. Its solitude provided the opportunity for policy sessions away from the prying eyes of reporters. The group consisted of Republican Senator Nelson Aldrich (wealthy senior member of the Senate’s Finance Committee and father in-law to the only son of John D. Rockefeller); his secretary Shelton; Assistant Secretary of the Treasury and Special Assistant to the National Monetary Commission A. Piatt Andrews; in addition to four prominent New York bankers of whom the recently arrived German immigrant Paul Warburg was the most important. Their task was to create a U.S. central bank, but without it appearing to be a central bank, and Aldrich was to push it through the Senate. The term “central bank” was abhorrent to the public because it implied Wall Street control. To put it bluntly: the American people were to be hoodwinked by the idea of a Federal Reserve System which was to be a central bank in everything but name. To accomplish this goal absolute secrecy was necessary. Mullins’ book has been labeled as conspiracy theory but the creation of the Fed was actually the result of a conspiracy by a small group of NY bankers. This was verified a few years later by Malcolm Forbes, grandfather of our current Steve Forbes. To avoid the appearance of one central bank there would be 12 Federal banks distributed over the country. To ensure that only those people are considered for election to one of these Boards who are approved by the club this power was given to the President of the U.S. rather than Congress, where too many questions might be asked.

            There was some urgency to this trip because after the 1907 stock market crash, brought on by ill-advised speculation, the need was felt to create an instrument which would prevent the boom and bust cycles thereby stabilizing the economy. A Monetary Commission had been created and Senator Aldrich was in charge. The final product contained all the elements we know and after some political haggling it was signed into law on December 23 1913 by President Wilson, who had also given us the income tax on February 3^rd of that year. There is one more interesting aspect to the Warburg family. While Paul was largely responsible for the vast loans, by the Fed, to the Allies which led to America’s entry into WWI (The Goebbels’ Trap, July 1, 2011), his brother Max who had stayed in the old country financed the war effort in Germany. It reminded me of the Rothschilds during the Napoleonic wars. The Viennese brother financed the Austrian effort; the one in Frankfort, Prussia’s, the one in Paris, Napoleon’s; and the one in London, the British. Regardless who won, the family would make out all right.

Finally three more aspects need to be clarified. Since the Fed controls our money it is the “lender of last resort” and in this manner it can decide which bank is allowed to go under and which one is “too big to fail.” It rewards the giants of industry but for the little guy it’s just “tough luck.” The next one is “fractional banking.” This means that the banks, including the Fed’s banks, retain only a fraction of the deposit and all the rest is loaned out at various interest rates. Now comes the “curiouser” point. Wiki explains,

“This means that available funds (called bank reserves) are only a fraction (called the reserve ratio) of the quantity of deposits at the bank. As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and banks are said to create money.”

This is a rather neat trick of creative bookkeeping which inflates the bank’s numbers with non-existent assets. The retained fractions range from 2.6-20%. This miracle of “wealth creation” can be examined in detail on http://en.wikipedia.org/wiki/Fractional-reserve_banking. We, therefore, have no idea of how much actual asset money, capital, is really out there and its relation to the existing debt.

            The last point is “fiat money.” Our dollar bills have no intrinsic value apart from the paper, which can be used for other purposes. Originally coins or paper were backed by some tangible asset, usually gold and to some extent this was true even here until President Nixon “went off the gold standard” and let the dollar “float.” This was fine as long as the U.S. had positive trade balances and the world wanted some of our goods. But things changed in the 90s when we began to move from a manufacturing economy to a service economy. With the manufacturing economy shrinking, and the dollar “floating” down the river some people now worry that Niagara Falls might not be too far in the distance.

            If all of this strikes you as incomprehensible and/or unbelievable you have plenty of company; even in Congress. Mullins published excerpts of a hearing on September 30, 1941when Representative Patman asked Fed Governor Eccles: “How did you get the money to buy those two billion dollars worth of government securities in 1933?” Eccles: “We created it.” Patman: “Out of what?” Eccles: “Out of the right to issue money.” Patman: “And there’s nothing behind it, is there, except our Government’s credit?” Eccles: “This is what our money system is. If there were no debts in our system, there would be no money.”

            Well, here it is: substitute billions for trillions and we have arrived in the 21^st century. With the creation of the Fed the D in Dollar has come to stand for Debt. When individuals follow this example they go to jail but, and here we are back to Nixon and Felt, “When the government does it, it’s legal.” What I have presented here is only the tip of the proverbial iceberg and there are now numerous books which explain the issue further, including an extensive update on Mullins’ book by G. Edward Griffin, The Creature from Jekyll Island. A Second Look at the Federal Reserve. These books need to be read, taken to heart and the fraudulent system changed.

 Until the recent past the Chinese have bailed us out by buying our Treasury bills, but since short term interest rates are practically 0% and our Fed Chairman has promised us that they will remain there for the next 2 years, they obviously had second thoughts and have started to look for better investments. The reason why Mr. Bernanke keeps these rates at a near-nonexistent level is his study of the Great Depression. He and others concluded that it was prolonged by higher taxes and higher interest rates, which may or may not have been the cause. At any rate the opposite course is now being pursued. Some of the results are: retirees who live on their savings have to eat up whatever capital they have accumulated rather than relying on interest income; gold speculation is rampant; so are fraudulent investment schemes which rob average middle class persons of whatever real assets they still possess. An economy, which depends on buying when wages and savings shrink, is not likely to flourish. Less government income from taxes is probably inevitable and the foundation of our society, the average middle class person, will be facing reduced government services while the oligarchy which is in charge of our money will continue to flourish. 

This is hurricane season and the perfect economic storm is brewing in the oceans of this world. It has to hit us because past policies have led to the failure of multiple systems of our society and when that happens to an individual the physician knows that the patient’s recovery is in jeopardy. This is also election season when politicians promise the blue from the sky. But because of multi-system failure there is no “quick-fix” possible. The causes of this perfect storm will be presented in a subsequent essay which also will include suggestions for genuine positive change.