Web of Debt by Ellen Hodgson Brown, J.D.

Chapter 37 is "The Money Question: Goldbugs and Greenbackers Debate."

Under the heading "Is Gold a Stable Measure of Value?" Ellen states:

The purpose of "money" is to tally the value of goods and services traded, facilitating commerce between buyers and sellers. . . During the 1970s, the value of gold soared from $40 an ounce to $800 an ounce, dropping back in February 2001 . . . If rents had been paid in gold coins, they would have swung wildly as well. . . people on fixed incomes generally prefer a currency that has a fixed and predictable value, even if it exists only as numbers in their checkbooks.

I'm also thinking, "Why limit the amount of wealth in the world to the amount of gold there is?"

reply to post by Mary Rose


Well, one thing I have always thought of commodity backed currency was this component.

Someone compares the wild swing of the value of the gold compared to the dollar. Was it really the value of the gold that swung, or the value of the dollar.

As we can see by the recent value of gold, which now has no connection to the dollar-

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Gold being a commodity, it will vary on price by its supply and demand. One has to ask themselves, has there been a change in demand or supply.

You also have to think about the currency you are purchasing it with.

We would have to take a global look at the differing charts in regards to a wide variety of currencies to see if there is a corresponding rise in gold price according to the other currencies.

I would hedge my bet that gold is not the thing that is varying. I will posit that the currency is the one that is varying.

The larger banks will manipulate the gold market to attempt to control their currency valuation. I have seen that when the banks are either buying gold or dumping it, they are attempting to manipulate the currencies. Heck, they have even got the people in it these days. Just start advertising the effects of the possible rise in gold pricing. This is the part that scares me. Usually when you have a continual rise in gold prices, we have a historic economic depression.

I found this article really informative-


Gold at $1,700 an ounce?
You'd better believe it!
(Published, April 2001; updated, April 2007)
By Dana Samuelson and Dr. Bill Musgrave

Originally posted by endisnighe
Usually when you have a continual rise in gold prices, we have a historic economic depression.

My impression is that yes, that's what we have.

And I'm hoping that by paying attention to books like this and honest journalists like Webster Tarpley, who has written an article about what he thinks we need to do to pull out of it, that we the people can rise up.

Originally posted by Mary Rose
Chapter 37 is "The Money Question: Goldbugs and Greenbackers Debate."

Now I've gotten to a part that I think is exciting.

Ellen offers two hypothetical scenarios. Together I would call them an allegory. The first one:

Shipwrecked with a Chest of Gold Coins

You and nine of your mates wash ashore with a treasure chest containing 100 gold coins. You decide to divide the coins and the essential tasks equally among you. Your task is making the baskets used for collecting fruits. You are new to the task and manage to turn out only ten baskets the first month. You keep one and sell the others to your friends for one coin each, using your own coins to purchase the wares of the others.

So far so good. By the second month, your baskets have worn out but you have gotten much more proficient at making them. You manage to make twenty. Your mates admire your baskets and say they would like to have two each; but alas, they have only one coin to allot to basket purchase. You must either cut your sales price in half or cut back on production. The other islanders face the same problem with their production potential. The net result is price deflation and depression. You have no incentive to increase your production, and you have no way to earn extra coins so that you can better your standard of living.

The situation gets worse over the years, as the islanders multiply but the gold coins don't. You can't afford to feed your young children on the meager income you get from your baskets. If you make more baskets, their price just gets depressed and you are left with the number of coins you had to start with. You try borrowing from a friend, but he too needs his coins and will agree only if you will agree to pay him interest. Where is this interest to come from? There are not enough coins in the community to cover this new cost.

Then, miraculously, another ship washes ashore, containing a chest with 50 more gold coins. The lone survivor from this ship agrees to lend 40 of his coins at 20 percent interest. The islanders consider this a great blessing, until the time comes to pay the debt back, when they realize there are no extra coins on the island to cover the interest. The creditor demands lifetime servitude instead. The system degenerates into debt and bankruptcy, just as the gold-based system did historically in the outside world.

The second one:

Shipwrecked with an Accountant

You and nine companions are shipwrecked on a desert island, but your ship is not blessed (or cursed) with a chest of gold coins. "No problem," says one of your mates, who happens to be an accountant. He will keep "count" of your productivity with notched wooden tallies. He assumes the general function of tally-maker and collector and distributor of wares. For this service he pays himself a fair starting wage of ten tallies a month.

Your task is again basket-weaving. The first month, you make ten baskets, keep one, and trade the rest with the accountant for nine tallies, which you use to purchase the work/product of your mates. The second month, you make twenty baskets, keep two, and request eighteen tallies from the accountant for the other baskets. This time you get your price, since the accountant has an unlimited supply of trees and can make as many tallies as neded. They have no real value in themselves and cannot become "scarce." They are just receipts, a measure of the goods and services on the market. By collecting eighteen tallies for eighteen baskets, you have some extra money to tuck under your straw mattress for a rainy day. You take a month off to explore the island, funding the vacation with your savings.

When you need extra tallies to build a larger house, you borrow them from the accountant, who tallies the debt with an accounting entry. You pay principal and interest on this loan by increasing your basket production and trading the additional baskets for additional tallies. Who pockets the interest? The community decides that it is not something the tally-maker is rightfully entitled to, since the credit he extended was not his own but was an asset of the community, and he is already getting paid for his labor. The interest, you decide as as a group, will be used to pay for services needed by the community -- clearing roads, standing guard against wild animals, caring for those who can't work, and so forth. Rather than being siphoned off by a private lender, the interest goes back into the community, where it can be used to pay the interest on other loans.

When you and your chosen mate are fruitful and multiply, your children make additional baskets, and your family's wealth also multiplies. There is no shortage of tallies, since they are pegged to the available goods and services. They multiply along with this "real" wealth; but they don't inflate beyond real wealth, because tallies and "wealth" (goods and services) always come into existence at the same time. When you are comfortable with your level of production -- say, twenty baskets a month -- no new tallies are necessary to fund your business. The system already contains the twenty tallies needed to cover basket output. You receive them in payments for your baskets and spend them on the wares of the other islanders, keeping the tallies in circulation. The money supply is permanent but expandable, growing as needed to cover real growth in productivity and the interest due on loans. Excess growth is avoided by returning money to the community, either as interest due on loans or as a fee or tax for other services furnished to the community.

"The money supply is permanent but expandable . . ."

Sounds like a plan to me.

Originally posted by Mary Rose
Chapter 37 is "The Money Question: Goldbugs and Greenbackers Debate."

This chapter concludes with this:

. . . what is threatening to collapse the dollar today is not that it is not backed by gold. It is that 99 percent of the U.S. money supply is owed back to private lenders with interest, and the money to cover the interest does not exist until new loans are taken out to cover it. Just to maintain our debt-based money supply requires increasing levels of debt and corresponding levels of inflation, creating a debt cyclone that is vacuuming up our national assets. The federal debt has grown so massive that the interest burden alone will soon be more than the taxpayers can afford to pay. . . We have allowed our money to rotate in the firmament around an elite class of financiers when it should be rotating around the collective body of the people. . . We can have all the abundance we need without taxes or debt. We can have it just by eliminating the financial parasite that is draining our abundance away.

This sounds too good to be true.

But maybe it's just a matter of thinking outside the box.

Chapter 38 is "The Federal Debt: A Case of Disorganized Thinking."

Ellen states:

In 1933, Franklin Roosevelt pronounced the country officially bankrupt, exercised his special emergency powers, waved the royal Presidential fiat, and ordered the promise to pay in gold removed from the dollar bill. The dollar was instantly transformed from a promise to pay in legal tender into legal tender itself. Seventy years later, Congress could again acknowledge that the country is officially bankrupt, propose a plan of reorganization, and turn its debts into "legal tender." Alexander Hamilton showed two centuries ago that Congress could dispose of the federal debt by "monetizing" it, but Congress made the mistake of delegating that function to a private banking system. Congress just needs to rectify its error and monetize the debt itself, by buying back its own bonds with newly-issued U.S. Notes.

If that sounds like a radical solution, consider that it is actually what is being done right now -- not by the government but by the private Federal Reserve. The difference is that when the Fed buys back the government's bonds with newly-issued Federal Reserve Notes, it doesn't take the bonds out of circulation. Two sets of securities (the bonds and the cash) are produced where before there was only one. This highly inflationary result could be avoided by allowing the government to buy back its own bonds and simply voiding them out.

I've never thought of cash as a security before.

Originally posted by Mary Rose
Chapter 38 is "The Federal Debt: A Case of Disorganized Thinking."

Under the heading "Extinguishing the National Debt with the Click of a Mouse," Ellen deals with the issue of what the Constitution says about Congress having the power to coin money and regulate its value - the fact that paper currency is not mentioned.

She states:

. . . As Andrew Jackson observed, when the Founding Fathers gave Congress the power to "coin" money, they did not mean to limit Congress to metal money and let the banks create the rest. They meant to give the power to create the entire national money supply to Congress. . . . today the "coin" of the times is paper money, checkbook money, and electronic money. The Constitutional provision that gives Congress "the power to coin money" needs to be updated to read "the power to create the national money supply in all its forms."

If that modification were made, most of the government's debt could be paid online. The simplicity of the procedure was demonstrated by the U.S. Treasury itself in January 2004, when it "called" (or redeemed) a 30-year bond issue before the bond was due. The Treasury announced on January 15, 2004: . . . Payment will be made automatically by the Treasury for bonds in book-entry form, whether held on the books of the Federal Reserve Banks or in TreasuryDirect accounts.

The provision for payment "in book entry form" meant that no dollar bills, checks or other paper currencies would be exchanged. Numbers would just be entered into the Treasury's direct online money market funds ("TreasuryDirect"). The securities would merely change character -- from interest-bearing to non-interest-bearing, from a debt owed to a debt paid. Bondholders failing to redeem their securities by May 15, 2004 could still collect the face amount of the bonds in cash. They would just not receive interest on the bonds.

Originally posted by Mary Rose
Under the heading "Extinguishing the National Debt with the Click of a Mouse," . . .

Ellen goes on to explain that it was (and I presume is) in the fine print on the Treasury bonds that early redemption was allowed.

She states:

How did the Treasury plan to refinance this $4 billion bond issue at a lower rate? Any bonds not bought by the public would no doubt be bought by the banks. Recall the testimony of Federal Reserve Board Chairman Marriner Eccles: "When the banks buy a billion dollars of Government bonds as they are offered . . . they actually create, by a bookkeeping entry, a billion dollars."

If the Treasury can cancel its promise to pay interest on a bond issue simply by announcing its intention to do so, and if it can refinance the principal with bookkeeping entries, it can pay off the entire federal debt in that way. It just has to announce that it is calling its bonds and other securities, and that they will be paid "in book-entry form." No cash needs to change hands. The funds can remain in the accounts where the bonds were held, to be reinvested somewhere else.

Indeed, at this point the only way to fend off national bankruptcy may be for the government to simply issue fiat money, buy back its own bonds, and void them out. That is the conclusion of Goldbug leader Ed Griffin in The Creature from Jekyll Island, as well as of Greenbacker leader Stephen Zarlenga in model legislation called the American Monetary Act. Zarlenga notes that the federal debt needn't be paid off all at once. The government's debts extend several decades into the future and could be paid gradually as the securities came due. . . .

Originally posted by Mary Rose
I've never thought of cash as a security before.

Now, in chapter 39 "Liquidating the Federal Debt Without Causing Inflation," Ellen seems to be stating the reverse, as well: federal securities are the same as money.

She states:

The idea that the federal debt could be liquidated by simply printing up money and buying back the government's bonds with it is dismissed out of hand by economists and politicians, on the ground that it would produce Weimar-style runaway inflation. But would it? Inflation results when the money supply increases faster than goods and services, and replacing government securities with cash would not change the size of the money supply. Federal securities have been traded as part of the money supply ever since Alexander Hamilton made them the basis of the U.S. money supply in the late eighteenth century. Federal securities are treated by the Fed and by the market itself just as if they were money. For banks and brokerages, they are legal collateral. They are traded daily in enormous volume among banks and other financial institutions around the world just as if they were money. If the government were to buy back its own securities with cash, these instruments representing financial value would merely be converted from interest-bearing into non-interest-bearing financial assets. The funds would move from M2 and M3 into M1 (cash and checks), but the total money supply would remain the same.

Originally posted by Mary Rose
Now, in chapter 39 "Liquidating the Federal Debt Without Causing Inflation," . . .

This next paragraph is very significant I think!

That would be true if the government were to buy back its securities with cash, but that is very different from what is happening today. When the Federal Reserve uses newly-issued Federal Reserve Notes to buy back federal bonds, it does not void out the bonds. Rather, they become the "reserves" for issuing many times their value in new loans; and the new cash created to buy these securities is added to the money supply as well. That highly inflationary result could be avoided if the government were to buy back its own bonds and take them out of circulation.

Originally posted by Mary Rose
This next paragraph is very significant I think!

So is this, which is under the heading "Cashing Out the Holdings of Foreign Central Banks" . . .

What would cashing out those securities do to the money supply? Again, probably not much. Foreign central banks have no use for consumer goods, and they do not invest in real estate. They keep U.S. dollars in reserve to support their own currencies in global markets and to have the dollars available to buy oil as required under a 1974 agreement with OPEC. They keep dollars in reserve either as cash or as U.S. securities. Holding U.S. securities is considered to be the equivalent of holding dollars that pay interest. If these securities were turned into cash, the banks would probably just keep the cash in reserve in place of the bonds -- and count themselves lucky to have their dollars back, on what is turning out to be a rather risky investment. Fears have been voiced that the U.S. government may soon be unable to pay even the interest on the federal debt. When that happens, the U.S. can either declare bankruptcy and walk away, or it can buy back the bonds with newly-issued fiat money. Given the choice, foreign investors would probably be happy to accept the fiat money, which they could spend on real goods and services in the economy. And if they complained, the U.S. Government could argue that turnabout is fair play. John Succo is a hedge fund manager who writes on the Internet as "Mr. Practical." He estimates that as much as 90 percent of foreign money used to buy U.S. securities comes from foreign central banks, which print their own local currencies, buy U.S. dollars with them and then use the dollars to buy U.S. securities. The U.S. government would just be giving them their fiat currency back.

I think the word "fungible" applies. Fiat currencies around the world and government securities are fungible - interchangeable.

Originally posted by Mary Rose
So is this, which is under the heading "Cashing Out the Holdings of Foreign Central Banks" . . .

Ellen goes on to say:

Market commentators worry that as foreign central banks cash in their U.S. securities, U.S. dollars will come flooding back into U.S. market, hyperinflating the money supply and driving up consumer prices. But we've seen that this predicted result has not materialized in China . . .

There is the concern that U.S. assets could wind up in the hands of foreign owners, but there is not much we can do about that short of imposing high tariffs or making foreign ownership illegal. We sold them the bonds and we owe them the cash. . . . In the long run, they would have less claim to U.S. assets, since their dollar investments would no longer be accruing additional dollars in interest.

Originally posted by Mary Rose
. . . chapter 39 "Liquidating the Federal Debt Without Causing Inflation," . . .

The conclusion of this chapter is very interesting:

. . . Once the government reclaims the power to create money from the banks, it will no longer need to sell its bonds to investors. It will not even need to levy income taxes. It will be able to exercise its sovereign right to issue its own money, debt-free. That is what British monarchs did until the end of the seventeenth century . . . It has also been proposed in the twenty-first century, not just by "cranks and crackpots" in the money reform camp but by none other than Federal Reserve Chairman Ben Bernanke himself. At least, that is what he appears to have proposed. The suggestion was made several years before he became Chairman of the Federal Reserve, in a speech that earned him the nickname "Helicopter Ben" . . .

Originally posted by Mary Rose

. . . The suggestion was made several years before he became Chairman of the Federal Reserve, in a speech that earned him the nickname "Helicopter Ben" . . .

Ellen states that this suggestion was made in a speech in Washington in 2002 titled "Deflation: Making Sure 'It' Doesn't Happen Here."

Here's a link to it: www.federalreserve.gov...

[edit on 5/22/2010 by Mary Rose]

In chapter 40 there is a heading "The Fear of Giving Big Government Even More Power."

Ellen states:

. . . What has allowed government to become corrupted today is that is is actually run by the money cartel. Big Business holds all the cards, because its affiliate banks have monopolized the business of issuing and lending the national money supply, a function the Constitution delegated solely to Congress. What hides behind the banner of "free enterprise" today is a system in which giant corporate monopolies have used their affiliated banking trusts to generate unlimited funds to buy up competitors, the media, and the government itself, forcing truly independent private enterprise out. Big private banks are allowed to create money out of nothing, lend it at interest, foreclose on the collateral, and determine who gets credit and who doesn't. They can advance massive loans to their affiliated corporations and hedge funds, which use the money to raid competitors and manipulate markets.

I think this is one of the most important passages in the book.

Chapter 41 is "Restoring National Sovereignty with a Truly National Banking System."

Ellen states:

. . . If the power to create the national money supply is going to be the exclusive domain of Congress, 100 percent backing will have to be required for any private bank deposits that can be withdrawn on demand. . .

To the charge that imposing a 100 percent reserve requirement could bankrupt the banks, the Wizard's retort might be that the banking system is already bankrupt. The 300-year fractional-reserve Ponzi scheme has reached its mathematical end-point. The bankers' chickens have come home to roost, and only a radical overhaul will save the system.. . .

This makes sense to me.

Originally posted by Mary Rose
Chapter 41 is "Restoring National Sovereignty with a Truly National Banking System."

Another excerpt, under "Old Banks Under New Management" is:

. . .The employees would just be under new management. The banks could advance loans as accounting entries, just as they do now. The difference would be that interest on advances of credit, rather than going into private vaults for private profit, would go into the coffers of the government. The "full faith and credit of the United States" would become an asset of the United States.

Chapter 42 is "The Question of Interest: Ben Franklin Solves the Impossible Contract Problem."

Ellen states that Franklin is reported to have said:

A legitimate government can both spend and lend money into circulation, while banks can only lend significant amounts of their promissory bank notes . . . Thus, when your bankers here in England place money in circulation, there is always a debt principal to be returned and usury to be paid. The result is that you have always too little credit in circulation . . . and that which circulates, all bears the endless burden of unpayable debt and usury.

Chapter 43 is "Bailout, Buyout, or Corporate Takeover? Beating the Robber Barons at Their Own Game."

I like this passage:

. . . JPM and Citibank have many branches and an extensive credit card system. Recall that JPM now issues the most Visas and MasterCards of any bank nationwide, and that it holds the largest share of U.S. credit card balances. If just these two banks were acquired by the government in receivership, they might be sufficient to service the depository, check clearing, and credit card needs of the citizenry. That result would also make a very satisfying ending to our story. JPM and Citibank are the money machines of the empires of Morgan and Rockefeller, the Robber Barons whose henchmen plotted at Jekyll Island to impose their Federal Reserve scheme on the American people. They induced William Jennings Bryan to endorse the Federal Reserve Act by leading him to believe that it provided for a national money supply issued by the government rather than by private banks. It would only be poetic justice for these massive banking conglomerates to become truly "national" banking institutions, serving the public interest at last.

Originally posted by Mary Rose
Chapter 43 is "Bailout, Buyout, or Corporate Takeover? Beating the Robber Barons at Their Own Game."

This chapter concludes with this important statement:

A derivatives tax might do more than just raise money for the government. Hoefle maintains that it could actually kill the derivatives business, since even a very small tax leveraged over many trades would make them unprofitable. Killing the derivatives business, in turn, could propel some very big banks into bankruptcy; but the fleas' loss could be the dog's gain. The handful of banks in which 97 percent of U.S. bank-held derivatives are concentrated are the same banks that are engaging in vulture capitalism, bear raids through collusive short selling, and a massive derivatives scheme that allows them to manipulate markets and destroy businesses. A tax on derivatives could expose these corrupt practices and bring both the schemes and the culpable banks under public control.