THE WEB OF DEBT: The Shocking Truth About Our Money System And How We Can Break Free

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    Our money system is not what we have been led to believe. The creation of money has been “privatized.” It has been taken over by a private money cartel. Except for coins, all of our money is created as loans advanced by private banking institutions, including the “private” Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices and robbing you of the value of your money.

    THE WEB OF DEBT: The Shocking Truth About Our Money System And How We Can Break Free, Ellen Hodgson Brown unravels the deception and presents a crystal clear picture of the financial abyss toward which we are heading. Then it explores a workable alternative, one that was tested in colonial America and is grounded in the best of American economic thought, including the writings of Franklin, Jefferson and Lincoln.

    If you care about financial security, your own or the nation’s, you should read this book.

    Softcover, 530 pages

    Table of Contents


    Acknowledgments viii

    FOREWORD by Reed Simpson, Banker and Developer ix

    INTRODUCTION: Captured by the Debt Spider 1


    Section I 

    THE YELLOW BRICK ROAD:

    FROM GOLD TO FEDERAL RESERVE NOTES 9

    1 Lessons from The Wizard of Oz 11

    2 Behind the Curtain: The Federal Reserve and the Federal Debt 23

    3 Experiments in Utopia: Colonial Paper Money as Legal Tender 35

    4 How the Government Was Persuaded to Borrow Its Own Money 47

    5 From Matriarchies of Abundance to Patriarchies of Debt 57

    6 Pulling the Strings of the King: The Moneylenders Take England 65

    7 While Congress Dozes in the Poppy Fields: Jefferson and Jackson Sound the Alarm 75

    8 Scarecrow with a Brain: Lincoln Foils the Bankers 83

    9 Lincoln Loses the Battle with the Masters of European Finance 91

    10 The Great Humbug: The Gold Standard and the Straw Man of Inflation 99


    Section II 

    THE BANKERS CAPTURE

    THE MONEY MACHINE 107

    11 No Place Like Home: Fighting for the Family Farm 109

    12 Talking Heads and Invisible Hands: The Secret Government 117

    13 Witches' Coven: The Jekyll Island Affair and the Federal Reserve Act of 1913 125

    14 Harnessing the Lion: The Federal Income Tax 135

    15 Reaping the Whirlwind: The Great Depression 143

    16 Oiling the Rusted Joints of the Economy: Roosevelt, Keynes and the New Deal 153

    17 Wright Patman Exposes the Money Machine 163

    18 A Look Inside the Fed's Playbook: "Modern Money Mechanics" 173

    19 Bear Raids and Short Sales: Devouring Capital Markets 183

    20 Hedge Funds and Derivatives: A Horse of a Different Color 193


    Section III

    ENSLAVED BY DEBT: THE BANKERS'

    NET SPREADS OVER THE GLOBE 203

    21 Goodbye Yellow Brick Road: From Gold Reserves to Petrodollars 205

    22 The Tequila Trap: The Real Story Behind the Illegal Alien Invasion 217

    23 Freeing the Yellow Winkies: The Greenback System Flourishes Abroad 225

    24 Sneering at Doom: "Germany Finances a War Without Money" 235

    25 Another Look at the Inflation Humbug: Some "Textbook" Hyperinflations Revisited 241

    26 Poppy Fields, Opium Wars and Asian Tigers 251

    27 Waking the Sleeping Giant: Lincoln's Greenback System Comes to China 259

    28 Recovering the Jewel of the British Empire:A People's Movement Takes Back India 267


    Section IV

    THE DEBT SPIDER CAPTURES AMERICA 277

    29 Breaking the Back of the Tin Man: Debt Serfdom for American Workers 279

    30 The Lure in the Consumer Debt Trap: The Illusion of Home Ownership 287

    31 The Perfect Financial Storm 293

    32 In the Eye of the Cyclone: How the Derivatives Crisis Has Gridlocked the Banking System 303

    33 Maintaining the Illusion:Rigging Financial Markets 315

    34 Meltdown: The Secret Bankruptcy of the Banks 325


    Section V

    THE MAGIC SLIPPERS:

    TAKING BACK THE MONEY POWER 335

    35 Stepping from Scarcity into Technicolor Abundance 337

    36 The Community Currency Movement: Sidestepping the Debt Web with "Parallel" Currencies 347

    37 The Money Question: Goldbugs and Greenbackers Debate 357

    38 The Federal Debt: A Case of Disorganized Thinking 367

    39 Liquidating the Federal Debt Without Causing Inflation 375

    40 "Helicopter" Money: The Fed's New Hot Air Balloon 383


    Section VI

    VANQUISHING THE DEBT SPIDER: A BANKING SYSTEMTHAT SERVES THE PEOPLE 391

    41 Restoring National Sovereignty with a Truly National Banking System 393

    42 The Question of Interest: Ben Franklin Solves the Impossible Contract Problem 407

    43 Bailout, Buyout, or Corporate Takeover? Beating the Robber Barons at Their Own Game 417

    44 The Quick Fix: Government That Pays for Itself 425

    45 The Tin Man Gets a Heart: Solving the Problem of Third World Debt 435

    46 Building a Bridge: Toward a New Bretton Woods 441

    47 Over the Rainbow: Government Without Taxes or Debt 451


    Glossary 463

    Selected Bibliography of Books and Suggested Reading 471

    Notes 473

    Index 503

    Excerpt

    INTRODUCTION

    CAPTURED BY THE DEBT SPIDER


    President Andrew Jackson called the banking cartel a "hydra-headed monster eating the flesh of the common man." New York Mayor John Hylan, writing in the 1920s, called it a "giant octopus" that "seizes in its long and powerful tentacles our executive officers, our legislative bodies, our schools, our courts, our newspapers, and every agency created for the public protection." The debt spider has devoured farms, homes and whole countries that have become trapped in its web. In a February 2005 article called "The Death of Banking," financial commentator Hans Schicht wrote:

    The fact that the Banker is allowed to extend credit several times his own capital base and that the Banking Cartels, the Central Banks, are licensed to issue fresh paper money in exchange for treasury paper, [has] provided them with free lunch for eternity. . . . Through a network of anonymous financial spider webbing only a handful of global King Bankers own and control it all. . . . Everybody, people, enterprise, State and foreign countries, all have become slaves chained to the Banker's credit ropes.1

    Schicht writes that he had an opportunity in his career to observe the wizards of finance as an insider at close range. The game has gotten so centralized and concentrated, he says, that the greater part of U.S. banking and enterprise is now under the control of a small inner circle of men. He calls the game "spider webbing." Its rules include:

    • Making any concentration of wealth invisible.
    • Exercising control through "leverage" – mergers, takeovers, chain share holdings where one company holds shares of other companies, conditions annexed to loans, and so forth.
    • Exercising tight personal management and control, with a minimum of insiders and front-men who themselves have only partial knowledge of the game.

    The late Dr. Carroll Quigley was a writer and professor of history at Georgetown University, where he was President Bill Clinton's mentor. Dr. Quigley wrote from personal knowledge of an elite clique of global financiers bent on controlling the world. Their aim, he said, was "nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole." This system was "to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements."2 He called this clique simply the "international bankers." Their essence was not race, religion or nationality but was just a passion for control over other humans. The key to their success was that they would control and manipulate the money system of a nation while letting it appear to be controlled by the government.

    The international bankers have succeeded in doing more than just controlling the money supply. Today they actuallycreate the money supply, while making it appear to be created by the government. This devious scheme was revealed by Sir Josiah Stamp, director of the Bank of England and the second richest man in Britain in the 1920s. Speaking at the University of Texas in 1927, he dropped this bombshell:

    The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. . . . But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.3

    Professor Henry C. K. Liu is an economist who graduated from Harvard and chaired a graduate department at UCLA before becoming an investment adviser for developing countries. He calls the current monetary scheme a "cruel hoax." When we wake up to that fact, he says, our entire economic world view will need to be reordered, "just as physics was subject to reordering when man's world view changed with the realization that the earth is not stationary nor is it the center of the universe."4 The hoax is that there is virtually no "real" money in the system, only debts. Except for coins, which are issued by the government and make up only about one one-thousandth of the money supply, the entire U.S. money supply now consists of debt to private banks, for money they created with accounting entries on their books. It is all done by sleight of hand; and like a magician's trick, we have to see it many times before we realize what is going on. But when we do, it changes everything. All of history has to be rewritten.

    The following chapters track the web of deceit that has engulfed us in debt, and present a simple solution that could make the country solvent once again. It is not a new solution but dates back to the Constitution: the power to create money needs to be returned to the government and the people it represents. The federal debt could be paid, income taxes could be eliminated, and social programs could be expanded; and this could all be done without imposing austerity measures on the people or sparking runaway inflation. Utopian as that may sound, it represents the thinking of some of America's brightest and best, historical and contemporary, including Abraham Lincoln, Thomas Jefferson and Benjamin Franklin. Among other arresting facts explored in this book are that:

    • The "Federal" Reserve is not actually federal. It is a private corporation owned by a consortium of very large multinational banks. (Chapter 13)
    • Except for coins, the government does not create money. Dollar bills (Federal Reserve Notes) are created by the private Federal Reserve, which lends them to the banks that lend them to the government, individuals and businesses. (Chapter 2)
    • Tangible currency (coins and dollar bills) together make up less than 3 percent of the U.S. money supply. The other 97 percent exists only as data entries on computer screens, and all of this money was created by banks in the form of loans. (Chapters 2 and 17)
    • The money that banks lend is not recycled from pre-existing deposits. It is new money, which did not exist until it was lent. (Chapters 17 and 18)
    • Thirty percent of the money created by banks with accounting entries is invested for their own accounts.(Chapter 18)
    • The American banking system, which at one time extended productive loans to agriculture and industry, has today become a giant betting machine. An estimated $370 trillion are now riding on complex high-risk bets known as derivatives – 28 times the $13 trillion annual output of the entire U.S. economy. These bets are funded by big U.S. banks and are made largely with borrowed money created on a computer screen. Derivatives can be and have been used to manipulate markets, loot businesses, and destroy competitor economies. (Chapters 20 and 32)
    • The U.S. federal debt has not been paid off since the days of Andrew Jackson. Only the interest gets paid, while the principal portion continues to grow. (Chapter 2)
    • The federal income tax was instituted specifically to coerce taxpayers to pay the interest due to the banks on the federal debt. If the money supply had been created by the government rather than borrowed from banks that created it, the income tax would have been unnecessary. (Chapters 13 and 43)
    • The interest alone on the federal debt will soon be more than the taxpayers can afford to pay. When we can't pay, the Federal Reserve's debt-based dollar system must collapse. (Chapter 29)
    • Contrary to popular belief, creeping inflation is not caused by the government irresponsibly printing dollars. It is caused by banks expanding the money supply with loans. (Chapter 10)
    • Most of the runaway inflation seen in "banana republics" has been caused, not by national governments printing money for the nation's needs, but by global institutional speculators attacking local currencies and devaluing them on international markets. (Chapter 25)
    • The same sort of speculative devaluation could happen to the U.S. dollar if international investors were to abandon it as a global "reserve" currency, something they are now threatening to do in retaliation for what they perceive to be American economic imperialism. (Chapters 29 and 37)
    • There is a way out of this morass. The early American colonists found it, and so did Abraham Lincoln and some other national leaders: the government can take back the money-issuing power from the banks. (Chapters 8 and 24)

    The bankers' Federal Reserve Notes and the government's coins represent two separate money systems that have been competing for dominance throughout recorded history. At one time, the right to issue money was the sovereign right of the king; but that right got usurped by private moneylenders. Today the sovereigns are the people, and the coins that make up less than one one-thousandth of the money supply are all that are left of our sovereign money. Many nations have successfully issued their own money, at least for a time; but the bankers' debt-money has generally infiltrated the system and taken over in the end. These concepts are so foreign to what we have been taught that it can be hard to wrap our minds around them, but the facts have been substantiated by many reliable authorities. To cite a few –

    Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, wrote in 1934:

    We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. 5

    Graham Towers, Governor of the Bank of Canada from 1935 to 1955, acknowledged:

    Banks create money. That is what they are for. . . . The manufacturing process to make money consists of making an entry in a book. That is all. . . . Each and every time a Bank makes a loan . . . new Bank credit is created -- brand new money.6

    Robert B. Anderson, Secretary of the Treasury under Eisenhower, said in an interview reported in the August 31, 1959 issue of U.S. News and World Report:

    [W]hen a bank makes a loan, it simply adds to the borrower's deposit account in the bank by the amount of the loan. The money is not taken from anyone else's deposit; it was not previously paid in to the bank by anyone. It's new money, created by the bank for the use of the borrower.

    Michel Chossudovsky, Professor of Economics at the University of Ottawa, wrote during the Asian currency crisis of 1998:

    [P]rivately held money reserves in the hands of "institutional speculators" far exceed the limited capabilities of the World's central banks. The latter acting individually or collectively are no longer able to fight the tide of speculative activity. Monetary policy is in the hands of private creditors who have the ability to freeze State budgets, paralyse the payments process, thwart the regular disbursement of wages to millions of workers (as in the former Soviet Union) and precipitate the collapse of production and social programmes.7

    Today, Federal Reserve Notes and U.S. dollar loans dominate the economy of the world; but this international currency is not money issued by the American people or their government. It is money created and lent by a private cartel of international bankers, and this cartel has the United States itself hopelessly entangled in a web of debt. By 2006, combined personal, corporate and federal debt in the United States had reached a staggering 44 trillion dollars – four times the collective national income, or $147,312 for every man, woman and child in the country.8 The United States is legally bankrupt, defined in the dictionary as being unable to pay one's debts, being insolvent, or having liabilities in excess of a reasonable market value of assets held. By October 2006, the debt of the U.S. government had hit a breath-taking $8.5 trillion. Local, state and national governments are all so heavily in debt that they have been forced to sell off public assets to satisfy creditors. Crowded schools, crowded roads, and cutbacks in public transportation are eroding the quality of American life. A 2005 report by the American Society of Civil Engineers gave the nation's infrastructure an overall grade of D, including its roads, bridges, drinking water systems and other public works. "Americans are spending more time stuck in traffic and less time at home with their families," said the group's president. "We need to establish a comprehensive, long-term infrastructure plan."9 We need to but we can't, because government at every level is broke.

    Money in the Land of Oz

    If governments everywhere are in debt, who are they in debt to? The answer is that they are in debt to private banks. The "cruel hoax" is that governments are in debt for money created on a computer screen, money they could have created themselves. The vast power acquired through this sleight of hand by a small clique of men pulling the strings of government behind the scenes evokes images from The Wizard of Oz, a classic American fairytale that has become a rich source of imagery for financial commentators. Editorialist Christopher Mark wrote in a series called "The Grand Deception":

    Welcome to the world of the International Banker, who like the famous film, The Wizard of Oz, stands behind the curtain of orchestrated national and international policymakers and so-called elected leaders.10

    The late Murray Rothbard, an economist of the classical Austrian School, wrote:

    Money and banking have been made to appear as mysterious and arcane processes that must be guided and operated by a technocratic elite. They are nothing of the sort. In money, even more than the rest of our affairs, we have been tricked by a malignant Wizard of Oz.11

    In a 2002 article titled "Who Controls the Federal Reserve System?", Victor Thorn wrote:

    In essence, money has become nothing more than illusion -- an electronic figure or amount on a computer screen. . . . As time goes on, we have an increasing tendency toward being sucked into this Wizard of Oz vortex of unreality [by] magician-priests that use the illusion of money as their control device.12

    James Galbraith wrote in The New American Prospect:

    We are left . . . with the thought that the Federal Reserve Board does not know what it is doing. This is the "Wizard of Oz" theory, in which we pull away the curtains only to find an old man with a wrinkled face, playing with lights and loudspeakers.13

    The analogies to The Wizard of Oz work for a reason. According to later commentators, the tale was actually written as a monetary allegory, at a time when the "money question" was a key issue in American politics. In the 1890s, politicians were still hotly debating who should create the nation's money and what it should consist of. Should it be created by the government, with full accountability to the people? Or should it be created by private banks behind closed doors, for the banks' own private ends?

    William Jennings Bryan, the Populist candidate for President in 1896 and again in 1900, mounted the last serious challenge to the right of private bankers to create the national money supply. According to the commentators, Bryan was represented in Frank Baum's 1900 book The Wonderful Wizard of Oz by the Cowardly Lion. The Lion finally proved he was the King of Beasts by decapitating a giant spider that was terrorizing everyone in the forest. The giant spider Bryan challenged at the turn of the twentieth century was the Morgan/Rockefeller banking cartel, which was bent on usurping the power to create the nation's money from the people and their representative government.

    Before World War I, two opposing systems of political economy competed for dominance in the United States. One operated out of Wall Street, the New York financial district that came to be the symbol of American finance. Its most important address was 23 Wall Street, known as the "House of Morgan." J. P. Morgan was an agent of powerful British banking interests. The Wizards of Wall Street and the Old World bankers pulling their strings sought to establish a national currency that was based on the "gold standard," one created privately by the financial elite who controlled the gold. The other system dated back to Benjamin Franklin and operated out of Philadelphia, the country's first capital, where the Constitutional Convention was held and Franklin's "Society for Political Inquiries" planned the industrialization and public works that would free the new republic from economic slavery to England.14 The Philadelphia faction favored a bank on the model established in provincial Pennsylvania, where a state loan office issued and lent money, collected the interest, and returned it to the provincial government to be used in place of taxes. President Abraham Lincoln returned to the colonial system of government-issued money during the Civil War; but he was assassinated, and the bankers reclaimed control of the money machine. The silent coup of the Wall Street faction culminated with the passage of the Federal Reserve Act in 1913, something they achieved by misleading Bryan and other wary Congressmen into thinking the Federal Reserve was actually federal.

    Today the debate over who should create the national money supply is rarely heard, mainly because few people even realize it is an issue. Politicians and economists, along with everybody else, simply assume that money is created by the government, and that the "inflation" everybody complains about is caused by an out-of-control government running the dollar printing presses. The puppeteers working the money machine were more visible in the 1890s than they are today, largely because they had not yet succeeded in buying up the media and cornering public opinion.

    Economics is a dry and forbidding subject that has been made intentionally complex by banking interests intent on concealing what is really going on. It is a subject that sorely needs lightening up, with imagery, metaphors, characters and a plot; so before we get into the ponderous details of the modern system of money-based-on-debt, we'll take an excursion back to a simpler time, when the money issues were more obvious and were still a burning topic of discussion. The plot line for The Wizard of Oz has been traced to the first-ever march on Washington, led by an obscure Ohio businessman who sought to persuade Congress to return to Lincoln's system of government-issued money in 1894. Besides sparking a century of protest marches and the country's most famous fairytale, this little-known visionary and the band of unemployed men he led may actually have had the solution to the whole money problem, then and now . . . .

    “Ellen Hodgson Brown may have done the impossible. She wrote a book about the most stupefying subject in the world - money, where it comes from and how it is manipulated - and made it readable, compelling, even suspenseful. Web of Debt is a page-turner that explains the origin of the Federal Reserve, the functioning of our money supply, currency speculation, capital flows, and the rest. As you read, interest grows like a Wall Street bonus package. . . . The only downside - pardon the finance jargon - is a loss of innocence. Once the destructive reality of the contemporary monetary system sinks in, there is no longer any excuse for apathy.” -Acres USA, April, 2010

    “If there is one book, one newspaper, one blog, one article, that one should read to understand the current economic crisis, to understand the root of the problem, and to understand its solution, it is "The Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free".... "Web of Debt" is an extremely enlightening and remarkable book, providing an understanding to our world and the current economic crisis and providing monetary and banking solutions that will take us out of this crisis and benefit the people... The book is an absolute must read and relevant to people of all political stripes. The only idealogy presented is one of fairness, integrity, and common sense.” -Online Journal, March 2, 2009:

    “It's frankly difficult to find a good book that will help a person become literate about our modern money supply. Most that are accurate are hopelessly dense and written for graduate students in economics....Ellen Brown has translated a dense subject into a readable and fascinating story....Web of Debt by Ellen Brown not only demystifies money, but provides some thought-provoking and realistic solutions to our nation's dangerous dependence on a for-profit banking system that is sucking the financial lifeblood out of our nation....Buy it, read it, and get active!”- Thom Hartmann's Review of the Month for Buzzflash , April 2009

    “Most people need backing of some sort to break through and capture a share of the public mind, but Ms. Brown has seemingly accomplished this all by herself, without funding of any kind. It almost defies comprehension. If we wore a thousand hats, they would all be doffed in respect to Ms. Brown's courageous and apparently independent intellectual journey. We are impressed enough with Ms. Brown's approach to award her a title all her own, in fact. There are in our opinion, in modern economic thought, now Keynesians, Austrians and Brownians.” The Daily Bell, October 8, 2009

    “Ms. Brown has taken two subjects considered boring - history and monetary policy - and turned them into a book as thrilling as any Tom Clancy novel, except that this book is true....If you are looking to have an understanding of the monetary mess we are in, this is an excellent historical overview with some truly elegant and ingenious ideas about correcting the problems we presently face. As you read this book you may find yourself feeling like "Neo" in The Matrix, newly awakened from the slumber of ignorance and deceit. Best of all, she offers viable solutions to the problems that have plagued our planet for millennia. This may well be one of the most important books you will ever read.” - American Free Press , April 21, 2008

    Ellen Hodgson Brown is an American author, political candidate, attorney, public speaker, and advocate of alternative medicine and financial reform, most prominently public banking. 

    Brown is the founder and president of the Public Banking Institute, a nonpartisan think tank devoted to the creation of publicly run banks. She is also the president of Third Millennium Press, and is the author of twelve books, including Web of Debt and The Public Bank Solution, as well as over 200 published articles.

    She has appeared on cable and network television, radio, and internet podcasts, including a discussion on the Fox Business Network concerning student loan debt with the Cato Institute's Neil McCluskey, a feature story on derivatives and debt on the Russian network RT, and the Thom Hartmann Show's "Conversations with Great Minds."

    Ellen Brown is running for California Treasurer in the California June 2014 Statewide Primary election.

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