Creature From Jekyll Island by G. Edward

It was stated in the previous chapter that the Jekyll Island group which conceived the Federal Reserve System actually created a national cartel which was dominated by the larger banks. It was also stated that a primary objective of that cartel was to involve the federal government as an agent for shifting the inevitable losses from the owners of those banks to the taxpayers. That, of course, is one of the more controversial assertions made in this book. Yet, there is little room for any other interpretation when one confronts the massive evidence of history since the System was created. Let us, therefore, take another leap through time. Having jumped to the year 1910 to begin this story, let us now return to the present era.

To understand how banking losses are shifted to the taxpayers, it is first necessary to know a little bit about how the scheme was designed to work. There are certain procedures and formulas which must be understood or else the entire process seems like chaos. It is as though we had been isolated all our lives on a South Sea island with no knowledge of the outside world. Imagine what it would then be like the first time we travelled to the mainland and witnessed a game of professional football. We would stare with incredulity at men dressed like aliens from another planet; throwing their bodies against each other; tossing a funny shaped object back and forth; fighting over it as though it were of great value, yet, occasionally kicking it out of the area as though it were worthless and despised; chasing each other, knocking each other to the ground and then walking away to regroup for another surge; all 26 THE CREATURE FROM JEKYLL ISLAND

this with tens of thousand of spectators riotously shouting in unison for no apparent reason at all. Without a basic understanding that this was a game and without knowledge of the rules of that game, the event would appear as total chaos and universal madness.

The operation of our monetary system through the Federal

Reserve has much in common with professional football. First, there are certain plays that are repeated over and over again with only minor variations to suit the special circumstances. Second, there are definite rules which the players follow with great precision. Third, there is a clear objective to the game which is uppermost in the minds of the players. And fourth, if the spectators are not familiar with that objective and if they do not understand the rules, they will never comprehend what is going on. Which, as far as monetary matters is concerned, is the common state of the vast majority of Americans today.

Let us, therefore, attempt to spell out in plain language what that objective is and how the players expect to achieve it. To demystify the process, we shall present an overview first. After the concepts are clarified, we then shall follow up with actual examples taken from the recent past.

The name of the game is Bailout. As stated previously, the objective of this game is to shift the inevitable losses from the owners of the larger banks to the taxpayers. The procedure by which this is accomplished is as follows:

RULES OF THE GAME

The game begins when the Federal Reserve System allows

commercial banks to create checkbook money out of nothing.

(Details regarding how this incredible feat is accomplished are given in chapter ten entitled The Mandrake Mechanism.) The banks derive profit from this easy money, not by spending it, but by lending it to others and collecting interest.

When such a loan is placed on the bank's books it is shown as an asset because it is earning interest and, presumably, someday will be paid back. At the same time an equal entry is mad.? on the liability side of the ledger. That is because the newly created checkbook money now is in circulation, and most of it will end up in other banks which will return the canceled checks to the issuing bank for payment. Individuals may also bring some of this check-THE NAME OF THE GAME IS BAILOUT

27

book money back to the bank and request cash. The issuing bank, therefore, has a potential money pay-out liability equal to the amount of the loan asset.

When a borrower cannot repay and there are no assets which can be taken to compensate, the bank must write off that loan as a loss- However, since most of the money originally was created out of nothing and cost the bank nothing except bookkeeping overhead, there is little of tangible value that is actual lost. It is primarily a bookkeeping entry.

A bookkeeping loss can still be undesirable to a bank because it causes the loan to be removed from the ledger as an asset without a reduction in liabilities. The difference must come from the equity of I hose who own the bank. In other words, the loan asset is removed, but the money liability remains. The original checkbook money is still circulating out there even though the borrower cannot repay, and the issuing bank still has the obligation to redeem those checks.