Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Brown developed an interest in the developing world and its problems while living abroad for eleven years in Kenya, Honduras, Guatemala and Nicaragua. She returned to practicing law when she was asked to join the legal team of a popular Tijuana healer with an innovative cancer therapy, who was targeted by the chemotherapy industry in the 1990s. That experience produced her book Forbidden Medicine, which traces the suppression of natural health treatments to the same corrupting influences that have captured the money system. Brown’s eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies.

Ellen,
I’m trying to get your reaction to an idea I have: When Congress wants to deficit spend, Treasury needs to come up with the money outside of taxes. It issues Treasury securities and these are sold at
auction, usually to large banks (who have the money to meet the needs of the Treasury). The Federal Reserve soon afterwards comes to the banks and buys them plus the interest with money created by the Fed out of thin air, using the powers delegated to it from Congress, which derives its powers to coin money and regulate the value thereof from the Constitution.
Question: Why does Treasury have to come up with additional money from taxes, or wherever to buy back the securities from the Fed?
Isn’t the Fed automatically an agent of the government when it buys the security and further, doesn’t the act of buying it with money created out of thin air exercise government power, and thus automatically redeem the security for the government? Why should the government have to buy the security twice and pay interest on it once it has been redeemed? Has anyone taken the government and the Fed to court over this? Isn’t it illegal or unconstitutional to buy something twice? But if my argument that the Fed has automatically redeemed the security for the government is correct, then we have
debt free money. And there is no national federal debt. (The Fed
can pay back the deposits the Chinese have in bonds they bought to find a secure haven for their dollars. They know they will always get back what they deposited with interest.) Treasury doesn’t borrow from China to deficit spend for Congress. Why should it when the Fed is an unlimited source of fiat dollars.
Stanley Mulaik, Ph.D.
pscccsm@prism.gatech.edu
Good questions. (I’ve been out of the country so am a bit slow getting to this; sorry.) The Fed rebates the interest to the government, so that part is okay; but the Fed doesn’t buy most of the federal debt. The Fed holds less than 10% of the outstanding debt right now I think. Why don’t we fund the whole thing through the Fed, interest-free? It’s because the banks have deluded us into thinking that would be inflationary. But Canada did it for 35 years (till 1974), and it did not create price inflation, their national debt stayed low, and there was plenty of money to create a national health care program, roadways, seaways, etc. (See my articles on that.)
Hi Ellen,
I saw these articles and thought of how your work dovetails with theirs:
http://www.golemxiv.co.uk/2011/05/how-to-destroy-the-web-of-debt/
http://www.golemxiv.co.uk/2012/08/a-waiting-game/
Best regards!
Modern Monetary Theorists argue that the Treasury bonds bought
by China and others are not used to fund deficit spending. The money
is just kept at the Fed Reserve like bank CD’s, and when they mature the money is refunded plus interest. Which are the “old securities” that the Fed’s FAQ says it is buying, if it is not buying new securities, for, say, current deficit spending?
Even so, minting ten $10 Trillion denomination bullion coins and depositing them at the Fed in a special account and having the Fed credit the account for $100 Trillion in Fed Reserve Notes it creates out of thin air, would create a reservoir of debt-free dollars the government could draw upon to redeem Social Security’s Treasury securities left as IOU’s by Congress, and also fund from year to year deficit spending by Congress. It would have to be drawn upon by Congress in a judicious manner to avoid inflation. That would require educating Americans and their politicians in the properties of fiat money and when to create it and when to tax, sell bonds, cut spending, encourage savings and tax investment, to take excess money out of circulation chasing resources, goods, services and manpower. It would have to take into account the balance between exports (bring money back into circulation) and imports (take money out of circulation).
It might be interesting to read the Grace Commission Report of 1984. This report was submitted to then President Reagan. Grace told Reagan that the vast majority of federal income taxes go to the Federal Reserve to pay only the interest on the debt. The report states that federal incomes virtually pays nothing to keep the government going. Ron Paul is right. If we eliminate the Federal Reserve, we can eliminate federal income taxes. It’s just a thought.
They don’t keep all the interest on the securities. They take a transaction fee of 6% of the interest. They return the rest to the Treasury.
There is no need to use taxpayer money to pay these transaction fees. The Treasury can issue separate securities to fund the fees.
Fed will buy this and redeem the debt on them (they need to admit that). Treasury will pay the transaction fee with debt-free money it gets from banks (after redeemed by the Fed).
As Ellen points out, the Fed returns all but 6% of the interest paid
on the Treasury securities it holds to the Treasury. The 6% is for
operations of the Fed.
But why the Treasury is supposed to redeem the securities from the
Fed and with taxpayer money is a mystery. Once the Fed acquires
the securities from those who bought the securities at public auction, and uses new money it creates out of thin air to do the purchase,
it has acted as government redeeming the securities, meaning it has
cancelled the debt with debt-free money. The Treasury has no need
to come along and buy them in turn from the Fed or even to pay the interest on them, since the securities have been redeemed and the
obligation on them cancelled. There is no national debt at the Fed,
and other debts and obligations are on bonds that serve as CD’s
for private holders of them. The Treasury also has power delegated
to create money out of thin air, actually to coin bullion coins in platinum in any denomination and any quantity. It can convert these
to Federal Reserve dollars by depositing them at the Fed. Ten $10 Trillion coins deposited at the Fed would yield $100 Trillion dollars that
could be used to cancel the national debt at the Fed, redeem securities at the Social Security and other federal agency Trust Funds,
and be a reservoir of debt-free dollars to fund future deficit spending by Congress.
Americans are sorely deficient in understanding of our fiat money system, and the powers our government has to meet its debts without
taxpayer money. They focus just on balanced budgets, without considering the flow of money in and out of circulation in the country,
and whether the budget coincides with full employment and needs for national defense. Australia has had surpluses for a decade, and ordinarily this would produce depressions, since a surplus is taking money out of circulation and just sitting on it and not respending it.
In time the money in circulation will shrink and cause a depression.
But Australia has been exporting iron ore in great quantities to China, which brings new money into circulation in lieu of doing deficit spending.
Japan has a national debt twice the size of its Gross Domestic Product
and is deficit spending all the time, but there is no inflation. The reason: the Japanese have been furiously putting their money into savings for retirement, so much so that the government has to deficit spend to continue introducing new money into circulation to avoid
recession and/oir depression.
So balanced budgets, deficits don’t have any special meaning except when considered in the context of savings, investment; exports and imports, government spending, taxing; credit and debit.
The fact that our government creates its own money means that its finances are not like household finance, business finance, state or
local government finance, which Americans generally use as analogies to understand (erroneously) federal finance.
[...] Ellen Brown recently blogged “In the 2012 edition of Occupy Money released last week, Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our GDP.” [...]
I am glad to have found Ellen Brown blog about the fed. I am a person with only a ged education level (recently acquired) I have always had a severe dislike of the federal reserve bank with out any knowledge of their back room dealing. I guess stems from their arrogance to not account to any one of their ways of operating such an opaque business. I wrote a few article in Italian for a small magazine where I predicted the trouble for the Greek nation and surely one week after my article, Greece was all over the media. (Mine was just a prediction with just a lucky coincidence.) I am so glad for Miss Ellen Brown to give to the public her acquired knowledge where it shows that there is a solution to a very large and serious problem with ramifications through out the society at large by changing to a public banking system. I would like to add an extreme transparent and simple operational system where every one have an understanding of how the banks and financials companies are operating.
There is a paper on hyperinflation at the GMO institute
http://www.gmo.com/America/:
Hyperinflations, Hysteria, and False Memories — James Montier
There is some stuff there that might interest
WHY do they do it as they do? – with interest paid to private banks instead of saving that money [with a public bank for government finances] – is it simply to “help their friends in the banking industry”?
That would fit with “creating wars to help the weapons industry” and “keeping fossil fuels as the main source of energy to help the oil and gas and coal people” and so on and so on.
Shovelling money to the Elite Wealthy people is what it is about.
Those Elite wealthy people also choose the people they want in government, and help them get elected [and hinder any challengers] to ensure this scheme keeps going.
When problems like “2008″ arise, it is a mere hiccup to the Elite Wealthy people – they just ask their minions in government to bail out banks. When that gets to be difficult because the government is running out of money [for various reasons] they have government craft legislation like we saw in Canada this year, and in Cyprus – close the banks for a few days and take the money needed out of people’s savings accounts.
When the whole big Ponzi Scheme house of cards starts to fall apart, the Elite Wealthy might not see their wealth GROW, but they have enough to ride out a major depression for 10 years – no big deal to them.
These financial predations can be stopped. We need to demand another way to elect our government – democracy is dead now, we must work to restore it. What will it take to do that? Nothing will change until we do.
Ellen, can you elaborate on your remarks of several years ago regarding the theoretical possibility of the Fed coming directly to the financial aid of the states? Dr Bernanke was quoted at the time as saying his hands were tied by the wording of the Fed’s charter. I believe you wrote that changing the applicable section(s) would mean only two cosponsors in Congress would be needed together with a voice vote. I’ve lost track of my downloads since then and would appreciate it very much if you could let me know what the mechanics of such an action would be.
Hi, here’s my article on that, but I don’t think I said how it could be changed.
http://www.webofdebt.com/articles/nobailout_mainstreet.php
Good idea though!