Historically, the US had recognized two types of currency: gold and silver - the peacetime money, and paper - the war and emergency currency. New Money Issued, Backed by Debt, Not Gold Roosevelts papers said ...it was at first believed that some form of script or emergency currency would be necessary for the conduct of ordinary business... but after the passage of the Emergency Banking Act of March 9, 1933 (48 Stat. 1), it became evident that they would not be needed, because the act made possible the issue of the necessary amount of emergency currency in the form of Federal Reserve bank notes, which could be based on any sound assets owned by banks. (Roosevelt Papers, Vol. 2 p. 29) The Federal Reserve notes after March 9, 1933, became Federal Reserve bank notes and were emergency war script. They were no longer backed by the gold of the people; all gold had been seized as an act of war. The Federal Reserve bank notes were now backed by the assets of the banks. The assets of the banks are the mortgages held on the people and their property. Congress Recognizes New Money is Mortgage Against People’s Property Representative Patman explained the new system this way: Under the new law the money is issued to the banks in return for government obligations, bills of exchange, drafts, notes, trade acceptances, and bankers acceptances. The money will be worth 100 cents on the dollar, because it is backed by the credit of the nation. It will represent a mortgage on all the homes, and other 32 Constitution: Fact or Fiction property of all the people in the nation. (Congressional Record, March 9, 1933 on HR 1491, p. 83) Eavesdropping on Congressional Debate Let us listen in on congressional debate on this act on March 9, 1933. Mr. McGugin. If we start out printing currency without regard for the gold reserve, then in the end, when we find that excessive inflation destroys the country and the people, we shall try to get back to the gold standard. Then we shall find that we have so much currency outstanding that we cannot tie it to our limited supply of gold except by reducing the content of the gold dollar in proportion to the increased amount of currency. That may mean that we shall have to decrease the gold content 50 percent, maybe 15 percent, and maybe 90 percent. It will all depend on how far we carry the inflation during the period that our currency is not tied to gold. It may be that we shall do as Germany did by going so far that there is no possibility of tying all of our outstanding currency to gold, and we shall be obliged to repudiate and cancel some of our currency. Anyone knows that this Government cannot now collect enough taxes to meet its present expenses. Whenever governments reach the position where they can neither collect enough taxes to meet their expenses nor borrow enough to meet their expenses, there is only one thing left for them, and that is to print money. Such is the position of the United States; and, whether we like it or not, there is going to be some inflation in order to meet the obligations of the Government. Mr. Patman. The President submitted a bill which was intended to assist in the opening of all the banks in the Nation. Although it was contrary to many of the principles that I have advocated for many years, it con- Money, Property and Production Nationalized 33 tained provisions I do not approve and failed to go far enough in other ways. I yielded and voted for the bill; it was an emergency measure and should have been passed immediately. The proposal embodied one feature that I have advocated for a long time, and that was the issuance of additional circulating medium. The banks of the Nation have inflated credit out of proportion to the amount of actual money. The result is the banks have become indebted to their depositors to the extent of $45,000,000,000 and have in their vaults less than $1,000,000,000 to pay it with. The new law will cause the printing presses at the Bureau of Engraving and Printing here in Washington to print more money and furnish it to the banks. Mr. McFadden. Mr. Speaker, I regret that the membership of the House has had no opportunity to consider or even read this bill. The first opportunity I had to know what this legislation is was when it was read from the Clerks desk. It is an important banking bill. It is a dictatorship over finance in the United States. It is complete control over the banking system in the United States. The first section of the bill, as I grasped it, is practically the war powers that were given back in 1917, with some slight amendments. The other gives supreme authority to the Secretary of the Treasury of the United States to impound all the gold in the United States....I would like to ask the chairman of the committee if this is a plan to change the holding of the security back of Federal Reserve notes to the treasury of the United States rather than the Federal Reserve agent. Mr. Steagall. This provision is for the issuance of Federal Reserve bank notes; not for Federal Reserve notes; and the security back of it is the obligations, notes, drafts, bills of exchange, bank acceptances, out- lined in the section to which the gentlemen has referred. Mr. McFadden. Then the new circulation is to be Federal Reserve bank notes and not Federal Reserve notes? Is that true? Mr. Steagall. Insofar as the provisions of this section are concerned, yes. Mr. Britten. From my observation of the bill as it was read to the House, it would appear that the amount of bank notes that might be issued by the Federal Reserve System is not limited. That will depend entirely upon the amount of collateral that is presented from time to time for exchange for bank notes. Is that not correct? Mr. McFadden. Yes. I think that is correct. Mr. Britten. So that it might run to $20,000,000,000? Mr. McFadden. In the discretion of the President and the Secretary of the Treasury. These notes are to be secured by assets that are approved, that are turned over by financial institutions to the Treasury of the United States. [Applause.} Congressional Record, March 9, 1933 p. 80 The Hundred Days The following actions taken by President Roosevelt and congress were called The Hundred Days. March 9 - The Emergency Banking Act - complete control of all banks, gold and silver, currency and transactions. March 20 - The Economy Act - an act to reduce the government deficit. Money, Property and Production Nationalized 35 March 31 - Civil Conservation Act - an act to control use of natural resources. April 19 - Abandonment of gold standard - seizure of all gold. May 12 - Emergency Relief Act - control of social agenda and national welfare program. May 12 - Agricultural Adjustment Act - an Act to nationalize and control all production and pricing of agricultural commodities. May 18 - Tennessee Valley Authority - nationalization of utilities. May 27 - Truth in Securities - control of private financing. June 5 - House Joint Resolution 192 - abrogation of gold clause in public and private contracts - control of all contracts. June 13 - Home Owners Loan Act - control financing and prices of homes and bail out banks. June 18 - National Industrial Recovery Act - nationalization of industry and labor. Provided for industrial selfgovernment under federal control, and provided $3.3 billion for public works. June 16 - Glass-Steagall Act - divorced commercial and investment banking and guaranteed bank deposits, and led to establishment of the FDIC. June 16 - Railroad Coordination Act - resulted in nationalization of transportation. State Owns All Property; People are Mere Users Senate Document No. 43, 73rd Congress, 1st Session, states: The ownership of all property is in the State; individual so-called ownership is only by virtue of Government, i.e., law, amounting to mere user; and use must be in accordance with law and subordinate to the necessities of the State. America Has Been Nationalized The first hundred days and subsequent acts provided for the complete nationalization of America. All of these acts were based on the wartime Trading With the Enemy Act, which had been amended to include the American people and all transactions within the nation. Agricultural Adjustment Act Gives President Power over Money System Oddly enough, the power given to congress by the constitution to coin money and regulate the value thereof, was transferred to the president in the Agricultural Adjustment Act of May 12, 1933. It states: Sec. 43. Whenever the President finds, upon investigation, that (1) the foreign commerce of the United States is adversely affected by reason of the depreciation in the value of the currency of any other government or government in relation to the present standard value of gold, or (2) action under this section is necessary in order to regulate and maintain the parity of currency issues of the United States, or (3) an economic Money, Property and Production Nationalized 37 emergency requires an expansion of credit, or (4) an expansion of credit is necessary to secure by international agreement a stabilization at proper levels of the currencies of various governments, the President is authorized, in his discretion ... Sec (45) (g) Notwithstanding the foregoing provisions of this section, the Federal Reserve Board, upon the affirmative vote of not less than five of its members and with the approval of the President, may declare that an emergency exists by reason of credit expansion, and may by regulation during such emergency increase or decrease from time to time, in its discretion, the reserve balances required to be maintained against either demand or time deposits. Approved May 12, 1933. Permanent Agency Created to Deal with Temporary Problem The Agriculture Adjustment Act created a permanent agency, the Agricultural Adjustment Administration, to deal with a problem defined as temporary by the very nature of the authority used to create it - the war and emergency powers. If Money Based on Debt Value, Value Must Be Propped Up With this concept of currency based upon the assets of the people it became imperative that these assets be supported. This concept is explicitly defined in the Agricultural Adjustment Act: That the present acute economic emergency being in part the consequence of a severe and increasing disparity between the prices of agricultural and other commodities, which disparity has largely destroyed the purchasing power of farmers for industrial products, has broken down the orderly exchange of commodities, and has seriously impaired the agricultural assets supporting the national credit structure, it is hereby declared that these conditions in the basic industry of agriculture have affected transactions in agricultural commodities with a national public interest, have burdened and obstructed the normal currents of commerce in such commodities, and render imperative the immediate enactment of Title I of this Act. Total Control Over Farm Prices Established Arthur Schlesinger, Jr., interprets this farm move: The board design was clear: to help correct the imbalance between industry and agriculture by raising farm prices; and to raise farm prices through the curtailment of production, the regulation of marketing, and a variety of other devices. And there was general agreement on the mechanism: the establishment of a new agency within the Department of Agriculture, to be called the Agriculture Adjustment Administration. But the immense discretion conferred on the Executive under the AAA law left many crucial decisions for the future. Much would therefore depend on the men summoned to conduct what Mordecai Ezekiel pronounced the greatest single experiment in economic planning under capitalist conditions ever attempted by a democracy in times of peace. Home Owners Loan Act Props Up Property Values, Bails Out Banks The Home Owners Loan Act was likewise adopted amidst cries that the act bailed out real estate interests rather than the home owner. Without having to scale down Money, Property and Production Nationalized 39 the debt he was owed, the mortgagor could turn defaulted mortgages for government -guaranteed bonds. The price of homes was thus arbitrarily supported at a high level. With the price of land and homes arbitrarily supported, the banks could claim sound assets for which in return they could obtain Federal Reserve bank notes from the system. It was through this method that the modern day money creation system was established. Two Ways to Create Money As government obligations were also authorized securities for the creation of Federal Reserve bank notes, there were thus two mechanisms established by which money could be created. 1. The people could go directly to the member banks and mortgage their property. These assets could be discounted to the Federal Reserve Banks for currency. 2. The government could mortgage the people and their property through government obligation and discount these directly to the Federal Reserve Bank. Both methods were used extensively in order to encourage private mortgaging as much as possible. The Farm Credit Act and the Home Owners Loan Act were created in June of 1933. The Securities Act of 1933 which established the Securities Exchange Commission gave the government control over all private securities and thus controlled all private means of financing. Many who could have previously financed privately were forced by this act into public financing which helped dramatically to expand the supply of currency. The government also helped to expand the currency. This is shown in the annual budget message of January 3, 1934. Two National Budgets Roosevelt presented the financial position and budget: In my annual message to the congress I have already summarized the problems presented by the deflationary forces of the depression, the paralyzed condition which affected the banking system, business, agriculture, transportation, and, indeed, the whole orderly continuation of the Nations social and economic system. I have outlined the steps taken since last March for the resumption of normal activities and the restoration of the credit of the Government. Of necessity these many measures have caused spending by the Government far in excess of the income of the Government. The results of expenditures already made show themselves in concrete form in better prices for farm commodities, in renewed business activity, in increased employment, in reopening of and restored confidence in banks, and in well - organized relief.
Posted on: Sat, 20 Jul 2013 04:10:00 +0000
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