JESSE M. TOWNSLEY, JR.

141 Carriage Hill Lane, York, Pennsylvania 17406

Tel: 717-309-2642 ; e-mail: jesstownsley@gmail.com

MONEY, BANKING, THE FED, & THE FEDERAL GOVERNMENT

Oh what a tangled web we weave, when first we practice to deceive.

Introduction: The United States of America is a constitutional republic, which was formed as a
result of the Declaration of Independence, issued on July 4th, 1776, plus the U. S.
Constitution, which was ratified by a convention of nine states on September 17th, 1787.

The legal definition for ‘money’ was a concern for the framers of our founding documents
because a fiat paper money system had been created by the Continental Congress (as a hoped-for
way to pay for the expenses of the Revolutionary War) that utterly collapsed in a little over three
years through inflation of the paper currency. This experience, plus that of countless previous
governments with fiat paper currencies, convinced the delegates to the constitutional convention
to make further unhappy experiences of this type a virtual impossibility, by requiring that money
in the United States be “gold and silver coin” (stated clearly in Section 10 of the U. S. Consti-
tution.) These metals were, and still are, the only legal money for Americans. No constitutional
amendment has ever been drafted, or passed, allowing the use of a fiat paper currency.

Nevertheless, as a result of unconstitutional actions by the Executive and Legislative Branches of

the Federal Government, not only do we now have a de facto fiat money system, but it has no tie
whatsoever to any commodity of intrinsic value. In fact, it is improperly based on the debt issued
by a central bank known as The Federal Reserve System (i.e. THE FED), which was approved
by Congress in 1913.

Previously, two other national central banks had been formed in the United States, which did
great harm to the country’s financial and economic system, i.e. the First and Second Banks of the
United States. The second one was destroyed by President Andrew Jackson, in a major power
struggle with the bank’s president who thought he controlled the money system of the United
States, by being able to manipulate the amount of money available to the economy. After this
experience, most members of Congress thought that a central banking system would never again
see the light of day in America. They were wrong, because the greed that is bred by a central
banking system is too powerful for those in control to resist for very long.

The story about how a central bank, known as The Federal Reserve System (aka “THE FED”),
was approved by the U. S. Congress, signed into “law” by President Wilson, and not declared
unconstitutional by the U. S. Supreme Court, is a very remarkable one. An excellent book on this
topic by G. Edward Griffin, entitled “The Creature from Jekyll Island”, is available to scholars.

The Federal Reserve System has the following duties (per SEC written explanations):

1. Conducting the nation’s monetary policy by influencing monetary and credit conditions in the
economy in pursuit of maximum employment, stable prices, and moderate long term interest rates.
2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s
banking and financial system, and protect the credit rights of consumers.
3. Maintaining stability of the financial system and containing systemic risk that may arise in markets.
4. Providing financial services to depository institutions, the U. S. Government, including a major role in
operating the nation’s payments system.
The FED consists of the following five parts:

1. The presidentially appointed Board of Governors, a governmental agency in Washington, D.C.

2. The Federal Open Market Committee, which is the principal tool of national monetary policy.
3. Twelve regional privately owned Federal Reserve Banks, domiciled in major cities nationwide,
which act as fiscal agents for the U. S. Treasury.
4. Numerous private U. S. member banks, which are required to subscribe to non-transferable stock
in the Federal Reserve Banks (on which they are paid a 6% annual dividend.)
5. Various advisory councils related to money and banking.

In the opinion of this author, the stated purposes of the FED are not at all consistent with how it
actually operates. Due to faulty economic theory employed by the FED, there is no way for it to
“stabilize the economy, or prices”; to “maximize employment”, or to “protect the safety and
soundness of the banking or financial system”. In fact, these are unattainable goals which sound
good to a public that does not understand how the money system actually works. Anyway, the
real purpose of the FED is to act as the ‘lender of last resort’ both to its member banks, and to the
U. S. Government. Most of the FED’s activities are in place to make it look like an essential part
of the financial and monetary system. Even worse, being the ‘lender of last resort’ turns out to
exacerbate a dangerous monetary system, as should become evident from the following sections.

The FED has created a monetary system which is currently a fiat paper money system based on
the faith and credit of the FED, and effectively in the Federal Government, as well. While the
FED is allegedly not owned by anyone, it services a commercial banking system that is owned
by private interests. So, in effect, the private interests are the beneficiaries of the FED policies
that enable the commercial banks to be extraordinarily profitable, as many have been over the
period of time that this system has been in existence. More recently, commercial banking has
become significantly less profitable, due to the high-risk activities which the banks chose to enter
into of their own volition, and - to a large extent - in which they are still engaged.

The key means by which commercial banking has been able to grow exponentially in the past
century has been based on the “fractional reserve banking system” that has operated in
commercial banking for over a century. A discussion of this approach to so-called “modern
banking” can be found in an excellent article in Wikipedia, the online free encyclopedia, which
contains a huge cache of references to other articles expanding the discussion on every element of
the concept, and to every point of view that pertains to it.

Yet, in principal, the concept of ‘fractional reserve banking’ is not excessively complicated. The
concept was borrowed from a fraudulent device invented by goldsmiths during the ‘Middle Ages’,
extending up to the early 1800’s. In this period, protecting one’s ownership in gold and silver
coin was a more difficult affair, because public repositories of money did not exist the way they do
today. So, many people stored their gold and silver coins with the local “goldsmith”, who had
more forceful means of protecting the asset. To evidence ownership, the goldsmith issued a
‘bearer’s receipt’ for the actual gold and silver, which in time began to be used as a kind of
currency of its own. When goldsmiths observed that most people usually left their gold and silver
in storage for lengthy periods of time, and chose to use the ‘bearer receipts’ as substitutes for the
real money, they began to employ a fraudulent artifice of issuing receipts for more gold and silver
than they actually had available. This worked very well, unless the receipt owners grew
suspicious and tried to turn in their receipts for the actual coins. If more than one bearer did so,
and the practice spread, it caused a “run on the bank” which forced the goldsmiths to fail, with the
usual consequences that befell this kind of treachery in those days.

Today, what was then a fraudulent practice has become an art form, which has been expanded to
the highest levels of our economic system. Commercial banks have for over a century lent out
more money than they possess, routinely, as a commonly accepted way of doing banking
business. However, the practice retains the intrinsic problems of lending out what you do not
have, and it has caused an inflation of the money supply and not infrequent “runs on the bank”,
which have been at the root of our financial problems for a very long time.

When the fraudulent practice of lending out customer deposits is combined with a monetary
system that is based on fiat currency (which theoretically can be expanded infinitely), the
mischief that such a combination can cause is extraordinary. In fact, over time it can lead to a
situation where our government can spend more money than it has available, continuously, for
thirty years (which the U. S. Government actually did.) In so doing, it created a current deficit
which has reached the amazing and incomprehensible sum of thirteen trillion dollars, with no
end to increasing deficits in sight, or even now imaginable to any logically thinking person.

The solution to this problem is obvious: we need to end the practice of fiat paper money, and of
the fractional reserve banking system. This, however, will not be easy to accomplish, because our
Federal Government has become addicted to these tools, which increase the political power of the
elite managers of our government, and which have lead to banking families becoming immensely
rich through the employment of these fraudulent devices. Neither the government nor the rich
elite will abandon their positions of wealth, power, and prestige with equanimity. It will be a fight
to the finish, and it is not easy to see exactly whose finish it will be.

The difficulty involved with trying to re-create a truly stable money system has been compounded
by the fact that nearly the entire world’s monetary system is now based on central banking, fiat
paper currencies, and fractional reserve banking. In this kind of world, no country, no matter
how important to the world system, can act as a solo practitioner. So, fixing this problem will
take a lot of international cooperation. It will also be fought by the international banking
interests, which are dead set on creating a world monetary system, based on exactly the kind of
fraudulent practices now being utilized. Why does anyone desire this? The reason is that it is
easier to stack the deck and steal assets if you control the whole shebang. So, it’s likely this has
been the goal of the world’s wealthiest banking interests for well over a century. In fact, they are
not far from pulling off this gigantic scam. Skeptics of a one world monetary concept believe that
the actions of our current American government (i.e. to spend and create unsustainable debt) is
really a ploy to force Americans to accept a one world monetary system because they believe it
won’t be accepted by Americans without their first creating a monetary collapse. Based just on
events in recent years, and observing what is happening right now, this idea sounds altogether too
plausible to this author.

Despite the obvious difficulties in fighting the current monetary system, and installing a more
stable system, it should be fairly obvious to Americans by now that not attempting to solve this
problem (which means doing nothing about these illegal and dangerous practices) will create a
certain monetary and political chaos of epic proportions. It appears obvious to this observer that
the end time for expansion of our fiat paper currency is now clearly in sight. Once interest rates
inevitably begin to rise, forcing the government to pay interests costs more appropriate to a high-
risk debt system, the cost to the government (and, ultimately, to the taxpayer) will become
impossible to sustain. This must lead to either a default on our national debt or, more likely, a
hyperinflation which will destroy the purchasing value of our American fiat paper currency,
thereby crushing our economy, and likely destroying our government as well. How draconian the
steps will be that are taken by the leaders of our government to stay in power for as long as
possible is the key question. Presently, not only does no one know the answer to this question,
but the absence of public discussion of it indicates that either few people understand what is
happening, or everyone is too afraid to look the beast in the eye.

This however, is no time to duck the issue, but to face it squarely, and with resolve, exactly the
way the founders of our country did over two hundred and thirty years ago.