How Money Is Created In Australia by SOS - Simply Explaining How The Australian Monetary System Could Better Serve Aust

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Part One: How Money Is Created In Australia:
By SOS -

Simply explaining how the Australian monetary system could better serve Australia's people.

We have all heard it said that "money is the root of all evil" and probably thought that was a bit of an exaggeration. But when we understand how money is created in the modern world we can then understand the main cause of many major problems: ever increasing taxation; pensions disappearing; inequitable distribution of wealth; inflation; national debt; currency crises and devaluations; recessions; depressions; and even the failure of government in a democracy to govern in the interest of its electors.

Money was invented to be a tool for facilitating trade, but has now become a tool used by the rich to govern the world. If you have any doubt about that, please read on.

National Debt:

We've all heard of the Third World's debt crisis, of hopelessly poor nations unable to pay their debts, and of the human suffering and environmental consequences of their desperate predicament. But did you know that powerhouse of the world economy, the United States of America, is also in debt... to the extent of nearly US$20,000 for every man, woman and child in the entire USA? Or that after Mexico and Brazil Australia is, per head, the largest debtor nation on Earth?

According to figures obtained in mid 2001 from the CIA Factbook: these are the external debts of a few countries, a lot of them from the "First World":

Australia US$222 billion, Austria US$32 billion, Canada US$253 billion, China US$159 billion, France US$117 billion, Hong Kong US$48 billion, Israel US$18 billion, Italy US$45 billion, New Zealand US$53 billion, Russia US$199 billion, South Africa US$25 billion, Sweden US$66 billion, United Arab Emirates US$15 billion, United States of America US$862 billion.

The Factbook's figures vary from being a couple to several years old, but if so many countries, from the richest to the poorest, are all in debt the question needs to be asked... to whom is the money owed? The answer, apparently, is to private banks.

Banks are happy to make loans available because of the interest they earn from them, but how do they come to have so much money to lend? More even than the world's richest countries? The way the banks amass all that money to lend is the story of this page, because they do it not only in Australia, but in countries all around the world, and they are accused by many of using that money to bribe and blackmail politicians, political parties, bureaucrats, media, experts, and others so that indirectly they are able to govern the world.

To find out how, read on...

Definition of Money:

Money according to the Macquarie dictionary is "coins or certificates (such as banknotes etc.) generally accepted in payment of debts and transactions, or any article or substance similarly used". In the early days of Sydney, Australia, rum was frequently used as a form of money. In the modern world credit cards and cheques are generally accepted in payment of debts and transactions, so credit is a form of money.

Coins and Banknotes

In Australia, coins are made by the Commonwealth Government at its Royal Mint: in Canberra and banknotes are printed in Melbourne by Note Printing Australia: a wholly owned subsidiary of the Reserve Bank of Australia: which in turn is wholly owned by the Commonwealth Government. So it is fair to say that coins and banknotes are manufactured by the government. Provided the quantities made result in a total money supply in balance with the goods and services being generated throughout the country the manufacture of coins and banknotes will not cause inflation nor a shortage of money.

But statistics: like those prepared by the Reserve Bank show that only about 5% of all money in Australia exists as coins and banknotes. So where does the other 95% of money come from?

Banks Create Money by Creating Credit:

Credit that can be accessed by credit card, overdraft cheque or bank loan represents nothing more than a bank's promise to pay. Credit money exists only as numbers in bank computers. And banks have been known to go broke occasionally even in Australia, leaving their trusting customers in the lurch!

When someone borrows from a bank, perhaps taking out a housing loan, the bank records in the borrower's account the debt that must be repaid with interest, and in return provides a bank cheque to the borrower or direct to whoever he is purchasing the house from. The bank cheque is bank created credit, not backed up by the bank's own money nor anyone else's. The banks are permitted by governments to create credit like this up to as much as 15 times the total amount of money they hold in "deposits". Furthermore, "deposits" are considered to be not only banknotes and coins, but cheques and account balances representing credit created previously, so banks are able to build a mountain of credit based on earlier credit until it amounts to 95% of all money!

It is worth stressing that when a bank makes a loan, it never loans any of the bank depositors' money. No depositor ever sees a statement telling him that part of his deposit is unavailable because it has been loaned to a borrower. Bank loans are of bank created credit only.

Eventually the house seller will present the bank cheque for payment, probably at another bank where it will be credited to the seller's account. But even at this stage the created credit still exists only as numbers that the banks' computers can swap amongst themselves, and on average that is where 95% of it will stay for the life of the loan, because, remember, only about 5% of all money is cash.

So banks can and do increase the money supply by creating money out of nothing, as credit. By so doing their influence over the total amount of money circulating in the community is many times greater than that of the government manufacturing banknotes and coins. And so it is that the privately owned banks can cause and control inflation. Remember that next time you hear some scaremonger predicting ruinous inflation caused by the government printing money.

In time, the credit created by the loan is extinguished as the loan is repaid, so at the end of the loan the temporarily created credit will have disappeared, except for leaving the bank richer by the amount of interest paid. Would now be a good time to remember that the interest amount is often greater than the original amount of the loan?

To expand its business, the banking industry normally seeks to continually increase the overall level of debt, and just loves big spending business and government customers. But it is worth noticing that banks can at any time decrease the supply of money circulating in the community by refusing to issue new loans as existing ones are repaid... thereby causing recessions and depressions.

In Other Words:

The previous section is the most misunderstood part of this story, so it is worth repeating several times in different words. Click here: to find similar things being said in different ways by a variety of commentators. Or see The Fatal Trap In The Global Economy by Graham Ferguson and Michael Bond: And if you are wondering why you don't hear these things on TV, on radio, at school, or in newspapers, here is an explanation of why from Canada, which is plagued by the same problems:

Bankers Depression of the 1930s:

Older Australians all know about the Great Depression and the extremely hard times it brought about; but what of its causes?

In 1930, Australia did not lack industrial capacity, fertile farmland, or skilled, industrious and willing workers, residing in both the city and country. Already, extensive systems of reasonably efficient transport and communications were in place. War had not ravaged the cities or countryside, nor had famine devastated the land and its population. There remained plenty of development work to be done. The one thing that industry and commerce lacked was a sufficient supply of money.

In the early 1930s, Bankers, who were the only source of new money or credit, deliberately refused loans to industry, commerce and agriculture. However, payment on outstanding loans was still demanded, which led to a rapid decrease in the circulation of real money. By a curious co-incidence, the same thing was happening in America and elsewhere.

This caused a complete standstill; jobs could not be done, goods and services could not be purchased. This placed Australia in the Great Depression of the 1930s, and moreover, placed extensive numbers of mortgaged businesses, private dwellings and farms into the hands of Banks. The same happens on a smaller scale every time we have a recession.

Australia suffered more in the 1930s than any other country with the exception of Canada and Germany. We had an unemployment rate that reached 30% and was 20% for a long period of time. National income fell by almost half. Capital dried up completely. Commodity prices fell by two thirds.

Bankers Quickly Created the Money for War:

Almost overnight, the same Bankers who had no money for housing, food and clothing, suddenly had millions to lend for Army barracks, uniforms, rations and weaponry. This was a remarkable reversal in policy by the Bankers. They simply began pumping millions upon millions of dollars back into the economy when war was imminent. The Great Depression ended because of the war!

Wars create huge debts to the Bankers who are able to expand the money supply and lend more money out. Big banks that have traditionally been owned exclusively by a few collaborating families, can change the course of history and have done so for much of this century.

Competing Banks Co-operate:

Various mechanisms exist to enable individual banks to co-operate with each other to make the banking industry work by exchanging debts, payments, information, etc. One such is the Australian Payments Clearing Association: a public company owned by the banks, building societies and credit unions. It has been in existence since February 1992 and has specific accountability for key parts of the Australian payments system, particularly payments clearing operations.

If you have wondered how the independent banks manage to raise and lower their interest rates all at about the same time, the answer lies with the Reserve Bank of Australia: which is not a government department but is wholly owned by the Commonwealth. The Reserve Bank Board makes decisions about interest rates independently of the political process – that is, it does not accept instruction from the Government of the day on interest rates. In the USA the Federal Reserve Bank posed as a government agency until a US appeal court ruled that the Federal Reserve is privately owned:

Numerous banking associations and institutes: exist throughout the world to cater for the mutual interests of bankers. One is the Australian Bankers' Association: the national organisation of licensed banks in Australia whose mission is "to further the interests of Members . . .".

And internationally, Australia is a member of the International Monetary Fund: which was created to promote international monetary cooperation. Its activities include Surveillance, Lending, and Debt Relief for heavily indebted poor countries in exchange for the ability to prescribe macroeconomic adjustment and structural and social policy reforms in those poor countries.

So quite apart from family connections, religious loyalties and secret societies, there exist many recognised bodies fostering contact, co-operation, and perhaps collusion between supposedly competing banks. Whether this ever results in a conspiracy is left for the reader to decide.

Banks (try to) Buy Respectability:

A minor scandal erupted in Australia during the year 1999 when it was revealed that influential radio talkback presenter, John Laws: had accepted payment of half a million dollars from the Australian Bankers' Association for more favourable on-air comments about the banks. The parties involved appeared to regard the deal as a normal commercial arrangement.

Impossibility of paying off all debt:

Some simple arithmetic will quickly convince you that if 95% of a nation's money exists as bank created credit owing a bit over 5% interest, the remaining 5% of "real" money will be insufficient to pay even the interest! Consequently, interest is continually compounded as a debt. This is a mathematical certainty. The whole economy then slaves away at the impossible task of trying to repay the ever increasing debt to the banking system. Lucky individual borrowers will sometimes pay off their debts to the banks, using in the process so much of the available money as to ensure that others never can.

Under Australia's present monetary system, at any point in time the capitalised value of debt and interest will always exceed the money supply. At the end of May 1998 in Australia, the total value of debt and interest as a result of lending by banks was $518,498m, while the money supply was $404,109m. There's a fuller discussion of this matter in Manufacturing Money by Mark Mansfield B.Ec:

The Result:

Profits for the banks, Debts and taxes for the people:

Whilst the banks profit by creating credit, what happens to the borrowers?

In the case of the Australian government its debt reached such a size that it could not pay off the loans as they fell due, and has to borrow more just to pay its interest bill ! By 1993/4 Australian governments were responsible for 46% of Australia's total external debt which itself is now US$222 billion according to the CIA Factbook:

This is why the government, desperate for money to pay the banks, increasingly taxes the people who can not escape it; why it sells commonwealth assets and enterprises previously owned by the people; why it bleats that it can no longer pay old age pensions to people it has been taxing for that very purpose since the 1940s; and why it continues to attract foreign investment long after our need for it has passed. A formula for leading Australia inexorably into the clutches of the International Monetary Fund!:

By 2005 the government had paid off most of its debt to the banks, aided by sales of our publicly owned assets, its new tax, a booming world economic climate, and theft by inflation... but left the privately owed external debt untouched.

Australia has already started taking the IMF's Four Steps to Damnation:

If you have retained your sense of humour this far and would like to join a group of Australians who are sick of banks, why not visit the Sick of Banks website and register your support?:

Better Alternatives:

The good news is that the problems caused by Australia's present money creation system can all be overcome: better alternatives exist. Another matter entirely is how to get Australian governments to implement the required changes, or even to comprehensively discuss them.

Some approaches that have merit are listed below:

Government Issued, Debt Free Credit: Most problems would be overcome if the government simply issued credit, like it does with banknotes and coins, debt free. Especially when the government itself is the borrower. It already has the constitutional power to do so. Why it should have transferred this lucrative right to privately owned banks is difficult to understand unless things like bribery and blackmail are considered.

Conspiracy theorists point out that two American Presidents, Abraham Lincoln: and John Kennedy: were both assassinated whilst they were attempting monetary reform.

Nationalising the Banks: - bringing them under government ownership and control - appeals because amongst other things it could result in banking profits being shared by all the people. In 1947 Prime Minister Ben Chifley: and his Australian Labor Party Government attempted to nationalise Australia's banking system, but the proposal was vetoed by the Privy Council. Chifley's idea was to harness credit-creation to national economic development. Opponents point out that government has made such a mess of so many things it has undertaken that it simply can not be trusted with something as important as running banks. For example, in Australia's banking crisis of 1989-1992, the IMF estimates the cost of rescuing state-owned banks to be nearly 2% of GDP. What the IMF didn't estimate is the percentage of GDP we pay every year, in interest on credit created by private banks.

Islamic Banking: is designed around the religious beliefs of Muslims, but can be used by anyone. Paying and charging of interest is prohibited ! Use of paper money is also illegal according to Islamic law, so another Islamic initiative is a return to the use of coins made of precious metal. The gold Islamic Dinar: is now minted in four countries and is on its way to becoming the currency of millions of Muslim peoples. And it could once again become the currency of all people who are tired of being cheated.

Impex Banking: is just one of a collection of reform measures proposed by Economic Reform Australia: a non-profit and non-party organisation concerned primarily with sustainable development and with economic and financial reform.

For lots more detail about alternatives and an agenda for implementing them, see David Keane's page Solutions for Australia's Banking and Financial Management:

Some Success Stories:

The Saracen Empire forbade interest on money 1,000 years ago and at that time its wealth outshone even Saxon Europe.

Mandarin China issued its own money, interest and debt free, and historians and collectors of art today consider those centuries to be China's time of greatest wealth, culture, and peace.

Germany financed its entire government and war operation from 1935 to 1945 without gold and without debt, and it took the whole Capitalist and Communist world to destroy the German power over Europe and bring Europe back under the heel of the bankers.

A little place that has escaped the clutches of the banks by issuing its own interest-free money is the little island of Guernsey: By controlling its own money supply from 1816 onwards, Guernsey was able to avoid the century old trap of borrowing when it didn't have to. The island has had a stable and prosperous economy for over one hundred and fifty years. Guernsey's income tax is only a "flat" 20%. It has no public debt, no GST, no VAT, no inheritance tax, no capital gains tax, and almost no inflation.

American colonies issued debt-free and interest-free money as colonial scrip in the 1700's and their wealth soon rivaled that of England, provoking restrictions from the English Parliament which in turn led to the Revolutionary War. The basic cause of the revolt of the American colonies against the British Government was the fact that the British did not like the colonists creating their own money and enjoying comparative prosperity compared with conditions in Britain.

American President Abraham Lincoln: printed 400 million dollars worth of interest and debt free Greenbacks in 1863 to successfully finance the Civil War, only after being asked to pay 24% to 36% interest by the banks. He was later assassinated, allegedly by an agent of the Rothschild Bank.

Australia's own government established Commonwealth Bank: achieved some impressive successes while it was "the peoples' bank", before being crippled by later government decisions and eventually sold. At a time when private banks were demanding 6% interest for loans, the Commonwealth Bank financed Australia's first world war effort from 1914 to 1919 with a loan of $700,000,000 at an interest rate of a fraction of 1%, thus saving Australians some $12 million in bank charges. In 1916 it made funds available in London to purchase 15 cargo steamers to support Australia's growing export trade. Until 1924 the benefits conferred upon the people of Australia by their Bank flowed steadily on. It financed jam and fruit pools to the extent of $3 million, it found $8 million for Australian homes, while to local government bodies, for construction of roads, tramways, harbours, gasworks, electric power plants, etc., it lent $18.72 million. It paid $6.194 million to the Commonwealth Government between December, 1920 and June, 1923 - the profits of its Note Issue Department while by 1924 it had made on its other business a profit of $9 million, available for redemption of debt. The bank's independently-minded Governor, Sir Denison Miller, used the bank’s credit power after the First World War to save Australians from the depression conditions being imposed in other countries. The Commonwealth became the first Australian Bank to to open an agency in New York, established mainly for public loans via the New York market. By 1931 amalgamations with other banks made the Commonwealth Bank the largest savings institution in Australia, capturing 60% of the nations savings.

The Commonwealth Bank was unable to save Australia from the depression of the 1930s because it had been effectively strangled in June, 1924, when the Bruce-Page Government brought in a Bill to amend the Commonwealth Bank Act by taking the control of the Commonwealth Bank out of the hands of its Governor, and placing it in the hands of a directorate consisting of the Governor of the Bank, the Secretary of the Treasury, and six persons actively engaged in agriculture, commerce, finance, and industry, to be appointed by the Governor-General (which in practice meant the Bruce-Page Government). The effect of the Bill was to place the Bank absolutely under the control of a body of men who might be bitterly opposed to any competition with private banking.

Such history of money does not even appear in the textbooks of public schools today.

We are not alone!

Take a look at some of the websites exposing similar problems in the USA: A proposal for solving the problems is presented in the People For Mathematically Perfected Economy USA website:


"At the turn of the century there was nothing that Australians could not afford. Per head, we were the richest people on Earth. Our life expectancy was the longest in the world."

So runs the introduction to a 1987 film series produced by Film Australia and entitled "Last Chance for the Lucky Country" (ISBN 0642 13106 6). It seems that Australia had the highest or close to the highest standard of living right up until about 1960. But the introduction continues:

"Today, our rank has dropped. 16 countries lead us in wealth. After Mexico and Brazil we are, per head, the largest debtor nation on Earth."

That was in 1987. By the end of 1997 our standard of living had dropped below 23rd, we were further in debt, and the value of our dollar had dropped to a near-record low. By 2001 our dollar had set a series of new record lows, and although it has appeared to recover somewhat since, that is mainly when compared with the USA dollar, which itself is beset by many of the same problems.


Part Two: How Money Is Created In Australia:
By SOS -

Explained by several commentators, dispelling myths and pointing out problems with the system.

In our related page Money Creation in Australia (Part One - see above), a detailed explanation is given of how privately owned banks create 95% of Australia's money as credit, virtually out of thin air, and then get people to pay them interest on it. This comes as quite a shock to those who previously believed banks merely lent out money deposited with them for safekeeping by their customers, so here we present more evidence in different words.

In an article called "Manufacturing Money", Mark Mansfield B.Ec. wrote:

"Information about money is not a state secret. The following statistics are readily available from the Reserve Bank of Australia's monthly Bulletin.

"When the Federal Coalition was elected in March 1996, Australia's money supply was $345,479m. By March 1998, it had grown by $55,968m to $401,447m or $22,302 per Australian. In other words, there is now $3,110 more money per Australian in the economy than there was two years ago. I guess Treasurer Costello has been a pretty good treasurer if we are all now $3100 each richer, than we were under Keating? But if, as Treasurer Costello says it would be lunacy for the government to print money, where did all this new money come from?

"Well, some of the money was printed. In March 1996 there was $18,691m in notes and coins in circulation. By March 1998 it had grown by $2,140m or $120 per Australian to $20831m. Notes and coin in circulation though represent only 5.2% of the total money supply or $1,157 per Australian.

"The vast bulk of the money supply is held as deposits in accounts with banks and other financial institutions. Ninety-six per cent of the growth in the money supply in the two years from March 1996 occurred in financial institution deposits as a result of the financial institutions themselves growing the money supply.

"Banks grow the money supply every time they claim to lend money. I say claim to lend money, because banks do not really lend money. When money is borrowed from a bank, the bank actually creates new money or credit out of nothing. It credits a loan account it has set up on its books with a deposit which can be drawn upon by the borrower. As banks must pay out deposits on demand this is a liability for the bank which is entered in the debit side of its ledger. On the credit side of the ledger, because the bank charges interest on this created money, this is an asset for the bank earning it income.

"Everyone sub-consciously knows banks do not lend money. When you draw on your savings account, the bank doesn't tell you you can't do this because it has lent the money to somebody else. You would be pretty irate if this happened because it would amount to theft."

In a Nemesis Magazine article entitled The People Vs The Banks, George Dimitriou writes:

"out of a work force of some 10 million, only 90,000 people, or a minute fraction of the populace, become aware of what the 'mainstream media' can not or refuses to publish. The rest of the populace essentially end up ignorant, or to use the more common term - brainwashed. In the simplest of terms, all the above can be stated thus:

"'The populace is too ignorant and stupid to know any better, and advantage is taken of this by those in power - who thus do as they damn well please.'

"This resounding fact needs to be continuously kept in mind, for throughout this article the reader will no doubt be asking him or herself as to how the state of affairs presented could possibly be the case. In this regard it is worth keeping in mind that the majority rule, and in this case we have some 18 million, 910 thousand ignorant people in Australia that constitute that majority. To those who will spend a moment in pondering over the significance of these figures, they will realise with a bang why it is that the great deception will go on....and on....and on.

"What Is The Great Deception?

"The great deception that is currently strangling the Western world, and thus every man woman and child, is the over abundance of credit, or much more specifically, the creation of money 'out of thin air'. It remains as an insidious truth that the vast majority of people remain blissfully unaware of the fact that when banks lend money, they in fact create most of it with the scribble of a pen at no cost to themselves. Adding to this already heinous fraud, they then add an inordinate interest charge for the use of that money - money which for all intents and purposes does not physically exist. Sir Josiah Stamp, director of the Bank of England during the years 1928-1941, stated thus in regard to 'banking':

"'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 iniquity and born in sin. Bankers own the Earth. Take it away from them, but leave them the power to create money, and with the flick of the 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, and they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit'."

The Australian Institute of Economic Democracy once stated:

* Banks do not lend money deposited with them.
* Every bank loan or overdraft is a creation of entirely new money (Credit) and is a clear addition to the amount of money in the community.
* Practically all the money in the community begins its life as an interest-bearing debt to the banks.

Garry Bell of the Institute of Education, University of Melbourne put it this way:

"Banks now acquired a unique role in the creation of money. When one individual Tony, borrowed from another individual George, there was no change in the money supply. Tony had more, George had less. But if Tony successfully approached George's bank for a loan, Tony had more purchasing power, George had no less and the total money supply rose. From an initial deposit base of cash, banks were able to expand the money supply many times over through lending provided depositors were confident about the security of their deposits."

John Hermann wrote in "Reflections on the Mystery of Money":

"It is not difficult to find evidence of the confusion and obfuscation surrounding the money issue. A former leader of the National Party in Australia has been quoted as informing his constituents that "banks do not create money". On the other hand many economic reformers have taken the trouble to assemble long lists of quotations from distinguished personalities, including people at the top of the banking profession, in support of the proposition that banks do create money. Recent college economics textbooks, particularly within the USA, provide descriptions of money creation by the banking system via the "money multiplier" mechanism, and even of "fractional reserve deposit expansion". However, one can also find other economics textbooks which avoid the entire issue of the creation of money like the plague. The confusion and the contradictions appear at almost every level. An excellent little book by Australian reformer Ed Burgi (Money Creation: The Great Confidence Trick) has reproduced a recent letter from the secretary of the Reserve Bank of Australia, who absolutely denies that banks create money. Ed also possesses an official letter originating from the economics department of the Reserve Bank of New Zealand which states unequivocally that the commercial banks create around 97 per cent of M3 !"

Frederick Soddy, M.A., F.R.S., Nobel Prize Winner in 1921 wrote:

"The most sinister and anti-social feature about bank-deposit money is that it has no existence. The banks owe the public for a total amount of money which does not exist. In buying and selling, implemented by cheque transactions, there is a mere change in the party to the whom the money is owed by the banks. As the one depositor's account is debited, the other is credited and the banks can go on owing for it all the time.

"The whole profit of the issuance of money has provided the capital of the great banking business as it exists today. Starting with nothing whatever of their own, they have got the whole world into their debt irredeemably, by a trick.

"This money comes into existence every time the banks 'lend' and disappears every time the debt is repaid to them. So that if industry tries to repay, the money of the nation disappears."

New Internationalist Magazine says, in its article The Truth About Banks:

"Most of the new money in the world is not created by governments, it is made by banks. In Britain, for example, only 3% of new money is produced by the government (in the form of new coins and notes); the other 97% is created by banks, when they make various kinds of loans. Banks need people to be in debt in order to make their huge profits."

Legendary Australian, R.M. Williams, when asked what message he would like to deliver to modern Australia said on his 90th birthday:

"Oh, alright. Rewrite the Banking Act to give the federal Treasurer power to control the nation's money; reform the monetary system; limit the International Monetary Fund's powers; resurrect the rural credits department; make foreign companies pay tax in Australia; allow gold producers to sell overseas and give people back control over their own money."

You can read why in THE REAL REASON BEHIND OUR FINANCIAL MESS: on the 2012 Unlimited website:



Part One: How money is created in Australia:
Part Two: How money is created in Australia:


PETER COSTELLO & His Ignorance Of The Monetary & Banking System

Jodeen.Carney @

Your address will not be removed from the list used to impart information that is of vital import to all members of parliaments across Australia.

Any attempt to prevent to the free flow of information to our representatives will be treated as interference with telecommunications.

Your remain our humble servant,

Airline Transport Pilot
Constitutional law research analyst
Constitutional law research consultant
Investigative law research consultant
Royal Australian Engineers (ret.)

49 Rushworth street
Bald Hills Qld 4036

Tel: (07) 3261 4274

In the following it can be clearly seen that PETER COSTELLO either does not know how the monetary and banking system (the economy, stupid!) works, or is a bare faced liar, or both, and in either case has never been fit to hold a seat in parliament, let alone be the Treasurer of our great country.

I am free to debate PETER COSTELLO on this matter at any suitably convenient time in public.

49 Rushworth street
Bald Hills Qld 4036

Tel: (07) 3261 4274

In his letter to PETER DUTTON

PETER COSTELLO is wrong in the following;

PETER COSTELLO: “In the first instance, when a bank makes a loan, it has to compete for an increased share of an existing pool of funds of household and business.”

WRONG. Banks create all credit they advance and every bank loan creates new credit. Banks do not loan money, they advance credit.

PETER COSTELLO: “It is therefore not true to say that loans are based on “thin air”.

WRONG. All bank “loans” are newly created credit composed out of “thin air”, or electrons in bank computers. To create is to bring something into existence. Ergo, it never existed until it was created.

PETER COSTELLO: “Banks are in the business of intermediation.”

WRONG. Banks are not financial intermediaries, they are creators of credit. No bank ever has made, or could ever make, money out of loaning out money, then borrowing it back again in order to loan out again. It is absolutely absurd nonsense to claim otherwise.

PETER COSTELLO: “They raise capital from their shareholders and deposits from the public, and lend most of these funds to creditworthy borrowers, maintaining a proportion in highly liquid form.”

WRONG. Banks do not loan out depositors funds, all bank loans are an expansion of the money supply.

PETER COSTELLO: “While it is true that as borrowers use the proceeds to expand their activities, so expanding income and wealth (including bank deposits) in the community generally, every dollar of a bank loan portfolio is funded by borrowings or capital.”

WRONG. Banks do not borrow in order to lend. Bank balance sheets regularly show outstanding loans to exceed “reserve capital” by up to 10 times. Banksters simply create and loan out whatever credit they choose to a limit that they believe will not harm their business. They can also create the “reserves” they require to make their balance sheets look good. Banks buy real estate and other things for their own purposes by writing and honouring their own cheques.

PETER COSTELLO: “The amount of currency in circulation is the result of the reserve Bank selling currency notes to private banks when they require it for their customers.’

WRONG. The Reserve Bank sells currency notes to private banks in exchange for credit from those private banks and the notes are sold at cost of production, not face value. If they were sold at face value the private banks could not profit from the exercise. PETER COSTELLO makes no mention of the fact that the amount of currency in circulation is made up of notes and coins and the coins are minted and sold at cost to the private banks. He also fails to advise that nobody can get money (notes and coins) from a private or other bank without first the equivalent being borrowed from the private or other bank as credit in the first place with the credit being returned to exchange for the notes and/or coins. Banks only give you notes and coins in exchange for credit, i.e. a cheque or a withdrawal form authorising it to take credit from an account.

PETER COSTELLO fails utterly in his duty-of-care to The People of the Commonwealth of Australia by his complete and utter ignorance or by being untruthful. It has been established that PETER COSTELLO is a founding member of the Coalition of the Association of the Galactically Ignorant and Stupid (CAGIS).

The information supplied by PETER COSTELLO could never lawfully satisfy an enquiry regarding the truth of the monetary and banking system, and if PETER COSTELLO believes what he has written, or has written untruths, he is not fit to hold down the position of Fe’ral Treasurer in the Fe’ral Parliament either way, as he is charged with the task of looking after the WELFARE of The People of the Commonwealth of Australia and that cannot be done successfully without a sound knowledge of how money is created, circulated and extinguished and how the economy operates. All money originates in the private banks and comes into circulation as borrowed principal. As all ‘money’ is loaned/borrowed into circulation, the interest that is charged can never be paid, as it is never loaned as interest, and if all principal was repaid there would be no money with which to pay interest. Interest in never, repeat never, issued into circulation in any form other than borrowed principal. Note that principal is RE-PAID but interest is only PAID. Interest is always taken out of the community’s pool of borrowed principal to be PAID thereby diminishing the borrowed principal pool by a corresponding amount, which can only be replaced by further borrowings of principal, thereby setting up the perpetual loan-debt system that strangles and destroys the community and the economy, causing mayhem, suicide, murder, family breakdown, business collapse and the destruction of the economy of the nation, by ensuring that there can never be enough ‘money’ available to pay the interest charged. Should this horrendous system be allowed to continue the banksters will end up owning the assets of the earth for no other than creating and loaning “money” they create as numbers in their computers.

To understand this, one need only follow that if there were only 4 people on this earth and one of them created $300 and loaned the other three $100 each at 10% interest for one year, even by trading among themselves the three can only arrive at one of a number of positions at the end of the year. However all cannot repay their principal and pay their interest. This is the impossible situation we have with our nation’s economy today, and the size of the horrendous debt, sometimes erroneously called “economies of scale” by members of CAGIS, which will continue until such time as we end it.

1. Not one can pay interest if they all re-pay their $100 borrowed principal.

2. One can re-pay the $100 plus $10 interest, however this will leave one of the others $10 short or both would be $5 short of their principal and have no money to pay interest.

3. Two can re-pay their principal and pay their interest, however this would leave the third party $20 short of even re-paying his principal, let alone paying the interest as well. He would be a total of $30 short.

4. Any combination of situations revolving around the foregoing.

The above represents the impossible situation we find ourselves in, because the scenario of the 4 people on earth is simply expanded to take in the whole population of the planet and the basic principle does not change.

We need to remember that if we placed all the economists in the world horizontally end to end around the equator, the result would only be a dead straight line.

"Power is the great evil with which we are contending. We have divided power between three branches of government and erected checks and balances to prevent abuse of power. However, where is the check on the power of the judiciary? If we fail to check the power of the judiciary, I predict that we will eventually live under judicial tyranny."

-- Patrick Henry

Re: PETER COSTELLO & His Ignorance Of The Monetary & Banking Sys

G'day concerned reader,

Re:the 'material' above from Leonard Clampert...

If dollar sweetie (aka costello) debated leonardo (with ol leonardo parroting that crap/garbage above) he'd (dollar sweetie) wipe the floor with him!!
Last year I told ol leonardo he was parroting crap and he cracked the shits and wouldn't even argue the point out. Tis a shame, he's got a little bit of it right, but not enough.

Dollar sweeties response in that letter tells me he knows precisely how the monetary system does work!!

That letter is written in BANKSTER code and dollar sweetie knows it, he is the author after all!!

It is not for NO reason the banksters company constitutions have clauses in them that forbid members of the bank from discovering their (stinky) secret code!!!!!

A small/wee hint, for the seekers of the banksters code... it is written up in their Full Annual Reports.

Ol leonardo needs to learn how keep his yap somewhat restrained until such time he does crack their code otherwise with each dribble he'll compound the proof of his own ignorance.


PS: By the way, regarding the footnote,.........Patrick Henry's true...............WE are now living under FULL ON judicial tyranny!!! Its not coming...its already here!!!!!!

Re: PETER COSTELLO & His Ignorance Of The Monetary & Banking Sys

Dear Col and Leonard,

Good points here, and thanks for the letter.

From Costello's own words: out of 800 billion only 35 billion was in coins and banknotes, hence a 4.375% ratio. The rest, are paper money (call it inflationary paperwork) such as bank guarantees or medium term notes, or bonds etc. So you have 800 "resting" on 35 billion.

This is how the money supply increases exponentially, thus creating inflation, and the banks (Reserve Bank plus other banks, and insurances dealing with "securities") are the ones solely responsible for your dollar-in-pocket losing its value.
My pennies worth,

Christopher Grech

Re: PETER COSTELLO & His Ignorance Of The Monetary & Banking Sys

G'day Christopher,

Sorry to break this to you old chum, but bank guarantees or medium term notes, or bonds etc. are NOT money.

The current figures, re money, are that as of April 2009, $1918.527 BILLION is allegedly swirling around the Oz economy - but ONLY $45.134 billion is 'out there' in "notes and coins".


Re: PETER COSTELLO & His Ignorance Of The Monetary & Banking Sys

Good Day Col,

Yes I am aware that the BG, MTN are not cash at all. Call them quasi money or otherwise, they still form part of the monetary supply, via a sort of indirect route. They can be "monetized" anyway, and hence can be transformed into money. If they are all monetized, at once, there would be hyperinflation.

Even some money is not "real" money! Let me explain. Before sterling notes were backed by sterling silver in the UK. Try doing that now, and the bankers will stare in your face. Nowadays, the so called bank-note security line has a silver or gold thread in them, but perhaps less than 5% of face value. Its intrinsic value is a very small proportion to the actual coin/note.
Anyway, a bank-note is a promise to pay on behalf of the Reserve Bank (in Australia) or Central Bank in a country.

It is based on a promise only! Because it is accepted by the people then it acts as value, but it really does not have that much of a value anyway.

Do you know David Icke? When he had a ticket fine, he asked how he could pay it? They said by cheque or cash. He said that it is illegal (in the UK) to pay a debt with a debt! Bank-notes are in reality debts, and honored by the Central Banks, by human law or by default (people's acceptance). Ever thought about that concept?

Kind regards,
Christopher Grech

Re: PETER COSTELLO & His Ignorance Of The Monetary & Banking Sys

Greetings Christopher,

Sorry to break this to you again old chum, short, medium, long term notes, or bonds etc. are NOT even quasi money whatever that is??

(bank guarantees don't even make 1st base)

They do not represent or create new money, all they do is have the effect of moving already existing 'money' from one holder to another.

There is no indirect route or anything remotely similar so there is no "transformation into money".

By the way, in my previous reply to you, I did NOT say BG, MTN are not cash at all, I wrote they were not money. I hasten to add that if you don't know what the difference is you'd better get that study cap on again.

Inflation..... well......We are in the transition to super inflation at the moment, hyperinflation is just 'down the road..not too far away, all of this without any 'monetization' of them thar dreaded bonds etc.

As to the pommy notes having a precious metal thread in them I will admit I was unaware of that detail, if of course it is correct. Do you have a readily accessible source to substantiate that claim. I don't mean any disrespect to you by querying the claim however I prefer to validate within reasonable accuracy such statements.

I wouldn't be at all surprised if the notes did have a precious metal thread, if only for the purposes of 'stooging the sheeple'.

No, here in Oz, a bank-note is not a promise to pay on behalf of the Reserve Bank (in Australia). There is NO mention in, on or around a Oz 'bank-note' that either implies OR expresses a "promise to pay". ........... Where did you get that 'gem' from??

The ONLY reason they are accepted by the people is that they have been brainwashed into believing all the money is backed by gold held at the RBA..

That is the first thing they (the S4Bsheeple) parrot when they are asked the question "what is our money backed by"?.

Then when one tells them that story (all the money is backed by gold held at the RBA) is but a fairytale/urban legend and a load of hogwash they developed this stupid look on their faces as if one was conversing with them in a foreign language. They then parrot something along the lines of "Nahhh... that's not true, the authorities would stop them if they dun that".

FaaaAAARK!!.......SPARE ME, these gooses (aka S4Bsheeple) are loose in public without an escort, they vote AND reproduce!!! SPARE ME!!!! One then has to inform the gooses that "the authorities" are in it (the scam) up to over their head as well !! this time the goose S4Bsheeples brainwashing is doing its stuff and they are relegating thou to the wacko factory...... when in reality it is actually they who are the candidates for the wacko factory.

I have not met nor know David Icke, but some people I've met have been to his "talks" which leaves me a little concerned. Apparently amongst other things he dribbles on about human reptiles etc. I said that's a pretty good symbolic description then they've said "No, he meant real" (as in literally). .................. I would say some EXTRA large grains of salt were called for!!

Your comment/statement....... "Bank-notes are in reality debts, and honoured by the Central Banks, by human law or by default (people's acceptance). Ever thought about that concept?" Made me smile, have you ever heard the adage "you're preaching to the choir". Well, that's what you are doing. A couple of years ago the 'system' decided to 'tangle' with me over dozens and dozens of "FINES". They lost that fiasco convincingly.

Did you not get the post that I sent out to my list about it??

If not let me know and I'll dig it up and send on.


Re: PETER COSTELLO & His Ignorance Of The Monetary & Banking Sys

Greetings Col,

Thanks for your note. Will briefly address your points as below:

1) I never said that BG and MTNs were money, but after they expire, they could be "monetized". They therefore end up on the balance sheets of the banks that can of course create inflation, by the usual ratio they would "lend" to lenders.

2) I have seen some bank notes "promise to pay bearer", whether in Malta or elsewhere. Try an internet search on older bank notes. I have no time now. Try the UK, US and Maltese bank notes.

3) The money truly is backed up by a pitiful ratio (ask central bankers)!

4) On David Icke, I agree with all his books ,except with the silly lizard agenda, and know they are NOT real.

5) Would love to see how you got out of the FINES. I do not think that I got it.

Have a nice day,

Kind regards,

Christopher Grech

Re: PETER COSTELLO & His Ignorance Of The Monetary & Banking Sys

G'day Christopher,

Re the "FINE" issue..

Below I have cut and pasted a post to my list of a few rort (court) events in and around July 07.

The large number of fines (all sorts) came about because I deliberately attracted them as I wished to challenge the corrupt powers that be in their own cesspools of corruption posing as courts. The corrupt powers that be refused my challenges for a goodly while but I suspect had to finally tango.

As you see it did them no good.......

Dear xxxxxx
You are no doubt aware that I, like many others, am not happy with the Gestapo cash confiscation scam and have been jousting with the donkeys that maintain the insidious scam. In the past I have "racked up" a few "infringements" and have expected the SYSTEM to litigate them but they don't seem to have the stomach to.

They bulldoze ahead with their scummy scheme ('perin' or as it is now known here in Victoria (Aust),.... 'infringements court') irrespective of the facts.

In the past I've have had quite a few exchanges with sheriffs over the issues which have included my "arrest" (by ambush) and my inhabitation of "policyman cells" for a period of time until my mouth finds the right words and effect a get out of jail card.

Recently I had a bit of action......... on Wednesday 11th July 07 I was in the mugistrates rort at Ballarat (here in Victoria) to attend to a separate matter and I was Ambushed by an R-sole by the name of McAloon (deputy dawg gorilla (sheriff}) and a few of his blue costumed mates.

I was ensconced in the plod lockup (for about 4 hrs) with a couple of fellow jailbirds.

Cos they ambushed me, I was not able to 'appear' on my matter that I gone to the cesspool (oops ...rort.) for, so another warrant was issued for my arrest for failing to appear again. (cos I was in the lockup) (they stoop so low don't they!!)

Anyhow McAloon was intent on me 'serving' out 240 days ($24,000.00 worth) of 'unpaid' fines. There were 4 bench warrants for my "arrest" in his smelly sweaty little hand.

I was "placed before" a mugistrate at about 3:00pm. When the mugistrate started dribbling about my failure to appear and the new arrest warrant he'd issued a few hours prior, I stated he'd better get his finger outa his arse and immediately issue warrants for the arrest of McAloon and his stooge mates for interfering with the "course of justice" as they knew I was in the "court room" to deal with the other matter. Hee Hee, with great and indecent haste he withdrew the new warrant against me!!!

Anyhow, then we had a little chat about the original reason for me being there and partly reached a consensus regarding future direction of that matter.

Then he starts adding up the truckloads of infringement "warrants" that McAloon was pestering him with, turns around to face me and says "well what are we going to do with these, there's quite a bit of time to be served on them?"

I grinned and said "the most appropriate use (WC paper) for them would not meet with your approval, but additionally there is/are issues in that none of them had been litigated and that the persons 'issuing' them didn't seem to want to do that either and that being the case I would perhaps issue a supreme court writ to force them either to litigate them or withdraw them".

The ol mugdy said "and how long would you want in which to do that?".

"Oh, coupla weeks should suffice" I mused.

"Two weeks..14 days it is" he concurred. (get out of jail card..chortle)

So despite McAloons smelly little stunt at ambushing me. I walked....he was not impressed, had very long face.

His orrible mug was even longer when I went into the sheriff office about 1/4 hr later and started quizzing him about his perjury on a statement (that I have got my hands on) he made last year,.....I know nuffin, I know nuffin he parroted,.... "that's ok" I said "I'll see to it you do a bit of rememberin' !!" He's got a bit to worry about now!!


The "sequel" to the saga above.

The return date for the mugs rort (aka. magistrates court) was 25th july (Wednesday).

I attended the Ballarat mugs rort and yet again was accosted by deputy dawg gorilla (sheriff) McAloon at the entrance.

He proceeded to dump an arrest on me again for an additional $4000.00 in unpaid fines, which meant I had $24000 plus $4000 on my plate.

He obviously thought he were being a smart cookie doing that, as it would have meant, in his eyes, that the jail time would have increased from 240 days to 280 days. (interestingly, I have been told (but not confirmed) that the max time that is ever served for fines has a ceiling of 180 days. eg if you had $100,000.00 in fines the max time you would "serve" in the clink is 180 days to 'pay' the whole lot, not 'do' the 1000 days at $100 per day).

(A little bit of history in case you missed it,........

In early 2006 I fronted Ballarat mugs rort, at that point in time the 'fines' were sitting at about $18,000.00, a mugistrate offered to reduce them by 2/3 if I would enter into a time payment plan, $10.00 a week or so. I declined his not so generous offer. Solicitors and barristers sitting in the rort were shaking their heads, all the other sheeples in the rort were staring/glaring at me with "you mad c*nt" looks on their faces, a few even followed me out of the rort to tell me I had some loose screws. I told the sheeples .................."No, I'd be a fool if I took that 'deal', I intend to give and pay NOTHING"........Their eyes boggled even wider!!)

Back to 25th july, I was last cab off the rank, (cant have a courtroom of sheeples seeing what was going on now can we??!!).

It was all very cordial, I bade the mags cheerful greetings and they were returned.

The mag elected to tangle with me over a number of procedural niceties which I torpedoed into orbit.

We then jousted regarding jurisdiction of the mags rort, during which the mag said "that means that the court is fatally flawed, so much so that I cannot even hear these cases", to which I quipped "indeed, you've taken the words right out of my mouth".

I then hinted that in any event it was impossible to "pay" these "fines" as no valuable consideration exists with which to do so.(that was the killer stroke, the coup de grace).

The mag must have been cognisant of the underlying issues because this prompted the mag to effectively say "This goes no further, I exercise the discretion of the court and discharge you fully on ALL the charges, fines and costs. (In other words "shut your mouth and get the f*ck out of the court, this is too prickly for me and I want no part of it").

I am now faced with something of a conundrum...... I had argued that the mags rort has no jurisdiction (yes yes yes, spare me the nicety that my entering the arena constituted consent of/to jurisdiction, but I made it clear I was there as a courtesy, not as a 'appearance') and all that I wanted was a 'final decision' with which to advance it to the supreme court on. (the SC will not accept appeals on other than 'final orders').

The conundrum of course is "Do I Appeal The Decision of 25th July".


PS. The local rag is 'the Ballarat Courier'. It had big write ups (as always) about all the poor sods that were fed through the meat grinding machine (the rort) that day, but guess what??? not a murmur about the escapades of yours truly!!!! .........spineless lizards!!!!!

Re: PETER COSTELLO & His Ignorance Of The Monetary & Banking Sys

G'Day Col,

Nice write up there! What sort of fines did you pick up, traffic fines or others?

You should be writing books on how to avoid fines! is just great for jurisdictions where the head of state is QEII !!!


Share this with all your friends.

Kind regards,

Christopher Grech

Re: PETER COSTELLO & His Ignorance Of The Monetary & Banking Sys

G'day Christopher,

The "fines" were a grab bag (all sorts, including many and varied 'traffic offences' & 'parking fines').

The 'fine' fiasco however, was a mere side-dish to the main meal.

The study, discovery, research and investigation regarding the crime of massive fraud practised by the bankster cartel was the main meal.

I don't have time nor the inclination to write books on how to avoid fines, .........besides if the S4Bsheeples extracted their craniums from their rectums long enough to absorb the "fraudulent money scam" revelations (instead of choking up on their OWN sh*t) they wouldn't need anything else to torpedo the 'fines'.

Alas, It seems they prefer to consume crap instead of putting a bit of work and effort into securing the truth.

The S4Bsheeples ignore potent information that rips asunder their involuntary servitude chains!!

More fool them!! (interestingly the Bible makes precise/direct reference to them)

Despite this extraordinary state of affairs one soldiers on.




Over five thousand years ago, Moses said to the children of Israel " pick up your shovel, mount your asses and camels, and I will lead you to the promised land".

Nearly 75 years ago, Roosevelt said, " Lay down your shovels, sit on your asses, and light up a camel, this is the promised land".

Now Obama has stolen your shovel , taxed your asses, raised the price of camels, and mortgaged the promised land.

The Mysterious Money Machine by Steve Keen 4th August 2006

The Mysterious Money Machine
Published Friday, 4th August, 2006
by Steve Keen

Non-economists might hope that one thing economists know about is how money is created. They would be disappointed. Though money is the quintessential element of economics, it is one whose nature is forever disputed by economists. And though there is a widely accepted model of money creation, it is contradicted by the empirical data.

This model, in brief, is that money creation begins with the government either printing money, or borrowing from the Reserve Bank. I'll simplify my argument by just considering the former, calling the money so created “Base Money”, and using the example of a billion dollars of new money created in this way.

This Base Money is paid by the government to individuals and companies, who in turn deposit it in their bank accounts. Now begins the second, “Credit Money” stage of money creation—according to the conventional view.

Banks record the $1,000 million as depositors' funds, and then lend most of this out to borrowers, while holding some fraction in reserve to meet anticipated demand from depositors for withdrawals. If they hold on to twenty per cent (or $200 million) to meet depositors' expected needs, that leaves them with $800 million to lend.

This they duly do, and the recipients of those loaned dollars in turn deposit them in their own bank accounts—increasing the recorded level of depositors' funds to $1,800 million. $800 million of Credit Money has thus been created by the banking system.

Deposits now total $1,800 million, and banks have assets of $1,000 million in notes, and $800 million in loans. Banks then repeat the lending process with the newly deposited $800 million—lending out $640 million, and keeping $160 million in reserve to meet calls on their accounts by depositors.

The process continues with each new wave of lending, depositing and re-lending, until in the end it peters out with $1,000 million in “Base Money” and $4,000 in Credit Money, matched by $4,000 million in loans by banks to borrowers. The total money supply is thus $5,000 million, which equals the amount of Base Money initially issued, divided by the fraction that banks retain for depositors—in this example, 0.20 or 20 per cent. This ratio is called the “Money Multiplier”.

In this conventional view, deposits are needed to create loans, and the money supply operates like a two stage rocket: the government sets off stage one by creating deposits with Base Money, and the private banking system amplifies that in stage two by creating loans and Credit Money.

This analysis can make either the Government or the Banks the villain in monetary crises, depending on the perspective of the person pointing the finger.

To most conventional economists, the government is the villain because it controls the money supply—either by controlling the issue of Base Money, or fine tuning the Money Multiplier. Since, in this view, inflation is caused by “too much money chasing too few goods”, it is the government's fault. The same argument also works in reverse: any serious downturn such as the Great Depression is also the government's fault, because it could be overcome by creating more Base Money, or increasing the Money Multiplier.

But to some critics, the private banking system is the villain, because it charges interest on money that it has created with little or no effort. Geoff Davies put this argument forward in his “Malign Money” article: in which he commented that “'There is no justification for charging interest on the new money, because the bank has incurred only trivial expense in creating it”.' He further argued that charging interest on this new money necessarily required debt to increase, “because the debt is then the sum of the original principal plus the interest accumulated, which is larger than the original amount of currency issued via the loan”.

The conventional model of money creation thus lets you take either a conservative or radical position on money. Unfortunately, empirically, the conventional model doesn't stack up.

If it were correct, then changes in Base Money would occur before changes in Credit Money—, since banks couldn't create new loans until they received new deposits of Base Money. However, a very careful analysis of US data: by two highly conservative economists, 2004 Nobel Prize winners Kydland and Prescott, found that changes in Credit Money actually preceded changes in Base Money by up to one year (see page 15 of their paper). The causal process actually seems to work in reverse: “Credit Money” comes first, and “Base Money” comes second.

A European group of monetary theorists, known as the Circuitists, have made sense of this empirical data by reversing the direction of causation: rather than “Deposits Create Loans”, they argue that “Loans Create Deposits”.

Thanks to Bill Leak:,20671,20581,00.html

Their money creation story begins with a bank lending to a borrower (typically, a firm with an investment plan). When the bank lends, it opens two accounts: one in which the money is deposited, and the second recording the debt the firm owes to the bank. Base Money—or Fiat Money as they call it—isn't needed in this picture, so long as sellers accept a cheque drawn on a bank account as full payment for any purchase.

That, of course, is the case in a modern economy: the vast majority of purchases don't involve payment by currency, but by cheques, and now even by electronic fund transfers.

Government money creation, in this view, is an independent way of creating money; but it is also the only form of money that can be held outside a bank account—in the form of government-backed currency. This is why it plays a crucial role, since pure credit money only works if people implicitly trust cheques (or electronic fund transfers) from private banks. If trust evaporates—either in an individual bank, or the entire system—then there will be a rush to convert bank accounts into “cold hard cash”, and this panic can bring the financial system to a halt.

The government's role, in this view, is to ensure that such panics don't happen, by providing a sufficient proportion of trusted currency “Fiat Money”, relative to the amount of Credit Money created by the banks. As a result, “Loans Create Deposits”, which in turn forces the government to produce the amount of currency needed to meet depositors demands for cash. This explains the empirical reality that changes in Credit Money precede, and empirically cause, changes in Fiat Money.

This “Loans Create Deposits” analysis doesn't lend itself to a conservative interpretation of monetary crises. Instead, the government is largely captive to the credit creation activities of the financial system, and all it can do is cushion any crisis, should one occur, by producing “Fiat Money” liquidity when private money creation comes to a halt.

But nor does this view support some of the more radical proposals that Geoff Davies put forward in “Malign Money: For a start, there is nothing inherently wrong in charging interest on loans. Our system is fundamentally one of credit money, and banks make a profit out of providing credit. There may be a question about whether this profit is too high, or whether what they finance is actually desirable; but that they do make a profit on the spread between loan and deposit rates is a necessity of our system.

Secondly, it is true that “there is never enough currency in circulation to repay the loans when they are due”, but this is a furphy in a credit-money system. Loans are repaid, not with currency, but with money, and this can occur even in a pure credit money system, so long as profits exceed debt servicing requirements. The danger arises when debt is used to finance not investment, but asset speculation— - and that certainly has happened extensively in Australia since financial deregulation.

Finally, non-fractional banking isn't possible: a requirement that banks have enough cash on hand to meet all depositors demands amounts to a requirement that banks don't lend. A “100% reserve” requirement isn't a reformed banking system, but the abolition of banks.

Some may argue that such a system would be superior to our current credit money system. Perhaps: but it could also make funding of new ventures more difficult. An entrepreneur who wanted to establish some new line of business would only have the avenue of an equity float in such a system. Whether this would work, or be any less risky for the general public, is a moot point: after all, that was largely the way things were during the South Sea Bubble, when even Isaac Newton lost his shirt.

There is no doubt that debt has risen inexorably, and that debt presents a major challenge to economic prosperity. But the causal mechanism behind rocketing debt levels is far more complex than simply the charging of interest on new money.

By Steve Keen


FORBIDDEN KNOWLEDGE - THE NATURE OF MONEY - What the Banks do not want you to know

[Note: If Required See The Original Word Document Attached Below]



What the Banks do not want you to know.

The truth about money is so simple a child can understand it, yet those who understand and control it have woven so complex a web of lies and deceit around money that make us believe it to be totally different to its true nature. This is to their huge advantage and our financial slavery.

It is the accepted wisdom that “Banks make their profit from lending their depositors funds to borrowers at a higher rate of interest than they pay those depositors”. It is the hardest thing to get people to challenge accepted wisdom. The above statement demonstrable untrue, although we ( nearly) all believe it.

Proof.. If I loaned you $ 1000, you would have $ 1000 more and I would have $ 1000 less. But the total money in circulation would not be changed. The Banks claim to do the same. Now, Banks make loans every business day, so borrowers accounts would be going up, hence depositors accounts should be going down – but they are not.

Have you ever looked at your Bank Statement and noticed, say $ 1000 missing, rang the Bank Manager only to be told “ I have loaned it to some one else” ? No, and neither have I or anybody that I have ever talked to. This is all the proof needed to disprove the accepted wisdom of how banks operate.

1. Banks do not loan out depositors funds.

2. Banks do not loan money, they advance credit.

3. Banks do not have to borrow in order to lend.

4. Every Bank Loan occurs without anybody else having less money.

5. Note that we only borrow principle when we take out a loan, we don`t borrow interest.

6. Note also that we repay principal but we only pay interest.

The truth is, unlike the loan between You and I, when banks make a loan, nobodies account goes down, but the account of the borrower goes up, so there is an increase in the money in circulation.

Where did this money come from ?

Overseas, as John Howard told me years ago ?

Well, a little investigation showed me that the “ money supply” at that time increased in all countries, so that cannot be right. The simple but startling truth ( when first heard ) is that the banks create the money they lend. (Create means bring into existence that which did not exist before).

Page 2.

How do they do this ?

Well, what do you get when you get a bank loan ?

Numbers added to your account. Banks literally create money at the stroke of a pen ( punch of a computer key ) when numbers are added to the borrowers account. This money costs literally nothing to create, and the banks do not have and responsibility to any depositor because they do not lend their depositors funds as we have seen.

Where did banks get this power to create money ?

In a nutshell, from their knowledge and our ignorance of the nature of money. They work overtime to keep up the deception. For example :- Why, if banks create the money they lend, do they have term deposits bearing interest ? To keep up the belief ( deception ) that banks lend depositors funds. Money on term deposit is a tiny fraction of bank loans.

Do Banks have any moral right to create money ?

A resounding NO.

Do Banks have a legal right to create money ?

NO – but most politicians do not believe ( or so they say ) that banks actually create money, so they “ believe” bank operations are above board. Abraham Lincoln , John Kennedy and Harold Holt all paid the price for trying to take away the power to create money from the people behind the banking system. We have a ruthless enemy.

Banks not only create the money they put into circulation, they also extinguish money out of circulation. Money in circulation enhances and simplifies the exchange of goods and services.

Money is the common medium of exchange that simplifies bartering and allows commerce to flow. However, when a repayment of a loan is paid to a bank of principle and interest, the numbers go out of the borrowers account but do not come back into anybody else`s account. That money has gone out of circulation or has been extinguished. Banks create the principle of a loan, but extinguish the principle and interest of repayments, and here lies the basis for Australia and every other countries economic problems – namely criminal entrapment.

What we have discussed so far is money having a beginning and an end : A creation and extinction. We are not encouraged to think this way, but where does money go to in a depression, and come from in a boom if there is not an extinction and a creation process ?

Note : Money is only a representation ( shadow ) of wealth – goods, services ( labour ) and assets.

It is not wealth, which is the “ real stuff”.

Knowing how money comes into circulation and goes out , is vital to understanding the problem and to see the solution – and indeed there is a solution. You can be a small but important part of that solution. Money can be lent, spent or given into circulation.

Page 3

Consider the current international bank controlled money system as applied to Australia :

1. 95 % of money is created by banks and lent into circulation as described above. Loans are debts to be repaid with interest ;

2. 4 % of money is created by banks and spent into circulation , mainly on paying wages, building and maintaining property. It costs the bank nothing to employ staff and build buildings etc. – wages and payments end up as money in the form of numbers added to the workers account ( the costs ) , and this costs the bank nothing ( they are created out of thin air ) amazing – no wonder this is forbidden knowledge. From the workers point of view, money created and spent into circulation by banks is earned into circulation by banks is earned into circulation by the workers – it belongs to him – it is debt – free money.

3. 1% of money is created by government , and that is spent into circulation. This happens at the mint. A $2 coin costs about 10 cents – it is only a token – a law makes it valuable. This token will be used to pay public and private debts and taxes to the value of $ 2., hence the term legal tender.

Note : Government cannot say that it only gets money by taxing and charging. Bank notes are not created by Government, but by the Reserve Bank which is under Private control , in spite of the deception of a Reserve Bank Act of federal Parliament. Try getting a Federal Politician to attack or question The Reserve Bank – it is the way to a very short political career.

Bank notes can be exchanged for numbers in accounts and vice versa .

Putting things together :

Spent in or earned money (2) and (3) above 4 % +1 % = 5 % helps to provide a source of money to pay interest on (1), the loan or debt of money – 95 % . What if interest demanded on the debt money 95 % Is greater than the debt – free money 5 % .

Putting it simply, the banks would be asking more out of circulation than there is in circulation, and they invariably do. Consequently there is not sufficient money in circulation for everybody to repay their loan with interest.

If you are successful in the system and repay your loans and make a profit, then much of your interest and all of your profit has come out of the principle of other peoples loans. To be successful, others must fail in this evil banking system – but such a shocking situation need not be , fortunately.

Page 4

Summary :

Banking is a system in which money is created at no cost and ( mainly ) lent into circulation after mortgages over real property have been taken. Interest charged exceeds the small amount of debt – free money, so banks have set a trap in which those who cannot repay get foreclosed on and lose the real wealth they have mortgaged.



Comment :

You cannot keep taking , say, $ 105 out of circulation for every $100 that comes in . Why does not the system collapse and there be no money in circulation ? This bank debt system is deliberately unstable. It is kept :

1. making loans bigger and bigger and

2. 2 writing off debt on people on whom they foreclose…

… debt “written off “ remains in circulation as numbers. Is it really debt ? Remember the bank created the “ money ” as numbers at no cost . Debt by deception , and fictitious at that. All economic problems which lead to many social problems can be explained by the above method of bank operation..

1. Liquidity problems: shortage of money in the system means some must not have enough to repay loan, hence liquidity problems;

2. Inflation: liquidity problem forces some to borrow more to keep going. New loan to be repaid with interest forces up cost of production, hence prices for products / services must go up, hence money buys less – which is the meaning of inflation;

3. Boom : banks lower interest rates, make loans easy to get and the money supply increases, whilst unemployment decreases and productivity increases, but prices rise – loans raise cost of production hence inflation;

4. Recession / depression: banks slow or stop lending and raise interest rates. Money supply decreases, unemployment increases, economic activity decreases, prices may fall so money is deflated – it buys more but it is all “ owed “ to the bank anyway – “ owed “ only in the sense that you accept the creation of money by banks as legal, which it is not:

5. Unemployment : is not caused by a lack of jobs, it is caused by a lack of money in circulation – this shortage is deliberately caused by banks :

6. Bankruptcy : business failure – the cause has been explained above. Truly the blood of thousands who have suicided over debt / bankruptcy and marital and family breakdown through debt is those who run and control banking:

Page 5

We allow the Banks to create money at no cost to them, give them the privilege to charge us for principle and interest and bank charges etc. ( on a loan ), how more generous can we be ? ( or dumb )

You have just had the best economics lesson you will ever have – it fits the facts and is free. Isn`t it so true that when you see the problem clearly, the solution is at hand.

The Constitutional Money System :

Believe it or not, all the power needed to sort out the money system is in the Australian Constitution Section 51, 12 : The power to make the laws regarding money and 51,13:
The power to make the laws regarding banking.

51,12 : Gave the Federal Parliament the power to set up the mint and create money – coins.
Nothing in the Constitution stops government from creating treasury notes ( instead of bank notes and treasury credit- number money instead of bank credit ).

1. The Federal Government must be forced to use the power we gave them to become sole creator of Australia’s money ( 51,12: ) ( Not the privately owned banks ) further ;

2. The Federal Government must be forced to use 51,13: to stop banks creating money , Simple – banks to have accounts with treasury – loans made by cheque to be cleared through treasury, then they cannot lend what they do not have , just like you and me – cheques will bounce.

3. Treasury created money at the direction of the parliament is to be ( mainly ) spent into circulation which is the same as being earned into circulation by those who work for it.

4. All constitutionally empowered purposes of Government are to be financed by government created credit and never by taxing to gain money or borrowed at home or abroad. ( IMF or World Bank Loans – debt to them is now over

5. $ 450 billion dollars and climbing )

6. Recommended to the Australian people to amend the Constitution to stop government taxing to gain money or borrowing . This will force the government to use the power the people gave them to create money.

7. Government created money will be backed by the assets produced by those who work for it. Those assets will be produced cost – free to government , so no debt , hence no interest / principle repayments need to be made, hence no need to tax. Bank credit is not backed by anything other than fraud and deceit.

… however this is not something for nothing . Those who work for the money Government created have benefited society . Their pay is a power of command over other peoples goods, services and assets. The real reward of those who benefited society is the real wealth others will give them in exchange for the money they earned. Instead of paying tax so the government can achieve, we
provide goods and services in exchange for money as the reward for those who did the work for government for the national benefit.

Government will be required to spend sufficient money into circulation to provide for full employment making sure that money is backed by real wealth.

8. User pays will apply to Government services, but with no government debt, these will be much cheaper, and with all income tax and all hidden taxes removed which the government now uses to gain money, people will have six times as much expendable income to decide what services they require

9. Social Security will be solved in the best possible way – jobs for all, except the aged, disabled and mentally ill. Savings for old age will be easy for those who work ten years in the new system.

10. Zero inflation – constant buying power of money is the only fair basis of a money system – impossible in the bank system, but totally possible in the Constitutional system. To achieve this, as an asset of government is worn out - for example, a road – treasury will gather up money from those who use it ( tax on fuel ) and tax it out of circulation. For example, a stretch of road costs $ 20 million and is expected to last 10 years. Then each year $ 2 million is taken out of circulation – so all the $ 20 million is taken out in 10 years . Then with zero inflation, $ 20 million created by treasury will see it rebuilt.

11. Bank assets and wealth gained by fraud will be restored to the people as equitably as possible. Australia will be owned totally by Australians.

12. Top bankers in Australia who have worked this fraud will be jailed for life , and any overseas top bankers who dare show their faces likewise .

I told you that government would have to be forced to use 51, 12 : and 51, 13 : of the Constitution.

Why ? They have the power, why won`t they use it ? They are too frightened to use it – and don`t call them cowards until you consider yourself in their position. Those behind the banking system ( it is only a tool ) have a record of assassination against those who try to take away their assumed power to create money – Lincoln, Kennedy , Holt.

They will even induce war if they cannot – Saddam Hussein and Desert Storm. Sounds a bit risky to do anything , true , but the result of doing nothing will be a New World Order
Where mind control, slavery or death will be your lot.

What can we do – with little risk – to force government to obey we the people instead of the evil hidden government ?

1. Educate yourself – learn what other strategies are available to you.

2. Talk – explain and teach others – give them copies of this letter- spread the knowledge fast .

Let the politicians know that you now know the truth and what are they going to do about it.
Why will this work ?

Well, the bankers have said that if the people in large numbers wake up to how we operate , we've had it . However, they boast that most people are to dumb to do this .


Link to Word Doc Attachment:

lent into circulation

Banking is a system in which money is created at no cost and ( mainly ) lent into circulation after mortgages over real property have been taken. Interest charged exceeds the small amount of debt

The Evil Of Usury

The Evil of Usury - Part One

"The rich ruleth over the poor, and the borrower is servant to the lender" -- Proverbs 22:7

Alas, the above is only too true today as it was when formulated. The rich rules over the poor -- an ages long fact. The borrower is servant to the lender -- and what is the method used by the lender: the insidious system of usury. The whole case against usury is too large to cover in the space of an article so the following is a concise and brief explanation of the workings of this fraudulent system.

For the many readers who are aware of these little-known facts, the following will serve as a timely reminder and hopefully, an incitement, to inform the many innocents who are daily losing their farms, houses and businesses as a result of this unjust system. Even more urgent is the need to educate the young before they embark on a future relationship with their bank or financial institution. There is no turning back once those loan papers have been signed: you are trapped right up till the day you pay it off.

For the readers who have never been fortunate to know the following, they may well be shocked and even angry. They will be angry at the banks, the Establishment that permits such a swindle, and in fact, thrives off such a swindle.


"For the love of money is the root of all evil" -- II Timothy 6:10

"The most sinister and anti-social feature about bank-deposit money is that it has no existence. The banks owe the public for a total amount of money which does not exist. In buying and selling, implemented by cheque transactions, there is a mere change in the party to the whom the money is owed by the banks. As the one depositor's account is debited, the other is credited and the banks can go on owing for it all the time.

"The whole profit of the issuance of money has provided the capital of the great banking business as it exists today. Starting with nothing whatever of their own, they have got the whole world into their debt irredeemably, by a trick.

"This money comes into existence every time the banks 'lend' and disappears every time the debt is repaid to them. So that if industry tries to repay, the money of the nation disappears. This is what makes prosperity so 'dangerous' as it destroys money just when it is most needed and precipitates a slump.

"There is nothing left now for us but to get ever deeper and deeper into debt to the banking system in order to provide the increasing amounts of money the nation requires for its expansion and growth. An honest money system is the only alternative." -- Frederick Soddy, M.A., F.R.S., Nobel Prize Winner, 1921.

As the above makes clear, banks are able to manipulate "money" using various methods like the debiting of one account and the crediting of another, and so on, thus "balancing" the accounts. Banks also "create" money in more ways than one, through a trick that will be looked at later on.

Economists use the term "create" when observing the process by which money comes into being. Thus, creation means making something that did not exist before.

A sawmill makes boards, workers build houses from timber, a glass-blower makes fancy glass ornaments. In these examples, they did not "create", but converted already existing materials into a more usable, and thus more valuable form.

However, money "creation" is somewhat different. Here, and here alone, man "creates" something out of nothing. Pieces of worthless paper are printed, given various denominational values, which can be used to purchase, for example, a glass ornament. Its value (of the money, or piece of paper) has been "created" literally out of thin air.

As we can see from the above, manufacturing money is dirt cheap, and whoever does the "creating" and issuing stands to make impressive profits.

The Supply of Money

"Let me issue and control a nation's money and I care not who writes its laws" -- Attributed to Mayer Amschel (who later changed his surname to Rothschild and founded the largest financial dynasty ever to exist in its influence and power).

The proper use, distribution and supply of money is of vital importance to the efficient running of society. Modern societies are completely reliant on an adequate supply of money.

Without money, industry would grind to a halt, farms would become mere self-sustaining units, surplus food would disappear, jobs requiring one or more workers would remain unfinished, transport of all goods would cease, hungry populations would kill and steal to stay alive, and government would collapse leading to complete anarchy. It is not hard to imagine the catastrophic conditions created if money was to completely vanish.

Money remains the life-blood of society; money flows throughout society just as vital nutrients flow throughout the body, giving sustained growth, development and vitality.

Money is the method by which goods and services are exchanged; remove money or hamper supply and the results will be disastrous. We need only recall Australia's Great Depression of the 1930's.

Bankers Depression of the 1930's

Australians all know about the Great Depression and the extremely hard times it brought about; but what of its causes?

In 1930, Australia did not lack industrial capacity, fertile farmland, or skilled, industrious and willing workers, residing in both the city and country. Already, extensive systems of reasonably efficient transport and communications were in place. War had not ravaged the cities or countryside, nor had famine devastated the land and its population. The one thing that industry and commerce lacked was a sufficient supply of money.

In the early 1930s, Bankers, who were the only source of new money or credit, deliberately refused loans to industry, commerce and agriculture. However, payment on outstanding loans was demanded, which led to a rapid decrease in the circulation of real money.

This caused a complete standstill; jobs could not be done, goods and services could not be purchased. This ploy by the greedy Bankers placed Australia in the Great Depression of the 1930s, and moreover, placed extensive amounts of businesses, private dwellings and farms in the hands of these same Bankers.

The people, not understanding the system, were in a helpless position, and were cruelly robbed of their hard-earned savings and property; they were told things like "times are hard", "money is short", "everyone is suffering." These same statements come to mind when recalling them being made during Australia's recent so-called "recession".

This was "a 'recession' we had to have," the politicians proclaimed; and one I'm sure the banks loved to have. If you should have the opportunity, a check on how the banks faired during the so-called "recession" will reveal sustained and increased profits, with an abnormal increase in acquired property assets!

Money for Peace? No! Money for War? Yes!

"The Rothschilds can start or prevent wars. Their word could make or break empires" -- Chicago Evening American, December 3, 1923.

World War II ended the Great Depression. Overnight, the same Bankers who had no money for housing, food and clothing, suddenly had millions to lend for Army barracks, uniforms, rations and weaponry.

This was a remarkable reversal in policy by the Bankers. They simply began pumping millions upon millions of dollars back into the economy when war was imminent. The Great Depression ended because of the war!

There will be some who believe that a war will lead to a "boom economy" because it leads to a massive increase in activity and production. This fallacy is easily exposed: If we were able to manufacture millions of tonnes of war equipment, dump it in the desert and blow it up, would we therefore have a "boom economy"?

On the contrary, wars create huge debts to the Bankers who are able to expand the money supply and lend more money out. In the case of a war, the victor nation would have to seize the assets of the defeated nation, occupy its place in the international trade system, and thus, sometime in the future, be able to pay back all its debts (including interest) to the Bankers who made the war possible in the first place. Big banks, that have traditionally been owned exclusively by a few collaborating families, can change the course of history and have done so for much of this century.


"Who goeth a borrowing goeth a sorrowing" -- Benjamin Franklin.

The main method through which new money (not true, real money, but "credit" representing a debt) can go into circulation in Australia is when it is borrowed from Bankers. When large amounts of money are borrowed and utilised within society, an illusion of prosperity appears. Thus, when "credit" is loaned out to borrowers, more wealth circulates within society giving the outward appearance of abundance. Of course when it comes to paying that money back, there is the question of usury or interest. As "credit" is borrowed out, interest accumulates at ever-increasing rates as we will soon see.

The transaction of borrowing money proceeds as thus:

The applicant applies to borrow X amount of dollars from a Banker. The Banker, by the stroke of his pen, issues the applicant the principal (the amount borrowed), i.e. "creates" the borrowed amount. This amount does not come from individual bank accounts. The Banker lends the applicant nothing tangible (i.e. gold, silver, paper or ink) on credit, they lend the applicant intangible CREDIT on credit!

Thus, the problem of limited supply is circumvented; the Bankers are lending noTHING which means they can go on lending forever. A highly profitable venture indeed.

To conceal the fraud of lending nothing, Bankers charge interest, whereby borrowers (of nothing) agree to return more imaginary "credit" than they borrowed.

The borrower whose original loan consisted of principal only, must also pay an extra amount that the Banker specifies (interest). Therefore, the new money never equals the new debt added. The amounts needed to pay the interest on the original loan is not "created", and therefore does not exist!

Under this insidious system, the new debt will always be larger than the new money; as more money is needed to pay back interest, less money becomes available. This whole system is particularly unjust when one realises that he/she is repaying intangible principle ("created" by the bank) as well as interest (which is conceived from the "created" principal!)

The above can be illustrated by the following:

The applicant borrows $60,000 to purchase a home, farm or business, and the Bank has the borrower agree to pay back the loan PLUS interest. At just 14%, the borrower must repay $710.92 per month for 30 years. The Bank obtains its "mortgage" over the property and the borrower receives a $60,000 cheque from the Bank which is credited to his/her bank account. The borrower then writes cheques to the builder, contractors, other institutions etc. These persons in turn write cheques. Some $60,000 of new cheque-book money has been added to the money supply.

However, the flaw with this usury system is this: the only new money created and injected into circulation is the principal of $60,000. The money required to pay the interest was NOT created and was not put into circulation.

In the above case, the borrower must earn and take out of circulation $255,931, almost $200,000 more than he put into circulation when he borrowed the original $60,000. Every new loan, big or small, puts this same process into operation. The borrower adds a small amount of money to the total supply of money and deducts more than quadruple the original sum (as in above example) to meet his "obligations".

Another example given below illustrates the year by year progression of a loan for $100,000 at 20% interest for 15 years. Take note that the borrower has repaid the principle after five years of payments! The borrower continues to pay the bank a total of $216,134 over the next ten years.


The inevitable outcome of this system is the diminishment of money in circulation to the point where a depression will be imminent. Money increasingly disappears into the Bankers coffers leaving less and less in circulation. Debtors struggle against each other, vying for new loans which will mean more "created" money and more interest. The banker accrues vast sums of real money and credit that he will gamble on the stockmarket, etc. The Banker will also accumulate all types of property assets, snatched from bankrupt farmers, businessmen etc.

The Banker who produces nothing of value, slowly, then more rapidly, gains a death grip over the land, buildings and labour of future generations. The borrowers have become the servants of the lenders and have placed themselves on the economic treadmill of debt.

Banks Always Prosper -- Through the Bad and Good Times

Though millions of financial transactions are carried out every year, very little money actually changes hands. 95% of all "cash" transactions are done by cheque. The Banker is perfectly safe in "creating" the so-called "loan" by writing the cheque or deposit slip, not against real money, but against your promise to pay it back! The cost to the banker is stationary and wages.

The Greatest Swindle Ever!

"Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it all back again. However, take it away from them, and all the great fortunes like mine disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits" -- Sir Josiah Stamp (President of the Bank of England in the 1920s, the second richest man in Britain).

Hidden under a veneer of respectability, integrity and competitiveness, the Banker awaits his next unsuspecting victim. The Banker is partaking in the biggest swindle of all time, and he knows it. The Banker's wealth, power and influence extends the world.

We are ruled by a capitalist Bank-owned Mammon that has usurped the mantle of government, and set about to pauperise and control the people. It is now a centralised power-hungry apparatus which promotes war, steals the people's wealth and uses every type of propaganda to keep its position.

The Banker realises that an under-educated, ignorant and confused population is easier to subvert than a healthy and intelligent people. The ruling Establishment therefore promotes all manner of degeneracy, decadence and corruption including drug use, sexual perversion and trivialities.

Through the use of high technologies, the Banker and his other plutocratic cohorts will have a most efficient and complete control over a nations finance and thus increased powers to amass even more wealth through their evil use of usury.

The future will give way to an even larger increase in financial transfers done not only by cheque but by computer transfers that the consumer/borrower will execute from ATMs (Automatic Teller Machines) and home computers. When 100% of all transactions are processed in this manner, the cashless society will have been reached -- a Banker's paradise. The cashless society will be the ultimate instrument in social control; no more tax evasion, no more "extra money on the side", no existence outside the system.

So what can we do about this incredible rip-off? We can warn as many people as possible about this deceitful system and we can tell them not to participate AT ALL. The evil that lurks behind usury must not under any circumstance be supported or encouraged. When enough people realise this iniquity they will develop alternative methods of raising funds. They will come together in new community structures; independent from the old, decrepit worn-out Establishment.

For the love of money is the root of all evil; and the evil that exists at the base of materialistic societies will one day be rooted out and forever destroyed.

"Those who swallow down usury cannot arise except as one whom Satan has prostrated by his touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury. To whomsoever then the admonition has come from his Lord, then he desists, he shall have what is already passed, and his affairs is in the hands of Allah; and whoever returns to it -- these are the inmates of the fire; they shall abide in it. . ." -- From the Qur'an, Surah Al-Baqarah.

The following are extracts from Rev. Charles E. Coughlin's famous book Money! Questions and Answers. The title is self-explanatory as to the easy-to-read format of this wonderful book. The book is available from N.D.I.N.S, GPO Box 3126FF, Melbourne, 3001 for A$16 plus A$2 postage and handling.

When an individual borrows money from a bank, does the banker lend him money that other private individuals have brought to the bank?

No. That is what the bankers would like to have you believe, but it is not true.

How do banks create money out of nothing by mere book-keeping entries?

By the following manufacturing process:

* John Jones, a business man, needs $10,000. He goes to the bank and explains the nature of the busi ness he proposes to conduct. He takes to the bank certified figures indicating the value of his business, factory, farm, home, etc. If the banker is satisfied with the amount of real wealth to be pledged, he gives John Jones a note to sign. This note is a mortgage upon the wealth John Jones owns, and gives the banker legal power to confiscate the wealth, if John Jones does not pay at a specified time the number of dollars he is borrowing. The banker then manufactures the money on his ledgers.

How does he do this?

* When the banker accepts John Jones' note, on the asset side of the ledger he writes: Assets Liabilities Loans and Discounts...............$10,000 On the liability side he writes: Deposits.......................................10,000 At that instant, there is $10,000 more money in existence and available for use than before the banker made these entries.

What does John Jones do with this bookkeeping money?

* He goes back to his factory with a bank book, not with actual currency, showing a deposit to his account of $10,000.

What is the exact nature of the item on bank balance sheets called "Deposits"?

* The "Deposits" are actually and legally nothing but liabilities of the bank. They are the money the bank owes, not what it has. A bank deposit is actually a bank's promise, nothing more.

What can John Jones do with this newly created deposit?

* He can and does write cheques against this deposit to pay labourers, buy raw materials, and pay general overhead, incident to carrying on the manufacture and distribution of wealth.

How is this possible?

* Other banks are doing the same thing at the same time. A bank against which cheques are drawn receives the proceeds of similarly manufactured deposits in other banks. Each bank receives cheques drawn on other banks which offset those drawn against it. They all have to work together. If there were only one bank the fraud would be soon discovered.

Is this process honest where John Jones pledges real wealth to secure the banker's fictitious bookkeeping money?

* No, because it enables the banker to lend purchasing power (money) which costs him nothing but the general overhead of running a bank, and forces John pay interest for the existence of bankers' bookkeeping money, with which 95% is transacted.

When the banker manufactured $10,000 and loaned it to John Jones, who began to write cheques, exchanging that bookkeeping money for wealth and services, what happened to the price levels?

* They were increased, because there was $10,000 more money in existence than there was prior to John Jones' loan. This new money came into existence, however, without a corresponding increase in the volume of goods and services, thus decreasing the unit value of money already outstanding. The value of outstanding money went down, which meant that the price level went up, i.e., the same amount of goods would then command more money. This principle is well recognised by all economists.

* For example, if there are only $10,000 in existence in the egg market and only 10,000 eggs to be had we will say that each egg is worth $1.00. Now supposing that there are $20,000 in existence in the egg market and still only 10,000 eggs to be had. Each egg becomes worth $2.00. It is the old law of supply and demand. The double amount of money represents the demand. But the same quantity of eggs represents the supply. The egg merchants desirous of getting as much as they possibly can per egg will exhaust the supply of egg money.

When John Jones, the business man, is forced to pay his loan at the bank, what happens to the volume of money in the nation?

* It is reduced by the number of dollars that John Jones pays.

What happens when a large number of business men are forced to pay their loans?

* A large volume of the necessary medium of exchange is extinguished, i.e., cancelled out of existence.

What is a genuine loan?

* In making a genuine loan the lender advances real money which represents a transfer of real purchasing power. Thus, if "A" earns $1000 working at the production and distribution of wealth, he may exchange that $1000 for wealth, or he may abstain from using or possessing wealth and lend his $1000 to another. If he lends his $1000 so acquired, he is a party to the making of a genuine loan.

Why are bankers as a rule opposed to the existence of genuine money and prefer the existence of so-called credit money?

* If bankers are compelled to lend genuine money they are merely acting as agents for some real depositors and thereby are profiting only insofar as they are handling genuine money to the extent of the total amount of genuine money deposited with them. If bankers are privileged to lend credit money it means that they are not lending, as a rule, depositor's genuine money but are lending ten or fifteen or twenty times the amount of genuine deposits. They create credit money or fictitious money by a flourish of the fountain pen. Thus instead of lending only actually, for example, a million dollars of total deposits at 3% with the return of $30,000 profit the bankers are lending under the credit money racket, for example $20 million, $19 million of which is fiction. In this latter case their profit would be approximately $600,000.

* Therefore, bankers are opposed to honest money and to honest lending because of the difference of profits which in the case above would amount to approximately $570,000.

But why should citizens be opposed to bankers making this extra profit?

* Because this extra $570,000 must be taken out of the sweat of the labourer. It is a social injustice which permits privileged classes to reap where they did not sow.

Do fundamental, Christian, moral, ethical and philosophical principles harmonise with private ownership of property employed in or available for use in producing wealth?

* Yes. Private ownership of honestly acquired property, employed in production is in full harmony with Christian principles.

Is capitalism, as we find it in operation today, in perfect harmony with Christian, moral, ethical and philosophical principles?

* Emphatically, no. Masquerading under the title of capitalism, modern capitalism is notorious for the following errors which are contrary to human nature and to good government.

* 1. Modern capitalism borrows money at interest for non-productive and destructive purposes.

* 2. Modern capitalism, while professing in the belief in private ownership, concentrates the wealth in the hands of a few and deprives the mass of private individuals from owning the tools of production.

* 3. Modern capitalism professes to believe in the private coinage and regulation of money...

Does social justice imply that its followers adhere to the doctrine of modern capitalism?

No. In the four above mentioned errors of modern capitalism, social justice is opposed to this economic system.

Did Karl Marx ever attack private money creation privileges and international bankers?

No, his whole system proposed not the abolition of illicit private money creation and destruction powers, but its consolidation under a system of complete economic, political and religious domination of the entire world by a few internationalists.

Do all people have equal opportunity under our present money system? No, they do not.

"They say to us that we all have an equal opportunity, and that it is our fault that we do not become rich. They seek, however, in every way possible, to prevent us from taking the only opportunity we have to all become successful for they know that if we did, it would end their exploits." (From "Why is Your Country at War" by Charles A. Lindbergh, Sr. in a speech urging the passage of a bill to provide a honest money system.)

Why is it that the modern newspaper (free press) upholds modern capitalists?

Because the modern newspaper, in many instances, is owned or controlled by the banker or the banker dominated advertiser who insists that the editorial matter in a modern newspaper does not militate against the interests of the modern capitalist.

Is usury opposed to morality?

Yes, and it is also opposed to Christian teaching.

(Article from New Dawn magazine -- a magazine exposing consensus reality, and publishing suppressed information. Sample copy for A$5 can be obtained from: GPO Box 3126FF, Melbourne, 3001, AUSTRALIA).

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The Evil of Usury - Part Two

The extraction of usury is "one of the oldest professions of man." (Forrest M. Smith, III, The Regulation of Interest: Practice and Procedure, 10 ST. MARY'S L. REV. 825, 1979). First came the Temple Priests, then the Goldsmiths and the commercial bankers of today. The first use of the fractional reserve system was in the Temple of Shamash under Hammurabi -- the sixth king of Babylon (Peter Cook, FEDERAL RESERVE FRACTIONAL RESERVE AND INTEREST-FREE GOVERNMENT CREDIT EXPLAINED 4, 1991).

The ecclesiastical doctrine of interest was the greatest obstacle to modern banking. It was primarily based upon 1) Aristotle's condemnation of interest as an unnatural breeding of money by money, 2) Christ's (supposed) condemnation of interest (Luke 6:34) and the reaction of the Fathers of the Church against commercialism and usury in Rome. (Will Durant, THE AGE OF FAITH 630, 1950). The moral condemnation of this ancient practice has been summarized: "It comes as news to most people to learn that practically all important ethical teachers -- Moses, Aristotle, Jesus, Mohammed, and Saint Thomas Aquinas, for instance -- have denounced lending at interest as usury and as morally wrong" (Lawrence Dennis, "The Squirrel Cage of Debt," Saturday Review of Literature 661, June 24, 1933).

Usury has been condemned since biblical times. (George Braden, II THE CONSTITUTION OF THE STATE OF TEXAS: AN ANNOTATED AND COMPARATIVE ANALYSIS 729, 1977). It was originally considered usurious to make any charge for the use of money. Id. Originally the word interest had the same essential meaning as usury. Smith, III, p. 826. The word "usury" used to mean any interest. It came to mean interest that exceeds the rate established by law (Ken Warner, GIVE US A KING 120-121, 1988).

Interest comes from the Latin verb "intereo" meaning to be lost. F.W. Maisel at 141, The ancient Israelites called usury "a bite." It is like the slow poison of a serpent: "Usury does not all at once destroy a man or nation with, as it were, a bloody gulp. Rather, it slowly, sometimes nearly imperceptibly, subverts the victim's constitution until he cannot prevent the fatal consequences even though he knows what is coming." Mooney, p. 23. The practice of lending to an enemy was "as a means of destroying him" (Jno. H. Kimmons, Usury: What Is It, and Does the Law of God Forbid It? 163, Undated).

The Old Testament "classes the usurer with the shedder of blood, the defiler of his neighbor's wife, the oppressor of the poor, the spoiler by violence, the violator of the pledge, the idolater, and pronounces the woe upon them, that they who commit these iniquities shall surely die." Id. at 2. The usurer was put in the same category with extortioners, Sabbath-breakers, those who vex the fatherless and widows, dishonor parents and accept bribes (Ezekiel 22). Id. at 17. The usurer was also classed with the liar, the unrighteous, the backbiter, the slanderer and perjurer, and denied the right to inherit the New Jerusalem (Psalm 15). Id. The usurer is further classed with the meanest and lowest of men and the vilest of criminals (Ezekiel 18). Id.

Before the Babylonian captivity, Ezekiel denounced the practice of usury as a great evil and mentioned the practice of oppressing strangers as part of the great wickedness. Id. at 9. Interest repayments on loans, even to resident strangers was forbidden in the year of Jubilee (Leviticus 25:35-37) whereas in regular years it was permissible to charge interest to strangers (Deuteronomy 23:19-20). Id. at 3.

Zechariah forbade "the oppression of the stranger, classing it with oppression of the widow, the fatherless and the poor..." Id. at 9. Malachi "enjoins regard for the stranger's rights." Id.

Nehemiah, after the captivity, boldly denounced usury (Nehemiah 5:9-11), instituted a reform and had retribution made for all usurious holdings. Id. Those who can abide in the Tabernacle or dwell in the holy hill include (Psalm 15:1): "He that putteth not out his money to usury." Id. at 9.

Solomon gave us the proverb, "the borrower is servant to the lender." Id. at 15.

The New Testament embraces both Jew and Gentile. Id. at 3.

The New Testament continued the prohibition of usury: "In the fullness of time the Messiah came, and no part of the moral law was abrogated. The prohibition of usury as to the Jew was extended, to include mankind, and the permit as to the stranger was declared inoperative and void. The Jew was taught to sympathize with strangers remembering that they were once strangers in Egypt." Id. at 9-10.

Jesus taught (Luke 6:34-35) "love ye your enemies, and do good and lend, hoping for nothing again." Id. at 10. Usury was the basis for Jesus's calling the money changers thieves: "The commerce of the world is conducted on principles as much at variance with the teachings of the master, as are the practices of a sneak thief or burglar. So the Master taught, as with whip of cords, he indignantly drove its representatives, from the sacred precincts of the Temple, denouncing them as thieves. Every well-informed mind knows that the money changers in the Temple, on that startling occasion, were at the very center of the Jewish Banking system, and of the pitiless and grinding commerce of Palestine." Id. at 19.

In Jesus' parable on the subject of usury (Matthew 25:26-27; Luke 19:22-23) "only the hard, austere man, one whose conscience will not interfere with his reaping where he has not sown, and taking up where he has not laid down, would extract usury, for he makes the lord of the parable tell the servant of it: You say I am a hard and austere man, then why did you not act accordingly, and earn me my usury as my nature demanded?" Id. at 3.

Assuming there is a stranger exception, "where is the authority for the practice of usury on our brethren?" Id. at 3. The taking of interest is "subversive of the principles of a sound state policy, contrary to good morals, and opposed to the teaching of God's Word." Id. at 10. The meaning of "usury" has been changed "to mean exhorbitant interest.

The Apostle Peter publicly told his vision: "And in another lake, full or pitch and blood and more bubbling up, there stood men and women on their knees: and these were usurers and those who had taken interest. . ." Antinicene Fathers, Vol. IX, p. 146. The Apostle Paul, in telling his vision, said: "And I saw another multitude of men and women, and worms consumed them. But I lamented and sighing asked the angel and said, 'Who are these?' And he said to me: These are those who exacted interest ON interest, and trusted in their riches and did not hope in God that He was their helper." Antinicene Fathers, Vol. IX, p. 160.

A long-existing and self-perpetuating tax-immune internationalist-transnationalist group uses fronts with inter-locking corporate and or fraternal group of individuals, whose membership is either secret or semi-secret, with undisclosed ownership shares, has usurped the sovereignty of borrowing national governments (who serve their lenders). It includes largely unrevealed yet reported campaign contributors who also control the media and press, all major political parties, and dictates presidential appointments. It abhors the direct issuance of money by elected officials and through the creation of a system of privately-owned and controlled central banks, holds all of the world's gold and all loan and mortgage paperwork.

Its business is conducted in secret meetings which determine the future of all national economies and the timing of expansion (through loans) or contraction (through no loans). It exercises an exclusive monopoly of the issuance of money created out of thin air and issued solely as debt, does not create money to repay the interest, and lives off perpetual national debts that consume future income and under international law cannot be repudiated even by an internal political revolution. At least for others, it tends to be pro-bureaucracy, pro-abortion/population control, pro-government education, anti-family, anti-nationalist, anti-inheritance, anti-private property and anti-Jesus Christ. This group can demand special privileges and even military force to collect "national" debts.

It plans to soon accomplish global disarmament (of both civilians and nations) and have a monopoly on force (including nuclear weapons). It has the privilege of a guaranteed untaxable income enforced by liens on all public and personal property and collected by the coercive force of the taxing structure of the various governments. The basis for its continued existence is continued usury and unforgiving collection of all debts resulting from committing the highest crime of usury.

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'The Lie,' Usury, and Spiritual Discernment

II Thessalonians 2:7-12, "The mystery of iniquity the Man of Sin will invoke when he comes is already going on. But Satan will not incarnate him until after he has been cast out of heavenly places (Revelation 12:7-10), and after the incarnate Holy Spirit departs this earth in the translation of the end-time Bride."

"Only then shall that Wicked one be made manifest to all men who will crown him ruler of the New World Order, whom the Lord will slay by the manifestation of His spoken Word, and destroy his influence with the elect Israelites by the illuminating revelation of His parousia" (Isaiah 11:4; Daniel 12:10; Revelation 19:11-16).

"The beast's presence or 'parousia' through Satanic power will deceive all those whose names are not written in the Lamb's Book of Life, with unnatural signs and great miracles, because in their unrighteousness they received not the love of the revealed Word, that they might be saved" (Revelation 13:4-9).

"Oh, multitudes love the historical Jesus, but He does not love them since they refuse and live contrary to His Word. This is the unforgivable sin (Hebrews 6:1-8) for which God shall send them strong delusion, that they should believe the lie: that they all might be damned who believed not the truth, but had pleasure in unrighteousness."

Brother Branham explained, "the lie" with which Satan is deluding carnal believers is the same lie by which he deceived Eve. "Oh, He's a good God. He loves you so much, Eve. Surely He won't allow you to die in the flesh".

Today Satan is speaking to the second Eve, the deceived church that has rejected God's end-time Message. "Oh, He's a good God. He loves you so much, church. He loves the Baptists, and the Pentecostals, the Jew and the Lutheran. He died for you. Surely He won't allow your souls to perish".

The fact is, He only died for His elect who receive His Word by faith, and for those of Adam's race whose names remain on the Book of Life. But God hates the man who "receives not the love of the truth -- Thy Word is truth -- that they might be saved . . . but enjoys the pleasures of sin which is unbelief." These accursed of God will be cast into the lake of Fire.

Like Israel at the end of the Law, Christendom at the end of her dispensation today is living under the strong delusion that He Who refused Cain's sincere, hard-won offering because it was works without faith and carnal, will honor their departure from the Word and dearth of faith. But He is no respecter of persons. He is the Word and will receive only His unchanging Word so we must walk in the Light of the PRESENT Truth God is shining NOW, not impersonate the glare of a day gone by (I John 1:7).

When we offer God our sacrifice of praise, it must be a clear revelation of His mind. Near enough is not good enough. Christ is no longer Mediating ignorance. He will not receive denominational guesswork, or the lie that "Jews" are His 'chosen people,' by which the self-styled non-Semitic, anti-Semitic "Jews" have deceived the nominal churches -- even within Message circles -- usurping dominion over their theologies and their nations (Genesis 27:39-40).

Common sense declares that the Holy Spirit Who anointed Moses and Elijah, inspired David and Isaiah, indwelt Christ without measure, and called God's elect out from the Law 2,000 years ago, is not the spirit that regards "Jews", or even Hebrews who are Israelites, His 'chosen people'. Therefore it can not be the Holy Spirit that indwells and inspires even those few Jews who are Semitic. Neither is it the Holy Spirit that would cause anyone to so regard these prophets, but a misleading influence working error through a strong delusion to make you believe "the lie".

It is the true Christians who are 'God's Chosen People.' Abraham's promised Seed is Jesus Christ and the offspring of His faith (Galatians 3:16, 26-29). Wake up sleeping virgins who believe God sent a prophet; examine yourselves, whether you are in the faith, or deceived and deceiving yourselves.

Israelites were not allowed to become men's slaves, because they were already God's slaves, "The children of Israel are God's servants whom He brought forth out of the land of Egypt" (Leviticus 25:42-43, 55). Messiah is God manifest in flesh and through the Spiritual marriage union or new birth, the true Christians are one with God. Jesus Christ is Israel's King, and the Church, Christ's Bride, is Israel's Queen. So therefore Israel is our servant nation.

The Spiritual decline of the West stems from the conscious dilution of Christian Absolutes in futile attempts to appease and please the insatiable demands of non-Christians, whose friendship we have sought to buy, thereby ceding God's blessings of material prosperity and unassailable political supremacy to godless troops of usurers, heathens and ne'er-do-wells from the East who have no geographical nationality and from whom God commands us to remain separate (Amos 3:3).

Christendom has repeated Israel's folly of associating with the enemy (Isaiah 8:9-22). Almost as soon as Israel entered the Promised Land, Joshua made a treaty with their Serpent seed enemy (Joshua 9:3-15). Next, Saul spared Agag, king of the Serpent's seed (I Samuel 15:9). Then John Hyrcanus forced the Serpent's seed to assimilate with Judah, convert to the Law, and intermarry. But "friendship of the world is enmity with God? whosoever therefore will be a friend of the world is the enemy of God" (James 4:4; Romans 8:5-8; Genesis 3:15).

The merciful character of Moses' Law appears in the command that the debtor was to deliver up as a pledge to the creditor that which he could most easily dispense with. His creditor was not to keep the poor man's outer garment after sunset when given in pledge for a loan (Exodus 22:26-27; Deuteronomy 24:6, 10-13, 17). (Orientals do not undress of a night but simply remove any heavy outer garments and sleep in the clothes which they wore during the day). The millstone, including all instruments necessary to life, and a widow's garment, were also forbidden to be taken. And the creditor may not enter the debtor's house to seize the pledge, but must wait for the debtor to bring out an adequate security for payment.

This was one of the fundamentals of English Common Law which was based upon the Bible before the usurers who follow the Talmud, which "makes the Word of God of none effect to them," gained sufficient influence over our governments as to cause them to deny the Bible and pervert the law of the land for the gain of these strangers.

There was a time when no man, not even the king, could enter an Englishman's house without his permission, neither could it be seized in satisfaction of debt since it was inviolate and that would create poverty, ill-health and encourage criminality. Hence the proverb: "An Englishman's house is his castle." However the usurers who were behind the Norman conquest of England under William in 1066 eventually had such Bible-based laws rescinded.

In England, prior to their eviction in 1290, Jewish bankers were charging their clients two pence in the shilling per week interest. (There were 12 pennies in one shilling, and 20 shillings in one pound). At the end of just one year, even at simple interest, the borrower would owe eight shillings and eight pence in interest -- 2,000% p.a. -- plus the original one shilling `capital'. At compound interest, at the end of a year the borrower would owe a staggering one hundred and eleven pounds, five shillings -- 222,500% p.a. -- plus the original shilling!

Edward I banished the Jews from England for many grave offenses endangering the welfare of his realm and lords, which were to a great extent indicated in the Statutes of Jewry, enacted by Parliament in 1290. "Jews" were readmitted under duress in 1657 (Cecil Roth, Life of Menasseh Ben Israel, Jewish Publication Society of America, 1945; The Inner Government of England, Vol. 1, p. 275).

The King of France followed suit in 1306. Saxony in 1348, Hungary in 1360, Belgium in 1370, Slovakia in 1380, Austria in 1420, the Netherlands in 1444, Spain in 1492, Lithuania in 1495, Portugal in 1498, Italy in 1540, and Bavaria in 1551. Thus, after 1497, there were no professing Jews left in all of the lands bordering the Atlantic, including England, except an underground of forced converts always working in a different name and under a different occupation in their quest for power and money. And typical of the secret powers working behind the scenes to create conditions for which other people are blamed, they hid behind Protestantism, waging war against Rome for influence at Court.

So grave did the situation for the Jews in Europe become, that an urgent appeal for help and advice was addressed by them over the signature of Chemor, Rabbi of Arles in Provence, on January 13, 1489. The reply came from the Sanhedrin, then located at Constantinople. in November, 1489, issued over the signature of V.S.S. V.F.F. Prince of the Jews. It advised the Jews of Europe to adopt the tactics of the Trojan Horse; to make their sons Christian priests, lawyers, doctors, etc., and work to destroy the Christian structure from within.

This evil strategy has succeeded in sinking every nation under heaven into the present moral, economic, religious, social, civic, and political morass, and the initial stages of a third Jewish World War. If you doubt the veracity of this remark, read the Soncino English translation of the Babylonian Talmud at any major library and confirm some of the excerpts from our Church Website. And see if you can discover a single one of the Protocols of the Learned Elders of Zion not rooted in the Talmud and grounded on the advice of the Sanhedrin.

Under Moses' Law, the Hebrew debtor could be held in bond by his fellow Israelite for six years at most, since in the sabbatical year he should be released from all pecuniary debt and pay nothing to regain his freedom (Exodus 21:2). Nor may he be retained beyond the jubilee year. His land was to be restored, and he was sent away with a generous supply of provisions. The prospect of such a gift doubtless stimulated his zeal in service (Deuteronomy 15:12-18; Leviticus 25:39-55).

This law evidently foresaw the acquisition of wealth by foreigners residing in Israel, and their living in undisturbed prosperity as the "Jews" live in racist, Marxist Israel today (Genesis 27:39-40). However the Law of Exodus 21 does not apply to foreign masters, and there is no mention of the release of the Hebrew slave of a foreigner in Israel, except by redemption, until the Jubilee when "All Israel shall be saved" -- all 144,000 of them -- as "the nation shall be born in one day" (Leviticus 25:47-55; Romans 11:26; Isaiah 66:8). This would be a strong inducement to an impoverished Hebrew to sell himself to an Israelite rather than a foreigner, and concurs with the general tendency of the Law to discourage any subjection to foreigners. This type clearly demonstrates to the un-believers and make-believers that those who occupy and rule Israel today may be "Jews," but they are not Hebrews and Israelites for "Jerusalem shall be trodden down of the Gentiles, until the times of the Gentiles be fulfilled" (Luke 21:24).

Unlike the "Jew's" Babylonian fractional reserve banking system and foreign-controlled central banks that force governments to issue money as a debit, these regulations prevented the accumulation of debt. Here we see the contrast in the nature and character of the "Jews" with Talmudic Judaism, against the natural descendants of Abraham, Isaac and Jacob with the Law and prophets. There is no mention of beggars in Israel so long as the Law of Moses was observed since it provided for the poor (Leviticus 19:10; Deuteronomy 14:28-29). However it was predicted of the seed of the wicked that they shall be beggars (Psalm 37:25; 109:10). And so in later times, when Israel apostatized and "made the Word of God of none effect" we find begging was not uncommon among Jewry (Mark 10:46; Luke 16:20-21; Acts 3:2). Yet there is still no mention of that class of vagrant beggars so numerous in the East.

The Hebrew, now under bondage to the Law, must be offered release in the year of Jubilee which types Daniel's Seventieth Week (Daniel 9:27; Revelation 6:9 -- 7:8). But foreigners bonded for debt or purchased as slaves might be held in continual servitude. These type the non-elect (or 'saved') who will not enter the New Jerusalem but toil through Eternity and support the elect by the tithe of their increase (Leviticus 25:44-45; II Kings 4:1; Isaiah 50:1; 52:3; Revelation 21:23-27). While the Levites, who type Christ's Bride (Revelation 1:6), may go free at any time they meet the requirements for redemption (Leviticus 25:32).

In contrast to the merciful Law of Moses, Roman or Oriental law detained the debtor in prison till he had paid the uttermost farthing, even giving him over to torturers as alluded in Matthew 5:26 and 18:34. This is the prospect for the non-elect, pending their appeal at the White Throne Judgment, and for the lost thereafter (Matthew 25:30; Isaiah 66:24).

Compare the law of the "Jew's" United Nations, their International Criminal Tribunal and War Crimes Commission at the Hague, the corrupt Nuremburg Trials, USrael's Presidential Executive Orders and Emergency Decrees, the hard-hearted 'conditionalities' imposed upon third world debtor nations by their World Bank (WB) and International Monetary Fund (IMF), USrael's military attacks upon scores of countries since World War II, and the draconian legislation being enacted by Great Britain, the US, Australia and other nations that will diminish the rights of their own citizens in order to focus power in the hands of the foreign hidden hand that controls these governments. This is Oriental law, not English Common Law based upon the Bible, certainly not Old Testament Law based on Moses, and neither it is the Royal Law (James 2:8).

Common sense declares that the Holy Spirit Who with His own finger wrote the Ten Commandments, and inspired the Scriptures to Moses and the prophets, is not the spirit that indwells and moves upon bankers, politicians, businessmen, bureaucrats, and clergy who control the world system. It is the spirit that led the enemies of Israel -- Babylon, Medo-Persia, Greece, and Rome. It is the god of this evil age who crucified the Son of man and is crucifying the Son of God afresh today.

Since John Hyrcanus assimilated the Hittites and Canaanites with Judah in 109BC, and these accursed people (Genesis 9:25; 10:15-19; Deuteronomy 7:1-2) converted the Oriental Khazar empire to Talmudic Judaism over night in AD740, this evil spirit has ruled Israel and his British empire under color of the six-pointed occult star and the generic word "Jew". And since emperor Constantine healed Rome's mortal wound by transforming it into the Roman Catholic church empire (Revelation 13:3), this evil spirit has ruled false Spiritual Israel under cover of the generic word "church". It is the spirit of error bringing strong delusion to ensure that the non-elect should believe "the lie" (Revelation 13:4).

Today Roman law is supreme in Catholic EU Europe, and the Oriental law is in the ascendancy over the (once) Protestant peoples of the British empire of the hidden hand. These Judeo-Christian people (so-called), in miscegenation with the seed of men through the UN's enforced multiculturalism, which is accursed of God, will be unable to maintain their union (Revelation 16:12; 17:16-17) and God will destroy them all (Genesis 1:11; 6:4; Matthew 24:37-38; Daniel 2:43-45),

"The spirit of anti-Christ is already in the world but Christians belong to God and have already won their fight with those who are against Christ, because the anointed Word in our hearts is greater that he that is in the world. These men belong to the world, so, naturally their concerns are for worldly affairs and the world pays attention to them. We are of God, and only those who know Him can comprehend His Word and listen to us; he that is not of God understands us not. Hereby we know the Spirit of Truth, and the spirit of error. If our Message is of God, the world will pay no attention to it" (I John 4:3-6).

Israel was originally a pure bloodline, an homogenous group of related tribes descended from one man and his wives and commanded by God to live only in the Promised Land separated from all other nations. As they were originally an agrarian economy, and not a mercantile people -- of bankers and traders like the Canaanites -- the law aimed at a equal diffusion of wealth, not at enriching some whilst others were poor. And help was to be given by the rich to his embarrassed brother to raise him out of difficulties, without making a gain of his poverty (Psalm 15:5; Proverbs 28:8; Jeremiah 15:10; Ezekiel 18:8, 17).

The word "usury" comes from the root "to bite," or "devour" (Mark 12:40). It is the sum paid for the use of money, hence interest; but not, as in the modern sense, exorbitant interest. Interest was forbidden to be exacted on loans granted to relieve an Israelite brother in personal need, and he was to be treated with the same kindness and courtesy you would show to a guest in your home, so that he may live with you (Exodus 22:25; Leviticus 25:35-38; I John 3:17). True Israelites are all brothers in blood (typing the Christians who are the Blood of Christ, for the Life is in the blood which was the manifested Word). Even interest in kind was not to be charged to a needy brother Israelite upon food, seed, or borrowed goods. Only the necessity of a brother could bring him to borrow, and the simple relations of Israel and unselfish love should have arranged for his needs (Deuteronomy 23:19-20; Ezekiel 18:8). As the nation of Israel was one family, when a brother fell on hard times and was in need, it was obligatory for his brethren to assist him.

However this restraint upon usury was not to be carried to speculations of trade and my understanding of the letter of the Law is that the restriction upon charging the brethren usury was limited to those in personal financial straits. The principle of taking interest was even then sanctioned and the restriction did not apply to commercial ventures, financial affairs of governments, or elective purchases on credit such as a new well, house or ox-cart (Matthew 25:27; Luke 19:23). Interest was also permitted to be charged to a foreigner and therefore Israelites were allowed to borrow from strangers at interest (Deuteronomy 15:1-6; Nehemiah 5:7; Psalm 15:5).

Jesus magnified the spirit of the Law, exhorting Christians, "If you lend only to those who are certain to be able to repay you, what grace have you extended? even the sinners lend to their own kind for a full return. But love those with whom you do not fully agree and who are fallen on hard times, and do good to them, lending without concern for their possible inability to repay you, considering that nothing is lost, and despairing of no one; and your reward shall be great, and you shall be the children of the Most High Who is merciful and good to the ungrateful and the selfish and the wicked" (Luke 6:34-35).

This Scripture is not encouraging reckless imprudence. Jesus was spoke only of helping your brethren in faith. Though you may presently feel disquiet toward a Brother, help him; for if you are brothers-in-Christ God's Word must unite you in the same mind. Don't take advantage of his necessities to enrich yourself but be satisfied with moderate interest if this is a business arrangement, or no interest if he is in personal need.

Jesus is not telling you to finance brothers in the flesh or the widow down the street. If you feel led to help, and secure in loaning them money, you may even charge interest since they are strangers to the household of faith. Personally, I feel you would be wiser to direct them to borrow from an institution like you, me and everyone else. Christians have no call to fund sinners. We are to be a separated people (Proverbs 6:1-5; 11:15; 17:18).

Usury became established among the Jews following their return from Babylon where they commenced drafting the Talmud as a means for working around the Laws of Moses and of God, as for instance in exacting usury from brethren in need. And they brought back with them the Babylonian fractional reserve banking system with which they have bound and cursed the entire world today.

Nehemiah, who was governor of the Persian colony of Judea, had several times expended his own funds to redeem poor Israelites enslaved in Babylon through debt. He denounced the usurious exactions of some who had taken the hundredth part or one per cent per month -- 12% p.a. -- in interest from returnees who had to mortgage their homes and farms in order to purchase food because of a drought; and he put a stop to the practice (Nehemiah 5:3-13).

The Israelites were bound to benevolence and to the fostering of freedom so that the power of the stranger and foreigner coming into Israel was limited in relation to heathen encroachments upon his right of freedom. An impoverished Israelite who sold himself or his house to a foreigner might be redeemed by any of his near kin or blood relation, or he could redeem himself, if he put aside sufficient means for the purpose. The price of his redemption was fixed according to the years which he had yet to serve to the year of Jubilee, and according to the usual wages. But in case there was no redemption, he was set free in the year of Jubilee.

The release in the Jubilee and in the sabbatical years had reference only bondage or loans extended on account of poverty, and not to debts contracted in the purchase of goods or in the normal course of business. However in the seventh year, and presumably in the year of the Jubilee also, the Israelite was released from paying interest because it was a year of rest for the land and he would have no income since there was neither sowing nor labor; therefore he was not pressed for interest on business or housing loans (Deuteronomy 15:1-6).

Israel was an agrarian economy; whose people were mostly farmers or graziers and who occupied land in trust from the Lord. Should they experience drought, illness or personal financial hardship from some other cause they could forfeit their land only until the Jubilee, or until the value of produce harvested had repaid their debt plus any interest. A money lender would hardly loan a sum greater than the potential value of the produce he could harvest in the years remaining to the Jubilee. Likewise the debt of a Hebrew who became destitute and bound as a slave would be unlikely to exceed what wages he might forfeit for the years remaining to the year of release, a maximum of six years, when he would be freed and his debt canceled.

God, the Owner who has loaned the land to the Israelites, does not require a tithe in the seventh year since there has been no labor and no produce, and therefore no increase save that which has grown of itself and which is His free provision for rich and poor alike. But the foreigner living in Israel was not in the condition of those who had no harvest that year since he could not own land in Israel but would be engaged in a trade, profession or service, and borrowed to enlarge his capital. Therefore he could continue to meet the interest payments on his debts and was bound to meet his usual obligations.

God promised that during the sabbatical year there should be no wretched in Israel to whom one shall have to lend because He shall bless the land with an abundance -- provided only that Israel obey His commandments. God will go before Israel to ensure there are no poor or needy in the sabbatical year. It is spoken, it is done. nl203.htm

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Brother Anthony Grigor-Scott is a non-denominational minister. He has ministered full-time since 1981, primarily to other ministers and their congregations in various countries. He pastors Bible Believers' tiny congregation, and is available to minister in your church.

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The Enormous Silence: Reflections on the Mystery of Money

The Enormous Silence:
Reflections on the Mystery of Money
By John Hermann

Although the subject of the nature of money, and of its creation, distribution and destruction, has engaged the attention of some of the planet's finest thinkers during the past few centuries, the fact is that an over-whelming majority of people within every country today remains totally ignorant of the central role that banking plays in the process of money creation. A curtain of silence surrounds the issue generally. Why? The response to this question, by those who have given it some thought and study, depends pretty much on their level of objectivity and training. Many of the post-Keynesian and dissident economists (including the COMER school) maintain that this deafening silence reflects the fundamental disarray of economics as a discipline and its lack of a satisfactory foundation, together with (a) an apparent lack of understanding and/or interest in the workings of the financial system by many professional economists, and (b) an uncritical acceptance and gullibility in relation to the neoclassical doctrines by economists and politicians alike. The British economist Paul Ormerod and the Australian economist Evan Jones have both emphasised in their writings the absence of any scientific basis for contemporary economics and the schizophrenic nature of its practitioners. For all its posturings and pretent-ious jargon, and its earnest attempts to gain academic respectability by utilising abstract mathematical analysis to camouflage the poverty of its (largely linearised) models, the mainstream economics profession has simply failed to demonstrate to the rest of the world that the orthodox theory possesses any real predictive capability. For this reason alone it would be a perversion of the commonly accepted meaning of the word to describe modern economics as a science.

An alternative explanation for the curtain of silence (characteristically held by the far right) maintains that there exists an elaborate and largely successful global conspiracy to suppress the dissemination of information on the modus operandi of the financial system, and much else besides. According to this theory the entire banking sector at the executive level (but not at the branch management level) is party to the conspiracy. The present author is inclined to the view that it would be impossible to maintain such a conspiracy for long, given the access of scholars and researchers to modern means of communication. This is not to say that such a global conspiracy is inherently impossible, but simply that it is unlikely in the present circumstances (it is more probable, however, that there are many small-scale conspiracies affecting the economic and financial systems to varying degrees). The central problem to be addressed would therefore seem to be one of human gullibility, rather than conspiracy.

It is not difficult to find evidence of the confusion and obfuscation surrounding the money issue. A former leader of the National Party in Australia has been quoted as informing his constituents that "banks do not create money". On the other hand many economic reformers have taken the trouble to assemble long lists of quotations from distinguished personalities, including people at the top of the banking profession, in support of the proposition that banks do create money. Recent college economics textbooks, particularly within the USA, provide descriptions of money creation by the banking system via the "money multiplier" mechanism, and even of "fractional reserve deposit expansion". However, one can also find other economics textbooks which avoid the entire issue of the creation of money like the plague. The confusion and the contradictions appear at almost every level. An excellent little book by Australian reformer Ed Burgi (Money Creation: The Great Confidence Trick) has reproduced a recent letter from the secretary of the Reserve Bank of Australia, who absolutely denies that banks create money. Ed also possesses an official letter originating from the economics department of the Reserve Bank of New Zealand which states unequivocally that the commercial banks create around 97 per cent of M3 ! One might be excused for reasonably concluding that such incompatible views, freely expressed by responsible people at or near the apex of the financial system, provide substantial evidence against the position held by the global conspiracy theorists. It is also worth reflecting on the fact that a variety of distinguished scientists and engineers who have been drawn to the subject of money creation have sometimes been granted insights (into financial mechanisms) that are apparently denied to many mainstream economists. Two outstanding examples are provided by the work of British Nobel laureate in chemistry Frederick Soddy, and the United States engineers Theodore Thoren and Richard Warner. Evidently there is a place for the intellectual rigour of scientific method within the discipline of economics, suggesting that the study of scientific method could be included profitably within economics degree courses.

One may investigate the role of banks in money creation in an empirical way by performing a simple statistical analysis of the detailed borrowing and lending data which are so generously provided by the Reserve Bank of Australia within its monthly bulletins. It is quite unnecessary to have any understanding of the financial mechanisms to discover that a strong correlation exists between increases in bank lending and increases in the money supply. By contrast, it will be found that there is no correlation at all between increases in the lending of non-bank financial institutions and increases in the money supply. Nor are increases in foreign "investment" related to increases in the money supply (note that two thirds of foreign investment is in fact debt, so that the outgoing interest and other liabilities often exceed the incoming capital). These empirical results suggest that banks carry out an important function that the non-banks either cannot or will not duplicate, notwithstanding a recent claim put to me by an RBA spokesperson that banks and credit unions operate in essentially the same manner. It has also been suggested to me by people within the economic reform community that credit unions can create money. I will explain below why I think these beliefs are mistaken.

A very interesting thesis written by one of our Queensland colleagues, Henry Hilton (The Nature of Money and Banking: A New Perspective) has examined the historical and jurisprudential aspects of money and banking in some detail. The course of this research has been dominated by issues arising from the ability of the modern banking system to create money ex nihilo. I wish to focus here upon a crucial distinction that has been made, in section III of the thesis, between time deposits and current deposits. This distinction has also been made by M. Rothbard (The Mystery of Money, Richardson & Snyder, New York, 1983). A number of legal judgements in Britain during the past two hundred years have apparently been made on the assumption (erroneously, in Hilton's view) that money deposited with a bank is inevitably to be regarded as a loan. Hilton states:

"...The judges' opinions expressed in these cases, and the consequential principle of law laid down, are wrong for one basic reason: the learned gentlemen have all failed to distinguish between moneys placed for investment purposes, ie time deposits, and those placed at call, ie current deposits. Whereas moneys placed for investment purposes are of the nature of a loan, clearly moneys deposited and payable on demand represent a bailment and not a loan......"

The point being made here is that with current deposits, ie money deposited and repayable on demand, a bank is obliged to repay the money in full at any time that the depositor requires it. Usually the bank pays very little interest and often charges transaction fees, acting essentially as a safe-keeper. According to Hilton, if in their judgements the courts had correctly differentiated between moneys placed at call and moneys placed for investment, then the banks' license to create money would have been effectively removed, since current accounts would be recognised as bailments, requiring 100 per cent reserves to be held. Time deposits would then alone provide the basis for making bank loans.

The above distinction helps to explain several otherwise anomolous features of our financial system. For example the Financial Corporations Act, 1974 (which regulates the activities of the non-banks) states that the primary function of building societies and credit unions is borrowing and lending (ie, intermediation). The words deposit and advance are never used in connection with the operations of these institutions, and will neither be found within any of the clauses of the above Act nor within the aggregate statistics for non-banks regularly published by the RBA. By contrast, the word deposit is always used to describe the activities of banks (eg, see the Banking Act, 1959). In addition, the non-banks do not issue their own cheques, acting only as agents of the banks in this regard, and do not possess facilities for clearing cheques. It is also noteworthy that the Reserve Bank Act, 1959 defines the powers of the RBA to include inter alia (a) the receipt of money on deposit, (b) the borrowing of money, and (c) the lending of money. One might reasonably ask why a distinction needs to be made between deposits and borrowings. Surely the above features are not simply idiosyncrasies arising as the consequence of some historical accident. Finally, by contrast with the demonstrated ignorance of some leading members of the legal profession, most senior bankers, banking historians and modern financial economists appear to have no difficulty at all in comprehending the essential and most important function of commercial banking, namely, the provision of the nation's money supply.

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MODERN MONEY MECHANICS - A Workbook On Bank Reserves And Deposit

A Workbook On Bank Reserves And Deposit Expansion
By Federal Reserve Bank Of Chicago

Modern Money Mechanics - A Workbook on Bank Reserves and Deposit Expansion
By: Federal Reserve Bank of Chicago.

This complete booklet was originally produced and distributed free by:
Public Information Center
Federal Reserve Bank of Chicago
P. O. Box 834
Chicago, IL 60690-0834
telephone: 312 322 5111
But it is now out of print.


The purpose of this booklet is to describe the basic process of money creation in a "fractional reserve" banking system. The approach taken illustrates the changes in bank balance sheets that occur when deposits in banks change as a result of monetary action by the Federal Reserve System - the central bank of the United States. The relationships shown are based on simplifying assumptions. For the sake of simplicity, the relationships are shown as if they were mechanical, but they are not, as is described later in the booklet. Thus, they should not be interpreted to imply a close and predictable relationship between a specific central bank transaction and the quantity of money.

The introductory pages contain a brief general description of the characteristics of money and how the U.S. money system works. The illustrations in the following two sections describe two processes: first, how bank deposits expand or contract in response to changes in the amount of reserves supplied by the central bank; and second, how those reserves are affected by both Federal Reserve actions and other factors. A final section deals with some of the elements that modify, at least in
the short run, the simple mechanical relationship between bank reserves and deposit money.

Money is such a routine part of everyday living that its existence and acceptance ordinarily are taken for granted. A user may sense that money must come into being either automatically as a result of economic activity or as an outgrowth of some government operation. But just how this happens all too often remains a mystery.

What is Money?

If money is viewed simply as a tool used to facilitate transactions, only those media that are readily accepted in exchange for goods, services, and other assets need to be considered. Many things - from stones to baseball cards - have served this monetary function through the ages. Today, in the United States, money used in transactions is mainly of three kinds - currency (paper money and coins in the pockets and purses of the public); demand deposits (non-interest bearing checking accounts in banks); and other checkable deposits, such as negotiable order of withdrawal (NOW) accounts, at all depository institutions, including commercial and savings banks, savings and loan associations, and credit unions. Travelers checks also are included in the definition of transactions money. Since $1 in currency and $1 in checkable deposits are freely convertible into each other and both can be used directly for expenditures, they are money in equal degree. However, only the cash and balances held by the nonbank public are counted in the money supply. Deposits of the U.S. Treasury, depository institutions, foreign banks and official institutions, as well as vault cash in depository institutions are excluded.

This transactions concept of money is the one designated as M1 in the Federal Reserve's money stock statistics. Broader concepts of money (M2 and M3) include M1 as well as certain other financial assets (such as savings and time deposits at depository institutions and shares in money market mutual funds) which are relatively liquid but believed to represent principally investments to their holders rather than media of exchange. While funds can be shifted fairly easily between transaction balances and these other liquid assets, the money-creation process takes place principally through transaction accounts. In the remainder of this booklet, "money" means M1.

The distribution between the currency and deposit components of money depends largely on the preferences of the public. When a depositor cashes a check or makes a cash withdrawal through an automatic teller machine, he or she reduces the amount of deposits and increases the amount of currency held by the public. Conversely, when people have more currency than is needed, some is returned to banks in exchange for deposits.

While currency is used for a great variety of small transactions, most of the dollar amount of money payments in our economy are made by check or by electronic transfer between deposit accounts. Moreover, currency is a relatively small part of the money stock. About 69 percent, or $623 billion, of the $898 billion total stock in December 1991, was in the form of transaction deposits, of which $290 billion were demand and $333 billion were other checkable deposits.

What Makes Money Valuable?

In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value.

What, then, makes these instruments - checks, paper money, and coins - acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so.

Money, like anything else, derives its value from its scarcity in relation to its usefulness. Commodities or services are more or less valuable because there are more or less of them relative to the amounts people want. Money's usefulness is its unique ability to command other goods and services and to permit a holder to be constantly ready to do so. How much money is demanded depends on several factors, such as the total volume of transactions in the economy at any given time, the payments habits of the society, the amount of money that individuals and businesses want to keep on hand to take care of unexpected transactions, and the forgone earnings of holding financial assets in the form of money rather than some other asset.

Control of the quantity of money is essential if its value is to be kept stable. Money's real value can be measured only in terms of what it will buy. Therefore, its value varies inversely with the general level of prices. Assuming a constant rate of use, if the volume of money grows more rapidly than the rate at which the output of real goods and services increases, prices will rise. This will happen because there will be more money than there will be goods and services to spend it on at prevailing prices. But if, on the other hand, growth in the supply of money does not keep pace with the economy's current production, then prices will fall, the nations's labor force, factories, and other production facilities will not be fully employed, or both.

Just how large the stock of money needs to be in order to handle the transactions of the economy without exerting undue influence on the price level depends on how intensively money is being used. Every transaction deposit balance and every dollar bill is part of somebody's spendable funds at any given time, ready to move to other owners as transactions take place. Some holders spend money quickly after they get it, making these funds available for other uses. Others, however, hold money for longer periods. Obviously, when some money remains idle, a larger total is needed to accomplish any given volume of transactions.

Who Creates Money?

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

The actual process of money creation takes place primarily in banks.(1) As noted earlier, checkable liabilities of banks are money. These liabilities are customers' accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts.

In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.

Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment.

Transaction deposits are the modern counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could "spend" by writing checks, thereby "printing" their own money.

What Limits the Amount of Money Banks Can Create?

If deposit money can be created so easily, what is to prevent banks from making too much - more than sufficient to keep the nation's productive resources fully employed without price inflation? Like its predecessor, the modern bank must keep available, to make payment on demand, a considerable amount of currency and funds on deposit with the central bank. The bank must be prepared to convert deposit money into currency for those depositors who request currency. It must make remittance on checks written by depositors and presented for payment by other banks (settle adverse clearings). Finally, it must maintain legally required reserves, in the form of vault cash and/or balances at its Federal Reserve Bank, equal to a prescribed percentage of its deposits.

The public's demand for currency varies greatly, but generally follows a seasonal pattern that is quite predictable. The effects on bank funds of these variations in the amount of currency held by the public usually are offset by the central bank, which replaces the reserves absorbed by currency withdrawals from banks. (Just how this is done will be explained later.) For all banks taken together, there is no net drain of funds through clearings. A check drawn on one bank normally will be deposited to the credit of another account, if not in the same bank, then in some other bank.

These operating needs influence the minimum amount of reserves an individual bank will hold voluntarily. However, as long as this minimum amount is less than what is legally required, operating needs are of relatively minor importance as a restraint on aggregate deposit expansion in the banking system. Such expansion cannot continue beyond the point where the amount of reserves that all banks have is just sufficient to satisfy legal requirements under our "fractional reserve" system. For example, if reserves of 20 percent were required, deposits could expand only until they were five times as large as reserves. Reserves of $10 million could support deposits of $50 million. The lower the percentage requirement, the greater the deposit expansion that can be supported by each additional reserve dollar. Thus, the legal reserve ratio together with the dollar amount of bank reserves are the factors that set the upper limit to money creation.

What Are Bank Reserves?

Currency held in bank vaults may be counted as legal reserves as well as deposits (reserve balances) at the Federal Reserve Banks. Both are equally acceptable in satisfaction of reserve requirements. A bank can always obtain reserve balances by sending currency to its Reserve Bank and can obtain currency by drawing on its reserve balance. Because either can be used to support a much larger volume of deposit liabilities of banks, currency in circulation and reserve balances together are often referred to as "high-powered money" or the "monetary base." Reserve balances and vault cash in banks, however, are not counted as part of the money stock held by the public.

For individual banks, reserve accounts also serve as working balances.(2) Banks may increase the balances in their reserve accounts by depositing checks and proceeds from electronic funds transfers as well as currency. Or they may draw down these balances by writing checks on them or by authorizing a debit to them in payment for currency, customers' checks, or other funds transfers.

Although reserve accounts are used as working balances, each bank must maintain, on the average for the relevant reserve maintenance period, reserve balances at their Reserve Bank and vault cash which together are equal to its required reserves, as determined by the amount of its deposits in the reserve computation period.

Where Do Bank Reserves Come From?

Increases or decreases in bank reserves can result from a number of factors discussed later in this booklet. From the standpoint of money creation, however, the essential point is that the reserves of banks are, for the most part, liabilities of the Federal Reserve Banks, and net changes in them are largely determined by actions of the Federal Reserve System. Thus, the Federal Reserve, through its ability to vary both the total volume of reserves and the required ratio of reserves to deposit liabilities, influences banks' decisions with respect to their assets and deposits. One of the major responsibilities of the Federal Reserve System is to provide the total amount of reserves consistent with the monetary needs of the economy at reasonably stable prices. Such actions take into consideration, of course, any changes in the pace at which money is being used and changes in the public's demand for cash balances.

The reader should be mindful that deposits and reserves tend to expand simultaneously and that the Federal Reserve's control often is exerted through the market place as individual banks find it either cheaper or more expensive to obtain their required reserves, depending on the willingness of the Fed to support the current rate of credit and deposit expansion.

While an individual bank can obtain reserves by bidding them away from other banks, this cannot be done by the banking system as a whole. Except for reserves borrowed temporarily from the Federal Reserve's discount window, as is shown later, the supply of reserves in the banking system is controlled by the Federal Reserve.

Moreover, a given increase in bank reserves is not necessarily accompanied by an expansion in money equal to the theoretical potential based on the required ratio of reserves to deposits. What happens to the quantity of money will vary, depending upon the reactions of the banks and the public. A number of slippages may occur. What amount of reserves will be drained into the public's currency holdings? To what extent will the increase in total reserves remain unused as excess reserves? How much will be absorbed by deposits or other liabilities not defined as money but against which banks might also have to hold reserves? How sensitive are the banks to policy actions of the central bank? The significance of these questions will be discussed later in this booklet. The answers indicate why changes in the money supply may be different than expected or may respond to policy action only after considerable time has elapsed.

In the succeeding pages, the effects of various transactions on the quantity of money are described and illustrated. The basic working tool is the "T" account, which provides a simple means of tracing, step by step, the effects of these transactions on both the asset and liability sides of bank balance sheets. Changes in asset items are entered on the left half of the "T" and changes in liabilities on the right half. For any one transaction, of course, there must be at least two entries in order to maintain the equality of assets and liabilities.

1In order to describe the money-creation process as simply as possible, the term "bank" used in this booklet should be understood to encompass all depository institutions. Since the Depository Institutions Deregulation and Monetary Control Act of 1980, all depository institutions have been permitted to offer interest bearing transaction accounts to certain customers. Transaction accounts (interest bearing as well as demand deposits on which payment of interest is still legally prohibited) at all depository institutions are subject to the reserve requirements set by the Federal Reserve. Thus all such institutions, not just commercial banks, have the potential for creating money.

2Part of an individual bank's reserve account may represent its reserve balance used to meet its reserve requirements while another part may be its required clearing balance on which earnings credits are generated to pay for Federal Reserve Bank services.

Bank Deposits - How They Expand or Contract

Let us assume that expansion in the money stock is desired by the Federal Reserve to achieve its policy objectives. One way the central bank can initiate such an expansion is through purchases of securities in the open market. Payment for the securities adds to bank reserves. Such purchases (and sales) are called "open market operations."

How do open market purchases add to bank reserves and deposits? Suppose the Federal Reserve System, through its trading desk at the Federal Reserve Bank of New York, buys $10,000 of Treasury bills from a dealer in U. S. government securities.(3) In today's world of computerized financial transactions, the Federal Reserve Bank pays for the securities with an "telectronic" check drawn on itself.(4) Via its "Fedwire" transfer network, the Federal Reserve notifies the dealer's designated bank (Bank A) that payment for the securities should be credited to (deposited in) the dealer's account at Bank A. At the same time, Bank A's reserve account at the Federal Reserve is credited for the amount of the securities purchase. The Federal Reserve System has added $10,000 of securities to its assets, which it has paid for, in effect, by creating a liability on itself in the form of bank reserve balances. These reserves on Bank A's books are matched by $10,000 of the dealer's deposits that did not exist before. See illustration 1.

How the Multiple Expansion Process Works

If the process ended here, there would be no "multiple" expansion, i.e., deposits and bank reserves would have changed by the same amount. However, banks are required to maintain reserves equal to only a fraction of their deposits. Reserves in excess of this amount may be used to increase earning assets - loans and investments. Unused or excess reserves earn no interest. Under current regulations, the reserve requirement against most transaction accounts is 10 percent.(5) Assuming, for simplicity, a uniform 10 percent reserve requirement against all transaction deposits, and further assuming that all banks attempt to remain fully invested, we can now trace the process of expansion in deposits which can take place on the basis of the additional reserves provided by the Federal Reserve System's purchase of U. S. government securities.

The expansion process may or may not begin with Bank A, depending on what the dealer does with the money received from the sale of securities. If the dealer immediately writes checks for $10,000 and all of them are deposited in other banks, Bank A loses both deposits and reserves and shows no net change as a result of the System's open market purchase. However, other banks have received them. Most likely, a part of the initial deposit will remain with Bank A, and a part will be shifted to other banks as the dealer's checks clear.

It does not really matter where this money is at any given time. The important fact is that these deposits do not disappear. They are in some deposit accounts at all times. All banks together have $10,000 of deposits and reserves that they did not have before. However, they are not required to keep $10,000 of reserves against the $10,000 of deposits. All they need to retain, under a 10 percent reserve requirement, is $1000. The remaining $9,000 is "excess reserves." This amount can be loaned or invested. See illustration 2.

If business is active, the banks with excess reserves probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system. See illustration 3.

3 Dollar amounts used in the various illustrations do not necessarily bear any resemblance to actual transactions. For example, open market operations typically are conducted with many dealers and in amounts totaling several billion dollars.

4 Indeed, many transactions today are accomplished through an electronic transfer of funds between accounts rather than through issuance of a paper check. Apart from the time of posting, the accounting entries are the same whether a transfer is made with a paper check or electronically. The term "check," therefore, is used for both types of transfers.

5 For each bank, the reserve requirement is 3 percent on a specified base amount of transaction accounts and 10 percent on the amount above this base. Initially, the Monetary Control Act set this base amount - called the "low reserve tranche" - at $25 million, and provided for it to change annually in line with the growth in transaction deposits nationally. The low reserve tranche was $41.1 million in 1991 and $42.2 million in 1992. The Garn-St. Germain Act of 1982 further modified these requirements by exempting the first $2 million of reservable liabilities from reserve requirements. Like the low reserve tranche, the exempt level is adjusted each year to reflect growth in reservable liabilities. The exempt level was $3.4 million in 1991 and $3.6 million in 1992.


Deposit Expansion

1 When the Federal Reserve Bank purchases government securities, bank reserves increase. This happens because the seller of the securities receives payment through a credit to a designated deposit account at a bank (Bank A) which the Federal Reserve effects by crediting the reserve account of Bank A.

FR BANK ---------------------------------------------------- BANK A
Assets ---------------------------- Liabilities ----------- Assets ----------------- Liabilities
US govt ------------------------ Reserve acct. --------- Reserves with ------- Customer
securities.. +10,000 --------- Bank A.. +10,000 ---- FR Banks.. +10,000 - deposit.. +10,000

The customer deposit at Bank A likely will be transferred, in part, to other banks and quickly loses its identity amid the huge interbank flow of deposits. back:



As a result, all banks taken together now have "excess" reserves on which deposit expansion can take place.

Total reserves gained from new deposits.......10,000
less: required against new deposits (at 10%)... 1,000
equals: Excess reserves . . . . . . . . . . . . . . . . . 9,000


Expansion - Stage 1


Expansion takes place only if the banks that hold these excess reserves (Stage 1 banks) increase their loans or investments. Loans are made by crediting the borrower's account, i.e., by creating additional deposit money.

Assets ------------------------------- Liabilities
Loans....... +9,000 ---------------- Borrower deposits.... +9,000

This is the beginning of the deposit expansion process. In the first stage of the process, total loans and deposits of the banks rise by an amount equal to the excess reserves existing before any loans were made (90 percent of the initial deposit increase). At the end of Stage 1, deposits have risen a total of $19,000 (the initial $10,000 provided by the Federal Reserve's action plus the $9,000 in deposits created by Stage 1 banks). See illustration 4. However, only $900 (10 percent of $9000) of excess reserves have been absorbed by the additional deposit growth at Stage 1 banks. See illustration 5.

The lending banks, however, do not expect to retain the deposits they create through their loan operations. Borrowers write checks that probably will be deposited in other banks. As these checks move through the collection process, the Federal Reserve Banks debit the reserve accounts of the paying banks (Stage 1 banks) and credit those of the receiving banks. See illustration 6.

Whether Stage 1 banks actually do lose the deposits to other banks or whether any or all of the borrowers' checks are redeposited in these same banks makes no difference in the expansion process. If the lending banks expect to lose these deposits - and an equal amount of reserves - as the borrowers' checks are paid, they will not lend more than their excess reserves. Like the original $10,000 deposit, the loan-credited deposits may be transferred to other banks, but they remain somewhere in the banking system. Whichever banks receive them also acquire equal amounts of reserves, of which all but 10 percent will be "excess."

Assuming that the banks holding the $9,000 of deposits created in Stage 1 in turn make loans equal to their excess reserves, then loans and deposits will rise by a further $8,100 in the second stage of expansion. This process can continue until deposits have risen to the point where all the reserves provided by the initial purchase of government securities by the Federal Reserve System are just sufficient to satisfy reserve requirements against the newly created deposits.(See pages10 and 11.)

The individual bank, of course, is not concerned as to the stages of expansion in which it may be participating. Inflows and outflows of deposits occur continuously. Any deposit received is new money, regardless of its ultimate source. But if bank policy is to make loans and investments equal to whatever reserves are in excess of legal requirements, the expansion process will be carried on.

How Much Can Deposits Expand in the Banking System?

The total amount of expansion that can take place is illustrated on page 11. Carried through to theoretical limits, the initial $10,000 of reserves distributed within the banking system gives rise to an expansion of $90,000 in bank credit (loans and investments) and supports a total of $100,000 in new deposits under a 10 percent reserve requirement. The deposit expansion factor for a given amount of new reserves is thus the reciprocal of the required reserve percentage (1/.10 = 10). Loan expansion will be less by the amount of the initial injection. The multiple expansion is possible because the banks as a group are like one large bank in which checks drawn against borrowers' deposits result in credits to accounts of other depositors, with no net change in the total reserves.

Expansion through Bank Investments

Deposit expansion can proceed from investments as well as loans. Suppose that the demand for loans at some Stage 1 banks is slack. These banks would then probably purchase securities. If the sellers of the securities were customers, the banks would make payment by crediting the customers' transaction accounts, deposit liabilities would rise just as if loans had been made. More likely, these banks would purchase the securities through dealers, paying for them with checks on themselves or on their reserve accounts. These checks would be deposited in the sellers' banks. In either case, the net effects on the banking system are identical with those resulting from loan operations.


Page 12

How Open Market Sales Reduce bank Reserves and Deposits

Now suppose some reduction in the amount of money is desired. Normally this would reflect temporary or seasonal reductions in activity to be financed since, on a year-to-year basis, a growing economy needs at least some monetary expansion. Just as purchases of government securities by the Federal Reserve System can provide the basis for deposit expansion by adding to bank reserves, sales of securities by the Federal Reserve System reduce the money stock by absorbing bank reserves. The process is essentially the reverse of the expansion steps just described.

Suppose the Federal Reserve System sells $10,000 of Treasury bills to a U.S. government securities dealer and receives in payment an "electronic" check drawn on Bank A. As this payment is made, Bank A's reserve account at a Federal Reserve Bank is reduced by $10,000. As a result, the Federal Reserve System's holdings of securities and the reserve accounts of banks are both reduced $10,000. The $10,000 reduction in Bank A's depost liabilities constitutes a decline in the money stock. See illustration 11.


Contraction Also Is a Cumulative Process

While Bank A may have regained part of the initial reduction in deposits from other banks as a result of interbank deposit flows, all banks taken together have $10,000 less in both deposits and reserves than they had before the Federal Reserve's sales of securities. The amount of reserves freed by the decline in deposits, however, is only $1,000 (10 percent of $10,000). Unless the banks that lose the reserves and deposits had excess reserves, they are left with a reserve deficiency of $9,000. See illustration 12. Although they may borrow from the Federal Reserve Banks to cover this deficiency temporarily, sooner or later the banks will have to obtain the necessary reserves in some other way or reduce their needs for reserves.

One way for a bank to obtain the reserves it needs is by selling securities. But, as the buyers of the securities pay for them with funds in their deposit accounts in the same or other banks, the net result is a $9,000 decline in securities and deposits at all banks. See illustration 13. At the end of Stage 1 of the contraction process, deposits have been reduced by a total of $19,000 (the initial $10,000 resulting from the Federal Reserve's action plus the $9,000 in deposits extinguished by securities sales of Stage 1 banks). See illustration 14.

However, there is now a reserve deficiency of $8,100 at banks whose depositors drew down their accounts to purchase the securities from Stage 1 banks. As the new group of reserve-deficient banks, in turn, makes up this deficiency by selling securities or reducing loans, further deposit contraction takes place.

Thus, contraction proceeds through reductions in deposits and loans or investments in one stage after another until total deposits have been reduced to the point where the smaller volume of reserves is adequate to support them. The contraction multiple is the same as that which applies in the case of expansion. Under a 10 percent reserve requirement, a $10,000 reduction in reserves would ultimately entail reductions of $100,000 in deposits and $90,000 in loans and investments.

As in the case of deposit expansion, contraction of bank deposits may take place as a result of either sales of securities or reductions of loans. While some adjustments of both kinds undoubtedly would be made, the initial impact probably would be reflected in sales of government securities. Most types of outstanding loans cannot be called for payment prior to their due dates. But the bank may cease to make new loans or refuse to renew outstanding ones to replace those currently maturing. Thus, deposits built up by borrowers for the purpose of loan retirement would be extinguished as loans were repaid.

There is one important difference between the expansion and contraction processes. When the Federal Reserve System adds to bank reserves, expansion of credit and deposits may take place up to the limits permitted by the minimum reserve ratio that banks are required to maintain. But when the System acts to reduce the amount of bank reserves, contraction of credit and deposits must take place (except to the extent that existing excess reserve balances and/or surplus vault cash are utilized) to the point where the required ratio of reserves to deposits is restored. But the significance of this difference should not be overemphasized. Because excess reserve balances do not earn interest, there is a strong incentive to convert them into earning assets (loans and investments).

Page 13

Deposit Contraction

11 When the Federal Reserve Bank sells government securities, bank reserves decline. This happens because the buyer of the securities makes payment through a debit to a designated deposit account at a bank (Bank A), with the transfer of funds being effected by a debit to Bank A's reserve account at the Federal Reserve Bank.

Bank Reserves - How They Change

Money has been defined as the sum of transaction accounts in depository institutions, and currency and travelers checks in the hands of the public. Currency is something almost everyone uses every day. Therefore, when most people think of money, they think of currency. Contrary to this popular impression, however, transaction deposits are the most significant part of the money stock. People keep enough currency on hand to effect small face-to-face transactions, but they write checks to cover most large expenditures. Most businesses probably hold even smaller amounts of currency in relation to their total transactions than do individuals.

Since the most important component of money is transaction deposits, and since these deposits must be supported by reserves, the central bank's influence over money hinges on its control over the total amount of reserves and the conditions under which banks can obtain them.

The preceding illustrations of the expansion and contraction processes have demonstrated how the central bank, by purchasing and selling government securities, can deliberately change aggregate bank reserves in order to affect deposits. But open market operations are only one of a number of kinds of transactions or developments that cause changes in reserves. Some changes originate from actions taken by the public, by the Treasury Department, by the banks, or by foreign and international institutions. Other changes arise from the service functions and operating needs of the Reserve Banks themselves.

The various factors that provide and absorb bank reserve balances, together with symbols indicating the effects of these developments, are listed on the opposite page. This tabulaton also indicates the nature of the balancing entries on the Federal Reserve's books. (To the extent that the impact is absorbed by changes in banks' vault cash, the Federal Reserve's books are unaffected.)

Independent Factors Versus Policy Action

It is apparent that bank reserves are affected in several ways that are independent of the control of the central bank. Most of these "independent" elements are changing more or less continually. Sometimes their effects may last only a day or two before being reversed automatically. This happens, for instance, when bad weather slows up the check collection process, giving rise to an automatic increase in Federal Reserve credit in the form of "float." Other influences, such as changes in the public's currency holdings, may persist for longer periods of time.

Still other variations in bank reserves result solely from the mechanics of institutional arrangements among the Treasury, the Federal Reserve Banks, and the depository institutions. The Treasury, for example, keeps part of its operating cash balance on deposit with banks. But virtually all disbursements are made from its balance in the Reserve Banks. As is shown later, any buildup in balances at the Reserve Banks prior to expenditure by the Treasury causes a dollar-for-dollar drain on bank reserves.

In contrast to these independent elements that affect reserves are the policy actions taken by the Federal Reserve System. The way System open market purchases and sales of securities affect reserves has already been described. In addition, there are two other ways in which the System can affect bank reserves and potential deposit volume directly; first, through loans to depository institutions, and second, through changes in reserve requirement percentages. A change in the required reserve ratio, of course, does not alter the dollar volume of reserves directly but does change the amount of deposits that a given amount of reserves can support.

Any change in reserves, regardless of its origin, has the same potential to affect deposits. Therefore, in order to achieve the net reserve effects consistent with its monetary policy objectives, the Federal Reserve System continuously must take account of what the independent factors are doing to reserves and then, using its policy tools, offset or supplement them as the situation may require.

By far the largest number and amount of the System's gross open market transactions are undertaken to offset drains from or additions to bank reserves from non-Federal Reserve sources that might otherwise cause abrupt changes in credit availability. In addition, Federal Reserve purchases and/or sales of securities are made to provide the reserves needed to support the rate of money growth consistent with monetary policy objectives.

In this section of the booklet, several kinds of transactions that can have important week-to-week effects on bank reserves are traced in detail. Other factors that normally have only a small influence are described briefly on page 35.


Factors: Changing Reserve Balances - Independent and Policy Actions

* These factors represent assets and liabilities of the Treasury. Changes in them typically affect reserve balances through a related change in the Federal Reserve Banks' liability "Treasury deposits."
** Included in "Other Federal Reserve accounts" as described on page 35.
*** Effect on excess reserves. Total reserves are unchanged.
Note: To the extent that reserve changes are in the form of vault cash, Federal Reserve accounts are not affected.


Changes in the Amount of Currency Held by the Public

Changes in the amount of currency held by the public typically follow a fairly regular intramonthly pattern. Major changes also occur over holiday periods and during the Christmas shopping season - times when people find it convenient to keep more pocket money on hand. (See chart.) The public acquires currency from banks by cashing checks. (6) When deposits, which are fractional reserve money, are exchanged for currency, which is 100 percent reserve money, the banking system experiences a net reserve drain. Under the assumed 10 percent reserve requirement, a given amount of bank reserves can support deposits ten times as great, but when drawn upon to meet currency demand, the exchange is one to one. A $1 increase in currency uses up $1 of reserves.

Suppose a bank customer cashed a $100 check to obtain currency needed for a weekend holiday. Bank deposits decline $100 because the customer pays for the currency with a check on his or her transaction deposit; and the bank's currency (vault cash reserves) is also reduced $100. See illustration 15.

Now the bank has less currency. It may replenish its vault cash by ordering currency from its Federal Reserve Bank - making payment by authorizing a charge to its reserve account. On the Reserve Bank's books, the charge against the bank's reserve account is offset by an increase in the liability item "Federal Reserve notes." See illustration 16. The reserve Bank shipment to the bank might consist, at least in part, of U.S. coins rather than Federal Reserve notes. All coins, as well as a small amount of paper currency still outstanding but no longer issued, are obligations of the Treasury. To the extent that shipments of cash to banks are in the form of coin, the offsetting entry on the Reserve Bank's books is a decline in its asset item "coin."

The public now has the same volume of money as before, except that more is in the form of currency and less is in the form of transaction deposits. Under a 10 percent reserve requirement, the amount of reserves required against the $100 of deposits was only $10, while a full $100 of reserves have been drained away by the disbursement of $100 in currency. Thus, if the bank had no excess reserves, the $100 withdrawal in currency causes a reserve deficiency of $90. Unless new reserves are provided from some other source, bank assets and deposits will have to be reduced (according to the contraction process described on pages 12 and 13) by an additional $900. At that point, the reserve deficiency caused by the cash withdrawal would be eliminated.

When Currency Returns to Banks, Reserves Rise

After holiday periods, currency returns to the banks. The customer who cashed a check to cover anticipated cash expenditures may later redeposit any currency still held that's beyond normal pocket money needs. Most of it probably will have changed hands, and it will be deposited by operators of motels, gasoline stations, restaurants, and retail stores. This process is exactly the reverse of the currency drain, except that the banks to which currency is returned may not be the same banks that paid it out. But in the aggregate, the banks gain reserves as 100 percent reserve money is converted back into fractional reserve money.

When $100 of currency is returned to the banks, deposits and vault cash are increased. See illustration 17. The banks can keep the currency as vault cash, which also counts as reserves. More likely, the currency will be shipped to the Reserve Banks. The Reserve Banks credit bank reserve accounts and reduce Federal Reserve note liabilities. See illustration 18. Since only $10 must be held against the new $100 in deposits, $90 is excess reserves and can give rise to $900 of additional deposits(7).

To avoid multiple contraction or expansion of deposit money merely because the public wishes to change the composition of its money holdings, the effects of changes in the public's currency holdings on bank reserves normally are offset by System open market operations.

6 The same balance sheet entries apply whether the individual physically cashes a paper check or obtains currency by withdrawing cash through an automatic teller machine.

7 Under current reserve accounting regulations, vault cash reserves are used to satisfy reserve requirements in a future maintenance period while reserve balances satisfy requirements in the current period. As a result, the impact on a bank's current reserve position may differ from that shown unless the bank restores its vault cash position in the current period via changes in its reserve balance



Page 18

Changes in U.S. Treasury Deposits in Federal Reserve Banks

Reserve accounts of depository institutions constitute the bulk of the deposit liabilities of the Federal Reserve System. Other institutions, however, also maintain balances in the Federal Reserve Banks - mainly the U.S. Treasury, foreign central banks, and international financial institutions. In general, when these balances rise, bank reserves fall, and vice versa. This occurs because the funds used by these agencies to build up their deposits in the Reserve Banks ultimately come from deposits in banks. Conversely, recipients of payments from these agencies normally deposit the funds in banks. Through the collection process these banks receive credit to their reserve accounts.

The most important nonbank depositor is the U.S. Treasury. Part of the Treasury's operating cash balance is kept in the Federal Reserve Banks; the rest is held in depository institutions all over the country, in so-called "Treasury tax and loan" (TT&L) note accounts. (See chart.) Disbursements by the Treasury, however, are made against its balances at the Federal Reserve. Thus, transfers from banks to Federal Reserve Banks are made through regularly scheduled "calls" on TT&L balances to assure that sufficient funds are available to cover Treasury checks as they are presented for payment. (8)

Bank Reserves Decline as the Treasury's Deposits at the Reserve Banks Increase

Calls on TT&L note accounts drain reserves from the banks by the full amount of the transfer as funds move from the TT&L balances (via charges to bank reserve accounts) to Treasury balances at the Reserve Banks. Because reserves are not required against TT&L note accounts, these transfers do not reduce required reserves.(9)

Suppose a Treasury call payable by Bank A amounts to $1,000. The Federal Reserve Banks are authorized to transfer the amount of the Treasury call from Bank A's reserve account at the Federal Reserve to the account of the U.S. Treasury at the Federal Reserve. As a result of the transfer, both reserves and TT&L note balances of the bank are reduced. On the books of the Reserve Bank, bank reserves decline and Treasury deposits rise. See illustration 19. This withdrawal of Treasury funds will cause a reserve deficiency of $1,000 since no reserves are released by the decline in TT&L note accounts at depository institutions.

Bank Reserves Rise as the Treasury's Deposits at the Reserve Banks Decline

As the Treasury makes expenditures, checks drawn on its balances in the Reserve Banks are paid to the public, and these funds find their way back to banks in the form of deposits. The banks receive reserve credit equal to the full amount of these deposits although the corresponding increase in their required reserves is only 10 percent of this amount.

Suppose a government employee deposits a $1,000 expense check in Bank A. The bank sends the check to its Federal Reserve Bank for collection. The Reserve Bank then credits Bank A's reserve account and charges the Treasury's account. As a result, the bank gains both reserves and deposits. While there is no change in the assets or total liabilities of the Reserve Banks, the funds drawn away from the Treasury's balances have been shifted to bank reserve accounts. See illustration 20.

One of the objectives of the TT&L note program, which requires depository institutions that want to hold Treasury funds for more than one day to pay interest on them, is to allow the Treasury to hold its balance at the Reserve Banks to the minimum consistent with current payment needs. By maintaining a fairly constant balance, large drains from or additions to bank reserves from wide swings in the Treasury's balance that would require extensive offsetting open market operations can be avoided. Nevertheless, there are still periods when these fluctuations have large reserve effects. In 1991, for example, week-to-week changes in Treasury deposits at the Reserve Banks averaged only $56 million, but ranged from -$4.15 billion to +$8.57 billion.

8 When the Treasury's balance at the Federal Reserve rises above expected payment needs, the Treasury may place the excess funds in TT&L note accounts through a "direct investment." The accounting entries are the same, but of opposite signs, as those shown when funds are transferred from TT&L note accounts to Treasury deposits at the Fed. back

9 Tax payments received by institutions designated as Federal tax depositories initially are credited to reservable demand deposits due to the U.S. government. Because such tax payments typically come from reservable transaction accounts, required reserves are not materially affected on this day. On the next business day, however, when these funds are placed either in a nonreservable note account or remitted to the Federal Reserve for credit to the Treasury's balance at the Fed, required reserves decline.


Changes in Federal Reserve Float

A large proportion of checks drawn on banks and deposited in other banks is cleared (collected) through the Federal Reserve Banks. Some of these checks are credited immediately to the reserve accounts of the depositing banks and are collected the same day by debiting the reserve accounts of the banks on which the checks are drawn. All checks are credited to the accounts of the depositing banks according to availability schedules related to the time it normally takes the Federal Reserve to collect the checks, but rarely more than two business days after they are received at the Reserve Banks, even though they may not yet have been collected due to processing, transportation, or other delays.

The reserve credit given for checks not yet collected is included in Federal Reserve "float."(10) On the books of the Federal Reserve Banks, balance sheet float, or statement float as it is sometimes called, is the difference between the asset account "items in process of collection," and the liability account "deferred credit items." Statement float is usually positive since it is more often the case that reserve credit is given before the checks are actually collected than the other way around.

Published data on Federal Reserve float are based on a "reserves-factor" framework rather than a balance sheet accounting framework. As published, Federal Reserve float includes statement float, as defined above, as well as float-related "as-of" adjustments.(11) These adjustments represent corrections for errors that arise in processing transactions related to Federal Reserve priced services. As-of adjustments do not change the balance sheets of either the Federal Reserve Banks or an individual bank. Rather they are corrections to the bank's reserve position, thereby affecting the calculation of whether or not the bank meets its reserve requirements.

An Increase in Federal Reserve Float Increases Bank Reserves

As float rises, total bank reserves rise by the same amount. For example, suppose Bank A receives checks totaling $100 drawn on Banks B, C, and D, all in distant cities. Bank A increases the accounts of its depositors $100, and sends the items to a Federal Reserve Bank for collection. Upon receipt of the checks, the Reserve Bank increases its own asset account "items in process of collection," and increases its liability account "deferred credit items" (checks and other items not yet credited to the sending bank's reserve accounts). As long as these two accounts move together, there is no change in float or in total reserves from this source. See illustration 21.

On the next business day (assuming Banks B, C, and D are one-day deferred availability points), the Reserve Bank pays Bank A. The Reserve Bank's "deferred credit items" account is reduced, and Bank A's reserve account is increased $100. If these items actually take more than one business day to collect so that "items in process of collection" are not reduced that day, the credit to Bank A represents an addition to total bank reserves since the reserve accounts of Banks B, C, and D will not have been commensurately reduced.(12) See illustration 22.

A Decline in Federal Reserve Float Reduces Bank Reserves

Only when the checks are actually collected from Banks B, C, and D does the float involved in the above example disappear - "items in process of collection" of the Reserve Bank decline as the reserve accounts of Banks B, C, and D are reduced. See illustration 23.

On an annual average basis, Federal Reserve float declined dramatically from 1979 through 1984, in part reflecting actions taken to implement provisions of the Monetary Control Act that directed the Federal Reserve to reduce and price float. (See chart.) Since 1984, Federal Reserve float has been fairly stable on an annual average basis, but often fluctuates sharply over short periods. From the standpoint of the effect on bank reserves, the significant aspect of float is not that it exists but that its volume changes in a difficult-to-predict way. Float can increase unexpectedly, for example, if weather conditions ground planes transporting checks to paying banks for collection. However, such periods typically are followed by ones where actual collections exceed new items being received for collection. Thus, reserves gained from float expansion usually are quite temporary.

10 Federal Reserve float also arises from other funds transfer services provided by the Fed, and automatic clearinghouse transfers. back

11 As-of adjustments also are used as one means of pricing float, as discussed on page 22, and for nonfloat related corrections, as discussed on page 35. back

12 If the checks received from Bank A had been erroneously assigned a two-day deferred availability, then neither statement float nor reserves would increase, although both should. Bank A's reserve position and published Federal Reserve float data are corrected for this and similar errors through as-of adjustments. back

21 When a bank receives deposits in the form of checks drawn on other banks, it can send them to the Federal Reserve Bank for collection. (Required reserves are not affected immediately because requirements apply to net transaction accounts, i.e., total transaction accounts minus both cash items in process of collection and deposits due from domestic depository institutions.)


21 When a bank receives deposits in the form of checks drawn on other banks, it can send them to the Federal Reserve Bank for collection. (Required reserves are not affected immediately because requirements apply to net transaction accounts, i.e., total transaction accounts minus both cash items in process of collection and deposits due from domestic depository institutions.)


Changes in Service-Related Balances and Adjustments

In order to foster a safe and efficient payments system, the Federal Reserve offers banks a variety of payments services. Prior to passage of the Monetary Control Act in 1980, the Federal Reserve offered its services free, but only to banks that were members of the Federal Reserve System. The Monetary Control Act directed the Federal Reserve to offer its services to all depository institutions, to charge for these services, and to reduce and price Federal Reserve float.(13) Except for float, all services covered by the Act were priced by the end of 1982. Implementation of float pricing essentially was completed in 1983.

The advent of Federal reserve priced services led to several changes that affect the use of funds in banks' reserve accounts. As a result, only part of the total balances in bank reserve accounts is identified as "reserve balances" available to meet reserve requirements. Other balances held in reserve accounts represent "service-related balances and adjustments (to compensate for float)." Service-related balances are "required clearing balances" held by banks that use Federal Reserve services while "adjustments" represent balances held by banks that pay for float with as-of adjustments.

An Increase in Required Clearing Balances Reduces Reserve Balances

Procedures for establishing and maintaining clearing balances were approved by the Board of Governors of the Federal Reserve System in February of 1981. A bank may be required to hold a clearing balance if it has no required reserve balance or if its required reserve balance (held to satisfy reserve requirements) is not large enough to handle its volume of clearings. Typically a bank holds both reserve balances and required clearing balances in the same reserve account. Thus, as required clearing balances are established or increased, the amount of funds in reserve accounts identified as reserve balances declines.

Suppose Bank A wants to use Federal Reserve services but has a reserve balance requirement that is less than its expected operating needs. With its Reserve Bank, it is determined that Bank A must maintain a required clearing balance of $1,000. If Bank A has no excess reserve balance, it will have to obtain funds from some other source. Bank A could sell $1,000 of securities, but this will reduce the amount of total bank reserve balances and deposits. See illustration 24.

Banks are billed each month for the Federal Reserve services they have used with payment collected on a specified day the following month. All required clearing balances held generate "earnings credits" which can be used only to offset charges for Federal Reserve services.(14) Alternatively, banks can pay for services through a direct charge to their reserve accounts. If accrued earnings credits are used to pay for services, then reserve balances are unaffected. On the other hand, if payment for services takes the form of a direct charge to the bank's reserve account, then reserve balances decline. See illustration 25.

Float Pricing As-Of Adjustments Reduce Reserve Balances

In 1983, the Federal Reserve began pricing explicitly for float,(15) specifically "interterritory" check float, i.e., float generated by checks deposited by a bank served by one Reserve Bank but drawn on a bank served by another Reserve Bank. The depositing bank has three options in paying for interterritory check float it generates. It can use its earnings credits, authorize a direct charge to its reserve account, or pay for the float with an as-of adjustment. If either of the first two options is chosen, the accounting entries are the same as paying for other priced services. If the as-of adjustment option is chosen, however, the balance sheets of the Reserve Banks and the bank are not directly affected. In effect what happens is that part of the total balances held in the bank's reserve account is identified as being held to compensate the Federal reserve for float. This part, then, cannot be used to satisfy either reserve requirements or clearing balance requirements. Float pricing as-of adjustments are applied two weeks after the related float is generated. Thus, an individual bank has sufficient time to obtain funds from other sources in order to avoid any reserve deficiencies that might result from float pricing as-of adjustments. If all banks together have no excess reserves, however, the float pricing as-of adjustments lead to a decline in total bank reserve balances.

Week-to-week changes in service-related balances and adjustments can be volatile, primarily reflecting adjustments to compensate for float. (See chart. ) Since these changes are known in advance, any undesired impact on reserve balances can be offset easily through open market operations.

13 The Act specified that fee schedules cover services such as check clearing and collection, wire transfer, automated clearinghouse, settlement, securities safekeeping, noncash collection, Federal Reserve float, and any new services offered.

14 "Earnings credits" are calculated by multiplying the actual average clearing balance held over a maintenance period, up to that required plus the clearing balance band, times a rate based on the average federal funds rate. The clearing balance band is 2 percent of the required clearing balance or $25,000, whichever amount is larger.

15 While some types of float are priced directly, the Federal Reserve prices other types of float indirectly, for example, by including the cost of float in the per-item fees for the priced service.


24 When Bank A establishes a required clearing balance at a Federal Reserve Bank by selling securities, the reserve balances and deposits of other banks decline.

25 When Bank A is billed monthly for Federal Reserve services used, it can pay for these services by having earnings credits applied and/or by authorizing a direct charge to its reserve account. Suppose Bank A has accrued earnings credits of $100 but incurs fees of $125. Then both methods would be used. On the Federal Reserve Bank's books, the liability account "earnings credits due to depository institutions" declines by $100 and Bank A's reserve account is reduced by $25. Offsetting these entries is a reduction in the Fed's (other) asset account "accrued service income." On Bank A's books, the accounting entries might be a $100 reduction to its asset account "earnings credit due from Federal Reserve Banks" and a $25 reduction in its reserve account, which are offset by a $125 decline in its liability "accounts payable." While an individual bank may use different accounting entries, the net effect on reserves is a reduction of $25, the amount of billed fees that were paid through a direct charge to Bank A's reserve account.


Changes in Loans to Depository Institutions

Prior to passage of the Monetary Control Act of 1980, only banks that were members of the Federal Reserve System had regular access to the Fed's "discount window." Since then, all institutions having deposits reservable under the Act also have been able to borrow from the Fed. Under conditions set by the Federal Reserve, loans are available under three credit programs: adjustment, seasonal, and extended credit.(16) The average amount of each type of discount window credit provided varies over time. (See chart.)

When a bank borrows from a Federal Reserve Bank, it borrows reserves. The acquisition of reserves in this manner differs in an important way from the cases already illustrated. Banks normally borrow adjustment credit only to avoid reserve deficiencies or overdrafts, not to obtain excess reserves. Adjustment credit borrowings, therefore, are reserves on which expansion has already taken place.

How can this happen?

In their efforts to accommodate customers as well as to keep fully invested, banks frequently make loans in anticipation of inflows of loanable funds from deposits or money market sources. Loans add to bank deposits but not to bank reserves. Unless excess reserves can be tapped, banks will not have enough reserves to meet the reserve requirements against the new deposits. Likewise, individual banks may incur deficiencies through unexpected deposit outflows and corresponding losses of reserves through clearings. Other banks receive these deposits and can increase their loans accordingly, but the banks that lost them may not be able to reduce outstanding loans or investments in order to restore their reserves to required levels within the required time period. In either case, a bank may borrow reserves temporarily from its Reserve Bank.

Suppose a customer of Bank A wants to borrow $100. On the basis of the managements's judgment that the bank's reserves will be sufficient to provide the necessary funds, the customer is accommodated. The loan is made by increasing "loans" and crediting the customer's deposit account. Now Bank A's deposits have increased by $100. However, if reserves are insufficient to support the higher deposits, Bank A will have a $10 reserve deficiency, assuming requirements of 10 percent. See illustration 26. Bank A may temporarily borrow the $10 from its Federal Reserve Bank, which makes a loan by increasing its asset item "loans to depository institutions" and crediting Bank A's reserve account. Bank A gains reserves and a corresponding liability "borrowings from Federal Reserve Banks." See illustration 27.

To repay borrowing, a bank must gain reserves through either deposit growth or asset liquidation. See illustration 28. A bank makes payment by authorizing a debit to its reserve account at the Federal Reserve Bank. Repayment of borrowing, therefore, reduces both reserves and "borrowings from Federal Reserve Banks." See illustration 29.

Unlike loans made under the seasonal and extended credit programs, adjustment credit loans to banks generally must be repaid within a short time since such loans are made primarily to cover needs created by temporary fluctuations in deposits and loans relative to usual patterns. Adjustments, such as sales of securities, made by some banks to "get out of the window" tend to transfer reserve shortages to other banks and may force these other banks to borrow, especially in periods of heavy credit demands. Even at times when the total volume of adjustment credit borrowing is rising, some individual banks are repaying loans while others are borrowing. In the aggregate, adjustment credit borrowing usually increases in periods of rising business activity when the public's demands for credit are rising more rapidly than nonborrowed reserves are being provided by System open market operations.

Discount Window as a Tool of Monetary Policy

Although reserve expansion through borrowing is initiated by banks, the amount of reserves that banks can acquire in this way ordinarily is limited by the Federal Reserve's administration of the discount window and by its control of the rate charged banks for adjustment credit loans - the discount rate.(17) Loans are made only for approved purposes, and other reasonably available sources of funds must have been fully used. Moreover, banks are discouraged from borrowing adjustment credit too frequently or for extended time periods. Raising the discount rate tends to restrain borrowing by increasing its cost relative to the cost of alternative sources of reserves.

Discount window administration is an important adjunct to the other Federal Reserve tools of monetary policy. While the privilege of borrowing offers a "safety valve" to temporarily relieve severe strains on the reserve positions of individual banks, there is generally a strong incentive for a bank to repay borrowing before adding further to its loans and investments.

16 Adjustment credit is short-term credit available to meet temporary needs for funds. Seasonal credit is available for longer periods to smaller institutions having regular seasonal needs for funds. Extended credit may be made available to an institution or group of institutions experiencing sustained liquidity pressures. The reserves provided through extended credit borrowing typically are offset by open market operations.

17 Flexible discount rates related to rates on money market sources of funds currently are charged for seasonal credit and for extended credit outstanding more than 30 days.



Changes in Reserve Requirements

Thus far we have described transactions that affect the volume of bank reserves and the impact these transactions have upon the capacity of the banks to expand their assets and deposits. It is also possible to influence deposit expansion or contraction by changing the required minimum ratio of reserves to deposits.

The authority to vary required reserve percentages for banks that were members of the Federal Reserve System (member banks) was first granted by Congress to the Federal Reserve Board of Governors in 1933. The ranges within which this authority can be exercised have been changed several times, most recently in the Monetary Control Act of 1980, which provided for the establishment of reserve requirements that apply uniformly to all depository institutions. The 1980 statute established the following limits:

On transaction accounts
first $25 million . . . . . . .............. . . 3%
above $25 million . . .................. . . 8% to 14%

On nonpersonal time deposits . . . . 0% to 9%

The 1980 law initially set the requirement against transaction accounts over $25 million at 12 percent and that against nonpersonal time deposits at 3 percent. The initial $25 million "low reserve tranche" was indexed to change each year in line with 80 percent of the growth in transaction accounts at all depository institutions. (For example, the low reserve tranche was increased from $41.1 million for 1991 to $42.2 million for 1992.) In addition, reserve requirements can be imposed on certain nondeposit sources of funds, such as Eurocurrency liabilities.(18) (Initially the Board set a 3 percent requirement on Eurocurrency liabilities.)

The Garn-St. Germain Act of 1982 modified these provisions somewhat by exempting from reserve requirements the first $2 million of total reservable liabilities at each depository institution. Similar to the low reserve tranche adjustment for transaction accounts, the $2 million "reservable liabilities exemption amount" was indexed to 80 percent of annual increases in total reservable liabilities. (For example, the exemption amount was increased from $3.4 million for 1991 to $3.6 million for 1992.)

The Federal Reserve Board is authorized to change, at its discretion, the percentage requirements on transaction accounts above the low reserve tranche and on nonpersonal time deposits within the ranges indicated above. In addition, the Board may impose differing reserve requirements on nonpersonal time deposits based on the maturity of the deposit. (The Board initially imposed the 3 percent nonpersonal time deposit requirement only on such deposits with original maturities of under four years.)

During the phase-in period, which ended in 1984 for most member banks and in 1987 for most nonmember institutions, requirements changed according to a predetermined schedule, without any action by the Federal Reserve Board. Apart from these legally prescribed changes, once the Monetary Control Act provisions were implemented in late 1980, the Board did not change any reserve requirement ratios until late 1990. (The original maturity break for requirements on nonpersonal time deposits was shortened several times, once in 1982, and twice in 1983, in connection with actions taken to deregulate rates paid on deposits.) In December 1990, the Board reduced reserve requirements against nonpersonal time deposits and Eurocurrency liabilities from 3 percent to zero. Effective in April 1992, the reserve requirement on transaction accounts above the low reserve tranche was lowered from 12 percent to 10 percent.

When reserve requirements are lowered, a portion of banks' existing holdings of required reserves becomes excess reserves and may be loaned or invested. For example, with a requirement of 10 percent, $10 of reserves would be required to support $100 of deposits. See illustration 30. But a reduction in the legal requirement to 8 percent would tie up only $8, freeing $2 out of each $10 of reserves for use in creating additional bank credit and deposits. See illustration 31.

An increase in reserve requirements, on the other hand, absorbs additional reserve funds, and banks which have no excess reserves must acquire reserves or reduce loans or investments to avoid a reserve deficiency. Thus an increase in the requirement from 10 percent to 12 percent would boost required reserves to $12 for each $100 of deposits. Assuming banks have no excess reserves, this would force them to liquidate assets until the reserve deficiency was eliminated, at which point deposits would be one-sixth less than before. See illustration 32.

Reserve Requirements and Monetary Policy

The power to change reserve requirements, like purchases and sales of securities by the Federal Reserve, is an instrument of monetary policy. Even a small change in requirements - say, one-half of one percentage point - can have a large and widespread impact. Other instruments of monetary policy have sometimes been used to cushion the initial impact of a reserve requirement change. Thus, the System may sell securities (or purchase less than otherwise would be appropriate) to absorb part of the reserves released by a cut in requirements.

It should be noted that in addition to their initial impact on excess reserves, changes in requirements alter the expansion power of every reserve dollar. Thus, such changes affect the leverage of all subsequent increases or decreases in reserves from any source. For this reason, changes in the total volume of bank reserves actually held between points in time when requirements differ do not provide an accurate indication of the Federal Reserve's policy actions.

Both reserve balances and vault cash are eligible to satisfy reserve requirements. To the extent some institutions normally hold vault cash to meet operating needs in amounts exceeding their required reserves, they are unlikely to be affected by any change in requirements.

18 The 1980 statute also provides that "under extraordinary circumstances" reserve requirements can be imposed at any level on any liability of depository institutions for as long as six months; and, if essential for the conduct of monetary policy, supplemental requirements up to 4 percent of transaction accounts can be imposed.


Changes in Foreign-Related Factors

The Federal Reserve has engaged in foreign currency operations for its own account since 1962. In addition, it acts as the agent for foreign currency transactions of the U.S. Treasury, and since the 1950s has executed transactions for customers such as foreign central banks. Perhaps the most publicized type of foreign currency transaction undertaken by the Federal Reserve is intervention in foreign exchange markets. Intervention, however, is only one of several foreign-related transactions that have the potential for increasing or decreasing reserves of banks, thereby affecting money and credit growth.

Several foreign-related transactions and their effects on U.S. bank reserves are described in the next few pages. Included are some but not all of the types of transactions used. The key point to remember, however, is that the Federal Reserve routinely offsets any undesired change in U.S. bank reserves resulting from foreign-related transactions. As a result, such transactions do not affect money and credit growth in the United States.

Foreign Exchange Intervention for the Federal Reserve's Own Account

When the Federal Reserve intervenes in foreign exchange markets to sell dollars for its own account,(19) it acquires foreign currency assets and reserves of U.S. banks initially rise. In contrast, when the Fed intervenes to buy dollars for its own account, it uses foreign currency assets to pay for the dollars purchased and reserves of U.S. banks initially fall.

Consider the example where the Federal Reserve intervenes in the foreign exchange markets to sell $100 of U.S. dollars for its own account. In this transaction, the Federal Reserve buys a foreign-currency-denominated deposit of a U.S. bank held at a foreign commercial bank,(20) and pays for this foreign currency deposit by crediting $100 to the U.S. bank's reserve account at the Fed. The Federal Reserve deposits the foreign currency proceeds in its account at a Foreign Central Bank, and as this transaction clears, the foreign bank's reserves at the Foreign Central Bank decline. See illustration 33. Initially, then, the Fed's intervention sale of dollars in this example leads to an increase in Federal Reserve Bank assets denominated in foreign currencies and an increase in reserves of U.S. banks.

Suppose instead that the Federal Reserve intervenes in the foreign exchange markets to buy $100 of U.S. dollars, again for its own account. The Federal Reserve purchases a dollar-denominated deposit of a foreign bank held at a U.S. bank, and pays for this dollar deposit by drawing on its foreign currency deposit at a Foreign Central Bank. (The Federal Reserve might have to sell some of its foreign currency investments to build up its deposits at the Foreign Central Bank, but this would not affect U.S. bank reserves.) As the Federal Reserve's account at the Foreign Central Bank is charged, the foreign bank's reserves at the Foreign Central Bank increase. In turn, the dollar deposit of the foreign bank at the U.S. bank declines as the U.S bank transfers ownership of those dollars to the Federal Reserve via a $100 charge to its reserve account at the Federal Reserve. See illustration 34. Initially, then, the Fed's intervention purchase of dollars in this example leads to a decrease in Federal Reserve Bank assets denominated in foreign currencies and a decrease in reserves of U.S. banks.

As noted earlier, the Federal Reserve offsets or "sterilizes" any undesired change in U.S. bank reserves stemming from foreign exchange intervention sales or purchases of dollars. For example, Federal Reserve Bank assets denominated in foreign currencies rose dramatically in 1989, in part due to significant U.S. intervention sales of dollars. (See chart.) Total reserves of U.S. banks, however, declined slightly in 1989 as open market operations were used to "sterilize" the initial intervention-induced increase in reserves.

Monthly Revaluation of Foreign Currency Assets

Another set of accounting transactions that affects Federal Reserve Bank assets denominated in foreign currencies is the monthly revaluation of such assets. Two business days prior to the end of the month, the Fed's foreign currency assets are increased if their market value has appreciated or decreased if their value has depreciated. The offsetting accounting entry on the Fed's balance sheet is to the "exchange-translation account" included in "other F.R. liabilities." These changes in the Fed's balance sheet do not alter bank reserves directly. However, since the Federal Reserve turns over its net earnings to the Treasury each week, the revaluation affects the amount of the Fed's payment to the Treasury, which in turn influences the size of TT&L calls and bank reserves. (See explanation on pages 18 and 19.


Foreign-Related Transactions for the Treasury

U.S. intervention in foreign exchange markets by the Federal Reserve usually is divided between its own account and the Treasury's Exchange Stabilization Fund (ESF) account. The impact on U.S. bank reserves from the intervention transaction is the same for both - sales of dollars add to reserves while purchases of dollars drain reserves. See illustration 35. Depending upon how the Treasury pays for, or finances, its part of the intervention, however, the Federal Reserve may not need to conduct offsetting open market operations.

The Treasury typically keeps only minimal balances in the ESF's account at the Federal Reserve. Therefore, the Treasury generally has to convert some ESF assets into dollar or foreign currency deposits in order to pay for its part of an intervention transaction. Likewise, the dollar or foreign currency deposits acquired by the ESF in the intervention typically are drawn down when the ESF invests the proceeds in earning assets.

For example, to finance an intervention sale of dollars (such as that shown in illustration 35), the Treasury might redeem some of the U.S. government securities issued to the ESF, resulting in a transfer of funds from the Treasury's (general account) balances at the Federal Reserve to the ESF's account at the Fed. (On the Federal Reserve's balance sheet, the ESF's account is included in the liability category "other deposits.") The Treasury, however, would need to replenish its Fed balances to desired levels, perhaps by increasing the size of TT&L calls - a transaction that drains U.S. bank reserves. The intervention and financing transactions essentially occur simultaneously. As a result, U.S. bank reserves added in the intervention sale of dollars are offset by the drain in U.S. bank reserves from the TT&L call. See illustrations 35 and 36. Thus, no Federal Reserve offsetting actions would be needed if the Treasury financed the intervention sale of dollars through a TT&L call on banks.

Offsetting actions by the Federal Reserve would be needed, however, if the Treasury restored deposits affected by foreign-related transactions through a number of transactions involving the Federal Reserve. These include the Treasury's issuance of SDR or gold certificates to the Federal Reserve and the "warehousing" of foreign currencies by the Federal Reserve.

SDR certificates. Occasionally the Treasury acquires dollar deposits for the ESF's account by issuing certificates to the Federal Reserve against allocations of Special Drawing Rights (SDRs) received from the International Monetary Fund.(21) For example, $3.5 billion of SDR certificates were issued in 1989, and another $1.5 billion in 1990. This "monetization" of SDRs is reflected on the Federal Reserve's balance sheet as an increase in its asset "SDR certificate account" and an increase in its liability "other deposits (ESF account)."

If the ESF uses these dollar deposits directly in an intervention sale of dollars, then the intervention-induced increase in U.S. bank reserves is not altered. See illustrations 35 and 37. If not needed immediately for an intervention transaction, the ESF might use the dollar deposits from issuance of SDR certificates to buy securities from the Treasury, resulting in a transfer of funds from the ESF's account at the Federal Reserve to the Treasury's account at the Fed. U.S. bank reserves would then increase as the Treasury spent the funds or transferred them to banks through a direct investment to TT&L note accounts.

Gold stock and gold certificates. Changes in the U.S. monetary gold stock used to be an important factor affecting bank reserves. However, the gold stock and gold certificates issued to the Federal Reserve in "monetizing" gold, have not changed significantly since the early 1970s. (See chart.)

Prior to August 1971, the Treasury bought and sold gold for a fixed price in terms of U.S. dollars, mainly at the initiative of foreign central banks and governments. Gold purchases by the Treasury were added to the U.S. monetary gold stock, and paid for from its account at the Federal Reserve. As the sellers deposited the Treasury's checks in banks, reserves increased. To replenish its balance at the Fed, the Treasury issued gold certificates to the Federal Reserve and received a credit to its deposit balance.

Treasury sales of gold have the opposite effect. Buyers' checks are credited to the Treasury's account and reserves decline. Because the official U.S. gold stock is now fully "monetized," the Treasury currently has to use its deposits to retire gold certificates issued to the Federal Reserve whenever gold is sold. However, the value of gold certificates retired, as well as the net contraction in bank reserves, is based on the official gold price. Proceeds from a gold sale at the market price to meet demands of domestic buyers likely would be greater. The difference represents the Treasury's profit, which, when spent, restores deposits and bank reserves by a like amount.

While the Treasury no longer purchases gold and sales of gold have been limited, increases in the official price of gold have added to the value of the gold stock. (The official gold price was last raised from $38.00 to $42.22 per troy ounce, in 1973.)

Warehousing. The Treasury sometimes acquires dollar deposits at the Federal Reserve by "warehousing" foreign currencies with the Fed. (For example, $7 billion of foreign currencies were warehoused in 1989.) The Treasury or ESF acquires foreign currency assets as a result of transactions such as intervention sales of dollars or sales of U.S government securities denominated in foreign currencies. When the Federal Reserve warehouses foreign currencies for the Treasury,(22) "Federal Reserve Banks assets denominated in foreign currencies" increase as do Treasury deposits at the Fed. As these deposits are spent, reserves of U.S. banks rise. In contrast, the Treasury likely will have to increase the size of TT&L calls - a transaction that drains reserves - when it repurchases warehoused foreign currencies from the Federal Reserve. (In 1991, $2.5 billion of warehoused foreign currencies were repurchased.) The repurchase transaction is reflected on the Fed's balance sheet as declines in both Treasury deposits at the Federal Reserve and Federal Reserve Bank assets denominated in foreign currencies.

Transactions for Foreign Customers

Many foreign central banks and governments maintain deposits at the Federal Reserve to facilitate dollar-denominated transactions. These "foreign deposits" on the liability side of the Fed's balance sheet typically are held at minimal levels that vary little from week to week. For example, foreign deposits at the Federal Reserve averaged only $237 million in 1991, ranging from $178 million to $319 million on a weekly average basis. Changes in foreign deposits are small because foreign customers "manage" their Federal Reserve balances to desired levels daily by buying and selling U.S. government securities. The extent of these foreign customer "cash management" transactions is reflected, in part, by large and frequent changes in marketable U.S. government securities held in custody by the Federal Reserve for foreign customers. (See chart.) The net effect of foreign customers' cash management transactions usually is to leave U.S. bank reserves unchanged.

Managing foreign deposits through sales of securities. Foreign customers of the Federal Reserve make dollar-denominated payments, including those for intervention sales of dollars by foreign central banks, by drawing down their deposits at the Federal Reserve. As these funds are deposited in U.S. banks and cleared, reserves of U.S. banks rise. See illustration 38. However, if payments from their accounts at the Federal Reserve lower balances to below desired levels, foreign customers will replenish their Federal Reserve deposits by selling U.S. government securities. Acting as their agent, the Federal Reserve usually executes foreign customers' sell orders in the market. As buyers pay for the securities by drawing down deposits at U.S. banks, reserves of U.S. banks fall and offset the increase in reserves from the disbursement transactions. The net effect is to leave U.S. bank reserves unchanged when U.S. government securities of customers are sold in the market. See illustrations 38 and 39. Occasionally, however, the Federal Reserve executes foreign customers' sell orders with the System's account. When this is done, the rise in reserves from the foreign customers' disbursement of funds remains in place. See illustration 38 and 40. The Federal reserve might choose to execute sell orders with the System's account if an increase in reserves is desired for domestic policy reasons.

Managing foreign deposits through purchases of securitites. Foreign customers of the Federal Reserve also receive a variety of dollar denominated payments, including proceeds from intervention purchases of dollars by foreign central banks, that are drawn on U.S. banks. As these funds are credited to foreign deposits at the Federal Reserve, reserves of U.S. banks decline. But if receipts of dollar-denominated payments raise their deposits at the Federal Reserve to levels higher than desired, foreign customers will buy U.S. government securities. The net effect generally is to leave U.S. bank reserves unchanged when the U.S. government securities are purchased in the market.

Using the swap network. Occasionally, foreign central banks acquire dollar deposits by activating the "swap" network, which consists of reciprocal short-term credit arrangements between the Federal Reserve and certain foreign central banks. When a foreign central bank draws on its swap line at the Federal Reserve, it immediately obtains a dollar deposit at the Fed in exchange for foreign currencies, and agrees to reverse the exchange sometime in the future. On the Federal Reserve's balance sheet, activation of the swap network is reflected as an increase in Federal Reserve Bank assets denominated in foreign currencies and an increase in the liability category "foreign deposits." When the swap line is repaid, both of these accounts decline. Reserves of U.S. banks will rise when the foreign central bank spends its dollar proceeds from the swap drawing. See illustration 41. In contrast, reserves of U.S. banks will fall as the foreign central bank rebuilds its deposits at the Federal Reserve in order to repay a swap drawing.

The accounting entries and impact of U.S. bank reserves are the same if the Federal Reserve uses the swap network to borrow and repay foreign currencies. However, the Federal Reserve has not activated the swap network in recent years.

19 Overall responsibility for U.S. intervention in foreign exchange markets rests with the U.S Treasury. Foreign exchange transactions for the Federal Reserve's account are carried out under directives issued by the Federal Reserve's Open Market Committee within the general framework of exchange rate policy established by the U.S. Treasury in consultation with the Fed. They are implemented at the Federal Reserve Bank of New York, typically at the same time that similar transactions are executed for the Treasury's Exchange Stabilization Fund. back

20 Americans traveling to foreign countries engage in "foreign exchange" transactions whenever they obtain foreign coins and paper currency in exchange for U.S. coins and currency. However, most foreign exchange transactions do not involve the physical exchange of coins and currency. Rather, most of these transactions represent the buying and selling of foreign currencies by exchanging one bank deposit denominated in one currency for another bank deposit denominated in another currency. For ease of exposition, the examples assume that U.S. banks and foreign banks are the market participants in the intervention transactions, but the impact on reserves would be the same if the U.S. or foreign public were involved. back

21 SDRs were created in 1970 for use by governments in official balance of payments transactions. back

22 Technically, warehousing consists of two parts: the Federal Reserve's agreement to purchase foreign currency assets from the Treasury or ESF for dollar deposits now, and the Treasury's agreement to repurchase the foreign currencies sometime in the future

33 When the Federal Reserve intervenes to sell dollars for its own account, it pays for a foreign-currency-denominated deposit of a U.S. bank at a foreign commercial bank by crediting the reserve account of the U.S. bank, and acquires a foreign currency asset in the form of a deposit at a Foreign Central Bank. The Federal Reserve, however, will offset the increase in U.S. bank reserves if it is inconsistent with domestic policy objectives.

34 When the Federal Reserve intervenes to buy dollars for its own account, it draws down its foreign currency deposits at a foreign Central Bank to pay for a dollar-denominated deposit of a foreign bank at a U.S. bank, which leads to a contraction in reserves of the U.S. bank. This reduction in reserves will be offset by the Federal Reserve if it is inconsistent with domestic policy objectives.

35 In an intervention sale of dollars for the U.S. Treasury, deposits of the ESF at the Federal Reserve are used to pay for a foreign currency deposit of a U.S. bank at a foreign bank, and the foreign currency proceeds are deposited in an account at a Foreign Central Bank. U.S. bank reserves increase as a result of this intervention transaction.

36 Concurrently, the Treasury must finance the intervention transaction in (35). The Treasury might build up deposits in the ESF's account at the Federal Reserve by redeeming securities issued to the ESF, and replenish its own (general account) deposits at the Federal Reserve to desired levels by issuing a call on TT&L note accounts. This set of transactions drains reserves of U.S. banks by the same amount as the intervention in (35) added to U.S. bank reserves.

37 Alternatively, the Treasury might finance the intervention in (35) by issuing SDR certificates to the Federal Reserve, a transaction that would not disturb the addition of U.S. bank reserves in intervention (35). The Federal Reserve, however, would offset any undesired change in U.S. bank reserves.

38 When a Foreign Central Bank makes a dollar-denominated payment from its account at the Federal Reserve, the recipient deposits the funds in a U.S. bank. As the payment order clears, U.S. bank reserves rise.

39 If a decline in its deposits at the Federal Reserve lowers the balance below desired levels, the Foreign Central Bank will request that the Federal Reserve sell U.S. government securities for it. If the sell order is executed in the market, reserves of U.S. banks will fall by the same smount as reserves were increased in (38)

40 If the sell order is executed with the Federal Reserve's account, however, the increase in reserves from (38) will remain in place. The Federal Reserve might choose to execute the foreign customer's sell order with the System's account if an increase in reserves is desired for domestic policy reasons.

41 When a Foreign Central Bank draws on a "swap" line, it receives a credit to its dollar deposits at the Federal Reserve in exchange for a foreign currency deposit credited to the Federal Reserve's account. Reserves of U.S. banks are not affected by the swap drawing transaction, but will increase as the Foreign Central Bank uses the funds as in (38).

Federal Reserve Actions Affecting Its Holdings of U. S. Government Securities

In discussing various factors that affect reserves, it was often indicated that the Federal Reserve offsets undesired changes in reserves through open market operations, that is, by buying and selling U.S. government securities in the market. However, outright purchases and sales of securities by the Federal Reserve in the market occur infrequently, and typically are conducted when an increase or decrease in another factor is expected to persist for some time. Most market actions taken to implement changes in monetary policy or to offset changes in other factors are accomplished through the use of transactions that change reserves temporarily. In addition, there are off-market transactions the Federal Reserve sometimes uses to change its holdings of U.S. government securities and affect reserves. (Recall the example in illustrations 38 and 40.) The impact on reserves of various Federal Reserve transactions in U.S. government and federal agency securities is explained below. (See table for a summary.)

Outright transactions. Ownership of securities is transferred permanently to the buyer in an outright transaction, and the funds used in the transaction are transferred permanently to the seller. As a result, an outright purchase of securities by the Federal Reserve from a dealer in the market adds reserves permanently while an outright sale of securities to a dealer drains reserves permanently. The Federal Reserve can achieve the same net effect on reserves through off-market transactions where it executes outright sell and purchase orders from customers internally with the System account. In contrast, there is no impact on reserves if the Federal Reserve fills customers' outright sell and purchase orders in the market.

Temporary transactions. Repurchase agreements (RPs), and associated matched sale-purchase agreements (MSPs), transfer ownership of securities and use of funds temporarily. In an RP transaction, one party sells securities to another and agrees to buy them back on a specified future date. In an MSP transaction, one party buys securities from another and agrees to sell them back on a specified future date. In essence, then, and RP for one party in the transaction works like an MSP for the other party.

When the Federal Reserve executes what is referred to as a "System RP," it acquires securities in the market from dealers who agree to buy them back on a specified future date 1 to 15 days later. Both the System's portfolio of securities and bank reserves are increased during the term of the RP, but decline again when the dealers repurchase the securities. Thus System RPs increase reserves only temporarily. Reserves are drained temorarily when the Fed executes what is known as a "System MSP." A System MSP works like a System RP, only in the opposite directions. In a system MSP, the Fed sells securities to dealers in the market and agrees to buy them back on a specified day. The System's holdings of securities and bank reserves are reduced during the term of the MSP, but both increase when the Federal Reserve buys back the securities.

Impact on reserves of Federal Reserve transactions
in U.S. government and federal agency securities

Federal Reserve Transactions -------- Reserve Impact

Outright purchase of Securities
- From dealer in market -------- Permanent increase
- To fill customer sell orders -------- Permanent increase
(If customer buy orders filled in market) -------- (No impact)

Outright Sales of Securites
- To dealer in market -------- Permanent decrease
- To fill customer buy orders internally -------- Permanent decrease
(If customer buy orders filled in market) -------- (No impact)

Repurchase Agreements (RPs)
- With dealer in market in System RP -------- Temporary increase

Matched Sale-Purchase Agreements (MSPs)
- With dealer in market in a system MSP -------- Temporary decrease
- To fill customer RP orders internally -------- No impact*
(If customer RP orders passed to market
as customer related RPs) -------- (Temporary increase*)

Redemption of Maturing Securities
- Replace total amount maturing -------- No impact
- Redeem part of amount maturing -------- Permanent decrease
- Buy more than amount maturing** -------- Permanent increase**
*Impact based on assumption that the amount of RP orders done
internally is the same as on the prior day.

**The Federal Reserve currently is prohibited by law from buying
securities directly from the Treasury, except to replace maturing

The Federal Reserve also uses MSPs to fill foreign customers' RP orders internally with the System account. Considered in isolation, a Federal Reserve MSP transaction with customers would drain reserves temporarily. However, these transactions occur every day, with the total amount of RP orders being fairly stable from day to day. Thus, on any given day, the Fed both buys back securities from customers to fulfill the prior day's MSP, and sells them about the same amount of securities to satisfy that day's agreement. As a result, there generally is little or no impact on reserves when the Fed uses MSPs to fill customer RP orders internally with the System account. Sometimes, however, the Federal Reserve fills some of the RP orders internally and the rest in the market. The part that is passed on to the market is known as a "customer-related RP." The Fed ends up repurchasing more securities from customers to complete the prior day's MSP than it sells to them in that day's MSP. As a result, customer-related RPs add reserves temporarily.

Maturing securities. As securities held by the Federal Reserve mature, they are exchanged for new securities. Usually the total amount maturing is replaced so that there is no impact on reserves since the Fed's total holdings remain the same. Occasionally, however, the Federal Reserve will exchange only part of the amount maturing. Treasury deposits decline as payment for the redeemed securities is made, and reserves fall as the Treasury replenishes its deposits at the Fed through TT&L calls. The reserve drain is permanent. If the Fed were to buy more than the amount of securities maturing directly from the Treasury, then reserves would increase permanently. However, the Federal Reserve currently is prohibited by law from buying securities directly from the Treasury, except to replace maturing issues.

Page 35.

Miscellaneous Factors Affecting Bank Reserves

The factors described below normally have negligible effects on bank reserves because changes in them either occur very slowly or tend to be balanced by concurrent changes in other factors. But at times they may require offsetting action.
Treasury Currency Outstanding

Treasury currency outstanding consists of coins, silver certificates and U.S. notes originally issued by the Treasury, and other currency originally issued by commercial banks and by Federal Reserve Banks before July 1929 but for which the Treasury has redemption responsibility. Short-run changes are small, and their effects on bank reserves are indirect.

The amount of Treasury currency outstanding currently increases only through issuance of new coin. The Treasury ships new coin to the Federal Reserve Banks for credit to Treasury deposits there. These deposits will be drawn down again, however, as the Treasury makes expenditures. Checks issued against these deposits are paid out to the public. As individuals deposit these checks in banks, reserves increase. (See explanation on pages 18 and 19.)

When any type of Treasury currency is retired, bank reserves decline. As banks turn in Treasury currency for redemption, they receive Federal Reserve notes or coin in exchange or a credit to their reserve accounts, leaving their total reserves (reserve balances and vault cash) initially unchanged. However, the Treasury's deposits in the Reserve Banks are charged when Treasury currency is retired. Transfers from TT&L balances in banks to the Reserve Banks replenish these deposits. Such transfers absorb reserves.

Treasury Cash Holdings

In addition to accounts in depository institutions and Federal Reserve Banks, the Treasury holds some currency in its own vaults. Changes in these holdings affect bank reserves just like changes in the Treasury's deposit account at the Reserve Banks. When Treasury holdings of currency increase, they do so at the expense of deposits in banks. As cash holdings of the Treasury decline, on the other hand, these funds move into bank deposits and increase bank reserves.

Other Deposits in Reserve Banks

Besides U.S. banks, the U.S. Treasury, and foreign central banks and governments, there are some international organizations and certain U.S. government agencies that keep funds on deposit in the Federal Reserve Banks. In general, balances are built up through transfers of deposits held at U.S. banks. Such transfers may take place either directly, where these customers also have deposits in U.S. banks, or indirectly by the deposit of funds acquired from others who do have accounts at U.S. banks. Such transfers into "other deposits" drain reserves.

When these customers draw on their Federal Reserve balances (say, to purchase securities), these funds are paid to the public and deposited in U.S. banks, thus increasing bank reserves. Just like foreign customers, these "other" customers manage their balances at the Federal Reserve closely so that changes in their deposits tend to be small and have minimal net impact on reserves.

Nonfloat-Related Adjustments

Certain adjustments are incorporated into published data on reserve balances to reflect nonfloat-related corrections. Such a correction might be made, for example, if an individual bank had mistakenly reported fewer reservable deposits than actually existed and had held smaller reserve balances than necessary in some past period. To correct for this error, a nonfloat-related as-of adjustment will be applied to the bank's reserve position. This essentially results in the bank having to hold higher balances in its reserve account in the current and/or future periods than would be needed to satisfy reserve requirements in those periods. Nonfloat-related as-of adjustments affect the allocation of funds in bank reserve accounts but not the total amount in these accounts as reflected on Federal Reserve Bank and individual bank balance sheets. Published data on reserve balances, however, are adjusted to show only those reserve balances held to meet the current and/or future period reserve requirements.

Other Federal Reserve Accounts

Earlier sections of this booklet described the way in which bank reserves increase when the Federal Reserve purchases securities and decline when the Fed sells securities. The same results follow from any Federal Reserve expenditure or receipt. Every payment made by the Reserve Banks, in meeting expenses or acquiring any assets, affects deposits and bank reserves in the same way as does payment to a dealer for government securities. Similarly, Reserve Bank receipts of interest on loans and securities and increases in paid-in capital absorb reserves.

The Reserve Multiplier - Why It Varies

The deposit expansion and contraction associated with a given change in bank reserves, as illustrated earlier in this booklet, assumed a fixed reserve-to-deposit multiplier. That multiplier was determined by a uniform percentage reserve requirement specified for transaction accounts. Such an assumption is an oversimplification of the actual relationship between changes in reserves and changes in money, especially in the short-run. For a number of reasons, as discussed in this section, the quantity of reserves associated with a given quantity of transaction deposits is constantly changing.

One slippage affecting the reserve multiplier is variation in the amount of excess reserves. In the real world, reserves are not always fully utilized. There are always some excess reserves in the banking system, reflecting frictions and lags as funds flow among thousands of individual banks.

Excess reserves present a problem for monetary policy implementation only because the amount changes. To the extent that new reserves supplied are offset by rising excess reserves, actual money growth falls short of the theoretical maximum. Conversely, a reduction in excess reserves by the banking system has the same effect on monetary expansion as the injection of an equal amount of new reserves.

Slippages also arise from reserve requirements being imposed on liabilities not included in money as well as differing reserve ratios being applied to transaction deposits according to the size of the bank. From 1980 through 1990, reserve requirements were imposed on certain nontransaction liabilities of all depository institutions, and before then on all deposits of member banks. The reserve multiplier was affected by flows of funds between institutions subject to differing reserve requirements as well as by shifts of funds between transaction deposits and other liabilities subject to reserve requirements. The extension of reserve requirements to all depository institutions in 1980 and the elimination of reserve requirements against nonpersonal time deposits and Eurocurrency liabilities in late 1990 reduced, but did not eliminate, this source of instability in the reserve multiplier. The deposit expansion potential of a given volume of reserves still is affected by shifts of transaction deposits between larger institutions and those either exempt from reserve requirements or whose transaction deposits are within the tranche subject to a 3 percent reserve requirement.

In addition, the reserve multiplier is affected by conversions of deposits into currency or vice versa. This factor was important in the 1980s as the public's desired currency holdings relative to transaction deposits in money shifted considerably. Also affecting the multiplier are shifts between transaction deposits included in money and other transaction accounts that also are reservable but not included in money, such as demand deposits due to depository institutions, the U.S. government, and foreign banks and official institutions. In the aggregate, these non-money transaction deposits are relatively small in comparison to total transaction accounts, but can vary significantly from week to week.

A net injection of reserves has widely different effects depending on how it is absorbed. Only a dollar-for-dollar increase in the money supply would result if the new reserves were paid out in currency to the public. With a uniform 10 percent reserve requirement, a $1 increase in reserves would support $10 of additional transaction accounts. An even larger amount would be supported under the graduated system where smaller institutions are subject to reserve requirements below 10 percent. But, $1 of new reserves also would support an additional $10 of certain reservable transaction accounts that are not counted as money. (See chart below.) Normally, an increase in reserves would be absorbed by some combination of these currency and transaction deposit changes.

All of these factors are to some extent predictable and are taken into account in decisions as to the amount of reserves that need to be supplied to achieve the desired rate of monetary expansion. They help explain why short-run fluctuations in bank reserves often are disproportionate to, and sometimes in the opposite direction from, changes in the deposit component of money.

Money Creation and Reserve Management

Another reason for short-run variation in the amount of reserves supplied is that credit expansion - and thus deposit creation - is variable, reflecting uneven timing of credit demands. Although bank loan policies normally take account of the general availability of funds, the size and timing of loans and investments made under those policies depend largely on customers' credit needs.

In the real world, a bank's lending is not normally constrained by the amount of excess reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank's credit policies and its expectations about its ability to obtain the funds necessary to pay its customers' checks and maintain required reserves in a timely fashion. In fact, because Federal Reserve regulations in effect from 1968 through early 1984 specified that average required reserves for a given week should be based on average deposit levels two weeks earlier ("lagged" reserve accounting), deposit creation actually preceded the provision of supporting reserves. In early 1984, a more "contemporaneous" reserve accounting system was implemented in order to improve monetary control.

In February 1984, banks shifted to maintaining average reserves over a two-week reserve maintenance period ending Wednesday against average transaction deposits held over the two-week computation period ending only two days earlier. Under this rule, actual transaction deposit expansion was expected to more closely approximate the process explained at the beginning of this booklet. However, some slippages still exist because of short-run uncertainties about the level of both reserves and transaction deposits near the close of reserve maintenance periods. Moreover, not all banks must maintain reserves according to the contemporaneous accounting system. Smaller institutions are either exempt completely or only have to maintain reserves quarterly against average deposits in one week of the prior quarterly period.

On balance, however, variability in the reserve multiplier has been reduced by the extension of reserve requirements to all institutions in 1980, by the adoption of contemporaneous reserve accounting in 1984, and by the removal of reserve requirements against nontransaction deposits and liabilities in late 1990. As a result, short-term changes in total reserves and transaction deposits in money are more closely related now than they were before. (See charts on this page.) The lowering of the reserve requirement against transaction accounts above the 3 percent tranche in April 1992 also should contribute to stabilizing the multiplier, at least in theory.

Ironically, these modifications contributing to a less variable relationship between changes in reserves and changes in transaction deposits occurred as the relationship between transactions money (M1) and the economy deteriorated. Because the M1 measure of money has become less useful as a guide for policy, somewhat greater attention has shifted to the broader measures M2 and M3. However, reserve multiplier relationships for the broader monetary measures are far more variable than that for M1.

Although every bank must operate within the system where the total amount of reserves is controlled by the Federal Reserve, its response to policy action is indirect. The individual bank does not know today precisely what its reserve position will be at the time the proceeds of today's loans are paid out. Nor does it know when new reserves are being supplied to the banking system. Reserves are distributed among thousands of banks, and the individual banker cannot distinguish between inflows originating from additions to reserves through Federal reserve action and shifts of funds from other banks that occur in the normal course of business.

To equate short-run reserve needs with available funds, therefore, many banks turn to the money market - borrowing funds to cover deficits or lending temporary surpluses. When the demand for reserves is strong relative to the supply, funds obtained from money market sources to cover deficits tend to become more expensive and harder to obtain, which, in turn, may induce banks to adopt more restrictive loan policies and thus slow the rate of deposit growth.

Federal Reserve open market operations exert control over the creation of deposits mainly through their impact on the availability and cost of funds in the money market. When the total amount of reserves supplied to the banking system through open market operations falls short of the amount required, some banks are forced to borrow at the Federal Reserve discount window. Because such borrowing is restricted to short periods, the need to repay it tends to induce restraint on further deposit expansion by the borrowing bank. Conversely, when there are excess reserves in the banking system, individual banks find it easy and relatively inexpensive to acquire reserves, and expansion in loans, investments, and deposits is encouraged.


Link to this article:

Banks And Money - An Attorney At Law Affidavit Filed By Expert

Banks And Money - An Attorney At Law Affidavit Filed By Expert Witness for Defendants - What To Know About Banks And Money

[Note; Emphasis added to this affidavit with Yellow Highlighting!
PDF File attached at bottom of this page]




Case No. 03-047448-CZ ----- Hon. E.. Sosnick



Attorneys for Bank One, N.A.
500 Woodward Avenue, Suite 4000
Detroit, Michigan 48226
(313) 223-3500


HARSHAVARDHAN DAVE and PRATIMA DAVE, jointly and severally,

Harshavardhan Dave and Pratima H. Dave Michael C. Hammer (P41705)
C/o 5128 Echo Road Ryan O. Lawlor (P64693)
Bloomfield Hills, MI 48302 Dickinson Wright PLLC

Defendants, in propria persona



Now comes the Affiant, Walker F. Todd, a citizen of the United States and the State of Ohio over the age of 21 years, and declares as follows, under penalty of perjury:

1. That I am familiar with the Promissory Note and Disbursement Request and Authorization, dated November 23, 1999, together sometimes referred to in other documents filed by Defendants in this case as the “alleged agreement” between Defendants and Plaintiff but called the “Note” in this Affidavit. If called as a witness, I would testify as stated herein. I make this Affidavit based on my own personal knowledge of the legal, economic, and historical principles stated herein, except that I have relied entirely on documents provided to me, including the Note, regarding certain facts at issue in this case of which I previously had no direct and personal knowledge. I am making this affidavit based on my experience and expertise as an attorney, economist, research writer, and teacher. I am competent to make the following statements.


2. My qualifications as an expert witness in monetary and banking instruments are as follows. For 20 years, I worked as an attorney and legal officer for the legal departments of the Federal Reserve Banks of New York and Cleveland. Among other things, I was assigned responsibility for questions involving both novel and routine notes, bonds, bankers’ acceptances, securities, and other financial instruments in connection with my work for the Reserve Banks’ discount windows and parts of the open market trading desk function in New York. In addition, for nine years, I worked as an economic research officer at the Federal Reserve Bank of Cleveland. I became one of the Federal Reserve System’s recognized experts on the legal history of central banking and the pledging of notes, bonds, and other financial instruments at the discount window to enable the Federal Reserve to make advances of credit that became or could become money. I also have read extensively treatises on the legal and financial history of money and banking and have published several articles covering all of the subjects just mentioned. I have served as an expert witness in several trials involving banking practices and monetary instruments. A summary biographical sketch and resume including further details of my work experience, readings, publications, and education will be tendered to Defendants and may be made available to the Court and to Plaintiff’s counsel upon request.


3. Banks are required to adhere to Generally Accepted Accounting Principles (GAAP). GAAP follows an accounting convention that lies at the heart of the double-entry bookkeeping system called the Matching Principle. This principle works as follows: When a bank accepts bullion, coin, currency, checks, drafts, promissory notes, or any other similar instruments (hereinafter “instruments”) from customers and deposits or records the instruments as assets, it must record offsetting liabilities that match the assets that it accepted from customers. The liabilities represent the amounts that the bank owes the customers, funds accepted from customers. In a fractional reserve banking system like the United States banking system, most of the funds advanced to borrowers (assets of the banks) are created by the banks themselves and are not merely transferred from one set of depositors to another set of borrowers.


4. From my study of historical and economic writings on the subject, I conclude that a common misconception about the nature of money unfortunately has been perpetuated in the U.S. monetary and banking systems, especially since the 1930s. In classical economic theory, once economic exchange has moved beyond the barter stage, there are two types of money: money of exchange and money of account.. For nearly 300 years in both Europe and the United States, confusion about the distinctiveness of these two concepts has led to persistent attempts to treat money of account as the equivalent of money of exchange. In reality, especially in a fractional reserve banking system, a comparatively small amount of money of exchange (e.g., gold, silver, and official currency notes) may support a vastly larger quantity of business transactions denominated in money of account. The sum of these transactions is the sum of credit extensions in the economy. With the exception of customary stores of value like gold and silver, the monetary base of the economy largely consists of credit instruments. Against this background, I conclude that the Note, despite some language about “lawful money” explained below, clearly contemplates both disbursement of funds and eventual repayment or settlement in money of account (that is, money of exchange would be welcome but is not required to repay or settle the Note). The factual basis of this conclusion is the reference in the Disbursement Request and Authorization to repayment of $95,905.16 to Michigan National Bank from the proceeds of the Note. That was an exchange of the credit of Bank One (Plaintiff) for credit apparently and previously extended to Defendants by Michigan National Bank. Also, there is no reason to believe that Plaintiff would refuse a substitution of the credit of another bank or banker as complete payment of the Defendants’ repayment obligation under the Note. This is a case about exchanges of money of account (credit), not about exchanges of money of exchange (lawful money or even legal tender).

5. Ironically, the Note explicitly refers to repayment in “lawful money of the United States of America” (see “Promise to Pay” clause). Traditionally and legally, Congress defines the phrase “lawful money” for the United States. Lawful money was the form of money of exchange that the federal government (or any state) could be required by statute to receive in payment of taxes or other debts. Traditionally, as defined by Congress, lawful money only included gold, silver, and currency notes redeemable for gold or silver on demand. In a banking law context, lawful money was only those forms of money of exchange (the forms just mentioned, plus U.S. bonds and notes redeemable for gold) that constituted the reserves of a national bank prior to 1913 (date of creation of the Federal Reserve Banks). See, Lawful Money, Webster’s New International Dictionary (2d ed. 1950). In light of these facts, I conclude that Plaintiff and Defendants exchanged reciprocal credits involving money of account and not money of exchange; no lawful money was or probably ever would be disbursed by either side in the covered transactions. This conclusion also is consistent with the bookkeeping entries that underlie the loan account in dispute in the present case. Moreover, it is puzzling why Plaintiff would retain the archaic language, “lawful money of the United States of America,” in its otherwise modern-seeming Note. It is possible that this language is merely a legacy from the pre-1933 era. Modern credit agreements might include repayment language such as, “The repayment obligation under this agreement shall continue until payment is received in fully and finally collected funds,” which avoids the entire question of “In what form of money or credit is the repayment obligation due?”

6. Legal tender, a related concept but one that is economically inferior to lawful money because it allows payment in instruments that cannot be redeemed for gold or silver on demand, has been the form of money of exchange commonly used in the United States since 1933, when domestic private gold transactions were suspended (until 1974).. Basically, legal tender is whatever the government says that it is. The most common form of legal tender today is Federal Reserve notes, which by law cannot be redeemed for gold since 1934 or, since 1964, for silver. See, 31 U.S.C. Sections 5103, 5118 (b), and 5119 (a).

Note: I question the statement that fed reserve notes cannot be redeemed for silver since 1964. It was Johnson who declared on 15 Marcy 1967 that after 15 June 1967 that Fed Res Notes would not be exchanged for silver and the practice did stop on 15 June 1967 – not 1964. I believe this to be error in the text of the author’s affidavit.

7. Legal tender under the Uniform Commercial Code (U.C.C.), Section 1-201 (24) (Official Comment), is a concept that sometimes surfaces in cases of this nature.. The referenced Official Comment notes that the definition of money is not limited to legal tender under the U.C.C. Money is defined in Section 1-201 (24) as “a medium of exchange authorized or adopted by a domestic or foreign government and includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more nations.” The relevant Official Comment states that “The test adopted is that of sanction of government, whether by authorization before issue or adoption afterward, which recognizes the circulating medium as a part of the official currency of that government. The narrow view that money is limited to legal tender is rejected.” Thus, I conclude that the U.C.C. tends to validate the classical theoretical view of money.


8. In my opinion, the best sources of information on the origins and use of credit as money are in Alfred Marshall, MONEY, CREDIT & COMMERCE 249-251 (1929) and Charles P. Kindleberger, A FINANCIAL HISTORY OF WESTERN EUROPE 50-53 (1984). A synthesis of these sources, as applied to the facts of the present case, is as follows: As commercial banks and discount houses (private bankers) became established in parts of Europe (especially Great Britain) and North America, by the mid-nineteenth century they commonly made loans to borrowers by extending their own credit to the borrowers or, at the borrowers’ direction, to third parties. The typical form of such extensions of credit was drafts or bills of exchange drawn upon themselves (claims on the credit of the drawees) instead of disbursements of bullion, coin, or other forms of money. In transactions with third parties, these drafts and bills came to serve most of the ordinary functions of money. The third parties had to determine for themselves whether such “credit money” had value and, if so, how much. The Federal Reserve Act of 1913 was drafted with this model of the commercial economy in mind and provided at least two mechanisms (the discount window and the open-market trading desk) by which certain types of bankers’ credits could be exchanged for Federal Reserve credits, which in turn could be withdrawn in lawful money. Credit at the Federal Reserve eventually became the principal form of monetary reserves of the commercial banking system, especially after the suspension of domestic transactions in gold in 1933. Thus, credit money is not alien to the current official monetary system; it is just rarely used as a device for the creation of Federal Reserve credit that, in turn, in the form of either Federal Reserve notes or banks’ deposits at Federal Reserve Banks, functions as money in the current monetary system. In fact, a means by which the Federal Reserve expands the money supply, loosely defined, is to set banks’ reserve requirements (currently, usually ten percent of demand liabilities) at levels that would encourage banks to extend new credit to borrowers on their own books that third parties would have to present to the same banks for redemption, thus leading to an expansion of bank-created credit money. In the modern economy, many non-bank providers of credit also extend book credit to their customers without previously setting aside an equivalent amount of monetary reserves (credit card line of credit access checks issued by non-banks are a good example of this type of credit), which also causes an expansion of the aggregate quantity of credit money. The discussion of money taken from Federal Reserve and other modern sources in paragraphs 11 et seq. is consistent with the account of the origins of the use of bank credit as money in this paragraph.


9. Plaintiff apparently asserts that the Defendants signed a promise to pay, such as a note(s) or credit application (collectively, the “Note”), in exchange for the Plaintiff’s advance of funds, credit, or some type of money to or on behalf of Defendant. However, the bookkeeping entries required by application of GAAP and the Federal Reserve’s own writings should trigger close scrutiny of Plaintiff’s apparent assertions that it lent its funds, credit, or money to or on behalf of Defendants, thereby causing them to owe the Plaintiff $400,000. According to the bookkeeping entries shown or otherwise described to me and application of GAAP, the Defendants allegedly were to tender some form of money (“lawful money of the United States of America” is the type of money explicitly called for in the Note), securities or other capital equivalent to money, funds, credit, or something else of value in exchange (money of exchange, loosely defined), collectively referred to herein as “money,” to repay what the Plaintiff claims was the money lent to the Defendants. It is not an unreasonable argument to state that Plaintiff apparently changed the economic substance of the transaction from that contemplated in the credit application form, agreement, note(s), or other similar instrument(s) that the Defendants executed, thereby changing the costs and risks to the Defendants. At most, the Plaintiff extended its own credit (money of account), but the Defendants were required to repay in money (money of exchange, and lawful money at that), which creates at least the inference of inequality of obligations on the two sides of the transaction (money, including lawful money, is to be exchanged for bank credit).


11. To understand what occurred between Plaintiff and Defendants concerning the alleged loan of money or, more accurately, credit, it is helpful to review a modern Federal Reserve description of a bank’s lending process. See, David H. Friedman, MONEY AND BANKING (4th ed. 1984)(apparently already introduced into this case): “The commercial bank lending process is similar to that of a thrift in that the receipt of cash from depositors increases both its assets and its deposit liabilities, which enables it to make additional loans and investments.

. . . When a commercial bank makes a business loan, it accepts as an asset the borrower’s debt obligation (the promise to repay) and creates a liability on its books in the form of a demand deposit in the amount of the loan.” (Consumer loans are funded similarly.) Therefore, the bank’s original bookkeeping entry should show an increase in the amount of the asset credited on the asset side of its books and a corresponding increase equal to the value of the asset on the liability side of its books. This would show that the bank received the customer’s signed promise to repay as an asset, thus monetizing the customer’s signature and creating on its books a liability in the form of a demand deposit or other demand liability of the bank. The bank then usually would hold this demand deposit in a transaction account on behalf of the customer. Instead of the bank lending its money or other assets to the customer, as the customer reasonably might believe from the face of the Note, the bank created funds for the customer’s transaction account without the customer’s permission, authorization, or knowledge and delivered the credit on its own books representing those funds to the customer, meanwhile alleging that the bank lent the customer money. If Plaintiff’s response to this line of argument is to the effect that it acknowledges that it lent credit or issued credit instead of money, one might refer to Thomas P. Fitch, BARRON’S BUSINESS GUIDE DICTIONARY OF BANKING TERMS, “Credit banking,” 3. “Bookkeeping entry representing a deposit of funds into an account.” But Plaintiff’s loan agreement apparently avoids claiming that the bank actually lent the Defendants money. They apparently state in the agreement that the Defendants are obligated to repay Plaintiff principal and interest for the “Valuable consideration (money) the bank gave the customer (borrower).” The loan agreement and Note apparently still delete any reference to the bank’s receipt of actual cash value from the Defendants and exchange of that receipt for actual cash value that the Plaintiff banker returned.

12. According to the Federal Reserve Bank of New York, money is anything that has value that banks and people accept as money; money does not have to be issued by the government. For example, David H. Friedman, I BET YOU THOUGHT. . . . 9, Federal Reserve Bank of New York (4th ed. 1984)(apparently already introduced into this case), explains that banks create new money by depositing IOUs, promissory notes, offset by bank liabilities called checking account balances. Page 5 says, “Money doesn’t have to be intrinsically valuable, be issued by government, or be in any special form. . . .”

13.The publication, Anne Marie L. Gonczy, MODERN MONEY MECHANICS 7-33, Federal Reserve Bank of Chicago (rev. ed. June 1992)(apparently already introduced into this case), contains standard bookkeeping entries demonstrating that money ordinarily is recorded as a bank asset, while a bank liability is evidence of money that a bank owes. The bookkeeping entries tend to prove that banks accept cash, checks, drafts, and promissory notes/credit agreements (assets) as money deposited to create credit or checkbook money that are bank liabilities, which shows that, absent any right of setoff, banks owe money to persons who deposit money.. Cash (money of exchange) is money, and credit or promissory notes (money of account) become money when banks deposit promissory notes with the intent of treating them like deposits of cash. See, 12 U.S.C. Section 1813 (l)(1) (definition of “deposit” under Federal Deposit Insurance Act). The Plaintiff acts in the capacity of a lending or banking institution, and the newly issued credit or money is similar or equivalent to a promissory note, which may be treated as a deposit of money when received by the lending bank.. Federal Reserve Bank of Dallas publication MONEY AND BANKING, page 11, explains that when banks grant loans, they create new money. The new money is created because a new “loan becomes a deposit, just like a paycheck does.” MODERN MONEY MECHANICS, page 6, says, “What they [banks] do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.” The next sentence on the same page explains that the banks’ assets and liabilities increase by the amount of the loans.


14. Plaintiff apparently accepted the Defendants’ Note and credit application (money of account) in exchange for its own credit (also money of account) and deposited that credit into an account with the Defendants’ names on the account, as well as apparently issuing its own credit for $95,905.16 to Michigan National Bank for the account of the Defendants. One reasonably might argue that the Plaintiff recorded the Note or credit application as a loan (money of account) from the Defendants to the Plaintiff and that the Plaintiff then became the borrower of an equivalent amount of money of account from the Defendants.

15. The Plaintiff in fact never lent any of its own pre-existing money, credit, or assets as consideration to purchase the Note or credit agreement from the Defendants. (Robertson Notes: I add that when the bank does the forgoing, then in that event, there is an utter failure of consideration for the “loan contract”.) When the Plaintiff deposited the Defendants’ $400,000 of newly issued credit into an account, the Plaintiff created from $360,000 to $400,000 of new money (the nominal principal amount less up to ten percent or $40,000 of reserves that the Federal Reserve would require against a demand deposit of this size). The Plaintiff received $400,000 of credit or money of account from the Defendants as an asset. GAAP ordinarily would require that the Plaintiff record a liability account, crediting the Defendants’ deposit account, showing that the Plaintiff owes $400,000 of money to the Defendants, just as if the Defendants were to deposit cash or a payroll check into their account.

16. The following appears to be a disputed fact in this case about which I have insufficient information on which to form a conclusion: I infer that it is alleged that Plaintiff refused to lend the Defendants Plaintiff’s own money or assets and recorded a $400,000 loan from the Defendants to the Plaintiff, which arguably was a $400,000 deposit of money of account by the Defendants, and then when the Plaintiff repaid the Defendants by paying its own credit (money of account) in the amount of $400,000 to third-party sellers of goods and services for the account of Defendants, the Defendants were repaid their loan to Plaintiff, and the transaction was complete.

17. I do not have sufficient knowledge of the facts in this case to form a conclusion on the following disputed points: None of the following material facts are disclosed in the credit application or Note or were advertised by Plaintiff to prove that the Defendants are the true lenders and the Plaintiff is the true borrower. The Plaintiff is trying to use the credit application form or the Note to persuade and deceive the Defendants into believing that the opposite occurred and that the Defendants were the borrower and not the lender. The following point is undisputed: The Defendants’ loan of their credit to Plaintiff, when issued and paid from their deposit or credit account at Plaintiff, became money in the Federal Reserve System (subject to a reduction of up to ten percent for reserve requirements) as the newly issued credit was paid pursuant to written orders, including checks and wire transfers, to sellers of goods and services for the account of Defendants.


18. Based on the foregoing, Plaintiff is using the Defendant’s Note for its own purposes, and it remains to be proven whether Plaintiff has incurred any financial loss or actual damages (I do not have sufficient information to form a conclusion on this point). In any case, the inclusion of the “lawful money” language in the repayment clause of the Note is confusing at best and in fact may be misleading in the context described above.


19. I hereby affirm that I prepared and have read this Affidavit and that I believe the foregoing statements in this Affidavit to be true. I hereby further affirm that the basis of these beliefs is either my own direct knowledge of the legal principles and historical facts involved and with respect to which I hold myself out as an expert or statements made or documents provided to me by third parties whose veracity I reasonably assumed.
Further the Affiant sayeth naught.

At Chagrin Falls, Ohio
December 5, 2003 _____________________________________
WALKER F. TODD (Ohio bar no. 0064539)
Expert witness for the Defendants
Walker F. Todd, Attorney at Law
1164 Sheerbrook Drive
Chagrin Falls, Ohio 44022
(440) 338-1169, fax (440) 338-1537
e-mail: westodd @


At Chagrin Falls, Ohio
December 5, 2003

On this day personally came before me the above-named Affiant, who proved his identity to me to my satisfaction, and he acknowledged his signature on this Affidavit in my presence and stated that he did so with full understanding that he was subject to the penalties of perjury.

Notary Public of the State of Ohio

Link to this posting:

[Note see other articles posted here: BANKS DO NOT LEND MONEY ON DEPOSIT: and here: How Money Is Created In Australia by SOS - Simply Explaining How The Australian Monetary System Could Better Serve Aust: ]

Video: Modern Money Mechanics Banks Do Not Loan Money On Deposit

Video: Modern Money Mechanics Federal Reserve Part 1 - 11 Minutes - A breakdown of "Modern Money Mechanics" which was published by the Federal Reserve Bank of Chicago. Do you want to understand the core concepts(flaws) to the US monetary system and economics? Do you want to know how new US currency is created? Watch this series and you'll soon understand why there is so much debt and why we need change.

Video: Modern Money Mechanics Federal Reserve Part 2 - 8 Minutes 50 Seconds

Video: Modern Money Mechanics Federal Reserve Part 3 - 7 Minutes 56 Seconds

Video: Modern Money Mechanics Federal Reserve Part 4 - 5 Minutes 58 Seconds

Video: Modern Money Mechanics Federal Reserve Part 5 - 10 Minutes 3 Seconds

Video: Modern Money Mechanics Federal Reserve Part 6 - 9 Minutes 58 Seconds

Video: Modern Money Mechanics Federal Reserve Part 7 - 9 Minutes 6 Seconds

Video: Modern Money Mechanics Federal Reserve Part 8 - 2 Minutes 30 Seconds

Play All Videos:

Produced By MelodicNightmare:

See: BANKS DO NOT LEND MONEY ON DEPOSIT - MODERN MONEY MECHANICS - A Workbook On Bank Reserves And Deposit Expansion: and How Money Is Created In Australia by SOS - Simply Explaining How The Australian Monetary System Could Better Serve Aust: and Judge Mahoney Credit River Court Case, State of Minnesota, County Scott, United States of America, 9th December 1968: Banks And Money - An Attorney At Law Affidavit Filed By Expert Witness for Defendants - What To Know About Banks And Money: and Banks and Money - The Mandrake Mechanism:

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The Cristian Family November 2006

We Stand For NO SYSTEM

Kindom (Do No Harm Communities) is the dream for freedom, but it is the dream for the freedom of those around us who also live the dream of freedom, because it is in living for the freedom of others that we get our freedom. When we live for the dreams of Kindom of those around us, we live life as a gift because we live for (dedicate our lives to) their dream of freedom, truth, peace, joy, abundance, etc, just as they live for our Kindom dreams too. This is true co-creation (cooperation) with no attack on the uniqueness of each of us. When we live this way, we have no need for any man-made system - everything/everyone has already been taken care of by our love for life.

Just as we do not have to jump 10 feet across the room to grab our next breath, neither do we have to worry about food, water and shelter because it has all been taken care of as we each co-create Kindoms/Kin-Domains for everyone. Now everybody and everything of the dream of life that is Kindom/Paradise is free (has been set free once again). The issue is greed and selfishness, power and control trips, arrogance, ignorance, being fed many many lies and being traumatised. The issue is not overpopulation - there is more than enough land available for every family to have a hectare (2.5 acres Kin-Domain) to care for. The land of Australia can provide a Kin-Domain for every family across Earth, each with a food forest, clean fresh drinking water and plenty of space for building natural do no harm habitats and with plenty of land left over.

Everyone must have the freedom to take full-responsibility for their lives, for the water they drink, the food they eat and for their shelter. Currently, "The System" forces everyone to give up taking full-responsibility so that we become grown up children accustomed to sucking on the nipples of "The System" corporations for everything, having to use money to get by and to follow the rules of money because we are not co-creating freedom, peace, truth, joy and abundance for each other. Money only leads to haves and have nots and all the abuse, manipulation and distractions that we are subjected to as slaves to money.

When we give up living for other's Kindom dreams, we start creating hell ("The System") all around us because we become self-centred - now it's all about "my freedom","my money", "my land", "my belief", "my saviour", "mine", "mine","mine", "i","i", "i", "own", "own", "own", etc. To protect what we claim we own requires a man-made system with FORCE to protect those self-centred claims. This is ALL trauma based and all story-telling (brainwashing/braindirtying).

NO SYSTEM = KINDOM/DO NO HARM COMMUNITIES photo Kindom_zpsa6d24e8a.jpg

Our true freedom comes when we set our thoughts of freedom into motion so that we live freedom rather than just talking and thinking about it while we still slave for "The System". Kindom will not happen while we meditate for hours in the bush or do yoga retreats or wait for Jesus or follow the processes of the OPPT (One People's Public Trust now called One People). This is not freedom because we are not living freedom because we are living the story-telling of Jesus or Zeitgeist or The Secret or Thrive or One Earth/Consciousness/People.

Living Kindom is very, very hard work as we set about repairing the damage to MAN/Earth/Nature that we are ALL responsible for but the burden becomes lighter the more of us put our life-energy into the dream of returning Earth to Paradise. Day-after-day, we all have to work our arses off until Kindom is all around us (MAN) once again. This is the price we pay to set each other free on a piece of land (Kin-Domain), so that no one is under the image-power (education/brainwashing/story-telling) of another MAN anymore and so that everyone can have their space of love to create and live their unique, do no harm dreams. This only happens once we have the Kindoms set up so that everyone is provided for.

Once we re-create the food forests, whether on land or in the suburbs, we can re-claim our freedom, breaking the strangle-hold of "The System" because we are no longer reliant on its services and benefits and no longer turning each other into slaves of "The System", cogs in the wheels of "The System" machine. If we don't put the effort in to set everyone and everything free all around us then we still live in HELL ("The System"). The key is to live for everyone else's freedom so that we can have it too.

From Bare Dirt To Abundance
A Year In The Life Of The
Love For Life Food Forest

Arthur & Fiona Cristian
8th February 2013
51 Minutes 46 Seconds

From Bare Dirt To Abundance Part Two A
5th November 2014

From Bare Dirt To Abundance Part Two B
Coming Shortly

We live for NO SYSTEM. We do not lose anything by not having a man-made system and, in fact, we gain. We gain our freedom and we gain abundance. Let go of the fear.

The Cristian Family November 2006

A Collection Of Various Love For Life Posts
Providing The Big Picture We See

Sequential Order

We ask you to NOT believe anything we say/share and instead use scrutiny like an intense blow torch and go where the logic of truth/sense takes you. This is very, very important. Put everything you believe up to the test of scrutiny to see how it stacks up. If you are true to your heart/senses and go where the logic of truth/sense takes you will find that NO belief, etc, will stand up to the test of scrutiny. They just do not stack up because they are lies/fraud.

After you have watched and read all the material and any questions are left unanswered, send us your landline number and we will use the internet phone as a free unlimited call. We are on Sydney NSW Australia time. Best times for us to chat are between 11.00am and 6.00pm.

It is critical that you fully comprehend Image Power, "Spelling", Trauma, Reaction To Trauma, Curses, Processing Curses, Full-Responsibility/Liability, Limited Liability/Responsibility (passing-the-back), Slavery, Senses/Sense vs Non-Sense/Senses, Re-Presenting Intellectual Property such as but not limited to "Name", Storytelling/Storytellers, Duality, Black-Magic, Belief, Lies, "i", All Seeing "i" (eye), etc..... These themes and others are covered over and over and over again.

If you do not comprehend these insights and are unable to use your senses to sense your way through all the non-sense/non-sensory-images that enslave MAN under their image power (darkness = "The System" = Hell), men and women will remain deeply trapped under a terrible state of trauma. Our intention is to inspire you to remedy by showing you how to move away from reacting to trauma in all its nefarious and devious forms.

Superb Diamond Range Interviewing
Arthur & Fiona Cristian 4th February 2014

His-Story/Her-Story (History)
Arthur Cristian - Love For Life
2005-2007 - Re-posted July 2014

The Dream Of Life Part 6
Under The Spell Of Intellectual Property

Arthur Cristian - 51 Minutes 52 Seconds

Trauma Induced Fantasy
July 2013 Interview With
Jeanice Barcelo And Arthur & Fiona Cristian

The Dark Side Of The Moon
The Background To "The System"

Arthur & Fiona Cristian Interviewed By
Jahnick Leaunier, The Tru-Mon Show
24th August 2016
Love For Life - 142 Minutes

Eric Dubay's Flat Earth Is A Cult
The Background To The System Part Two

Arthur & Fiona Cristian Chatting With
Jahnick Leaunier On The Tru-Mon Show
Love For Life - 31st August 2016
154 Minutes

Eclipse Of The Sun - Video (Arthur swears in this video)
The Background To The System Part Three
Arthur & Fiona Cristian Chatting With
Jahnick Leaunier On The Tru-Mon Show
Love For Life - 25th October 2016

The "Name" Is The Mark Of The Beast
The Strawman Identifying
Your Slave Status In "The System"

By Arthur Cristian - Love For Life
5th February 2012 - 56 Minutes 25 Seconds

The Satanic Craft Of Inculcation In Practice
Fiona's ACT Supreme Court Affidavit Explaining Inculcation & Illumination
Arthur & Fiona Cristian
Love For Life
4th March 2016

The Spinning Top
Full Bloom Inculcation

Arthur And Fiona Cristian
Love For Life
Facebook Discussions Between The
8th December 2016
26th January 2017

The Shit Of Death
Arthur & Fiona Cristian
Love For Life
28th January 2017

The Selfie Of Freakenstein
Arthur & Fiona Cristian
Love For Life
17th March 2017

Three Sets Of Fiona Cristian Documents Filed With ACAT
Merged Into One Document For Downloading

Fiona Cristian Affidavit
ACT Supreme Court / Court Of Appeal

Dancing With Magic (Lies)
Arthur & Fiona Cristian
Videos, Articles, Comments
And Pending E-Book
Love Fort Life
September 2015

Dancing With Magic Part One
Arthur & Fiona Cristian - Love For Life
5th September 2015

Dancing With Magic Part Two
Arthur Cristian - Love For Life
12th September 2015

Dancing With Magic Part Three
Arthur & Fiona Cristian - Love For Life
13th September 2015

Dancing With Magic (Lies) Part Four:
Arthur & Fiona Cristian - Love For Life
16th September 2015

Introduction To Kindom Video
By Arthur & Fiona Cristian - Love For Life
6th March 2015

To Be Educated Is To Have No Soul
The System Is Soul Destroying

Frederick Malouf & Michael Tellinger's
Contrived Gifting
Arthur & Fiona Cristian
Love For Life
1st September 2016

Illumination IS Definition
Arthur & Fiona Cristian
Love For Life
26th to 29th January 2016

The Nefarious Tactics Used
To Disguise Truth And Distract Us
From Remedy

Arthur & Fiona Cristian
Love For Life
24th January 2014
This post contains many recent Facebook comments
and email replies which collectively provides a big picture
into exposing the deception behind IMAGE POWER.

The Pull Of E-Motion
Arthur & Fiona Cristian
Love For Life
8th February 2014

Processing Curses
A Lie Is A Curse
Liars Process Curses

Arthur & Fiona Cristian
Love For Life
26th February 2014

How The System Is Really Constructed
Bouncing Back Curses Upon Curse Makers
To Stop Harm Forevermore

Arthur & Fiona Cristian
Love For Life
27th February 2014

Slave To A Name
Parts One, Two, Three, Four,
Arthur & Fiona Cristian
Love For Life
3rd to 6th March 2014

Educated Slaves
Arthur & Fiona Cristian
Love For Life
20th March 2014

The Only Path To Freedom
Beware The False Steps

Arthur & Fiona Cristian
Love For Life - 2nd April 2014

Free-Dumb For All
Arthur & Fiona Cristian
Love For Life - 5th April 2014

Revoking The Ego
Arthur & Fiona Cristian
Love For Life - 8th April 2014

How MAN Commits Spiritual Suicide
Arthur Cristian
Love For Life - 3rd April 2014

How To Detect Intel Operatives Working
For The New World Order Agenda
Arthur & Fiona Cristian
Love For Life - 10th April 2014

How The Psyop Program & Intel Networks
Are Messing With Your Head +

Arthur & Fiona Cristian - April 2014

Godzilla Through The Looking Glass
Destroyed By Name"

Arthur & Fiona Cristian
Love For Life - 20th April 2014

What It's Going To Take
To Co-Create Freedom Forevermore

Arthur & Fiona Cristian
Love For Life - 22nd April 2014

Falling For Fairy Stories
Arthur & Fiona Cristian
Love For Life - 24th April 2014

A Disassociation From The Work
Of Kate of Gaia

Arthur & Fiona Cristian
Love For Life - 17th May 2014

Separating The Wheat From The Chaff
Arthur & Fiona Cristian
Love For Life - 22nd May 2014

Revolution Or Revolution
Arthur & Fiona Cristian
Love For Life - 25th May 2014

Routing Out Psyop Programs
Routs Out Intel Operatives
Exposing Max Igan's Psyop Program

Arthur & Fiona Cristian
Love For Life - 31st May 2014

The Psyop Program Scam
Behind Religion Belief Faith
& Associated Opinion

Arthur Cristian
Love For Life
11th June 2014

Another Delusion
Arthur Cristian
Love For Life
11th June 2014

A World Of Words Is A World Of Lies
Arthur Cristian
Love For Life
13th June 2014

The Name Of The Beast Is MAN

Arthur & Fiona Cristian
Love For Life - 9th May 2014
Includes Mountain MAN Arrested
Facebook Discussion About "Name"
Uploaded 25th June 2014

Arthur & Fiona Cristian
Love For Life - 13th August 2014

Discussion With Brother Gregory
Clearly Demonstrating Christianity
Is Part Of The Problem
And Not The Solution

Arthur & Fiona Cristian
Love For Life
Between the 12th May 2014 and 30th August 2014

The Psyop Program Behind Free Food
And Permaculture

Arthur & Fiona Cristian
Love For Life
29th October 2014
Facebook Discussion With Unconditional Love Moon

Head So Strong
Music and Vocals Arthur Cristian
Backing Vocals and Vocal Effects Arthur Cristian & Hannah Wood
Lyrics Fiona and Arthur Cristian
Written during our spare time between Aug & Oct 2014

The Time Of Trauma That Destroys Us
Arthur Cristian - Love For Life
9th November 2014

The Most Powerful Video On Spirituality
And Happiness FOR SLAVES
How To Accept Slavery And Be Happy About It

Arthur Cristian - Love For Life
6th August 2014
Facebook Discussion About The Work Of Eckhart Tolle

What Can We Do What Can We See
Arthur Cristian - Love For Life
A series of Arthur Cristian Facebook
posts and discussions
between 17th and 21st November 2014

The Misuse Of Love By Intel Networks
To Create Doubt And Uncertainty
With The Intention To Destroy Love
And Therefore Destroy MAN
(True Freedom, Peace, Joy, Abundance And Truth
For Everyone)

By Arthur Cristian - Love For Life
26th November 2014

The Void Of E-GO That Is Spiritual Suicide
The Justification Of Laziness
That Perpetuates System Creature Comforts
Ensuring Our Fall

Arthur & Fiona Cristian
Love For Life
13th December 2014
Massive Update Occurred 14th Dec 2014 3.10pm Sydney Aust time

Darkness Visible Part One A, B, C, D
The Freemasonic World In Plain Sight
Decoding George Washington Lithographs

Arthur & Fiona Cristian
Love For Life
14th December 2014
Part One A
Part One B
Part One C
Part One D

Darkness Visible Part Two
Yin And Yang, Duality, Spiritual Suicide
And Frank O'Collins UCADIA / One Heaven

Arthur & Fiona Cristian
Love For Life
14th December 2014

Darkness Visible Part Three
How The Word Sausage
Re-Presents The New World Order
Boiling Point & Out To Get Us

Arthur & Fiona Cristian
Love For Life
27th December 2014

Darkness Visible Part Four
Aleister Crowley - Thelema - OTO
And The Black Magic Psychedelia Of The Intellect

Facebook Discussion
4th to 10th January 2015

Darkness Visible Part Five
Living MAN Fiona Cristian's Standing
+ Decoding Judeo/Judaism

Fiona Cristian & Arthur Cristian
Love For Life
24th January 2015

Darkness Visible Part Six
The Many Fingers Of The Hidden Hand Appearing
YouTube Community Flagged A Video
Posted To The ArthurLoveForLife YouTube Channel
As Being "Hate Speech"

Fiona Cristian & Arthur Cristian
Love For Life
4th February 2015

Darkness Visible Part Seven
The Full Responsibility For Setting
True Freedom For All Into Motion
In Present-Sense Forevermore

Fiona Cristian & Arthur Cristian
Love For Life
10th February 2015

Who We Really Are Does Not End
At The Surface Of Our Skin

Arthur Cristian & Fiona Cristian
Love For Life - 22nd February 2015

Introduction To Kindom Video
By Arthur & Fiona Cristian - Love For Life
6th March 2015

The Rot Parts One, Two, Three
Arthur Cristian
Love For Life
5th June 2015

"The Good Guys" And The "Bad Guys"
Working Together To Bring In
The New World Order

Arthur Cristian - 18th July 2015

Can You Spot The Ego?
Where's Wally? Part One

Compilation of Facebook & Youtube
Insight Posts During Aug/Sept 2015
By Arthur Cristian

Can You Spot The Ego?
Where's Wally? Part Two

Compilation of Facebook & Youtube
Insight Posts During Aug/Sept 2015
By Arthur Cristian

Dancing With Magic (Lies)
Arthur & Fiona Cristian
Videos, Articles, Comments
And Pending E-Book
Love Fort Life
September 2015

Dancing With Magic Part One
Arthur & Fiona Cristian - Love For Life
5th September 2015

Dancing With Magic Part Two
Arthur Cristian - Love For Life
12th September 2015

Dancing With Magic Part Three
Arthur & Fiona Cristian - Love For Life
13th September 2015

Dancing With Magic (Lies) Part Four:
Arthur & Fiona Cristian - Love For Life
16th September 2015

Illumination IS Definition
Arthur & Fiona Cristian
Love For Life
26th to 29th January 2016

The Satanic Craft Of Inculcation In Practice
Fiona's ACT Supreme Court Affidavit Explaining Inculcation & Illumination
Arthur & Fiona Cristian
Love For Life
4th March 2016

The Dark Side Of The Moon
The Background To "The System" Part One

Arthur & Fiona Cristian Chatting With
Jahnick Leaunier On The Tru-Mon Show
Love For Life - 24th August 2016

Eric Dubay's Flat Earth Is A Cult
The Background To The System Part Two

Arthur & Fiona Cristian Chatting With
Jahnick Leaunier On The Tru-Mon Show
Love For Life - 31st August 2016

To Be Educated Is To Have No Soul
The System Is Soul Destroying
Frederick Malouf & Michael Tellinger's
Contrived Gifting

Arthur & Fiona Cristian
Love For Life
1st September 2016

New Love For Life Kindom Facebook Group
Started March 2015
Includes 63 Minute
Introduction To Kindom Video
By Arthur & Fiona Cristian
Facebook Kindom Group Guidelines
The Love For Life website home-page provides
the bigger-picture background to the themes
touched on in this video:

Crop Circles Are A Massive Hoax
Facebook Discussion On Simon Kawai's Wall
Involving Arthur & Fiona Cristian
31st August 2013

OPPT & Slavery Through Intellectual Conscription By Deceit
Arthur & Fiona Cristian - Love For Life
27th February 2013 onwards...
Part One:
Part Two:
Part Three:

Water Is The Life Of MANS Consciousness (Breath)
Arthur & Fiona Cristian - Love For Life - 8th February 2013
Part One: - 70 Minutes 5 Seconds
Part Two: - 81 Minutes 13 Seconds
Part Three: - 70 Minutes 18 Seconds

What Do You Believe On Origins?
Who Said There Was A Beginning?
Who's Truth Do You Accept?
Belief Is A Strange Idea.

Discussion Lyndell, Scott and Arthur & Fiona Cristian
Between March and April 2013
Posted 29th October 2013

So You Want The Good Bits Of "The System"
But Not The Bad Bits?

By Arthur & Fiona Cristian
Love For Life - 12th August 2013

Turning Away From The Reflection
Of MANS Looking Glass

Arthur & Fiona Cristian
Love For Life
30th April 2013


From Bare Dirt To Abundance
A Year In The Life Of The
Love For Life Food Forest

Arthur & Fiona Cristian
8th February 2013
51 Minutes 46 Seconds

From Bare Dirt To Abundance Part Two
5th November 2014

From Bare Dirt To Abundance Part Three
7th March 2016
60 Minutes

Love For Life Food Forest & Native Garden March 2016
Extension Of The Love For Life Food Forest And Establishment
Of A New Native Garden At The Front Of The Rental Property
In East Bowral - 24th October 2015 to Mid February 2016.
15 Minutes

Control The Land
And You Control MAN On The Land
Displace MAN From Land
And You Turn MAN Into Slaves

Arthur & Fiona Cristian - Love For Life
April 2011 (Updated 14th September 2011)

The Divine Spark
Facebook Discussion With Raymond Karczewski
Arthur & Fiona Cristian & Others
2nd October 2013

Capturing Another MANS Uniqueness
A Facebook Debate With
Arthur & Fiona Cristian - Love For Life
And Raymond Karczewski
Starting 13th May 2013

The Spell Is Broken
Taking The Land To Create Kindom

Arthur & Fiona Cristian
Love For Life
3rd March 2013

The Steps Of Kindom
Arthur & Fiona Cristian
Love For Life 2006/2007

To explore these themes in greater detail go here where you can find links to all our Love For Life comments, articles, debates, discussions, videos, podcasts, etc:

All the best
Arthur & Fiona Cristian
Love For Life

Email :
Mobile : 0011 61 418 203204 - (0418 203204)
Snail Mail: PO Box 1320 Bowral 2576 NSW Australia
Facebook Arthur Cristian :
YouTube Arthur Cristian :

Register To The Love For Life Mailing List:

Facebook Group Why Aren't We Free Discussion :
Facebook Group Kindom/Do No Harm Community Discussion :

Links below will kick in when the professionally recorded Love For Life music is released.

SoundCloud :
Nimbit Music :
Twitter :
Facebook Music :
YouTube Love For Life Music :
MySpace :
Google + Fiona Cristian :

Peaceful Transition Through Sacrifice And Service

We feel there is an essential peaceful do no harm transition required to get all of MAN back to standing on MANS feet without reliance upon another MAN for water, food, shelter. As it stands everyone in "The System" are highly dependent and reliant on the "group mind-set" that forms "The System" of slaves providing services and benefits for the emotionally addicted slaves to "The System" (and you can put us in the same basket too). The transition is to get MAN back to relying ONLY on nature without 3rd party interlopers, intermeddlers, interceders getting in the way. The transition is a team effort with the foresight for setting all of MAN free down-the-line so that MAN is no longer dependent on slaves and masters providing services, benefits, privileges and exclusivity while being bound to contracts, rituals, procedures, conditions, rules & regulations which compromises MAN severely.

This transition is all about shifting from limited liability/responsibility to full liability/responsibility. This full responsibility is all about caring for our health, nature all around us, clean uncorrupted (pure) water and food, partner/co-creator, children, shelter, animal-friends in partnership, etc. In "The System", we are already together destroying each other - we have to come together to create peace together so that we can all have peace. We cannot live peacefully when we are islands, not taking full responsibility for the lives of those around us until EVERYONE can take full responsibility for their life, which means that EVERYONE is healed of system trauma. In "The System", we all come together to make slaves of each other - now is the moment to come together to set each other free, to live for each other's freedom, peace, joy and abundance. Once we have set each other free, we are free.

Control The Land
And You Control MAN On The Land
Displace MAN From Land
And You Turn MAN Into Slaves

Arthur & Fiona Cristian - Love For Life
April 2011 (Updated 14th September 2011)

The Spell Is Broken
Taking The Land To Create Kindom

Arthur & Fiona Cristian
Love For Life
3rd March 2013

"The Steps Of Kindom"


Once we fix these issues, we or our children or our descendants to come, can start focusing on the even bigger picture of getting back to where our ancestors were, as breatharyan's, before they fell into non-sense images to be enslaved by them.

All the best to you and your family
Arthur & Fiona Cristian
Love For Life

The Cristian Family November 2006

The Cristian Family Declaration

The Cristian family and The Love for Life Campaign are apolitical, non-religious, non-violent, anti weapons, anti drugs (both pharmaceutical and recreational) and anti any ideology that denies the existence of Do No Harm Communities (Kindoms) and suppresses the uniqueness and freedom of all men, women and children.

The Cristian family and our Love For Life work is unaligned to any big business corporation, intelligence agency, government body, "system" law, "system" think tanks, "system" green or environmental movements, religion, cult, sect, society (fraternity, brotherhood, sisterhood, order, club, etc,) secret or not, hidden agenda, law or sovereignty group, occult, esoteric, New Age or Old Age.

The Cristian family supports and promotes the remedy that brings an everlasting peace, freedom, truth, joy, abundance and do no harm for all of life without causing loss of uniqueness or the need for having slaves and rulers. We are not into following the one in front or being shepherds for sheeple. Most importantly, we take full-responsibility for everything we think, feel and do.

The Cristian family are not Christians.

Arthur & Fiona Cristian
Love For Life

December 2006

The Cristian Family November 2006


Being of clear brain, heart and intention, we each declare the following to be true:

• We have no intention of ending our own lives.

• We will not tolerate suppression of truth, ideas, freedom, or our work. We stand for freedom of speech.

• We stand together to support others in the expression of truths and freedom to speak out no matter how radical those ideas may seem.

• Standing for freedom takes courage; together we shall be strong in the face of all odds.

• If it is ever claimed that we have committed suicide, encountered an unfortunate accident, died of sickness/disease, disappeared, been institutionalized, or sold out financially or in any other way to self-interested factions, we declare those claims false and fabricated.

• We testify, assert and affirm without reservation, on behalf of all those who have dedicated their lives to the ending of secrecy and the promotion of freedom of thought, ideas and expression that we shall prevail.

• We Do Not Have Multiple Personality Disorders

Arthur Cristian
Fiona Cristian
Jasmin Lily Cristian
Emma Rose Cristian
Frances Hannah Cristian
Xanthe Jane Cristian

15th December 2006 (Edited/Updated 18th September 2011)

The Cristian Family November 2006

Update Regarding The Love For Life
Home Page And Quick User Guide

We are turning the Love for Life Quick User Guide into a blog of all the main insights of our work since March 2005, whether through articles, videos, podcasts or discussions/debates.

As we do not have the time to compile everything we have written into a book, as many have suggested we do, compiling all our most important work into one area of the website is a way of providing easy access to this work so those interested are able to fully comprehend the big picture.

Instead of having to find our different articles, videos, etc, in various parts of the website, it will all be accessible here: and here:

Love For Life Videos

As amateurs and posted in the Quick User Guide below the Facebook links, we're currently creating and posting a series of videos called "The Dream Of Life" which covers the ground of all the Love For Life insights. We plan to have the videos completed by December 31st 2012. Once this is behind us, our intention is to create a 2 hour or so video covering the body of this work. All videos are embedded in the quick user guide and uploaded in Arthur's YouTube channel:

Love For Life Music

We have started recording songs, with others, that express the themes of Love For Life. They are now being posted on Arthur's YouTube channel: and are embedded in the quick user guide We have over 100 songs to record. A few rough demos have already been used as the soundtrack on the first "Dream of Life" video.

About Us - Love For Life & The Cristian Family

Also, everything we, the Cristian family, have gone through, from bank fraud and the theft of the family home to death threats and attempts on Arthur's life, is documented in the Quick User Guide too. If you, the reader, are prepared to put the effort in, you will comprehend the extent to which we have all been tricked into becoming slaves, giving up our uniqueness and our full-responsibility for life and destroying everything of life to the point where life is in danger of dying out completely. You will also comprehend the remedy to all this chaos; a remedy that requires only love for life and the determination to do what needs to be done. Though our focus is very strongly on the remedy that creates a world of freedom, truth, peace, joy, abundance and Do No Harm for all of life without loss of uniqueness or the need for slaves and rulers, we realise that it is vital to comprehend how to get there and what stops us from getting there. This is why there is so much information on the hows and whys of everything going wrong in the world today. We are not into peddling conspiracy theories, we are into routing out all forms of organised crime.

Saturday 26th November 2011

Arthur and Fiona Cristian
Love For Life

Mobile: 0011 61 418 203204 - (0418 203204)
Facebook Arthur Cristian:
YouTube Arthur Cristian:
Nimbit Music:
Facebook Music:
Facebook Why Aren't We Free Discussion:
Facebook Do No Harm Community:
YouTube Love For Life Music:
Google + Fiona Cristian:
Register To The Love For Life Mailing List:

1. For The Body Of The Love For Life Work by Arthur and Fiona Cristian

Which Unravels The Reasons For The Chaos, Mayhem and Confusion Being Experienced In The World Today, Explains The Need For "Community Immunity" and Responsibility, and Focuses On The Creation Of Kindoms - Do No Harm, Life-Sustainable Communities (As The Remedy That Heals All Mans Woes) - And How We Can Co-Create Them. For Comments, Articles And Discussions, Go Here: - Also Go Here To See Podcasts And Videos Posted by Arthur & Fiona Cristian: - The Information Shared Comes From Inspiration, Intuition, Heartfelt-Logic And Information Gathered From Nature And Many Amazing Men And Women Along The Way. It Is Not Found In Any Books Or Channellings, Or Talked About By "Experts". Go Here To Read A Brief Synopsis Of Why We Started Love For Life:

2. For Information About The Ringing Cedars of Russia Series

go here: and for more on Eco Homes, Villages, Organic and Permaculture Gardening and Life-Sustainability, etc, go here: and here: and Mikhail Petrovich Shchetinin - Kin's School - Lycee School at Tekos:

3. For How To Eat A Raw, Living Food Diet,

go here: - LIFE is information. When we distort LIFE and then eat, drink, absorb, think, feel, hear, see, touch, taste, smell and perform these distortions, the information of LIFE, your LIFE, our LIFE, our children's lives, everyone's LIFE, is distorted.

4. To Find A Menu For The Extensive Research Library (over 8,000 items posted embodying over 11,000 documents, pdf's, videos, podcasts, etc)

Which Covers Topics From Health to Chemtrails/Haarp to Brain Control to Archaeology to Astronomy Geocentricity Heliocentricity to Pandemics Bird Flu Swine Flu to Fluoride to Cancer to Free Energy to Global Warming, 9/11, Bali Bombings, Aspartame, MSG, Vaccinations, Aids/HIV, Mercury, New World Order, Satanism, Religions, Cults, Sects, Symbolism, etc, etc, go here:

5. If You Would Like To Read About The Cristian Family NSW Supreme Court Case

(Macquarie Bank/Perpetual Limited Bank Fraud Condoned By Judges, Registrars, Barristers, Lawyers, Politicians, Public Servants, Bureaucrats, Big Business and Media Representatives - A Crime Syndicate/Terrorist Organisation) Which Prompted The Creation Of This Love For Life Website December 2006, And The Shooting And Torture Of Supporters Who Assisted Us In Reclaiming The Family Home, Joe Bryant And His Wife, Both In Their Late 70's, go here: And Read Some Of Our Email Correspondence With Lawyer Paul Kean - Macedone Christie Willis Solari Partners - Miranda Sydney May 17th-June 27th 2006:

6. For The Stories Of Other Victims Of The System,

go here: (If you have a story you would like us to put up, we would love to here from you:
action @

7. For Documentation Of Harm Done By The Powers-That-Be And Their Representatives,

Evidence Revealing How Victims Did Not Break The Peace, Caused No Crime or Harm, There Were No Injured Parties. Documenting Incontrovertible Evidence Demonstrating How The Powers That Be (PTB) And Their Lackeys Will Break All The Laws They Are Supposed To Uphold. They Will Kidnap, Intimidate, Terrorise, Rape, Pillage, Plunder And Lie And Take Responsibility For None Of It. All Part Of Their Tactics Of Using Fear And Trauma To Keep Us In Our Place. Relatives Of Those Under Their Radar Are Also Not Safe From Attack And Intimidation. All Starting From A $25 Fine For Not Voting And A $65 Fine For Not Changing A Dog Registration. We Do Not Have Freedom And Can Only Appear To Have Freedom If We Comply. Regardless How Small The Matter The PTB Throw Hundreds Of Thousands Of Dollars Away To Enforce Their Will.... Go Here:
Fiona Cristian Reply To State Debt Recovery Office - Part One to Part Ten - From 17th October 2008 And Still Continuing: or
Fiona Cristian Reply To State Debt Recovery Office
Part One: - From 17th October 2008
Part Two: - From 18th December 2008
Part Three: - From 9th January 2009
Part Four: - From 14th January 2009
Part Five: - The Sick Puppy - From 20th February 2009
Part Six: - Police Officers, Sheriff’s Officers, Tow Truck Driver and State Debt Recovery Office Blatantly Ignore the Law To Rape, Pillage and Plunder The Private Property Of Fiona Cristian - From 11th March 2009
Part Seven: - Affidavit Of Truth - Letter To The Queen + Australia: Fascism is Corporatism - From 30th March 2009
Part Eight: - The Pirates Auction And The Ghost Of VSL386 - From 4th April 2009
Part Nine: - Arthur Cristian's Letter To Pru Goward MP - From 15th December 2009
Part Ten: - Should We Be In Fear Of Those Who Claim To Protect Us? "Roman Cult" Canon Law - Ecclesiastical Deed Poll - The Work Of Frank O'Collins - From 13th October 2010

8. If You Are Interested In Information On Freedom From Statutes, Rule-Of-Law, Free Man/Free Woman, Strawman, "Person" and Admiralty Law (The Law Of Commerce),

go here: - For Common Law, Democracy, Constitution, Trial By Jury, Fee Simple, etc, go here:

9. If You Are Interested In Banking and Money Created (Fiat/Credit/Debt/Mortgage/Loan/Overdraft etc) Out-Of-Thin-Air, How Banks Counterfeit Money,

go here:

10. For A List Of All The Latest Posts In The Love For Life Website,

go here:

11. For Links To Many Hundreds Of Videos, DVDs And Podcasts

go here:

12. To See The Cristian Family Pledge, Legal and other Disclaimers

go here:

13. To Read About How A Representative Of The NSW Jewish Board Of Deputies Had Threatened To Shut Down The Love For Life Website

go here: Part One: Part Two: THE STEVE JOHNSON REPORT AND VIDEO: and Part Three: Latest Update On James Von Brunn:

Conscious Love Always
Arthur & Fiona Cristian
Love For Life
action @
0418 203204 (int: 0011 61 418 203204)
PO Box 1320 Bowral 2576 NSW Australia

Arthur Cristian

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The Cristian Family November 2006

Love For Life Legal Disclaimer

The information contained on this world wide web site (the web site and all information herein shall be collectively referred to as "Web Site Information"), under the registered url name,, resides on a host server environment in Pittsburgh, Pennsylvania 15203, United States of America.

The Web Site Information has been prepared to provide general information only and is not intended to constitute or be construed as providing substantive professional advice or opinion on any facts or circumstances. Transmission of the information is not intended to create, nor does its receipt give rise to, a professional-client relationship between 'Love for Life' and the receiver.

While every care has been taken to ensure the accuracy and timeliness of the information prepared and/or reported on this site, 'Love for Life' is not responsible for any errors or omissions or for the Web Site Information not being up to date. The Web Site Information may not reflect the most current developments.

The impact of the law, policy and/or procedure for any particular situation depends on a variety of factors; therefore, readers should not act upon any Web Site Information without seeking professional advice. 'Love for Life' is not responsible for any action taken in reliance on any Web Site Information herein.

'Love for Life' is not responsible for any action you or others take which relies on information in this website and/or responses thereto. 'Love for Life' disclaim all responsibility and liability for loss or damage suffered by any person relying, directly or indirectly, on the Web Site Information, including in relation to negligence or any other default.

'Love for Life' does not warrant, represent or hold out that any Web Site Information will not cause damage, or is free from any computer virus, defect(s) or error(s). 'Love for Life' is not liable to users for any loss or damage however caused resulting from the use of material found on its web site.

'Love for Life' does not necessarily endorse or approve of any Web Site Information linked to and contained on other web sites linked herein and makes no warranties or representations regarding the merchantability or fitness for purpose, accuracy and quality, of any such information.

The sending of information by you, and the receipt of it by 'Love for Life', is not intended to, and does not, create a professional-client relationship.

All Web Site Information is considered correct at the time of the web site's most recent revision.



The Cristian Family November 2006

Posted Wednesday 17th June 2009
Updated September 2011

NSW Jewish Board Of Deputies
Has Threatened To Shut Down
The Love For Life Website

No Freedom Of Speech - No Freedom Of Thought

Love For Life does not support harm doing in any shape or form. However, we are supporters of free speech and post articles, documentaries, etc, that represent a wide cross section of ideas. See the Love For Life extensive research library where over 6000 documents, articles and videos are posted: We clearly see the evidence of the destruction to MAN and the earth that has been caused by ALL religions over the centuries and are therefore not supporters of religions, cults, sects or any group that demands conformity of thought, speech or action, or has rules, regulations or rituals that must be followed. Religions, nationalities and cultural "identities" are formed as a result of the brainwashing we receive from childhood. They are part of the tactics the Establishment uses to keep us all divided from one another and fighting one another.

All religions promote discrimination and division, leading to hatred and even violence and murder. None of them have yet to produce a remedy to all the suffering, poverty, unhappiness and discrimination in the world. If any religion truly had the remedy to all the suffering on earth, there would no longer be any suffering. What have Christianity, Islam, Buddhism, Hinduism, Judaism, atheism and the New Age done to end the suffering in the world?

Since December 2006, there have been many attempts to take down the Love For Life website. Any attempts have been thwarted by Love For Life supporters inundating the harm-doers with emails, etc, objecting to them taking down the website for a variety of reasons. The trouble makers usually back off when they realise that they can post all their views, arguments, beliefs, etc, in the Love For Life website without censorship or restriction imposed. They get to see that even the Queen, Pope, Prime Minister, President of America, etc, can post all their views without hindrance or sabotage and that we support freedom of speech/thought which means we support the right of all sides to express their views.

Of note, there is a vast amount of information posted in the Love For Life website which we do not agree with but we leave it all up because we refuse to be biased, opinionated or self-centered/self-serving. Of the many thousands of comments posted over the years we have only removed posts containing secret links to commercial advertisements, terrible foul language, threats of violence and death, etc, and attacks on other people's characters that avoid the subject/debate at hand. Besides links to advertisements, we have taken down less than six comments due to the above. We usually leave everything up, all warts and all, even those posts threatening to do terrible things to Fiona, our children, our dogs, our friends, family & supporters, etc.

The Love For Life website has information from all sides on many subjects, whether about Islam, Judaism, Christianity, Law, health, psychology, mind control, vaccination, aspartame, MSG, Chemtrails etc. There are over 11,000 articles, documentaries etc on the website and they are so diverse that we are sure that everyone would be able to find something they loved and something they hated, if they took the time to search. If we removed all the articles hated by everyone, there would probably be nothing left! We are not anti anyone but freedom of speech is freedom of speech and no one should condemn the work of another without taking the time to research the subject themselves. Yes, there are articles by those who have a less-than-rosy-viewpoint of Judaism, but there are also articles on the dark side of Tibetan Buddhism (and it is very dark) for those who are interested in the truth: Tibet - Buddhism - Dalai Lama: Should the authors of these articles be abused and imprisoned for daring to challenge the widely conceived reputation of Buddhism as being the religion of peace and love and that of the Dalai Lama as a saint, or should those interested be allowed to study the work and come to their own conclusions? The same applies to all the articles, documentaries, etc, about Christianity, Islam, Freemasonry, New World Order, etc.

The Love for Life website also shows how the Rule of Law, the Bar, the Government, the Monarchy, the system of commerce, the local, national and multi/trans-national private corporations, all the courses and careers on offer from our universities, all the educators, scientists, academics and experts, the aristocrats and the Establishment bloodlines have also done NOTHING to end the suffering in the world. The website maps the insanity of a world where there is no help for those in need, just as there was no help available for us when we were victims of terrible bank fraud: "NSW Supreme Court Case - Macquarie Bank/Perpetual Limited vs Fiona Cristian - Victims Of Bank Fraud Condoned By Judges" (orchestrated, condoned and protected by an international crime syndicate/terrorist organisation of judges, barristers, registrars, lawyers, politicians, banksters, big business representatives, media moguls and other lackeys who, all together, put up a wall of silence despite our trying many, many avenues. After the family home was stolen and business destroyed we were left close to poverty and destitution caring for 4 young daughters. Three years later not much has changed regardless of all our efforts. Where were all the followers of all the religions to help us? Or do we have to be members of those religions to receive help from others involved in them?

The New South Wales Jewish Board of Deputies accused us of being anti - Jewish, see: and because we had posted an excerpt from James von Brun's book: Kill the Best Gentiles: in which he blames Jews for the problems of the world. Obviously this is not our view because of what we have stated above. We do not hate anyone, whatever religion they follow. We are always open to talk to any religious leader or politician and meet with any judge, member of the Bar, experts, academics, educators etc to share the remedy we offer that heals all the divisions between MAN and MAN, and MAN and the EARTH.

Today, a representative of the New South Wales Jewish Board of Deputies is threatening to close the website down, because they have decided it is anti - Jewish and that we promote racism. What has the New South Wales Jewish Board of Deputies done to end the suffering in the world? Can they show that they are concerned with the suffering of ALL men, women and children AND ARE SEEN TO BE DOING SOMETHING ABOUT IT or are they only concerned with Jewish affairs? If so, they, along with all the other religions that only care for their own, are part of the problem, not part of the solution. The man who rang Arthur today was only concerned with Jewish affairs; he was not interested in our intentions or in anybody else, just as most Christians, Muslims, Sikhs, Catholics, etc, are only interested in their own. While we separate ourselves into groups, dividing ourselves from others with rules, regulations, rituals, procedures and conditions, we will never solve our problems.

No matter what we in the Western World Civilisation of Commerce have been promised by our politicians, religious leaders, scientists, educators, philosophers, etc, for the past two hundred years, all we have seen is ever-increasing destruction of men, women and children and the earth. None of the so-called experts and leaders we have been taught to rely on are coming up with a solution and none of them are taking full-responsibility for the fact that they can't handle the problem. All religious books talk about end times full of destruction and suffering but why do we have to follow this program when there is an alternative to hatred, mayhem and death? Why are our leaders following the program of destruction and death rather than exploring the alternatives? It seems that any mainstream politician, priest or academic are only interested in supporting the RULES OF THE DIVIDE, that maintain the haves and the have nots. For 200+ years, 99% of the world population have been so trained to pass on their responsibility for themselves, others and the earth, that the 1% of the population that make up the leaders of the rest of us are making all the decisions leading to the destruction of all of us and the earth. Let's not forget the education system that brainwashes the 99% of the population that we are free and have equal rights while, in fact, we are feathering the nests of those at the top.

At the root of all our problems is self-centredness, an unwillingness nurtured by the Establishment that keeps us concerned only with our own needs rather than the needs of others around us and the Earth. Instead of creating and releasing acts of love for those around us as gifts to benefit them and the earth, we take, take and take, until there is nothing left. The whole point of the Love for Life website is to show people the root of all our problems and to share the remedy. The extensive research library is there to attract browsers and to provide access to information not available through mainstream channels. If the New South Wales Jewish Board of Deputies can, after careful examination of our work, prove that anything we are saying is wrong, we will be happy to accept their proof. If they cannot, and they are still insistent on closing the website down, they will be showing themselves to be traitors to MAN because they are not interested in pursuing any avenue that can end the suffering in the world.

All religions, corporations and organisations that support and maintain the Western World Civilisation of Commerce are part of the problem because our civilisation is a world of haves and have nots, racism, violence, hatred, poverty, sickness, discrimination, abuse, starvation, homelessness, corruption, collusion, vindictiveness, social unrest, arrogance, ignorance, fear, war and chaos. While we support civilisation, we support death and destruction because ALL civilisations that have ever existed are apocalyptic by design.

If we truly want peace on earth and freedom for all, we have to let go of all that which keeps us divided, and come together as MAN, conscious living co-creators of creation. The Love For Life website offers a remedy to the problems we all face in the form of DO NO HARM COMMUNITIES: For more details see here: and here: - We also highly recommend that everyone read the brilliant Russian books called The Ringing Cedars: - The Love For Life Website Homepage also provides lots of inspiring remedy based information: - If you want to be kept up to date with our work please register to the Love For Life Mailing List here: We usually send two postings per month. Presently (September 2011) there are over 7000 registrations reaching over 500,000 readers across Earth. The website now (September 2011) receives up to 12 million hits per month. Since December 2006, over 100 million people have visited the Love For Life website.

Conscious Love Always
Arthur and Fiona Cristian
Love For Life
17th June 2009

The Cristian Family November 2006

Clarification Regarding Our Intentions
Behind The Use Of Donations

The Love For Life website is offered for free without a fee and without any conditions attached. If people are inspired to donate money, then we accept their gift and have provided an avenue for them to support the work we do through Fiona's Paypal or ANZ bank account There is no obligation whatsoever to donate and all are equally welcome to our work and to our "time", whether they donate or not. Over the last 9 years, all the Love For Life work has been put out for free and it has often been donations from supporters that have enabled us to renew the domain name, etc, to keep the website going. While some complain that we have an avenue for donations, others complained when we didn't! Either use it or don't - the choice is yours.

Since Love For Life started March 2005 and website December 2006, Arthur has worked 16 hours a day, 7 days a week unpaid for much of this period, putting together the website and sharing insights to wake people up to what has been done to them, whether through the 11,500+ individual articles, videos, podcasts, debates, discussions, pdf's, research documents, etc, found amongst the 8,500+ posts, as well as helping many, many men and women over the phone, and through email, website correspondence, Facebook and YouTube, and creating the Love For Life food forest vege garden and Love For Life music recording studio. This is our life is a gift commitment to serve MAN/Nature/Earth but we are still severely compromised by "The System" and still have to give to Caesar what is claimed to belong to Caesar, which is where the donations help us.

Fiona & Arthur Cristian
Love For Life
21st July 2014