By Geoff Metcalf

Question: This is a complex issue, which is why I have been encouraging people to read your piece in WorldNet Magazine. Can you start us out with a basic "The Fed 101"?

Answer: OK. Eustace Mullins has a wonderful line in which he says the Federal Reserve System is not federal; there are no reserves; and, he says, "It is not a system, but a criminal syndicate." That is one of the more vituperous summations of the institution. And it's not unfair because there is a lot of truth in it.

Q: It's a cool scam!

A: Oh, it's the ultimate scam. This was a brilliant, brilliant swindle. That it has been so long-lived is remarkable, as are the results of what they have achieved with it. In the article, I try to walk the reader through the most basic elements of money and banking and then finance and currencies generally. But the real point that I hope readers will take with them is an understanding that this institution has cheated all of us of our citizenship.

Q: Why?

A: Because the Fed gives the government the power of creating unlimited debt.

Q: For those people who listen to my program on the Internet, I do a four-minute commentary at the top of each hour. This week I kind of cheated, and, to promote your visit, I have been reading from Congressman Louis McFadden's litany of rants in 1933. I had forgotten that he actually brought charges that are still sitting in limbo somewhere that nobody ever acted on.

A: That's right. He was a grand old gentleman, and it is a pity we don't have legislators today of his caliber or his determination to protect this country and our liberties. He was nearly the last of a breed, I am afraid.

Q: The Fed is one of several pet peeves we have given voice to on my radio program. Another is the 16th Amendment, and I've interviewed Bill Benson and Joe Banister, who, while still a badge carrying/gun carrying IRS agent, had his epiphany listening to me interview Devvy Kidd. All this bad stuff happened around the same time. I don't think that was mere coincidence.

A: No, it wasn't. John Maynard Keynes played a large role in the establishment of the International Monetary Fund, which is the international satellite of the Fed. This quote is from a book Keynes wrote after World War I called "The Economic Consequences of the Peace." In talking about a fiat money system, he had this to say: "Should government refrain from regulation/taxation, the worthlessness of the money becomes apparent, and the fraud can no longer be concealed." You see, it is a brilliant move psychologically, because we get our money, even though the notes are colored tickets with no inherent value. Nonetheless, it is our money. We receive money from our work and our investments, and it is the natural course of human beings to protect what they have. When the government wants some of our money in the form of taxes, we try to defend against that, and we are thereby in that act giving value to the money that it really doesn't have.

Q: It was fascinating because I hadn't read McFadden in probably five or six years, but he was one ticked-off ole goat when he was talking to Congress.

A: You bet!

Q: "Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the government of these United States and the people of the United States out of enough money to pay the nation's debt. The depredations and iniquities of the Fed have cost enough money to pay the national debt several times over." And that was just his warm-up. He was really upset, and obviously, he had cause to be. The huge frustration now is, with the exception of Rep. Ron Paul, does anyone really have a clue?

A: Some do. Sen. Phil Gramm does, for instance. He's head of the Banking Committee in the Senate. But really, the citizens' best bet is Ron Paul, who understands this issue top to bottom and always crosses swords with Mr. Greenspan in his annual testimonies. He is a brilliant gentleman and a great defender of the Constitution, and really, American citizens would not be able to own gold today were it not for Ron Paul.

Q: You touch on some of it in your WorldNet piece, and I remember it from reading "The Creature from Jekyll Island." Some of the games that went on with the framers of the Fed are frankly right out of an old dime-store novel.

A: (laughing) Some of it is. There's a fascinating detail that shows just how determined these people were. Jekyll Island was a private reserve of J.P. Morgan. They had built a club on the island, and a lot of Manhattanites would go down there in the winter for duck hunting. Later, several of the robber baron families built their private homes there. But in 1913, only J.P. Morgan's spread was located on this island off the coast of Georgia. They were so determined to maintain secrecy that every servant on the island was removed, and an entirely new staff of servants was hired out of Atlanta and brought to the island.

Q: About the only thing they didn't do was cut their tongues out after the meetings.

A: That's right. They didn't want them to be able to recognize the people there and to be confused about where they were and so forth. Those are the lengths they went to, the sort of extremes that they felt necessary to protect their scheme from exposure.

Q: A few days before the Fed passed, Sen. Root denounced the Fed as an outrage on our liberties. He predicted: "Long before we wake up from our dream of prosperity through an inflated currency, our gold -- which alone could have kept us from catastrophe -- will have vanished, and no rate of interest will tempt it to return."

You talk about prophetic!

A: We're on the verge of that today, I think sometimes. It's a fantastic scheme. It's just so fantastic. There have been other paper-money schemes throughout history, and all of them have collapsed. But because the United States was a young, dynamic country, we were able to fund this system off the prosperity and wealth that our ancestors created in the 19th century. Then, when we became a world power, we were able to keep this game going by exporting the inflation.

Q: We had central banks prior to the Fed. I remember President Jackson got rid of one of them.

A: That's right. In a titanic battle, he brought that to a conclusion. There was the First Bank of the United States founded by Alexander Hamilton, and that was succeeded by a Second Bank of the United States. That's the one that Andy Jackson put the kabosh on.

Q: Nikolai Lenin once said, "The best way to destroy the capitalist system is to debase the currency." Anne, please explain what fiat money is all about?

A: Fiat money is money that derives its value from a government edict.

Q: I'm king and say this piece of paper is worth something because I say so.

A: Right. And the first step to getting there is: I will accept this currency as “legal tender” for tax payments; then I move to making the issuance of the legal tender a monopoly, my government’s monopoly.

Q: Here's the weird thing. Congress has the authority to coin and mint money. Why would they give up something that powerful to the Fed?

A: Because the Fed gives them a scapegoat. We are constantly told it is so excellent that the Fed is independent because that way, the financial system does not become politicized. And just think, citizens, how terrible it would be if all those politicians were handling the money. We have our disappointments with the political class, so that makes sense -- but it really doesn't. The Fed allows the political class to use a private structure -- which is the banking consortium that actually owns the Fed -- as a scapegoat. No matter what happens, they can blame the Fed when times turn bad. And any action that the Fed takes, depending on whose ox is gored amongst the public -- exporters, importers, farmers, whoever -- their champions in the legislature can curse the Fed while their opposition cheers it.

Q: Congress is really a co-conspirator with the Fed.

A: Oh, sure!

Q: There are two things I want us to try to cover for sure. Readers can hopefully read the rest in your WorldNet Magazine piece. First, what the Fed is and what it does and doesn't do, and secondly, how this fiat money works. Fiat money is designed to fail.

A: It is designed for inflation. And that's another shibboleth we constantly are confronted with, that the Fed is a "hawk" on inflation. This statement is risible because ... what is inflation?

Q: It is too much money chasing too few goods.

A: And the only issuer of money in the United States is the Federal Reserve System. So, of course the Fed is the source of inflation. It is not a hawk against inflation, it is only a means to control inflation for the benefit of the financial elite.

Q: Allegedly, just before John F. Kennedy was killed, he had ordered the printing of a whole bunch of U.S. Notes that would not be Federal Reserve Notes. Would you care to comment on that?

A: That is the only conspiracy theory behind the assassination that makes complete sense to me; the others do not. When I heard it, I thought, yeah, that would do it, because of the power of the Fed. It is very hard for the citizen to imagine the power of this institution. And for the financial elite to be threatened, if indeed they were, it would then probably be worth knocking off a U.S. president.

Q: What if Congress were to disenfranchise the Fed and just take back the power to mint and coin money? What would happen?

A: If they were acting in unison, an effective method could be devised. But I don't think you can ever get to the point where a debate could lead to a consensus to act.

Q: Frankly, I don't think this Congress could agree on the sun rising in the morning.

A: Right. And you know, there were three attempts on McFadden's life.

Q: Only three?

A: Yes, and he died under mysterious circumstances, according to Eustace Mullins.

Q: I remember once upon a time I asked someone how come no one tried to take out Andrew Jackson, and I was told there had been an assassination attempt against him I wasn't aware of at the time.

A: So much motive. It was Rothchild who said, "I care not for a nation's laws, if you give me control of the money," because the money will drive everything. Nothing can touch you if you have control of the money. And this is why we are cheated as citizens, because we cannot discipline or control our government. Through the use of fiat money, the government has the power of creating unlimited debt. All we are reduced to doing in elections is deciding whether the blue team or the red team is going to get the patronage.

Q: I don't mean to get too professorial here, but what was John Locke's view of money?

A: John Locke's view was that money is property. And, therefore, since in the normal course of business a man lends money -- his property -- he must receive in return money of equal value if justice and commerce were to flourish. So this was a huge step historically because the people immediately agreed. In those days, the king would debase the currency by calling it in and reminting it, and each time he reminted it, he would take about 10 percent and replace it with a base metal in the coin. So the crown gained 10 percent, and the people lost 10 percent. Merchants would shave the coins and melt down the shavings.

Q: Actually, that's one of the reasons we have those ribs around our coins now.

A: That's right. The milled edge was to stop the coin shaving by merchants.

Q: You could end up with a quarter the size of a dime.

A: Right. (laughing) And if you examine old coins, you'll see where they were chipped away for whatever precious metal they contained. It was very common. In fact, the Fed is really exactly that same system in a modern dress, and institutionalized.

Q: Explain how wealth moves and is transferred. What actual function does the Fed have besides having Alan Greenspan scaring people once a quarter?

A: The Fed actually emits the money.

Q: How does it do that?

A: Usually by buying up old government bonds. The Treasury will issue bonds; people buy the bonds, and money comes into the treasury. That transaction takes money out of circulation. In order to emit money, the Fed reverses the action and buys back bonds. These transactions are done under the Fed’s Open Market Operations.

The Fed controls discount rates. The discount rate is what the Fed charges banks for loans, and thereby controls short-term rates for the economy. Long-term rates are set by the market. Even though setting the discount rate is said to be a relatively small tool, it is enough most usually to control the market, and more. When the Fed inflates or emits money, you have a lag before that effect hits the market or the economy of about 18 months. In the presidential cycle, the ideal situation is to start printing the money 18 months before Election Day. That way, you have a nice robust economy before the voters go to the polls.

Q: Give us a few examples.

A: Back in '75 when President Ford was told it was time to start printing money, being an estimable man, he said no; we don't have to. We've got a pretty good economy. I don't want to inflate. It will create a problem later. But Jimmy Carter came in and he wasn't going to make Ford's mistake, so he started printing money right away. He printed and printed money, and he got the system completely out of whack.

Q: Twenty-one percent interest rates.

A: Right. And there would be a point where you could actually see a headline in the Wall Street Journal that said, "Fed to expand money supply/Interest rates rise." That's how goofy it got. Then look at what George Bush did. George Bush thought he had victory in hand because he had 90 percent approval rating after the Gulf War. So he didn't need to inflate. Late in '92, he saw he was in trouble finally, and he called in Jimmy Baker. Jimmy Baker got hold of the Fed and said start printing money. But unfortunately, it was too late. The beneficial effects started hitting the economy in January, just in time for Clinton’s inauguration. So we see that the three men in recent history who chose not to inflate for their own re-election all lost. That's the power of the Fed. That's the way in which we are manipulated as voters.

Q: Back in 1941, there were some hearings in Congress, and Congressman Patman was talking to one of the Fed governors, and he asked him, "How'd you guys get that $2 billion to buy these government securities back in '33?" And the response was, "Out of the right to issue credit money." So Patman says, "And there's nothing behind it except our government credit?" And the answer was, Yeah. That's what our money system is. If there were no debts in our money system, there wouldn't be any money.

A: Yes, and that is where people are confused, because we are taught in our economics classes that money is a store of value, a unit of account and a means of exchange. But the Federal Reserve Note, which is what a so-called dollar is, is an instrument of debt, not of value.

Q: What ever happened to gold in Fort Knox?

A: No one is entirely sure. Fort Knox hasn't been audited in a very long time. Actually, most of the gold is kept in Manhattan underneath the New York Fed, and you can tour the vaults and see the gold holdings therein. When FDR confiscated all private gold in the United States, that gold eventually went to form the gold quota for the United States in the International Monetary Fund and also in something called the Exchange Stabilization Fund, which is under the control of the treasury secretary.

Q: Slow down a moment. Who is the sheriff who establishes the quota?

A: That happened originally at Bretton Woods in 1944 at a multinational conference which was called in order to restructure the international financial system. The United States has the largest membership in the IMF. We control about 18 percent, but it's enough for us to control the entire institution. And each nation when they join the Fund has to put in so much gold and so much currency. So, the gold that the United States contributed was provided by our ancestors after FDR confiscated it from them.

Q: I have been talking to assorted experts about this stuff for over a decade, and the one thing I have never fully understood is why the political leadership -- who care more about power than anything else -- would give up Article I, Section 8, Paragraph 5? That's a heavy hammer.

A: Yes, but it is an opportunity also, because by having given it up they can now dream up programs to benefit their particular constituencies which all taxpayers end up funding. All they have to do is have Treasury sell government bonds. The politicians get votes from their respective client groups, and the entire population gets the debt. They don't have to come to us, the citizens, anymore and ask for funding.

Q: How did they sell this snake oil to the American people?

A: After Andy Jackson finally shut down the Second Bank of the United States, the bankers did not stop scheming, nor did the financiers. Throughout the Civil War there was great profiteering as one might expect. Lincoln brought in a greenback that was a just a fiat money, but the nation returned to the gold standard some years after the Civil War. There was an ineffective system instituted. It was sort of a halfway house to central banking called the National Banking System. The idea was that big national banks would police the smaller state banks. Of course, no one policed anyone, and because of dishonest banking, panics and breakdowns were rampant in the system. This was very unsettling to the population.

Q: So the people would rather have managed panics and breakdowns?

A: They thought, and they were told, they would escape this because of the Fed’s managed system, and even better they would get an “elastic” currency that could accommodate America’s dynamic business development. In fact, it's interesting that because on the gold standard, prices actually fall year to year as economic development occurs. The “static money” argument is a red herring. In the late 19th century, we were on the gold standard and there was an explosion of wealth and prosperity for people. So the bankers stepped in, and it is believed they organized the panic of 1907 to bring back the bad memories just as they began a campaign to establish the Fed.

Q: It's beyond "believed." Isn't it pretty clearly documented?

A: Yes. And by the way, one reason Congressman McFadden was so exercised in those congressional hearings you’ve been quoting from is because when the Fed was established, not all banks belonged to it. There were still independent country banks. In 1920, the Fed raised interest rates unexpectedly and unnecessarily with the result that the artificial contraction of credit put thousands of banks out of business and bankrupted thousands of formerly prosperous farmers. That was to coerce independent people and banks into the system.

Q: Some folks ask if it is better to have a government-controlled system or a privately controlled system.

A: What you want is a private banking system. You don't really want the government in it. The government should be responsible to fulfill the biblical edict of "ye shall have honest weights and measures." Government should set the standards and then let the private bankers compete for market share within the confines of the gold standard. We, the customers of those banks, should be responsible to be attentive to our banks' business and bottom line. And as the banks compete against one another under the natural restrictions of the gold standard, honesty and sound banking are rewarded by an increasing market share.

Q: The inevitable question that comes up whenever we talk about the ubiquitous, nefarious and noxious Fed is: What can we do about it?

A: It's such a huge system and so many people live off of it now. The political class has been completely corrupted by this ability to spend and spend, and they are no longer dependent on us to get the money for their operations. The problem is the same one you have with taxation arguments -- complexity. Both the Fed and the tax code are extremely complex.

Q: They treat us like mushrooms. They keep us in the dark and feed us B.S.

A: Right. The public is overwhelmed with propaganda and conflicting statistics whenever any changes are proposed. We're a busy people. We can't focus on these issues to give them their proper due, so when the arguments begin, honest reformers are easily defeated. My idea of how to end this abusive system is to end withholding.

Q: Why do you say that?

A: Because when the citizen has to sit down once a year and write a check to the government himself directly, you will suddenly change the character of this country. At that point, people will start paying as much attention to the cost of government as they do their garbage collection service. And then people will start asking questions and demanding some results.

Q: Recently, I spoke with a woman about the national retail sales tax and the figures she offered about the "imbedded cost" of the government, the key thing being "imbedded." She claims it's about 23 percent, and you never see that. People just accept it because they are not compelled to sit down and write a check for it.

A: In fact, very often they get a check back from the government, so they think of the Internal Revenue Service as a sort of savings institution, and the government as their benefactor.

Q: The propaganda the Fed uses so routinely -- this isn't an anomaly that just happened. Before Jekyll Island, these guys were master propagandists.

A: Oh, yes. In the late 19th and early 20th century, not very many of our universities offered a Ph.D. So many of our academics were actually completing their education in Germany. Germany had built a great social state under Bismarck, and these academics became admirers of Bismarck. When they returned to the United States, they encountered an economy that needed only so many people who could speak classical Greek or perform abstract mathematics, for instance. They needed jobs, so an unholy alliance between tremendous wealth and academia was formed. These so-called scholars, mostly historians, economists and social scientists, became the mouthpieces for a “reform” of the banking system.

Q: I've got to ask you about Alan Greenspan. I know the guy is a company guy, bought and paid for. But he used to hang out with Ayn Rand, and he even wrote an article for one of her books about a quarter of a century ago on the gold standard.

A: He sure did.

Q: So what's the deal with him? Is he just totally co-opted?

A: Dr. Gary North wrote a wonderful piece about Greenspan called "Jazzman." Greenspan is an improviser. We can see this in his early career. I believe he played with Benny Goodman.

Q: I didn't know that.

A: Yes. He studied at Juilliard, then he moved to economics. He did not finish his doctorate. He went to work as an economist on Wall Street. He has gotten honorary doctorates subsequently, of course. While he was on Wall Street, he came under the influence of a man named Arthur Burns, who was a former Fed governor under Nixon. He was from the Viennese school of economics, and he believed that the economy was best controlled through monetarism -- the supply of money. Milton Friedman is the more famous proponent of monetarism. Alan Greenspan became Burns' protege. So I think he got a taste for money and power and forgot all about the gold standard and Ayn Rand. Although to this day, he does pay lip service to the gold standard. But it's like the politician talking about a tax cut -- we'll go back to the gold standard when the debt is paid off, and on that happy day we’ll have a big tax cut too.

Q: It's like a politician talking about ethics.

A: Exactly. When the debt is paid and we have prosperity for all, then we'll return to the gold standard.

Q: The emperor has no clothes.