Angelena Iglesia

__________________________________________ THE FEDERAL RESERVE SYSTEM: A FATAL PARASITE ON THE AMERICAN BODY POLITIC by Dr. Edwin Vieira, Jr. FORWARD Dr. Edwin Vieira, Jr., has condensed into this Monograph the substance of addresses he has given to small groups that represent a cross-section of American citizens concerned with fundamental […]



Dr. Edwin Vieira, Jr.


Edwin Vieira, Jr.,
has condensed into this Monograph the substance of addresses he
has given
to small groups that represent a cross-section of American
citizens concerned
with fundamental monetary and banking reform.

Vieira’s purpose
is to present an analysis of the Federal Reserve System, its fiat
paper currency, and “fractional-reserve” banking that
infrequently, if ever,
appears in the popular press, in the media, in the discourse of
or political candidates, or (worse yet) in the nation’s schools.
This analysis,
however, is crucial to popular understanding of what the Federal
System is, what it does, and the dangers it poses to America’s
economy and
republican institutions of government. And such an understanding
is crucial
to sweeping legislative or judicial reform of the monetary and
banking systems
– hopefully, before the Federal Reserve System causes an
and social catastrophe; but, if not, at least after such a
catastrophe makes
painfully clear to every thinking man and woman the urgent
necessity of such
reform along constitutional lines.

Vieira’s central
theme is that today’s scheme of Federal-Reserve-System fiat
and fractional-reserve banking is plainly unconstitutional,
fraudulent, economically unworkable in the long run, and
subversive of America’s
political traditions of individual liberty and private
may appear, at first blush, a harsh indictment of a system in
existence since
1913, and which the vast majority of Americans apparently
accepts (albeit
on next to no real knowledge). But, harsh or not, it is an
indictment substantial
political-economic theory and historical evidence support.

Dr. Vieira’s
message will prove to be a warning that comes, if none too soon,
at least
not too late.


L. Solyom,

Sound Dollar Committee

the press,
the media, and major political figures never mention it the
cause of the financial dangers facing America today is the
incestuous relationship
between the national government and the quasi-public,
but largely
private banking cartel deceptively called the Federal Reserve
System (FRS).
Although historians can state with little difficulty when
stages in the establishment and evolution of the FRS took place,
understanding what the FRS has done to America’s money,
and how and why the FRS has done it, is not
quite so easy. Rather, it requires careful attention to certain
critical details of American monetary and banking theory and
that are usually forgotten in discussions of the problems the
FRS has caused.

contemporary debate on the FRS focuses on whether what people
call the
“dollar” should, in some way, be “linked to” or “backed by” gold
or another
valuable commodity. The fundamental, un-examined, and utterly
fallacious assumption
in this debate is that the paper currency the FRS generates, the
Reserve Note (FRN), is, as a matter of fact and a matter of law,
a “dollar”
at all. As American constitutional law and history show, the FRN
is not a “dollar”, has never been declared by Congress to be a
“dollar’; and could never be an actual “dollar” notwithstanding
all the statutes or resolutions Congress might enact. Rather, as
cited in the Constitution and as historically defined in the
Coinage Act of 1792, a “dollar” is a specific coin containing
371-1/4 grains of fine silver. Very simply put, the Constitution
fixes the
monetary unit of the United States as this (silver) “dollar”,
empowers Congress
to coin silver and gold coins the values of which are to be
“regulate[d]” in relation to the “dollar”, prohibits any
government from issuing what the
Founding Fathers denominated “Bills of Credit” (and what we
today would understand
as paper currency redeemable in silver or gold), and outlaws any
form of
“legal tender” except silver and gold coins. Thus, from the constitutional
perspective, it is literally senseless to talk about making the
“dollar” redeemable,
or adopting a “silver-” or “gold-backed” “dollar”. And
that such debate
as occurs on the FRS and the FRN fixes on this senseless point
how confused the American people are concerning their own
monetary system.

the “dollar” constitutionally, however, is only the first step
explaining the real problem the FRS poses. Three other matters
require careful

the evolution
of the FRS exemplifies the typical historical devolution – or
– of monetary systems throughout the world in the last two
centuries from
commodity money, to fiduciary money, to fiat
Here, accurate definitions of various forms of money are useful.

    A commodity money is a medium
    of exchange the units of which are fixed amounts of an actual
    commodity that
    has value other than as money alone. Historically, silver and
    gold coins
    of known, standard weights and designs have emerged as the
    preferred commodity
    monies of the entire civilized world. In the case of a
    commodity money, the
    actual commodity – silver or gold – is both the medium of
    exchange and the
    standard of value (that is, the unit in which prices are
    stated in the marketplace).
    The supply of commodity money is self-limited by the costs of
    mining, refining,
    and coining silver and gold. New supplies of commodity money
    will be coined only to the extent that coinage is economically
    profitable in comparison to
    alternative investments of the capital needed to mine the
    precious metals.

    A fiduciary money is a medium
    of exchange composed of some intrinsically valueless substance
    (such as paper)
    which the issuer promises to redeem on demand in a commodity
    money (such
    as silver or gold coin) or in a monetary commodity (such as
    silver or gold
    bullion). Historically, private bank notes and government
    treasury notes
    were fiduciary monies in general circulation prior to the
    1930s. In the case
    of a fiduciary money, the paper promise to pay is the medium
    of day-to-day exchange, but the actual money and the
    ultimate standard of value
    remains the promised medium of payment, the silver or
    gold coin with
    which the note is to be redeemed. The supply of a fiduciary
    money is also
    self limited by the requirement of redemption. In a free
    market system
    new supplies of a fiduciary money will be issued only to the
    extent the issuer
    is confident it can satisfy demands for redemption of its
    notes in a commodity
    money. The condition “in a free-market system” is crucial,
    because the self-limiting
    aspect of fiduciary money historically has failed in an
    economic regime in
    which the government or powerful private interests license the
    issuers of
    fiduciary monies to suspend or repudiate entirely their
    promises to redeem
    those monies on demand in coin.

    Finally, a fiat money is a medium
    of exchange composed of some intrinsically valueless
    substance which the
    issuer does not promise to redeem in a commodity or
    a fiduciary money.
    Because a fiat money has no direct legal connection
    to a commodity
    money (in terms of redemption) and, therefore, no real
    economic cost to its
    production, the supply of a fiat money can never be
    and the value of a fiat money is always largely a
    matter of public
    confidence in the economic or political stability of the
    issuer. For these
    reasons, historically every major fiat money have
    in what is popularly called “hyperinflation” (that is,
    extreme decreases
    in purchasing-power) caused by either unlimited increases in
    the supply of
    that fiat money by the issuer or accelerating loss
    of public confidence
    in the continued value of the money or the economic or
    political fortunes
    of its issuer, or both.

Second, the
theory and history of fiduciary money (which is also
largely the theory and history of
banking) must always focus on the ever-present problem
of redemption.
Emphasis on the noun “problem” is warranted, because a fiduciary
money is,
by definition, a promise to pay the real, commodity
money of the country.
A piece of commodity money – typically, a silver or gold coin -
is itself
payment because it contains a fixed weight of precious metal.
But a unit
of fiduciary money – typically, a bank or government-treasury
note – is only
a contingent and uncertain payment that depends upon the
ability or
the willingness
of the issuer to redeem. And there always
exists a temptation
for issuers to renege on their promises to redeem. Thus, fiduciary
money always threatens to become fraudulent money. Not
therefore, the history of fiduciary money has been more or less
the history
of monetary fraud, both economic and political.

the danger
of fraud in the issuance of fiduciary money becomes particularly
acute in
the case of modern “fractional-reserve banking”. Under
fractional-reserve banking, the bank always issues more
units of fiduciary money, supposedly “payable on demand”, than
it has units of commodity money available for redemption,
counting on the unlikelihood that the majority of its customers
will ever
seek redemption at one time. Thus, modern fractional-reserve
banking is inherently
, because:

    For the bank simultaneously to fulfill all its
    promises to redeem its outstanding notes “on demand” is impossible.

    The bank’s managers know that
    complete redemption “on demand” is impossible, and therefore
    that the bank’s
    promises to pay are false. And,

    The bank’s customers, by and large,
    are ignorant of how the fractional-reserve scheme works, and
    the dangers
    it poses to them.

Fully to comprehend the significance of the FRS also requires
recognition that no such
thing as “politically neutral” or “politically independent”
money exists.
For, ultimately, money is a medium both for storing wealth and
for exchanging
wealth. Thus, money is both itself a form of property and a
mechanism for
implementing contracts that transfer other kinds of property
from one party
to another. So, even in a free-market economy with a limited
money exhibits a necessarily political character, inasmuch as
the degree
to which the government protects the monetary system from
private fraud and
public looting reflects the degree to which the government
respects and protects
private property and the right of private contract. A
free-market economy
will have one kind of money; a “mixed” or “fascist” economy,
another kind
of money; a “socialist” economy, yet another kind; and so on -
but in each
case, the monetary system will accurately reflect the values of
the political

once again, the
contemporary debate over whether and to what degree the FRS
should be “politically
independent” of Congress and the United States Treasury is badly
Originally, the Constitution made Americans’ money independent
of electoral
politics, by fixing the monetary unit as the (silver) “dollar”,
“Bills of Credit”, and allowing only silver and gold coin to
operate as “legal tender” in the payment of debts. But the
Constitution is itself the basic political charter of
the country – so, far from making money “politically
independent” or “politically neutral”, the Constitution
actually settled
on one, very specific political formula for money: namely, a
commodity money
of historically proven intrinsic value, the supply of which
the political authorities could not manipulate at will.

of the FRS
in 1913 did not render FRNs “politically independent” or
“politically neutral”,
but merely changed the political character of the monetary
system by empowering
a small, un-elected clique of self-professed “experts” and
self-interested bankers and politicians to control the supply of
FRNs, interest rates, and
other monetary and banking phenomena. Thus, as contrasted with
the constitutional
system, the FRS actually politicized money, by enabling
administrators, and a few selected special-interest groups to
exercise the
very influence over this country’s monetary and banking systems
that the
Constitution had originally disallowed.

tend to accept
the description of the FRS as “politically independent” because,
control of the monetary and banking systems has serious
political significance,
the apologists for the FRS have been successful, over the years,
in removing
monetary and banking issues from the agenda of political parties
and candidates and stifling public discussion of those issues.

    It is of vital political importance
    that no major political movement now advocates the immediate
    of America’s original constitutional monetary system of silver
    and gold coinage.

    It is of vital political importance
    that no major political movement demands that all the paper
    currencies of
    private banks be true fiduciary monies – that is, be
    redeemable in silver
    or gold, or some other commodity with intrinsic value.

    It is of vital political importance
    that no major political movement attacks inherently
    fraudulent fractional-reserve

    It is of vital political importance
    that no major political movement denounces the incestuous
    and corrupt relationship
    between the national government and the banking industry
    through the FRS,
    the Federal Deposit Insurance Corporation, and so on.

    It is of vital political importance
    that no major political movement challenges the government’s
    use of the monetary
    and banking systems to “regulate” the economy and to impose
    pervasive police-state
    surveillance on individuals.

    It is of vital political significance
    that the short-run effects of the FRS’s monetary and banking
    policies are
    very unclear to the average American, and that identifying
    in the long run
    who gains and who loses, what is gained and lost, and why
    all this happens
    is also very difficult for even economists and political

    It is of vital political significance
    that members of Congress apparently lack incentives – or
    actually labor under disincentives – to investigate,
    let alone to correct, the misguided
    and harmful policies of the FRS. And,

    It is of vital political significance
    that the general public is simply unable to devise effective
    strategies for
    dealing with the FRS as a supposed “agency of the

Obviously, a group that
could completely excise these matters from political discourse
in the United States, without complaint by any significant part
of the public, must be powerful indeed. Now, how the
apologists for the FRS have been successful since 1913 in
stifling political debate on money and banking the history books
do not
satisfactorily explain. What is clear enough, nonetheless, is
that the FRS was established to remove the Constitution as
the arbiter of national monetary policy on behalf of all
Americans, and to guarantee instead that certain
special-interest groups are disproportionately (indeed,
monopolistically) represented in the determination of that
policy, for the peculiar benefit of those groups and at
everyone else’s expense.
Here, more than one level
of analysis is pertinent.

the first level, the FRS appears as primarily a mechanism to
the inherently fraudulent fractional-reserve banking system.
From this perspective, the purpose of the FRS is not
necessarily to do what the bankers want, but always to do what
they need.
Consider the devolution of the monetary system
from a regime of commodity money to one of fiat money:

a regime of commodity
money, the bankers employ the inherently fraudulent
fractional-reserve system to expand the supply of fiduciary
money (that is, bank-notes and deposit-currency) beyond the
supply of commodity money (that is, gold and silver coin)
available for redemption. This has two effects.

1. The
bankers can loan more
“money” than otherwise, thereby increasing their profits. And

2. The holders of
the fiduciary money become unknowing (and presumably
unwilling) “partners” with the bankers in
these excessive loans, thereby spreading the risk of those
loans throughout society and indirectly “insuring” the
bankers at the expense of the general public.

Because the expansion
of the supply of
this inherently fraudulent fiduciary money is limited by the
possibility of
widespread demands for redemption (so-called “bank runs”),
followed by bankruptcy
of the issuing banks, the bankers as a class support a series of
steps designed
to insulate the fractional-reserve scheme from collapse.

use every available means of propaganda, agitation, and
disinformation to
instill unjustified confidence in the holders of fiduciary
money, so as to
minimize redemption and thereby facilitate ever-greater
expansion of the
supply of that money. Underfunded “deposit-insurance” schemes
(either private
or public) typify this deceptive tactic.

if “bank
runs” do occur, the bankers importune the government to
authorize “suspensions
of specie payments”: temporary refusals on the part of the
issuers of the fiduciary money to redeem their notes with
commodity money. This permits the
bankers to remain in business even though they are bankrupt.
“Suspensions of specie payments” are a key indicator of the
breakdown of the free-market economy, because they are a
governmentally protected repudiation of contracts – in effect, governmentally
licensed theft

to prevent
“bank runs” altogether, the bankers lobby for governmental
permission to
repudiate their fiduciary money totally and permanently – that
is, to transform
their fiduciary money into fiat money. This generally
requires that
the government activate some mechanism for the “forced
circulation” of the fiat money, such as

    by making that money the unit for payment
    of taxes and for public expenditures;

    by declaring that money “legal tender”
    for all debts; or

    by outlawing contracts payable in any
    other form of money, especially commodity money.

These steps substitute
the government – actually, the taxpayers – for the banks and
their shareholders as the ultimate
guarantors of the fiat money, in return for which the
banks agree
to two requirements:

1. They
“monetize” the public debt, in effect enabling the government
to use the fiat-money system as an instrument of taxation.

2. They cooperate
in a cartel or other
self-regulatory scheme to control their expansion of the
supply of fiat currency within limits that maintain
public confidence in the banking
system and the government.

In short, the
government and the banks
agree to divide the amount that can be looted from the general
public by
manipulation of the money supply, and to moderate that looting
so that the
public never catches on.

FRS is simply an
elaborate device set up to accomplish these rather simple ends
in a highly
convoluted, and thereby deceptive, way. The FRS was the response
of bankers
and their political cronies to decades of failures in the
banking system at the local and regional levels throughout the
United States.
The FRS was an attempt to maintain that system in perpetuity -
first, at
the national level with the Federal Reserve Act in 1913, and
then at the
international level with the Bretton Woods Agreement in 1944.
“Was” is the
appropriate verb, because the Bretton Woods Agreement collapsed
in 1971,
with President Nixon’s repudiation of redemption of FRNs in gold
and mounting strains in the system have been appearing
domestically since
the 1970s.

key dates in the
devolution of the FRS are as follows:

    1913 – Congress
    creates the FRS; permits
    the emission of FRNs, redeemable in “lawful money”; and
    declares FRNs to
    be “obligations of the United States”, but not “legal
    tender”. In
    practice, the Federal Reserve Banks and the United States
    Treasury redeem FRNs for gold coin on demand. FRNs are a fiduciary

    1933 – Congress
    repudiates redemption of FRNs in gold for United States
    citizens, and declares that FRNs shall be
    “legal tender”. The government continues to redeem FRNs in
    gold for foreigners;
    and United States citizens can redeem FRNs for “lawful
    money” (such as United
    States Treasury Notes and silver certificates), which is
    redeemable in silver
    coins. Therefore, FRNs remain a fiduciary currency,
    redeemable directly in
    gold internationally and indirectly in silver domestically.

    1968 – Congress
    repudiates redemption of all forms of “lawful money” in
    silver, thus turning FRNs into a fiat currency
    domestically for the first time.

    1971 – President
    Nixon repudiates redemption of FRNs in gold, thus turning
    FRNs into a fiat currency internationally for
    the first time.

So, today, Americans
suffer under a regime
of fiat money and unlimited fractional-reserve banking.
In this system,
the FRS plays a very simple, but vital role: When public
confidence in the
monetary and banking systems weakens, the FRS acts to “restore
confidence”. The FRS may use what the public considers “drastic
means” in this alleged “fight”, but never means so drastic that
they precipitate genuine economic collapse or seriously endanger
the long-term interests of the banking cartel, its satellite
industries, and its political cronies.

unavoidable problem,
of course, is that any system of fractional-reserve banking
suffers from
inherent instability that increases over time, because
at base fractional-reserve banking is a kind of “Ponzi” or
“pyramid” scheme. For that reason, fractional-reserve banking is
a “confidence game” in both senses of that term. The FRS, the
cartel, and the politicians of the American one-party system
operate on the
theory that “You can fool all of the people some of the time,
and some of
the people all of the time – and that’s good enough!”
But they forget
that, as Lincoln concluded, “You can’t fool all of the people
all of the
time.” Over time, some people – often large numbers of them – do
learn. And
people who have learned tend to act on their knowledge. So the
lifetime of the FRS “confidence game” may, and likely will, be

a higher level of analysis, the FRS is not simply a
for the national banking cartel, but also one of the most
important mechanisms
in a pervasive system of fascistic “economic regulation” that
has been set
up in this country, slowly but surely, since the turn of the
century. This
explains the “political independence” of the FRS in a way more
logical than
the idea that money and banking are no longer politically
important, divisive, or even interesting subjects. If a
fascistic state is to “regulate” the economy
with relative autonomy from the electoral public and most
special-interest groups, then its monetary agency must
claim “political independence”. (Actually, in a fascistic state,
all of the regulatory agencies must
claim “political independence” to some degree – which claim, not
surprisingly, is advanced by essentially every administrative
agency of the national government
today. But the degree of “political independence” will vary with
the importance
of the agency to the overall scheme of centralized regulation of
Thus, the “political independence” the FRS claims is precisely
were it part of an anti-democratic mechanism of economic
and political
control. And that no constitutional branch of the national
– not the Congress, not the President, and not the Judiciary -
disputes the
FRS’s supposed “independence” proves that those branches, too,
have been
co-opted as agencies of the fascistic state.

sum, contemporary
political money and the politicized banking system that
generates it have
five major consequences:

First, modern political money
is the prime means by which the government operates a scheme
HIDDEN TAXATION through increases in the supply of money that
generate systematic
increases in the prices of goods and services (what the public
calls “inflation”).

Second, by operating as a system
of hidden taxation, modern political money licenses the
dominant financial
and political oligarchy of this country to “REDISTRIBUTE”
from one group to another – more than $6 trillion since
World War II, according
to the American Institute for Economic Research.

Third, by functioning as a mechanism
for “redistributing” wealth, modern political money
THE ELECTORAL PROCESS, enabling politicians to buy votes
with promises of
new or expanded governmental spending-programs made possible
only by the
banking system’s ability to “monetize” the public debt.

Fourth, by linking the banking
system to the public debt, modern political money licenses
the banks to LOOT
THE PUBLIC TREASURY, initially by guaranteeing FRNs as
“obligations of the
United States” and specially privileging those notes as
“legal tender”, and
ultimately by providing taxpayer-funded “bail outs” of the
bankers when the
scheme of inherently fraudulent fractional-reserve banking

Fifth and last, modern political
money and political banking function as key mechanisms in
the scheme of FASCISTIC
CENTRAL ECONOMIC PLANNING that misdirects and wastes
resources and thereby
lowers the standard of living of the vast mass of Americans
for the benefit
of a privileged few.

Although long
a powerful – and today still a politically untouchable -
institution, the
FRS faces a dismal future. This can be assessed by considering
the contemporary
political-economic conditions that have given rise to the
problem of collapsing
domestic banks.

first of these conditions is the essentially fictional and
nature of modern paper money and
fractional-reserve banking.

fictional and fraudulent
character of contemporary paper money is a demerit additional to
the inescapable economic disparity between all paper money and
real money (that is, silver and gold coins). Paper money can
never be economically equivalent to real money because:

    A transfer of real money between two
    persons immediately transfers a real asset: the silver
    or gold that
    comprises the coins.

    Unlike real money (which is itself
    the monetary substance), paper money is merely a promise
    to pay
    money at some future date, subject to various contingencies,
    and always uncertain.

    For that reason, a transfer of paper
    money between two persons does not and cannot transfer the
    underlying monetary
    asset immediately, only the promise to pay – that is, the liability
    of the maker of the promise. And,

    In as much as the promise may be more
    or less secure due to the credit-worthiness or -unworthiness
    of its maker,
    a transfer of paper money transfers not only a claim to the
    underlying real
    monetary asset but also a risk of loss should the
    promise of payment
    (redemption) not be honored, in whole or in part.

In short, even when
paper money is actually a promise to pay – and potentially fully
redeemable in silver or gold – it
remains an asset to its holder only to the extent that the
issuer of the
promise ultimately makes good on his liability to redeem, or
that other people
are themselves sufficiently confident of the promisor’s solvency
to accept
the paper money at its face value in exchange for nonmonetary
goods and services.
In the final analysis, paper money is an asset only if it can be
cashed or
passed without loss in purchasing power as against real money -
which the
holder of paper money can determine only when he actually cashes
or passes

In the
United States,
for example, today’s fiat paper currency is neither
itself a valuable
commodity nor even a credible promise to pay a valuable
commodity in redemption. No holder of FRNs has any legal right
to require that the Federal Reserve Banks or the United States
Treasury redeem them for any amount of any commodity. And no
holder of these notes has any legal right to compel any other
ordinary person to exchange a fixed amount of any good or
service for some known nominal
value of this currency proportional to some weight of silver or
gold. Indeed,
notwithstanding the statutory mumbo-jumbo mandating their
redemption “in
lawful money”, guaranteeing them as “obligations of the United
States”, and
declaring them “legal tender” for all debts, the most a holder
of FRNs can
demand as a matter of law is that the national government
receive them in
discharge of tax-liabilities. Thus FRNs are largely fictional
money: for
they are, in fact and law, a medium of exchange certain
exchanges of which
are absolutely refused by their issuers and conditionally
refused by everyone
else in the marketplace, and which the government accepts only
to set off
antecedent tax-claims the size of which it unilaterally
determines in the
first instance. FRNs are, really, just tax-anticipation
as money.

“reserve” banking is, not merely “fractional”, but rather
inherently fictional.
For no bank in the FRS maintains any real “reserves” of
money, only paper notes or bookkeeping-entries that the system
can “create out of nothing”, at any moment and in any amount -
but the purchasing power of which in real
money (silver or gold) or in any valuable commodity the system
cannot guarantee
at any time or to any degree.

the essentially
fictional character of contemporary fiat paper currency
and “reserve”
banking is the source of their inherent fraudulence – because
the fiction
is unknown to (indeed, carefully hidden from) the general
public. The special
privilege of the FRS to emit unlimited amounts of irredeemable,
paper currency, and to loan that currency at interest through
the system’s
commercial member-banks, amounts to a veritable license to
because the general public is unaware of the economic
significance of the
currency’s irredeemability, and ignorantly assumes that its
designation as
“legal tender” compels its use as a medium of exchange to the
exclusion of
all other forms of money.

abjectly fictional
nature of modern paper currency and fractional-reserve banking
the question: why do fiat FRNs continue to circulate,
and banks without
any real monetary reserves continue to function? Those who
accept the theory
that “money” is whatever the government decrees would answer
that FRNs (or
bank-deposits denominated in FRNs) have value as media of
exchange in the
marketplace because people must acquire them in order to pay
their taxes.
The obvious fallacy here, though, is that the government accepts
of taxes in FRNs precisely because those notes have a finite
in the market, and therefore are usable as “money” by the
government. It
is not the present and future taxability of the notes that gives
them their
market exchange-value, but their residual market exchange-value
that renders
them viable as a medium of taxation. One must recall that FRNs
were originally redeemable, directly or indirectly, in gold
coins, silver coins, or both. For that reason, FRNs had a real
exchange-value in the market that reflected their underlying
redemption-values in gold or silver, and depended not at
all on their use as a medium of taxation but indeed made them
valuable for
that purpose. When FRNs became wholly irredeemable after
1968/1971, they
lost any fixed or predictable market exchange-value in terms of
real money,
and therefore became of increasingly uncertain value as a medium
of taxation,
too (at least to the extent they continue to depreciate in
market exchange-value,
as they have, steadily, since then).

A more
realistic explanation
for the continued circulation of FRNs (or bank-deposits
denominated in FRNs) as “money” is that the general public is
the victim of a confidence-game, in which the government and the
banks have foisted off paper liabilities in
the place of real monetary assets in an inverted pyramid of
monetary fraud
At the tip of this upside-down pyramid are real “dollars”:
silver and gold
coins that are themselves monetary assets and no one’s
liabilities, and circulate
among those knowledgeable about the differences between real
money and paper
money. Next in amount in circulation – and at the first level of
the institutionalized
fraud – are the base-metallic token (or “clad”) coins of
cupro-nickel alloy.
These are monetary assets to the extent of their salvageable
metallic content
– which is worth about 2% or less of their face values – , but
are liabilities of the government which at one time were
redeemable in silver,
but are today wholly irredeemable. The next largest fraudulent
medium consists of actual FRNs, today “redeemable” only in
“clad” coins.
Finally, the greatest portion of the so-called “money supply”
consists of
bank demand-deposits, most of which have been loaned at interest
to persons
other than the depositors. Revealingly, not only are these
purported deposits
not actually on deposit in the banks at all, but also the
deposits are not
even formally “redeemable”, because the deposits themselves are
not the depositors’
“money”, but the banks’! The deposits are loans of money
the depositors
(many of them unknowingly) have made to the banks, and which the
banks have
then further loaned to third parties.

how many people
are aware of this situation? Why do the government and the banks
not educate
those who are unaware of what is really going on – other than
because the
government and the banks knowingly profit from public ignorance
and therefore
intentionally promote it? And how long can such a swindle

question highlights the second of the contemporary
conditions that underlie the problem of collapsing domestic
banks: namely,
the inability of the banks to continue indefinitely to increase
the supply
of money within the domestic economy, that is (as the saying
goes), to “expand
credit” (because the supply of new money derives from the
extension of bank-credit to borrowers). The answer to the
question “How long can this confidence-game last?” is “Not
If, on the one hand, the banks overly expand
credit, hyperinflation occurs (that is, the purchasing-power of
monetary unit falls exponentially). If, on the other hand, the
banks overly
restrict the expansion of credit in order to avoid
hyperinflation, recession
and then depression occurs (that is, people borrow less, and
then existing
borrowers in massive numbers default on loans). The bankers’
“trick” (and
dilemma) is to continue to expand credit within an expanding,
and therefore
essentially noninflationary, economy. The insoluble problem
inherent in credit-expansion
through fractional-reserve banking, however, is that expansion
of a fiat
money supply inevitably misdirects and wastes real economic
resulting in an increasingly nonrational economy – that is an
economy that
does not expand in real terms. In short,
credit-expansion by
fractional-reserve banking in the long run guarantees
economic collapse,
with resultant social chaos and political crisis.

crystal ball is
necessary to predict that a turning-point in the history of
money and banking
in the United States is drawing nigh. The burden of governmental
debt – much
of it made possible only by central-bank “monetization” – has
levels unsustainable in real terms even with drastically
increased confiscation
of Americans’ earnings through explicit taxation. But Americans
seem reluctant
to accept more taxation to fund the never-ending follies of a
welfare state. Thus, repudiation of the debt (in whole
or in part)
through extreme depreciation of FRNs and bank-deposits
denominated therein
appears likely, if not certain.

this looming debacle,
Americans can thank the FRS, the “experts” who administered it
since 1913,
the politicians who wed it as a “cover” to finance their own
careers, the
bankers who profited from their monopoly over the emission of
paper currency, and the “intellectuals” in academia, the press,
and the media
who (quite unlike their counterparts in the last century)
remained strangely
silent on the issue of money and banking. That is, Americans can
thank these people if Americans become aware of what the
FRS is, what it does, and why it is responsible for having
undermined to the point of collapse
the nation’s once proudly prosperous economy and staunchly
republican political

that day
of a new national awareness will soon be at hand.

above monograph
is the fourth in a series of nine published by The National
Alliance for
Constitutional Money, Inc., 13877 Napa Drive, Manassas, Virginia
22111. Each
of the monographs in this series discusses a significant aspect
of the current
monetary system and no serious student of the money issue should
be without
these articles. If you wish to obtain the remaining monographs,
contact the
National Alliance and make a generous contribution.

Vieira is also
work is
the most exhaustive and scholarly treatise ever written
regarding the legal
history of money in this country. This work is currently being
revised and
will be available soon from the National Alliance.


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