Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free
By Ellen Hodgson Brown
Third Millennium Press; Rev Exp edition (December 22, 2008)
ISBN-10: 0979560829
544 pages; $22.50

If there is one book, one newspaper, one blog, one article, that one should read to understand the current economic crisis, to understand the root of the problem, and to understand its solution, it is �The Web of Debt: The Shocking Truth About Our Monetary System and How We Can Break Free,� by Ellen Hodgson Brown. Brown began writing �Web of Debt,� six years ago, and, while some are surprised at the current national and world economic crisis, others, including Brown, had seen it coming.

In �Web of Debt,� Brown explains our current �debt-based� private banking monetary system and its history, and the ominous role the private bankers have played in shaping national and world events for their own benefit, amassing great wealth and power, and the myth of the free market and the current events on Wall Street, all with fascinating, highly referenced, and understandable detail. She explains that much of history has been a struggle between the public interest and private banks, connecting the dots with a tale of intrigue that leaves the reader enlightened with how the world really works.

Brown explains that the current financial crisis is an end of a 300-year Ponzi scheme known as �Fractional Reserve Banking� run by the private banks, including the Federal Reserve. She further states that this is an opportune time to change the system now that it is collapsing -- to a system where the people, i.e., Congress, take back the constitutional authority to create money (currently residing unconstitutionally in the hands of private bankers) for the good of the people, with the possibility of funding the government with fees and reasonable profits from public banking in lieu of the income tax.

Since the subject matter of �Web of Debt� is so vitally important and absolutely relevant to the current debate associated with the economic crisis, included below is a brief summary of some of the topics and points that Brown makes in her book.

Coins, dollars, and �computer entries.� Regarding the money supply, Brown states, �Except for coins, the government does not create money. Dollar bills (Federal Reserve Notes) are created by the private Federal Reserve, which lends them to the government. Tangible currency (coins and dollars bills) together make up less than 3 percent of the US money supply. The other 97 percent exists only as data entries on computer screens, and all of this money was created by banks in the form of loans.�

Money created �out of thin air.� To understand how 97 percent of our current money supply is created �out of thin air� by banks when they give out loans, consider the following example. When a borrower takes out a $200,000 mortgage loan to buy a house, the bank, upon receipt of a signed IOU, issues a $200,000 check (or, wire transfer, etc.), in US-backed currency, created �out of thin air� as a bookkeeping entry, to purchase the house. The $200,000 check is not drawn on reserves held by the bank, as one might assume, but is just created �out of thin air.� As Brown states, �They merely �monetize� the borrower�s promise to repay.� Brown provides many references attesting to this fact, from the bankers themselves, including the Federal Reserve�s own revealing pamphlet, �Modern Money Mechanics,� which is no longer published but available on the Internet.

The problem of �interest.� As explained by Brown: �The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough �money� (or �credit�) to service the old loans composing the money supply.� Thus, the private bankers� system of �debt-based� money requires a continuous inflationary cycle of loansto increase the money supply to pay the interest.

US Government as a perpetual debtor for a constant money supply. When loans are repaid, the principal amount of the money created is zeroed out. As Brown explains: �In order to keep money in the system, some major player has to incur substantial debt that never gets paid back; and this role is played by our federal government.� And Brown further notes: �The U.S. federal debt has not been paid off since the days of Andrew Jackson. Only the interest gets paid, while the principal portion continues to grow.� Calls to eliminate the Federal debt logically would need to be accompanied by a change in how money is created, or, rather, who creates the money.

The Federal Reserve is neither �Federal� nor has �Reserves.� The Federal Reserve is a private corporation, owned by a consortium of private banks, the biggest of which are Citibank and J.P. Morgan Chase, according to Brown. And, while most people think that the U.S. government �prints the money,� the U.S. government is, instead, also a borrower in our debt-based money system, and takes out loans from the Federal Reserve, which, in turn, creates money out of thin air. Brown explains, �The Fed swaps green pieces of paper called Federal Reserve Notes for pink pieces of paper called U.S. bonds (the federal government�s I.O.U.s), in order to provide Congress with the dollars it cannot raise through taxes.� The Federal Reserve and other central banks today use the same device -- �trading its own paper notes for paper bonds representing the government�s promise to pay principal and interest back to the Bank� -- as that of the Bank of England established in 1694. Brown quotes a circular distributed to attract subscribers to the Bank of England�s initial stock offering: �The Bank hath benefit of interest on all moneys which it, the Bank, creates out of nothing.�

Reserve accounts are �smoke and mirrors.� Furthering the illusion of a banking system more in line with the public�s false expectations, Brown explains that �reserves are a smoke and mirrors accounting trick concealing the fact that banks create the money they lend out of thin air, borrowing any �reserves� they need from other banks or the Fed, which also create the money out of thin air.� Now, adding insult to injury, �the Fed acquired the ability to pay interest to its member banks on the reserves the banks maintain at the Fed,� per a provision of the recently enacted TARP bill, Brown writes in a recent article.

Banks create their own investment money. According to Brown, �Thirty percent of the money created by banks with accounting entries is invested for their own accounts,� citing a reference that refers to the Federal Reserve�s own reports.

The Federal debt and the income tax. �In 1913, the Sixteenth Amendment was introduced to Congress as a package deal with the Federal Reserve Act,� according to Brown. Further, Brown writes, �The Federal Reserve Action of 1913 was a major coup for the international bankers. They had battled for more than a century to establish a private central bank with the exclusive right to �monetize� the government�s debt (that is, to print their own money and exchange it for government securities or I.O.U.s).� While the �federal income tax had consistently been declared unconstitutional by the U.S. Supreme Court,� the bankers had their man Knox as secretary of state to sign the Sixteenth Amendment despite the numerous irregularities, to ensure the private bankers a steady stream of guaranteed income to pay the interest on the federal debt.

In the 1970s, Brown writes: �After relentless agitation by [Congressman] Patman�s Committee, the Fed finally agreed to rebate most of the interest it received on its government bonds to the U.S. Treasury.� However, Brown explains: � . . . the money supply has expanded by a factor of about 10 for every dollar of federal debt monetized by the Federal Reserve, and all of this money expansion consists of loans on which the banks have been paid interest. It is this interest, not the interest paid to the Federal Reserve, that is the real windfall to the banks -- this and the fact that the banks now have a money-making machine to back them up whenever they get in trouble with their �fractional reserve� lending scheme.�

A history of the people versus the private bankers. Brown provides a fascinating and intriguing history of money and the private bankers, from the system of tallies, made from pieces of wood used in the Middle Ages for more than five centuries (1000s-1500s), to the private central Bank of England charted in 1694, which formalized �fractional reserve� banking, to the American colonists who prospered for 100 years on printed paper money, through the history and presidents of the United States, where monetary and banking policy had been a significant topic, to the printing of Greenbacks by President Lincoln to fund the Civil War, to the devious enactment of the Federal Reserve Act in 1913, to the Robber Barons who were a crooked alliance of businessmen and international bankers, and finally to our present day manipulated market on Wall Street, infected with collusion between big business and big government.

The end of the 300-year Ponzi scheme. As the economy is nearing crisis status, the reason, according to Brown, is that �the 300-year fractional-reserve Ponzi scheme has reached its mathematical end-point.� Brown writes, �This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 -- until the whole world has now become mired in debt to the bankers� private money monopoly.� The debt-based money system of the private bankers has run out of borrowers.

The secret insolvency of the banks. Brown explains that as banks lost profits in commercial lending, they expanded into investment banking, facilitated with the repeal of the Glass-Steagall Act in 1999. According to Brown, �The American banking system, which at one time extended productive loans to agriculture and industry, has become a giant betting machine.� Brown writes, �According to the Comptroller of the Currency, the books of U.S. banks now carry over $180 trillion in a form of speculative wager known as derivatives. Particularly at issue today are betting arrangements called credit default swaps (CDS), which have been sold by banks as insurance against loan defaults.� Brown further writes, �Outstanding derivatives are now counted in the hundreds of trillions of dollars, many times the money supply of the world.� With such exposure, bank bailouts will not be sufficient to save them.

Money creation belongs to the government. As most lack an understanding of the creation of money, the private banks continue with their brazen grab of power and taxpayer funds. Brown writes, �Now the players are demanding that the government underwrite their bets with taxpayer funds, on the theory that if the banking system collapses the public will have no credit and no money. That is the theory, but it misconstrues the nature of money and credit. If a private bank can create money simply by writing credit into a deposit account, so can the federal government.�

Recognizing the authority to create money belongs to the people, i.e., Congress, , Jefferson wrote in 1813, �Although we have so foolishly allowed the field of circulating medium to be filched from us by private individuals, I think we may recover it . . . The states should be asked to transfer the right of issuing paper money to Congress, in perpetuity.�

The real reason for the American Revolution. While most may believe that the American Revolution was about �taxation without representation,� Brown explains that the real issue was the colonists desired to create their own money rather than borrow it from British bankers. Brown writes: �The colonists� new paper money financed a period of prosperity that was considered remarkable for isolated colonies lacking their own silver and gold.� After a century of prosperity in the colonies, the British bankers convinced the king to forbid the printing of money by the colonists. Brown quotes Benjamin Franklin as stating the real reason for the Revolution: �The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction.�

The example of colonial Pennsylvania praised by Benjamin Franklin solved the �interest problem.� In colonial Pennsylvania, the government lent and spent money �into the economy, covering the interest shortfall and keeping the money supply in balance,� according to Brown, thus eliminating the inflationary cycle inherent in the private debt-based money system. In addition, �the public land bank collected interest and returned it to the provincial government to be used in place of taxes.�

The solution is a national banking system and no income tax. Brown suggests that Congress should take back the authority to create money that was given by the Constitution, creating a national banking system modeled after colonial Pennsylvania and widely praised by Benjamin Franklin. Federalizing the Fed and nationalizing the banks, i.e., only allowing national banks to create money, backed by the �full faith of the US Government,� would put the power of money creation back in the hands of the people and allow the profit of banking, with reasonable and predictable interest on loans, to fund the government in lieu of an income tax. Private banks would be limited to doing what the public thinks they do now: lending only the money they have on deposit. Brown provides detailed and practical options on the actual implementation and transition to an alternative public banking system. When implemented properly, Brown writes that such a system would not be inflationary. As an example, Brown writes, � . . . replacing government securities with cash would not change the size of the money supply.� To demonstrate one of the many benefits of such a system, Brown explains that the federal government could lend to the states at zero interest, reducing by half the costs they incur when borrowing at interest.

Rethinking the concept of money. In addition to providing an understanding of how our monetary system works, �Web of Debt� inspires one to think about what money really is. The tally system is a good example. During the time of the Middle Ages, Brown states that �rather than having to borrow the moneylenders� gold, the people relied largely on interest-free tallies. Unlike gold, wooden tallies could not become scarce; and unlike paper money, they could not be counterfeited or multiplied by sleight of hand. They were simply a unit of measure, a tally of goods and services exchanged.� On the contrary, a gold standard is not a good monetary solution, as Brown explains, because, with its relatively fixed supply, the banks would end up owning all the gold if loans were to be paid back with interest. According to Brown, �Lincoln�s economist Henry Carey said that the twin weapons used by the British Empire to colonize the world were the �gold standard� and �free trade.��

In conclusion, �Web of Debt� is an extremely enlightening and remarkable book, providing an understanding to our world and the current economic crisis and providing monetary and banking solutions that will take us out of this crisis and benefit the people (see also articles of Ellen Brown�s at www.webofdebt.com).

As an issue of fairness and law, the theme throughout the book, Brown states, �What is wrong with the current system is not that money is advanced as a credit against the borrower�s promise to repay but that the interest on this advance accrues to private banks that gave up nothing of their own to earn it. This problem could be rectified by turning the extension of credit over to a system of truly national banks, which would be authorized to advance the �full faith and credit of the United States� as agents of Congress, which is authorized to create the national money supply under the Constitution.�

Now that the banks are insolvent and the system is collapsing, the public must educate themselves immediately at this opportune time and collectively unite against the powerful banking interests to implement changes to our system that serve the public good. The book is an absolute must read and relevant to people of all political stripes. The only ideology presented is one of fairness, integrity, and common sense.