NOTES TO:

The Federal Reserve System Its PurposesAnd Functions

(By the Board of Governors of the Federal Reserve, 1939)

1. crou·pi·er (kr¡¹pê-er, -pê-â´) noun: An attendant at a gaming table who collects and pays bets. (The American Heritage® Dictionary of the English Language, Third Edition copyright © 1992 by Houghton Mifflin Company. Electronic version licensed from InfoSoft International, Inc. -ed.)

2. Comment: The statements above that the Federal Reserve System was established in the interest of the public, and that it is administered in the public's interest, are as false as statements could be. When Baruch, Morgenthau, and Warburg, as fronts for Morgan, Du Pont, and Rockefeller, lobbied that Act through Congress, they had but one object in mind -­ to make the bankers of America the supreme rulers of America. -­ S.W. Adams, the publisher.

3. hy·poth·e·cate (hì-pòth¹î-kât´) verb, transitive: To pledge (property) as security or collateral for a debt without transfer of title or possession. (Ibid. -ed.)

4. Comment: This space was used in the 1939 Edition of The Federal Reserve System -­ Its Purposes and Functions, to carry a picture of the Boston Reserve Bank building, but I shall use it for a more glorious purpose -­ to point out some facts you might have overlooked in reading up to this point: a) the book emphasizes its contention that the organization of the various agencies, that "decentralization is an important characteristic of the Federal Reserve System," and that non­bankers man the Board of Governors and the various committees! Reread the composition of the Board and the various committees, and you will find that the Board of Governors hold the veto power and that even they are the pawns of the masters behind the scenes, and appointed by the President at their behest. Too, a non­banker could not violate the wishes of his masters, and hold his job. So the whole Reserve Act and its set up is a camouflage. The economic life of the Nation is in the hands of the masters -­ six men who are members of Morgan & Co. The visible masters are the seven members of the Board of Governors. -- S.W. Adams, the publisher.

5. dis·count (dîs¹kount´, dîs-kount¹) verb, Abbr. dis., disc. verb, transitive: 2. a. To purchase or sell (a bill, note, or other commercial paper) at a reduction equal to the amount of interest that will accumulate before it matures. b. To lend money on (a commercial paper not immediately payable) after deducting the interest.

noun (dîs¹kount´): 2. The interest deducted prior to purchasing, selling, or lending a commercial paper; the discount rate. (Ibid. -ed.)

6. Comment: Reread italic on deposit, "they may (always do) deposit in the reserve accounts the checks on other banks." Then remember that the member bank where the check was first deposited gave the seller credit in his deposit account. So, you see that the check created two funds. The depositor, say $100 to his credit, the check went to the Reserve Bank, and the commercial bank got $100 added to its reserve account, and the bank could lend against its new reserves $500! It is nice to be a banker, is it not? -- S.W. Adams, the publisher.

7. There are two forms of gold certificates. The old form, commonly in circulation before 1934, is no longer in use, except for certificates still outstanding. These are being retired as rapidly as they come into the Treasury. The new form of gold certificates are issuable by the Treasury only to the Federal Reserve Banks and not in circulation. -­ S.W. Adams, publisher.

8. Federal Reserve Notes and Federal Reserve Bank notes are two distinct types of currency authorized by the Federal Reserve Act. The distinction between them is technical and for all practical purposes Federal Reserve notes are sufficient. Federal Reserve Bank notes are, therefore, no longer issued. (Note: The difference is that the Bank notes drew 1 percent interest, and bankers don't like to pay interest -­ they like to collect interest.). -­ S.W. Adams, publisher.

9. Comment: When cash is recognized as just a general check that is legal tender, that does not require the endorsement of seller, and that is readily convertible into deposits and convertible therefrom, and is valueless until checked out of a U.S. Depository by a depositor; that it forms no part of the volume of money, as checks do not -- all the mystery about money will disappear, and all people will come to understand that the deposit credits on the books of U.S. Depositories plus the cash in the hands of the people are the total volume of money. The Treasury will keep an abundant supply of both cash and personal checks on hand, and the several Depositories will be kept supplied as post offices are supplied with stamps. There will be no shifting of cash from Depository to Depository, and there no balance sheet will be kept at all -- what is checked out at one Depository will appear at another -­ and the total balance sheet at The Treasury will keep track of deposits as they shuttle from Depository to Depository. -­ S.W. Adams, the publisher.

10. Comment: This portion of this page in the original edition of this book, is taken up with a picture showing many women sorting the tremendous volume of checks which clear daily through the 12 Reserve banks and their 25 branches. This cost must run into many millions of dollars each year. When Congress establishes the United States Depository System, with Depositories as widespread as post offices, and keeps the people's deposit accounts, cashes and clears their checks, this sort of thing will not be done. No matter where a check turns up, the Depository will give the holder deposit credit dollar for dollar, and this Depository will send the check directly to the giver's Depository and it will mark the check paid, and debit the giver's account dollar for dollar. The total volume of deposits will not be changed. No new funds will be created -­ deposits credited at one Depository would disappear from the books of the other. Depository books would always be treated as the books of ONE, for that is exactly what the Treasury would be as head. -­ S.W. Adams, the publisher.

11. Comment: All of these fiscal functions could be taken care of by the Treasury of the United States at a great saving to the taxpayers. And that is the purpose of the Treasury Department -- to handle all matters involved in the Government's creating money, regulating the value thereof, and these two functions of the Government make it compulsory that the Government through he Treasury, keep the people's deposit accounts, cash and clear their checks.

Under the Treasury Depository System there will be no bonds issued by the Government; there will be no borrowing by the Government from the Government and giving the bankers not only the bonds, but agree to pay interest on these bonds many, many years, for the privilege of using its own credit.

There will be no duplications of entries as under the Federal Reserve System. A check will not be held in one hand and credit given its recipient in his deposit account, then changed to the other hand, and credit given to the bank in its reserve account. It will be our recognizing the wisdom of Benjamin Franklin:

"Neither a borrower nor a lender be."

Aside from an occasional creative act by Congress, our whole system will be simple bookkeeping -- the Government creating the people's money, the Government keeping the people's deposit credits, and the Government cashing and clearing the people's checks. -­ S.W. Adams, Publisher.

12. Comment: The 13,500 employees referred to above were 1938 employees. I'm sure you may add many thousands more today when employees have expanded with the balloon dollar the bankers have flooded the country with. But all of the functions they perform will be discontinued under the Depository System. There will be no intermediate stations, clearing houses, central depositories, no giving double deposit on every check that clears -- there will be no stock and bond buying and selling. The Government will not engage in the stock and bond market business; nor will it have a discount department. There will only be the duties of providing the people with adequate supply of bills and coins, keeping their deposit accounts, cashing and clearing their checks -- wholly a bookkeeping job. There will be no occasion for the Government to extend or withhold credit. It will not favor one group against another. -­ S.W. Adams, Publisher.

13. The term "reserves" as used in this book denotes asset reserves exclusively -- that is, the reserves that count virtually as cash. It does not denote the reserves against contingencies that may be set up on the liability side of a balance sheet.

14. As this and the preceding paragraph indicate, a bank's purchase of investments increase bank deposits just as bank loans do. For the sake of simplicity, the terms "lending" and "extension of credit" are often used where the purchase of investments by banks as well as lending by banks is meant.

15. Comment. You see that it is a pretty business for banks to have their reserve funds created at no cost to them; but the greatest gift of all to them is the permission the Reserve authorities gave them to lend seven to ten times the reserves which were given to them gratis. When a banker thinks of his reserves on the books of its Reserve Bank, it multiplies its reserves by say ten, and arrives at his lending range. Suppose his reserves are $100,000, on his books he writes $1,000,000 -- his bank credit. And these credits cost the banker nothing, and there is nothing behind, except the credit of the Government. But to them it is just as much "cash" as your own deposits are to you -- they can lend it, buy investment obligations, and none of it costs the bankers anything. -­ S.W. Adams, Publisher.

16. Comment: It is pitiful to have men use such spurious tricks to meet a fictitious "reserve funds", which are nothing but figures carried on the books of the Reserve Banks to the credit of the member banks. There is nothing of value behind the funds lent by commercial banks -- no cash, no investment obligations, just figures on the books of Reserve Banks.

All checks written by the Reserve authorities for cooperation stock or Government securities, all checks written by the Treasury, create their face in reserve funds to the credit of the member bank receiving them on deposit; and all personal checks clearing trough the Reserve Banks, transfer from one account to another dollar for dollar. Only Treasury and Reserve checks create new deposits.

So you see all checks play a double role -- they give deposit credits to the depositor's account, and give reserves in equal amount in the member bank's account. And in each and all instances the bankers did nothing to earn the reserves except to give the depositors credit in their accounts, and agree to cash and or clear the depositors' checks -- and the cash they used was minted or printed by the Government at a cost of only 30 cents a $1,000. Banks entirely ignorant of the checks given by the Reserve authorities enjoyed the increase in their reserve funds. -­ S.W. Adams, Publisher.

17. Comment: Here appeared a beautiful picture of Cleveland, Ohio's ten­story Reserve Bank building. But inasmuch as I am not interested in buildings, I, as you have noticed, am interested in debunking the Federal Reserve System; so I will use this space to point out some of the bonanzas the bankers enjoy.

You have just read that since 1934 there has been no shortage of bank reserves. That is the year that Congress took gold out of circulation, and made corporation stock and other eligible papers (debt) our standard of money. And, too, the New Deal had begun to issue U.S. Bonds to meet the hunger emergency of the unemployed people. Every new U.S. Bond issued creates two new funds: a) bank deposits to the credit of the people, and b) an equal amount of bank reserves, which gives the bankers 10 times more bank credit than the people got in bank deposits!

After kicking gold out of circulation, bankers could induce the Reserve authorities to buy corporation stock at any time which would automatically increase bank reserves, and bank credit ten times as much. Then World War II gave them $2 trillion, 400 billion bank credit. Run out of funds? Sooner the Mississippi run dry! ­- S.W. Adams, Publisher.

18. Comment: Now, let's look at the fact that if the banks are short of funds to lend it is because the Reserve authorities will it so. Remember you have just read that when "in their judgment" they feel that there ought to be additional bank credit that banks might make additional loans, the Reserve authorities, on "their own initiative" go into the open market and buy corporation stock, which would create both deposits and bank reserves. Any child knows that the stock market is bulging with stock!

There are 19 men who sit tri­weekly and make those decisions. These are the seven members of the Board of Governors, and the 12 presidents of the 12 Reserve banks. They may decide to pump more money in, or siphon it out -­ giving the people good times or bad times!

They decided in 1955 that it was time to "shear the sheep," so they ordered loans (in the lower brackets) to stop. If a banker tells you that he has no funds to lend, he means that he has orders not to lend. -­ S.W. Adams, Publisher.

19. At present, gold purchase by the United States Treasury is not in fact deposited at a Federal Reserve Bank but is delivered to one of the United States Assay Offices, and the check received from the Treasury in payment is deposited in the Federal Reserve Bank. The technical steps involved in the transaction have no significance for present purposes, the effect being the same as if the gold were actually deposited in the Federal Reserve batik and by it turned over to the Treasury. The gold, though held in the vaults of the Treasury, is nevertheless a part of the money supply of the country; on its way into the Treasury it gives rise to bank deposits and bank reserves, and if withdrawn from the banking system through export or otherwise, it would reduce them.

20. Comment: Again we use the space taken by the Reserve Bank of Richmond, Virginia, for comment. There was no good reason why Uncle Sam's buying gold would mean any more in the money plan than his buying spuds, for the check he gave to the spud growers for their spuds would have done the very same thing the check given the gold company did. There is no more reason to drag gold into the industry, except that bankers have used gold as a scapegoat so long the people think that money without a tincture of gold in it -­ and that is about all it has ever had -­ just isn't money.

But here we have been going ahead under full steam since gold was taken out of circulation in 1934 -­ even gold certificates are out. Let me repeat: there is no more reason why the Government should buy all gold produced than there would be for the Government to buy all industrial and agricultural products. -- S.W. Adams. Publisher.

21. Gold may be withdrawn from the United States Treasury, under present law and regulations, at the discretion of the Secretary of the Treasury, for export or for use in the arts but not for domestic circulation.

22. Comment -- Let me touch on gold. The Reserve authorities insist on lugging gold into the picture. They said in 1939 (text), "Since the establishment of the twelve Federal Reserve Banks, therefore, bank reserves have consisted basically of gold." And on page 106 of the 1957 edition, they say, " . . . Gold and Federal Reserve Bank credit are the two principal sources of member bank reserves." Since gold is outlawed as currency, then why should it be a part of our monetary system? No reason, as we keep repeating, except to keep people ignorant of the source of money. The Reserve acts have obligated the Government to pay $35 an ounce for all gold coming in from mines or from foreign countries, to pig it, to bury it, to guard its tomb day and night, at the cost of the people, that the private banking corporations may use it as a pacifier on the minds of the people. Most of us still think we are on a gold standard; yet as many tons of igneous rocks buried would be worth just as much as gold if it were not for keeping the minds of the people fuzzily believing that their dollar is good because it is redeemable in gold! And the strangest fact about the common human mind is that it will not make an investigation into an accepted thing. ­- S.W. Adams, the publisher.

23. Comment -­ The illustration of the Reserve authorities reveals the whole picture of corporation stock influence on our money. Remember that Congress gave the Reserve authorities power to write a check against no funds (a felony in Texas for individuals). This $20,000,000 check started on that long trail of creation -- first, created $20,000,000 new deposits; second, created $20,000,000 new bank reserves; third, created $100,000,000 bank credit (it might have been $280 million if deposited and circulated in country banks).

Thus from nothing the act of writing one check by the Reserve authorities mushroomed into $20 million deposits and $20,000,000 in bank reserves, and $100 million in bank credit, and when the lending of these reserves was completed, there were $80,000,000 new deposits, inflating our money supply $100,000,000.

Had the Government added those first $20 million, that would have been the total new deposits added, and there would have been no "stocks" or bonds outstanding drawing interest, and our volume of money would not have been inflated to the point where the dollar would buy only 50 cents worth, or just. 20 cents worth NOW. ­- S.W. Adams, publisher.

24. The reserves required are not in fact 20 per cent at present, but about 15 per cent on the average. The figure of 20 per cent has been used for greater simplicity in illustration. The actual figure is always the result of several factors and varies from time to time, partly because of changes in the various required percentages and partly because of changes in the amount of deposits subject to the various required percentages. Between 1918 and 1929 the ratio of required reserves to deposits declined from about 9 per cent to about 7 per cent and thereafter rose again to about 8 per cent by the middle of 1936. In 1937 it rose to about 16 per cent, as a result of changed reserve requirements, and in 1938 it fell to about 15 per cent.

25. Comment -- Since we are not interested in architecture, we have been kicking out of the story pictures of the various Reserve Banks, and this is giving the boot to unornate St. Louis Reserve Bank building. I am doing this that I may comment on what you have just read . . . "reserve requirement . . . are a little less than double what they formerly were . . ." because "bank reserves have been increased to an inordinate degree in the immense increase in the country's gold stock." Why gold again? The same reason, to confuse you, and, too, to keep your mind off General Motors stock. Why this page after page about the creation and control of bank reserves, when a few words cover it. Reserves are fictitious funds evidenced by figures on banks' books, which are created by just two authorities: the Government when it issues bonds or bills of credit, and the Reserve banks when they write a check against no funds. -­ S.W. Adams, publisher.

26. Comment: You have just read, in italics the whole explanation of the CREATIVE ACTS of the Reserve authorities. You have also read that the Reserve authorities can upon their own initiative go into the open market (and all stock markets and stock exchanges are creatures of the banking system) and buy corporation stock or U.S. Securities, pay for them by writing a check against no funds, as explained above when they feel that the banks (individually or collectively) should have more reserves (basis of bank credit) to lend to borrowers or to use to buy investment obligations, and do this with or without the bank's or banks' knowledge.

Then why should the Reserve authorities (the 7 board members plus the 7 board presidents of the 12 reserve banks) meet tri­weekly to debate whether to pump more credit into the banks, or to siphon it out? As long as there is an expanding economy there is a need for more money; but as early as 1955 these Tzars of our money supply decided that the people of America had had enough joy­riding, with full employment and full dinner pails, so they spread the lie that bank reserves were exhausted, and that banks could not make more loans, etc.

The authorities could have bought $5 billion corporation stock and flooded the 14,000 banks with bank credit, so there would have been no bread-lines and millions of jobless. -­ S.W. Adams, publisher.


27. Comment: You have just read the only reference the author of this book makes to the funds canceling out; which they don't do in the case cited. When the people pay taxes, whether they send the Government a check or cash, the people's deposits in commercial banks are lowered, dollar for dollar, and the Government's deposits are raised, dollar for dollar -­ in other words, deposits are just transferred; so when the Government checks the tax money back to the people, the deposits are back where they were, in commercial banks. There is a free flow of deposits from commercial bank to commercial bank, and from commercial banks to Reserve banks, and back again -- a merry­go­round of deposits -­ always winding up in the bankers' column!

However often bankers try to cover up and obscure their shifting funds, they never cancel out one deposit dollar. But each time they make a loan or buy securities, they add new deposits -- debt, interest­bearing dollars to the total volume of deposits, which cheapen your dollar deposit. -­ S.W. Adams, publisher.

28. Comment: The reason banks before 1932 carried almost no excess reserves was due to two things:

1. The Reserve authorities refused to use their authority to create funds for the banks, compelling them to put up their own securities, or sell them to the Reserve Banks at a heavy discount;

2. Member banks were not willing to do this -- they like to discount their customers' investment obligations, but they don't like to wear the shoe they place on their customers' feet.

One of the principal reasons why the Federal Reserve authorities brought about the 1929­1934 debacle was to scare Congress into changing their rules -- taking gold out of circulation and making corporation stock our "standard of money." Gold, the principal basis of bank credit was fickle and limited; but the 1935 creation of the Open Market Committee, authorizing the Reserve authorities to go into the open market, buy corporation securities, give a Reserve check against no funds for the stock, made the sky the limit -- hence since 1935 bank reserves have been over­abundant for there is never a dearth of corporation stock for sale.

But actually the lack of reserves was a direct willing of the Reserve authorities!

They are now provoking the same debacle they gave us in 1929­1934. -­ S.W. Adams, publisher.

29. Comment -- Remember that we are talking in terms of 1938, the year before this book was published, the figures and statements you have just read, will not confuse you, for the same story in terms of 1953, just 15 years later, shows that the assets of the twelve Reserve Banks jumped from $15,581,000,000 in 1938 to $52,827,000,000! Gold certificates (untouchable by the hands of the people) increased from $11,798,000,000 in 1938 to $21,339,000,000 in 1953; and Reserve notes from $4,452,000,000 to $26,808,000,000; while their stock of U.S. Government securities climbed from $2,564,000,000 to $25,886,000,000. And their capital accounts jumped from $344,000,000 in 1938 to $1,108,000,000 in 1953.

That's climbing some, don't YOU think? And let's see what these assets cost them:

1. the gold certificates, 30c a thousand dollars;
   
   
2. the United States securities, "just a flick of the pen";
   
   
3. Federal Reserve notes (which ARE securities) just 30c a thousand dollars!
   
   

And they even paid the costs of printing the gold certificates and Reserve notes by giving Uncle Sammy deposit credit on their books, and permitting him to check against them, just another flick of the pen. That's $74,033,000,000 assets, yet they say that "our earnings NOW are mainly loans made to industrial and commercial enterprises." They expected you to think that their earnings were just the interest on these loans; but reading Section 13b of the Reserve Act reveals (you look that up?) -- S.W. Adams, publisher.

30. Comment -­ Believe it or not, readers, I'm getting quite a kick out of dumping these Federal Bank buildings out the window, and using the space for finger-pointing at the crimes bankers commit in the name of "sound money policy. "This comment is taking the place of the Dallas Federal Reserve Bank. You have just read about the "Liability and Capital Accounts of Reserve Banks." It says that "the Federal Reserve notes are the obligations of the Federal Reserve Banks that circulate as money." The author forgot that he said on page 26 that these notes are "also obligations of the United States Government." He also forgot to explain why the Treasury must keep the plates, print the notes, and surrender them to the Reserve Banks for just 30 cents per $1,000. He says that the "Deposits consist mainly of the Reserves of Member Banks," but fails to tell you that these reserves are duplicate funds, gained by the bankers taking a second deposit in their accounts, after giving the holder of the check deposit credits. Every check received for deposit in a member bank creates two funds: a) deposits to the credit of the holder of the check, b) deposits to the credit of the bank's reserve fund. Double or nothing is the cry of the bankers in their crap game. -­ S.W. Adams, publisher.

31. Comment: Thus ends the IX Chapter, "What the Twelve Federal Reserve Banks Own, and What They Owe." We find that they list the 12 premises of the twelve Reserve Banks at $43,000,000. But they don't explain where they got the money they used to have those premises constructed. They do say that "other capital accounts consist primarily of reserves for contingencies, amounting to $33,000,000; so we wind up with a hazy notion about what they own and what they owe; but we do recall that they said on page 106 that the capital and surplus of the twelve Reserve Banks is "about" $284 million; and we reflect, "That's a mighty small capital and surplus to justify their lending to the Government over $250 billion dollars to fight World War II." We happen to remember reading a recent statement (circulation) of the United States Money, and found of the some $23 billions of gold Uncle Sam has bought at $25 an ounce, the Treasury has printed for the Reserve Banks $21,964,687,524 Federal Reserve Gold Certificates, which are their assets. But they do not explain why there should be printed gold certificates when the 1934 Reserve Act outlawed both gold coin and gold certificates as circulation money! Why should the Government buy with tax money all incoming gold from mines at $35 an ounce, then deed it over to the Reserve Banks by printing over $21 billion gold certificates?

Do you suppose the banks would rush to the Treasury with their "non­circulating" gold certificates and demand the GOLD, if the bottom should fall out of their casino? ­- S.W. Adams, publisher.

32. Comment: What you have just read is the most revealing information they give about the "purposes and functions" of the Reserve System. From top to bottom, from its heart to its crustacean hide, banking is a gambling institution, and it now combines every banking institution in the United States under one head. The pawns in the game are the working, producing people of the Nation, and the beneficiaries are the well­fed, well­housed, immaculately manicured men and women you may see entering the special rooms provided for the stock market gamblers, who win or lose billions annually, but the manipulators of the game lose nothing!

This placing our whole economy on the gamblers' tables, was accomplished in The Reserve Act of 1913, and its purpose has been accomplished: the rape of a proud Nation's wealth and honor, transferring our farms, our ranches, our industries, the very lives of 170 million American citizens left in their hands -- and they may let them eat, or they may let the breadwinner go home to hungry family! They are doing that now!

The open market committee is but the shirt front behind which bankers hide their machinations, their unsavory, and hellish practices. The real Tzar of open market committee's operations is one man, offices in the City National Bank building, New York City, whose visible representative is Robert C. Rouse, manager of the open market account, chosen by the New York Reserve Bank. He plans the stock market ups and downs which are put on the boards throughout these United States and knows "every dip and rise in the market before it happens," as one Congressman has said, and "he can give other tips which will enable them to make millions over night and does, of course, to his friends!

Congressman Patman lamented February 6; 1958:

"We should bring this tiling to an end -- of a few people to make interest high and bonds low -- to manipulate the monetary system of our nation in a way that speculators are enriched and fare better than the honest people who work for a living.

-- S.W. Adams, publisher.