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Giuliano Taverna

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The war on Conspiracy theories!
« on: September 15, 2009, 07:11:12 pm »
I Giuliano taverna do hereby declare war on all the frauds, fear mongers, and lunatics who use the internet to spread lies and propaganda either to further their political, ethnic, or religious agenda, or simply for kicks.

This thread is open to all, tin foil hat wearing and not alike. Please... post any conspiracy theories you know of, so I can debunk them. Or if you wish to help me out. Post theories and the proof that debunks them.
"It is the duty of a good shepherd to shear his sheep, not to skin them." Tiberius Caesar

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Giuliano Taverna

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The federal Reserve myth
« Reply #1 on: September 15, 2009, 07:18:30 pm »
For any of you who have ever heard of the following people, Ron Paul, Ludwig von Mises, Lew Rockwell, or Glenn Beck... You probably think the federal reserve is a sinister entity controlled by evil foreigners who are charging interest on fake money and slowly taking over the world right?

Classic fednut conspiracy propaganda

Well you'd be wrong, and crazy.

This is such a long conspiracy theory, that I am going to break it up into different posts.

I would like to thank the good folks at for all their work, full credit goes to them for this material.
« Last Edit: September 15, 2009, 07:25:41 pm by Giuliano Taverna »
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Giuliano Taverna

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Federal Reserve myth 1
« Reply #2 on: September 15, 2009, 07:19:48 pm »
Myth #1: The Federal Reserve Act of 1913 was crafted by Wall Street bankers and a few senators in a secret meeting. 

    On the Georgian resort hideaway of Jekyll Island (which has some excellent golf courses, by the way), there once met a coalition of Wall Street bankers and U.S. senators.  This secret 1910 meeting had a sinister purpose, the conspiracy theorists say.  The bankers wanted to establish a new central bank under the direct control of New York's financial elite.  Such a plan would give the Wall Street bankers near total control of the financial system and allow them to manipulate it for their personal gain.

    G. Edward Griffin lays out this conspiratorial version of history in his book The Creature from Jekyll Island.  His amateurish take on history is highly suspect, however.  Gerry Rough, in a series of well- researched essays on U.S. banking history, reveals many historical inaccuracies, inconsistencies, and even contradictions in Griffin's book and others of its genre.  Instead of reproducing Rough's work here, I offer the reader a substantially more accurate view of the events leading up to the creation of the Federal Reserve System in 1913.  To get a proper historical perspective, the story of begins just prior to the Civil War...
    The National Banking Acts of 1863 & 1864

    Prior to the Civil war there were thousands of banks in operation throughout the Union, all of them chartered, that is, licensed by the state governments.  Banking regulations were virtually nonexistent.  The federal government had no meaningful controls on banking practices, and state regulations were spotty and poorly enforced at best.  Economic historians call the era leading up to the Civil War as the 'state banking era' or the 'free banking era.'

    The problems with state banking were numerous, but three were conspicuous.  First, the nation had no unified currency.  State banks issued their own bank notes as currency, a system which at worst invited severe bouts of counterfeiting and at best introduced additional uncertainty in the task of determining the relative value of each bank note.  Second, with no mitigating influence on the issuance of bank notes, the money supply and the price level were highly unstable, introducing and perhaps causing additional volatility in the business cycle.  This was due in part to the fact that bank note issuance was frequently tied to the market value of the bank's bond portfolio which they were required to have by law.  Third, frequent bank runs resulted in substantial depositor losses and severe crises of confidence in the payments system.5

    The National Banking Acts of 1863 and 1864 were attempts to assert some degree of federal control over the banking system without the formation of another central bank.  The Act had three primary purposes:  (1) create a system of national banks, (2) to create a uniform national currency, and (3) to create an active secondary market for Treasury securities to help finance the Civil War (for the Union’s side).5

    The first provision of the Acts was to allow for the incorporation of national banks.  These banks were essentially the same as state banks, except national banks received their charter from the federal government and not a state government. This arrangement gave the federal government regulatory jurisdiction over the national banks it created, whereas it asserted no control over state-chartered banks.  National banks had higher capital requirements and higher reserve requirements than their state bank counterparts.  To improve liquidity and safety they were restricted from making real estate loans and could not lend to any single person an amount exceeding ten percent of the bank's capital.  The National Banking Acts also created under the Treasury Department the office of Comptroller of the Currency.  The duties of the office were to inspect the books of the national banks to insure compliance with the above regulations, to hold Treasury securities deposited there by national banks, and, via the Bureau of Engraving, to design and print all national banknotes.5

    The second goal of the National Banking Acts was to create a uniform national currency.  Rather than have several hundred, or several thousand, forms of currency circulating in the states, conducting transactions could be greatly simplified if there were a uniform currency.  To achieve this all national banks were required to accept at par the bank notes of other national banks.  This insured that national bank notes would not suffer from the same discounting problem with which state bank notes were afflicted.  In addition, all national bank notes were printed by the Comptroller of the Currency on behalf of the national banks to guarantee standardization in appearance and quality.  This reduced the possibility of counterfeiting, an understandable wartime concern.5

    The third goal of the Acts was to help finance the Civil War.  The volume of notes which a national bank issued was based on the market value of the U.S. Treasury securities the bank held.  A national bank was required to keep on deposit with the Comptroller of the Currency a sizable volume of Treasury securities.  In exchange the bank received bank notes worth 90 percent, and later 100 percent, of the market value of the deposited bonds.  If the bank wished to extend additional loans to generate more profits, then the bank had to increase its holdings of Treasury bonds.  This provision had its roots in the Michigan Act, and it was designed to create a more active secondary market for Treasury bonds and thus lower the cost of borrowing for the federal government.5

    It was the hope of Secretary of the Treasury Chase that national banks would replace state banks, and that this would create the uniform currency he desired and ease the financing of the Civil War.  By 1865 there were 1,500 national banks, about 800 of which had converted from state banking charters.  The remainder were new banks.  However, this still meant that state bank notes were dominating the currency because most of them were discounted.  Accordingly, the public hoarded the national bank notes.  To reduced the proliferation of state banking and the notes it generated, Congress imposed a ten percent tax on all outstanding state bank notes.  There was no corresponding tax of national bank notes.  Many state banks decided to convert to national bank charters because the tax made state banking unprofitable.  By 1870 there were 1,638 national banks and only 325 state banks.5

    While the tax eventually eliminated the circulation of state bank notes, it did not entirely kill state banking because state banks began to use checking accounts as a substitute for bank notes.  Checking accounts became so popular that by 1890 the Comptroller of the Currency estimated that only ten percent of the nation's money supply was in the form of currency.  Combined with lower capital and reserve requirements, as well as the ease with which states issued banking charters, state banks again became the dominant banking form by the late 1880’s. Consequently, the improvements to safety that the national banking system offered were mitigated somewhat by the return of state banking.5

    There were two major defects remaining in the banking system in the post Civil War era despite the mild success of the National Banking Acts.  The first was the inelastic currency problem.  The amount of currency which a national bank could have circulating was based on the market value of the Treasury securities it had deposited with the Comptroller of the Currency, not the par value of the bonds.  If prices in the Treasury bond market declined substantially, then the national banks had to reduce the amount of currency they had in circulation.  This could be done be refusing new loans or, in a more draconian way, by calling-in loans already outstanding.  In either case, the effect on the money supply is a restrictive one.  Consequently, the size of the money supply was tied more closely to the performance of the bond market rather than needs of the economy.5

    Another closely related defect was the liquidity problem. Small rural banks often kept deposits at larger urban banks.  The liquidity needs of the rural banks were driven by the liquidity demands of its primary customer, the farmers.  In the planting season the was a high demand for currency by farmers so they could make their purchases of farming implements, whereas in harvest season there was an increase in cash deposits as farmers sold their crops.  Consequently, the rural banks would take deposits from the urban banks in the spring to meet farmers’ withdrawal demands and deposit the additional liquidity in the autumn.  Larger urban banks could anticipate this seasonal demand and prepare for it most of the time.  However, in 1873, 1884, 1893, and 1907 this reserve pyramid precipitated a financial crisis.5

    When national banks experienced a drain on their reserves as rural banks made deposit withdrawals, new reserves had to be acquired in accordance with the federal law.  A national bank could do this by selling bonds and stocks, by borrowing from a clearinghouse, or by calling-in a few loans.  As long as only a few national banks at a time tried to do this, liquidity was easily supplied to the needy banks.  However, an attempt en masse to sell bonds or stocks caused a market crash, which in turn forced national banks to call in loans to comply with Treasury regulations.  Many businesses, farmers, or households who had these loans were unable to pay on demand and were forced into bankruptcy.  The recessionary vortex became apparent.  Frightened by the specter of losing their deposits, in each episode the public stormed any bank rumored, true or not, to be in financial straights.  Anyone unable to withdraw their deposits before the bank’s till ran dry lost their savings or later received only pennies on the dollar.  Private deposit insurance was scant and unreliable.  Federal deposit insurance was non-existent.5
    The 1907 Banking Panic

    The 1907 crisis, also called the Wall Street Panic, was especially severe.  The Panic caused what was at that time the worst economic depression in the country’s history.  It appears to have begun with a stock market crash brought about by a combination of a modest speculative bubble, the liquidity problem, and reserve pyramiding.  Centered on New York City, the scale of the crisis reached a proportion so great that banks across the country nearly suspended all withdrawals -- a kind of self-imposed bank holiday.  Several long-standing New York banks fell. The unemployment rate reached 20 percent at the peak of the crisis.  Millions lost their deposits as thousands of banks collapsed.  The crisis was terminated when J.P. Morgan, a man of sometimes suspicious business tactics and phenomenal wealth, personally made temporary loans to key New York banks and other financial institutions to help them weather the storm.  He also made an appeal to the clergy of New York to employ their Sunday sermons to calm the public’s fears.

    Morgan’s emergency injection of liquidity into the banking system undoubtedly prevented an already bad situation from getting still worse.  Although private clearinghouses were able to supply adequate temporary liquidity for their members, only a small portion of banks were members of such organizations.  What would happen if there were no J.P. Morgan around during the next financial crisis?  Just how bad could things really get?  There began to emerge both on Wall Street and in Washington a consensus for a kind of institutionalized J.P. Morgan, that is, a public institution that could provide emergency liquidity to the banking system to prevent such panics from starting.  The final result of the Panic of 1907 would be the Federal Reserve Act of 1913. 

    The Federal Reserve Act of 1913

    Following the near catastrophic financial disaster of 1907, the movement for banking reform picked up steam among Wall Street bankers, Republicans, and eastern Democrats.  However, much of the country was still distrustful of bankers and of banking in general, especially after 1907.  After two decades of minority status, Democrats regained control of Congress in 1910 and were able to block several Republican attempts at reform, even though they recognized the need for some kind of currency and banking changes.  In 1912 Woodrow Wilson won the Democratic party’s nomination for President, and in his populist-friendly acceptance speech he warned against the "money trusts," and advised that "a concentration of the control of credit ... may at any time become infinitely dangerous to free enterprise."3

    Also in 1910, Senator Nelson Aldrich, Frank Vanderlip of National City (today know as Citibank), Henry Davison of Morgan Bank, and Paul Warburg of the Kuhn, Loeb Investment House met secretly at Jeckyll Island, a resort island off the coast of Georgia, to discuss and formulate banking reform, including plans for a form of central banking.  The meeting was held in secret because the participants knew that any plan they generated would be rejected automatically in the House of Representatives if it were associated with Wall Street.  Because it was secret and because it involved Wall Street, the Jekyll Island affair has always been a favorite source of conspiracy theories.  However, the movement toward significant banking and monetary reform was well-known.3  It is hardly surprising that given the real possibility of substantial reform, the banking industry would want some sort of input into the nature of the reforms.  The Aldrich Plan which the secret meeting produced was even defeated in the House, so even if the Jekyll Island affair was a genuine conspiracy, it clearly failed.

    The Aldrich Plan called for a system of fifteen regional central banks, called National Reserve Associations, whose actions would be coordinated by a national board of commercial bankers.  The Reserve Association would make emergency loans to member banks, create money to provide an elastic currency that could be exchanged equally for demand deposits, and would act as a fiscal agent for the federal government.  Although it was defeated, the Aldrich Plan served as an outline for the bill that eventually was adopted. 5

    The problem with the Aldrich Plan was that the regional banks would be controlled individually and nationally by bankers, a prospect that did not sit well with the populist Democratic party or with Wilson.  As the debate began to take shape in the spring of 1913, Congressman Arsene Pujo provided good evidence that the nation’s credit markets were under the tight control of a handful of banks – the "money trusts" against which Wilson warned.1  Wilson and the Democrats wanted a reform measure which would decentralize control away from the money trusts.

    The legislation that eventually emerged was the Federal Reserve Act, also known at the time as the Currency Bill, or the Owen-Glass Act.  The bill called for a system of eight to twelve mostly autonomous regional Reserve Banks that would be owned by the banks in their region and whose actions would be coordinated by a Federal Reserve Board appointed by the President.  The Board’s members originally included the Secretary of the Treasury, the Comptroller of the Currency, and other officials appointed by the President to represent public interests.  The proposed Federal Reserve System would therefore be privately owned, but publicly controlled.  Wilson signed the bill on December 23, 1913 and the Federal Reserve System was born.6

    Conspiracy theorists have long viewed the Federal Reserve Act as a means of giving control of the banking system to the money trusts, when in reality the intent and effect was to wrestle control away from them.  History clearly demonstrates that in the decades prior to the Federal Reserve Act the decisions of a few large New York banks had, at times, enormous repercussions for banks throughout the country and the economy in general.  Following the return to central banking, at least some measure of control was removed from them and placed with the Federal Reserve.


1. Davidson, James West, Mark A. Lytle, et al, (1998), Nation of Nations, New York: McGraw-Hill.

2. Galbraith, John K. (1995), Money: Whence it Came, Where it Went, Boston: Houghton Mifflin.

3. Greider, William (1987), Secrets of the Temple, New York: Simon & Schuster.

4. Griffin, G. Edward (1995), The Creature from Jekyll Island, Appleton: American Opinion Publishing, Inc.

5. Kidwell, David S. and Richard Peterson (1997), Financial Institutions, Markets, and Money, 6th edition, Fort Worth: Dryden Press.

6. "Wilson Signs the Currency Bill," New York Times, pages 1-2, December 24, 1913.
« Last Edit: September 15, 2009, 07:22:35 pm by Giuliano Taverna »
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Giuliano Taverna

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Federal Reserve myth 2
« Reply #3 on: September 15, 2009, 07:21:59 pm »
Myth #2: The Federal Reserve Act never actually passed Congress.  The Senate voted on the bill without a quorum, so the Act is null and void. 

    The silliest of the Federal Reserve conspiracy theories is that the Federal Reserve Act of December 23, 1913 passed illegally.  The constitution stipulates that both the House and the Senate must have at least half their members present, a quorum, to vote on any bill.  According to this myth, the Senate voted on the Federal Reserve Act (known as the Currency Bill at the time) deviously in a late night session when most of its members had gone home or had left town for the holiday.  This was done to impose the will of a pro-banker minority on the objecting majority.  Since no quorum was present, the Federal Reserve Act is not valid.

    This idea is better described as folklore than a full-blown conspiracy theory because I've never been able to find it in print, only on occasion on Usenet or in e-mail from readers.  Gary Kah, author of En Route to Global Occupation, came close when he wrote that the bill's supporters waited until its opponents were out of town and it was passed under "suspicious circumstances" (Kah, p. 13-14).  Nevertheless, the myth has no basis in fact.  The House passed the bill 298-60 on the evening of Dec. 22, 1913.3  The Senate began debate the following day at 10am, and passed it 43-25 at 2:30pm.4

    What of the missing Senators?  Since there were 48 states in 1913, forty eight votes plus the tie-breaking vote of vice-President Thomas Marshall would have been sufficient to approve the bill even if all absent votes had been cast against the bill.  However, many of the missing Senators had their positions recorded in the Congressional Record.1  Of the 27 votes not cast, there were 11 'yeas' (in favor of the bill) and 12 'nays.'1  Even if the absentee Senators had been there, the Currency Bill would have passed easily.

President Wilson signed the Currency Bill into law in an "enthusiastic" public ceremony on Dec. 23, 1913.4


1. Congressional Record, 63rd Congress, 2nd Session, Dec. 23, 1913, pp. 1487-1488.

2. Kah, Gary (1991), En Route to Global Occupation, Layfayette, La.: Huntington Press.

3. "Money bill goes to Wilson today," New York Times, pp. 1-3, Dec. 23, 1913.

4. "Wilson signs currency bill," New York Times, pp. 1-2, Dec. 24, 1913.
"It is the duty of a good shepherd to shear his sheep, not to skin them." Tiberius Caesar

Giuliano Taverna

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Federal Reserve myth 3
« Reply #4 on: September 15, 2009, 07:24:34 pm »
Myth #3: The Federal Reserve Act and paper money are unconstitutional.  Gold and silver coins are the only constitutional forms of money.

Those who hold that the constitution should be interpreted very strictly believe the Federal Reserve System and paper money are unconstitutional.  Sharing the interpretive philosophy of Thomas Jefferson, they argue that Congress has only those powers which the constitution specifically enumerates.  If the power is not explicitly granted, then the federal government simply does not have it.  Therefore, the Federal Reserve is unconstitutional because Congress does not have the specific power to create a central bank.  In addition, the federal government's power to create money -- lawful money -- is limited only to minting gold or silver coins; paper currency is forbidden. 
The Constitutional Basis for Central Banking

First, the constitution grants the Congress the right to coin money and to regulate its value.  It is not clear from the constitution or the Federalist Papers what the authors meant by the term 'value.'  Traditionally, it has meant the weight and metallic content of the coin.  No one challenges this interpretation.  On the other hand, the only relevant meaning of 'value' in the context of money is its value in trade, also known as its purchasing power.  This a government cannot regulate merely by an act of Congress.  The government's only tool for regulating this latter value is altering the money supply.

Second, Congress has the right to regulate interstate commerce.  Banking and other financial services clearly involves interstate commerce as the courts have come to define it.

Finally, and perhaps most importantly, Congress has the right to make any law that is 'necessary and proper' for the execution of its enumerated powers (Art. I, Sec. 8, Cl. 18).  A law creating a Bureau of the Mint, for example, is necessary and proper for the Congress to exercise its right to coin money.  A similar argument may justify a central bank.  It facilitates the expansion and contraction of the money supply and it serves as means to regulate the banking industry.

Is this a reasonable use of the necessary and proper clause?  I do not know, but a test of its meaning came early.  The history of central banking in the United States does not begin with the Federal Reserve.  The Bank of the United States received its charter in 1791 from the U.S. Congress and Washington signed it.  Secretary of State Alexander Hamilton designed the Bank's charter by modeling it after the Bank of England, the British central bank.  Secretary of State Thomas Jefferson believed the Bank was unconstitutional because it was an unauthorized extension of federal power.  Congress, Jefferson argued, possessed only delegated powers that were specifically enumerated in the constitution.  The only possible source of authority to charter the Bank, Jefferson believed, was in the necessary and proper clause.  However, he cautioned that if the clause could be interpreted so broadly in this case, then there was no real limit to what Congress could do.2

Hamilton conceded that the constitution was silent on banking.  He asserted, however, that Congress clearly had the power to tax, to borrow money, and to regulate interstate and foreign commerce. Would it be reasonable for Congress to charter a corporation to assist in carrying out these powers? He argued that the necessary and proper clause gave Congress implied powers -- the power to enact any law that is necessary to execute its specific powers. A “necessary” law in this context Hamilton did not take to mean one that was absolutely indispensable. Instead, he argued that it meant a law that was “needful, requisite, incidental, useful, or conducive to” the primary Congressional power which it supported. Then Hamilton offered a proposed rule of discretion: “Does the proposed measure abridge a pre-existing right of any State or of any individual?” (Dunne, 19).  If not, then it probably is constitutionally proper on these grounds.  Hamilton’s arguments carried the day and convinced Washington.

The Supreme Court had its say on the matter in McCulloch v. Maryland (1819).  It voted 9-0 to uphold the Second Bank of the United States as constitutional.  The Court argued with the doctrine of implied powers, stating that to be ‘necessary and proper’ the Bank needed only to be useful in helping the government meet its responsibilities in maintaining the public credit and regulating the money supply. Chief Justice Marshall wrote, “After the most deliberate consideration, it is the unanimous and decided opinion of this court that the act to incorporate the Bank of the United States is a law made in pursuance of the Constitution, and is part of the supreme law of the land” (Hixson, 117). The Court affirmed this opinion in the 1824 case Osborn v. Bank of the United States (Ibid, 14).

Therefore, the historical legal precedent exists for Congress' power to create a central bank.  It formed the Federal Reserve system in 1913 to perform many of the same functions as its predecessors.  As before, the courts have agreed that a central bank, and the Federal Reserve in particular, is constitutional. 
The Constitutional Basis for Paper Money

Even if the Federal Reserve is a constitutionally proper institution, what of paper money?  The federal government has issued many forms and denominations of paper currency since 1812.  It first made paper a legal tender in 1862.  Does not the constitution require the Congress to coin money, not to print it?  Is this not what the authors of the constitution intended?  Perhaps, but it's not an air-tight issue.   S.P. Breckenridge wrote in Legal Tender of the significant disagreements the delegates to the constitutional convention had over the issue, and even over the interpretation of the wording that they eventually adopted.

Prior to the constitutional convention in the summer of 1787, the States exercised their sovereign powers over monetary matters.  Most States had issued their own forms of paper money, typically called ‘bills of credit’ at the time, and had declared some foreign coins as a legal tender.  By ‘legal tender’ we mean a form of money which a government specifies may be used to settle debts and to pay taxes due to it.  During the Revolutionary War many States issued paper money to excess.  The Congress of the Articles of Confederation had also relied heavily on using paper money to fund its war expenditures.  The States had also declared various forms of paper currency, including  the Congress’ emissions, a legal tender.  Severe price inflation was the necessary result of this over-indulgence in paper, and by the time the constitutional convention convened paper money had many enemies.

The primary foes of paper money were commercial and banking interests.  When a lender agrees to fund a loan, he charges a rate of interest which, among other factors, includes a premium for any expected loss in the purchasing power of the principal during the life of the loan.  If the price level is expected to rise, say, five percent then the lender will insist on an interest of at least that amount.  If in actuality the price level increases eight percent, then the lender stands to lose as much as three percent of his principal.  If a government has the power to issue paper money, then the potential abuse of this power increases the probability of an unexpected inflation.  Commercial concerns also were generally against allowing paper, and for similar reasons.  The sour inflationary experience of the previous decades made the business climate less stable than it might otherwise be with a constitutionally guaranteed gold or silver monetary standard.  In addition, such a standard would protect the integrity of commercial contracts that specified fixed payments in specie.  These interests at the convention therefore had two objectives: To forbid both the States and the federal government from issuing bills of credit -- the common term for paper money at the time -- and to base the monetary system on gold or silver.

Paper money was not without its partisans, however.  Agricultural interests and debtors were fond of paper money, as well as Ben Franklin, and for many of the same reasons.  The losses a lender is likely to suffer at the hands of a paper-induced inflation are exactly offset by the gains of the borrower.  The debtor would then be able to repay a fixed debt in less valuable currency.  Farmers also generally favored paper money because it tended to create an economic climate of rising commodity prices relative to other goods, thereby increasing their real income.  Their monetary goal at the convention was to give the government the right to issue bills of credit or, at the very least, not to deny it the power.

Charles Pinckney of South Carolina produced a draft of a constitution that had two interesting features for our purposes.  From Art. VII. Sec. 1 of his draft we read “The legislature of the United States shall have power … (4) To coin money … (5) To regulate the value of foreign coin … ( 8 ) To borrow money and emit bills on the credit of the United States …”  Also we find in Article XII: “No state shall coin money.”  We further read in Article XIII: “No state, without the consent of the legislature of the United States, shall emit bills of credit, or make anything but specie a tender in payment of debts.”  We can glean some indication of the Founders’ intent concerning paper money from the debate on the matter in Madison’s notes on the convention.  What follows below is an excerpt of those notes on this debate: 

    MR. GOUVERNEUR MORRIS [PA.] moved to strike out “and emit bills on the credit of the United States.”  If the United States had credit such bills would be unnecessary; if they had not, unjust and useless.

    MR. BUTLER [S.C.] seconds the motion.

The fundamental theory on which the Founders created the U.S. constitution is of a government of limited powers.  The federal government would have only those powers specifically enumerated and those reasonably necessary to enact them.  If a power is not expressly given to it, then it is denied.  What Robert Morris of Pennsylvania seeks to do with the above motion is to deny the federal government the specific right to issue paper money.  The discussion continued: 

    MR. MADISON [Va.] Will it not be sufficient to prohibit making them a tender? This will remove the temptation to emit them with unjust views; and promissory notes in that shape may in some emergencies be best.

    MR. GOUVERNEUR MORRIS: Striking out the words will still leave room for the notes of a responsible minister, which will do all the good without the mischief.  The moneyed interests will oppose the plan of government if paper emissions be not prohibited.

    MR. GORHAM [Mass.] had doubts on the subject.  Congress, he thought, would not have the power unless it was expressed.  Though he had a mortal hatred to paper money, yet, as he could not foresee all emergencies, he was unwilling to tie the hands of the legislature.  He observed the late war could not have been carried on had such a prohibition existed.

Gorham’s thoughts on this are key to interpreting how the Founders would eventually resolve this issue.  The Revolutionary War was financed to a great extent on paper money the Continental Congress and later the Congress of the Articles of Confederation had issued.  The Congress had no taxing authority of its own and the newly independent States were unwilling to contribute any significant funds of their own for the war effort.  The Congress, with limited credit, was therefore left to emitting paper money.  Although its over-issuance was largely responsible for the severe inflation of the time, it was also clear to the Founders and to later historians the States could not have funded their effort in any other way.  The personal financial losses many of the delegates suffered at the hands of the paper money did much to alienate them from the medium, but it did not erase from their memory the acknowledgment of its financial contribution to their independence.  Gorham, like others at the convention, disliked paper, but were hesitant in denying forever the government’s ability to use it.  Madison’s notes continued: 

    MR. MERCER [Md.] was a friend to paper money, though in the present state and temper of America he should neither propose nor approve of such a measure.  He      was consequently opposed to a prohibition of it altogether.  It will stamp suspicion on the government to deny it discretion on this point.  It was impolitic also to excite the opposition of all those who were friends to paper money.  The people of property would be sure to be on the side of the plan, and it was impolitic to purchase their further attachment with the loss of the opposite class of citizens.

    MR. ELLSWORTH [Conn.] thought this a favorable moment to shut and bar the door against paper money.  The mischiefs of the various experiments which been made were now fresh in the public mind, and had excited the disgust of all the respectable part of America.  By withholding the power from the new government, more friends of influence would be gained to it than by almost anything else.  Paper money can in no case be necessary.  Give the government credit, and other resources will offer.  The power may do harm, never good.

    MR. RANDOLPH [Va.], notwithstanding his antipathy to paper money, could not agree to strike out the words, as he could not foresee all the occasions that might arise.   

Here in a microcosm is the debate on whether to deny the federal government the right to issue paper money.  Mercer and Ellsworth clearly represented the agricultural and commercial interests, respectively, and their positions are understandable within this context.  Randolph, however, took the middle ground, wondering whether it was wise to tie the hands of future legislatures.

Eventually, the convention voted 9-2 to strike the clause, thereby denying the federal government the specific power to emit bills of credit.  The relevant sections of the constitution eventually approved read: Art. I. Sec. 8.: “The Congress … shall have power … (2) to borrow money on the credit of the United States … (5) To coin money, regulate the value thereof, and of foreign coin, and fix the standard weight and measures.”  Art. II. Sec 10.: “No state shall coin money nor emit bills of credit nor make anything but gold and silver coin a legal tender in payment of debts …”

These clauses have several implications relevant to the question of whether today’s paper money is constitutional.  Among the lesser effects for our purposes is that it removed from the States their previous sovereign power to coin money or to emit paper money.  It also restricted what they could declare a legal tender.  The question, though, is whether the Congress may legally issue paper money.  Some argue that it was the Founders’ intent to bar the door to paper money permanently and the vote to strike the bills of credit clause from Pinckney’s draft is evidence of this intent.  This may be a hasty interpretation, however.

Although several members of the convention wanted to deny paper money to the federal government and believed the act of striking the 'bills of credit' clause accomplished the task, not all delegates shared either this intent or this interpretation.  Several  members, as shown above, were either friends of paper money or did not want to tie the hands of the Congress for all time.  The interpretation of their action varies widely.  Mason believed that if the power was not expressly given, it was denied.  As far as he was concerned, the Congress could not authorize paper money.  Morris, though, believed it to be permissible for a ‘responsible minister.’  Madison, who cast the deciding vote in the Virginia delegation to strike the clause, still viewed it as legal provided the notes were safe and proper.  Madison wrote, “Nothing very definite can be inferred from this record” as to the views of the convention on this matter.  As President, Madison approved of a $36 million non-legal tender paper money issue to help finance the War of 1812.  His actions seem to have spoken louder than his words.  Luther Martin, a delegate from Maryland, explained his views to the Maryland legislature and stated:

    Against this motion we urged that it would be improper to deprive the Congress of      that power; that it would be a novelty unprecedented to establish a government which should not have such authority; that it would be impossible to look forward     into futurity so far as to decide that events might not happen that should render the exercise of such a power absolutely necessary; and that we doubted whether if a war should take place it would be possible for this country to defend itself without resort to paper credit, in which case there would be a necessity of becoming a prey to our enemies or violating the constitution of our government; and that, considering that our government would be principally in the hands of the wealthy, there could be little reason to fear an abuse of the power by an unnecessary or injurous exercise of it.

It is clear the intent of the Founders was to prohibit the States from issuing paper money.  It is not clear whether the same intent applied to the Congress.  Wrote Breckenridge, “the clause granting to Congress the power to emit bills was stricken out, and no prohibition was laid.  Silence as to that was maintained; and all that can be said as to the interpretation of that silence is that, although there was a strong and well-nigh universal dread of paper issues, there was a stronger dread of too narrowly limiting the powers of the new legislature; and that there was neither a very definite nor a unanimous opinion as to the effect of striking out the clause, or as to the extent of the power granted (p.84).”  It appears the Founders, whether intentionally or not, left the paper money issue to be settled by future generations. 
Recent Federal Court Rulings on the Federal Reserve and Paper Money

Below are some recent court rulings on the issues of the Federal Reserve and paper money.

U.S. v. Rickman, 638 F.2d 182, C.A.Kan. 1980:

    Federal Reserve Notes in which the defendant, charged with failure to file federal income tax returns, was paid were lawful money within the meaning of the United States Constitution. 26 USCA §7203; USCA Const. Art. 1, §8, cl. 5.

U.S. v. Wangrund, 533 F.2d 495; C.A.Cal. 1976

    The statute establishing Federal Reserve Notes as legal tender for all debts, public and private, including taxes, is within the constitutional authority of Congress; thus the defendant could not overturn his conviction on two counts of wilful failure to make an income tax return on the theory that he did not receive money since checks he received as compensation for his services could be cashed only for Federal Reserve Notes which were not redeemable in specie. 26 USCA §61, §7203; USCA Const. art. 1, §8; Coinage Act of 1965, §102; 31 USCA §392.

Nixon v. Individual Head of St. Joseph Mortgage Company, 615 F.Supp. 890, affirmed 787 F.2d 596. D.C.Ind. 1985.

    Federal Reserve notes are legal tender.

Ginter v. Southern, 611 F.2d 1226, certiorari denied 100 S.Ct 2946, 446 US 967, 64 L.E.d.2d 827. C.A.Ark. 1979.

    Tax protestor's claims concerning the constitutionality of the Federal Reserve System, Internal Revenue Code and establishment of tax court were so frivolous as not to require discussion and detail. USCA Const. Amends. 5, 13; 28 USCA §1346; 26 USCA §6532, 26 USCA §7422.

U.S. v. Schmitz, 542 F.2d 782 certiorari denied 97 S.Ct. 1134, 429 US 1105, 51 L.Ed.2d 556. C.A.Cal. 1976.

    Federal Reserve Notes constitute legal tender and are taxable dollars. USCA Const. Art. 1, §10.

Milam v. U.S., 524 F.2d 629. C.A.Cal. 1974.

    The statute which delegates to the Federal Reserve System the power to issue circulating notes for money borrowed and the power to define the quality and force of those notes as currency is valid ... Although golden eagles, double eagles, and silver dollars were lovely to look at and delightful to hold, the holder of a $50 Federal Reserve Bank Note, although entitled to redeem his note, was not entitled to do so in precious metal. Federal Reserve Act, §16, 12 USCA §411; Coinage Act of 1965, §102, 31 USCA §392.

Moreover, the paper money issue is an irrelevant one.  If we replace each all paper that has "one dollar" printed on it with a coin that has "one dollar" stamped on it, what will we gain?  We willl have achieved compliance with the literal words of the constitution at the expense of a convenient and popular form of money. 
Gold and Silver Coin

It is also sometimes argued that the constitution permits the minting only of gold or silver coins.  This is a misinterpretation, as a federal court makes clear in  U.S. v. Rifen, 577 F.2d 1111. C.A.Mo. 1978:

    The United States Constitution prohibits states from declaring legal tender anything other than gold or silver but does not limit Congress' power to declare what shall be legal tender for all debts ... Federal Reserve Notes are taxable dollars. Coinage Act of 1965, §102, 31 USCA §392; USCA Const. Art. 1, §10.

This point is made further in Nixon v. Phillipoff, 615 F.Supp. 890, affirmed 787 F.2d 596. D.C.Ind. 1985:

    The provision of the Constitution [USCA Const Art. 1, §8, cl. 5] which gives Congress the right to coin money, and regulate the value thereof, gives Congress exclusive ability to determine what will be legal tender throughout the country ... The provision of the Constitution [USCA Const. Art. 1, §10, cl. 1] which mandates that no state shall make anything but gold or silver coin tender in payment of debts acts only to remove from states inherent soverign power to declare currency, thus leaving Congress as the sole  declarant of what constitutes legal tender; the provision does not require states to accept only gold and silver as tender ... Federal Reserve Notes are legal tender for any debt or public charge ... Using or accepting Federal Reserve Notes as payment for state court filing fees was completely proper under the Constitution. USCA Const. Art. 1, §8, cl. 5; 31 USCA §5103.

The court made the point again somewhat humourously in Foret v. Wilson, 725 F.2d 400. C.A.La. 1984:

    Gold and silver coin do not constitute the only legal tender by the United States; thus, the appellant, who bid $2.80 in silver dimes on a foreclosed property requiring a minimum bid of $80,000 under Louisiana law, was not entitled to the deed to the property.

Are Gold and Silver Practical Metals for Coins?

We could replace all our paper money with coins containing the appropriate amount of a precious metal.  Gone would be the $1 Federal Reserve Note, and in its place a coin with $1 stamped on it.  Apparently, this would make the paper money opponents happy.  Or would it?  As it turns out, the amount of gold that would need to be in a $1 coin would be so tiny it would barely be there at all.

In the summer of 1999, the price of gold is about $250/oz.  Therefore, a $1 coin would need 1/250ths ounce of gold in it; that is to say, it would contain 0.4% gold and 99.6% base metals.  A quarter-dollar would have 0.1% gold and 99.9% base metals.  A $20 coin would have 8.0% gold and 92% base metals.  If any more gold than that were included, then it would pay to melt the coins and sell the gold, and then we'd be without a physical medium of exchange.

Silver has the same problem.  The price of silver is about $5/oz., so we could mint a $5 coin containing 100% silver.  A $1 coin would have 20% silver.  A quarter would have about 5% silver and 95% base metals.  Could anyone honestly tell the difference between the quarter we have now and one with 5% silver?   

Breckenridge, S.P., Legal Tender, N.Y.: Greenwood Press, 1903, 1969.

Dunne, Gerald T., Monetary Decisions of the Supreme Court, Rutgers Univ. Press, 1960.

Hixson, William F., Triumph of the Bankers: Money and Banking in the Eighteenth and Nineteenth Centuries, Praeger, 1993.

1. I have no formal legal training and do not consider myself a constitutional scholar.

2. Then, curiously, in the memorandum in which he articulated his thoughts on this matter, Jefferson advised that if the President felt that the pros and cons of constitutionality seemed about equal, then out of respect to the Congress which passed the legislation the President could sign it (Dunne, p. 17-19).   
« Last Edit: September 15, 2009, 08:04:17 pm by Giuliano Taverna »
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Giuliano Taverna

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Federal Reserve myth 4
« Reply #5 on: September 15, 2009, 07:26:38 pm »
Myth #4: The Federal Reserve is a privately owned bank out to make a profit at the taxpayers' expense.

    This myth claims that the 12 Federal Reserve banks are privately owned and therefore want to earn a profit just like any other company.  Of course, the Fed holds the reigns of monetary policy, so naturally they will use it for the benefit of their owners and not the economy at large.  And finally, since the Fed owns lots of government bonds, much of the Fed's profits come at the taxpayers' expense through the interest paid to the Fed on those bonds.  Like many of the other Federal Reserve myths, this one has a small degree of truth to it, but also has a fair amount of misinterpretation and it leaves out a number of crucial details.

      Organization of the Federal Reserve System

    The Federal Reserve System is sometimes described as a quasi-government agency because it contains elements of both the private sector and of government control.  The System has three organization levels: member banks, Federal Reserve Banks, and the Board of Governors.  Let's examine each briefly.

    Member banks are at the bottom of the organization chart.  These are commercial banks and S&Ls who have joined the Federal Reserve System (FRS).  By law, all nationally chartered banks must join, and any state chartered bank has the option to join (12 USCA §282).  By joining the FRS a member bank is becoming a shareholder -- an owner -- in its regional Federal Reserve Bank.  For example, suppose you and I open a new nationally chartered bank in Charlotte, North Carolina.  According to the district map, we see that Charlotte is in the Richmond Federal Reserve district, so our new bank will have to become a member of the Richmond Federal Reserve Bank.  So, the claim that the "Fed is privately owned" is correct -- each Federal Reserve Bank is owned by private for-profit commercial banks and S&Ls.

    Why are member banks -- the owners -- at the bottom of the organization chart?  They are at the bottom because unlike the shareholders of a typical corporation such as IBM, member banks have very little power over how their regional Federal Reserve Bank is run.  And they have no control at all over monetary policy.  Shareholders of IBM elect the company's board of directors who in turn choose the firm's CEO, so they have a collective say on the company's operations.  Member banks also get to select 6 of the 9 directors of their regional Federal Reserve Bank, but these directors control only the Bank's daily operations, not monetary policy which is the most important function of the Federal Reserve System (12 USCA §301 and 12 USCA §302).

    At the middle level in the organization chart are the 12 regional Federal Reserve Banks.  They have a variety of powers and duties, some of which are:

        * Buy and sell government bonds in the secondary markets (open market operations)
        * Lend reserves to member banks
        * Offer check-clearing services to member and non-member banks
        * Issue Federal Reserve Notes and collect worn-out ones for destruction
        * Enforce reserve requirements and other regulations of the member banks
        * Monitor banking and economic activity within their respective district

    In terms of monetary policy, the most important power is the first one -- open market operations.  Buying government bonds in the secondary markets increases the amount of reserves in the banking system, puts downward pressure on interest rates, and tends to expand the money supply.  Selling government bonds does the opposite.  This is the monetary policy function that is most often associated with the Fed (What is monetary policy?).  However, a Federal Reserve Bank can only employ open market operations with the explicit approval of the Board of Governors (12 USCA §355).

    Finally, at the top of the structure chart is the Board of Governors.  The Board is a 7-member panel who is appointed by the President of the United States and confirmed by the Senate (12 USCA §241).  The Board's current Chair is Alan Greenspan.  Among its responsibilities:

        * Determine open market policies
        * Set the required reserve ratio for member banks
        * Set the Discount Rate
        * Deciding how much new currency to print
        * Monitor the health of the U.S. economy
        * Report to Congress periodically on the state of the U.S. economy

    It's single most important duty is deciding its open market policy, that is, whether it should order the Federal Reserve Banks to buy or sell government bonds, and if so, how much.  This decision is made in conjunction with the Federal Open Market Committee.  The FOMC is a 12-member panel can consists of all the Board members, the president of the New York Federal Reserve Bank, and 4 presidents from the other Federal Reserve Banks on a rotating basis.  The presidents are appointed by each Bank's board of directors, pending approval from the Board of Governors (12 USCA §341).

    Thus, all the key monetary policy decisions -- the ones that affect interest rates -- are made by a government agency whose members are selected by the President of the United States.  The Fed may be privately owned, but it is controlled by the government. 

    The Fed and Taxpayers

    The second part of this myth is that the Fed is a drain on the Treasury, and therefore a drain on taxpayers.  This is untrue.  The Federal Reserve Banks are entirely self-financing institutions; they do not receive any tax dollars allocated to them from the federal budget.  Let's take a look at the table below to see exactly where they get their money and how they spend it:

1999 Combined Statements of Income of the Federal Reserve Banks (in millions)

Interest income   

Interest on U.S. government securities $28,216   

Interest on foreign securities 225   

Interest on loans to depository institutions 11

Other  income 688                                                       


Total operating income 29,140

Operating expenses   Salaries and benefits 1,446   

Occupancy expense 189   

Assessments by Board of Governors 699   

Equipment expense 242   

Other 302                                                       


Total operating expenses 2,878

Net Income Prior to Distribution $26,262

Distribution of Net Income   

Dividends paid to member banks 374   

Transferred to surplus 479   

Payments to U.S. Treasury 25,409                                                       


Total distribution  26,262

    Source: 86th Annual Report of the Board of Governors, p.335. 

    We can see from the top of the table that the Fed's primary source of income is interest from government bonds.  This money is paid to the Fed by the U.S. Treasury.  Is this not de facto evidence the Fed is leaching off the taxpayers?  No, it is not.  The Treasury is obligated to pay interest to whomever owns those bonds.  If the Fed did not own them, then the interest would have been paid to someone else.  In fact, from the Treasury's perspective, it is a good thing the Fed holds those bonds.  At the bottom of the table, we see the Fed makes a substantial annual payment to the Treasury.  The higher the Fed's net income is, the larger the payment to the Treasury.  In other words, the Treasury gets back a significant amount of the interest paid to the Fed.  Thus, government bonds held by the Fed are essentially interest-free loans to the government. 

    The regional Federal Reserve Banks are private owned, but they are controlled by the Board of Governors -- a federal agency whose members are appointed by the President and confirmed by the Senate.  The Board sets monetary policy and the Federal Reserve Banks execute it.  In addition, the Fed does not use any taxpayer money to fund its operations.  While the Fed does collect interest on government bonds, the Treasury would have had to make such payment even if they Fed did not hold any bonds.  Moreover, the Fed rebates a significant share of its net income to the Treasury each year, revenues the government would not have at all if the Fed owned no government bonds.   
« Last Edit: September 15, 2009, 07:31:49 pm by Giuliano Taverna »
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Federal Reserve myth 5
« Reply #6 on: September 15, 2009, 07:33:22 pm »
Myth #5. The Federal Reserve is owned and controlled by foreigners. 


    The Federal Reserve System is the primary regulatory agency governing the U.S. banking industry.  It has singular importance in setting monetary policy and many economists believe it has substantial influence on the course of the business cycle.  Yet, could it be that the most important economic institution in the United States is actually owned by foreigners?  Gary Kah (1991) and Eustace Mullins (1983) authored separate books alleging that a secretive international banking elite owns and controls the Fed.  Furthermore, his shadowy group uses its power to manipulate financial markets and to control the U.S. economy.

    The focus of both books is the Federal Reserve Bank of New York.  What we typically call the ‘Fed’ is actually a two level system: 12 regional Federal Reserve Banks (the New York Fed is one of them) and the Board of Governors that runs them (Alan Greenspan is the Board’s chair).  Gary Kah claimed foreigners directly own the New York Fed, the largest and most important of the dozen regional institutions.  Through it the international collaborators control the entire Federal Reserve System and reap its gigantic profits.  Eustace Mullins agreed on the importance of the New York Fed, but instead claimed it is owned indirectly by foreigners – through a European banking club he termed the “London Connection” which controls the Fed’s policies from abroad.

    Are any of allegations true?  In this article I focus on whether foreigners own the Federal Reserve Bank of New York either directly or indirectly, whether it controls the enitre of the Federal Reserve System, and whether foreigners receive the Fed’s large annual profits. 
    Who Owns the New York Federal Reserve?

    Each of the twelve Federal Reserve Banks is organized as a corporation in much the same way as many other firms.  According to Kah, foreigners own a controlling interest in the shares of the New York Fed.  He claimed that “Swiss and Saudi Arabian contacts” identified the top eight shareholders as

        * Rothschild Banks of London and Berlin
        * Lazard Brothers Banks of Paris
        * Israel Moses Seif Banks of Italy
        * Warburg Bank of Hamburg and Amsterdam
        * Lehman Brothers of New York
        * Kuhn, Loeb Bank of New York
        * Chase Manhatten Bank, and
        * Goldman, Sachs of New York (Kah, p. 13).

    He also described these groups as the bank’s “Class A shareholders” (p. 14).  This is curious because Federal Reserve stock is not classified in this manner.  It can be either “member stock” or “public stock,” but there are no such things as ‘Class A’ shares.  However, the directors of a Federal Reserve Bank are separated into classes A, B, and C depending on how they are appointed (12 USCA §302). This may have been the source of Kah’s confusion.

    Eustace Mullins compiled a very different list.  He reported that the top 8 stockholders of the New York Fed were

        * Citibank
        * Chase Manhatten Bank
        * Morgan Guaranty Trust
        * Chemical Bank
        * Manufacturers Hanover Trust
        * Bankers Trust Company
        * National Bank of North America, and
        * Bank of New York.

    According to Mullins these institutions in 1983 owned a combined 63% of the New York Fed’s stock.  These American banks, in turn, were owned by European financial institutions.  Since the commercial banks in the New York Fed's district elect its board of directors, the London Connection is able to use their American agents to pick the Bank's directors and ultimately control the whole Federal Reserve System.  He explained, 

        ... The most powerful men in the United States were themselves answerable to another power, a foreign power, and a power which had been steadfastly seeking to extend its control over the young republic since its very inception. The power was the financial power of England, centered in the London Branch of the House of Rothschild.  The fact was that in 1910, the United States was for all practical purposes being ruled from England, and so it is today (Mullins, p. 47-48).

    He remarked further that the day the Federal Reserve Act was passed in 1913, “the Constitution ceased to be the governing covenant of the American people, and our liberties were handed over to a small group of international bankers” (p. 29).

    Clearly, there is a discrepancy between the two lists.  According to Kah, foreigners own shares of the New York Fed directly, but Mullins stated they owned and controlled the Fed indirectly through ownership of American banks.  So who is right?  Mullins cited the Federal Reserve Bulletin for his information on share ownership, but that publication has never reported the shareholder list of any Federal Reserve Bank.  Kah’s source is equally elusive – unnamed Swiss and Saudi Arabian contacts.  Despite the difficulty in verifying their sources, it may be possible that both men are correct.  The two authors published their lists eight years apart.  Since Mullins’ was the earlier of the two, it may be possible that sometime between 1983 and 1991 foreigners acquired a substantial amount of stock in the New York Fed.  Of course, it is also possible that they're both wrong.

    To clarify this mystery, let’s first look at the Federal Reserve Act of 1913.  The law requires that all nationally chartered commercial banks and S&Ls buy stock in their regional Federal Reserve Bank, thereby becoming “member banks” (12 USCA §282).  State chartered banks may also join voluntarily.  The amount of stock a given bank must purchase is proportional to the bank’s size, so we would expect that the largest shareholders to be the biggest commercial banks operating in the district.  This agrees with Mullins since all of the banks on his list were the largest banks in the New York region in 1983.

    Gary Kah’s list of alleged shareholders is more suspect.  The law does not permit the stock of a Federal Reserve Bank to be traded publicly like the stock of a typical corporation (12 USCA §286).  The original Federal Reserve Act called for each regional Bank to sell stock to raise at least $4 million to begin operations (12 USCA §281).  The stock was to be sold only to banks, not to the public.  Only in the event that sales to member banks did not raise the necessary $4 million would the regional Fed Banks be permitted to sell shares to the public.  However, all Banks raised the requisite amount of capital.  No stock in any Federal Reserve Bank has ever been sold to the public, to foreigners, or to any non-bank U.S. firm (Woodward, 1996).  Foreign interests comprise half of the alleged owners on Kah’s list.  Moreover, three of the hypothesized American owners are not even banks: Goldman-Sachs, Lehman Brothers, and Kuhn-Loeb are all investment banks, not commercial banks, and so are ineligible to own any shares of a Federal Reserve Bank.  The law prohibits the general public, non-bank firms, and foreigners from owning anything more than a trivial amount of stock in any Federal Reserve Bank (12 USCA §283).  The only institution on Kah's list that could possibly own shares of the New York Fed is Chase Manhatten.  All the others named on the list are incorrect.  Kah's list is mostly bunk.

    Fortunately, we can take a more direct approach to the question of ownership of the New York Fed and the other Federal Reserve Banks.  The New York Fed reports that its eight largest member banks on June 30, 1997 were:

        * Chase Manhatten Bank
        * Citibank
        * Morgan Guaranty Trust Company
        * Fleet Bank
        * Bankers Trust
        * Bank of New York
        * Marine Midland Bank, and
        * Summit Bank.3

    All of the major shareholders seen here and all of the banks on the complete list are either nationally- or state-charted banks.  All of them are American-owned.  Kah’s claim that foreigners directly own the N.Y. Fed is completely wrong.  This list is consistent, however, with Mullins in that all the owners are domestic banks functioning within the N.Y. Federal Reserve district.  The discrepancies are likely due to mergers or other significant changes in the size of district banks since the publication of Mullins’ list.  To obtain a list of member banks of other Federal Reserve banks, click here.

      Global Domination Through the Back Door?

    Although foreigners do not own the New York Federal Reserve Bank directly, perhaps, Mullins argued, they own and control it indirectly via ownership of domestic banks.  Since the money-center banks of New York own the largest portion of stock in the New York Fed, they hand-pick its board of directors and president.  This would give them, and hence the London Connection, control over Fed operations and U.S. monetary policy.

    The Securities and Exchange Commission requires that firms whose stock is traded publicly report their major stockholders each year.  The reports identify all institutional shareholders (primarily, firms owning stock in other companies), all company officials who own shares in their firm, and any individual or institution owning more than 5% of the firm’s stock.  These reports show that only one of the N.Y. Fed’s current largest shareholders, Citicorp, has any major foreign stockholders.  As of January 1996, Price Alwaleed Bin Talad of Saudi Arabia owned 8.9% of Citicorp stock.2   None of the member banks on the above list have any significant portion of shares held by any foreign individual or institution.  Mullins' claim that foreigners own the N.Y. Federal Reserve indirectly is also wrong.

    Moreover, the ownership rights of Federal Reserve Bank stock are different than the common stock of typical corporations.  Usually, the number of votes a shareholder has is proportional to the number of shares he owns.  However, ownership of Federal Reserve Bank stock entitles the shareholder to one vote when voting for its regional Federal Reserve Bank officials regardless of how many total shares the member bank may own.  A group of international conspirators would need to purchase a controlling interest in a majority of the banks operating in the N.Y. district to guarantee the election of their desired minions to the N.Y. Fed’s board of directors.  Buying that much stock in so many U.S. banks would require an outlay of hundreds of billions of dollars. Surely there must be a cheaper path to global domination.

    Mullins’ premise here is that the member banks control the policies of the N.Y. Fed.  In the next section I detail why this is wrong, but an historical example also illustrates the fault of this assumption.  Galbraith (1990) recounts that in the spring of 1929 the New York Stock Exchange was booming.  Prices there had been rising considerably, extending the bull market that began in 1924.  The Federal Reserve Board decided to take steps to arrest the speculative bubble that appeared to be forming: It raised the cost banks had to pay to borrow from the Federal Reserve and it increased speculators’ margin requirements. Charles Mitchell, then the head of National City Bank (now Citicorp, one of the largest shareholders of the N.Y. Fed at the time), was so irritated by this decision that in a bank statement he wrote, “We feel that we have an obligation which is paramount to any Federal Reserve warning, or anything else, to avert any dangerous crisis in the money market” (Galbraith, p. 57).  National City Bank promised to increase lending to offset any restrictive policies of the Federal Reserve.  Wrote Galbraith, “The effect was more than satisfactory: the market took off again.  In the three summer months, the increase in prices outran all of the quite impressive increase that had occurred during the entire previous year” (Ibid).  If the Fed and its policies were really under the control of its major stockholders, then why did the Federal Reserve Board clearly defy the intent of its single largest shareholder? 
    Does the New York Fed Call the Shots?

    Mullins and Kah both argue that by controlling the New York Federal Reserve Bank, the international banking elite command the entire Federal Reserve System and thus direct U.S. monetary policy for their own profit.  “For all practical purposes,” Kah writes, “the Federal Reserve Bank of New York is the Federal Reserve” (Kah, p.13; emphasis his).  This is the linchpin of their conspiracy theory because it provides the mechanism by which the international bankers can execute their plans.  A brief look at how the Fed’s powers are actually distributed shows that this key assumption in the conspiracy theory is wrong.

    The Federal Reserve System is controlled not by the New York Federal Reserve Bank, but by the Board of Governors (the Board) and the Federal Open Market Committee (FOMC).  The Board is a seven-member panel appointed by the President and approved by the Senate.  It determines the interest rate for loans to commercial banks and thrifts, selects the required reserve ratio which determines how much of customer deposits a bank must keep on hand (a factor that significantly affects a bank’s ability create new credit), and also decides how much new currency Federal Reserve Banks may issue each year (12 USCA §248).  The FOMC consists of the members of the Board, the president of the New York Fed, and four presidents from other regional Federal Reserve Banks.  It formulates open market policy which determines how much in government bonds the Fed Banks may buy or sell – the major tool of monetary policy (12 USCA §263).

    The key point is that a Federal Reserve Bank cannot change its discount rate or required reserve ratio, issue additional currency, or purchase government bonds without the explicit approval of either the Board or the FOMC.  The New York Federal Reserve Bank, through its direct and permanent representation on the FOMC, has more say on monetary policy than any other Federal Reserve Bank, but it still only has one vote of twelve on the FOMC and no say at all in setting the discount rate or the required reserve ratio.  If it wanted monetary policy to go in one direction, while the Board and the rest of the FOMC wanted policy to go another, then the New York Fed would be out-voted.  The powers over U.S. monetary policy rest firmly with the publicly-appointed Board of Governors and the Federal Open Market Committee, not with the New York Federal Reserve Bank or a group of international conspirators.

    Mullins also made a great to-do about the Federal Advisory Council.  This is a panel of twelve representatives appointed by the board of directors of each Fed Bank.  The Council meets at least four times each year with the members of the Board to give them their advice and to discuss general economic conditions (12 USCA §261).  Many of the members have been bankers, a point not at all missed by Mullins. He speculates that this Council of bankers is able to force its will on the Board of Governors:

        The claim that the “advice” of the council members is not binding on the Governors or that it carries no weight is to claim that four times a year, twelve of the most influential bankers in the United States take time from their work to travel to Washington to meet with the Federal Reserve Board merely to drink coffee and exchange pleasantries (Mullins, p. 45).

    A point Mullins neglects entirely is that the Council has no voting power in Board meetings, and thus has no direct input into monetary policy.  In support of his hypothesis Mullins offers no evidence, not even an anecdote.  Moreover, his Council theory is inconsistent with his general thesis that the London Connection runs the Federal Reserve System via their imagined control of the N.Y. Fed.  If this were true, then why would they also need the Council? 
    Who Gets the Fed’s Profits?

    Gary Kah and Thomas Schauf (1992) also maintain that the huge profits of the Federal Reserve System are diverted to its foreign owners through the dividends paid to its stockholders.  Kah reports “Each year billions of dollars are ‘earned’ by Class A stockholders of the Federal Reserve” (Kah, p. 20).  Schauf further laments by asking, “When are the profits of the Fed going to start flowing into the Treasury so that average Americans are no longer burdened with excessive, unnecessary taxes?”

    The Federal Reserve System certainly makes large profits.  According to the Board’s 1999 Annual Report, the System had net income totaling $26.2 billion, which would qualify it as one of the most profitable companies in the world if the System were a typical corporation.  How were these profits distributed?  $342 million, or 1.4% of the profits, were paid to member banks as dividends.  Another $479 million, or 1.8%, was retained by the 12 Reserve Banks.  The balance of $25.4 billion -- or 96.9% of the profits -- was paid to the Treasury.  Obviously, Schauf's statement that the member banks are getting "billions" in dividends every year is absurd.  In addition, the Fed has been rebating its profits to the Treasury since 1947. 

    The allegation that an international banking cartel controls the Federal Reserve is wrong.  Contrary to Kah’s claim, foreigners do not own any stock in the New York Federal Reserve Bank.  Neither do they currently own any significant shares of the domestic banks that actually do own shares in the N.Y.    Fed.  Moreover, the central assumption that control of the New York Federal Reserve is the same as control of the whole System is badly mistaken.  Also, the profits of the Federal Reserve System, again contrary to the conspiracy theorists, are funneled almost entirely back to the federal government, not to an international banking elite.  If the U.S. central bank is in the grip of an international conspiracy, then Mullins, Kah, et al have certainly not uncovered it.

    1.  State chartered banks have the option of becoming member banks of the Federal Reserve System.  Interestingly, only 10% of have done so.

    2. Compact Disclosure CD-ROM, v3.0

    82nd Annual Report, 1995,  Board of Governors of the Federal Reserve System,  U.S. Government  Printing Office.

    Galbraith, John K. (1990), A Short History of Financial Euphoria.  New York: Whittle Direct Books.

    Kah, Gary (1991),  En Route to Global Occupation. Lafayette, La.: Huntington House.

    Mullins, Eustace (1983),  Secrets of the Federal Reserve.  Staunton, Va.: Bankers Research Institute.

    Schauf, Thomas (1992),  The Federal Reserve, Streamwood, IL: FED-UP, Inc.

    Woodward, G. Thomas (1996), “Money and the Federal Reserve System: Myth and Reality.”  Congressional Research Service.

    United States Code Annotated, 1994.  U.S. Government Printing Office.
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Federal Reserve myth 6
« Reply #7 on: September 15, 2009, 07:34:19 pm »
Myth #6:  The Federal Reserve has never been audited. 

    An often repeated Federal Reserve conspiracy theory is that the Fed has never been audited.  "Every year Congress introduces legislation to audit the FED," wrote Thomas Schauf, "and every year it is defeated."7  Why?  Conspiracy theorists such as Schauf, Gary Kah (1991), and Pat Robertson (1994) say the reason is that the Fed is involved in an international plot to subvert U.S. sovereignty and create a one-world government.  Naturally, the Fed will not permit Congress to audit its activities, lest it discover this treasonous plan and shut it down.

    How much truth is there to this claim?  Has the Fed ever been audited by Congress or anyone else?  The Fed controls U.S. monetary policy and can act with a great deal of independence from Congress and the executive branch.  Clearly, such awesome power requires some sort of regular public oversight at the very least to insure that the Fed is doing its job efficiently and effectively, and to detect any abuses of power or fraud. This essay explores the claim that the Fed has never been audited and finds that it is completely false.
    A Brief History of Federal Reserve Audits

    Since its inception in 1913 the Federal Reserve System has been subjected to a variety of financial and performance audits by Congress, the executive branch, and private accounting firms, although responsibility for this task has shifted from time to time. From 1913 to 1921 the Board of Governors, then known as the Federal Reserve Board which sets monetary policy and regulates the activities of the Federal Reserve Banks, was audited annually by the U.S. Treasury Department.  In 1921 Congress created the Government Accounting Office (GAO) and assigned it to audit the Board until 1933.  In the Banking Act of 1933, Congress voted specifically to remove the Board from the GAO's jurisdiction.  From 1933 to 1952 audit teams from the twelve Federal Reserve Banks performed the annual examination of the BOG's books.  From 1952 to 1978, the Board, under authorization from Congress, decided to employ nationally recognize accounting firms to conduct the audits of itself to insure independent oversight.  This provided an external evaluation of the adequacy and effectiveness of the examination procedures.1

    In 1978 Congress passed the Federal Banking Agency Audit Act (31 USCA §714).  It placed the Federal Reserve System back under the auditing authority of the GAO.  The Act significantly increased the access of the GAO to the Federal Reserve Banks, the Board, and the Federal Open Market Committee (the FOMC). Since then, the GAO has conducted over 100 financial audits and performance audits of the three Federal Reserve bodies.3
    Scope of GAO Audits

    Some of the more important GAO performance audits of the Fed have been in the areas of bank supervision, payment systems activities, and government securities activities.  In the first area, the GAO examined how well the Fed was enforcing its regulatory powers over its member banks.  In 1992 it drew attention to the Fed's sluggish compliance with regulatory reforms mandated by the Foreign Bank Supervision Act of 1991.  In examining the Fed's payment system activities, the GAO made the Fed aware of how its pricing policies for such services as check-clearing affected private suppliers of check-clearing services, and also suggested ways to speed up the process of check collections.  Security markets for government debt is a crucial market, and GAO performance audits of the Fed have lead to more openness in the primary dealer system, particularly concerning the disclosure of price information.  The GAO is also involved in several ongoing performance audits of the Fed such as analysis of risks and benefits of interstate banking, regulation of derivatives, and the budget of the Federal Reserve system.2
    Audits By Private Accounting Firms

    Financial audits of the Fed are also conducted regularly. Each Reserve Bank is audited every year by independent General Auditors who report directly to the Board of Governors.  These examinations involve financial statement audits and reviews on the effectiveness of financial controls.  Each Reserve Bank also has its own internal audit mechanisms.  The Board contracts each year with an outside accounting firm to evaluate the audit program's effectiveness.  Price Waterhouse conducted an audit of the Board's 1994, 1995, 1996, 1997, and 1998 financial statements and filed this report in the Board's 1996 Annual Report (nearly identical ones appear in other Annual Reports):

        We have audited the accompanying balance sheets of the Board of Governors of the Federal Reserve System (the Board) as of December  31, 1995 and 1994, and the related statements of revenues and  expenses for the years then ended.  These financial statements are  the responsibility of the Board's management.  Our responsibility is  to express an opinion on these financial statements based on our  audits.

        We conducted our audits in accordance with generally accepted accounting standards and Government Accounting Standards issued by the Comptroller General of the United States.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estmates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

        In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of the Board as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with   generally accepted accounting principles.

        As discussed in Notes 1 and 3 to the financial statements, the Board implemented Statement of Financial Accounting Standards No. 112,  Employers' Accounting for Postemployment Benefits, effective January 1, 1994.  In accordance with Government Accounting Standards, we have also issued a report dated March 25, 1996 on our consideration of the Board's internal control structure and a report dated March 25, 1996 on its compliance with laws and regulations.4

    The Board has also contracted with Coopers & Lybrand to conduct annual financial audits of the Board and the individual Federal Reserve Banks.

    Exemptions to the Scope of GAO Audits

    The Government Accounting Office does not have complete access to all aspects of the Federal Reserve System.  The law excludes the following areas from GAO inspections (31 USCA §714):

(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;

(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, open market operations;

(3) transactions made under the direction of the Federal Open Market Committee; or

(4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to items. 

    In 1993 Wayne D. Angell, then a member of the Board of Governors, submitted testimony before a House subcommittee on the reasons for the restrictions on GAO access.  He commented,

        By excluding these areas, the Act attempts to balance the need for public accountability of the Federal Reserve through GAO audits against the need to insulate the central bank's monetary policy functions from short-term political pressures and to ensure that foreign central banks and governmental entities can transact business in the U.S. financial markets through the Federal Reserve on a confidential basis.2

    In reference to a bill that would lift the constraints placed on the GAO's audit authority over the Federal Reserve, Angell stated,

        The benefits, if any, of broadening the GAO's authority into the areas of monetary policy and transactions with foreign official entities would be small.  With regard to purely financial audits, the Federal Reserve Act already requires that the Board conduct an annual financial examination of each Reserve Bank...The process of conducting financial audits is reviewed by a public accounting firm to confirm that the methods and techniques being employed are effective and that the program follows generally accepted auditing standards...Further, a private accounting firm audits the Board's balance sheet...Finally, and more broadly, the Congress has, in effect, mandated its own review of monetary policy by requiring semiannual reports to Congress on monetary policy under the Full Employment and Balanced Growth Act of 1978...In addition, there is a vast and continuously updated body of literature and expert evaluation of U.S. monetary policy.  In this environment, the contribution that a GAO audit would make to the active public discussion of the conduct of monetary policy is not likely to outweigh the disadvantages of expanding GAO audit authority in this area.2

    For more on GAO restrictions, you can search the Government Printing Office website for GAO report T-GGD-94-44, entitled "Federal Reserve System Audits: Restrictions on GAO's Access."

The Budget of the Federal Reserve and Other Oversight

    The budget of the Federal Reserve system is determined by each Bank and the Board of Governors.  Stephen L. Neal, the Chair of the House Subcommittee on Domestic Monetary Policy in 1991, stated that "Congress plays no direct role in setting or authorizing the Fed's budget.  Control of its own budget is an essential component of the independence the Fed must enjoy."1  Additional oversight of the Federal Reserve System derives from the ability of Congress to expand or to contract the Fed's powers.  On numerous occasions Congress has seen fit to change the Fed's structure, alter its mission, and grant it new or different powers.  In 1935 Congress changed the composition of the Board of Governors to give it more independence, and it allowed the Board to determine the discount rate for all Federal Reserve Banks rather than allow each Bank to set its own rate.  In1978 Congress mandated the Fed's new goal to be full employment and price stability.  In 1980 Congress granted the Fed new regulatory powers over non-member banks.

    Many other government reports on the audits of the Federal Reserve system are available on-line through the Government Printing Office website.  Three interesting GAO reports on Federal Reserve finances and performance are:

        Federal Reserve Banks: Innaccurate Reporting of Currency at the Los Angeles Branch, (9/30/96, GAO report AMID-96-146).

        Federal Reserve Banks: Internal Control, Accounting, and Auditing Issues, (2/9/96, GAO report AMID-96-5).

        Federal Reserve System: Current and Future Challenges Require Systemwide Attention, (6/17/96, GGD-96-128).


    It is obvious that the Federal Reserve System is and has always been audited.  It is difficult to imagine how Kah, Schauf, and other conspiracy theorists could not have come across this evidence in the course of their research.  Perhaps they are merely poor researchers.  Or maybe they are reluctant to acknowledge facts which contradict their basic thesis.  Either way, their credibility among skeptical readers takes a sharp hit by making such obvious factual errors.

    For more on how the Federal Reserve system is audited, see the New York Federal Reserve's FedPoints.

    1. "The Budget of the Federal Reserve System," Hearing before the Subcommittee on Domestic Monetary Policy...[House], July 18, 1991, U.S. Government Printing Office, Serial no. 102-59.

    2.  H.R. 28: "Federal Reserve Accountability Act of 1993," Hearing before the Subcommittee on Domestic Monetary Policy...[House], October 27, 1993, U.S. Government Printing Office, Serial no. 103-86.

    3.  Public Law 95-320, "Federal Banking Agency Audit Act," July 21, 1978.

    4. Annual Report, 1996, Board of Governors of the Federal Reserve System.

    5.  Kah, Gary (1991), En Route to Global Occupation.  Layfayette, La.: Huntington House.

    6.  Robertson, Pat (1994). The Turning Tide. Dallas: Word Publishing.

    7. Schauf, Thomas (1992). The Federal Reserve. Streamwood, IL: FED-UP, Inc.

    8.  United States Code Annotated,  U.S. Government Printing Office.
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Federal Reserve myth 7
« Reply #8 on: September 15, 2009, 07:40:48 pm »
Myth #7: The Federal Reserve charges interest on the currency we use. 

    In my experience this particular myth has alarmed more people than any other.  The Federal Reserve is a bank, no?  Banks do not lend money for free, right?  Our currency comes into circulation only when the government borrows currency from the Fed -- at interest -- and then spends it into the economy, right?.  This means we, as citizens, pay interest on the very currency that we use.  Conspiracy theorists believe this is part of the alleged "New World Order" plot to bankrupt the United States.

    What is the truth here?  Does the government really pay interest on our paper money, Federal Reserve Notes?  Thomas Schauf of FED-UP, Inc. circulates an information letter in which he writes:

        Why pay interest on our currency?  A typical incorrect answer is - the FED profits are returned to the U.S. Treasury.  The truth is, the FED is a private bank in business for profit.  We pay roughly $300 billion in interest on our artificial debt and by special agreement, the U.S. Treasury receives $20 billion in return.  Taxpayers lose $280 billion to the FED banking system per year ... Your local library has these dollar figures.  The numbers don't lie.5

    Schauf also argues that the Federal Reserve system is part of an international banking conspiracy, and that President Kennedy might have been assassinated because he allegedly attempted to curb the power of the Federal Reserve (See Myth #9).  This currency interest issue is also raised by other conspiracy theorists.  Television evangelist Pat Robertson in his book The New World Order and Jacques Jaikaran in Debt Virus make identical claims.

    How accurate are these claims?   Some of Schauf's statement is correct.  The Treasury Department prints Federal Reserve Notes and then sells them to the Federal Reserve system for an average cost of about 4 cents per bill (see FedPoint #1).  However, the Fed must present as collateral for the currency an amount of Treasury securities that is equivalent in value to the currency purchased.  The Federal Reserve collects interest on all the Treasury securities it owns, including the ones held as collateral.  This is as far into the realm of fact as Schauf's statement can take his reader.

    What Schauf doesn't say is that nearly all the Federal Reserve's net earnings are repaid to the Treasury.  This is done per an agreement between the Board of Governors and the Treasury.  Schauf even says this "typical" answer is incorrect.  The table below indicates otherwise.   

    1999 Combined Statements of Income of the Federal Reserve Banks (in millions)

Interest income       

Interest on U.S. government securities $28,216       

Interest on foreign securities 225       

Interest on loans to depository institutions 11     

Other income 688                                                             

Total operating income 29,140

Operating expenses       

Salaries and benefits 1,446       

Occupancy expense 189       

Assessments by Board of Governors 699       

Equipment expense 242       

Other 302                                                             


Total operating expenses 2,878

Net Income Prior to Distribution $26,262

Distribution of Net Income

Dividends paid to member banks 374       

Transferred to surplus 479       

Payments to U.S. Treasury 25,409


Total distribution 26,262

        Source: 86th Annual Report of the Board of Governors, p.335.   

    We can see from the table that the Fed's chief source of income is interest on government bonds.  However, we can also see that 97% of the Fed's net income goes back to the Treasury.

    Shauf is barking up the wrong tree when he complains that the Fed's portfolio of government bonds is costly to the Treasury.  The Treasury would have to pay interest on those bonds regardless of who owns them.  At least when the Fed owns a bond, the Treasury is going to get back a substantial portion of the interest.  From the Treasury's point of view, the more bonds the Fed owns, the better.

    Moreover, it is unclear how Schauf believes the Fed drains $280 billion from taxpayers every year.  The Fed is entirely self-financed as the data above shows; it receives no outlay from Congress.  Perhaps he thinks the Fed receives all the interest payments on the national debt, which in 1999 summed $353 billion.6  That's not true, either.  The Fed owns only about 8.7% of the total national debt, so the vast bulk of the interest payments are going elsewhere.

    Schauf believes the Treasury ought to issue its own currency in the form of United States Notes, a form of currency issued on a few occasions in the past (there are still some in circulation, although the total amount is limited by law).  A 1953 series A note is shown below.


    Current paper money has the inscription "Federal Reserve Note" across the top, whereas the bill above has "United States Note."

    Schauf and the Coalition argue this would be an "interest-free" form of currency.  However, there is no functional difference between U.S. Notes and the Federal Reserve notes we now use.  Neither impose a net interest burden on the Treasury.  The key difference between the two currencies is who controls the issuance.  The publicly-appointed Board of Governors now controls the emissions of Federal Reserve Notes and can make monetary policy decisions largely independent of political pressure.  The issuance of U.S. Notes, on the other hand, would be controlled by the Treasury Department, an arm of the executive branch and a purely political entity.  Monetary policy, in this economist's view, ought to be based on the needs of the economy, not on the needs of current incumbent political party.

    Like many others, this Federal Reserve myth is also incorrect.  Schauf and the Coalition err in the argument by ignoring entirely the funds rebated from the Fed to the Treasury each year.  This key detail essentially means that the bonds held by the Federal Reserve are interest-free loans to the federal government -- the equivalent of printing money.  Federal Reserve Notes do not cost the Treasury any net interest.  Indeed, Mr. Schauf, the numbers do not lie.

    2.  Board of Governors of the Federal Reserve System, Annual Report, 1999.

    3.  Jaikaran, Jacques (1995), Debt Virus: A Compelling Solution to the World's Debt Problems, Lakewood, Co.: Glenbridge Publishing.

    4.  Robertson, Pat (1994), The New World Order, Dallas: Word Publishing.

    5.  Schauf, Thomas (1992), The Federal Reserve. Streamwood, IL: FED-UP, Inc.

    6. Office of the Public Debt, U.S. Treasury.

    7. Ownership of Federal Securities, Treasury Bulletin, June 2000.
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Giuliano Taverna

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Federal Reserve myth 8
« Reply #9 on: September 15, 2009, 07:42:19 pm »
Myth #8: If it were not for the Federal Reserve charging the government interest, the budget would be balanced and we would have no national debt. 

    A popular misconception about the Federal Reserve is that it has something to do with the national debt.  The argument is that because the government must pay interest on the money it has borrowed over the years, today's budget deficit is higher than what it would otherwise be.  If only the Fed wouldn't charge interest on the debt, the government would not have a deficit.

    Several things make this argument wrong.  First, the Federal Reserve holds very little of the national debt.  Of the $5.7 trillion in government bonds currently outstanding, the Fed holds only about 8.7%. 2   This means that the bulk of the interest payments go not to the Federal Reserve, but to the other bondholders.

    Second, nearly all the interest paid to the Federal Reserve is rebated to the Treasury.  This means that the bonds held by the Fed carry no net interest obligation for the Treasury.  For example, in 1999 the Fed collected $28.2 billion in interest on its portfolio of government bonds, but it rebated $25.4 billion to the Treasury.1

    Third, to say that the budget deficit would be smaller but for the interest payments is an exersize in absurd logic.  One could just as easily say that the deficit is caused by defense spending, Medicare, or any other combination of programs with spending that sums to the amount of the budget deficit.  One could also blame Congress for not raising enough taxes to cover their spending plans or for spending too much in the first place.

    Finally, placing blame for the national debt at the door of the Federal Reserve demonstrates an ignorance of how our government works.  The national debt has but one cause: Congress.  The debt is the sum of all the budget deficits and budget surpluses the federal government has ever had.  It is Congress, not the Federal Reserve, that determines federal spending and tax rates.  Therefore, it is Congress, not the Federal Reserve, who is responsible for it.


    1. 86th Annual Report of the Board of Governors 2. Treasury Bulletin, June 2000, p.49.
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Federal Reserve myth 9
« Reply #10 on: September 15, 2009, 07:43:14 pm »
Myth #9: President Kennedy was assassinated because he tried to usurp the Federal Reserve's power.  Executive Order 11,110 proves it.  (Last updated 9/4/2000)

      Presidential Executive Order 11,110 is quite infamous among conspiracy buffs.  Jim Marrs, author of Crossfire: The Plot that Killed Kennedy, writes that the order instructs the Treasury secretary to issue about $4.2 billion in silver certificates as a form of currency in place of Federal Reserve Notes.1  Written by John F. Kennedy, Marrs also speculates this order was part of a larger plan by Kennedy to reduce the influence of the Federal Reserve by giving the Treasury more power to issue currency.  The order wassigned June 4, 1963.  A few months later, of course, Kennedy was killed, and conspiracy theorists hypothesize a link between the murder and E.O. 11,110.  They argue that the Federal Reserve was somehow involved in the assassination to protect its power over monetary policy.

    The executive order modifies a pre-existing order issued by Harry Truman in 1951.  E.O. 10,289 states "The Secretary of the Treasury is hereby designated and empowered to perform the following-described functions of the President without the approval, ratification, or other action of the President..."   The order then lists tasks (a) through (h) which the Treasurer can now do without bothering the President.  None of the powers assigned to the Treasury in E.O. 10,289 relate to money or to monetary policy.  Kennedy's E.O. 11,110 then instructs that 

        SECTION 1. Executive Order No. 10289 of September 9, 1951, as amended, is hereby further amended (a) By adding at the end of paragraph 1 thereof the following subparagraph (j):

        '(j) The authority vested in the President by paragraph (b) of section 43 of the Act of May 12, 1933, as amended (31 U.S.C. 821(b)), to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury not then held for redemption of an outstanding silver certificates, to prescribe the denominations of such silver certificates, and to coin standard silver dollars and subsidiary silver currency for their redemption,' and (b) By revoking subparagraphs (b) and (c) of paragraph 2 thereof.

        SECTION 2. The amendments made by this Order shall not affect any act done, or any right accruing or accrued or any suit or proceeding had or commenced in any civil or criminal cause prior to the date of this Order but all such liabilities shall continue anymay be enforced as if said amendments had not been made.

        John F. Kennedy, THE WHITE HOUSE, June 4, 1963.

    To understand exactly what Kennedy's order was trying to do, we must understand the purpose of the legislation which gave the order its underlying authority.  The Agricultural Adjustment Act of 1933 (ch. 25, 48 Stat 51) to which Kennedy refers permits the President to issue silver certificates in various denominations (mostly $1, $2, $5, and $10) and in any total volume so long as the Treasury has enough silver on hand to redeem the certificates for a specific quantity and fineness of silver and that the total volume of such currency does not exceed $3 billion. The Silver Purchase Act of 1934 (ch. 674,48 Stat 1178) also grants this power to the Treasury Secretary subject to similar limitations.  Nowhere in the text of the order is a quantity of money mentioned, so it is unclear how Marrs arrived at his $4.2 billion figure. Moreover, the President could not have authorized such a large issue because it would have exceeded the statutory limit.2

    As economic activity grew in the fifties and sixties, the public demand for low denomination currency grew, increasing the Treasury's need for silver to back additional certificate issues and to mint new coins (dimes, quarters, half-dollars). However, during the late fifties the price of silver began to rise and reached the point that the market value of the silver contained in the coins and backing the certificates was greater than the face value of the money itself.2

    To conserve the Treasury's silver needs, the Silver Purchase Act and related measures were repealed by Congress in 1963 with Public Law 88-36.  Following the repeal, only the President could authorize new silver certificate issues, and no longer the Treasury Secretary. The law, signed by Kennedy himself, also permits the Federal Reserve to issue small denomination bills to replace the outgoing silver certificates (prior to the act, the Fed could only issue Federal Reserve Notes in larger denominations). The Treasury's shrinking silver stock could then be used to mint coins only and not have to back currency. The repeal left only the President with the authority to issue silver certificates, however it did permit him to delegate this authority. E.O. 11,110 does this by transferring the authority from the President to the Treasury Secretary.2

    E.O. 11,110 did not create authority to issue new silver certificates, it only affected who could give the order. The purpose of the order was to facilitate the reduction of certificates in circulation, not to increase them. In October 1964 the Treasury ceased issuing them entirely. The Coinage Act of 1965 (PL 89-81) ended the practice of using silver in most U.S. coins, and in 1968 Congress ended the redeemability of silver certificates (PL 90-29).  E.O.  11,110 was never reversed by President Johnson and remained on the books until 1987 when there was a general cleaning-up of executive orders (E.O. 12,608, 9/9/87). However, by this time the remaining legislative authority behind E.O. 11,110 had been repealed by Congress with PL 97-258 in 1982.2

    In summary, E.O. 11,110 did not create new authority to issue additional silver certificates. In fact, its intention was to ease the process for their removal so that small denomination Federal Reserve Notes could replace them in accordance with a law Kennedy himself signed.  If Kennedy had really sought to reduce Federal Reserve power, then why did he sign a bill that gave the Fed still more power?

    Marrs also makes some other factual errors in his conspiracy tale that  suggest he is not very familiar with the Federal Reserve or the financial system.  He writes that a source of tension between the Federal Reserve and the Kennedy Administration was the Treasury's desire to allow banks to underwrite state and local government bonds, thereby weakening the "dominant" Federal Reserve banks. However, such a move, which was later permitted by Congress, would not have affected the Federal Reserve system because it had never been involved in underwriting bond issues.  Marrs also claims that Kennedy signed a bill that changed the backing of small denomination currency from silver to gold to "add strength to the weakened U.S. currency."   This is completely false.  U.S. currency has not been on the gold standard since 1934, and silver certificates, as their name suggests, had never been redeemable in anything but silver. In addition, U.S. currency was not "weak" during Kennedy's time: There had not been any significant inflation since the late forties, and the exchange rate value of the dollar was fixed according to the Bretton Woods agreement.

    In the introduction to his book, Marrs advises the reader not to trust his book.  This appears to be good advice.

    1. Marrs, Jim (1989), Crossfire: The Plot that Killed Kennedy, New York: Carroll & Graf Publishers.

    2. Woodward, G. Thomas (1996), "Money and the Federal Reserve System: Myth and Reality," Congressional Research Service. 
"It is the duty of a good shepherd to shear his sheep, not to skin them." Tiberius Caesar

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Federal Reserve myth 10
« Reply #11 on: September 15, 2009, 07:44:10 pm »
Myth #10. The Legendary Tirade of Louis T. McFadden

    Louis T. McFadden was a member of the House of Representatives in the twenties and thirties and is one of the heroes of the Federal Reserve conspiracy theorists.  A Republican from Canton, Pennsylvania, he was the chair of the House Banking and Currency Committee during the twenties, but was merely a Committee member by 1932.  He used his position in Congress occasionally to crusade against the Federal Reserve, a stance Gary Kah implies may have cost McFadden his life.

    On June 10, 1932 the House was debating a bill which would would expand the types of securities the Federal Reserve could trade when conducting monetary policy.  McFadden used this opportunity to launch a twenty-five minute tirade against the Federal Reserve, and in so doing became a legendary champion amongst conspiracy theorists.  However, just because a claim appears in the Congressional Record does not necessarily mean it is true.  McFadden began...

        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.  The Federal Reserve Board, a Government board, has cheated the Government of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government.  It has done this through defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board and through the corrupt practices of the moneyed vultures who control it.1

    Once the hyperbole and histrionics are deducted, there is little remaining of substance in the above quotation.  McFadden makes the claim that the Federal Reserve had cost the federal government enough money to "pay the national debt several times over."  Is he correct?

    Disbursements of Federal Reserve Net Income, 1914-1931 (in millions)

Total Revenues $970.7                         

Net Expenses 363.3                                                   


Net Income 607.4

Distribution of Net Income:                           

Paid as dividends 102.0                           

Payments to Treasury 147.1                           

Retained by Fed 358.3

    Source: Annual Report, 1995, Board of Governors, p. 358.

    In this table we see that from 1914 to 1931 the Federal Reserve system collectively earned profits totaling $607 million.  About $102 million was distributed to member banks as dividends, and about $147 million was paid to the Treasury as a "franchise tax." The Federal Reserve banks kept the remaining $359 million.  The national debt in 1932 was $19.5 billion, so even if the Federal Reserve had been paying all its profits to the government during this time, it would have been enough to pay only 3 percent of the national debt -- a far cry from McFadden's "several times over."4  Moreover, the Federal Reserve's total revenues for the period were $971 million, so if the entirety of the System's revenues had gone straight to the Treasury, it still would not have been sufficient to make McFadden's claim even remotely accurate.

    McFadden then covered a wide variety of topics related to the Federal Reserve Board.  He accused it of assisting Trotsky's efforts during the Russian Revolution, of being controlled by international bankers, of debasing the currency, and of many other fascinating transgressions.  He also invoked the testimony of Father Charles E. Coughlin, the Catholic priest who would later become famous for his radio broadcasts in support of Hitler's National Socialist agenda.

    We can study the accuracy of these claims, as well.  The first one is new to me, and I have not the slightest idea whether it is true, although given that McFadden had trouble with a claim which could be easily verified, it seems wise to invoke skepticism on his more fantastic accusations.  Generally, this accusation is consistent with the "Protocols of the Learned Elders of Zion," originally published in 1903 in czarist Russia.  It is supposed to be an "internal" document proving the alleged international Jewish conspiracy, but it is now known to have been a hoax.2  Henry Ford popularized translations of it into English in the 1920s and this may have been McFadden's source.  The second claim is false, as I show in my article, Do Foreigners Own the Fed?  The claim that the Fed debased the currency is also false.  To "debase" a currency means to reduce its purchasing power, which happens when the general level of prices rises over time.  This is usually caused by excessive growth of the money supply, yet in 1932 the price level was lower than it was in 1914, indicating that the opposite of a debasement had occurred.

    McFadden also made some important and accurate arguments.  During his speech on the House floor, he stated,

        From the Atlantic to the Pacific our country has been ravaged and laid waste by the evil practices of the Federal Reserve Board and the Federal reserve banks and the interests which control them ... This is an era of economic misery and for the conditions that caused that misery, the Federal Reserve Board and the Federal Reserve banks are fully liable.1

    What did McFadden mean by "economic misery?"  They year he spoke, 1932, was the very worst time of the Great Depression.  The unemployment rate was approaching 25 percent of the labor force, which to this day stands as record for the U.S. economy.  Homelessness, deprivation, and starvation, usually reserved for the ultra-poor in this country, were now stalking millions of former members of the middle class.  "Economic misery" was an understatement.

    Most economic historians would agree with McFadden that the policies of the Fed during this period were the primary cause of the Depression.  A mild recession in the summer of 1929 turned into a banking panic after the stock market crash in October of that year.  Banks, which owned stocks and made loans to customers for the purpose of acquiring stocks, suddenly found a large  portion of their assets nearly worthless as a result of the crash.  Many of them began to fail, taking with them the deposits of millions of families (at the time there was no deposit insurance).

    This sort of thing had happened many times before, but the Federal Reserve was created in 1913 in part to mitigate its effects as the banking system's "lender of last resort."  In the midst of the first severe wave of bank failures in 1930, the Fed was deadlocked on what to do, eventually deciding to do nothing. Several more waves of bank failures followed and the Depression was well underway.  Thus, the crisis can reasonably be blamed on the erroneous policies of the Federal  Reserve Board (The classic book, A Monetary History of the United States by Milton Friedman and Anna Schwartz, provides a detailed accounting of the Fed's internal policy debates during this critical time).

    In my view, however, McFadden goes too far in terming the Fed's policies as "evil" or its consequences deliberate.  As Friedman and Schwartz showed, the Fed essentially made an honest error in judgment.  There is absolutely no evidence that the Federal Reserve intended to create the Great Depression.  Such a motive would have made no sense from the Fed's point of view.  The Depression created a highly unstable economic and political environment.   Why would it have intentionally created the sort of conditions that would have seriously endangered its own existence?

    Finally, after McFadden's twenty-five minutes of ranting had expired, Senator Benjamin Strong of Kansas commented on the oratory he had just heard:

        There is a disease that afflicts mankind which is very vicious. It warps the judgment, it narrows the vision, it even causes men to see red, to make mountains out of mole hills.  This disease has sometimes been referred to as B.A.  Ladies may refer to it as "tummy" ache, but out in the wide-open spaces men call it the "belly" ache, and I know of no man of my acquaintance that has this disease in so violent a form as the gentleman from Pennsylvania, Mr. McFadden.

        I have not the time to refer to the many charges he makes against the Federal Reserve system, but I call attention to the fact that for 12 years he has been the chairman of the Banking and Currency Committee of this House and did not see fit during that time to remedy any of the evils of which he now complains. It seems to me entirely out of place to wait until he is retired as chairman of that great committee and then assault all of the institutions of which it has control.1

    Strong's statement suggested that McFadden's rant was little more than political bluster.  If McFadden had really been the anti-Fed crusader some people today make him out to have been, then why did he not do anything about the Fed when he had the chance?  More likely, he was making political points with his constituents by placing blame for the Great Depression at the door of the Federal Reserve.  While this may have been justifiable, he went too far by implying the Fed intended to wreck the economy.   

    1. Congressional Record, June 1, 1932 to June 11, 1932, U.S. Government Printing Office.

    2. Johnson, George (1983). Architects of Fear. Boston: Houghton Mifflin.

    3. Kah, Gary (1991). EnRoute to Global Occupation.  Layfayette, La.: Huntington House Publishers.

    4. Office of the Public Debt, U.S. Treasury Department.

Read more from McFadden on a conspiracist website
« Last Edit: September 15, 2009, 07:48:11 pm by Giuliano Taverna »
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Giuliano Taverna

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The patriot act
« Reply #12 on: September 15, 2009, 09:57:56 pm »
If you have any relationship at all to radical modern liberalism, or the anti war anarchist elements on the far right. Then you think you know that the patriot act was Darth Cheney's evil bill pushed through by his puppet bush to allow him to send anyone who disagreed with his administration to fema death camps, (coming soon fema camp myth!) It allows him to enter your home, monitor your conversation, he'll see you when your sleeping, and he'll know when you are awake, so be good for goodness sake!

Yeah, no. Bush isn't Santa, Cheney was just the vice president, and the patriot act allows for non of that.

I'd like to thank the Department of Justice now under the Liberal Obama administration (so that should satisfy all but the crazy right wingers and they can drop dead for all I care) for the following article which I will post.


Dispelling Some of the Major Myths about the USA PATRIOT Act

Myth: The ACLU claims that the Patriot Act "expands terrorism laws to include 'domestic terrorism' which could subject political organizations to surveillance, wiretapping, harassment, and criminal action for political advocacy." They also claim that it includes a "provision that might allow the actions of peaceful groups that dissent from government policy, such as Greenpeace, to be treated as 'domestic terrorism.'" (ACLU, February 11, 2003; ACLU fundraising letter, cited by Stuart Taylor in "UnPATRIOTic," National Journal, August 4, 2003)

Reality: The Patriot Act limits domestic terrorism to conduct that breaks criminal laws, endangering human life. "Peaceful groups that dissent from government policy" without breaking laws cannot be targeted. Peaceful political discourse and dissent is one of America's most cherished freedoms, and is not subject to investigation as domestic terrorism. Under the Patriot Act, the definition of "domestic terrorism" is limited to conduct that (1) violates federal or state criminal law and (2) is dangerous to human life. Therefore, peaceful political organizations engaging in political advocacy will obviously not come under this definition. (Patriot Act, Section 802)

Myth: The ACLU has claimed that "Many [people] are unaware that their library habits could become the target of government surveillance. In a free society, such monitoring is odious and unnecessary. . . The secrecy that surrounds section 215 leads us to a society where the 'thought police' can target us for what we choose to read or what Websites we visit." (ACLU, July 22, 2003)

Reality: The Patriot Act specifically protects Americans' First Amendment rights, and terrorism investigators have no interest in the library habits of ordinary Americans. Historically, terrorists and spies have used libraries to plan and carry out activities that threaten our national security. If terrorists or spies use libraries, we should not allow them to become safe havens for their terrorist or clandestine activities. The Patriot Act ensures that business records - whether from a library or any other business - can be obtained in national security investigations with the permission of a federal judge.

Examining business records often provides the key that investigators are looking for to solve a wide range of crimes. Investigators might seek select records from hardware stores or chemical plants, for example, to find out who bought materials to make a bomb, or bank records to see who's sending money to terrorists. Law enforcement authorities have always been able to obtain business records in criminal cases through grand jury subpoenas, and continue to do so in national security cases where appropriate. In a recent domestic terrorism case, for example, a grand jury served a subpoena on a bookseller to obtain records showing that a suspect had purchased a book giving instructions on how to build a particularly unusual detonator that had been used in several bombings. This was important evidence identifying the suspect as the bomber.

In national security cases where use of the grand jury process was not appropriate, investigators previously had limited tools at their disposal to obtain certain business records. Under the Patriot Act, the government can now ask a federal court (the Foreign Intelligence Surveillance Court), if needed to aid an investigation, to order production of the same type of records available through grand jury subpoenas. This federal court, however, can issue these orders only after the government demonstrates the records concerned are sought for an authorized investigation to obtain foreign intelligence information not concerning a U.S. person or to protect against international terrorism or clandestine intelligence activities, provided that such investigation of a U.S. person is not conducted solely on the basis of activities protected by the First Amendment.

Congress reviews the government's use of business records under the Act. Every six months, the Attorney General must "fully inform" Congress on how it has been implemented. On October 17, 2002, the House Judiciary Committee issued a press release indicating it is satisfied with the Department's use of section 215: "The Committee's review of classified information related to FISA orders for tangible records, such as library records, has not given rise to any concern that the authority is being misused or abused."

Myth: The ACLU claims that the Patriot Act provision about delayed notification search warrants "would allow law enforcement agencies to delay giving notice when they conduct a search. . . . This provision would mark a sea change in the way search warrants are executed in the United States." (ACLU, October 23, 2001)

Reality: Delayed notification search warrants are a long-existing, crime-fighting tool upheld by courts nationwide for decades in organized crime, drug cases and child pornography. The Patriot Act simply codified the authority law enforcement had already had for decades. This tool is a vital aspect of our strategy of prevention - detecting and incapacitating terrorists before they are able to strike.

In some cases if criminals are tipped off too early to an investigation, they might flee, destroy evidence, intimidate or kill witnesses, cut off contact with associates, or take other action to evade arrest. Therefore, federal courts in narrow circumstances long have allowed law enforcement to delay for a limited time when the subject is told that a judicially-approved search warrant has been executed. This tool can be used only with a court order, in extremely narrow circumstances when immediate notification may result in death or physical harm to an individual, flight from prosecution, evidence tampering, witness intimidation, or serious jeopardy to an investigation. The reasonable delay gives law enforcement time to identify the criminal's associates, eliminate immediate threats to our communities, and coordinate the arrests of multiple individuals without tipping them off beforehand. In all cases, law enforcement must give notice that property has been searched or seized.

The Supreme Court has held the Fourth Amendment does not require law enforcement to give immediate notice of the execution of a search warrant. The Supreme Court emphasized "that covert entries are constitutional in some circumstances, at least if they are made pursuant to a warrant." In fact, the Court stated that an argument to the contrary was "frivolous." Dalia v. U.S., 441 U.S. 238 (1979)




For decades, terrorists have waged war against U.S. interests. Now America is waging war against terrorists. As President Bush has said, "Free people will set the course of history." We have promoted freedom over the past two years while protecting civil liberties and protecting people here and around the world from further terrorist attacks.

    * The United States of America is winning the war on terrorism with unrelenting focus and unprecedented cooperation. Prevention of terrorist attacks is one of our highest priorities. With the President's lead, information sharing and cooperation has vastly increased. Today, we are better able to "connect the dots."

    * The Department of Justice has acted thoughtfully, carefully, and within the framework of the Constitution of the United States. Survival and success in this long war on terrorism demands that the Department continuously adapt and improve its capabilities to protect Americans from a fanatical, ruthless enemy, even as terrorists adapt their tactics to attack us.


First, we are disrupting terrorist threats, and capturing the terrorists that would carry them out. Since 9/11:

    * Our intelligence and law enforcement communities, and our partners, both here and abroad, have identified and disrupted over 150 terrorist threats and cells;
    * Worldwide, nearly two-thirds of al Qaida's known senior leadership has been captured or killed -- including a mastermind of the September 11th attacks;
    * Worldwide, more than 3,000 operatives have been incapacitated;
    * Five terrorist cells in Buffalo, Detroit, Seattle, Portland (Oregon), and Northern Virginia have been broken up;
    * 375 individuals have been criminally charged in the United States in terrorism investigations;
    * Already, 195 individuals have been convicted or have pled guilty in the United States, including shoe-bomber Richard Reid and "American Taliban" John Walker Lindh; and
    * Over 515 individuals linked to the September 11th investigation have been removed from the United States.

Second, we are gathering and cultivating detailed knowledge on terrorism in the United States:

    * Hundreds of suspected terrorists have been identified and tracked throughout the United States;
    * Our human sources of intelligence related to international terrorism have increased 63% since 9/11, and our human sources of intelligence related to domestic terrorism have increased by 30% since 9/11, with the quality of this human intelligence having improved significantly; and
    * Our counterterrorism investigations have more than doubled since 9/11.

Third, we are gathering information by leveraging criminal charges and long prison sentences. When individuals realize that they face a long prison term, they often try to lessen their prison time by pleading guilty and cooperating with the government.

    * These individuals have provided critical intelligence about al-Qaida and other terrorist groups, safehouses, training camps, recruitment, and tactics in the United States, and the operations of those terrorists who mean to do Americans harm.
    * One individual has given us intelligence on weapons stored here in the United States.
    * Another individual has identified locations in the United States being scouted or cased for potential attacks by al-Qaida.

Fourth, we are dismantling the terrorist financial network. Already the United States Government has:

    * Designated 40 terrorist organizations;
    * Frozen $136 million in assets around the world;
    * Charged 113 individuals in 25 judicial districts with terrorist financing-related crimes, with 57 convictions or guilty pleas to date; and
    * Established an FBI Terrorist Financing Operations Section (TFOS) and utilized the Joint Terrorism Task Forces to identify, investigate, prosecute, disrupt, and dismantle terrorist-related financial and fundraising activities.

Fifth, we are using new legal tools to detect, disrupt, and prevent potential terrorist plots. Congress has provided better tools to make sure we are doing all we can, legally and within the bounds of the Constitution, to detect, disrupt, and prevent acts of terror. The PATRIOT Act passed with overwhelming bipartisan majorities, in the Senate by 98-1, and in the House of Representatives by 357-66.

    * The PATRIOT Act allows investigators to use the tools that were already available to investigate organized crime and drug trafficking. These tools have been used for decades and have been reviewed and approved by the courts.

    * The PATRIOT Act facilitates information sharing and cooperation among government agencies so that they can better "connect the dots." In the past, different agencies and departments were collecting data but not sharing it with each other. Now we are able to share that data to prevent future attacks.

    * The PATRIOT Act updated the law to reflect new technologies and new threats. The Act brought the law up to date with current technology, so we no longer have to fight a digital-age battle with legal authorities left over from the era of rotary telephones.

    * The PATRIOT Act increased the penalties for those who commit terrorist crimes. Americans are threatened as much by the terrorist who pays for a bomb as by the one who detonates it. That's why the Act imposed tough new penalties on those who commit and support terrorist operations, both at home and abroad.

Sixth, the Department of Justice is building its long-term counter-terrorism capacity since 9/11:

    * A nearly three-fold increase in counterterrorism funds;
    * Approximately 1,000 new and redirected FBI agents dedicated to counterterrorism and counterintelligence;
    * 200 new Assistant U.S. Attorneys;
    * 100 Joint Terrorism Task Forces;
    * More than 300% increase in Joint Terrorism Task Force staffing; and
    * FBI Flying Squads developed for rapid deployment to hot spots worldwide.

Section 201. Authority to intercept wire, oral, and electronic communications relating to terrorism.

    * Summary: Allows law enforcement to use the existing electronic-surveillance authorities to investigate certain crimes that terrorists are likely to commit.

    * Myth: "Because the government already had substantial authority under FISA to obtain a wiretap of a suspected terrorist, the real effect of this amendment is to permit wiretapping of a United States person suspected of domestic terrorism." [Electronic Privacy Information Center (EPIC), Mar. 19, 2003]

    * Reality:

          o Before the PATRIOT Act, law enforcement had the authority to conduct electronic surveillance - by petitioning a court for a wiretap order - when investigating many ordinary, non-terrorism crimes. Agents also could use wiretaps to investigate some, but not all, of the crimes that terrorists often commit.

                + The non-terrorism offenses for which wiretaps were available included: drug crimes, mail fraud, and passport fraud.

          o Section 201 enabled investigators to gather information when looking into the full range of terrorism-related crimes, including: chemical-weapons offenses, the use of weapons of mass destruction, killing Americans abroad, and terrorism financing.

          o Section 201 preserved all of the pre-existing standards in the wiretap statute. For example, law enforcement still must: (1) apply for and receive a court order; (2) establish probable cause that criminal activity is afoot; and (3) first have tried to use "normal investigative procedures."

          o Section 201 has proven to be extremely useful to law enforcement officials, as several recent wiretap orders have been based on this expanded list of terrorism offenses.

          o This provision will sunset on December 31, 2005.

Section 203. Authority to share criminal investigative information.

    * Summary: Permits sharing of grand jury and wiretap information regarding foreign intelligence with federal law-enforcement, intelligence, protective, immigration, national-defense and national-security personnel.

    * Myth: "While some sharing of information may be appropriate in some limited circumstances, it should only be done with strict safeguards. . . . The bill lacks all of these safeguards. As a result it may lead to the very abuses that the Church Committee exposed decades ago." [American Civil Liberties Union (ACLU), Oct. 23, 2001]

    * Reality:

          o Before USA PATRIOT, federal law sharply limited the ability of federal law-enforcement to share terrorism-related information with national-defense officials and members of the intelligence community in order to protect the American People from terrorism. As the recent 9/11 Congressional Joint Inquiry Report confirms, prior to September 11th our ability to connect the dots was inhibited by the inability to coordinate throughout our own government.

                + For example, suppose that a federal prosecutor learned during grand jury testimony that terrorists were planning to detonate a nuclear bomb in Manhattan in the next 30 minutes. Federal Rule of Criminal Procedure 6(e) would have prevented him from immediately notifying national-security officials.

          o Section 203 facilitated a coordinated, integrated antiterrorism campaign by allowing the sharing of information acquired by wiretaps or through grand jury proceedings. Thanks to section 203, the right hand now knows what the left hand is doing.

          o Section 203 contains a number of privacy safeguards. An individual who receives any information under this section can use it only "in the conduct of that person's official duties." And any time grand jury information is shared, the government is required to notify the supervising court.

          o On September 23, 2002, the Attorney General issued privacy guidelines governing the sharing of information that identifies a United States person. These rules require that all such information be labeled before disclosure, and handled according to specific protocols designed to ensure its appropriate use.

          o The Department has made disclosures of vital information to the intelligence community and other federal officials under section 203 on dozens of occasions.

          o The authority to share wiretap information will sunset on December 31, 2005. The authority to share grand jury information will not sunset.

Section 206. Roving surveillance authority under the Foreign Intelligence Surveillance Act of 1978.

    * Summary: Allows FISA court to authorize "roving surveillance" when it finds that the target's actions may thwart the identification of a communications company or other person whose assistance may be needed to carry out the surveillance.

    * Myth: "These wiretaps pose a greater challenge to privacy because they are authorized secretly without a showing of probable cause of crime.This Section represents a broad expansion of power without building in a necessary privacy protection." [ACLU, Oct. 23, 2001]

    * Reality:

          o For years, law enforcement has been able to use "roving wiretaps" - in which a wiretap authorization attaches to a particular suspect, rather than a particular communications device - to investigate ordinary crimes, including drug offenses and racketeering. The authority to use roving wiretaps in drug cases has existed since 1986.

          o Section 206 authorized the same techniques in national-security investigations. This provision has enhanced the government's authority to monitor sophisticated international terrorists and intelligence officers, who are trained to thwart surveillance, such as by rapidly changing cell phones, just before important meetings or communications.

          o A wiretap under section 206 can be ordered only after the FISA court makes a finding that the actions of the target of the application may have the effect of thwarting the surveillance.

          o A number of federal courts - including the Second, Fifth, and Ninth Circuits - have squarely ruled that roving wiretaps are perfectly consistent with the Fourth Amendment.

          o Whether the Department has used section 206 is classified. Details about its use were provided to the House Permanent Select Committee on Intelligence on May 29, 2003, in response to a request by the House Committee on the Judiciary.

          o This provision will sunset on December 31, 2005.

Section 209. Seizure of voice-mail messages pursuant to warrants.

    * Summary: Allows law enforcement to obtain voice mail stored with a third party provider by using a search warrant, rather than a wiretap order.

    * Facts:

          o Under previous law, law enforcement could use a search warrant to obtain voice messages stored on an answering machine inside a terrorist's home. But agents had to go through the burdensome process of obtaining a wiretap order if the same messages were stored with a third party provider.

          o Section 209 allowed investigators, upon a showing of probable cause, to use court-issued search warrants to obtain voicemails held by a third-party provider. Simply put, the law now treats these voicemail messages the same as voicemails on a home answering machine.

          o Section 209 preserved all of the pre-existing standards for the availability of search warrants. For example, law enforcement still must: (1) apply for and receive a court order; and (2) establish probable cause that criminal activity is afoot.

          o Since passage of the Act, such warrants have been used in a variety of criminal cases to obtain key evidence, including voicemail messages left for foreign and domestic terrorists.

          o Under previous law, the wiretap statute governed access to stored wire communications such as voicemail, because the definition of "wire communication" (18 U.S.C. § 2510(1)) included stored communications.

          o This provision will sunset December 31, 2005.

Section 210. Scope of subpoenas for records of electronic communications.

    * Summary: Broadens the types of records that grand juries can subpoena from electronic communications providers to include the means and source of payment, such as bank accounts and credit card numbers.

    * Facts:

          o Before USA PATRIOT, federal law allowed grand juries to subpoena a limited class of information from electronic-communications providers. Grand juries could not subpoena certain information - such as credit card and bank account numbers - that is indispensable in tracking down a suspect's true identity.

          o Section 210 updated the law by allowing grand juries to subpoena the full range of information necessary to determine suspects' identities. Now, grand juries can issue subpoenas for the means of payment that customers use to pay for their accounts. That includes "any credit card or bank account number."

                + This information will prove particularly valuable in identifying the users of Internet services where a company does not verify its users' biographical information.

          o Prosecutors in the field report that this new authority has allowed for quick tracing of suspects in numerous important cases, including several terrorism investigations and a case in which computer hackers attacked over fifty government and military computers.

          o As is true of all subpoenas, recipients of a section 210 subpoena can go to court and ask the judge to quash it. And, if the recipient refuses to comply with a section 210 subpoena, the government must ask a judge to enforce it; agents cannot enforce it unilaterally.

          o Before section 210, grand jury subpoenas of electronic-communications providers generally were limited to obtaining customers' names, addresses, and length of service.

Section 211. Clarification of scope.

    * Summary: Clarifies that the statutes governing telephone and Internet communications - not the burdensome provisions of the Cable Act - apply to cable companies that provide Internet or telephone service.

    * Facts:

          o Before the USA PATRIOT Act, some cable companies, citing restrictions in the federal Cable Act, ignored lawful court orders requiring them to turn over records about their customers' Internet or telephone use - even though any other Internet or telephone provider would have had to comply.

          o Section 211 clarified that when a cable company provides telephone or Internet service, it must comply with the same disclosure laws that apply to any other telephone company or Internet service provider.

                + Terrorists no longer can exempt themselves from lawful investigations simply by choosing cable companies as their communications providers.

          o Section 211 preserved all of the pre-existing standards in the applicable electronic-surveillance laws.

                + If agents want to use a pen register or trap-and-trace device (which record the numbers a telephone dials and from which it receives calls, but do not allow agents to listen to or record the contents of communications) or use a wiretap to listen to a cable customer's phone conversations, they still must apply for and receive a court order.

                + If agents want to use a wiretap, they must establish probable cause that criminal activity is afoot.

Section 212. Emergency disclosure of electronic communications to protect life and limb.

    * Summary: Allows computer-service providers to disclose communications in life-threatening emergencies.

    * Facts:

          o Before USA PATRIOT, communications providers could not disclose records about their customers in emergency situations. If an Internet service provider learned that a customer was about to commit a terrorist attack, and notified law enforcement, it could be subject to civil lawsuits - even if the disclosure saved lives.

          o Section 212 allows communications providers voluntarily to turn over information in emergencies without fear of civil liability. Now, providers are permitted - but not required - to give law enforcement information in emergencies involving a risk of death or serious injury.

                + This is the equivalent of allowing citizens to tell police that, while walking down a public street, they overheard two people discussing a crime they were about to commit and decided to notify the police.

                + Section 212 does not impose an affirmative obligation to review customer communications in search of such imminent dangers.

          o Communications providers have used this new authority to disclose vital information to law enforcement in a number of important investigations, including a bomb threat against a high school.

                + An anonymous person posted on an Internet message board a bomb death threat that specifically named a faculty member and several students.

                + The message board's owner initially resisted giving law enforcement any information about the suspect for fear that he could be sued. Once agents explained section 212, the owner turned over evidence that led to the timely arrest of the individual responsible for the bomb threat.

                + The message board's owner later revealed that he had been worried for the safety of the students and teachers for several days, and expressed his relief that the USA PATRIOT Act permitted him to help.

          o Section 212 also played a key role in a case where two unknown individuals, using a U.S.-based email account, threatened to kill executives at a company in another country unless they were paid a hefty ransom. The email provider used section 212 to disclose key information about the suspects. The Justice Department then transmitted this information to the authorities in that country, less than two hours after we were first contacted. Both suspects later were apprehended overseas.

          o This provision will sunset on December 31, 2005.

Section 213. Authority for delaying notice of the execution of a warrant.

    * Summary: Allows courts, in certain narrow circumstances, to give delayed notice that a search warrant has been executed.

    * Myth: "It expands the government's ability to search private property without notice to the owner." [ACLU, Apr. 3, 2003]

    * Reality:

          o Delayed notification warrants are a long-existing, crime-fighting tool upheld by courts nationwide for decades in organized crime, drug cases and child pornography.

                + Section 213 of USA PATRIOT Act simply codified the authority law enforcement already had for decades. Because of differences between jurisdictions, the law was a mix of inconsistent standards that varied widely across the country. This lack of uniformity hindered complex terrorism cases. Section 213 resolved the problem by establishing a uniform statutory standard. Section 213 is a vital aspect of our strategy of prevention - detecting and incapacitating terrorists before they are able to strike.

          o The Supreme Court has held the Fourth Amendment does not require law enforcement to give immediate notice of the execution of a search warrant. The Supreme Court emphasized "that covert entries are constitutional in some circumstances, at least if they are made pursuant to a warrant." In fact, the Court stated that an argument to the contrary was "frivolous." Dalia v. U.S., 441 U.S. 238 (1979). In yet another case, the Court said, "officers need not announce their purpose before conducting an otherwise [duly] authorized search if such an announcement would provoke the escape of the suspect or the destruction of critical evidence." Katz v. U.S., 389 U.S. 347 (1967).

          o If the Otter Amendment, passed in the House July 22, 2003, becomes law, it would have a devastating effect on our ongoing efforts to detect and prevent terrorism, as well as to combat other serious crimes. This amendment could tip off terrorists or criminals to investigations before law enforcement could obtain the needed information to locate their terrorists or criminal associates, identify and disrupt their plans, or initiate their arrests.

                + Premature notification of a search warrant could result in the intimidation of witnesses, destruction of evidence, flight from prosecution, physical injury, and even death.

          o In all cases, section 213 requires law enforcement to give notice that property has been searched or seized. It simply allows agents to temporarily delay when the required notification is given.

          o This authority can be used only upon the issuance of a court order, in extremely narrow circumstances. Courts can delay notice only when immediate notification may result in death or physical harm to an individual, flight from prosecution, evidence tampering, or witness intimidation.

          o Under section 213, courts can delay notice if there is "reasonable cause" to believe that immediate notification may have a specified adverse result. The "reasonable cause" standard is consistent with pre-PATRIOT Act caselaw for delayed notice of warrants. See, e.g., United States v. Villegas, 899 F.2d 1324, 1337 (2d Cir. 1990) (government must show "good reason" for delayed notice of warrants).

          o Section 213 is important to law-enforcement investigations of a wide variety of serious crimes, including domestic and international terrorism, drug trafficking, organized crime, and child pornography.

                + In United States v. Odeh, a recent narco-terrorism case, a court issued a section 213 warrant in connection with the search of an envelope that had been mailed to a target of an investigation. The search confirmed that the target was operating a hawala money exchange that was used to funnel money to the Middle East, including to an individual associated with someone accused of being an operative for Islamic Jihad in Israel. The delayed-notice provision allowed investigators to conduct the search without fear of compromising an ongoing wiretap on the target and several of the confederates. The target was later charged and notified of the search warrant.

                + During an investigation into a nationwide organization that distributes marijuana, **** and methamphetamine, the court issued a delayed notice warrant to search the residence in which agents seized in excess of 225 kilograms of drugs. The organization involved relied heavily on the irregular use of cell phones, and usually discontinued the use of cell phones after a seizure of the drugs and drug proceeds, making continued telephone interception difficult. Interceptions after the delayed notice seizure indicated that the suspects thought other drug dealers had stolen their drugs, and none of the telephones intercepted were disposed of, and no one in the organization discontinued their use of telephones. The government was able to prevent these drugs from being sold, without disrupting the larger investigation.

Section 214. Pen register and trap and trace authority under FISA.

    * Summary: Allows the United States to obtain a FISA pen register order by certifying that the resulting information would be relevant to an investigation to protect against international terrorism or clandestine intelligence activities.

    * Myth: "The amendment significantly eviscerates the constitutional rationale for the relatively lax requirements that apply to foreign intelligence surveillance." [EPIC, Mar. 19, 2003]

    * Reality:

          o Section 214 streamlined the process for obtaining pen registers under FISA. It preserved the existing court-order requirement. Now, as before, law enforcement cannot install a pen register unless it applies for and receives permission from the FISA court.

          o Section 214 goes further to protect privacy than the Constitution requires. The Supreme Court has long held that law enforcement is not constitutionally required to obtain court approval before installing a pen register.

                + Under long-settled Supreme Court precedent, the use of pen registers does not constitute a "search" within the meaning of the Fourth Amendment. As such, the Constitution does not require that law enforcement obtain court approval before installing a pen register. This is so because "a person has no legitimate expectation of privacy in information he voluntarily turns over to third parties," and "when he used his phone, petitioner voluntarily conveyed numerical information to the telephone company." Smith v. Maryland, 442 U.S. 735, 744 (1979).

          o Section 214 explicitly safeguards First Amendment rights. It requires that any "investigation of a United States person is not conducted solely upon the basis of activities protected by the First Amendment to the Constitution."

          o A pen register is a device that can track routing and addressing information about a communication - for example, which numbers a particular telephone dials. Pen registers are not used to collect the content of communications.

          o Whether the Department has used section 214 is classified. Details about its use were provided to the House Judiciary Committee on May 29, 2003.

          o This provision will sunset on December 31, 2005.

Section 215. Access to business records and other items under the Foreign Intelligence Surveillance Act.

    * Summary: Allows the FISA court, in an investigation to protect against international terrorism or clandestine intelligence activities, to issue an ex parte order requiring the production of any tangible things.

    * Myth: "Many [people] are unaware that their library habits could become the target of government surveillance. In a free society, such monitoring is odious and unnecessary. . . The secrecy that surrounds section 215 leads us to a society where the 'thought police' can target us for what we choose to read or what Websites we visit." [ACLU, July 22, 2003]

    * Reality:

          o The library habits of ordinary Americans are of no interest to those conducting terrorism investigations. However, historically terrorists and spies have used libraries to plan and carry out activities that threaten our national security. We should not allow libraries to become safe havens for terrorist or clandestine activities.

          o Obtaining business records is a long-standing law enforcement tactic. Ordinary grand juries for years have issued subpoenas to all manner of businesses, including libraries and bookstores, for records relevant to criminal inquiries.

                + In a recent domestic terrorism criminal case, a grand jury served a subpoena on a bookseller to obtain records showing that a suspect had purchased a book giving instructions on how to build a particularly unusual detonator that had been used in several bombings. This was important evidence identifying the suspect as the bomber.

                + In the 1997 Gianni Versace murder case, a Florida grand jury subpoenaed records from public libraries in Miami Beach.

                + In the 1990 Zodiac gunman investigation, a New York grand jury subpoenaed records from a public library in Manhattan. Investigators believed that the gunman was inspired by a Scottish occult poet, and wanted to learn who had checked out his books.

          o Section 215 authorized the FISA court to issue similar orders in national-security investigations. It contains a number of safeguards that protect civil liberties.

                + Section 215 requires FBI agents to get a court order. Agents cannot use this authority unilaterally to compel any entity to turn over its records. FISA orders are unlike grand jury subpoenas, which are requested without court supervision.

                + Section 215 has a narrow scope. It can only be used (1) "to obtain foreign intelligence information not concerning a United States person"; or (2) "to protect against international terrorism or clandestine intelligence activities." It cannot be used to investigate ordinary crimes, or even domestic terrorism.

                + Section 215 preserves First Amendment rights. It expressly provides that the FBI cannot conduct investigations "of a United States person solely on the basis of activities protected by the First Amendment to the Constitution of the United States."

                + Section 215 provides for congressional oversight. Every six months, the Attorney General must "fully inform" Congress on how it has been implemented.

                + On October 17, 2002, the House Judiciary Committee issued a press release indicating it is satisfied with the Department's use of section 215: "The Committee's review of classified information related to FISA orders for tangible records, such as library records, has not given rise to any concern that the authority is being misused or abused."

          o There is much misinformation - even disinformation - about the supposed use of section 215 at libraries.

                + On November 3, 2002, the Hartford Courant alleged that the FBI installed software on computers at the Hartford Public Library that lets agents track a person's use of the Internet and email messages. The article even said that individuals' library use could be surveilled even if they weren't suspected of being a terrorist. In reality, the FBI obtained a single search warrant to copy the hard drive of a specific computer that had been used to hack into a business computer system in California for criminal purposes. No software was installed on that or any other computer in the library. The Hartford Courant has retracted the story in full.

          o Section 215 actually is more protective of privacy than the authorities for ordinary grand jury subpoenas.

          o A court must explicitly authorize the use of section 215 to obtain business records. By contrast, a grand jury subpoena is typically issued without any prior judicial review or approval.

          o Section 215 expressly protects the First Amendment, unlike federal grand jury subpoenas.

          o Section 215 can only be used, in investigations of U.S. persons, to protect against international terrorism or clandestine intelligence activities. A grand jury can obtain business records in investigations of any federal crime.

          o The requirement that recipients of these orders keep them confidential is based on "national security letter" statutes, which have existed for decades. (An NSL is a type of administrative subpoena used in certain national-security investigations.)

          o The details of FISA-related investigations, including requests for business records, are classified. Classified details about the use of section 215 were provided to the House Permanent Select Committee on Intelligence on July 29, 2002, in response to a request by the House Committee on the Judiciary, and to the Senate Select Committee on Intelligence on January 7, 2003, in response to a request by the Constitution Subcommittee of the Senate Committee on the Judiciary.

          o The new tool improved on FISA's original business-records authority in a number of respects:

                + It expanded the types of entities that can be compelled to disclose information. Under the old provision, the FBI could obtain records only from "a common carrier, public accommodation facility, physical storage facility or vehicle rental facility." The new provision contains no such restrictions.

                + It expanded the types of items that can be requested. Under the old authority, the FBI could only seek "records." Now, the FBI can seek "any tangible things (including books, records, papers, documents, and other items)."

          o This provision will sunset on December 31, 2005.

Section 216. Modification of authorities relating to use of pen registers and trap and trace devices.

    * Summary: Amends the pen register/trap and trace statute (1) to clarify that it applies to Internet communications, and (2) to allow for a single order that is valid across the country.

    * Myth: "Section 216 would worsen the problem by giving the FBI access to communications of non-targets and to portions of the target's communications to which it is not entitled under the court order it obtained. The 'trust us, we're the government' solution the FBI proposes is entirely unacceptable and inconsistent with the Fourth Amendment." [ACLU, Oct. 23, 2001]

    * Reality:

          o For years, law enforcement has used pen registers to track which numbers a particular telephone dials. See 18 U.S.C. § 3123. Before the USA PATRIOT Act, it was not clear that they could be used to gather the same routing and addressing information about Internet communications.

          o Section 216 updated the law to the technology. It ensures that law enforcement will be able to collect non-content information about terrorists' communications regardless of the media they use.

          o Section 216 also allows courts to issue pen-register orders that are valid across the country. As a result, law enforcement no longer needs to waste precious time by applying for new orders each time an investigation leads to another jurisdiction.

          o Section 216 preserved all of the law's pre-existing standards. As before, law enforcement must get court approval before installing a pen register. And as before, law enforcement must show that the information sought is relevant to an ongoing investigation.

          o In fact, section 216 enhanced the privacy protections in the pen-register statute. It made explicit that anyone using a pen register has an affirmative obligation to avoid the collection of content.

                + The Department is committed to complying with the Act's mandate that pen registers not be used to capture content. On May 24, 2002, the Deputy Attorney General issued a memorandum instructing field offices to: (1) minimize any possible collection of content; (2) refrain from using any content that may be acquired inadvertently; and (3) coordinate with Department headquarters about what constitutes content.

          o Department field investigators and prosecutors have used section 216 in a number of terrorism and other important criminal cases.

                + Section 216 was used in the investigation of the murder of Wall Street Journal reporter Danny Pearl, to obtain information that proved critical to identifying some of the perpetrators.

                + Section 216 was used in a case where two unknown individuals, using a U.S.-based email account, threatened to kill executives at a company in another country unless they were paid a hefty ransom. The use of a pen register enabled Department investigators to provide the foreign authorities with critical information about the suspects' identities - which led to their prompt apprehension overseas.

                + Investigators also have used section 216 to collect routing information about the Internet communications of (1) terrorist conspirators; (2) at least one major drug distributor; (3) thieves who obtained victims' bank-account information and stole the money; (4) a four-time murderer; and (5) a fugitive who fled on the eve of trial using a fake passport.

          o A pen register is a device that can track routing and addressing information about a communication - for example, which numbers a particular telephone dials. Pen registers are not used to collect the content of communications.

          o Under long-settled Supreme Court precedent, the use of pen registers does not constitute a "search" within the meaning of the Fourth Amendment. As such, the Constitution does not require that law enforcement obtain court approval before installing a pen register. This is so because "a person has no legitimate expectation of privacy in information he voluntarily turns over to third parties," and "when he used his phone, petitioner voluntarily conveyed numerical information to the telephone company." Smith v. Maryland, 442 U.S. 735, 744 (1979).

          o The law provides for robust oversight of law enforcement's use of pen registers. The pen register statute has always required that a report be made to Congress every year as to its use. In addition, the USA PATRIOT Act added a requirement that law enforcement report to the supervising court anytime it uses its own pen register to collect Internet information.

Section 217. Interception of computer trespasser communications.

    * Summary: Allows victims of computer-hacking crimes to request law-enforcement assistance in monitoring trespassers on their computers.

    * Myth: "The new law places the determination solely in the hands of law enforcement and the system owner or operator. . . . [T]he amendment has little, if anything, to do with legitimate investigations of terrorism." [EPIC, Mar. 19, 2003]

    * Reality:

          o The law has always recognized the right of landowners to ask law enforcement to help expel people who illegally trespass on their property.

          o Section 217 made the law technology-neutral, placing cyber-intruders on the same footing as physical intruders. Now, hacking victims can seek law-enforcement assistance to combat hackers, just as burglary victims have been able to invite officers into their homes to catch burglars.

                + Prior to the enactment of the USA PATRIOT Act, the law prohibited computer service providers from sharing with law enforcement that hackers had broken into their systems.

          o Computer operators are not required to involve law enforcement if they detect trespassers on their systems. Section 217 simply gives them the option of doing so.

          o Section 217 preserves the privacy of law-abiding computer users. Officers cannot agree to help a computer owner unless (1) they are engaged in a lawful investigation; (2) there is reason to believe that the communications will be relevant to that investigation; and (3) their activities will not acquire the communications of non-hackers.

          o This provision has played a key role in a number of terrorism investigations, national-security cases, and investigations of other serious crimes.

          o Section 217 is extremely helpful when computer hackers launch massive "denial of service" attacks - which are designed to shut down individual web sites, computer networks, or even the entire Internet.

          o The definition of "computer trespasser" does not include an individual who has a contractual relationship with the service provider. Thus, for example, America Online could not ask law enforcement to help monitor a hacking attack on its system that was initiated by one of its own subscribers.

          o This provision will sunset on December 31, 2005.

Section 218. Foreign intelligence information.

    * Summary: Encourages an integrated antiterrorism campaign by allowing the use of FISA whenever "a significant purpose" of the investigation is foreign intelligence.

    * Myth: "It permits the FBI to conduct a secret search or to secretly record telephone conversations for the purpose of investigating crime even though the FBI does not have probable cause of crime. The section authorizes unconstitutional activity - searches and wiretaps in non-emergency circumstances - for criminal activity with no showing of probable cause of crime." [ACLU, Oct. 23, 2001]

    * Reality:

          o Before the USA PATRIOT Act, a perceived metaphorical "wall" often inhibited vital information sharing and coordination. Intelligence investigators were concerned about sharing information with, and seeking advice from, law enforcement investigators and prosecutors. There was a fear that such sharing and consultation could mean that they would not be able to obtain or continue FISA coverage.

                + Previously, courts had ruled that FISA could be used only when foreign intelligence was the "primary purpose" of an investigation.

          o Section 218 expressly permitted the full coordination between intelligence and law enforcement that is vital to protecting the nation's security. Now, FISA can be used whenever foreign intelligence is a "significant purpose" of a national security investigation. Moreover, section 504 of the USA PATRIOT Act specifically permits intelligence investigators to consult with federal law enforcement officers to coordinate efforts to investigate or protect against threats from foreign powers and their agents.

          o Generally, a surveillance or search under FISA can be ordered only if the court finds that there is probable cause to believe that the target is a foreign power or an agent of a foreign power.

          o This provision already is producing important dividends in the war on terror. The Department recently obtained the indictment of Sami al-Arian, an alleged member of a Palestinian Islamic Jihad (PIJ) cell in Tampa, Florida.

                + PIJ is alleged to be one of the world's most violent terrorist outfits. It is responsible for murdering over 100 innocent people, including Alisa Flatow, a young American killed in a bus bombing near the Israeli settlement of Kfar Darom.

                + Section 218 enabled criminal investigators finally to obtain and consider the full range of evidence of the PIJ operations in which al-Arian allegedly participated.

          o The Department has issued several new directives that have fostered cooperation among national-security and law-enforcement personnel.

                + The Attorney General instructed all U.S. Attorneys to review intelligence files to discover whether there was a basis for bringing criminal charges against the subjects of intelligence investigations. More than 5,000 files have been reviewed as part of this process. Information from this review has been used to open many criminal investigations.

                + The Attorney General directed every U.S. Attorney to develop a plan to monitor terrorism and intelligence investigations, and to ensure that information about terrorist threats is shared with other agencies and that criminal charges are considered.

          o In November of last year, the Foreign Intelligence Surveillance Court of Review upheld in full section 218, as well the Department's procedures to implement it.

                + The court expressly held "that FISA as amended is constitutional because the surveillances it authorizes are reasonable." In re Sealed Case, 310 F.3d 717, 746 (FISCR 2002).

          o The old "primary purpose" standard was derived from a number of court decisions, including United States v. Truong, 629 F.2d 908 (4th Cir. 1980). That standard was formally established in written Department guidelines in July 1995. While information could be "thrown over the wall" from intelligence officials to prosecutors, the decision to do so always rested with national-security personnel - even though law-enforcement agents are in a better position to determine what evidence is pertinent to their criminal case. The old legal rules discouraged coordination, and created what the Foreign Intelligence Surveillance Court of Review calls "perverse organizational incentives." In re Sealed Case, 310 F.3d at 743.

          o On March 6, 2002, the Department issued guidelines that expressly authorized - and indeed required - coordination between intelligence and law enforcement. These revised procedures were approved in full by the Foreign Intelligence Surveillance Court of Review on November 18, 2002. In December 2002, the Department issue field guidance with respect to the March 2002 procedures and the Court of Review's decision.

          o In addition to upholding the Department's revised procedures, the Court of Review also noted that the old "wall" standards were not required even prior to the USA PATRIOT Act. See In re Sealed Case, 310 F.3d at 723-27, 735.

          o This provision will sunset on December 31, 2005.

Section 219. Single-jurisdiction search warrants for terrorism.

    * Summary: Allows courts to issue search warrants that are valid nationwide in terrorism investigations.

    * Facts:

          o Under prior law, a court could only issue a search warrant authorizing searches within its own district. That created unnecessary delays and burdens when investigating terrorist networks, which often span a number of judicial districts.

          o Section 219 eliminated those time-consuming loopholes. Now, a court in a district where terrorism-related activities have occurred, upon a showing of probable cause, may issue search warrants that are valid within or outside the district.

          o Section 219 preserved all of the pre-existing standards governing the availability of search warrants. Law enforcement still is required to demonstrate, and courts still must find, probable cause that criminal activity is afoot.

          o Section 219 has made available resources that otherwise would have been devoted to administrative tasks, thereby maximizing the law enforcement personnel available to investigate terrorists.

          o This new tool has been used in a number of important terrorism cases. For example, section 219 enabled prosecutors in Virginia to obtain a single search warrant to simultaneously search multiple offices of affiliated charities in two different states. Such coordination is extremely important in cases where one entity may be able to warn another of an impending search.

Section 220. Nationwide service of search warrants for electronic evidence.

    * Summary: Allows courts with jurisdiction over the offense to issue search warrants for communications stored by providers anywhere in the country.

    * Facts:

          o Under previous law, some courts declined to issue search warrants for email stored on servers in other districts. Requiring investigators to obtain warrants in distant jurisdictions has delayed many time-sensitive investigations. It also placed an enormous administrative burden on districts in which major Internet service providers are located (such as E.D. Va. and N.D. Cal.).

          o Section 220 allows courts to issue search warrants for electronic evidence outside the district where they are located. Now, courts can compel evidence directly, without requiring the intervention of agents, prosecutors, and judges in the districts where major ISPs are located.

          o Section 220 has made available resources that otherwise would have been devoted to administrative tasks, thereby maximizing the law enforcement personnel available to investigate terrorists.

          o This new tool has been used in a number of important terrorism cases. For example, one section 220 search warrant was used in a case in one state regarding an individual who had set up a website promoting jihad for an organization in another state. The judge where the case was being brought, who was most familiar with the case, was able to sign the search warrant.

                + The enhanced ability to obtain this information quickly also has proved invaluable in several sensitive non-terrorism investigations, including: (1) the tracking of a fugitive; and (2) a hacker who stole a company's trade secrets and then extorted money from the company.

« Last Edit: September 15, 2009, 09:59:44 pm by Giuliano Taverna »
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Giuliano Taverna

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Fema camps
« Reply #13 on: September 15, 2009, 10:34:24 pm »
Now we all know that fema is an evil organization set up by snake headed alien Jews to kill all white people or some such nonsense right? Yeah I know... I'm not even trying anymore, its late, I'm tired, give me a break on this one.

Anyway here is the BS, courtesy of lunatics

And here is the truth, courtesy of Popular mechanics

North Korea/Wyoming detention center

Thanks those good folks at freerepublic for concocting this loony anti American conspiracy theory.

to give them some credit, a lot of the replies were comically anti conspiracy theorist, my favorite

Someone is pulling your leg as these pictures are obvious phonies. There are no heliports for the 'Black Helicopters' plus I can't find the building tagged "Cattle Mutilations" and there's no 20,000 ft long landing strip for UFOs.

CLAIM: "There is a minimum of one confirmed concentration camp built on American soil in rural Wyoming. " The (Department of Homeland Security) accidentally placed these photos on a publicly accessible portion of their website " (but) they were pulled within one hour. " The images are not gone forever though."

FACT: These actually are legitimate images of "forced-labor colonies, camps, and prisons"—in North Korea. The images were taken from "The Hidden Gulag: Exposing North Korea's Prison Camps,"

a report prepared by the Washington D.C.-based Committee for Human Rights in North Korea.

Then someone manipulated the headers, photo dates and annotations. The original five images, showing a dorm for prisoners, forced-labor shops and guard towers, are here.

 "When we first got the photos, we had no idea they were prison camps," said Matthew McKinzie, one of the men responsible for collecting the imagery. "The North Korean gulags are work gulags; the prisoners are forced to work and live in what look like North Korean villages. It wasn't until we began interviewing former prisoners that we knew what we were looking at." In the fakes, original maps and geographic coordinates have been covered by poorly pasted DHS logos. The whole thing may have been a hoax—the name of the made-up facility, "Swift Luck Greens," is an anagram for "Left Wing Suckers"—but it's evidence that once things get passed around the Internet, they can lose context and the wildest theory wins.

The following clip is from lunatic conspiracy theorist Glenn Beck's show on Fox News, its one of those rare moments when he is helping to debunk right wing extremist myths instead of supporting them. Savor it.

Camp Grayling National Guard training center

Word to the wise, don't trust anything tagged "indymedia"

CLAIM: "More (evidence of) Concentration Camps in America for Americans. Yes, they are real. More (photographic) proof " read it and weep, it's coming!"

FACT: Camp Grayling,

located in northern central Michigan, is the largest National Guard training center in the U.S. The National Guard, active and reserve components of the Army, Navy, Marines, Air Force and Coast Guard all train there, practicing everything from helicopter gunnery to processing and care for prisoners of war. "The 'camps' you are referring to are used by our military police for training," said Maj. Dawn Dancer, a public information officer for the Michigan National Guard. "In fact, one of our MP units just returned from a 12-month deployment where they oversaw the operations of a POW facility in Iraq. We are fortunate to have such a great training facility here." This is also evidence of the life span of these theories: Far from being new, or even inspired by post-9/11 government buildup, Dancer first began responding to these photos in 1999. "I cannot believe this rumor about Camp Grayling is still alive," she said.

Beech Grove Amtrak facility

youtube vids like this would be funny, if some many people didn't take them seriously.

A) "The Amtrak Railcar Repair Facility at Beech Grove, Ind., contains high security NSA-style people turnstiles, and high intensity/security lighting for 24-hour operation. These buildings have been sealed airtight and constructed to allow gas to be blown into all the buildings via the newly installed, two-story, hot air heating furnaces. [T]he (jobs) of Americans who were laid off there will be filled with foreigners, who will have no qualms about gassing Americans in the newly renovated gas chambers, in the Dachau and Auschwitz of America."

-2:03-2:15 / 2:30-2:50: "This small building is the only way into a particular fenced area. Inside this building, we see more of the motion-activated detectors, electronic turnstiles, and prison bars. " All of the renovations to this property have involved putting in new fencing, electronic turnstiles, concrete flooring in unused warehouse buildings, and putting in large gas furnaces in buildings that were never heated anytime in the past 20 years."

-4:10-4:40: "In yet another fenced area, we see a large warehouse building at the end with the electronic turnstiles in front of it. The building is one that has a new concrete floor—and its doors and windows have all been blocked. Outside there are new gas pipes."

-4:57-5:17: "The gas lines and gas pipes at the facility run the length of the buildings—and come out at some very, very large brand-new furnaces that have been installed at the buildings throughout the facility."

A) This footage, which appears in multiple videos on YouTube, is from a "documentary" filmed 15 years ago—yet today, it's been viewed nearly 1.5 million times online. The woman who made the video, Linda Thompson, was one of the pioneers of the militia movement in the United States—except that she was so extreme, the Southern Poverty Law Center says she embarrassed even her fellow milita members. (Most famously

, she called for an armed march on Washington, D.C., to "take U.S. senators and congressmen into custody, hold them for trial, and, if necessary, execute them."). Far from a death camp, Beech Grove is the primary maintenance facility for Amtrak's long-distance trains, overhauling and repairing approximately 700 passenger cars a year. Company officials, who've heard these theories for years, welcomed our film crew, and John Grey, the superintendent of the facility, showed us anything we wanted to see.

B) The turnstiles and "prison bars": According to Grey, that system was the company's initial attempt at an electronic system to log in and out its 500 employees. They're similar to a pair of subway turnstiles. As the technology evolved, so too did the Amtrak infrastructure: There are no more bars to funnel employees through one set of gates; now there are electronic kiosks across the property where workers can clock in and out. "That system was short-lived," Grey says. "Now there are kiosks everywhere."

-The "large warehouse" with windows and doors that are blocked: When the original footage was filmed, the "Coach 3" building, one of three original repair facilities on the property, was in the process of being emptied and consolidated into the other two massive warehouses on the property. That's why it was boarded up. The building was demolished about seven years ago.

-New gas pipes and furnaces: In 1993, the existing centralized power plant for steam heat was deemed too expensive and inefficient. That year, the company upgraded to localized forced-air gas heaters. (Hence the "new gas pipes" seen in 1994.) "The volume of gas use went up, so we rerouted the gas line from a front entrance to the back entrance," Grey said, "just like you would at your house."

Hundreds of thousands of plastic coffins

more "truth" from youtube

CLAIM: "500,000 plastic air-tight coffins in the middle of Atlanta Georgia. Apparently the Government is expecting a Half Million people to die relatively soon, and the Atlanta Airport is a major airline traffic hub, probably the biggest in the country, which means Georgia is a prime base to conduct military operations and coordination. It is also the home of the CDC, the Center for Disease Control. I don't want to alarm anyone, but usually you don't buy 500,000 plastic coffins 'just in case something happens,' you buy them because you know something is going to happen. These air tight seal containers would be perfect to bury victims of plague or biological warfare in, wouldn't they?"

FACT: The black polypropylene products purported to be coffins are grave liners, or burial vaults, manufactured by Convington, Ga.-based Vantage Products. (In this case, they are examples of the company's Standard Air Seal model.) The use of a burial vault, which prevents the collapse of cemetery ground and protects the casket, is a common requirement when a body is interred.

The filmed lot in Madison, Ga., is a Vantage storage facility. Of the 900,000 or so in-ground burials in the U.S. each year, a small percentage of those people prearranged their own caskets and vaults—which Vanguard holds at the storage facility until the appropriate time. According to company Vice President of Operations Michael Lacey, there are approximately 50,000 vaults in storage in Madison. "It's nowhere near the quantity they talk about on the Internet," he told the local Morgan County Citizen newspaper. Furthermore, Lacey has said the company maintains detailed records of product ownership and is audited annually, to insure all vaults are accounted for.

Executive orders

Classic "forbbidden Knowlege" and wait for it... "Truth!"but not just truth. its Hard!

I need an aspirin now... this repetitiveness is giving me a headache. All other facts aside, these lunatics suck at creativity and have no originality.

CLAIM: "FEMA is the executive arm of the coming police state and thus will head up all operations. The Presidential Executive Orders

already listed on the Federal Register also are part of the legal framework for this operation." (The site then lists 14 executive orders as examples.)

FACTS: In 1962, while juggling conflicts in Cuba and Vietnam, and the potential for nuclear war with the Soviets, President John F. Kennedy signed a series of executive orders that outlined the basic framework for agency responsibilities during a national emergency. Most of those have since been revoked, or rolled into a single, more comprehensive executive order

signed by President Reagan. Safeguards were written into the current framework of responsibilities, declaring that any emergency preparation or actions "shall be consistent with the Constitution and laws of the United States."

According to Bruce Ackerman, Sterling Professor of Law and Political Science at Yale Law School, "The question of whether executive power could be abused so as to act inconsistently with the law has been a central constitutional concern for years. But the question in this case is whether it's right to look at 47-year-old executive orders without studying what came after them. And the answer there is obviously no."

The idea of the government seizing all the nation's farmland or forcing Americans into labor camps is without basis—except in Hollywood. In the first X-Files movie, the character Dr. Alvin Kurtzweil meets agent Mulder in a dark alley. "Are you familiar with what the Federal Emergency Management Agency's real power is?" Kurtzweil asks. "FEMA allows the White House to suspend Constitutional government on declaration of a national emergency. Think about that!"

Speculation about the agency was rampant after the film came out, leading a FEMA spokesman to tell The Washington Post in an article published on June 24, 1998: "You may emphatically state that FEMA does not have, never has had, nor will ever seek, the authority to suspend the Constitution." In fact, it led to an internal FEMA memo, reading: "While entertaining and somewhat humorous to the employees of FEMA, some moviegoers may not understand that they are watching a fictional portrayal of the agency. " Most people know us as the agency that responds to natural disasters, others believe we have a somewhat sinister role. For the latter, it is not realistic to think that we can convince them otherwise and it is advisable not to enter into debate on the subject."
"It is the duty of a good shepherd to shear his sheep, not to skin them." Tiberius Caesar

Giuliano Taverna

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Bush Nazi connection.
« Reply #14 on: September 16, 2009, 12:34:06 pm »
We all know that Prescott Bush was working for Hitler during world war two and is therefore guilty of the Holocaust... right?


Thanks to the Jewish anti deformation league for all their hard work debunking these myths that exploit the unspeakable horrors of the Holocaust for political reasons.

Rumors about the alleged Nazi "ties" of the late Prescott Bush, the grandfather of President George W. Bush, have circulated widely through the Internet in recent years. These charges are untenable and politically motivated.

Despite some early financial dealings between Prescott Bush and a Nazi industrialist named Fritz Thyssen (who was arrested by the Nazi regime in 1938 and imprisoned during the war), Prescott Bush was neither a Nazi nor a Nazi sympathizer.
"It is the duty of a good shepherd to shear his sheep, not to skin them." Tiberius Caesar