by Dr. K R Bolton
It is the nature of parasites that they eventually destroy their hosts, and either move to another host or self-destruct through their own parasitism. The financial system under which the Western world, and much of the non-Western world, has operated for generations, is fundamentally parasitic and therefore destructive. It is parasitic in the sense of taking without returning anything positive to the host. The host is the nation-state, the individual, the family, the businessman, the farmer, the community the world; the parasite is the bank.
While there are entire disciplines and professions devoted to explaining economics, the manner by which the financial system operates and the way in which its inherent flaws can be eliminated is comparatively straight-forward:
The fundamental question is: If a private bank can create and lend credit as a profit-making commodity by charging interest, then why can’t a government create its own credit as a pubic service and purely as a means of exchange of goods and services without incurring debt through exorbitant interest?
Credit and currency are only supposed to be a convenient method of commerce, instead of exchanging a bag of potatoes for a sack of flour, etc. It is because credit has become a prerogative of private banks instead of governments acting on behalf of the people, that the interest incurred on credit loaned as debt sucks real money created from actual production out of circulation. Therefore, there is never enough purchasing power for the consumer to buy the full value of the production. One result is export wars , which can conclude in shooting wars. Hence there is a shortage of purchasing power. Moreover, interest compounds because loans must be taken out at interest to just repay the interest on previous loans. The result is eventually a credit bust where the banks, operating through the International Monetary Fund, foreclose not just on individuals and businesses but on entire nations, and stringent ‘austerity measures’ are placed on the hapless citizens, while the state is forced to sell off the nation’s assets to pay off the debt. 
Dr Carroll Quigley, an eminent American historian who lectured at Harvard, Princeton, and the Foreign Services School, Georgetown University, included in his magnum opus Tragedy and Hope, which served as the basis for his university lectures, a history of the banking system which is particularly succinct. Quigley traced the mechanism of present-day baking to the founding of the Bank of England in the 17th century:
|‘The founding of the Bank of England by William Patterson and his friends in 1694 is one do the great dates in history… It early became clear that gold need be held on hand only to a fraction of the certificates likely to be presented for payment… In effect the creation of paper claims greater than the reserves available means that bankers were creating money out of nothing. The same thing could be done in another way. Deposit bankers discovered that orders and cheques drawn against deposits by depositors and given to a third person were often not cashed by the latter but were deposited in their own accounts. Accordingly it was necessary for the bankers to keep on hand in actual money no more than a fraction of deposits likely to be drawn upon and cashed, the rest could be used for loans, and if these loans were made by creating a deposit (account) for the borrower, who in turn would draw cheques upon it rather than withdraw money, such ‘created deposits” or loans could also be covered adequately by retaining reserves to only a fraction of their value. Such created deposits were also a creation of money out of nothing…’William Patterson however, on obtaining the Charter of the Bank of England in 1694, said: “the bank hath benefit of interest on all moneys which it creates out of nothing.”’ |
Very few states have been able to remain outside this system of international finance. Even Vietnam, having fought for centuries for unity and sovereignty, is part of the IMF debt web.  Muslim banking practise remains an anomaly in the world financial system, since the Koran, like the Biblical dictums that were for centuries upheld by the Catholic Church, prohibits usury, or the charging of interest on loans. 
Banks and bankers are looked upon virtually as wizards and wise shaman who alone can conjure up ‘money’ or more accurately credit, since most commerce is undertaken through credit rather than currency.  There is deliberate obfuscation, since the professional economists are taught at such institutions as the London School of Economics, which was endowed by financiers including Cassel, Rothschild and Rockefeller.  However during the 1920s and 1930s people in general understood very much more about the way the financial system operates than they do today, and they did not simply trust bankers and economists.
|‘I am afraid the ordinary citizen will not like that the banks can, and do, create money… and they who control the credit of a nation, direct the policy of governments, and hold in the hollow of their hands the destiny of the people.’ |
In 1955 a royal commission was convened in New Zealand to study the ‘monetary, banking and credit system’ concluding that: ‘the fact that a large proportion of our money supply comes into existence as a result of the operations of the trading banks obviously disturbed many witnesses.’  This was at a time when many more people than today still understood the mechanism of the banking system, and had personal memories of the Great Depression.
When the Great Depression hit, there were enough independent thinkers about to examine the flaws in the financial system and propose solutions, and enough desperate people to want to seek out and understand the answers and then to demand their implementation. Not so today where mass apathy and ignorance reign, and our political leaders and their advisers and media tell the common people that the world is now much too ‘complex’ to return to such ‘simple’ solutions. Yet the financial system today is the same as it was when its parasitic nature caused the Great Depression, and several financial crises immediately prior to it.
Congressman Louis T McFadden who had for ten years served as Chairman of the Congressional Chairman of the Banking and Currency Committee, and had been a banker himself , was particularly active in exposing the nature of the Federal Reserve System and the operations of the debt-finance system in speeches before Congress. In 1932 McFadden stated in the House:
|‘Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation’s debt. The depredations and iniquities of the Fed has cost enough money to pay the National Debt several times over.’This evil institution has impoverished and ruined the people of these United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Fed and through the corrupt practices of the moneyed vultures who control it.’Some people who think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders. In that dark crew of financial pirates there are those who would cut a man’s throat to get a dollar out of his pocket; there are those who send money into states to buy votes to control our legislatures; there are those who maintain International propaganda for the purpose of deceiving us into granting of new concessions which will permit them to cover up their past misdeeds and set again in motion their gigantic train of crime.’ |
McFadden reminded Congress that the Federal Reserve Bank had been inaugurated by the introduction in 1913 of the Federal Reserve Act by Sen. Aldrich, which was drafted primarily by Paul Warburg of Kuhn, Loeb and Co. McFadden held the Great Depression to be the responsibility of the Federal Reserve, which was not a ‘state bank’ owned by the people, but was owned by private shareholders. The Great Depression was caused when the Federal Reserve recalled its loans from the network of 12 provincial Federal Reserve Banks via which the entire US banking system operated; meaning that the ordinary bank customer was obliged to repay his debt or face foreclosure. McFadden said of the system:
|‘Meanwhile and on account of it, we ourselves are in the midst of the greatest depression we have ever known. From the Atlantic to the Pacific, our Country has been ravaged and laid waste by the evil practices of the Fed and the interests which control them. At no time in our history, has the general welfare of the people been at a lower level or the minds of the people so full of despair.’ |
Thus the parasitic nature of the debt-finance banking system caused the criminal phenomena of ‘poverty amidst plenty’. People did not suddenly became lazy and refuse to work, to produce, to grow crops, and raise livestock etc. Yet because of the lack of purchasing power – money and credit – caused by the trading banks having to recall their loans due to the dictates of the New York Federal Reserve Bank, there was not the purchasing power to consume the production. The most graphic example of this was the state imposed demand that farmers destroy their crops and livestock, while masses of people were starving, because the purchasing power was not available to buy the produce. In short, people starved, while food was destroyed. Farmers took their families and simply walked away from their land because they could not afford to repay the interest on their mortgages to the banks.
This system of banking is no less brutal than the collectivisation that was imposed on the kulaks by the USSR, or the mass starvation caused in the Ukraine by the confiscation of grain. The power of the Federal Reserve – or the private bankers who own– and continue to own – the bonds, was explained by McFadden:
|‘…In defiance of this and all other warnings, the proponents of the Fed created the 12 private credit corporations and gave them an absolute monopoly of the currency of these United States- not of the Fed Notes alone- but of all other currency!…’ |
This Federal Reserve banking system is not unique to the USA nor did American bankers invent it. As related by Quigley it became a formalised institution for the purposes of lending to states in 1694 through the Bank of England. The system is the same over much of the world. Even central banks that were nationalised, such as the New Zealand Reserve Bank and indeed the Bank of England, are merely conduits for loans from the international banking system. None of these ‘state banks’ create state credit and issue it as a non-usurious public service. This is the reason why most nations of the world are in colossal debt to the international bankers, and why some nations are virtually bankrupt.
During the American Civil War, Lincoln attempted to circumvent the private banking system and initially issued $150,000,000 interest-free ‘Lincoln Greenbacks’ directly through the US Treasury to fund the war. However such interest-free state credit was superseded by the National Banking Act 1863, which authorised the issue of Interest Bearing and Compound Interest Treasury Notes. The Federal Reserve Bank Act of 1913 authorised the establishment of a central bank that would issue credit based on usury. In 1963 President John F Kennedy attempted to circumvent the private bankers by Executive Order 11110, which bypassed the Federal Reserve System and authorised US Treasury to issue $4,000,000,000 of ‘United States Notes’; interest and debt free, used to fund new production, which were withdrawn from circulation at the rate of the consumption of production. 
One of the most successful and enduring examples of usury-free state credit has been that of Guernsey, British Channel Islands, whose banking experiment was initiated in 1820. Guernsey’s banking system was prompted by dire need, the island being in serious financial trouble from the beginning of the 19th Century. The island’s town was undeveloped, the roads were cart-tracks, and there was no prospect for employment. The most serious problem however was the encroaching sea that was washing away large tracts of land because of the disrepair of the dykes. Neither tax increases nor indebtedness to banks was practicable. However it was the need to upgrade the Public Market that prompted a committee to report back with a solution in 1816 to issue £6000 worth of States Notes.  The committee also recommended that the States Notes be used not only for the new market, but also for Torteval Church, road construction and other State expenses. The notes’ issue was started in 1820, and was followed by other issues, until by 1837 £55,000 of Notes were in circulation, debt-free and having created prosperity and development, which in turn stimulated visitors to the island.  Of course their were complaints to the Privy Council that such debt-free issues were being made, but the States Financial Committee gave such good account of the island that the objections were unsuccessful. However two banks on the island flooded Guernsey with their own notes to undermine the States Notes, and for reasons unknown it was the Island that agreed to limit the issue of its Notes. With the outbreak of war in 1914 Guernsey restarted the Notes issue according to requirements. While States Notes continue to circulate with British Pounds Sterling there has never been inflation, and the prosperity of the island continues as it has since 1820 , operating on minimal taxation. 
During the 1920s individuals began to reconsider the nature of the banking system in the midst of financial panics and depressions . The most well-know of these thinkers in the British Empire was Maj. C H Douglas, a Scottish engineer who calculated that there was a defect in the credit system that meant there would always be a shortcoming between the amount of production and the amount of money and credit to consume it. The cause was the issue of credit as a usurious debt by private banks, resulting in loans that would have to be paid back with money based on real production for credit created from nothing. As he saw then, and as we should all realise now, nations would never get themselves out of such a debt trap, as more loans were needed just to pay off the interest on previous loans: ‘compound interest.’ Douglas’ alternative, known as Social Credit , proposed a Credit Authority that would issue credit according to the productive needs of the nation.
Social Credit enjoyed great interest throughout the British world at the time of the Depression, and caught the imagination of those of both Left and Right. A Social Credit Government was formed in Alberta, Canada, in 1935, with Douglas as an adviser, albeit stymied by Central Government . In New Zealand in particular Social Credit generated much support especially after Maj. Douglas toured in 1934. Not only was a Social Credit Association formed which was to result in a political party (although Douglas eschewed party politics) but Social Credit was also adopted by the 20,000 strong New Zealand Legion, which sought to provide a just alternative to Marxism, and saw Social Credit as ideal for the purpose . In those days the demand for monetary reform had protagonists of great calibre, in New Zealand’s case: John A Lee, Labour MP; Henry Kelliher, proprietor of The Mirror, founder of Dominion Breweries and a director of the Bank of New Zealand; and the poet Rex Fairburn.
Under such impetus the Labour Government nationalised the Reserve Bank. However, because of the Fabian-socialist and Marxist views of many in the Government, John A Lee, an immensely popular figure who, unlike many of the Labour Ministers who had been conscientious objectors, was a World War I veteran who had lost an arm in combat, had to battle with his ‘colleagues’ in Parliament to ensure that the Government did not renege on its promises of issuing state credit to overcome the Depression. As it was, and in particular conflict with Walter Nash, Minister of Finance, and Prime Minister Joseph Savage, the most the Labour Government achieved was the issue through the Reserve Bank of 1% state credit to fund the famous State Housing scheme. However, this one act did achieve a great deal, cutting unemployment by 75% in three years, and showed how such a reformed banking system can work. In the Government document State Housing in New Zealand, the project was explained as follows:
|‘Reserve Bank Credit: To finance its comprehensive proposals, the Government adopted the somewhat unusual course of using Reserve Bank credit, thus recognising that the most important factor in housing costs is the price of money – interest is the heaviest portion in the composition of ordinary rent. The newly created Department [Ministry of Works] was able therefore to obtain the use of funds at the lowest possible rate of interest, the rate being 1% for the first $10 million advanced, and one and a half percent on further advances. The sums advanced by the Reserve Bank were not subscribed or underwritten by other financial institutions. This action shaped the Government’s intention to demonstrate that it is possible for the State to use the country’s credit in creating new assets for the country.’ |
When in 2008 this writer asked a panel of election candidates from all the major parties and many minor ones, what is different today that we cannot now be using the state credit method that was used in the 1930 to build New Zealand famous State Houses, none answered.
In Germany at about the time of New Zealand’s banking experiment with State Housing, state credit was being issued on a much larger scale to overcome that country’s colossal economic burdens. Germany’s primary banking reform theorist was Gottfried Feder. As early as 1918 Feder had written in his Manifesto for the Breaking of the Bondage of Interest that the source of the power of the international banking system ‘is the effortless and infinite multiplication of wealth which is created by interest.’ He recommended that the ‘drones’ ‘living off productive people’s and their labour’ be eliminated by ‘breaking the bondage of interest’:
|‘Money is not and must not be anything but an exchange for labour; that to be sure any highly developed country does need money as a medium of exchange, but that this exhausts the function of money, and can in no case give to money, through interest, a supernatural power to reproduce itself at the costs of productive labour.’ |
While the Weimer Government considered implementing Feder’s proposals, the influence of the banks was too strong. It seems to be for this reason that Feder joined the German Worker’s Party at its earliest stage, and his fundamental measures were applied from 1933. While many factors obscure the financial policy pursued by Germany during the Great Depression, Henry Kelliher’s popular home journal The Mirror explained to New Zealanders how Germany was overcoming the world depression, which was actually by means of applying on a wider scale what the New Zealand’s Labour Government had done via state credit for State Housing. In 1938 The Mirror ran an article by its European correspondent, Bertram de Colonna:
|‘Germany could not produce gold, but real wealth from land and forest, fields and factories. Labour was also available in plenty. In fact the unemployed totalled around even million at the time.’|
Capital was not available either domestically or internationally, and gold reserves were only sufficient to cover 10% of the currency in circulation. De Colonna writes that, ‘the result was a decision by the government to issue and assume control of currency and credit.’ One million marks of state credit were issued to finance public works including state housing. ‘The bankers prophesied speedy bankruptcy. Those prophecies proved utterly wrong…’ Newly created state banks issued state credit. ‘The new money backed by the credit of the nation was gradually absorbed by the open money market.’ This in turn brought a big increase in state revenue without the need for increasing taxation. Private banks were placed under state supervision and ‘the rate of interest was limited by law.’
De Colonna pointed out that the state money was in no way inflationary, (a frequent objection against such schemes by orthodox economists). The issue of credit and new money ‘is based upon the actual production of real wealth;’ through greater industrial activity. De Colonna stated that after five years of pursing this policy it had proven its worth in keeping money in constant circulation; ‘after all that is the only use of money – to circulate and exchange the wealth produced by the nation.’ 
The cause of these financial crises of the 1920s and 1930s, which were a wake up call to many people of all classes in many countries, and coming from many political persuasions of both Left and Right, remains with us today. However, the major difference now is that most people do not have the perception and independent thought processes of their grandparents’ generation to even want to understand the problems of banking and credit, and have succumbed to the myth that it is something only understood by the wizardry of economic ‘experts’. Yet what holds true for the 1920s and 1930s in regard to financial crises, holds true equally today. Denys Trussell, the biographer of Rex Fairburn, New Zealand’s great poet and like another great poet, Ezra Pound , an avid champion of Social Credit, says of Fairburn’s conversion to Major C H Douglas’ theory:
|‘Fairburn felt that New Zealand illustrated Douglas’ theories perfectly. Was there not here as elsewhere in the capitalist world, that maddening paradox: a surplus of goods combined with massive unemployment and hunger in the midst of plenty? Farmers hung on to their wool, hoping for a price that would justify their labour, while families without blankets shivered in the cities; thousands of urban poor went without meat because the Government was too hidebound by book-keeping to distribute it. Stock had to be slaughtered because farmers could not afford to carry it on their land. Livestock owners surrounding Auckland offered beasts free to the townspeople if the Government would meet the cost of transport. Scrimgeour  attempted to negotiate transport with the Minister of Railways. He was given a blanket refusal and told that the Government had to “think of our bondholders.”’ |
|The house of the governors, guarded by eunuchs,And over the arch of the gateThese words engraved:HE WHO IMPUGNS THE USURERS IMPERILS THE STATE |
K R Bolton is a Fellow of the Academy of Social and Political Research, and an assistant editor of the peer reviewed journal Ab Aeterno. Recent publications include ‘Trotskyism and the Anti-Family Agenda,’ CKR website, Sociology Dept., Moscow State University (October 2009); ‘Rivalry over water resources as a potential cause of conflict in Asia,’ Journal of Social Political and Economic Studies, and Russia and China: an approaching conflict?, Vol. 35, No. 1, Spring 2010; Vol. 34, no. 2, Summer 2009.
 The slogan ‘export or die’. Naturally the world trade system is also controlled by the world financial system.
 An example of this was when Prime Minister Robert Muldoon created New Zealand’s ‘think big’ schemes during the 1970s, which were supposed to make New Zealand self-sufficient in energy. Within a few decades Governments had sold off the assets to overseas corporations to pay for the debt on the loans that were needed to fund the projects, which had been borrowed from Warburg’s London.
 Carroll Quigley, Tragedy and Hope (New York: The MacMillan Company, 1966), 48-49.
 The World Bank states of Vietnam: ‘The level of public debt, at 42 percent of GDP, is moderate and is considered to be sustainable.’ The World Bank: “Vietnam: Country Brief”, http://tinyurl.com/29xpkgo (Accessed 28 February 2010).
 The Koran states: ‘Those who eat Riba [usury] will not stand except like the standing of a person beaten by Shaitan leading him to insanity.’ Of the numerous papal edicts on usury, Pope Benedict XIV (1 November 1745) for example stated: ‘One cannot condone the sin of usury.’
 For example, New Zealand has a mere $3,000,000,000 in Reserve Bank notes and coins in circulation. Of this the banks only hold half a billion NZ Dollars on deposit. However the total of all New Zealand bank deposits is $200,000,000,000. The difference between the $200,000,000,000 in bank deposits, and the half billion in bank cash is the amount of credit the banks have crated out of nothing. New Zealand banks no longer even have to operate on a ‘fractional reserve’. Ian Sheen, New Zealand: The Truth About Money (leaflet). Figures form the NZ Reserve Bank. Banks thereby reap huge profits in interest by creating credit that did not hitherto exist. This situation is basic to banking systems throughout the world.
 In her autobiography Our Partnership, Mrs Beatrice Webb describes how she and her husband Sidney, founders of the Fabian Society, were provided with funds by the Rothschilds, Sir Julius Wernher and Sir Ernest Cassel to established the London School of Economics (LSE). In 1920 Cassel saved the LSE from financial difficulty with a donation of ₤472,000. The fact of Sir Ernest Cassel having established the chair of ‘economic geography’; and of Sir Evelyn Robert de Rothschild, of the Rothschild banking dynasty, having been a Governor of the LSE attests to the influence of the international banking system on such institutions that instruct our economists who the obtain positions with governments and corporations throughout the world.
 Reginald McKenna, Midland Bank, England, January 1924.
 Report of the New Zealand Royal Commission on Monetary, Banking and Credit Systems, (Wellington: Government Printing Office, 1956), 164.
 McFadden had served as treasurer of the Pennsylvania Bankers’ Association in 1906 and 1907, and as president in 1914 and 1915.
 Louis T McFadden, United States Congressional Record, 10 June 1932, p. 12595.
 John F Kennedy, Executive Order No. 11110, 4 June 1963.
 Olive and Jan Grubiak, The Guernsey Experiment (ca. 1960), 7.
 Ibid. 8-9.
 Ibid., 10.
 According to World Travel Guide, Guernsey Exchange Rate, ‘Guernsey has its own currency… Channel Islands notes and coins are not accepted in the UK, although they can be converted in parity at UK banks.’ http://www.worldtravelguide.net/country/108/money/Europe/Guernsey.html (accessed 13 March 2010).
 Ibid. 11.
 In England John Hargreaves founded the Green Shirts for Social Credit, which conducted a militant campaign that often included a trademark green brick thrown through a bank window. In the USA the ‘radio priest’ Father Charles Coughlin, who had an audience of millions, formed the National Union for Social Justice, the main policy of which was the destruction of the usury banking system; until the Church hierarchy shut him down after pressure from the Roosevelt Administration.
 C H Douglas, Social Credit (London: Eyre and Spottiswood, 1937).
 The most vibrant Social Crediters, founded in the 1930s, remain the Pilgrims of St. Michael, based in Quebec, who are committed to Traditional Catholic Social Doctrine, of which opposition to usury is a major element.
 One of the 12 points of the Legion program was ‘Control of currency by the state…’ ‘The Legion’s 12 Points’, National Opinion, Vol. II, no. 14, 1 March 1934. The Legion, while attracting intense opposition from both Marxists and commercial interests was ultimately scuttled by reactionaries within its own ranks. The NZ Legion’s leader, Dr Campbell Begg, met C H Douglas twice. Michael C Pugh, The New Zealand Legion and Conservative Protest in the Great Depression, MA thesis (Auckland University, 1969), 128-129.
 State Housing in New Zealand, Ministry of Works (Wellington: Government Printing Office, 1949).
 Gottfried Feder, ‘Manifesto for Breaking the Bondage of Interest’, reprinted in Barbara Miller Lane and Leila J Rupp, Nazi Ideology Before 1933 (Manchester University Press, 1978), 27-30.
 Bertram de Colonna, ‘The Truth About Germany’, The Mirror, Auckland, 1938.
 Ezra Pound, Social Credit: An Impact, 1935 (London: Peter Russell, 1951); What is Money for? 1939 (Russell, 1951); An Introduction to the Economic Nature of the United States, n.d. (Russell, 1950); A Visiting Card, Rome, 1942 (Russell, 1952); America, Roosevelt and the Causes of the Present War, Venice, 1944 (Russell, 1951); Gold and Work, Rapallo, 1944 (Russell, 1951).
 ‘Uncle Scrim’, popular Depression era radio minister and social activist, sacked from radio in 1944 by Prime Minister Savage.
 Denys Trussell, Fairburn (Auckland, New Zealand: Auckland University Press, 1984), 133.
 Rex Fairburn, Dominion, 1952. An epic poem of New Zealand enthralled to usury, somewhat reminiscent of Pound’s Pisan Cantos, ‘With Usura’