"Income Taxes and Government Fraud"
An Interview with John E. Trumane
Susan B. Anthony
April 12, 1992
REPRODUCTION AND DISTRIBUTION ARE ENCOURAGED
PROVIDED THAT NO CHANGES ARE MADE TO THE TEXT
A = Susan B. Anthony
T = John E. Trumane
A: Okay, so we're going to talk about tax resistance. One of the things I have wanted to ask you about is this remark that some people make: If, in fact, the government collection system is based upon fraud, then it would collapse the government, and the government would have to find some other way to collect money. What do you think about that remark?
T: Well, it's not going to collapse the government. That's a scare tactic. That's a typical method they use to destroy an argument to the naive. If you look at the history of the American Republic for the last two hundred years, the income tax didn't become a real factor until about 1942. Before that, it was very insignificant. Before 1913, it didn't exist at all, except with some minor exceptions -- very insignificant exceptions -- to finance the debt created by the Civil War, and so on. So, it's fair to say that we've only had an income tax for about 25 percent of our history as a nation.
A: The next question is: How did the government survive without an income tax?
T: Well, it did very well. As a matter of fact, it did a lot better than our current government. When Thomas Jefferson was President, for example, he had an embarrassingly large surplus. His biggest problem was how to put that surplus back into the economy without being partial to any particular set of recipients. So, it's false to say that the federal government cannot survive without the income tax, because they survived for more than half of their history without it.
A: How did they do that?
T: Well, they used excise taxes, which are a very, very effective way of financing the federal government. You don't hear anybody complaining about the tax on gasoline or tires.
A: I complain.
T: You complain?
A: Every time I buy a gallon of gas, I hate to think that 17 cents of it is going to the federal government, on every gallon. I don't approve of what the Feds are doing.
A: So, yeah, I hear some people complain.
T: The other question is: Just how big a federal government do we absolutely have to have? What's the minimum size of an acceptably effective federal government, and I'd have to say I think it's somewhere on the order of one tenth of what we have right now -- easily one tenth would be fine for courts and international relations and whatever else has to be done.
The biggest crime of the century, I think, is that Congress has set up a sweetheart deal whereby they can get instant credit, with no cap on the amount, by turning to the Federal Reserve and financing our deficit every year. The deficit is now published to be four trillion dollars. That's four million millions in principal, not to mention the interest. And we think that the principal is probably closer to 18 trillion dollars, when you take into account all the money, all the liabilities, that the Congress has assumed for Social Security and welfare and whatever else goes into those liabilities. Oddly, their balance sheet shows Social Security as an asset, which is crazy -- it's a liability. It's completely backwards.
When you look, for example, at a tax proposal like Jerry Brown's: 13 and 13. Everyone's asking me, "What do you think of his flat tax proposal?" And I'm really not in a position to give out any advice or observations until I know what expenditure assumptions are built into those numbers. I want to know what expenditure assumptions are used to derive 13 and 13. Until I know that, I can't really react to it whatsoever.
Take this notion that the federal government is going to collapse. You have to be more specific about what you mean by "collapse". If it means they'll shrink, I agree entirely with that argument. If it means the government is going to somehow stop functioning tomorrow, and we're going to have chaos in the streets and anarchy -- that's ridiculous. Really, it's totally ridiculous; it's a scare tactic. Congress could turn around and pass a direct tax tomorrow. They know how to do it. They've done it enough times before; it's not difficult; it's constitutional. They could impose a direct tax, per the Constitution. They could abandon income taxes and go to all excise taxes. They could double or triple or quadruple the excise tax on gasoline. There are a lot of commercial transactions they could tax lawfully within the limits of the Constitution, provided that the excise taxes are uniform across the 50 States.
Also, it's important to realize that the Supreme Court has said that the Feds are not restrained by those taxing restrictions inside the Federal Zone, so they can put a very aggressive, discriminatory excise tax on all sorts of transactions inside the Federal Zone. That's what we're fighting right now. There's a dual government system whereby the Constitution rules inside the 50 States, or at least it's supposed to; and nothing rules except majority rule -- majority rules created by the majority in Congress -- inside the Federal Zone. So we have two national governments right now, and that's another problem in and of itself.
A: Well, what about this airline pilot who was recently convicted for protest? You know, he was saying that the United States government doesn't have a right to tax him. What was the case? Was he following your rules?
T: No. I've never met him.
A: Mr. Cheek.
T: John Cheek. His case got into the system long before I was ever involved in this, so there's really no connection, other than that he was raising issues that I think are very, very legitimate -- for example, what law requires me to file? -- and so on and so forth. That case is very interesting because, in January of 1991, the San Francisco Chronicle ran an article about him which made him look like a real idiot. They said in this article that he had been duped by a group of "snake oil tax protesters", and that he was considering pleading insanity, and all this other nonsense. It made him look like the most ridiculous, idiotic guy you'd ever want to know. You certainly wouldn't want him piloting your airplane. Well, two months later, the Supreme Court of the United States reversed his conviction. So he won. He beat the IRS at the Supreme Court, and a major precedent was set in favor of people who take his position.
A: Which was that ...
T: Well, the court said that his position was unreasonable. The District Court said that his belief was unreasonable, but the Supreme Court said that's okay. You can hold an unreasonable belief and that negates willfulness, because you can only accuse and convict somebody of criminal tax evasion, or criminal failure to file, if their failure to file or tax evasion is willful. It's an essential element of the crime. If the willfulness is not there, no crime has been committed. Well, they said he couldn't have been willful if he had a good faith belief in his notions about the unconstitutionality of the tax law, or the lack of jurisdiction, or what have you. So, they said you cannot apply an objective test to someone's good faith belief. It can be objectively unreasonable and still be held in good faith. Therefore, his conviction had to be reversed, because he did hold these beliefs in good faith even though, of course, they were "objectively unreasonable". His conviction was overturned.
That set a precedent for all of these tax cases whereby courts and juries are forced to establish that defendants failed to file and did so willfully, or evaded a tax that they knew they owed and did so willfully, and sent out a real strong message to the government, in particular, that their burden of proof is that much stiffer now than it was beforehand. It certainly created a bigger obstacle for the IRS and their prosecutions. As a result of that decision, a lot more jury acquittals have been coming in because of Cheek, and also because of the 9th Circuit decision that was issued soon after that.
The 9th Circuit said, in a case involving a tax violation, that because of Cheek, defendants were now permitted to introduce into evidence their own understanding of the law, and they are now able to introduce into evidence the law itself, so that juries can see the law. Prior to that, the 9th Circuit, through a series of precedents, had established a rule whereby the law was to come from the judge and not from the defendant. Any time defendants tried to introduce the law into evidence, they'd get overruled.
A: But now that's changed.
T: Now, the 9th Circuit said, as a result of the Cheek decision by the Supreme Court, that decision effectively overturned all relevant prior precedents issued by the 9th Circuit. It's a footnote at the very end of their decision; but it's a highly significant footnote because it says -- the Court is saying -- all prior precedents in this area are now effectively overruled by this decision. And, as a result of that, defendants are now allowed to introduce into evidence, into the court record, and to present to the jury, the law -- whatever law, Title 26, Title 5, the Administrative Procedures Act, the Federal Register Act, you name it. They can excerpt the law and read it to the jury and say, "This is my understanding of what this law says."
That's very significant because, when juries begin hearing the law from defendants, they're going to find out that the law is very difficult to understand; it's intentionally deceptive. That's part of what my work is: to establish, using grammatical rules and rules of logic and so on, that the law is ambiguous and vague.
And that leads us to the next big question: How are we supposed to obey a law which is ambiguous and vague, and is so ambiguous and vague, that the Supreme Court in a series of decisions has diametrically contradicted itself on a number of key issues including: Is it a direct tax or not, and did a ratified 16th Amendment have any effect whatsoever on the Constitution or on the situation? You find opposing groups of Supreme Court decisions that disagree with each other on those two questions. Well, if the Supreme Court can't agree on fundamental constitutional questions, then how are we supposed to understand this law? Compare that to the traffic code, to the Common Law for traffic: red means stop and green means go. Is there any dispute about that? Not that I know of. Maybe for color-blind people, but even they can tell from the position of the light that's on. I have talked to color-blind people, and they say, "I have no trouble driving, because red's at the top and green's at the bottom."
A: So then, Cheek ended up going to jail?
T: No, his conviction was reversed. They might retry him. I don't know the details of his current situation. The Supreme Court has the option to remand the case back for retrial.
A: So, essentially, you're saying that it's legal not to pay taxes if you live outside the Federal Zone.
T: There is one interpretation of the law that is based upon a great deal of research, a great body of research, which shows that Title 26, the Internal Revenue Code, has a territorial jurisdiction that includes only the District of Columbia and the other territories and possessions that are under Congress's exclusive legislative jurisdiction. Those are places like the Northern Mariana Islands, Puerto Rico, Guam, and so on. In that zone, which I call the "Federal Zone", Congress is not restrained by the Constitution, so they can pass an excise tax that doesn't have to be uniform. They can also pass a direct tax that doesn't have to be apportioned. This is a precedent that was established in 1901 in a series of cases called "The Insular cases". The Supreme Court basically allowed Congress to set up a dual government system by telling Congress they weren't restrained by the Constitution inside the Federal Zone. But, outside the Federal Zone and inside the 50 States, they do have to honor the Constitution, which means that excise taxes on gasoline have to be uniform. The excise rate has to be the same in all 50 States of the Union.
A: Well, what about this idea that paying taxes is voluntary?
T: Well, it is voluntary for people who are State Citizens and who live and work in one of the 50 States. From birth, they are technically "nonresident aliens" as that term is defined in the statute. All right, we're talking about the definition of nonresident aliens in Title 26. Now, if you want to get into the Immigration and Naturalization Act, the term "alien" means something different there. But, as far as Title 26 is concerned, natural born persons who are born outside of the Federal Zone and inside the 50 States, and who continue to live and work outside the Federal zone but inside the 50 States, and who receive no income derived from sources inside the Federal Zone, their participation in the income tax system is voluntary. Now, it's important to realize that when they volunteer, they're in; they are now liable; they are now "taxpayers". And they can't just stop paying, because they've made a notorious declaration that they want to be taxed, and they've made themselves liable.
A: So, they need to do all kinds of forms -- formal things -- to withdraw that commission.
T: It's not all that complicated. There is a provision in the law to "elect to be treated as a resident". All residents of the "United States" as defined -- think of it as the Federal Zone -- all residents of the Federal Zone are liable for the tax. If you're not a resident alien, you can elect to be treated as a resident of that zone, and therefore you're liable. You can also elect to "terminate" that resident status; you can terminate the election to be treated as a resident, which puts you out of the system. But of course, once you're out, you cannot claim any of the benefits that are provided by Congress. You cannot claim benefits and not also accept liabilities.
A: Well, what kind of benefits, exactly, are we talking about?
T: Social Security.
A: Well, my understanding is that Social Security is not all that much of a benefit.
T: A future benefit.
A: A future benefit. But my understanding is that the Social Security system itself is very endangered.
T: Well, it's bankrupt. And it's getting worse.
A: So, therefore, that's really irrelevant. I'm in my 40's now. I've never put much into the Social Security system, and my understanding is that, in the next 20 years, there is not going to be a system.
T: That's correct.
A: So, that's a benefit, but that's not going to affect me. Are there any other benefits I should know about?
T: Well, you're getting the protection of Congress. Congress has tons of laws out there -- a mountain of laws that can be invoked to protect you, for example, if you want to claim the protection of a federal copyright. Take my book, for example. I'm not claiming any federal copyright protection. I'm claiming a Common Law copyright protection. So, if somebody infringes on my copyright, I don't go to Congress, and I don't take him into a federal court and say, "You violated Congressional Statute blah blah blah." I can't do that because, if I do, I'm claiming a protection under congressional legislation.
A: Well, so what would you do?
T: Sue them in a Common Law court.
A: Is there such a thing?
T: Sure. You go to a Sheriff and you say, "Please convene a Common Law jury. Subpoena my defendant, and bring him in."
A: So, thus far, you haven't mentioned any benefits that I can relate to.
T: Well, the government gets a little bit outrageous in defining an array, or set of benefits which they are providing for you. They'll argue that they're responsible for the fact that aircraft don't fall out of the sky on you, because they're involved in air traffic control. Okay?
They'll argue that you are receiving a benefit every time you use a Federal Reserve Note, because they've given you the special privilege of discharging your debt with limited liability. That's a fancy way of saying you're not really paying your debt; you're simply giving a debt instrument to discharge your debt, which is a Federal Reserve Note, and it's technically illegal to use Federal Reserve Notes to pay debt. So, Congress is saying they're giving you this enormous privilege to discharge your debts without the liability that's associated with really not paying it with gold or silver.
That's pretty fraudulent, in and of itself, for lots of reasons. For one, Congress really doesn't have the power to create a private credit monopoly which turns around and counterfeits fraudulent Federal Reserve Notes and then injects them back into the economy. That whole scheme is totally unconstitutional.
A: Now, what are these Federal Reserve ... are you talking about dollar bills?
T: Be careful about your terminology. A dollar is a special definition in law. 371.25 grains of silver is a "dollar".
A: Okay. Well, we no longer backed up with silver.
T: We are all trading Federal Reserve Notes; we're not trading "dollars".
A: Okay. So we're talking about Federal Reserve Notes. Are you talking about the Federal Reserve Notes that we carry around in our wallet, that we get paid with?
T: Yeah. "Bucks." So it seems pretty circular. It's an "adhesion" contract. It's like an octopus, and the octopus has 250 million tentacles, and each tentacle reaches into everyone's pocket, everyone's bank account, everyone's living. That's how Congress would like it to be. And, of course, they turn around and say, "Oh, we're providing you these enormous benefits." Well, that might be easier to argue if there was still silver and gold circulating, but in 1933, we know now that the federal government was bankrupted, and whatever gold was in the U.S. Treasury was handed over to the Federal Reserve Corporation, which is not a federal government agency. So, they called the loans and foreclosed on the U.S. Treasury in 1933. Roosevelt declared a national emergency and closed the banks for three days, whereupon most of the safe deposit boxes were raided by federal agents. And that's when the scandal really began. We've actually been operating in bankruptcy since 1933.
A: So, what's your thought about how much longer this bankrupt country can continue to operate in bankruptcy?
T: Well, it's self-limiting. They can only extract so much money out of the economy. The idea is to bankrupt private owners so that the banks who are behind this syndicate become the owners of all the assets in this country. That's the real scheme; that's the real motive. By encouraging Congress to spend money it doesn't have, Congress has to turn around and "lien" on American labor and American private property for collateral.
They do that by fraudulent conversion of birth certificates, for example. Doctors, who are franchisees of the State, are obliged to sign birth certificates and forward them on to the Secretary of State in Sacramento. They make certified copies and forward those birth certificates to the Department of Commerce in Washington, D.C. The Department of Commerce does the same thing: they make certified copies and forward them on to the International Monetary Fund in Brussels, Belgium.
Now this is the center of the hub of the banking syndicate and they are, of course, loaning these huge sums to various governments around the world, including the Congress of the United States. The Congress needs something for collateral, and what they use for collateral are these birth certificates. They get treated as certificates in equity which mature on the 18th birthday of the person whose name appears on the birth certificate. The bank then keeps track of these and uses the number that any particular nation has available, as collateral on the international debt, as "performance units" on the international debt. These certificates in equity end up being regarded as "performance units" on the international debt. The more of those you have, the more money you can borrow.
It's like this: the more collateral I have, the more money I can borrow from banks and the more I can secure. So, governments are securing their international debt by "liening" on the persons and property of their citizens. They're doing this on a massive scale, and it's technically a fraudulent conversion of the birth certificate because, if they did that with your birth certificate, they never told you they were doing it. They never told you they were obtaining a lien on your person and starting a third-party debt that you're responsible for. You had no meaningful choice in the matter, which makes it an "unconscionable contract" by definition. This is described in a chapter in my book.
Think of it, very simply, as walking into a department store and saying to the salesman, "I really like that refrigerator over there. I want to buy it. Ship it to my home tomorrow, and send the bill to, say, Willy Brown." So the next day, the refrigerator ends up in your garage, and the bill ends up in Willy Brown's mail. Willy Brown opens his mail and says, "What's this, Sears? One refrigerator, $800? What is this? I didn't buy this. I'm not a party to this transaction. I didn't even know about it. Why are they billing me? There must be a mistake here."
Well, this is kind of like what is happening. In this example, the department store is the Federal Reserve. They're supplying Federal Reserve Notes, right? Willy Brown is the American people, and I -- the one who went in there and bought the refrigerator in the first place -- I represent Congress. And I'm saying, "Don't send the bill to me, send it to the American people. And you can lien on their property, by the way. You can use our police. We'll enforce it for you; we'll extract the money." So that's the fraud.
The fraud is that Congress bankrupted the U.S. Treasury and turned all their gold over to the Federal Reserve banks, which are not federal government agencies. The Federal Reserve is a "municipal corporation" created by an act of Congress, but it's still a corporation. And all that gold is now in their hands. But there wasn't enough to discharge the debt that had accumulated up to 1933. They had to go into bankruptcy to discharge the rest of the debt. They're using standard federal bankruptcy rules for this, but the creditors, of course, are in charge. And they're back there telling Congress, "Go ahead, continue spending more money that you don't have, because we know we'll take it out of the land and the labor of the American people, ultimately." And that's what's going on.
And, of course, the whole scheme has been exacerbated by the fact that the Fed manipulates the economy to cause inflation by controlling the money supply and interest rates. Inflation, of course, puts tremendous pressure on the middle class to turn over their assets, in order to finance their essentials like food, shelter and clothing. So, it's no wonder that land has gotten to be so expensive and labor has gotten to be so expensive, transferring a great deal of wealth out of the hands of middle class and the millions of people who work so hard, day after day, and into the hands of the ruling elite. It's systematically designed to do that; it's no coincidence. It just the Hamilton/Rothschild banking and monetary system, and it's being used by almost every country in the world, and we're the last ones to take the fall.
A: So, what is the way out for the ordinary Citizen who doesn't like seeing their tax dollars going to pay for murder and nuclear weapons and pollution and, really, all of those activities? And also, the other question is: How do you respond to people who say, well, you enjoy the roads and the benefits of living in American society, you should pay for it?
T: That's a very good question, and I get asked that question all the time, but it evidences a great deal of ignorance about the monetary situation in our country. If you read the report of the Peter Grace Commission, you will find, documented in writing, with proof, that the individual income tax revenues that are collected and extracted by the IRS are not going to pay for any government services. They're going to pay for interest on the national debt, and they're going to pay for transfer payments to the people who are on the receiving end of Social Security, for example. So, the money is being taken out of the economy and transferred elsewhere, either into the hands of Social Security beneficiaries or, which is even more grotesque, into the hands of the private stockholders of the Federal Reserve system. The federal government is a gigantic money laundry.
And how much interest are they paying on four trillion dollars, which the national debt is published to be approaching? Okay, they say, they admit that it's approaching four trillion dollars. It's probably more like 18 trillion. What is Congress paying as a debtor? Well, let's assume they're paying seven and one-half percent, which is very realistic. Let's do the numbers: 7.5 percent of 4 trillion is 300 billion dollars annually. They're paying 300 billion dollars annually to discharge interest alone on the national debt they've accrued. That's interest alone; that's just debt service; that doesn't do anything to reduce the principal. And they continue to enlarge that principal by leaps and bounds every year. So it's a no-win game.
But, you see, you have to understand that they set up this private syndicate, this private credit monopoly, at their discretion. Congress was responsible for passing the Federal Reserve Act in the first place, and they're allowing that Act to remain on the books so as to bankrupt all the private assets throughout the country, to the benefit of a ruling elite who was responsible for setting up that Act in the first place.
Congress is a party to a massive fiscal fraud here. We're not talking about nickel and dime; we're talking about a treasonous, fraudulent attempt to convert the ownership of all private property and all private businesses into the hands of a ruling elite who, for the most part, are foreign stockholders: Rothschilds, Warburgs, Lazard Brothers -- these people don't even live in this country. They're not American Citizens. As a group, they're like a giant vacuum cleaner, positioned in geosynchronous orbit over the United States of America. They're sucking like crazy, and they're using force and duress to get as much money out of the economy as they can. And it's been highly effective until now.
A: So, what can be the course for the ordinary Citizen who's fed up and also very upset to see how this money is being squandered?
T: Well, the first thing you have to do is to take steps to eliminate your ignorance, because the Law is in place. The Law is there to defend our rights. The Law was not put in place to concentrate wealth in the hands of foreign stockholders. The Law that's on the books is there to defend the unalienable rights of people like you and me. The Supreme Court has said this over and over and over. The purpose of the Constitution is, above all, to protect individual rights, above all. That's the intent of the Constitution.
Let's talk about the intent of that Law. The thing almost didn't get passed. For want of a Bill of Rights, it wouldn't have passed. The States said, "We will go along with this new Constitution, provided that you guys in Congress issue a Bill of Rights within five years." So, James Madison went to work and said, "Okay, here's your Bill of Rights." Then it got approved. But, the Constitution for the United States would not have come into existence unless the people who were framing it committed to a Bill of Rights with teeth. All right?
So, when you go back to the history of that contract -- you're talking about contract law now -- that contract obliges the government to guarantee these rights, and property is probably paramount. I would say it's easily paramount; life, liberty and property were discussed as the "magic trio". We can't pursue happiness without property, without private property. So, if the American people want to fight this thing, they can do so, nonviolently, by first understanding the Law and then pointing out to people in government that they are violating the Law, time and time again, by forcefully, under duress, extracting what is a voluntary system of taxation, under the Constitution, inside the 50 States. Congress is chained by the Constitution, to use Thomas Jefferson's terminology. They can't go out and forcibly extract your voluntary participation in their third-party debt scheme and do so lawfully. No way!
A: Well, I think, then, it behooves us to become informed. And your book certainly goes a long way.
T: If you don't inform yourself, you won't know that it's voluntary. You won't know what your rights are. You will sign forms that can be construed by courts of law as waivers of those rights. You'll get yourself entrapped, and they're entitled to presume that you knew exactly what you were doing.
A: So are you getting ready to publish an addendum to your book?
T: Yes, the second edition will be available on the Fourth of July.
A: Excellent timing.
T: It's scheduled for the Freedom Conference in Sacramento.
A: Is there anything else you want to add at this point? Oh yes, there is that recent newspaper article. Today is April 11 or 12. Here we are; April 15 is just a few days away, and we hear that 75 percent of the people have not returned, not put their returns in. Was this just the State, or was this the federal returns?
T: This is federal. It looks like, as of Friday, which was April 10, five days from the deadline, upwards of 75 percent, according to the newspaper, upwards of 75 percent who are required to file had not yet filed their 1040's and associated forms and schedules.
A: I would think that that would put the government in some economic distress.
T: Well, yes and no. Understand that the Congress can always turn to the Federal Reserve System to bail out their deficit. If their deficit happens to skyrocket this year because the revenues have fallen precipitously, because people haven't sent their taxes in, Congress can always turn to the Federal Reserve, as they have been doing all along, to borrow more money into circulation and then turn around and try to extract out that much more in interest payments from the American people. Okay? It doesn't put government in economic distress; it puts us in economic distress.
Understand that this system has a built-in safety valve. Congress can turn around and borrow more Federal Reserve Notes by creating bonds. It's very important to understand the mechanics of this; it's not that difficult. They're just doing it on a massive scale; they're doing on a massive scale what you and I do on individual scale when we borrow money.
Congress takes in X amount in revenues from individual income taxes and excise taxes and corporate taxes and this and that. But, there's always a shortfall. There's always a deficit, because they want to spend 300 billion or 400 billion more every year now than they've collected in revenue. So, what do they do?
It's very simple, on one level. You get down to basic mechanics. They take these printing presses. They put ink on paper and they call them bonds, and they float them on the market. They put them out there and they try to sell them and, hopefully, people with money, like you and me, will buy them up. Well, some Americans have enough money to buy bonds issued by the Treasury. So, you buy a treasury bill. You're sitting on a bond paying 8.5 -- what did we say? -- 7.5 percent, my last amount. So, here you are, you've got a piece of paper, and you've "paid" them probably in Federal Reserve Notes. They'll take gold, too; there's very little of that out there now, as currency. And you're sitting on a piece of paper that says you will make 7.5 percent, compounded annually, and it matures in five years or ten years or one year, whatever the face, the maturity date on the bond. All right?
But the hitch is that there isn't enough slack money in the economy for all private, wage-earning, hard-working Americans to buy up all these bonds every year. So Congress always ends up with this huge unsold number of bonds. What do they do? Well, they march across the street to the Federal Reserve, and they say, "Federal Reserve, Sweetheart, will you buy these bonds from us?" And the Fed says, "Sure, we'll buy those bonds. Your interest rate is 9.25, or whatever. Take it or leave it." Now Congress has to take the deal, because there's nobody else on the planet with that kind of money. I mean, they're sitting on the hugest concentration of wealth that's ever been accumulated in the world, so bailing out Congress for yet another year is no big deal. They're doing this to every country on the planet, okay?
So, Congress has to take the deal, because they've got to balance their budget, so the bonds that they printed up go into the vaults of the Federal Reserve. And the Federal Reserve, actually the Bureau of Printing and Engraving, prints out the equivalent number of Federal Reserve Notes. Think of it as the bonds going into the Federal Reserve, and the Federal Reserve Notes going into the Treasury. The Federal Reserve notes are the property of the Federal Reserve system; they're not property of the U.S. Treasury. They're property of the Federal Reserve system.
Now the Congress turns around and injects those into the economy. How? Well, by paying Congressmen and Senators and judges and military officers and GI's and janitors and whatever else -- government suppliers and government contractors. That money gets put into the economy that way, by government spending.
Now, if this scheme were not restrained by any sort of governor -- you know, like a machine governor that keeps the speed of the machine at a certain level -- if the system I just described were allowed to proceed unrestrained, what you would find is that the government is injecting phoney money into the economy without any regard for the quantity of goods and services being exchanged. If you inject money into the economy like that, if the money supply grows faster than the aggregate sum of the goods and services exchanged in the economy, then you have inflation, by definition.
Higher prices are not the cause of inflation; that's propaganda. Higher prices are the effect of inflation, because inflation is not higher prices. Inflation is defined to be a disproportionate increase in the money supply relative to the quantity of goods and services being exchanged. So, inflation will result. That means that there's more money out there. People will pay higher prices so they can outbid buyers with whom they compete, and prices naturally rise up. It's an ironclad law of economics.
So, how do you prevent spiraling inflation as the government continues to inject money into the economy? You've got to do something to pull that money out of the economy. If you don't, you'll have what happened in Germany just before World War II. The deutsche mark went right through the ceiling, and people were coming to market with wheelbarrows full of deutche marks just to pay for a loaf of bread. That's how bad it got. And that will happen in the United States if Congress allows itself to hyperinflate Federal Reserve Notes.
Enter the IRS. They're a collection agency, kind of like a vacuum. Think of them as a pump that counterbalances the other pump. The Federal Reserve is pumping cash and credit into the economy, injecting it in, and the IRS is sucking it out of the economy. There are two pumps, working in tandem. And controllers are very, very skillfully shifting the rates of these pumps to set waves of recession and inflation pouring through the economy. Think of it is a pool of water -- the cash and credit pool. You've got a pump injecting water in, and you've got a pump sucking it back out. You've also got scientific controls on the rates of those pumps, so the aggregate level rises up and down, but the pumps also set up these smaller perturbations in the waves, and so on. And the pump controllers sit back with all this money to spend and play this big game, because they're the puppeteers.
A: What about the theory about the Japanese and Iraqis have got their hands in the pot also?
T: Well, it's an international economy, and a lot of those bonds are spread around the country and around the world, so the bond holders -- the owners of T-bills -- are not just the American middle class, not just the Federal Reserve, but a lot of foreign countries as well. It's a very complex problem, and very few people have any notion about monetary fraud or fiscal fraud, for that matter, because this is an elite science.
A: Well, I'll bring this part of the interview to a close. You certainly have answered some of our questions and raised a lot more questions. Thank you very much.
T: You're welcome.
# # #