from Citizens for Better Government

The original Mint Act, was passed on Thursday, January 12, 1792. This Act was drafted in Pursuance of the Constitution for the United States of America [See: Article VI, Clause 2] and provided for the minting of both gold and silver dollars under Section 9. This Act met all of the requirements of Article I, Section 8, Clause 5 and 6, and Article I, Section 10, Clause I. The issue of the United States being empowered to "emit bills of credit" was discussed in the Constitutional Convention on Thursday, August 6, 1787. The power and authority was denied to the general government upon good and sufficient grounds. It would take all of 75 years to subvert what the Constitution was designed to prevent and more: the erosion of confidence between man and man. 

The issuance of paper as a "legal tender" and circulating medium of exchange did not occur until 1862 during the Civil War. The Congress authorized the emission of non-interest bearing Treasury notes and declared the bills of credit to be legal tender for all debts, public and private, with the exception of taxes on imports. The notes were deemed necessary to "float the debt of the United States" for the war effort. In short, the paper "green backs" were "printed" under pretext of "war powers". 

On June 3, 1864, Congress passed "An Act to provide a National Currency, secured by a Pledge of United States Bonds, and to provide for the Circulation and redemption thereof." This Act recreated the central banking system as a "National Association" which later evolved into the Federal Reserve Banks. All private bank notes issued under authority of the Act were "issued and circulated the same as money", had to be redeemable at "par value" (one-for-one) with the Coin, and were declared to be tender for the payment of all debts public and private under Section 23. "Pledging or hypothecating" any of the notes in circulation under this Act was prohibited under Section 37. 

By 1908, the United States had accumulated a large deficit. Discussions had begun to surface concerning amendments to the Constitution regarding revenue and taxation. In 1909, Congress and the President passed the Corporate Tax Act of 1909 while knowing that the activity has previously been declared to be unconstitutional in Pollock vs. Farmers Loan And Trust Co., 187 U.S. 429 (1895). The Sixteenth Amendment was proposed by Congress on July 12, 1909. The Amendment was certified to be a part of the Constitution on February 25, 1913. The Constitutional impediment concerning State intervention in direct taxation has been removed, however it did not expand the taxing power of Congress beyond the limitations set forth in Article I, Section 8, Clause 1, and Article I, Section 9, Clause 4. 

On December 23, 1913, Congress passed "An Act to provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford a means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes". The Act is commonly known as the "Federal Reserve Act". Some of the purposes for enacting the Federal Reserve Act were to: 
(1) collect 94% of the "net earnings" of the Federal Reserve Banks under pretense of a "Franchise Tax" under Section 7; 
(2) legalize and extend a "float" on the debts by reducing the backing or reserve requirements to 40% of the notes in circulation and transactions accounts under Section 11;  
(3) authorize "hypothecation" of obligations including "United States bonds or other securities which Federal reserve Banks are authorized to hold" under Section 14(a); and,  
(4) "establish branches in foreign countries or dependencies of the United States for the furtherance of the foreign commerce of the United States" under Section 25. 

It is important to understand the term "hypothecation" as stated in Section 14(a) of the Act. 

"1. Banking. Offer of stocks, bonds, or other assets owned by a party other than the borrower as collateral for a loan, without transferring title. If the borrower turns the property over to the lender who holds it for safekeeping, the action is referred to as a pledge. If the borrower retains possession, but gives the lender the right to sell the property in event of default, it is a true hypothecation. 
2. Securities. The pledging of negotiable securities to collateralize a broker's margin loan. Of the broker pledges the same securities to a bank as collateral for a broker's loan, the process is referred to as rehypothecation." 
[Dictionary Of Banking Terms, Fitch, pg. 228 (1997)] 

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