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August 3, 2009 (LPAC)—In his Aug. 1 international webcast, U.S. statesman Lyndon LaRouche was asked a lengthy question about the role of the Federal Reserve system. We print below a shortened version of the question, followed by LaRouche's full answer.

Debra Freeman: The next question is a [composite one] which are from various segments of the Stanford group, and all of which address the overall question of the replacing of the Federal Reserve with a National Bank, and how it would function:

"Mr. LaRouche, as you may know, on July 9, with reference to proposals for an audit of the Fed, Prof. James Galbraith gave testimony, in which he went through the history of some of the constitutional questions involved. And he pointed out that the constitutionality of the Fed was actually challenged by the chairman of the House Financial Services Committee in the 1970s, Congressman Henry Reuss [D-Wisc.].

"The issue that Reuss posed back then, was whether the voting status of the Federal Reserve bank presidents on the Federal Open Market Committee, violated the appointment clause of the Constitution....

"Nevertheless, it was Professor Galbraith's opinion, that Reuss was right on the merits, that the FOMC is a constitutional anomaly, whose voting members are not duly constituted officers of the U.S., as the Constitution requires.

"Now, during the past year, this same Fed has flooded the streets of America with money, distributing trillions of dollars to banks, financial markets, and commercial interests, all supposedly in an attempt to revive the credit system and get the economy going. As a result, the awesome authority that this strange institution has, has suddenly become visible to many ordinary Americans, for the very first time.

"People, and in some cases even politicians, are shocked, confused, and angered by what they see. And they're starting to ask some questions, for which they're not getting satisfactory answers. Like: Where did the Fed get all the money it's handing out? Answer: Basically, they printed it, out of thin air.

Question: Who told the Fed governors they could to this? Answer: Nobody. Not Congress or the President. The Fed alone, among government agencies, does not submit its budget to Congress for authorization and appropriation. It raises its own money, and sets its own priorities.

"Going through this, we concluded that this might be a good time to dismantle the Fed...."

LaRouche: First of all, I think we're going to have to recognize that the Federal Reserve System is, by any appropriate approach, bankrupt. It is a private corporation, which was created, unfortunately, by the U.S. government, in a certain manner of speaking, under Woodrow Wilson. It is bankrupt. Who is going to pay those debts? All this money issued, is a debt. All this utterance is a debt. Who is supposed to pay? Who contracted to pay that debt?

I know that the Federal Reserve system is bankrupt. It covers up for its bankruptcy by printing money. This reminds me of Germany in 1923, doesn't it? Therefore, look, the point is, the United States has to have the guts to declare the Federal Reserve System bankrupt. That's the way to get at it. It is bankrupt, and let it prove that it has assets, to cover this utterance. If not, we put it into bankruptcy.

What we do is, we simply get rid of it by bankruptcy. Just take it off the books. It's bankrupt; it took itself off the books, by going bankrupt. Easiest way of skinning that cat.

Now, then what we're going to have to do is, we're going to have to develop the Third National Bank of the United States. And what we will do with that, is essentially assigned to the Treasury, but it's not an extension of the Treasury otherwise. It has a relationship to the Treasury, by being authorized, but a Third National Bank, exactly as Hamilton prescribed for the first National Bank. And we will take a little carefully guarded barbed-wire, etc., thing, down in the basement of the Third National Bank, and inside will be the remains the Federal Reserve System. Held in captivity for purposes of audit only.

And that's the way to get rid of it. Because we have to manage, you see, we have to manage the relationship which the Federal Reserve System has established with the chartered banks of the states, and the national banks. We have to rescue those.

Now, we're going to do that, how? By a Glass-Steagall kind of clean-up act, of all these banks. We're going to have to create credit to keep these banks, many of which are bankrupt, but are essential to communities, functioning. We're going to have to use these banks, saving them, as a way of generating the distribution of credit, to maintain an economic recovery.

Now, we have then this private-public relationship, and how do we deal with that? Also with international accounts. We deal with that through a National Bank. So we use the National Bank as a facility to promote things.

What we also need are projects conceived in the form of the Tennessee Valley Authority. Now, that's an ideal thing, because it had a primary purpose, but it also had a lot of other things that went with it, to fulfill its primary purpose. So, what we need is a national transportation development, under some name, which essentially takes care of this railroad-maglev system, and takes care, as the Tennessee Valley Authority did, of all the things that are auxiliary to that system.

For example, I had conceptions back in my old consulting days, back in the 1950s, on the reorganization of the Pennsylvania and New York Central Railroads—they were going to be merged in a crazy way, and I got all heated up over that thing, and wanted to merge them in a way which would take part of the old B&O system, and the whole area in Jersey, and realize we have a problem of getting transportation from the New York area, to Chicago, overnight. And the problem was, the train could do it much more effectively and cheaply, but you had to sort the thing out. The classification management problem was great.

So, I wanted to pick up the auxiliary services to make sure—because we could organize efficiently, through warehousing and other devices in, say, the northern Jersey area, which was a pivot then.

Remember, New York City's problem was the fact that it was deindustrialized. New York City died because it did not have the revenues to carry itself, in its operation, because it was deindustrialized. So, if we reindustrialize the area—and we don't have to have smoke all over the place, we don't have to have filth all over the place, we can use now new, modern technology, like nuclear technology—and we can take the New York area and keep the people who are industrially skilled in that, industries in that, instead of having just plain poor people, working through garbage barrels; we have something that functions.

Well, we need a transportation system which will assist that. And we have to recognize the reason that you couldn't get to Chicago, from New York, was because of this handling problem. So, if you dealt with that problem, you could then easily get from Chicago to New York, and New York to Chicago, more cheaply by rail, improved rail, than you could by truck. The truck thing was a menace. And a long-haul truck is a waste of time. You drive people more and more cheaply, they die at the wheel, or whatever—it's crazy, the trucking system. It's insane!

We need a national transportation system, which is oriented to an agro-industrial mission. We need to get a situation nationally, so that we don't have super-industries.

Look, in this area, for example, people commute into the Washington area for two hours, two hours and a half, each way, under [impossible] traffic conditions. This is insane! Because we concentrated employment in such a way, as to create this condition. Under normal conditions in the United States, in the 20th Century, your commuting time to and from work was about 15 minutes, at most, half an hour. We now have two hours, two and a half hours, in this area, and similar things in other areas.

The effect of that on family life, is monstrous, particularly when you have two members, adult members of the household, maintaining a family with children—what the hell is the result of having a two and a half hours transport each way, every day? Are you human?

We destroyed the entire development of the western United States. We concentrated everything in a few areas. We congested them with automobile traffic, instead of efficient mass transportation systems. We should have decentralized. We shouldn't have built such big, giant, oversized corporations; we should have built smaller units, distributed in various parts of the country, in the rational way we used to approach this.

So, we need a national development program, which is based on this function of transportation, which means also building the water system, the NAWAPA [North American Water and Power Alliance] water system, and other things, because we have a real problem with water supplies in the western states. We're going to have a food supply problem. We're destroying agriculture. We're destroying the industrial-agricultural relationship, with globalization, and other kinds of insanity.

So, what we need for this period, is national mission orientations, of the type that Roosevelt used, and Henry Wallace used. We know, those kind of approaches, to take the infrastructure development of the nation, thinking of it as a living economy, and thinking about it as a place where people live, and work, and have homes, and have schools, and have medical facilities. And think of that, and say, we need a national transportation reorganization plan, for the United States.

We have a vast territory, relatively speaking, and we should just go back and develop it. And the way to start with your transportation grid, knowing where you're going, and the transportation grid is coupled with your water problem, the water-management problem, both for traffic and for water management. And building up the aquifers in areas where they're being destroyed. And taking advantage of that. Forestation, instead of greening. A tree is worth much more than grass! Up to 10% of the solar radiation used by a tree is incorporated in the tree. The grass? One or two percent. So you want to have more trees. You want to have a reforestation program for areas. You want a development territory. All of this comes under the question of transportation. And we need probably a national transportation project, like a national space program, or an international space program. And these kinds of programs will drive us, as long as we have a future orientation, in the direction we want to go in.

We have to think about two generations from now. You young guys: What are your grandchildren going to look like? What kind of life are they going to have? Who's going to get to Mars first? Who's going to be able to get back?