The Scam and Reform of Money Creation
Introduction
I've been meaning to write this article for a while now. My purpose is to give you a tactile or intuitive sense of how our money is created by the Federal Reserve Central Banking System, and why in each instance of that procedure the result is an increase in debt, somewhere in the economy, payable by a party who received the benefit of the money.
And then I am going to show you by contrast how money creation SHOULD be handled according to the intentions of the writers of the US Constitution, and why that procedure DOES NOT automatically result in the accrual of debt for either the US Government or the recipient of the dollars that are created. So put on your thinking caps, good friends. This will not be hard to understand, but you do need to think about what I'm going to show you. Are you ready? Okay, let's begin.
Federal Reserve "Bank Money" Debt-Based System
First let's look at a representation of a basic double-entry bookkeeping balance sheet. Here it is:
Next, let's assume we are the Federal Reserve Central Bank. Let's say it's the year 1913 and we are just beginning. We have no items of value (assets) at all, nothing owed (liabilities) and nothing owned (equity). There is nothing but goose eggs on our balance sheet.
Next, let's say we want to start up our business by creating $100 and issuing those dollars into circulation. The way the Fed does that is that some party, possibly the US Government, hands the Fed over a governement-backed bond, in other words a promise to pay back that same $100 at some stipulated time in the future. There will be some implied interest rate associated with that bond.
Now the Fed itself will never even possess the money we are talking about. As you can see, there is no money on the balance sheet to loan out even if the Fed wanted to. Until the Fed takes possession of the bond, and books it as an asset, there is no money because the money has not been created yet.
But in a theoretical sense, as soon as that government bond is given to the Fed, it is entered as an asset of the Fed, and will be accounted for on the left side of the balance sheet under "Assets." At that moment, or shortly thereafter, a new total of $100 will be created and deposited in the account of the party who surrendered the bond, again, perhaps even the US Treasury. Very importantly, however, on the Fed's balance sheet that $100 is NOT accounted for as equity, as you might have first thought, but instead as a liability in an account called "Currency in circulation."
It may sound strange, but all of the nation's circulating money supply is booked as a liability. That's because even the Fed has to pay it back. So where does the $100 go when the bond is redeemed by the Fed? It goes back into the air from whence it came! Remember, "equity" represents "earnings." Well, no one "earned" anything in all of this. The money we are talking about was conjured out of the air, so to speak, and therefore it must be paid back into the air when the bond the Fed received as collateral is sent back and redeemed. At that moment, $100 is removed from the Fed's assets and $100 is removed from it's liabilities, no equity transactions taking place at all.
So there is no equity in this system, not one dollar. It's a shell game, a scam. And the banks of the Federal Reserve use it to steal your stuff. How? Remember that implied interest? I say it is "implied" because when the Fed issues money in exchange for the bond, it really doesn't issue the entire amount of the bond. The Fed discounts the bond depending on the amount of the bond and the payback period. So lets say this is a one year bond. When the Fed receives the $100 bond it does not issue the entire $100 into circulation. No, instead it issues only $98, or $96, or whatever the discount might be. The difference is profit for the Fed member banks doing the transaction.
Furthermore, if the borrower doesn't pay back what is owed in a timely fashion, the Fed member bank gets to foreclose on the item securitized by the loan.
But, wait a minute, if the receiver of the funds has to pay back $100, but only $98, or $96 went into circulation, how does the "debtor" pay back the other $2 or $4? That money does not exist! The answer is that this unfortunate debtor, and let's just call this debtor the American people as a whole, has to borrow the difference as a new debt and pay the interest on the old debt out of new debt just borrowed.
The system I describe keeps rolling along, in our case almost one hundred years, until the debtors can no longer pay the debt service on the money supply. Why? Because as the money supply increases linearly, the debt compounds geometrically. What I just described is why the US Government owes over $24 trillion and the American people owe over $70 trillion. The debt is not legitimate because as I said up top, NONE OF IT WAS EARNED.
So what we have here is a master-slave relationship. The masters, in the persons of the banks, issue the money for the slaves, that's us, to use and the slaves have to pay it back with interest. What I am describing is a simple, "wealth transfer system." And it runs without anyone knowing. I was 55 years old before I figured this out. Most people will never figure it out, that they lived and died as slaves to people who had no real right to enslave them.
Negative Interest Rates
Now remember, I said the system ran for almost one hundred years before it crashed. What happened in 2008-9? The system crashed. There was not enough money in circulation to pay the banks their debt service. That is what happened in a nutshell. Ever since, the system has been running on life support. As I write, prevailing interest rates are virtually zero, which means that for each $100 bond held as collateral by the Fed, virtually $100 is being issued into circulation. Eventually, unless the system is changed to what I will describe below, the Fed will have to go negative just to keep enough money circulating to pay the interest on the money already circulating. In other words, when the Fed takes in that $100 bond to hold as collateral, it will issue MORE THAN $100 into circulation! You don't think that is possible? Of course it is. The math works just as well under negative interest rates as positive. But that is when the economy begins to experience hyperinflation. The only reason the Fed would do that is if there is no other way to keep the system going, just a while longer until they can figure out what worldwide calamity to cause, such as a virus bio-weapon pandemic, which would throw the entire world economy into a deep recession or depression, and which the central banks of the world could blame for having to reset their system to try and run it again for another 100 years.
US Treasury "People's Money" Equity-Based System
Before we go further, let me remind you that on the Federal Reserve Central Bank's balance sheet, there is no equity, only assets and liabilities. The Central bank issues dollars into circulation and takes promises to pay as collateral for those dollars. Very clean system in its rudiments. The system works just fine, at least for 100 years or so, transferring wealth from the people to the financial elite of the world. And then it needs to be reset.
But think about it, what if that same system, or at least an analogous one, were put to use by the US Treasury accruing the benefits for the American people as a whole rather than the private banks of the Federal Reserve System? What if the profits of the system helped to pay the cost of the people's government, lessening or even eliminating the need to tax the people? Not possible? Sure it is.
Let's look at that basic balance sheet again:
Let's say the US Treasury wanted to create that same $100 and pay it into circulation, maybe to pay certain costs associated with operating the government. Even though the private Federal Reserve Central Bank cannot create equity "out of the air" so to speak, because as a private entity it had not "earned" the equity we're talking about, the US Government, a public entity can! How? BY LAW! So if the law says the US Treasury can issue equity-based dollars, rather than debt-based dollars, and pay them into circulation for whatever government costs need to be paid, then the accounting would be very simple, as follows: instead of issuing those dollars as liabilities, that $100 would be issued as an asset called "Currency in circulation," and the currency would be owned by the US Government. Instead of accruing a debt just to send that money into circulation, the government simply stipulates that the dollars it creates are owned free-and-clear by the government. The government would not have to pay interest on dollars it creates as its own equity. And in so doing, no new debt would be added to what is now over $24 trillion owed by the government.
Now let's take this a little further. If what I just wrote is true, and it is, then why can't the government in the form of the US Treasury, simply become the issuer of the currency, free-and-clear, BY LAW, and use the dollars it issues to pay off its own debt! Of course, it can! And you should remember from above, anytime a bond held by the Fed as collateral for currency is redeemed, the dollars associated with that bond are paid right back into the air from where they originally came. The dollars leave the Fed's "Currency in circulation" liability account and disappear! So with each new "equity" dollar issued by the Treasury used to pay off a bond, the NATIONAL DEBT GOES DOWN BY THAT SAME AMOUNT AND SO DOES THE FEDERAL RESERVE'S BALANCE SHEET.
Now I called this manner of money creation a "people's money, equity based system." I called it that because the US Government is owned by the American people. Thus, the US Government SHOULD BE run of, by and for the American people. The American people, not a private banking system, should be the beneficiaries of all governmental operations. Money creation and the operation of a publicly-owned, sovereign monetary system is just another one of those functions that should benefit the people, NOT just a bunch of elite banksters. And because the American people own the US Treasury and the US Treasury owns the dollars in circulation, the entire system operates on a basis of equity rather than debt.
Money Creation and the US Constitution
What I just described are the basic principles enumerated in Article I, Section 8 of the US Constitution, with respect to creating, or "coining" money. Never did our founders or the writers of the Constitution envision a federal government operating on debt-financing. Never did they expect that the US Government would subcontract or franchise out the function of creating money to some private corporate consortium like the Federal Reserve. Article I, Section 8 does allow the government to "borrow Money on the credit of the United States," but as George Washington wrote in his farewell address, that function should only be used when the need to fight wars might be thrust upon the United States. That money would be the same money the government itself created. And Washington wrote that as soon as the war might be over, the Government should work headstrong to pay any debts associated with the conflict.
Conclusion
So right here in this one article I have consolidated everything you really need to know to understand the US National debt, how it came about, why it is illegitimate, how it gets paid off, and without sacrificing the nation's gold reserves by the way.
Now if I know this, and you know this, you can bet President Donald Trump knows this. You can also know that Trump's enemies who have become mega-rich and powerful because of the Federal Reserve System, also know he knows this, which is among the reasons they are so panicked regarding what he will do in his second term. I assure you, reforming this system is Trump's brass ring. Trump knows, if he does not accomplish the changes I outline in this article, or similar changes in effect, everything he will have ventured to accomplish will be in vain. That is how I know that Trump will accomplish these goals or will die trying.
I've been meaning to write this article for a while now. My purpose is to give you a tactile or intuitive sense of how our money is created by the Federal Reserve Central Banking System, and why in each instance of that procedure the result is an increase in debt, somewhere in the economy, payable by a party who received the benefit of the money.
And then I am going to show you by contrast how money creation SHOULD be handled according to the intentions of the writers of the US Constitution, and why that procedure DOES NOT automatically result in the accrual of debt for either the US Government or the recipient of the dollars that are created. So put on your thinking caps, good friends. This will not be hard to understand, but you do need to think about what I'm going to show you. Are you ready? Okay, let's begin.
Federal Reserve "Bank Money" Debt-Based System
First let's look at a representation of a basic double-entry bookkeeping balance sheet. Here it is:
Next, let's assume we are the Federal Reserve Central Bank. Let's say it's the year 1913 and we are just beginning. We have no items of value (assets) at all, nothing owed (liabilities) and nothing owned (equity). There is nothing but goose eggs on our balance sheet.
Next, let's say we want to start up our business by creating $100 and issuing those dollars into circulation. The way the Fed does that is that some party, possibly the US Government, hands the Fed over a governement-backed bond, in other words a promise to pay back that same $100 at some stipulated time in the future. There will be some implied interest rate associated with that bond.
Now the Fed itself will never even possess the money we are talking about. As you can see, there is no money on the balance sheet to loan out even if the Fed wanted to. Until the Fed takes possession of the bond, and books it as an asset, there is no money because the money has not been created yet.
But in a theoretical sense, as soon as that government bond is given to the Fed, it is entered as an asset of the Fed, and will be accounted for on the left side of the balance sheet under "Assets." At that moment, or shortly thereafter, a new total of $100 will be created and deposited in the account of the party who surrendered the bond, again, perhaps even the US Treasury. Very importantly, however, on the Fed's balance sheet that $100 is NOT accounted for as equity, as you might have first thought, but instead as a liability in an account called "Currency in circulation."
It may sound strange, but all of the nation's circulating money supply is booked as a liability. That's because even the Fed has to pay it back. So where does the $100 go when the bond is redeemed by the Fed? It goes back into the air from whence it came! Remember, "equity" represents "earnings." Well, no one "earned" anything in all of this. The money we are talking about was conjured out of the air, so to speak, and therefore it must be paid back into the air when the bond the Fed received as collateral is sent back and redeemed. At that moment, $100 is removed from the Fed's assets and $100 is removed from it's liabilities, no equity transactions taking place at all.
So there is no equity in this system, not one dollar. It's a shell game, a scam. And the banks of the Federal Reserve use it to steal your stuff. How? Remember that implied interest? I say it is "implied" because when the Fed issues money in exchange for the bond, it really doesn't issue the entire amount of the bond. The Fed discounts the bond depending on the amount of the bond and the payback period. So lets say this is a one year bond. When the Fed receives the $100 bond it does not issue the entire $100 into circulation. No, instead it issues only $98, or $96, or whatever the discount might be. The difference is profit for the Fed member banks doing the transaction.
Furthermore, if the borrower doesn't pay back what is owed in a timely fashion, the Fed member bank gets to foreclose on the item securitized by the loan.
But, wait a minute, if the receiver of the funds has to pay back $100, but only $98, or $96 went into circulation, how does the "debtor" pay back the other $2 or $4? That money does not exist! The answer is that this unfortunate debtor, and let's just call this debtor the American people as a whole, has to borrow the difference as a new debt and pay the interest on the old debt out of new debt just borrowed.
The system I describe keeps rolling along, in our case almost one hundred years, until the debtors can no longer pay the debt service on the money supply. Why? Because as the money supply increases linearly, the debt compounds geometrically. What I just described is why the US Government owes over $24 trillion and the American people owe over $70 trillion. The debt is not legitimate because as I said up top, NONE OF IT WAS EARNED.
So what we have here is a master-slave relationship. The masters, in the persons of the banks, issue the money for the slaves, that's us, to use and the slaves have to pay it back with interest. What I am describing is a simple, "wealth transfer system." And it runs without anyone knowing. I was 55 years old before I figured this out. Most people will never figure it out, that they lived and died as slaves to people who had no real right to enslave them.
Negative Interest Rates
Now remember, I said the system ran for almost one hundred years before it crashed. What happened in 2008-9? The system crashed. There was not enough money in circulation to pay the banks their debt service. That is what happened in a nutshell. Ever since, the system has been running on life support. As I write, prevailing interest rates are virtually zero, which means that for each $100 bond held as collateral by the Fed, virtually $100 is being issued into circulation. Eventually, unless the system is changed to what I will describe below, the Fed will have to go negative just to keep enough money circulating to pay the interest on the money already circulating. In other words, when the Fed takes in that $100 bond to hold as collateral, it will issue MORE THAN $100 into circulation! You don't think that is possible? Of course it is. The math works just as well under negative interest rates as positive. But that is when the economy begins to experience hyperinflation. The only reason the Fed would do that is if there is no other way to keep the system going, just a while longer until they can figure out what worldwide calamity to cause, such as a virus bio-weapon pandemic, which would throw the entire world economy into a deep recession or depression, and which the central banks of the world could blame for having to reset their system to try and run it again for another 100 years.
US Treasury "People's Money" Equity-Based System
Before we go further, let me remind you that on the Federal Reserve Central Bank's balance sheet, there is no equity, only assets and liabilities. The Central bank issues dollars into circulation and takes promises to pay as collateral for those dollars. Very clean system in its rudiments. The system works just fine, at least for 100 years or so, transferring wealth from the people to the financial elite of the world. And then it needs to be reset.
But think about it, what if that same system, or at least an analogous one, were put to use by the US Treasury accruing the benefits for the American people as a whole rather than the private banks of the Federal Reserve System? What if the profits of the system helped to pay the cost of the people's government, lessening or even eliminating the need to tax the people? Not possible? Sure it is.
Let's look at that basic balance sheet again:
Let's say the US Treasury wanted to create that same $100 and pay it into circulation, maybe to pay certain costs associated with operating the government. Even though the private Federal Reserve Central Bank cannot create equity "out of the air" so to speak, because as a private entity it had not "earned" the equity we're talking about, the US Government, a public entity can! How? BY LAW! So if the law says the US Treasury can issue equity-based dollars, rather than debt-based dollars, and pay them into circulation for whatever government costs need to be paid, then the accounting would be very simple, as follows: instead of issuing those dollars as liabilities, that $100 would be issued as an asset called "Currency in circulation," and the currency would be owned by the US Government. Instead of accruing a debt just to send that money into circulation, the government simply stipulates that the dollars it creates are owned free-and-clear by the government. The government would not have to pay interest on dollars it creates as its own equity. And in so doing, no new debt would be added to what is now over $24 trillion owed by the government.
Now let's take this a little further. If what I just wrote is true, and it is, then why can't the government in the form of the US Treasury, simply become the issuer of the currency, free-and-clear, BY LAW, and use the dollars it issues to pay off its own debt! Of course, it can! And you should remember from above, anytime a bond held by the Fed as collateral for currency is redeemed, the dollars associated with that bond are paid right back into the air from where they originally came. The dollars leave the Fed's "Currency in circulation" liability account and disappear! So with each new "equity" dollar issued by the Treasury used to pay off a bond, the NATIONAL DEBT GOES DOWN BY THAT SAME AMOUNT AND SO DOES THE FEDERAL RESERVE'S BALANCE SHEET.
Now I called this manner of money creation a "people's money, equity based system." I called it that because the US Government is owned by the American people. Thus, the US Government SHOULD BE run of, by and for the American people. The American people, not a private banking system, should be the beneficiaries of all governmental operations. Money creation and the operation of a publicly-owned, sovereign monetary system is just another one of those functions that should benefit the people, NOT just a bunch of elite banksters. And because the American people own the US Treasury and the US Treasury owns the dollars in circulation, the entire system operates on a basis of equity rather than debt.
Money Creation and the US Constitution
What I just described are the basic principles enumerated in Article I, Section 8 of the US Constitution, with respect to creating, or "coining" money. Never did our founders or the writers of the Constitution envision a federal government operating on debt-financing. Never did they expect that the US Government would subcontract or franchise out the function of creating money to some private corporate consortium like the Federal Reserve. Article I, Section 8 does allow the government to "borrow Money on the credit of the United States," but as George Washington wrote in his farewell address, that function should only be used when the need to fight wars might be thrust upon the United States. That money would be the same money the government itself created. And Washington wrote that as soon as the war might be over, the Government should work headstrong to pay any debts associated with the conflict.
Conclusion
So right here in this one article I have consolidated everything you really need to know to understand the US National debt, how it came about, why it is illegitimate, how it gets paid off, and without sacrificing the nation's gold reserves by the way.
Now if I know this, and you know this, you can bet President Donald Trump knows this. You can also know that Trump's enemies who have become mega-rich and powerful because of the Federal Reserve System, also know he knows this, which is among the reasons they are so panicked regarding what he will do in his second term. I assure you, reforming this system is Trump's brass ring. Trump knows, if he does not accomplish the changes I outline in this article, or similar changes in effect, everything he will have ventured to accomplish will be in vain. That is how I know that Trump will accomplish these goals or will die trying.
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