The Scam and Reform of Money Creation

How the Federal Reserve Money Creation Process Automatically Creates Debt

Today, my purpose in writing 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 the particular party receiving the benefit of the new money created.

And then I am going to show you by contrast how money creation SHOULD be created 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 new dollars created. So put on your thinking caps, good friends. This will not be difficult to understand, but you will 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:

In this kind of accounting system, the assets of an organization always equal the summed total of its liabilities plus its equity. In other words, the ownership of the assets can be thought of as equity, meaning the organization owns them, or liabilities, meaning those assets were borrowed by the organization and must therefore be paid back.

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 banking 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 over to the New York Federal Reserve Bank a government-backed bond, in other words a promise to pay back that same $100 at some stipulated time in the future. There is an “implied interest rate” associated with that bond. More on that below.

Understand, the Fed, either in the person of the New York Regional Fed Bank, or one of its “member banks,” specifically those on Wall Street, will never even possess the money we are talking about. As you would see, there is no money on the balance sheet to loan out even if the Fed system wanted to. Until the Fed takes possession of the newly-issued bond, and books it as an asset, there is no new money. The money, or dollars associate with that bond have not been created yet.

But in a theoretical sense, as soon as that government bond is received by 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." As part of that same transaction, 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 imagined, 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 by the Fed as a liability. That's because even the Fed has to pay it back. So where does the $100 go when the bond is finally paid back to the Fed? It goes back into the air from whence it came! Remember, "equity" represents "earnings." Well, no one has "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 paid off. 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. The result of that transaction is a reduction of $100 in the account known as, “Currency in Circulation.” The American money supply just decreased.

So there is no equity in this entire system, not one dollar. It's a shell game, a scam. And the banks of the Federal Reserve use the rules of money creation 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, in the person of one of its member banks on Wall Street, 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 over 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 increases geometrically. What I just described is why the US Government presently owes over $31 trillion and the American people owe over $94 trillion. The debt is not legitimate because as I said up top, none of it was earned. Furthermore, no one was really at risk. Because the dollars were conjured virtually out of nothing, if those dollars are never paid back, the banks doing the conjuring never really lose anything.

So what we have here is a master-slave relationship. The masters, in the persons of the banks, issue chits, what they call, “money,” for the slaves, that's us, to use, while the slaves and even their government must pay the chits 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 they never even knew.

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 them back as collateral for those dollars, a 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 members of the world’s central banking systems. At some point, however, the system, so laden with unpayable debt, must be reset or it will bog down and no longer pay the owners their due. Pushing that purpose has been the central focus of the World Economic Forum, a subject for another day.

But think about it, what if that same system described above, or at least an analogous one, were put to use by the US Treasury accruing those same benefits for the American people as a whole rather than the private banks of the Federal Reserve System? What if the profits of that reformed 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 wants to create that same $100 and pay it into circulation, perhaps to defray certain costs associated with operating the government. Although 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 (and it does), rather than debt-based dollars, and pay them directly into circulation for whatever government costs must 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 could simply stipulate that the dollars it creates are owned free-and-clear by the people through their government. The government would then 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 $31 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 cabal of private bankers. And because the American people own the US Treasury and the US Treasury would own the dollars in circulation, the entire system would eventually operate on a basis of equity rather than debt. That is what Wall Street and Wall Street-supported politicians DO NOT want!

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 outsource the function of money creation to some private corporate consortium such as 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. Today, instead of heeding Washington’s advice, America starts wars simply for the reason of the borrowing money necessary to fight them from Wall Street banks!

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 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 would do in his second term. Reforming this illegitimate system would be Trump's brass ring. Trump knows that, if he does not accomplish the changes I outline in this article, or similar changes in their effect, everything he will have ventured to accomplish will be in vain. That is how we know that Trump will either accomplish these goals or die trying.

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