All money is created as a debt, there is no exceptions today. “There is no such thing as debt free money under US law” Thomas Woodward U.S. Congressional research service.
Debt money. Debt money is money that is created as a liability. A debt based monetary system is an economic system where money is created as a liability to the party issuing the money, or as a debt to the pary receiving the money, or as a debt to both the issuing party and the receiving party. This form of money is called debt-based or debt money because someone must have a debt for the money to exsist before the money can move into circulation.
There seems to be a great deal of misunderstanding with respect to the mechanics of our money. Here are some important points made by Wright Patman:
6. Does Congress supervise Federal Reserve policymaking?
No. In practice the Federal Reserve is “independent” in its policymaking. The Federal Reserve neither requires nor seeks the approval of any branch of Government for its policies. The System itself decides what ends its policies are aimed at and then takes whatever action it sees fit to reach those ends.
9. Why is final control of economic policy a problem?
Because with an “independent” Federal Reserve, Congress and the President can be moving in one direction while the Federal Reserve is moving in the other. The result is sometimes no policy at all. At other times, it leads to the Federal Reserve’s neutralizing the President’s economic policies. This very possibility caused President Johnson to request the Federal Reserve in his 1964 Annual Economic Report to Congress not to nullify his efforts to reduce unemployment and raise incomes. Should the President have to ask any Government agency to go along with his policy as approved by Congress? Obviously not.
26. What is legal tender?
Legal tender is any form of money which the U.S. Government declares good for payment of taxes and both public and private debts.
34. What backs U.S. currency?
Federal Reserve Notes are backed by the credit of the U.S. Government. American citizens, holding Federal Reserve Notes, cannot demand anything for them except (a) that they be exchanged for other Federal Reserve Notes, or (b) that they be accepted in payment for taxes and all debts, public and private.
35. Has the United States gone off the gold standard?
Yes, except in its international transactions.
36. Does this change the basis of our money?
In reality, no. The action, which Con took in 1934, merely formalized what had been true all along, which is this: since the 19th century checkbook money, now 80 percent of our money supply, has replaced notes as the most important form of money. And check-book money is created on the basis of all kinds of valuable assets. When a bank makes a loan to a business firm, secured by inventories of machinery, or to a farmer, secured by farm assets, it has, in effect, created a dollar “backed” by inventories, machinery, or farm goods.
47. Where does the Federal Reserve get the money with which to create bank reserves?
It doesn’t “get” the money, it creates it. When the Federal Reserve writes a check, it is creating money. This can result in an increase in bank reserves—a demand deposit—or in cash; if the customer prefers cash he can demand Federal Reserve notes, and the Federal Reserve will have the Treasury Department print them. The Federal Reserve is a total moneymaking machine. It can issue money or checks. And it never has a problem of making its checks good because it can obtain the $5 and $10 bills necessary to cover its check simply by asking the Treasury Department’s Bureau of Engraving to print them.
48. Who gave the Federal Reserve the power to create the money necessary to cover its checks?
The Congress. Because this power to create money is given by the Constitution to Congress, only the Congress can delegate this power. And this it has done in creating the Federal Reserve System—an agency of Congress authorized to create money.
69. If the Government can issue bonds, why can’t it issue money and save the interest?
A few clear-headed and firm individuals, such as Abraham Lincoln, have insisted that the Government should.
The late Thomas A. Edison stated the matter this way: If our Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also * * * . It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay: but one promise fattens the usurer and the other helps the people.
However, it has long been one of the political facts of life that private banks must be allowed to create the lion’s share of the money, even if not all of the money. Thus there is little opposition to the Government’s printing bonds and then permitting the banks to create the money with which to buy those bonds; but proposals that the Government itself create the money instead of the bonds have always set off tremendous political upheavals. For example, Abraham Lincoln set off a political furor when he insisted upon having the Government issue $346 million in money (the so-called “greenbacks”) instead of issuing interest-bearing bonds and paying Interest on the money.
70. If the Government issued more money instead of Government bonds, isn’t there a danger that the Government would issue too much money and cause inflation?
No. It is no more or no less inflationary for the private banks to create $1 billion of new money than it is for the Government to create $1 billion of new money. Furthermore, as an agency of the Government the Federal Reserve System, decides in any case the total amount of money to be created.
125. Do private banks enjoy a special relationship with the Federal Government?
Yes, a very special relationship. The business of banks is to lend money. The profit comes from the difference between the cost of creating money and the price they charge borrowers for that money. Now the cost of creating money is negligible. Congress has delegated the power to create money to the banking system without a charge. The banks do not pay a license fee or a payment charge for their reserves. Thus the raw materials the banks use cost them nothing.
131. Do private banks perform a service in buying Government bonds?
No, because they create money—an obligation of Government simply to buy bonds guaranteed by the Government. There is no risk involved, as there is in loans to businessmen and consumers. The banks’ traditional functions are to lend to private borrowers and assume the risks of creditors. Their reward for buying bonds with money they create is the “subsidized” profits they enjoy.
132. What Is the “burden” of U.S. Government bonds, held by the private banking system?
The burden is the heavy bond interest payments, borne by the taxpayers, that go to private bankers when the same amount of money could be created by an agency of Government . Then the taxpayers would not bear this tremendous cost on Government bonds purchased with reserves given to the private bankers.
142. Must the money supply grow over the long haul?
Economists unanimously agree that the stock of money will have to grow—probably at about the same rate as the economy—if economic growth is not to be stunted. Failure to provide adequate money will spawn an era marked by deep recessions, abortive recoveries, low investment high interest rates, and chronic unemployment. This long-pull need for adequate growth in the money stock is the first commandment for monetary policy—active or passive.
146. What were the lessons of World War II about economic policy?
The main lesson was that our country need never again suffer from a prolonged depression like that of the 1930’s. During the war we had full employment and the economy produced gigantic quantities of goods. If we could maintain full employment in wartime why not in peacetime ! Only now our economy can produce goods to eliminate poverty, ignorance, and disease rather than goods or the destructive processes of war. The second lesson was that the Great Depression resulted from the failure of Government to recognize and assume its responsible role in the economy. This included the monetary aspect of Government policy.
149. What was the result of Federal Reserve “Independence”?
In practical terms the result was to commence a long decade of progressively tighter money. Given its freedom, the Federal Reserve has instinctively chosen to tighten money at every conceivable opportunity. The fact that tight money is a shotgun weapon to be used only for broad economic effects did not deter the newly independent Federal Reserve from trying to aim at specific targets.
156. What is the main problem of the Federal Reserve System today?
In a word, Federal Reserve independence. Congress and the people are faced with the issue: How can we bring money management under genuine public control in order to coordinate monetary with other public policies? The original intent of the Federal Reserve Act was to insure such control; that intent is still valid. Our Government must squarely face the challenge of recapturing the tiller of its money system.
157. In practical terms what is meant by Federal Reserve “Independence”?
There are two sides to independence—one is economic, the other political. On the economic side, independence means that the Federal Reserve formulates and executes economic policy, using its monetary controls, without any necessary reference or coordination with the policies being followed by the other branches of the Government. This, of course, invites clashes between the Federal Reserve and other parts of the Government.
159. Would inflation result if the Federal Reserve were made responsible to the President or Congress, or made subject to an annual audit by the General Accounting Office?
Not at all. The notion that the American people and their elected officials are inflation-minded runs contra to political realities. Inflation hurts not the wealthy but the low-and middle-income families who live on fixed incomes, the old with their modest pensions, all those who have set savings aside for their old and or their children’s education. These people make up a considerable part of our population.
164. Is the “trustee” notion of monetary policy alien to American democracy?
Of course. The claim that the people do not know what is good for them, and therefore a small group of men should be given the power to make decisions and then to take action without being held accountable to the people is 100 percent undemocratic. The essence of democracy is that the people decide for themselves, through their elected officials, what is good or bad for them. Further, to give monetary control to a group like the Federal Reserve is to hand over enormous power unfettered by responsibility to anyone. In a democracy, especially the American form, the holders of power, all most without exception, are responsible to the people, through elected officials in the use of this power. The Federal Reserve’s ideas that they should be considered trustees rather than stewards runs counter to anything that Americans have believed about power and responsibility since the founding of the Republic.
165. Who favors Federal Reserve independence?
The private banks who control the System, together with some allies—notably, Wall Street newspapers and other members of the financial community.
166. Has the Federal Reserve’s record since the accord demonstrated superiority in the management of our monetary system?
On the contrary, the Federal Reserve’s persistent fear of a bogeyman “inflation” had led it to slow our economy’s growth and cause periodic recessions, and moreover to maintain “tight money” even during periods of recession and economic slowdown.
169. Are reforms needed in the Treasury?
Yes. The system of selling U.S. Government securities through a small group of preferred dealers should be abolished. There is no reason to guarantee government bond dealers vast profits.
It’s not my debt, is it yours? Anyhow its bound to collapse under its own weight, remember Zimbabwe? With no legal tender laws, different forms of money and types of banking would be able to compete. People will still be free to assume debt for their own profit or peril. Are you still driving that Yugo?
Anyhow its bound to collapse under its own weight, remember Zimbabwe? bbnet
Yes I do and at the height of it’s “hyper inflation” it’s interest rate was 800% and the overnight lending was 10,000%. If you’re only source of money was to borrow it, and you had to pay 800% interest how fast would you have to raise your prices to stay ahead of your beloved interest?
In the Wiemar Republic at the height of their “hyper inflation” the interest rate was 900%
The creditor is the bank, it’s impossible for the people to pay the the principle plus the interest, so the people in time (look around) have to give up their property in payment of these debts. It’s true that some of us can get out of debt but don’t worry there is at least 4 other mortgages on your property that most people are 100% unaware of.
Federal Reserve Notes system? If that is what you mean, we don’t have a federal reserve note system, we have a debt money system. Fractional banking system all based on interest bearing debt. Those notes in your pocket are just a portable evidence of the interest bearing debt at the bank. There really isn’t anything wrong with FRN’s but there clearly is something wrong with how all the money is put into circulation so that way we can get them.
They should be replaced with U.S. Currency. Not U.S. Notes. Any monetary note is an evidence of debt, but FRN’s aren’t the debt themselves, nor are they redeemable in anything. They are not the true money in our system, bank credit is. What we should have is just plain old final payment issued into the system again, just as gold and silver was. Wasn’t the country better when there was wealth money coming into circulation?
Maybe these two videos can help explain it further.
The number printed on it determins the value. Don’t believe me pull out a $1, $5, and $10 and tell me the only difference between those bills that determins the value.
The difference in value can be found within your own subjective value scales. You may not value them differently, and society may not value them differently, but this leads to an increase in prices, as your demand for cash holdings falls. OPEN A FUCKING BOOK ALREADY.
OK lets flip it around. I’m super short on funds, my demand for dollars is always going up and if I don’t get more money i’m going to lose everything I own. The only logical thing to do is lower my prices. I’ll cut them by 90% because that will solve all of my economic problems…Matter of fact I visited this austrian website and they told me my problem is “too much money” whew! Thank god because all the balance sheets of america say otherwise.
Are you guys really stupid enough to believe that more money forces people to raise prices? The only thing that forces businesses to raise prices is when the ‘cost of doing business’ goes up.
I forget the only business you’ll ever elevate yourself to is selling dope because you can’t even do simple math, and you don’t even understand that all we use for money is numbers. Did you even take a basic math class anywhere in your entire life?
Have you ever heard about the concept of inflation?
The more money you inject in the system, the more the general price level in the system rises, as the money trickles down in the economy. This is known as inflation. Now, if as a supplier, the prices of your factor inputs (cost of doing business) increase, then logically you will need to raise your prices as well.
