Related: bug, currency, debt, money, treasury The US government now rents the originally inalienable right to issue currency. They rent this right from international bankers through The Federal Reserve by paying continual and compounding interest on every dollar in circulation.
Mar-02-2007: Posted to blog at MySpace.com/patware Subject: Federal Reserve Notes and Partial Reserve banking All money is really just information. It is not supposed to be valuable in itself. Even a currency 'backed' by or even minted from an ornamental metal has almost no actual usefulness to a common citizen. What can you do with gold except hope to exchange for something of actual worth (food, cloth, shelter, etc.)? The US Federal Reserve Note (FRN) is an especially poor money system. Not only is it a Fiat Currency (meaning it is backed by nothing but a declaratory Fiat of the issuing government), but it is a "debt based" currency that the US government chooses to RENT THE RIGHT TO ISSUE from a band of international bankers. Any private group has the inalienable right to issue their own currency (not counterfeit bills, I'm talking about creating local or "Community Currencies"), but we (the US people) have been snookered into RENTING that right for our national currency from a group of businesses that are probably not even within our borders (not that that would help much). Because of this, we Americans pay compounding interest on every bill in circulation every year! There is no way such a system can be sustained, and there is no reason for us to suffer such a stupid debt except that we were fooled into it (or, more accurately, the representatives that enacted it were paid to do so). I think part of the reason this terrible situation is not resolved is because the booty is spread over such a large group that the clanish power of fascism (originally meaning to bind together) causes private banks to defend it for their own reward. I was reading "'Money; A Mirror Image Of The Economy'" by Dr. J.W. Smith (you can read it online at IED.info/books/money) and noticed something I think is inaccurate or, at least to me, is misleading. On page 25 the section "Testing the Assertions that, under Required Reserves, Private Banks Create Money" he explains how private banks (meaning any regular bank in your city) are allowed to make loans against partial reserves of 10%, so that if they have $1000 FRNs those businesses are allowed to loan out and charge their own interest on $10,000. Remember money is just information, and very little of it is actually printed on paper or minted as coin. If any of that $10,000 is re-deposited by it's new owners (those who borrowed the money) into that same bank, the bank has the right to make loans against that money too, while only being required to insure 10% of what is loaned be "present" (usually as electronic information), so that $100,000 may be loaned at the second cycle, $1,000,000 at the next, and so on and yet he claims it is not money "creation". Wikipedia.org/wiki/Money_creation "' 1. The government issues a Treasury security. This is simply an IOU, a promise to pay the holder a specified sum of money on a particular date. In this example, let's say the government issues $1,000,000 worth of bonds. Individual investors, pension funds, mutual funds, insurance agencies, banks, foreign government central banks, can all buy the bonds, effectively loaning money to the treasury. They do this to invest their money and receive interest in return. 2. The Federal Reserve prints a check, in the amount of $1,000,000 and makes it payable to the government. This check is the proceeds from the sale of the bonds. 3. The $1,000,000 is recorded as an asset by the Fed. (money owed to the central bank is called an "asset" by the bank) It is assumed the government, with its power to tax, will make good on its debt (this is why the people buying the bonds from the fed consider it a risk-free investment). The government deposits the check in its own account. 4. The government hires employees and buys things with the $1,000,000, and it does so by writing government checks. These government checks are then deposited in commercial banks. For the sake of simplicity, assume it all goes into one commercial bank, which has a zero balance to begin with. 5. The commercial bank now claims $1,000,000 in new liabilities (the amount on deposit in a bank is called a "liability" by the bank, because the bank has to pay interest to it, amongst other things). In the US, the law allows the bank to lend out 90% of what it has on deposit. This lending of money that it has on deposit is the precise point at which new money is created, because the depositor still has his money, and the person getting the loan now has money too. 6. $900,000 is lent out on Friday for someone to buy a house. This loan is in the form of a check. The home buyer signs the check and gives it to the seller, who deposits it right back into the bank on Monday. Note however, in real life that money would only come from the bank temporarily, which then would issue its own bonds or use a company like Fannie Mae to issue its own bonds, so that again investors can actually lend the money while the bank is simply a middleman, called a "servicer". 7. The commercial bank now claims $900,000 in new liabilities. 10 percent of that money is put into reserves, and 90% of that, or $810,000 is lent out. As soon as the $810,000 is deposited back into the bank, the cycle repeats and repeats until there is no more money to lend. 8. The total amount lent out to borrowers is $9,000,000. Add that to the $1,000,000 that it still has on deposit and the total is $10,000,000. Commercial banks make profit by charging fees for transactions, and by charging a higher interest rate to those they lend to, than what they pay for the funds. If the commercial bank charges 6% interest on the $9,000,000 it will earn $540,000 per year. If the bank making the loan pays 1% interest to the person who put the money on deposit in the first place it will cost them $100,000 per year. With 90% of that money lent out, if the original depositor wants their money back, the bank has to borrow that money from another bank (or maybe from another source), at rate of interest set by the government (the overnight rate, or the federal funds rate in the US). This is called "asset-liability bouncing", and is a delicate balancing act all banks must work on every day. '"