On Currency

fdralloveragain: Could you pleaes break down this post like Im a five year old? I really want to understand this stuff but I am just a public school graduate. I remember that the govt sells Tbills (bonds?) when they want to shrink the money supply. and buys them when they want to expand the money supply. otherwise im lost. Thanks.

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Ok, it has been a while. Public schoolers, please take a seat. I will warn you upfront: my class recognizes right and wrong, and there are consequences for failure. So please pay attention, or the system will have no choice but to enslave you.

First, let's get something straight: no one can print MONEY. No one.

No one.

The notion of printing MONEY is silly. No, it's just plain stupid. Anyone who states such an absurdity is headed for a month of detention. MONEY = wealth = stuff you can't print. A house is MONEY or wealth (assuming it's yours and not the bank's), a car that you own is wealth, diamonds and emeralds and sparkling things are MONEY and wealth, as long as other people want them.

All MONEY has one thing in common: it cannot be printed. Think about it. If something can be created as easily as churning it out of a printing press, then it can never carry any real value. So what is this paper stuff we carry around? It is CURRENCY. CURRENCY is not MONEY. CURRENCY is an accounting system for MONEY.

If I write, "I have 2 cows." Then I write, "+1 cow = 3 cows." I have not created a cow.

In the same way, creating more CURRENCY, via accounting entry, does not create MONEY. CURRENCY, or paper, represents wealth so I can account for it and trade it more easily. Unlike MONEY, CURRENCY is easily manipulated, but that has no affect whatsoever on the amount of MONEY in existence.

So, if a counterfeiter comes along and prints his own CURRENCY (since creating MONEY is way too hard), he might deposit his new paper in a bank account. If so, he has successfully manipulated an accounting entry to his favor. This accounting entry entitles him to buy real MONEY. Since he is getting MONEY but did not make MONEY, it follows that someone else must lose MONEY.

Who loses?

His additional CURRENCY circulates. It competes with existing CURRENCY to bid up prices, in this case, very slightly. All things become a little less affordable. Everyone loses a little bit, because he has "expanded the money supply."

Enter stage hard-left:

The Federal Reserve Banking System. Counterfeiters, extraordinaire.

Next thing to keep straight. The Fed is not part of our government. They insist they are an "Independent Fed" meaning, immune from the influence and legal inconveniences of government. Officially, the Fed is a special tax-exempt corporation. They conduct unregulated hiring, firing, profit taking, insurance buying, private book keeping, you know, all the things governments are either not allowed to do, or have no need to do. As a unique cartel of private banking corporations, the Federal Reserve system also has private owners who draw profits.

So what does the Fed do? What is a central bank, anyway.

"Plank 5 of 10:

[We must have] centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly."

--Karl Marx, The Communist Manifesto, 1848

Simply put, central banks buy a certain government's debt. They are the "creditor" to that government, and the government is the debtor. That's another reason they should never be misconstrued as part of the government.

Indeed, the central bank's interest must be aligned exactly counter to the citizens' self interest, or they could not make MONEY from The People. You probably don't consider yourself buddy-buddy with your bank. You probably don't get invited to their board meetings, or even their private Christmas parties funded by your interest payments. The creditor is not the borrower. The Fed is not the United States.

How do they buy all this debt? Doesn't it cost A LOT of MONEY? Yes, it does. That is why central banks don't use MONEY. They only print CURRENCY to buy government debt. Simply put: they counterfeit what they need.

They really do.

Granted, it's not illegal. Why not? Because congress passed a special law on a voice vote on December 23, 1913, while all but five congressmen where at home on Christmas recess. It is called the Federal Reserve Act, and that Act says it's legal to print currency with no monetary backing. So it is. For them. Not for you.

The Fed prints CURRENCY and with it they buy our Treasuries. The People pay for the counterfeit via a little known phenomenon called price inflation. This is how our government funds deficit spending and avoids direct taxation.

Why does the Federal government do this to itself?

Simple. They get a kickback from the bank. They get virtually unlimited (or so most think) "MONEY" to spend without that politically troublesome "tax hike" thingy. Tax hikes are so, well, inconvenient, and Constitutional. If you have to do that old fashioned taxing thing, people start to revolt, and you can hardly afford any Federal government, and then what? Then the States have rights, and we can't have that messiness, not in a Constitutional Republic like America.

Truth is, it's not spending MONEY it is spending CURRENCY. It creates no wealth when it is printed into existence. It is simply an accounting trick, a transfer of wealth from The People to the private owners of the central bank. It is the same act performed by any petty counterfeiter, legalized, so politicians get a cut. It's an illusion of new MONEY, designed to steal other peoples' real MONEY.

People are often happy about it. After all, their house is magically "worth more" year after year, meaning: the aging structure becomes less affordable. Their income goes up too, but never as much as the sum total of the counterfeit, because everyone must pay the bank.

The really interesting thing is what the central bank does after they print CURRENCY and exchange it for MONEY. I've posted a lot about how private central bankers leverage their MONEY to, "hopefully," make tons more MONEY. The consequences of the word "hopefully" are the key to understanding why we have deflation, instead of inflation, today.

In summary:

The Federal Reserve is not part of the government, but they are closely tied to government: they give politicians kickbacks, or spending CURRENCY without the need to tax directly. The Fed, technically, "buys" the Treasuries required to fund any budget deficit politicians direct, which then becomes part of our kids' national debt. In reality, the Fed isn't "buying" anything, they are selling freshly printed cash, at interest, to politicians who pledge your future work to private bankers.

Most politicians love the Fed. The Fed is the cash store where they go to buy more cash without the need for a tax increase. Since everyone pays for it, no one pays for it as far as our cynical and corrupt politicians are concerned. Inflation is the most inversely burdensome tax in existence, it rapes the poor, but our corrupt government doesn't care because it is a hidden super-tax and so few citizens understand it. And how could they? They are busy working.

And so, the sad irony is that the biggest deficit spenders are the most pro-rich and anti-poor politicians. They fully understand that. But you'd never know it from their rhetoric.

Sorry to get all political, but hardened republican and democrat politicians are thinly veiled arms of ONE party: the Bank Party. There is right and wrong, and that is wrong. Class dismissed.