Date: Tuesday, September 28, 2010 at 6:56pm
by: Jeremy Sofian
Don't you love when you flip on FOX or CNBC and they have two charlatans, each with their own little screen explaining how stupid you are and how they alone understand what is presently going on in the economy. Charlatan A insists we need to cut all spending to curb the deficit and national debt or we will have "Hyperinflation" followed by charlatan B refuting that by insisting we need more economic "stimulus" packages or we will slip into a deflationary depression.
Let me be clear, charlatan A is absolutely full of shit and charlatan B is only giving you a fraction of the truth. Most likely because they themselves (Despite their Ivy League Degrees) have no idea what the hell they are talking about.
To understand why we have to go over how our monetary system works.
Let's start with a little stubborn fact, all the money you have in your pocket, bank account, under your mattress and where ever else you keep it is a loan. That doesn't necessarily mean you owe anyone money, but that money came into circulation as a loan. Expanding upon that little premise, our entire monetary supply came into circulation as a loan.
Anyone with a somewhat average intelligence level understands that loans must be repaid.
Now, one now equipped with the knowledge that all of our money (Yes all your money) is a loan that must be repaid would probably like to know how this is possible so allow me to elaborate...
All money in the United States comes into circulation as an expansion of credit by private banks. Yes, that means the federal government does not issue currency, infact, the federal government borrows currency from the privatized central bank known as the Federal Reserve System.
"The Bureau of Engraving and Printing is not authorized to print or issue United States paper currency for direct delivery to the public. Currency notes are placed into circulation by your local financial organization and can only be obtained from that source”
-- Linda W. Coleman Dept. of the Treasury
The government does this by selling Treasury Bonds to the Federal Reserve bank, and in turn the federal reserve bank creates "money" and deposits it into an account held by the Treasury Department. This is where the government gets money to spend, however just as with all other bonds, these bonds are interest bearing loans that must be repaid. While the FED refunds all interest to the Treasury (Less the dividends paid to member banks) when loans originating from the Federal Reserve Bank or commercial banks are repaid, the principle is destroyed and the interest is not. Insofar as commercial banks, which create the bulk of our money supply via lending, they are allowed to create about 9 new dollars in loans for every 10 dollars they have on deposit. The commercial banks do this by creating a book keeping entry (An IOU) to any account and creating new money that never existed before as a loan. The principle on this loan is lent out into the economy, however, the interest to pay this loan off is never created. When that loan is repaid to the commercial bank, the bank then destroys the principle by repaying the "IOU" and absorbs the interest (Which was never created to begin with) into their capital assets.
"Commercial banks create money--create demand deposits, or deposit money--when they make loans....Money is destroyed when bank loans are repaid."
- Campbell R. McConnell & Stanley L. Brue, Economics, 14th ed., p. 302
"When a commercial bank makes a loan to a business or an individual, it credits the checking account of that business or person with the amount loaned....Banks manufacture money through this loan process because they create money by monetizing debt."
- The Appraisal Institute, The Appraisal of Real Estate, 11th ed., p. 100
So, all money is created as a loan, and the interest on each loan is never created.
Now that we have established that there is literally an intentional built-in shortage of money in the system, since the principle on all loans is created but never the interest we can highlight the serious problem with this. Charlatans on television and elsewhere will point out that the Federal Reserve Bank refunds all interest to the Treasury Department however that does not include the annual 6% dividend that the member banks (The owners) of the Federal Reserve Banks (There are 12 regional FED banks) get. Thus, without even proceeding to the heart of the problem, we've already established that the mere interactions between the federal government and the Federal Reserve bank create a built-in shortage of money in the system by creating money as a loan, and never creating enough interest to pay that loan off. Thus all that money in your savings account that you plan on saving, through no fault of your own is making it that much more difficult for someone else to pay their loan off because of this built-in shortage of money in the monetary system.
NOW we can FOCUS on the HEART of the problem which is the fact that commercial banks create 10 times more of our money supply than the Federal Reserve Bank does; and for each new expansion of credit (loan) of newly created, never before existing money into the system they create the principle, and not the interest. ALL of this money created by banks are mere digital numeric entries and not currency.
"The bulk of the money in the U.S. economy is checkable deposits of commercial banks and thrifts, not currency."
- Campbell R. McConnell & Stanley L. Brue, Economics, 14th ed., p. 287
So what do we have here? We have a monetary system in which every time money is created, unpayable compounding interest debt is attached to it! - in such systems we've constantly experienced DEFLATION - not inflation since commercial banks expand the monetary supply (lines of credit) beyond what the physical economy can withstand (Producing a bubble) and as all bubbles go, the inflationary effects are temporary and the deflationary effects once the lines of credit (loans) collapse due to slowdowns in money velocity (Due to excessive debt in the system.) When credit lines collapse, the monetary supply contracts by the exact amount of the credit lines which is the definition of deflation.
Having some cash flow problems lately? this could be why:
“Money that one uses to pay interest on a loan has been created somewhere else in the economy by another loan.”
- John M. Yetter, Attorney advisor, Department of the Treasury
Now at this point it may be a bit more easy to understand why you are seeing your local stores go bankrupt, houses being foreclosed on and families being displaced; and that is because you, and I, and everyone else are entirely dependent on commercial banks to expand the money supply or we starve to death:
"If all the bank loans were paid no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous: if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon."
-- Robert H. Hemphill, credit Manager of the Federal Reserve Bank of Atlanta, January 24, 1939
Now at this point, one may wonder who it is that owns the Federal Reserve System. The answer is, the very banks that we depend on for our money supply:
"The Federal Reserve Banks, created by an act of Congress in 1913, are operated in the public interest rather than for profit or to benefit any private group.Commercial banks that are members of the Federal Reserve System hold stock in the Reserve Bank in their region, but they do not exercise control over the Reserve Bank or the Federal Reserve System. Holding stock in a regional Reserve Bank does not carry with it the kind of control and financial interest that holding publicly traded stock affords, and the stock may not be sold or traded. Member banks do, however, receive a fixed 6 percent dividend annually on their stock and elect six of the nine members of the Reserve Bank's board of directors"
Got that? The banks that own the Federal Reserve elect 6 out of 9 of the regional Federal Reserve bank directors; and what do these directors do? Why they elect the regional Federal Reserve Presidents!
Here is an example of what a Federal Reserve Director election looks like, and at the bottom of the circular you will find the largest owners of the New York Federal Reserve Bank that are electing them:
WELL LET'S SUM UP THE SITUATION:
- All money is created as a loan, the interest to pay that loan off is never created, and when the loan is repaid the principle is destroyed
- No money is created by the government
- The Federal Reserve Bank lends to the government by purchasing Treasury Bonds in turn the FED returns the interest to the Treasury (LESS THE BANK DIVIDENDS)
- Commercial banks create 10 times more money than the FED does by borrowing through the FED's discount window and "monetizing debt" (Creating IOU's to accounts, such as your savings account at their bank)
Simply put, it means contrary to the bullshit artists rambling about hyperinflation, and the government (Or FED) Printing "Too much" money; most money is actually created by commercial banks via lending, and none of that money is actual currency but mere numbers on a computer.
What does THAT mean?
It means no matter what happens, and no matter how much banks lend into the system, there will never be enough money; thus there is a chronic SHORTAGE of money in the system relative to the DEBT levels.
What does THE ABOVE mean?
It means if we "cut all spending" the entire monetary system will disintegrate as countless people will begin defaulting on loans of all types, banks will be forced to sell the pledged collateral (If ANY was taken) on those loans, absorb the loses into their capital assets and then be declared INSOLVENT (As most of them already are due to hundreds of trillions of dollars of worthless gambling debt known as derivatives)
THUS; as mentioned in the beginning of this little "note", charlatan A who insists we must stop all spending IS a bullshit artist as I initially highlighted because charlatan A's policy would collapse the entire monetary system and thus end the United States.
Charlatan B is not telling you that while a "stimulus" package may keep the country from crashing into a 1930's style deflationary depression; that very "stimulus" is at the same time adding more un-payable interest debt into the system... LEST it expands the physical manufacturing capabilities of the economy to support the new lines of credit ("money.) This system that cannot even handle the current debt load - and we are talking private debt through the fractional multiplier not national debt because the national debt is irrelevant.
Why are prices going up for the things you need to live?
BECAUSE OF THE BUILT-IN SHORTAGE OF MONEY (And Speculative Bubbles):
"Inflation in a debt-dominant money system, such as the system administered by the Federal Reserve, is correctly defined as: debt-induced currency devaluation. In fact, it is only in a debt-dominant money system that inflation has ever occurred, from the first recorded inflation that destroyed ancient Babylonia over 4,000 years ago, to the present day.
Inflation is characterized by the loss of purchasing power of the dollar (or any other monetary unit). Steadily rising prices are a symptom of this loss of purchasing power. It is the devaluation of the dollar that forces general price increases.
The dollar's devaluation, in turn, is caused by the inherent flaw in the debt-dominant money system, namely, the creation of most money as debt. This locks the system into a vicious cycle of escalating borrowing in a futile effort to pay both interest and principal. A debt-dominant money system is naturally deflationary, due to the built-in shortage of money to pay interest. The shortage forces continually increasing borrowing, which requires continually increasing prices to cover the cost of business borrowing.
The devaluation of the dollar leads to a valid demand for growth of the money supply. More money is borrowed into existence to meet this demand, but the amounts are never enough to keep pace with the growing cost of debt which triggered the cycle in the first place.
The growth of the money supply which occurs during times of inflation is simply the result of businesses and individuals escalating their borrowing. They do this in order to pay higher interest costs, either their own or their own plus the higher interest costs reflected in the rising prices of goods, services, and overhead. The primary cause of this escalation is a chronic shortage of money. The money shortage is equal to the uncreated, unpayable interest due on the escalating debt.
This growth of the money supply is widely mistaken to be the cause of inflation, whereas in fact it is only another symptom of inflation. The mistake of calling an increase in the money supply the cause of inflation is based on the belief that money is like a commodity which becomes more valuable when it is scarce and less valuable when the quantity available increases.
If inflation really is a condition of too much money in the system, it would be reasonable to ask every citizen to burn a $20 bill daily in order to bring down the money supply.
Also, if the theory that money is like a commodity is true, money borrowed at high rates of interest ought to be very valuable and buy more goods than money borrowed at low interest. However, recent experience has shown that money borrowed at 20% interest bought far less in 1981 than money borrowed at 8% interest several years earlier.
In the debt-dominant money system, prices increase as a reflection of the escalating interest charges being incurred by producers. The term "price inflation" clearly identifies the process of rising prices. However, the term "inflation," when applied to the economy as a whole, fails to identify the phenomenon in operation which causes prices to rise, and is therefore misleading. The more accurate and descriptive term for the mis-called "inflation" phenomenon is debt-induced currency devaluation."
-- Theodore R. Thoren & Richard F. Warner, The Truth In Money Book, revised 2nd ed., pp. 204-6