create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest.”
President, Abraham Lincoln
Knowing how money is created will help you understand how we can get you out of credit card debt, unsecured loans and lines of credit. Over the past 27 years the Managing Director of FDRS has done nothing but research money - how it works, who has it, how they got it and where it comes from. What changed my life was learning about how money is created. It is by far the most important financial aspect you will learn in this lifetime.
The current gross national debt is ridiculous, as you can see in the sum of personal and federal government debt, shown to the right. The counter doesn't include the Social Security and numerous other governmental debts totaling over $75 Trillion. So, everybody wants out of debt, but there is only $3.8 Trillion ($753 Billion in 02/06) in currency in the whole U.S. economy, so something doesn't add up, right? Let’s get to the bottom of it.
Currently the Federal Government spends more than they can tax us each year, entirely because they’re paying all of this revenue towards interest on previous years’ loans. So, what they do is have the Treasury print U.S. Bonds to exchange for loans from the privately owned Federal Reserve System.
The private Federal Reserve owners don’t have a trillion dollars to lend the Government, nor do they need it. All they do is create it, via a bookkeeping entry, and write a check to the U.S. Government as the loan in exchange for the U.S. Bonds. The U.S. Government banks at the Federal Reserve Bank so cashing this check is very easy.
The Government now spends this newly created money into the economy by paying the Court, Postal and Military employees, etc. These consumers then deposit their paychecks in a commercial bank, Bank of America for example. The commercial banks deposit their customers’ check (newly deposited money) at their local Federal Reserve Bank and the Reserve Bank allows the commercial bank to issue up to 33 times more new electronic money, some of which is used to cover the customers’ initial deposit. This is called "Fractional Reserve Banking."
When you sign a loan or credit card application and send it in, (say you are approved for $10,000.00) the commercial bank stamps the back of the application, as if it were a check, with the words: ’Pay $10,000.00 to the order of...;’ which changes your application into a promissory note.
They then deposit the promissory note at the local Federal Reserve Bank as new money. This new money is now a 3% fraction of what the commercial bank may now create and do whatever they want with.
So $330,000.00, minus the original $10,000.00, is now added to the commercial bank’s coffers. They then open a demand deposit transaction account in your name, (the same as a checking account), deposit $10,000.00 of their newly acquired funds into this account and then issue you a debit or (in this case) a credit card or paper check. Remember - it’s all just bookkeeping entries, because our money is backed by nothing.
Your asset, the original promissory note, not only funds your own supposed loan, but allows them to pocket up to 33 times the amount for doing nothing but fancy, yet fraudulent, bookkeeping entries. So, you funded your own loan, and they get to permanently keep your asset, the promissory note, along with the additional $320,000.00.
Don’t forget that when you spend your new deposit/loan, it ends up in someone else’s account and their bank gets to multiply it by up to 33, yet again. This is how fractional reserve banking works. This is the cause of inflation.
The first thing to shed light on when you borrow from a bank is that no one with a bank account is sent a letter telling them that the money in their account is temporarily unavailable, because it has been lent to you. None of the original accounts in the bank have been touched or affected. Nobody else's spending power has been reduced.
Next we have Title 12 of the United States Code, §1831n which requires all banks across the country to abide by Generally Accepted Accounting Principles. According to GAAP, 2003 edition, page 41 under the section Cash and Cash Equivalents it states that “ANYTHING ACCEPTED BY A BANK FOR DEPOSIT WOULD BE CONSIDERED AS CASH”. This includes promissory notes, same as Federal Reserve Notes.
The Federal Reserve has also been very clear in their circulars that banks do not really lend money. Three examples will suffice to prove the point, although many more are offered on the Resources page.
Probably the most oft-quoted reference regarding money creation is the Federal Reserve publication, Modern Money Mechanics. On page 6 it says in rather clear language, “Of course, they (banks) do not really pay out loans from the money they receive as deposits. If they did this no additional money would be created.”
The Federal Reserve tells us in no uncertain terms in the next sentence: “What they do when they make loans is to accept promissory notes in exchange for credits to the borrower’s transaction accounts.” They add fuel to the fire in their publication Two Faces of Debt. In this publication, on page 19, they tell us that a “depositor’s balance...; rises when the depository institution extends credit - either by granting a loan to or by buying securities from the depositor.
“In exchange for the note or security, the lending or investing institution credits the depositor’s account or gives a check that can be deposited at yet another depository institution. In this case, no one else loses a deposit...; the money supply is increased. New money has been brought into existence.”
The Federal Reserve publication "How Banks Create Money" asserts: "Banks actually create money when they lend it. Here's how it works: Most of a bank's loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank once again holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times."
Money should be backed by real gold or silver, not created out of and backed by nothing. In this way it cannot be easily counterfeited. Our Forefathers fought to protect us from this exact same evil, and outlined it in the U.S. Constitution - Article 1, Section 10, Clause 1: No state shall enter any Treaty, Alliance or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts...
If you feel that no one should be able to counterfeit money and lend it to us, and if you also feel that whoever funded the loan (you) should be repaid the money, and realize that it is unconstitutional for private banks to control the money creation in these United States, then we have the solution for you.