The process is fairly simple to grasp. First the "Federal Reserve Open Market Committee" authorizes a "purchase" of U.S. Treasury Bonds on the open market, just as you or I could also buy Treasury Bonds from an authorized bond dealer. As bonds are essentially maturing government debt, the bonds are therefore backed by the government's explicit promise to pay (x+interest) at a future date, which is dictated by the time-length of whatever bond one purchases. What happens when the Fed "purchases" T-Bills is that it buys them with money it never had, essentially "purchasing" government debt with nothing of value. In this way, the Fed essentially "creates" money out of nothing.
Is it now looking more like a bank?
It is true that the U.S. Constitution provided Congress with the power to coin our money debt-free. This power was abdicated by Congress through passage of the National Banking Act of 1864, and reaffirmed by the Federal Reserve Act in 1913.
The Complementary Role of the IRS
What would you say if I told you that it's no coincidence that the Internal Revenue Service (IRS) was created the same year as the Fed, in 1913? And that the functional role of the IRS has been to essentially collect taxes on a perpetually ballooning government debt, much of it interest paid to the Fed for "lending" our government money it created out of thin air?
This took some doing. The U.S. Constitution prohibited a direct tax on incomes, as the language of the document clearly stipulated that any "direct tax" (like income tax) must be apportioned, meaning, collected equally across the board. The first "income tax" arrangements, then, were flat tax arrangements, and levied on property ownership, not on wages. As the IRS system levies an "unapportioned" (or unequal) "direct tax" on incomes (including wages), the IRS system could only be authorized by passing a new Constitutional Amendment, in this case the 16th. This amendment was passed in February of 1913.
Read the 16th Amendment. It states: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." (my emphasis)
Looking closely at the IRS with these observations in mind, we see that the our tax laws were conveniently created to ensure a state-sponsored insurance for our government's expanding government debt to the banks. We also see that the federal government had lived within its means until 1913. It had to. As taxes were unpopular to raise, and as the money supply wasn't then controlled by the banks, the federal government hadn't the means, nor the motivation, to exert itself on just any whim it could manufacture. But after the passage of the Federal Reserve Act, and after the creation of the IRS, government debt began a steady climb. The government could raise revenues through both taxes and inflation. And so by the mid-thirties, after over twenty years of Fed-sponsored monetary policy and an economic depression, the U.S. Government declared itself officially bankrupt. Today, as we can see, our situation is far worse.
Let us remind ourselves that the debt paid to the Fed is really our government paying for something that never previously existed. Paying for money that our government could coin or print for free. And can't we then see that, under this monetary system (under our current legal tender laws), the only way to pay off government debt is to create even more government debt? Which is, again, just more "debt" that is entirely fictional.
Our monetary policy is officially insane.
Private Banks and the Fractional Reserve System
Furthermore, the private banking system the Fed set up is nothing less than a legalized pyramid scheme.
Take you're local neighborhood bank. The present system allows this bank (and all other member banks) the legal authority to lend out money they don't have. Unlike the Fed, these individual member banks cannot "create" just any amount of money they want. Instead, banks from Wells Fargo to Citigroup to the small independents, these banks are legally required to 'anchor' their lending by only a "fraction" of their lending debts, meaning, they can create money to exceed (many times over) the total assets in their "reserves." In reality this usually translates to a "fractional reserve ratio" of around 10%.
And so the sum total of bank deposits and other assets (total assets) constitute the anchor by which each bank can build upon by 1000%. As money the banks "lend" will probably be redeposited at some point by the recipient of the loan, this newly redeposited money can also serve as a base for further money creation. In mathematical terms, and taking the entire banking system as a whole, the legally acceptable amount of money that can be created from originally-issued Federal Reserve legal tender is approximately 1000 times greater than the legal tender itself.
One might be tempted to call this "institutionalized inflation," or "naked wealth redistribution." Either of these descriptions will work.
Let us look at the "fractional reserve system" from another angle. This system allows banks to charge interest for "loans" they never even had. This usurious practice is a huge source of profits to the banks, and conversely a huge (and fraudulent) expense to consumers. Truly this is why banks have the collective power they do; and why bank buildings are always the biggest in town. Their business is legal theft; wealth redistribution; reverse robin hood; whatever you want to call it. And with this money--our money--they buy up property, industry, media, law, politics, you name it. As Illinois Senator Dick Durbin recently claimed about Congress, "the bankers own the place."
Is it now looking more like a bank?
It is true that the U.S. Constitution provided Congress with the power to coin our money debt-free. This power was abdicated by Congress through passage of the National Banking Act of 1864, and reaffirmed by the Federal Reserve Act in 1913.
The Complementary Role of the IRS
This took some doing. The U.S. Constitution prohibited a direct tax on incomes, as the language of the document clearly stipulated that any "direct tax" (like income tax) must be apportioned, meaning, collected equally across the board. The first "income tax" arrangements, then, were flat tax arrangements, and levied on property ownership, not on wages. As the IRS system levies an "unapportioned" (or unequal) "direct tax" on incomes (including wages), the IRS system could only be authorized by passing a new Constitutional Amendment, in this case the 16th. This amendment was passed in February of 1913.
Read the 16th Amendment. It states: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." (my emphasis)
Looking closely at the IRS with these observations in mind, we see that the our tax laws were conveniently created to ensure a state-sponsored insurance for our government's expanding government debt to the banks. We also see that the federal government had lived within its means until 1913. It had to. As taxes were unpopular to raise, and as the money supply wasn't then controlled by the banks, the federal government hadn't the means, nor the motivation, to exert itself on just any whim it could manufacture. But after the passage of the Federal Reserve Act, and after the creation of the IRS, government debt began a steady climb. The government could raise revenues through both taxes and inflation. And so by the mid-thirties, after over twenty years of Fed-sponsored monetary policy and an economic depression, the U.S. Government declared itself officially bankrupt. Today, as we can see, our situation is far worse.
Let us remind ourselves that the debt paid to the Fed is really our government paying for something that never previously existed. Paying for money that our government could coin or print for free. And can't we then see that, under this monetary system (under our current legal tender laws), the only way to pay off government debt is to create even more government debt? Which is, again, just more "debt" that is entirely fictional.
Our monetary policy is officially insane.
Private Banks and the Fractional Reserve System
Furthermore, the private banking system the Fed set up is nothing less than a legalized pyramid scheme.
Take you're local neighborhood bank. The present system allows this bank (and all other member banks) the legal authority to lend out money they don't have. Unlike the Fed, these individual member banks cannot "create" just any amount of money they want. Instead, banks from Wells Fargo to Citigroup to the small independents, these banks are legally required to 'anchor' their lending by only a "fraction" of their lending debts, meaning, they can create money to exceed (many times over) the total assets in their "reserves." In reality this usually translates to a "fractional reserve ratio" of around 10%.
And so the sum total of bank deposits and other assets (total assets) constitute the anchor by which each bank can build upon by 1000%. As money the banks "lend" will probably be redeposited at some point by the recipient of the loan, this newly redeposited money can also serve as a base for further money creation. In mathematical terms, and taking the entire banking system as a whole, the legally acceptable amount of money that can be created from originally-issued Federal Reserve legal tender is approximately 1000 times greater than the legal tender itself.
One might be tempted to call this "institutionalized inflation," or "naked wealth redistribution." Either of these descriptions will work.
Let us look at the "fractional reserve system" from another angle. This system allows banks to charge interest for "loans" they never even had. This usurious practice is a huge source of profits to the banks, and conversely a huge (and fraudulent) expense to consumers. Truly this is why banks have the collective power they do; and why bank buildings are always the biggest in town. Their business is legal theft; wealth redistribution; reverse robin hood; whatever you want to call it. And with this money--our money--they buy up property, industry, media, law, politics, you name it. As Illinois Senator Dick Durbin recently claimed about Congress, "the bankers own the place."
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