Thursday, January 30, 2014


The Fed is in the business of making money. It issues loans in returns for IOUs and expects to be repaid with interest. Banks work the same way. Take for instance, a mortgage on a house. You’ve found a house you love with an asking price of $150,000. You’re lucky and have a good job and the bank is happy to loan you the money over a thirty-year period at 5% interest. You sign the papers and take the keys to the house the bank now owns. The bank would like you to think that it has shifted money away from other sources to give to you, but this is not the case. As soon as your loan is approved, the bank prints the money. This is done with the push of a button; a ledger entry. You now have a debt of $150,000 and your debt is the bank’s asset. It has made +$150,000. Over 30 years, you will repay a total of $285,696 (the initial loan plus $135,696 if the interest rate is 5%) -- almost double what the house was originally worth. This money is profit for the bank, made on a house it never owned and on money it never had. The Fed works the same way. It prints money to give to the government, which taxpayers repay with interest.

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