SLEIGHT OF HAND

"I have never seen more Senators express discontent with their jobs....I think the major cause is that, deep down in our hearts, we have been accomplices in doing something terrible and unforgivable to our wonderful country. Deep down in our heart, we know that we have given our children a legacy of bankruptcy. We have defrauded our country to get ourselves elected." — John Danforth (R-Mo)

 We are in a credit crisis. Banks aren’t lending! Small businesses can’t get loans and home-buyers can’t get mortgages. Why? Banks are making money without having to go to the trouble to make a loan. Thanks to the Fed’s near zero interest rates, the banks are getting nearly free money. Instead of lending it out, they’re buying government debt – at a high interest rate. And so, they’re getting money for practically nothing and turning around and giving it to our illustrious government for a lot more. How nice.

      A good question is, why does our government go through a middleman and not deal with the Fed directly? An even better question is, why does our government go through the Fed at all? As President Wilson once said, ‘If the Nation can issue a dollar bond it can issue a dollar bill.’

        Instead, our government borrows the money it needs that it must repay with interest. No, that citizens must repay with interest. How much do we owe the Fed? As of March 2011 it was $1.6 trillion. This is 42% of the government’s total debt. According to congressional rule, the government can buy out the Fed for $450 million and own its own debt. But no, government spending must be slashed in order to reduce our deficit spending and pay back what we owe. Of which, at least 42% came from thin air – money the government had someone else make, that it could have made itself.  

ALTERNATIVE GOVERNMENT BANKING

In a country we generally frown upon, the government’s central bank works like this: the bank prints money the government needs and provides it at no interest. This is unlike the U.S., where the government borrows from the Federal Reserve money on which it owes interest. Never mind that the government has a constitutional  duty to create money -- it gave this right away to the commercial banks in 1913. And, never mind that the Fed charges interest on  something it creates out of nothing (that is a subject for another day.) The end result is that we owe the Fed $1.6 trillion, and of course, social spending must be cut so we can begin to repay our 'debt.' 

This other country’s economy flourished after the 2007 global recession. Banks didn’t stop lending and the GDP grew by 10-11% (last year 8-9%), while in the U.S., growth was negative, and is now only 2-4%.

 What was this country? China! Yes, that terrible communist country that isn’t crippling its people with a mountain of debt.

  Why does the American government do this? President John Adams once said, there are two ways to conquer and enslave a country – one is by sword, the other is by debt. Our government is conquering its people through debt. We are voting into office, representatives who enslave us. We could stand to learn something from that communist country where leaders don’t take financial advantage of their people, don’t empower private banks, and don’t eviscerate their country's economy.

HOW BANKS MAKE MONEY

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.