I keep hearing many people talk of repaying the United States' federal debt. This cannot happen. Let me explain.
First, as has been discussed before, the United States Dollar is actually properly called the Federal Reserve Note. What does this mean? It is emitted by the Federal Reserve Bank of the United States and not by the Treasury. It is backed by nothing and is pure fiat money. There is no way to meaningfully redeem a Federal Reserve Note except by paying taxes.
The way a Federal Reserve Note gets born is interesting. Ok, it's interesting to economics geeks, but might be passably diverting to the rest of you. First, the Treasury Department issues a bond. Then the Federal Reserve Bank buys some of those bonds. To do this, it creates money by simply flipping a few electrons in a computer. Then, once it receives the bond, it considers that an 'asset' and makes loans, swaps and so on using that to create money into the banking system, getting a nominal interest on everything it does.
Yes, for each dollar it creates to buy a federal bond, it creates a matching dollar to stuff into the banks. If it were to see the debt paid down, the Federal Reserve Bank would see its assets shrink, and, were it not mendacious, it would be forced to recall its loans to banks to cover the loss of assets. This is how the law is set up to work. If the Federal Reserve Bank sees its assets go down, it must lower its loans by the same amount.
It wouldn't actually take much of a lowering of the federal debt, then, to cause a major problem in the economy, so accustomed is it to suckling at the teat of easy money. Remember the hoary economist adage 'all activity is at the margin'? If the debt goes down by 1% that means that the Federal Reserve Bank must reduce the money in the banks by 1% as well. If the bank already has a reserve of, say, the minimum, which we'll call 3%, then suddenly its reserves will drop below the minimum and it will have to scramble to increase its reserves, which it can do by either increasing interest income or simply reducing its loans. This would mean a greater recession and possibly a deflationary depression.
Yes, what I'm saying is that the bankers have gotten themselves into a position where not taking out loans would be ruinous. This means they get to have a sustained income in interest for little to no risk, meaning they can maintain their lifestyles at everyone else's expense. This is the essential fraud of the banking system.
There is no easy way to get rid of this monkey on our backs. It will take either an economic disaster of biblical proportions or an amazing political will to effect change. Until then, the bank will continue to skim off the top of the economy.
Why does it matter? The activities of the fed cause inflation. That is actually a stated goal they have. That inflation is a hidden tax as it means that someone else is spending money to compete with the money you make in your job, and that money they are spending is reducing your purchasing power, meaning your life is worse. From my viewpoint, it is much worse than that because the banks take no risk but receive profits as a result of their neat little scheme, so they actually provide no value.
In a classical economic system, a person that lends money he has to provide capital for industry provides value. Such a person has accumulated the capital, presumably, through careful effort, and thus is likely to make good decisions about the dispensation of his capital. This means such a person is, effectively, a controller. This person decides what economic activity will happen, and, should such a person gain more and more capital in the process, such a person can be presumed to be good at such decisions.
If there's no requirement to use personal capital, such a person is merely getting money for no risk, meaning that person has no skin in the game and is lots more likely to waste money, so the economy's efficiency will suffer, leading to less of the things people want being available, thus increasing the cost of things people want.
So, in effect, the banks are stealing from us and hoping we never notice.
First, as has been discussed before, the United States Dollar is actually properly called the Federal Reserve Note. What does this mean? It is emitted by the Federal Reserve Bank of the United States and not by the Treasury. It is backed by nothing and is pure fiat money. There is no way to meaningfully redeem a Federal Reserve Note except by paying taxes.
The way a Federal Reserve Note gets born is interesting. Ok, it's interesting to economics geeks, but might be passably diverting to the rest of you. First, the Treasury Department issues a bond. Then the Federal Reserve Bank buys some of those bonds. To do this, it creates money by simply flipping a few electrons in a computer. Then, once it receives the bond, it considers that an 'asset' and makes loans, swaps and so on using that to create money into the banking system, getting a nominal interest on everything it does.
Yes, for each dollar it creates to buy a federal bond, it creates a matching dollar to stuff into the banks. If it were to see the debt paid down, the Federal Reserve Bank would see its assets shrink, and, were it not mendacious, it would be forced to recall its loans to banks to cover the loss of assets. This is how the law is set up to work. If the Federal Reserve Bank sees its assets go down, it must lower its loans by the same amount.
It wouldn't actually take much of a lowering of the federal debt, then, to cause a major problem in the economy, so accustomed is it to suckling at the teat of easy money. Remember the hoary economist adage 'all activity is at the margin'? If the debt goes down by 1% that means that the Federal Reserve Bank must reduce the money in the banks by 1% as well. If the bank already has a reserve of, say, the minimum, which we'll call 3%, then suddenly its reserves will drop below the minimum and it will have to scramble to increase its reserves, which it can do by either increasing interest income or simply reducing its loans. This would mean a greater recession and possibly a deflationary depression.
Yes, what I'm saying is that the bankers have gotten themselves into a position where not taking out loans would be ruinous. This means they get to have a sustained income in interest for little to no risk, meaning they can maintain their lifestyles at everyone else's expense. This is the essential fraud of the banking system.
There is no easy way to get rid of this monkey on our backs. It will take either an economic disaster of biblical proportions or an amazing political will to effect change. Until then, the bank will continue to skim off the top of the economy.
Why does it matter? The activities of the fed cause inflation. That is actually a stated goal they have. That inflation is a hidden tax as it means that someone else is spending money to compete with the money you make in your job, and that money they are spending is reducing your purchasing power, meaning your life is worse. From my viewpoint, it is much worse than that because the banks take no risk but receive profits as a result of their neat little scheme, so they actually provide no value.
In a classical economic system, a person that lends money he has to provide capital for industry provides value. Such a person has accumulated the capital, presumably, through careful effort, and thus is likely to make good decisions about the dispensation of his capital. This means such a person is, effectively, a controller. This person decides what economic activity will happen, and, should such a person gain more and more capital in the process, such a person can be presumed to be good at such decisions.
If there's no requirement to use personal capital, such a person is merely getting money for no risk, meaning that person has no skin in the game and is lots more likely to waste money, so the economy's efficiency will suffer, leading to less of the things people want being available, thus increasing the cost of things people want.
So, in effect, the banks are stealing from us and hoping we never notice.
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