Money/Creation

Money/Creation
Interest of	• Bronson Cutting • Benjamin Franklin • G. Edward Griffin • Hang The Bankers • Pierre Jovanovic • Nikolai Mushegian • Brandon Smith
Much of the unfairness to the non-bank public of the money creating process – creating money out of thin air – really comes about because the general public has no input into decisions about money creation.

The following is a summary of a series of articles written by an anonymous investment banker. In it's own words "The Wizards of Money will take a critical look at the mechanics of the capital and debt markets, who makes the critical decisions that drive them, and how these markets then effect everybody’s lives.

Exactly How Does Money Get Created?

Lets talk briefly about the actual mechanics of money creation. Money creation happens in two main ways; First the creation of base money, which is mostly physical currency notes, created by the Federal Reserve. The second money creation process involves checking account or deposit money created by the commercial banks, and which makes up most of the money supply.

High Powered Money

Base money, also called high powered money, is created when the Federal Reserve performs what are known as Open Market Operations. In this process the Federal Reserve injects money by buying Government Securities, which then become debt owed by the government (that is the American Taxpayer) to the Federal Reserve.

Government Securities are IOU's, promises to payback the principal + interest at a given time, auctioned at the open market.

And where does the Federal Reserve get this money to buy the government securities? Well, it just makes it up "out of thin air". The Federal Reserve has no budget, quite simply because it doesn’t need one – it invents money whenever it needs it.

Formaly speaking the FED has added securities to its assets, which it has paid for by creating a liability on itself in the form of bank reserve balances or Federal Reserve Notes. Bank reserve balances (FED accounts for public banks) and Federal Reserve Notes together form 'high powered money'.

In fact, almost all money we come by has its basis in high powered money that the Federal Reserve invented at some time in the past. Most of this base money is currency in the form of Federal Reserve Notes. The Federal Reserve then creates a spurious "liability" on its balance sheet called Federal Reserve Notes outstanding, and in return gets an asset in the form of government securities, which the public must repay through the efforts of real work. Every time the Federal Reserve creates or extinguishes base money the financial press and other mainstream media reports it as a Greenspan interest rate announcement. This is not technically correct but it does sound more palatable than saying that the Federal Reserve just made some money up or just made some money disappear.

The Federal Open Market Committee (FOMC)

Full article: The Federal Open Market Committee

The most important function of the Federal Open Market Committee (FOMC) is to increase or decrease the money supply. It does this by the deliberate and judicious buying and selling of securities on behalf of the twelve Federal Reserve banks.

The F.O.M.C. can, without informing the government, the public, or the banks (its meetings are held in secret), increase or decrease the reserves of the banks.

For example, if it wants the money supply to increase, it will buy government securities. If it wants the money supply to decrease, it will sell securities.

The Federal Reserve banks can buy an unlimited amount of securities because they do not have to pay for the securities with anything. They pay for the securities by making bookkeeping entries in the member banks' reserve accounts.

It is reasonable to conclude that the Federal Reserve System through the operations of the F.O.M.C. is in a position to control, to a large extent, the economic conditions of the country.

An Example

In May 1975 the government paid out a rebate check of up to $200 to each individual who paid 1974 U.S. income taxes. And in June 1975, the government paid $50 to every recipient of Social Security Insurance, Supplemental Security Income or Railroad Retirement annuity or pension payments.

The government officials paid out that money in order to increase the money supply in circulation with the hope that these actions would increase the buying and selling of goods and services and thus create more jobs. One side effect of that action was that the government officials had to incur additional interest-bearing debts in order to make those payments. But what happened?

About July 1, 1975, the prime interest rates began to increase. Between July 1 and August 8, 1975, the prime interest rates increased about one percent, from 6 & 3/4% on July 1 to 7 & 3/4% on August 8.

The F.O.M.C. buys and sells securities in secret. It does not tell the public the amount of securities it buys and sells until weeks later. However, the people who understand what makes the interest rates go up or down can deduce what actions the F.O.M.C. has taken.

When the interest rates increased in July 1975, we could conclude that the F.O.M.C. offered for sale on the open market enough securities to cause the price of the securities to decline. That act caused the interest rates to rise.

We thus witnessed a situation in which government officials incurred an extra interest-bearing debt to increase the money supply in circulation and at almost the same time the F.O.M.C. took action to decrease the money supply.

Bank Credit

Once this base money is created, banks can create around 10 times this amount in checking accounts and other deposits. They do this by making loans to the non-bank public. A corresponding amount of checking account money is created for each new loan. So most money is created just by bankers writing some new numbers on a piece of paper, or these days, entering some new bits and bytes in computers, since money is really now just a bunch of computer records. This means that when you go to borrow money to buy a house or car, the money is really being created "out of thin air" by the bank, and being credited to the checking account of the seller. The bank has a distinct advantage in all this just by being a bank. For if you can’t pay the loan through your hard work, they automatically get the house, and all they did was write some numbers into the computer! From the bank’s perspective however, if you don’t pay off the loan, they would have to write down their asset (i.e. your loan) and this would effect the earnings they report. If lots of people did this the bank could go "belly up". So you can see why they want to keep the house if you don’t pay your loan – they are taking a financial risk too, albeit one created completely out of "thin air".

 

An example

Page name	Description
Petrodollar	The selling of the world's oil in U.S. dollars has been the backbone of U.S. dollar hegemony since the U.S. unilaterally terminated the rights of foreign central banks to convert dollars to gold in 1971.

 

Related Quotations

Page	Quote	Author	Date
Bronson Cutting	“The fight against the abolition of the credit power of private banks will be a savage one, for their power as a unit is without equal in the country. Knowing this is why I think back to the events of March 4, 1933, with a sick heart. For then, with even the bankers thinking the whole economic system had crashed to ruin, the nationalization of banks by President Roosevelt could have been accomplished without a word of protest. It was President Roosevelt’s great mistake. Now the bankers will make a mighty struggle.”	Bronson Cutting
Mervyn King	“Of all the many ways of organizing banking, the worst is the one we have today. Change is, I believe, inevitable. The question is only whether we can think our way through to a better outcome before the next generation is damaged by a future and bigger crisis.”	Mervyn King
Money	“To say that a state cannot pursue its aims, because there is no money, is like saying that an engineer cannot build roads, because there are no kilometers.”	Ezra Pound
J. P. Morgan	“... [credit] is an evidence of banking, but it [credit] is not the money itself. Money is gold, and nothing else.”	J.P. Morgan & Co. J. P. Morgan
Petrodollar	“Money supply and debt have exploded in the absence of gold convertibility [...] Today's money is not backed by gold. It is now backed by nothing at all, except our trust in the monetary system.”	Smithy	2003
Social change	“Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile.”	William Lyon Mackenzie King	1935

 

Related Documents

Title	Type	Publication date	Author(s)	Description
Document:The Occult Technology of Power	letter	June 1974	Anonymous	A letter and lecture transcripts addressed to a mature son from his father. Their purpose is to prepare the son for his taking the reins of a financial business empire.
File:The Federal Reserve conspiracy by Antony C Sutton.pdf	book		Antony Sutton	Historical perspectives on the money trust including critique of Karl Marx

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