Where does money come from?
money money money
The following article, taken from www.lewrockwell.com, asks some serious questions. The key question being the most important…. “where does money come from?” Unfortunately, the central banks and government own it, control it, monopolize it. Americans deserve better.
The government’s bailout (buyout?) of some of the country’s largest financial institutions has, of course, generated a great deal of public interest and criticism. People want to know whom to blame, but the real culprit – the Federal Reserve System – is never assigned that role. They want to know how it could happen, but the fact that the nature of our monetary system makes it inevitable is not offered as an answer.
Sadly, the most interesting questions are never asked. Isn’t anyone interested in the intriguing fact that the government, which is hundreds of billions of dollars in debt, is going to put up 700 billion in this bailout? It’s all very well to say that the government will get it from the taxpayers, but where are the taxpayers going to get it?
The Federal Reserve has been shoring up the banking system with many billions of dollars in recent months, and has just announced its intention to buy commercial paper as necessary. Where did the Fed get those billions? Isn’t it, supposedly, a non-profit organization? Does it keep billions in some vault just for emergencies?
The ultimate question, then, might be: where does money come from? Of course, no TV pundit will ask such a question, and it certainly won’t be presented to Mr. Bernanke at any Congressional hearing. It’s the sort of question a child might ask – a child like the one who marveled that the emperor wasn’t wearing any clothes.
Modern “money” is intangible. It’s represented by numbers on currency, or written in bank accounts. And the source of these funds? The banks themselves. If you borrow 10,000 from the bank, it simply adds that number to your account. Presto! Another ten thousand added to the money supply. (The banks are the ONLY source of money: a fact worth remembering.) Banks can create an infinite amount of this “money”; they only need some believable justification for doing it.
Of course, the bank is not going to do this for you unless you pledge something in return. You will have to sign some document promising re-payment. That document – your promissory note – is an asset to the bank. The new deposit of ten thousand is a liability of the bank. Oddly, what most of us would consider assets and debts are just the opposite to the bank. Your deposit at the bank is its liability; your note is its asset. And if you default on your note, it loses its value as an asset.
That is what is happening today: large numbers of people are unable to maintain their payments on over-priced homes, and thus the bank’s assets are diminished by these non-performing loans. It’s all a matter of bookkeeping; nothing is lost. It’s just arithmetic.
Well, as school children, we all did arithmetic problems on the blackboard. When we were finished, the board was erased, and we started over. The banks, I suppose, could forget about balancing assets and liabilities, wipe the slate clean, and just get on with it. They could swallow their “losses,” or reduce the borrowers’ interest rates to something that the borrower could afford.
The banks don’t want to do that. They want their capital assets replaced, and the government is the only organization that will do that. Since bank “assets” are somebody else’s IOUs, I guess that the government’s contribution will be in the form of government bonds. Wonderful assets! When it comes time to redeem them, the banks will lend the government the money to do it! Whee! Didn’t somebody once remark about the web we weave when we practice to deceive? Henry Ford is said to have remarked that it’s just as well that people do not know how banking and the monetary system work, or there’d be a revolution before tomorrow morning. He might have been wrong about the revolution (the people, it seems, will tolerate anything) but it’s true that the people’s monetary ignorance is the banker’s bliss.
Maybe what we’re really looking at, without really seeing it, is a sort of coup. In return for its assistance, the government wants to take over banking. Many commentators have remarked on the illegality of private banks creating our “money.” Nothing in the laws of this country permits such a thing. This latest crisis justifies the government seizure of banking, so that it can, ultimately, create its own money, without having to borrow it from the banks. Many will applaud such a move, although there is no more legal justification for money creation by Congress than there is by private banks. In fact, there is no justification for money creation, period. The Constitution authorizes Congress to COIN money, not print, or create, it. What do you think will happen to the money supply when Congress can create it with no concern about paying interest, much less returning principal?
But, of course, if the Constitution were taken seriously, we wouldn’t be in this mess in the first place.
Dr. Hein [send him mail] is author of All Work & No Pay, which is out of print, but may occasionally be obtained on eBay. Courtesy of www.lewrockwell.com
[poll id="15"]
The sad part is that money – really – is debt. Money is debt. It is not “value”. It is only valuable because the “belief” that Americans and citizens perceptions believe it to be.
That is dangerous monetary policy. Remember the fall of Rome?
money money money
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
But wait, what about the everyday people. Money is an asset because it can be exchanged for goods. If there were no belief in value of money, then people would only create goods to exchange for other goods or services. Doesn’t money just keep track of the value of both goods and services? What other system should be used?
If you are going to gripe, propose a solution as well.
Sure – here’s an easy response to this MarcKain – allow Congress to coin Gold and Silver as legal tender – just as the constitution says.
Fiat, Fake, Paper, Debt based money doesn’t work.
Never has – never will.
The draft of the constitution stated that congress would have power to borrow money and emit bills on the credit of the United States. Now look at the actual final version of the constitution: the words “and emit bills” are MISSING. Madison’s notes show that the power to issue fiat money was not overlooked – it WAS considered and was REJECTED. Therefore, as the federal government (congress, which makes the laws – the executive executes – enforces – the laws; the judiciary interprets the laws) has only the powers enumerated (see the 10th Amendment, which emphasizes this). The federal government has no legitimate authority to do anything not enumerated (itemized, listed) in the constitution; anything that is done outside the enumerated powers is unlawful and is not an act of the legitimate government but is an act of individuals occupying the offices of government.
The entire issue by or on (supposed) authority of the federal government of fantasy money is unconstitutional and illegal.
Banks are not restrained by the constitution, which only empowers and restricts government. However, when they “create” money out of nothing they commit FRAUD. Just because they have been getting away with this crime for a long time does not legitimize it. The father who imprisoned his daughter and raped her for years, producing several children/grandchildren in incest, got away with his crimes for a long time, but no one (not even he) claimed that this legitimized his acts.
It’s interesting to see what a bank considers an asset and a liability.
Bank deposits are liabilities to banks because it is money BANKS OWE TO DEPOSITORS.
Bank loans are assets to banks because it is money that BORROWERS OWE TO BANKS.
Thus, a bank increases its assets and its net worth when it loans out money.
Thus, reducing the reserve requirement (from say 10% to 5%) allows banks to increase the amount loaned out, thus increasing the amount of their alleged assets, and thus increasing their apparent net worth.
Talk about a completely backward, idiotic system.
http://www.unlawflcombatnt.proboards84.com/