Tools For The Best Life Possible^TM

1. Congress debates legislation.
2. The legislation is expensive and raising taxes to pay for it is a problem.
3. The legislation is passed anyway without raising taxes to pay for it.
4. Congress is a hero for ‘getting the job done’.
5. The legislation is sent to the Treasury Department.
6. The Treasury Department types up a Government Bond.
7. The Bond is taken to a small group of private commercial banks.
8. The commercial banks are told the bonds are for sale and they can bid on them.
9. The banks review their Capital requirement and Reserve ratio.
10. If the banks have $1 on deposit they can bid up to $10 on the bond.
11. The banks, by law, can bid $10 for every $1 they actually have.
12. Calling it “fractional reserve lending” the banks ‘type up’ the money on computer.
13. They use the ‘typed up’ money to ‘pay’ for the Government Bonds.
14. The banks are now due interest from the Government for the money they paid for the bonds. But they didn’t pay anything. They ‘typed up’ the money on their computer screens and created it out of nothing!

If you or I tried to pay our taxes with money we ‘typed up’ on microsoft word we would be arrested for counterfeiting. Think how great life would be if we could walk around spending $10 for every $1 we had! That would be like working at McDonalds serving hamburgers and getting paid like an attorney.

To complete the loop remember that the commercial bank just created $10 out of thin air for every $1 they had. But, it gets worse. That’s because the $1 they had on deposit probably came from some other bank that ‘paid for’ other bonds by ‘typing up’ the money, as well. So, the $1 the first bank had was likely itself ‘typed up’ money by another bank.

Now for the clincher: 40% or more of our Federal income taxes go to pay for the interest paid to the commercial banks to pay them for the money they merely typed up on their computer screen.

Yes, Fractional Reserve Banking really is a dream come true!

Here’s an excellent video on Money, Banking and The Federal Reserve. If the video does not play in your browser, for some reason, you can view it here, too. Start at 20:18 if you don’t have time to watch the whole video, which I highly recommend.

Tags: banking, congress, dollar, treasury

This entry was posted on Monday, July 21st, 2008 at 10:42 am and is filed under Finance, banking, congress, dollar, treasury. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.