Federal Reserve: Out-sourcing the Monetary System to the Money Trust Oligarchs Since 1913
In our fiat "by decree" monetary system, our "money" is simply currency (notes) issued for debt. The cash in our pockets represents debt (in part) purchased by the Federal Reserve from the US Treasury, so that the Federal Reserve may print the notes that constitute the cash in your wallet. The Federal Reserve purchased that debt from the Treasury to allow the Treasury to manage its balance sheet, or at least attempt to manage it, and to print Federal Reserve notes. The Treasury's financial instruments - usually bonds - may be purchased privately or by the Federal Reserve.
To provide a market for Treasury bonds and Mortgage Backed Securities (MBS) the Fed purchases these instruments from the Treasury in part to enable the Treasury to service its debt, and to pay interest on the outstanding national debt. Although publicly traded, the Federal Reserve's banks are privately owned. These private Dealer Banks are the Primary Dealers of the Federal Reserve:
Again, Mortgage Backed Securities (MBS) and Treasury bonds are the usual debt instruments purchased from the Treasury by these private banks on behalf of the Federal Reserve (which we can see is not really “federal” at all) and the Treasury has first use of the new dollars (debt) created by the Federal Reserve. When private individuals pay for goods and services with Federal Reserve notes, they are essentially trading the implicit value of the debt represented by those notes to a third party, in exchange for those goods and services. Simply put, the “intrinsic value” of cash is the value associated with holding US governmental debt, where intrinsic value is only based on the “value” of, or trust in, US debt.
Many have stated that the Federal Reserve creates money out of "thin air" but technically the foregoing is incorrect even if it appears to be true, because some debt instrument is required to create the new debt. In the case of a mortgage, the “money” created is via your signature on a note. In the case of a bond (or Mortgage Backed Security) the debt/money is "created" when some person or entity purchases that bond or MBS.
After the Treasury is done funding its programs with the capital created by the Federal Reserve in exchange for Treasury debt, the Treasury must pay interest on that debt to the Federal Reserve's private banks. So the Fed's private Dealer Banks profit from the public debt, in the form of interest payments. These private banks then leverage the incoming capital (whether interest or bond purchases) using a method devised by gold dealers centuries ago called Fractional Reserve Banking.
Fractional Reserve banking is based on the idea that no more than 10% of creditors will demand cash at any given time, an idea which harks back to antiquity and the Guild system of gold dealers. In the Fractional Reserve system, banks may keep 10% of depositors cash on hand, and loan out nine times that amount based upon the creation of new debt instruments, for example new mortgages.
As the depositor's funds are fractionalized and then multiplied and spread between banks, the system debases our dollars in the form of “leverage”. For example signing a note for a $180K home mortgage allows the receiving bank to exchange that debt obligation for other debt obligations worth a total of $1.6 million in total debt. Thus banks love mortgages. During the boom, some institutions leveraged capital by 40-to-1 and in Europe many big bank counterparts leveraged a 24-to-1 capital ratio. High fractional reserve ratios work well when all participants in the system do not demand solvency (which is different from liquidity) or sound money. When part of a sound money system, a reasonable fractional reserve ratio might allow banking investments as part of a practical plan for growth, which works well when the market is free from corruption and the leverage rate is low.
[The bank is insolvent when it has fifteen or twenty times the amount in bad loans on its books, relative to cash reserves. If the FDIC finds out your bank has a 20-to-1 bad debt ratio it will force you to close or re-organize. Now, if people demanded cash and closed their electronic digit accounts - or removed cash from those accounts at every opportunity - that will crash the bank's ponzi.]
In summary, when the Treasury pays interest on the national debt, the interest payments go directly to the private Dealer Banks of the Federal Reserve, namely the primary Fed Dealers. Here again is the list:
Now, the dealer banks who are paid interest by the Treasury on the money created by the Fed on the basis of the Treasury's instruments, use that cash to prop up the system, to buy things, whether it be Wall Street shares, Treasury's or commodities... property or precious metals. So long as the dealers are paid by the ponzi, the system stays afloat. Private equity outfits and hedge funds also play a large part in this game.
The system is flawed and nearly crashed completely in 2008-2009 however in principle a solution exists in the form of currency nationalization first. In principle, true reform of the Treasury and nationalization of the dealer banks and Bank of New York Mellon (Fed) will begin to stop the rot, where "nationalization" means "for the nation". In this hypothetical case, the Treasury would end its out-sourcing of the monetary system to private banks and once again print the United States Note to replace the Federal Reserve Note. Thus the United States Note only acts on behalf of and in the name of the people of the United States, not to enrich the private banks of the Fed. This means that United States Notes would be used to purchase back the debt held by the Federal Reserve, and extinguish that debt, thus putting the wealthiest banking oligarchs in the world out of business. That's the same process that Andrew Jackson began in 1832, resulting in the Independent Treasury under Van Buren. From 1844 to 1913 the United States operated an Independent Treasury where the National banks were privately owned, however the debt created and the interest on that debt were owned by the Independent Treasury and thus the people of the United States and profit on the public debt was paid to the Treasury and not to the private National banks.
From my "Panic of 1907" website http://panicof1907.com/history.html we can see that the Independent Treasury presided over the greatest period of prosperity ever in US history, and was only found wanting in the matter of funding war, specifically the US Civil War.
For a more comprehensive treatment of this idea please see the wikipedia entry for the "Chicago Plan of 1935" and a modern revised version of this plan;
Thus "for the nation" nationalization process also transfers Lloyd Blankfein and all employees of Goldman Sachs and the Bank of New York Mellon and all Fed Dealers, to being employees of a new Independent Treasury, similar to the one that existed from 1844-1913. Not only Blankfein, but all Fed dealer banks would no longer be owned by virtual royalty; the dealer banks will now be owned by the Independent Treasury and by the people of the United States. Thus, interest paid on the public debt would be paid to the people of the United States, and to their Treasury; no public interest will be paid to the owners of the FR private banks. *
Inflation and debasement of the currency
Reviewing our data about monetary inflation we see that the above chart is relatively flat until the creation of the Federal Reserve, which essentially placed the Money Trust (private banking families) back in the monetary system driver's seat. On the creation of the Central Bank: the chart documents the loss of 70% of the dollar's purchasing power from 1971 to today, and this spike proves the glaring failure of the "by decree" monetary system, which has already collapsed.
At a minimum, as Bill Still has so eloquently stated, the fractional reserve system must lower reserve ratios and some attempt must be made to balance the budget. At that point, money will again have some value instead of the 0% appreciation it has today. Today, only trust in the system and manipulation by the Money Trust keeps the currency system afloat.
Karl Marx once said, "Capitalism carries within it the seeds of its own destruction." From September 2008 to March of 2009 it certainly appeared that way, and the remedy since then has only been to re-inflate the bubble that burst.
* Via nationalization the Bullion Banks would essentially end their role as quasi-government backers of public debt