Below is a very simple, short video explaining the methods of money creation and destruction in our economy. Please watch it closely in order to understand what I am about to write.

Notice how there is no restriction on the Fed’s creation of money. All new money is issued as debt. That means that the “Principal” amount is injected into the economy, but “Principal + Interest” is owed in return. Where does the money to pay this interest come from? Notice at the very end of the video when the narrator assumes that the bond has a 0% interest rate. I was very disappointed at this point. It would have been a perfect opportunity to illustrate the most dangerous part of the entire system.

As we all know, bonds are not issued at 0%. This means that the $1000 used in the video to pay off the bond would not be enough to cover all that is owed, because it doesn’t include the interest. This is the fundamental problem of our debt-based monetary system; the interest charged on newly-created money does not yet exist. This means that in order to pay off the interest, more money must be created; but it is also created as debt. This system requires that new money be created perpetually in order to pay off the interest associated with previously-created money.

So, the overall money supply must grow forever. As I’m sure you all understand, when the money supply is increased with no subsequent increase in production it creates inflation (a rise in prices). This is because more money is now chasing the same number of goods, so it is therefore worth less than before. It dilutes the money supply. Since wages almost never increase at the rate of inflation, this process destroys our buying power and therefore our standard of living. Some people will try and tell you that America enjoys a better standard of living now than ever before. But this is only because of an enormous increase in overall debt. Businesses, households, and consumers in general carry more debt now than ever before. This outcome is completely predictable based on our monetary system, but it is also the only way we are able to afford our standard of living. If the ability to run up debt goes away, then so does our standard of living.

Of course the only way to legitimately increase our standard of living is to actually start producing things once again, rather than just borrowing and consuming. After all, 70% of our economy is based on consumer spending. This is why the government could not let the banking system collapse, because our entire economy is propped up by the enormous bank-created debt. Even more outstanding, as the video shows, if all citizens were to pay off all of their debt there would be a cataclysmic decrease in the money supply to the point where it would freeze the economy. The economy cannot function without money. Either a gold standard, or a debt-free currency could be traded freely within the economy without dependence on debt to ensure it’s existence. As of now, in our current system, we are truly slaves to debt.

Furthermore, as a result of this new money creation, and in order to keep up with it, the economy must also try to grow perpetually. This is completely unsustainable. Not only is it unrealistic to assume an economy can grow forever, but during the process of trying to do so the system consumes everything in it’s path. It cares not about the depletion of natural resources, pollution, sustainability etc. All it cares about is growth. Although the government could simply create new money absolutely debt-free, completely sidestepping a private bank, it instead chooses to pay interest to the Federal Reserve. And for what? What essential service is the Fed providing? What is it doing to earn all of this interest income? Nothing. It has merely been granted the authority by the government to run this giant ponzi scheme. And it does so at the expense of the American people.  Be sure to also look at the chart below as well.

 

 

 

 

 

 

 

 

 

 

Click on Chart to Enlarge

Above is a 200 year chart of the Consumer Price Index (CPI).  It is what the government uses to keep track of inflation.  However, they don’t include either food nor fuel in the index, two sectors that are incredibly prone to inflation.  These two items also make up a huge portion of the typical American family budget.  Because of these exclusions, among other discrepancies, many people believe that the government consistently understates inflation.  The government has also stopped keeping track of M3, a very accurate measure of the money supply. 

Notice when inflation started getting out of control.  It began in the 1960’s when there was a drastic increase in government spending on “The Great Society” and the Vietnam War.  Because of this the U.S. had to officially break away from the Gold Standard in 1971.  Look at what has happened to consumer prices since 1971.  The chart speaks for itself.

Filed under: Nation • World

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