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Money Creation

“Give me control of a nation’s currency and I care not who makes its laws.”
---Murray Rothschild, Banker"

It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
— Henry Ford, Car Maker




The Federal Reserve

     The Federal Reserve is not Federal and it doesn't have any reserves. The Federal Reserve is owed by private banks and is not under the control of our Congress. Click on the following very funny 30 minute cartoon to learn more about how the Federal Reserve got started and how its fractional lending system of printing money out of thin air has contributed to the collapse of our economy.



     One of the jobs of The Federal Reserve is to supply money to the U.S. However, for every dollar The Federal Reserve supplies, a debt to the people is created. In other words, money is debt with interest attached. There is enough money created to pay the principle, but not enough money to pay the interest. (See the video).

     Does our system have to be this way? No. Article 1, Section 8 of the U.S. constitution states that our Congress has the power to coin money and regulate the value thereof. Our Constitution does not say anything about a private bank controlling our money.

     Recently, a partial audit of the Federal Reserve demanded by members of congress including Dennis Kucinich, Ron Paul and Bernie Sanders showed that the Federal Reserve had given or lent in excess of $17 trillion to both U.S. and foreign banks. Created money with interest attached, interest which doesn't exist in circulation. Also, the more money the Federal Reserve prints, the more prices for us rise. This is known as inflation. Have you noticed?

   Many people believe that The Federal Reserve System is not the way to move us into the future. In fact, Dennis Kucinich has put forth legislation to put the power of money creation under the Treasury, where our founders had intended it to be. Click here to learn about the NEED ACT.



There are 12 Federal Reserve Member Banks. Each bank covers a different region of the U.S.








A: What do people have against the Federal Reserve?

B: Well, whoever controls the money supply, affects the prosperity of the people.

A: Oh. Just like our founders said?

B: Yep.

A: Crap.



 Who Controls the Federal Reserve?

  The Federal Reserve has a chairman. The Federal Reserve Chairman is appointed by the President of the United States. Alan Greenspan was the Federal Reserve Chairman From 1987-2006. During those years we saw the deregulation of the banks, the boom in derivatives trading, the tech bubble and the beginning stages of the housing bubble.

     Now, since 2006 we have Ben Bernanke. He is slated to be in office until 2014. So far under his guidance, we have seen the trillions and trillions of dollars lent at no or very low interest rates to mega banks both in the U.S. and overseas. We have also seen lending to small businesses slow and the pop of the housing bubble which has left millions of Americans unemployed and foreclosed upon.


These powerful individuals in control of our money system are not elected by us ...and don't seem to be in the business of helping us.


How does the U.S. get money?

There are two basic ways money enters into our system.


1) One way money enters our economy is through the sale of Treasury Bills, Notes and Bonds



     The U.S, the states, counties, cities and schools sell bonds in order to raise money to spend. The people who live in these places have to pay via taxation the principle and interest to the people who buy the bonds. Foreign countries buy the bonds as well as investment funds, and individual people.

The difference between bills, notes and bonds are their length until maturity: 

* Treasury bills are issued for terms less than a year.
* T-notes are issued in terms of 2, 3, 5, and 10 years.
* Treasury bonds are issued in terms of 30 years.


Who Buys Bonds?

Anyone can buy a bond. Some people buy bonds as a traditionally safe way to invest their money. Investment firms often invest retirement funds in bonds. Other countries buy U.S. Treasury bonds.  We as a people are in so much debt to bondholders a huge amount of our tax dollars goes to simply pay interest to bondholders.


Interest Paid to U.S. Treasury Bondholders

When treasury bonds are sold, the U.S. government gets the money and uses it to pay for things in its budget like national defense, social security and Medicare. When we pay our federal taxes some of it goes to paying the bondholders. Most of this interest the Federal Reserve earns from its bond holdings is returned to the treasury, but not all of it. In fact, when you pay U.S. taxes, a lot of your money goes to paying off the bondholders!

n FY 2010 the interest on the debt, incurred largely by the sale of bonds, was $414 billion. The interest on the debt is the fifth largest Federal budget item, after Defense and Security spending ($890 billion), Social Security ($730 billion) and Medicare ($490 billion).

(Source: U.S. Treasury, Interest)


Interest paid to Washington State Bondholders

Currently, we are paying $1.7 billion in debt payments to bondholders in Washington State 2011-2013. The more bonds we sell, the more interest payments we have to make to the bond holders. If we had a public bank in Washington State, we would be able to vastly reduce the number of bonds we would have to sell to fund infrastructure projects.



      Damon Vrabel, Army Veteran and Harvard Business School Graduate, explains how bonds are debt instruments in the video below.







     Notice that in this version of reality the U.S. government is in the business of simply managing the lowest level of the pyramid to make sure we stay "in line". Above the government are the corporations and the banks. From my studies, this makes perfect sense. We are living in a financial system structured to keep us in debt. This system benefits the "top 1%" while causing hardship to the "99%".


2) Money enters our Economy When Banks Make Loans.

Besides the sale of bonds, another way money enters are system is through loans. Essentially, there is no money until it is borrowed from a bank. Here is a typical sequence of events:

Step One) The Federal Reserve lends money to one of its member banks, such as The Bank of America, Wells Fargo, or U.S. Bank. If a bank borrows $1,000 it is entered as a credit on the Federal Reserve balance sheet. There is no actual money. Money is just a bookkeeping entry on a screen. (Member banks borrow money from the Federal Reserve at a low interest rate, 0.2% to 1.27%.)

Step Two) The member bank now has $1,000 and can leverage this $1,000, which means it can multiply that $1,000 10-12 or more times to make loans to people. (The bank or bankcard service just has to keep 10% of its money on its balance sheet in reserves.) The private bank or a high risk bankcard service now has the capacity to make lots of money with tranaction and credit card processing fees.

Step Three) Someone comes in to borrow money, say $9,000 to buy a car. The banker types "$9,000" into his computer. The money didn’t exist until the loan was made.  The bank has just created $9,000 out of someone else's promise to pay back the money. This is what it means when someone says "We have a debt-based money system." The bank also charges interest on the money it loans out.....perhaps it charges 8% interest on a car loan.

Step Four) Now our borrower has to pay off the $9,000 with interest. Over the life of that loan, the person might end up paying back the bank $12,000. Hence, going back to Step One, the bank borrowed $1,000 from the Federal Reserve and has now put into circulation $12,000. The bank will earn lots of money in interest to pay its executives and share holders


A: Those banks create money just by virtue of being banks! They really hold the strings to our survival. Sad for other folks. Here in North Dakota, credit is flowing, interest rates are low and my business is booming.

B: Here in Washington, things aren't quite like that yet. But we are on our way. More people are realizing that public money should be seen as a public resource and that we need a bank to help us, not enrich a select few people. 




Bottom LIne:  A chunk of our U.S. debt and state debt is because of having to pay interest to bond holders. Another part of our state debt is having to pay interest on money our state borrows from big banks.


 Bonds, Debt to Banks----How would a Public Bank Differ?


     Once a public bank gets started, (capitalized), A public bank DOES go to the federal reserve to get money like all banks.... that's the current system, and we play the current game...BUT a public bank is mandated to invest in the people and projects in their region or state. It makes low interest loans to small businesses, students and the state's infrastructure projects. The power of money doesn't go to Wall Street.

     More credit to businesses increases employment and increases state tax revenue. Also there is less need to sell bonds for projects because the state has it's own credit creation machine using the principle of leverage that all banks use. 

Public banks help end the debt cycle. They tilt us toward a growth cycle.


 Private people profit from the money creation process?


A:  I'm a little bit confused, upset and shocked by this.

B:  I was too. But public banking is a solution! We should be able to supply our own money debt free as the U.S. Constitution instructed us, or at least at very low interest and we shouldn't have to pay interest to private people for the use of our national currency!


The Economic Future --- Washington State


If Washington State had a public bank, like the one in North Dakota, we would be able to control the interest rate and decide to whom the money was lent.

The interest earned from the loans would be returned to Washington state to be used to benefit Washingtonians. Less of our money would go to paying off bondholders.



Join the Push for Public Banking!