Saturday, October 19, 2013

Excellent Monetary System Video

The cracks between the paving stones
Look like rivers of flowing veins
--The Who

Here is perhaps the best video that I have seen describing how our monetary system works and the effects that it brings.

The steps outlined in the video are as follows:

1) The federal government creates glorified IOUs (e.g., Treasury bonds).

2) Government sells those IOUs to banks which in turn sell the IOUs to the Federal Reserve. On the other side of the trade, the Fed creates currency out of thin air which it gives to the banks in exchange for the IOUs which in turn gives the cash to the government (after taking a nice cut for themselves, of course). I would have added that the Fed also provides banks with low cost bridge loans (also created out of thin air) in the form of the Fed Funds Rate and other institutional devices to further liquefy the exchange environment. When all is said and done, IOUs gravitate toward the Fed and currency gravitates toward the banks and government.

3) Government spends their currency on promises, public works, social programs, and war.

4) People work to obtain some of that currency. Much of the earned currency is deposited in banks. Fractional reserve lending by the banks multiplies the supply of currency exponentially. Banks use this leverage to speculate in stocks, loans, and other projects. This is where much of the currency comes from that employers use to pay their workers (from debt and equity projects funded by the banks).

5) Some of the currency earned by workers is taken by the government in the form of taxes. Government uses the tax receipts to pay principal and interest to the Federal Reserve--the institution that bought the original IOUs with a check from...nothing.

6) The debt ceiling must continually be raised lest the entire system, which requires ever more borrowing to pay back debt created by dollars linked to IOUs, collapses in a deflationary bust.

7) The owners of the Federal Reserve, a privately owned corporation, take their cut.

It is interesting to hypothesize what occurs when this inherently unstable system approaches the breaking point. Personally, I wonder whether, as things get dicey, policymakers might elect to create dollars that are not directly linked to IOUs. For example, why not print $17 trillion and pay off the federal debt, and then print another few $trillion and drop currency from Ben Bernanke's infamous helicopters into the hands of the people?

You don't have to be a PhD to know why this would be...bad. But it is easy to posit that our increasingly desperate situation will spawn increasingly desperate measures that increasingly conflict with reason.

I wholeheartedly agree with the recommendations near the end of the video. Watch it until you can explain our monetary system to others. Also, share the video with your network.

I would add that if there are portions of the video that are unclear or that you don't agree with, do some research or think it through until you personally know what the truth is.


dgeorge12358 said...
This comment has been removed by the author.
dgeorge12358 said...

The Government should create, issue, and circulate all the currency and  credits needed to satisfy the spending power of the Government and the buying power of  consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.
~Abraham Lincoln

dgeorge12358 said...

I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of  credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most  completely controlled and dominated Governments in the civilized world no longer a  Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.
~Woodrow  Wilson