Subject: The Federal Reserve: The Skeleton Key Of Tyranny
Regardless of their political beliefs, more and more people are realizing
that there is something deeply wrong not only with this country, but with the
world, and that it is getting worse every day. We see more wars, a government
that’s growing to truly frightening levels, more taxes, jobs leaving the
country and unemployment in general, and absurdly high prices for just about
With so much obviously wrong, many people get discouraged or disgusted and
never find out that there is a single root cause to many of these problems
and it’s right under their nose. Without a doubt, the problem is our money
and the system by which it is created: the Federal Reserve.
Entire civilizations have risen and fallen because of their money, yet few
people know or even care where their money comes from or what is really is.
It’s an extremely difficult topic to discuss simply because any explanation
is long-winded and the process is intentionally confusing. But if power can
be bought – and everyone knows that a Senator is the best investment – then
the power to create money out of thin air is a magic trick that obviously
needs explaining. I understand that this is a long post, but please, take a
little time to read this or bookmark it and check it out again later because
it truly is the single most important issue facing not only us Americans but
every person in the world.
The Federal Reserve System
The Federal Reserve is a central bank, which means that, through legal tender
and anti-counterfeiting laws, the government has granted it a monopoly over
the issuance of our money, allowing the cartel to collect interest on money
it creates out of nothing. The Federal Reserve isn’t a public or private
institution, it’s both. It’s a cartel of private banks that could not exist
without the support of government force.
I’m really not going to go into the history of the Fed because that’s a
different topic than how it works and how it affects us. Rest assured that
it’s a truly intriguing and rarely-told bedtime story that spans hundreds of
years and features men who could buy entire countries, corrupt politicians,
and the enslavement of unborn generations.
But lets take a closer look at how it works…
The money-creation process starts when our politicians vote to spend more
money than the government actually has (or is willing to directly tax you and
I for fear of public resistance) in order to pay for current social programs,
wars, etc. But the money to pay for it all has to come from somewhere, right?
Do you think your taxes pay for it? Nope. The country wouldn’t be able to
afford almost any of it if that were the case (more on where your taxes do go
in just a moment). So where does the money come from?
The Federal Reserve can create money in three different ways. The first way,
and the one that needs the most explanation, is by purchasing Treasury Bonds
and other debts through a deliberately confusing and nonsensical process
Open Market Operations
What happens is the US Treasury borrows money by issuing a glorified IOU
called a Treasury Bond. It’s a piece of paper with fancy designs around the
edges and a few signatures and it basically says “give us X amount of money
and we’ll pay you that amount back plus interest.” The trick is that you and
I, the American people, are responsible for the payment of the bond plus
interest because our government claims to represent us. This is the national
debt. A Treasury Bond is basically a promise to tax the American people for
the amount of the bond plus interest. This is what your tax dollars are
actually go toward: paying interest on our national debt (which is over $17
trillion dollars and growing).
But you and I don’t pay each other in Treasury Bonds. Where does the actual
money come in? Actually, by issuing the Treasury Bond, the government has
basically created cash; it just doesn’t look like cash. Yet. That’s where The
Fed comes in. To start the process, the US Treasury takes the bond it just
issued and holds a bond auction among the world’s largest banks. The banks
buy part of our national debt (Treasury Bonds) hoping to make money off the
interest payments (your taxes), and the government gets the money it needs to
pay for whatever crap (guns and butter).
These banks then give the bond to the Fed, which then writes a check on
itself for the amount of the bond. The Federal Reserve gives these checks
back to the banks, and the banks use them to buy more Treasury Bonds so the
government can keep spending on more crap. Once the government gets the
money, it spends it, sending out checks to its employees, welfare
beneficiaries, political allies, etc., dispersing throughout society and
eventually winding up deposited in private bank accounts like yours and mine.
Here’s the twist: the Fed doesn’t actually have any money to pay for the
bonds: its account balance is exactly zero. However, simply by writing out a
fraudulent check, the Federal Reserve is creating money out of nothing. While
you and I slave away our whole lives for money (and give the Dollar its only
value by doing so), the Fed can just counterfeit it. If you or I attempted
this, we’d be put in jail for fraud.
This is also where we get into the second way the Fed creates money:
How this works is that in the Fed’s accounting books (if it actually has
any), the bond is now called a reserve, or the money available on demand.
Using these reserves as a “base,” they lend out 9 additional dollars for
every dollar they have in reserve. So if the Treasury Bond was for one
million dollars, the Federal Reserve gives the requested million to Congress,
but also creates nine million dollars more to lend to banks as the source of
every loan given to individuals or businesses in the country. It’s important
to note that although the Fed sets the reserve ratios for every bank in the
country, reserve ratios of money that can be created out of thin air are
largely pointless as the Fed can just create more money or alter reserve
ratios as they wish.
This process, where not only the Federal Reserve but every bank in the
country only has to keep on hand only a fraction of the amount of money they
have lent out, is called fraudulent fractional reserve banking, and it’s
entirely based on the premise that everyone will never come for their money
all at once.
So when you take your money to the bank and deposit, for example, $10,000,
the bank isn’t actually holding on to your $10,000 in a vault. It’s keeping
$1000 as a cash reserve, then loaning out $9000 from your deposit to various
business interests while filling the difference in your account with bank
credits/IOU’s that are supposed to be redeemable on demand for cash. If
someone comes in for a $9000 loan, the bank gives them the $9000 (while
charging interest) and uses that person’s debt as a fractional reserve to
loan out even more money. Deposits become loans, loans become deposits, and
this process snowballs as the money supply expands exponentially. This
expansion of the money supply is called inflation, but is not to be confused
with a general rise in prices (price inflation), which is simply an effect of
The third way the Fed creates money is refreshingly simple:
The “Discount Window”
This is just the name of the process where banks can take out loans from the
Federal Reserve at extremely low interest rates and then loan out that money
at higher interest rates for a profit. Remember that the principles of
fractional reserve banking and reserve ratios also apply here, so basically
the Fed takes our tax dollars, multiplies them because it can, then gives
that money out to member banks so they can lend our money right back to us.
While actual paper dollars only account for a small minority of the dollars
in existence (the majority are simply numbers in a book or digits on a
screen), this whole process amounts to little more than a more sophisticated,
confusing, and less obvious way of turning on a printing press and firing
cash out of a window or dropping money out of a helicopter. Sounds pretty
awesome, right? That is, until you consider that every time the Federal
Reserve does this, simple supply and demand dictates that the money that you
and I own is losing value – almost 10% a year (ShadowStats.com). Since the
Federal Reserve was chartered in 1913, the US Dollar has lost about 96% of
its value (www.usinflationcalculator.com ). That means an item bought in
1913 for just $1 would cost ~$23.50 now, all because of inflation.
It’s a hidden tax that affects the lower classes, those who save their money,
and those living on fixed incomes the most. On the other hand, the very
nature of The Fed and central banking in general funnels the wealth of the
masses to the people closest to the money-fountain, which are usually bankers
and other business leaders, politicians, and the ruling class in general,
which is exactly why you hear so often that 95% percent of the country’s
money is in only 5% of the people’s hands.
As the country goes further into debt and the Fed adds more money to the
economy, there will eventually come a point where there are so many dollars
in existence and the Fed is adding more at such a high rate that they simply
aren’t worth anything. This is called hyperinflation. Many countries
throughout history have experienced hyperinflation. In fact, fiat money
(money that has no value except for a government decree saying it’s worth
such-and-such amount) has a 100% failure rate throughout history.
Yes, that’s a pile of money-bricks. The sad thing is the children in the
picture are still poor as hell.
One country that experience hyperinflation was Germany after WW1. The German
government was forced to add so much money to the economy that the German
Mark became completely worthless. How worthless? So worthless that people
would have to take a whole wheelbarrow full of money just to buy a dozen eggs
or their take out their life’s savings to get a loaf of bread. So worthless
that adults used burned German Marks in their fireplaces for heat while
children took the notes and made kites out of them. That kind of worthless.
Another side effect of the Fed’s managing the money supply through reserves
is the process of booms and busts/depressions/recessions. As the Fed injects
money into the economy, it tricks people and businesses into making decisions
as if they have money that they don’t. They spend and take out loans because
money is cheap and plentiful. Prices rise. People keep spending and
borrowing. Prices keep rising. This is the boom or bubble.
Eventually prices rise to the point where even with all the cheap money,
people don’t feel comfortable paying the ridiculous prices and refuse to take
on new debt, instead choosing to pay off old debt. Since our money is based
on debt, when people pay back their debt, the money supply shrinks and prices
begin to fall, and suddenly the market collapses as the bubble bursts. This
is what happened recently in 2007/08, but the Fed has also been the reason
behind every economic recession/depression since 1913, including the Great
Unwilling to let the free market’s self-cleaning mechanism work itself out,
the government then votes to spend even more money on bailouts, work
programs, welfare, war, etc. to resurrect the dying economy, digging the hole
even deeper and piling on more debt to be paid off by future generations.
These programs and policies never work, and the recession always gets worse
as the government gets involved.
So let’s finally recap: the Federal Reserve System is a cozy partnership
between Big Banking and Big Government through which the banks can create
money out of thin air and collect interest on it while the politicians get
unlimited funding without the American people realizing that we’re being
This virtually unlimited supply of money all but guarantees that our
government will continue to expand and expand for as long as the Federal
Reserve and fiat money exists, destroying our wealth and the wealth of those
who follow us.
The way I see it, there are three things that need to be done to fix the
problem with our money:
1. Abolish legal tender laws – Doing so will allow for consumer’s choice
through competing currencies. Legal tender laws are the backbone are the
Federal Reserve System. This is a necessary step before we go ahead and…
2. Abolish the Federal Reserve – This should be obvious by now. The Fed has
failed disastrously at its stated goals and fuels the creation of more debt.
3. Repudiate the National Debt – Why should you and I be forced to pay for
something by the politicians of a previous generation? This is nothing more
than politicians stealing from your kids and grandkids before they’re even
No matter what, another economic crash is coming, and it’s going to be
enormous. It’s inevitable given our futility of our monetary system. In fact,
many countries around the world are beginning to view the Dollar as a ticking
time bomb. Just about every country in the world uses the US Dollar to back
their own currencies, and many, including Brazil, Russia, India, China, and
South Africa, have already begun to take steps away from the US Dollar.
China, in particular, is buying gold faster than it can be mined.
However, by following the above recommendations, we could at least minimize
the damage done by this inherently evil system by not allowing the hole to
get any deeper. Even more importantly we could bring freedom to our money by
taking away the guns that back it, and we could free unborn generations from
being born into serfdom. This isn’t just an important issue, it’s the issue,
and people need to know about it.
There are many books that do a better job explaining all this than I ever
could. Here are several that I personally recommend (click the links to buy
from Amazon and support SFPA):
End The Fed by Ron Paul
The Creature Of Jekyll Island by G. Edward Griffin
What Has Government Done To Our Money by Murray Rothbard
Also, here’s a great show by Mike Maloney, who correctly predicted the
2007-08 crash, explaining the Federal Reserve System and its effects. It’s
called “The Biggest Scam In The History Of Mankind”