Attempting to control the economy of a large diverse nation like the united States is difficult at best and is ultimately impossible. The Federal Reserve (the Fed) attempts to do this anyway using a complex system involving interest rates, money supplies, etc. We will look at how the Fed controls the money supply which is just one of the tools used in an attempt to control the economy and to transfer hard assets from those who create them to the creditors of the United States.
Let's say the US Congress wants to buy some votes ..er ah.. institute a government program. They pass a bill authorizing the expenditure of, say, one billion dollars. Congress doesn't have any money as the United States has been bankrupt since about 1920. So they have to issue some Treasury Bills which is a government-backed short-term loan. The Fed, assuming they want to increase the money supply, purchases these Treasury Bills which carry an interest rate that varies according to what the Fed has been doing lately. In order to purchase these bills, the Fed needs some currency. As the only organization in the United States authorized to issue currency, they ask the Treasury Dept to print them some money (or they use their own printing presses). The Treasury Dept prints the money at an average cost of 2.3 cents per note, regardless of the face value of the note. The Fed buys these notes, which may have a face value of ten-thousand dollars, and uses the money to purchase the Treasury Bills. As if by magic, or more accurately by fraud, an additional one billion dollars appears in the money supply.
However, notice something here. Let's say Congress decides not to spend the money after all and decides to buy back the Treasury Bills from the Fed. They can return the one billion dollars but that's not enough to purchase back the Treasury Bills due to the interest on the bills. To buy back the bills, Congress must have more currency than was created by issuing the bills in the first place. But there is no way to create currency other than by issuing more Treasury Bills which will not generate enough currency to purchase back the bills. Do you see the trap we have entered? No matter what we do, we cannot ever pay off the national debt. In fact, since the economy is growing, we need ever increasing amounts of currency to support all the daily transactions that must occur so we have placed ourselves in the position of have to constantly increase the national debt in order to keep the economy growing.
Well, so what if the debt keeps growing? As long as that is supporting a growing economy, who cares?
The problem is that the interest on the debt must be serviced (paid). If we continually issue Treasury Bills to get enough currency to service the debt, the system collapses of it's own weight pretty quickly. Besides, the creditors are really not interested in being paid in debt instruments. They want real assets. So how do they get real assets? They get them from you and me. For those of you who haven't researched this, the hated Internal Revenue Service (IRS) is nothing but the debt collection arm of the Federal Reserve. Since Congress couldn't pay the interest on the debt they had created, they authorized a 'voluntary' income tax and authorized the Fed to create an agency to 'ensure voluntary compliance' with the income tax laws and to use the proceeds from that to service the national debt. When you 'voluntarily' pay your income taxes, that decreases your purchasing power and increases the purchasing power of the creditors which means that you can buy fewer hard assets and the creditors can buy more. In the extreme case where you cannot pay your 'voluntary' tax, the IRS will use fraudulent and unlawful practices to convince you to 'give' them some of the assets that you now own. As you can see, the creditors are continuously increasing their share of the hard assets of the united States.
To make things even worse, inflation is introduced into the equation. First, understand that what we call inflation is really not inflation. Inflation is caused by a usually temporary shortage of a product so that people who want the product are willing to pay more to get it. However, the higher prices encourage more production of the product or a movement to substitute products. In either case, the prices tend to return to their previous levels rather quickly. (Assuming a free market, of course. If government rules artificially restrict production, then prices will stay high.) However, what we call inflation today is caused by arbitrary increases in the money supply over and above that which is required to support daily transactions. For example, if the Fed doubles the existing money supply (they wouldn't really double the money supply as that would make things much too obvious) and there is no increase in the amount of currency required to support all transactions, then the price of each transaction will tend to double. We would say that inflation has increased by 100 percent. But this would be incorrect. What has actually happened is that the value of the currency has decreased by 50 percent. In other words, what we call inflation is really currency devaluation.
In addition to causing prices to rise, this encourages people to buy now and pay later since by paying later they can pay using cheaper currency. But buying now and paying later increases the debt load and discourages savings and investments. This has the effect of reducing the overall increase in wealth which reduces everyone's living standard. In addition, inflation (currency devaluation) and interest rates are carefully controlled to ensure that you actually pay more if you buy now and pay later even though it appears that you are paying less.
You should now know that the existing debt-based currency is a fraud and is designed to extract as much wealth as possible from those who create it. And this is not the whole story. Your local bank is also in the business of extracting more of your wealth. Read now about how your local bank defrauds you.
Copyright at Common Law, West El Paso Information Network, 1996