This is the crucial point, of course. The problem is the incestuous relationship between Congress, which represents an always-willing borrower against the public credit, and the Federal Reserve System, which represents a lender with an infinite pocketbook. To the extent that Congress cannot peddle its surplus of IOUs in the private debt market, in steps the Federal Reserve which creates money-out-of-nothing and monetizes the debt.Dr Doom wrote:
This link reminds me of a-level economics somewhat.
Everything is explained, apart from the point at which money enters the economy,
which you would think would be very interesting and important.
The idea that the Federal Reserve's "quasi-private" status makes it independent of political concerns is laughable, as is the notion that it should be politically independent. Why should the most important aspect of any civilization, the control of money, be delegated to bankers who are supposedly politically independent? Monetary policy in a constitutional republic, like the United States, should be simple and static, run by statute. It wouldn't make much difference if the US Treasury abandoned all pretense of its debt-monetization shell game and simply manufactured all of the money that its politicians desired. This might even be better, because at least it would be more transparent to the average citizen.
Skeptics would point out that the Federal Reserve is obligated to rebate the interest income, less Fed operating expenses, from its open market activities back to the Treasury. Thus, the Fed receives no net profit from its US government bond portfolio.
Privately owned/controlled central banks purchase government debt (bonds),
with a simple book-keeping entry (money out of thin air).
They charge the government interest for money created out of nothing,
it really is that simple. If you disagree with this please explain to me
how it actually works.
Assuming that this is true, it serves to misdirect critics from the more important issue of how the Fed essentially supplies avaricious congressmen and the interests they serve with a virtually unlimited supply of money, independent of conventional taxation, through a direct tax on the holders of Federal Reserve Notes. This constant source of public inflation is staggering enough on its own, but even more astounding when you consider it is merely the monetary base (high-powered money) on which the private banking system receives its enormous profits.
Once again, skeptics would point out that banking isn't free of costs. Bankers have to pay customers interest on their demand deposits. Of course, any profit that they can accumulate based on money created out-of-nothing between the spread of their loan portfolio and their demand deposits represents a source of income that is unavailable to the non-banking public. That the banking system is cartelized and favors the top money center banks in New York and London only aggravates the inequity.
At the end of the day with a cartelized fiat money and fractional reserve banking system, we are left with a two-tiered economy: Elite bankers, and everyone else.
