How  Money is Created

The Federal Reserve classifies this paper as a Securities Asset because the American People will guarantee it and pay it back with taxes they volunteer. The FED then takes another piece of paper, a check, and writes out the amount of $100,000,000.00 on it. The paper check (IOU) is then exchanged for the paper certificate IOU. Now keep in mind that neither piece of paper has anything but the American Taxpayer backing it. Their is no money in the FED checking account to cover this check. The accounting books are balanced by the two worthless entries so everything looks OK.

The government endorses the check and deposits it in a FED bank where the account is credited for the $100 million dollars. This is the initial funds that are written out as checks out of the bank and go to pay for salaries, equipment and other items. These checks are all deposited into other banks.

The deposits are all considered assets in the banks where they are deposited. Now through the magic of fractional reserves the money is re-loaned out into the public. These banks are allowed to loan 90% of their deposits so the bank loans 90 million out at interest lets say 10%. These loans are executed and checks or deposit slips are issued. When this 90 million is deposited it is considered an asset and can be used to loan 81 million and so on.

The original 100 million fabricated on paper is generating 5% interest payable to the FED and it has grown through fractional reserves to more than 900 million generating 10% per year. This is really a total of 1 billion dollars all created out of thin air with paper and ink. It all generates interest.  A few dollars of paper and ink in this case generates 100 million every year.

The effect is cumulative and eventually catastrophic to this system.

Now lets work this little economic system  to the end of the cycle.

We have for this example 100 companies out there who borrowed the fractionally provided 900 million dollars created from the "raw Money the FED traded for the Treasury Notes.

Our mini Economy has a total of 1 Billion in it.

The companies  used their loaned cash it to expand their companies and paid it all out into the economy as purchases of materials equipment and salaries. They now sell their products to obtain funds. These funds are used to pay bills, payroll and some pays the interest on the loans and some may be used to reduce the principle of the original loans.

Our government did the same thing. It used the 100 million to do all kinds of wonderful things.

Now the entire economy here only has  a total of 100 million in real cash to cover the circulation of up to a billion in checks. Some of the people in the economy have a little cash in their pockets also so this puts pressure on the local banks.  Some of these banks need to go to the FED money store in order to keep enough cash, lets say they get an additional 90 million between them at 5%. 

OK lets see how we do through a few years.

Year one goes by and the government pays out its 10 million in interest to the FED and the banks that borrowed cash because their customers wanted a little walk about money paid 5% on their 90 million or 4.5 million.

These interest payments to the FED are out of the real cash so after year one there is now only 85.5 million in "Raw Money" in  the system. The interest paid to the banks is recycled into the system so we can ignore that for now.  None of the principle was paid down so the full billion is still owed .  The companies all did well and they produced a lot of goods that are on the market now so the general public needs a little extra money to buy these goods. They are writing more checks or carrying more money at the same time that the banks and the government have paid  some of the raw cash back. Cash tightens up and the companies decide to not pay back any principle this year and maybe the banks need to borrow a little more money from the FED, but lets not go there as it will cause a quicker crash.

Year two goes by and lets say our government managed its finances well and doesn't need to borrow any more money and the member banks customers don't come in for more cash and let their deposits just sit in the bank. This helps our economy hold on. The banks pay another 4.5 million and the government pays another 10 million in interest so our little economy is down to 71 million in "Raw Money"

The banks deposits have decreased as the money supply has been reduced so the banks reserves are low and they need to borrow additional money from the FED in order for their reserves to stay at 10%. The borrow an additional 90 million.

Year three goes by and our government didn't borrow any more and the companies didn't borrow any more but the interest paid this year is now 28 million so the "Raw Money is down to 43 million dollars.

If nothing changes the system is totally bankrupt in just a few years.

This system can be supported only by additional borrowings which only make the problem worse. The borrowings must increase as the "Raw Money" is removed from the system as interest.

Here it is in plain simple terms for all to see. The mystery of the system is removed and the scam plain for all to see.

We must change our system NOW.