How Money Is Being Stolen From You in Secret
Do you like being treated fairly?
You go to the store to purchase goods, and in exchange you give the shop American dollars. This trade is fair. The American dollar is a promise. The government issues a dollar and proclaims this piece of paper is worth exactly what they say it is. In 1900 Congress passed the “Gold Standard Act.” This allowed citizens to take American currency in their back pocket to a bank and trade it in for a set amount of gold in equal value ("Gold Standard Act"). This system insured the value of their money.
What happened?
On August 15th of 1971, President Richard M. Nixon declared the United States would no longer be on the gold standard ("Gold & Silver"). This means that the dollar in your wallet is backed by nothing more than government’s promise that your money is worth something. This and other factors are ways that the current American monetary system is destroying Americans' wealth.
Not all money is created equal.
Written at the top of a dollar bill is “Federal Reserve Note.” The Federal Reserve Bank of the United States of America is not part of the government. According to the bank’s website: “the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms,” ("Who Owns the Federal Reserve?").
Who is the Federal Reserve?
The Federal Reserve is an organization tasked with determining interest rates (the price everyone pays to borrow money), governing the banks, and keeping the economy afloat.
How do they do that?
One way the Fed manipulates interest rates is by buying and selling U.S. Treasury Bonds. Bonds are debt investment(s) in which an investor loans money to an entity, (Hayes, "Bond")”; a U.S. treasury bond is debt of the U.S. government . If the Fed wants to raise the current rate they will sell these U.S. Treasury Bonds that they hold.
For example let’s compare two bonds
Bond 1 of costs $100 that earns the investor $5. This means if an investor holds this bond until it expires, he or she will receive $5 or 5% return. Compare this to Bond 2 which also has a price of $100, but it pays $6. Bond 2 has an increased profit (yield) of 6%. Of course, investors will purchase Bond 2 rather than Bond 1. In order for this $5 profit to be attractive to investors, Bond 1 must also yield a 6% return. The price of the bond would have to be lowered to $83.33.
Why does it matter?
The Fed uses this scheme every day to manipulate the economy with no need government oversight. When the Fed wants to increase interest rates, they sell securities. The profit from those securities is taken out of the economy and put on the Fed’s balance sheet, decreasing the amount of money in the economy. This decrease of money means that there is a smaller amount of money in the economy and the same amount of investments looking for money. In order to attract investors, other securities must have increased returns in order to appeal to this smaller group of investors. When the Fed wants to lower interest rates it does the opposite. The Fed will buy a large group of securities which increases the money in the economy. This increase in money means that there is more money looking for the same amount of investments, leading to a decrease in the profit the bond has to have in order to attract an investor.
Cleaning up 2008
We saw the Fed use this strategy of buying assets in an effort to lessen the blow of the 2008 financial crisis. During this time, the Fed spent 3.5 trillion dollars purchasing bonds and other assets to decrease the interest rates to near 0% (Perry, The Fed’s $3.5T QE Purchases Have Generated Almost Half a Trillion Dollars for the US Treasury since 2009"). This decrease in the cost to borrow money is intended to stimulate the economy because when it is cheap to borrow money, people are more likely to invest in new businesses, grow their current businesses, or take out loans to make larger purchases. This increase in consumer spending is hoped to stimulate the economy and create jobs. Stimulation of the economy may be desirable in the short term, but over time this rampant creation of money influences our nation's economy and wealth.
Straight from the horse’s mouth
From a publication from the Federal Reserve “When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money,” (Putting It Simply-The Federal Reserve). Creating money out of thin air is just like having a worthless sheet of paper.
The money multiplier effect
Banks also create money out of thin air. This legal process of creating money is done by way of reserve requirements. For example, you go to the bank and deposit your paycheck of $1,000 dollars. A typical reserve requirement for banks larger than $110 million is 10%; of your $1,000 deposit, the bank is legally required to keep only $100 in reserve (Staff, "Reserve Ratio"). The bank is free to loan out the rest to other people. Before this process, there were only $1,000 in existence; now there is $1,900 in existence. This effect continues when the $900 loan is used in the economy and then redeposited in a bank. Now of the $900, the bank keeps 10%, or $90, and the rest is loaned out again and again and again. This is called the money multiplier effect. This continues until the banking system creates a total of $8,891.09 of new money with your original deposit of $1000.
The never ending cycle of debt
Subsequently, when you create money from nothing and then charge interest, how do you pay back the interest? The only way to get the extra money to pay it back is to take out another loan and create more fake money. Then when this loan is created you have to pay the interest on it too. This creates a never ending debt cycle that mathematically unpayable and never ending.
Robbery without a gun
This rampant creation of money has great effect on even the average American. By comparing the money supply and purchasing power of the dollar, it is evident that as the money supply increases, the value of the dollar decreases. As every new dollar is created the dollar in your pocket loses its.
Look
The purchasing power of the dollar in blue compared to the US M2 money stock in orange.
This phenomena goes by another name—inflation
Inflation is defined as “a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency, (“Inflation.” Dictionary.com). In other words, inflation is nothing more than the theft of wealth. Banks also have encouraged a culture of debt reliance and have created another huge issue. We are in more debt than we produce in goods and services each year. By quarter four of 2016, the United States had debts in excess of 105% of our GDP (Gross Domestic Product). In addition to cultivating a culture riddled with debt, banks caused the 2008 financial crisis.
Reckless banking and how it cost you a lot money
They did this by turning home mortgages into securities that could be bought and sold. Therefore, when someone wanted to buy a home the banks would take the loan, package it with a group of other loans creating an asset backed security. They would sell it to firms who would then subsequently sell these loan packages (residential mortgage backed securities) to other investors and companies. With the ability to make loans and sell them right away, banks had little consideration for the risk of the loan. This led to many loans being made to individuals who could not afford the home or monthly payment.
What happens when people default?
When these individuals began to default upon the loans, it led to the devaluation of the group of loans in the residential mortgage backed securities. They were loaning money to anyone, regardless of their ability to pay. With millions of people defaulting on their loans, houses went up for sale flooding the market with supply and destroying property values for the entire country to the tune of 6 trillion dollars (“The Crisis of Wealth Destruction” ). Additionally, this rapid decline of these securities caused a stock market recession that led to the loss of $8 trillion dollars of wealth in the stock market (“The Crisis of Wealth Destruction,”). Americans lost trillions of dollars, jobs, and their homes because of the banks reckless lending of your money. Even after the banks irresponsible behavior they were deemed too big to fail when the banks were on the verge of bankruptcy. The government then stepped in with a plan to bail the banks out with 700 billion dollars of taxpayer money. Costing Americans a total of close to $15 trillion dollars ("The True Cost of the Bank Bailout"). One of our founding fathers Thomas Jefferson knew of this danger in a letter he wrote stating “I sincerely believe with you, that banking establishments are more dangerous than standing armie”, ("Founders Online: Thomas Jefferson to John Taylor, 28 May 1816.")
Putting it all together
The Federal Reserve and banks create money out of thin air with no governmental oversight, which has led to the inescapable slow robbery of the value of your money by means of inflation. In addition, banks time and time again have taken irresponsible and devastating actions all in pursuit of a quick profit. Americans’ wealth is being used, abused, and robbed of its value in the current monetary system.
Works Cited:
"Board of Governors of the Federal Reserve System." The Fed - About the Fed. The Federal Reserve, n.d. Web.
"Founders Online: Thomas Jefferson to John Taylor, 28 May 1816." National Archives and Records Administration. National Archives and Records Administration, n.d. Web. 19 Oct. 2017.
"Gold & Silver." Gold and Silver - Frequently Asked Questions (FAQs) - Federal Reserve Bank of Richmond. Federal Reserve Bank of Richmond, n.d. Web.
"Gold Standard Act." Wikipedia. Wikimedia Foundation, 06 Oct. 2017. Web.
Hayes, CFA Adam. "Bond." Investopedia. Investopedia, 21 Aug. 2017. Web.
"Inflation." Dictionary.com. Dictionary.com, n.d. Web.
Perry, Mark J. "The Fed’s $3.5T QE Purchases Have Generated Almost Half a Trillion Dollars for the US Treasury since 2009." AEIdeas. AEI, 12 Jan. 2015. Web.
Putting It Simply--the Federal Reserve. N.p.: Public Services Department, Federal Reserve Bank of Boston, 1984. Print.
Staff, Investopedia. "Reserve Ratio." Investopedia. Investopedia, 01 Dec. 2016. Web.
"The Crisis of Wealth Destruction." Roosevelt Institute. Roosevelt Institute, 04 July 2010. Web.
"The True Cost of the Bank Bailout." PBS. Public Broadcasting Service, 3 Sept. 2010. Web. 19 Oct. 2017.
"Who Owns the Federal Reserve?" Board of Governors of the Federal Reserve System. The Federal Reserve, 8 Sept. 2011. Web.
#economics #highschool #entreprenuership #moneymultiplier #debtcycle #federalreserve #money #moneycreation #banking #monetarysystem #2008financialcrisis #goldstandardact #bonds #debt #federalreservenote #inflation #default #subprimeloans #wealthdestruction #m2 #moneysupply #purchasingpower #moneystolen #howmoneyisstolen #stolenfrommeinsecret
