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Facts About The Federal Reserve

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According to some, banks only loan out depositors’ money. But, in fact, they create what they loan out, based on a system known as ‘fractional reserve banking’. This is explained quite succinctly in the following excerpt from the January 1993 edition of National Geographic Magazine, entitled, The Power of Money by Peter T. White, Assistant Editor. (Pages 83-86)

Bills and coins make up about 8 percent of the U.S. money supply — the rest is in bank accounts, including checkbook money; at this writing the sum total is 3.5 trillion dollars, says the Fed — the Federal Reserve System, which is the central bank of the government of the United States — and that is three billion more than a month ago. This is how that happens. Every business day, after a telephone conference call at 11:15 a.m., the Federal Reserve Bank of New York, acting on directives from the Federal Open Market Committee at Fed headquarters in Washington, buys U.S. government securities from major banks and brokerage houses, or sells some — usually U.S. Treasury bills, which in effect are government promissory notes.

Say today the Fed buys a hundred million dollars in Treasury bills from those big securities dealers, who keep a stock of them to trade with the public. When the Fed pays the dealers, a hundred million dollars will thereby be added to the country’s money supply, because the dealers will be credited that amount by their banks, which now have that much more on deposit. But where did the Fed get that hundred million dollars ? “We created it,” a Fed official tells me. He means that anytime the central bank writes a check, so to speak, it creates money. “It’s money that didn’t exist before,” he says. Is there any limit on that ? “No limit. Only the good judgement and the conscience of the responsible Federal Reserve people.” And where did they get this vast authority? “It was delegated to them in the Federal Reserve Act of 1913, based on the Constitution, Article I, Section 8. ‘Congress shall have the power .. to coin money, regulate the value thereof …’

Now watch how that Fed-created money lets our commercial banking system create even more. The Fed requires banks to put aside a portion of their depositors’ funds as reserves. Say this reserve ratio is set at 10 percent — then for every $1,000 in new deposits, a bank must keep at least $100 in reserves but can loan out the rest, namely $900. On the bank’s books this loan remains as an asset, earning interest until it is paid off. The customer who got the loan is likely to spend it right away, say for a used car. The car dealer deposits the $900 check in his bank, which then has an additional $900 in reserves and can in turn loan out 90 percent of that — $810. And so on and on, until the original $1,000 put into one bank may enable dozens of banks to issue a total of $9,000 in new loans.

Thus a hundred million dollars injected by the Fed into the commercial banking system could theoretically stimulate the appearance of 900 million dollars in new checkbook money — money that didn’t exist before. And it’s all built on the assumption that the system is sound.

Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purposes of the FTCA, but are independent, privately owned and locally controlled corporations.” Lewis v. U.S., 680 F.2d 1239; 1982 U.S.

“The financial elites of this country, notably the Morgan, Rockefeller, and Kuhn, Loeb interests, were responsible for putting through the Federal Reserve System, as a governmentally created and sanctioned cartel device to enable the nation’s banks to inflate the money supply in a coordinated fashion, without suffering quick retribution from depositors or noteholders demanding cash. Recent researchers, however, have also highlighted the vital supporting role of the growing number of technocratic experts and academics, who were happy to lend the patina of their allegedly scientific expertise to the elite’s drive for a central bank. To achieve a regime of big government and government control, power elites cannot achieve their goal of privilege through statism without the vital legitimizing support of the supposedly disinterested experts and the professoriat. To achieve the Leviathan State, interests seeking special privilege, and intellectuals offering scholarship and ideology, must work hand in hand.” Murray Rothbard, Origins of the Federal Reserve

‎”The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets.”
Alan Greenspan, Gold and Economic Freedom

Written by chrisforliberty

November 7, 2010 at 6:25 pm

One Response

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  1. Reblogged this on Foodforthethinkers's Blog.

    Food for the Thinkers

    December 25, 2013 at 2:03 am

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