Grace Ross: Printing Money
Wednesday, January 30, 2013
Except for that little nagging sense that something must be fundamentally wrong. Here’s another explanation.
Nowadays most money is created not by a big printing press in amounts approved by Congress, but by people signing a promissory note: whether it’s putting a credit card down on a washing machine, paying a mortgage on a home, or the story that’s not being told of the Federal Reserve, on the good faith and credit of the American people, is opening what appears to be a bottomless fund of loans to the largest players in the financial industry.
In other words, when you promise to pay whoever lent you the money, that lender writes it on their ledger books and says “Aha! In the future we will have $250,000 to $350,000” Or in the case of the mega-banks, $7.77 trillion dollars in future repayment to the Federal Reserve and government. When you add together all of the money on all of the ledgers of all the lending institutions, more money has just been written into their books without any authority – as required by our Constitution – or Congressional approval to add more money to the money supply.
Now adding money to the money supply has very complicated economic impacts.
The most straightforward one and the one that some people are expressing a concern about is what happens if you have the capacity to legally print just as much money as you want? Surely you and I would succeed in paying off every debt we had and then going to town if we could guarantee that we could print as much money as we wanted to.
When the federal TARP settlement came down, it was supposed to be buying mortgages that were in trouble, bailing the banks out that way and then rewriting the mortgages. Within days, the Federal Administration scrapped that plan but the really critical issue was that the Federal Reserve opened their lending window to any financial player that they deemed worthy.
In 2011, Bloomberg News, hardly your radical news outlet, finally won a case forcing the Treasury and the Federal Reserve and the financial lending agencies of our federal government to account for the money that had gone to banks. The total figure they identified: $7.77 trillion dollars.
That’s certainly more money than our government really had available to lend, but because the act of lending created the money, essentially these government agencies flooded the U.S. economy with dollars. Those dollars had no other real value except that some major bank promised to someday pay it back.
They did this as a way of then turning to the people of the U.S. and saying: “don’t worry, the banks are solvent. How do we know? Because we guarantee they’ll be solvent,” and everything can go back to the way it was.
Unfortunately, in addition to flooding the economy with dollars no one can provide real value for, that act also included a huge cover-up. While small banks that were lent money by the Federal Reserve and Treasury accounted for it on their books, the mega banks pretended those hundreds of billions of dollars never existed. They don’t account for the debt on their books, but our government is expecting to get paid some day, and the vast majority of regular people don’t know that $7.77 trillion dollars was suddenly brought into existence in the last four years.
China may have been on top of this when one of their rating agencies – the equivalent of Moody’s in China – rated the U.S. bonds junk bonds. Then there have been concerns about the international community moving from the U.S. dollar being the anchor currency of the world to taking their money elsewhere. The most recent blip on the screen (since most of this conversation is hidden from the general public’s eyes) is that Germany has called in the gold it has at the Federal Reserve in New York.
Some folks think that doesn’t mean anything, and that it's just about German’s internal policy. However, when you add together the knowledge that our dollar has arguably been made worthless by the vast over-lending/printing of trillions of dollars, then the Chinese rating agency, the countries talking about stopping using the U.S. dollar as the anchor currency of the world and then Germany moving its gold, points out that there may be a more fundamental problem in our economy.
If the US dollar has been hugely devalued (although the coordinated silence means not many realize it), that will make what has happened so far look like a molehill next to Mt. Everest.
For better or worse, we will see what comes of all of this. But there are people watching.
By the way, there are solutions to protect regular people to some extent if our dollar crashes. We can make sure that our local economies are strong even if the U.S. dollar starts going into a free fall. It's worth tracking these developments and figuring out good strategies to keep our communities afloat even if this Doomsday scenario never quite comes to pass.
And maybe it’s worth forcing our government and financial industry to start reporting accurately to the people of the U.S. and following the laws.
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