Monetary Paramnesia

     Hundreds of thousands of years of evolution; for what?—so that the Human species can obliterate every other life-form on this planet’s chance of survival by the pervasive brain-melting spoon-fed to the general public through Everything, Inc.? Ignorant and complacently accepting the current worldwide situation as ‘the way it goes’ (you know, the endless expansion of the Global Empire of Corporations, war, poverty, corruption, crime, exploitation, etcetera), most of us are completely unaware of the manipulative, environmentally devastating decisions made every single day by the “privileged” in monetary hegemony. However, even fewer are those that apprehend the fundamental nature of the institutionalized practice of money creation present in almost every monetary system established in the world—fractional reserve banking. Being such an all-encompassing concept, it is quite disappointing that the monetary system continues to be the most accepted, unquestioned, misunderstood, socially destructive ideologies in existence—hand-in-hand with religion. Yet our problems continue as we pretend to “solve” them with money as the first, last, and only resort. In any given situation, we feel that throwing money at it will somehow magically make everything all better. If that doesn’t work, we throw bombs and bullets. When that is finished, we again throw money at the aftermath and call ourselves “patriotic” for cleaning up our own socially and environmentally destructive wake. How delusional are we? Examining case studies concerning virtually any country on Earth, one thing is strikingly clear: money is the key factor contributing to both the problems and the solutions to those problems. How can this be, though? How can something be a solution to a problem if the problem is caused by that which is the solution? It seems like a contradiction in terms; but, this stupefying paradox is undoubtedly the global situation—that is: literally, a figment of our collective imagination subjugates the entire Human population and dictates the future of all life on Earth while almost no one stops to think about how the system itself even operates; day, after day, after day. So, if we are to compare any countries to one another, we should logically begin by realizing the common thread and examining the most fundamental factor of all: how money is created in a fractional reserve banking system. For, a full understanding of this process would elucidate just how mind-numbingly pointless the entire concept is; especially if we are to make a genuine attempt at prudently redefining sustainability as ‘access, not excess’ with total respect for the environment, and achieving global intellectual and technological equilibrium.

  The history of bartering, and thus monetary conceptualization, is shrouded in misinterpretation and assumptions. Why?—because the histories of practically all other ideologies (e.g., religions, economies, governments, etc.,) are undeniably subject to interpretation and personal biases. Even this essay could be considered biased and subjective; it depends on individual perspectives. In other words, interpretation is relative. Thus, two millennia of mistranslations, edits, and manipulations have distorted the collective “value” system and led virtually all of Humankind to fallaciously consider the following to be factual:

1. There is a “god” that coordinates everything according to what Human Beings have rewritten repeatedly in books deemed “scripture”;

2. Money is a fundamental necessity or resource;

3. Economics is a science; and,

4. Government is a requirement for order to exist in society.

Of course, we will only concern ourselves with money, although expositions of the other topics would be quite entertaining.

     Let us begin by realizing that during the initial stages of trade, coining money had not been developed technically. Hence, a trade of physical objects believed to have similar intrinsic “value” based on actual necessity took place. However, lugging around heavy objects for trade was difficult in early non-technical societies around the world. As technological capabilities increased, eventually allowing Humans to extract “rare” elements such as gold and silver through Human labor, an increase in the intrinsic “value” of such elements logically followed. Early civilizations recognized the fact that trading these smaller, more valuable units was much more efficient in regards to the transportation of goods. Through centuries of bartering and coin trade, the concept of value almost inevitably found itself placed upon land, commodities, resources and even the lives of a plethora of animal species around the planet; including our very own. This represented the dawn of an entirely new era in the history of Humankind: the age of private property.

     Eventually, technical innovation in the field of printing allowed the expansion of this concept at a never-before-seen rate. Money, which represented a means to “purchase” property and goods, could now be printed and traded while the intrinsic value represented on such paper was actually held in so-called “precious” metals guaranteed by the supplier (banks). Originally, money was only printed in direct proportion to such valuable metals as they were acquired; however, as we will soon see, this is no longer the story. In any case, however, those who control the money supply, control everything. If this was not true, history would be much different and you would surely not be sitting here reading my essay in the good ole’ United States of America—at least the U.S.A. we all complacently think we know and love. In fact, the only time in the history of the United States that the national debt was entirely paid off was during the presidency of Andrew Jackson, who was opposed to a central banking system and successfully dismantled the Second National Bank for many of the reasons that have manifested throughout the years since. Then, in 1913, Congress enacted the Federal Reserve Act, establishing a foundation upon which a system of currency control could be built—the United States Federal Reserve System, whose mission statement was “to provide for the establishment of Federal reserve banks, to furnish an elastic cur¬rency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.” (It is strange that so many bills passed by Congress have left a highly questionable, hypthetical ellipses at the end of the statement “and for other purposes” while never fully outlining what these “other purposes” are. Essentially, that task is left for the general public to discern by spending countless hours sifting through 1000+ page bills filled with references to other 1000+ page bills or by receiving daily doses of sugar-coated, almost subliminally corruptive propaganda via corporate-sponsored, private news media.) Summarily, the Federal Reserve served and still serves as the central bank of the United States. From the outset, the goal of the government in implementation of this system was to institutionalize the practice of money creation in a fractional reserve banking system while dealing with any inherent problems. It was not until 1961 that this particular system was detailed and distributed by the Federal Reserve Bank of Chicago in one of the most unknown books ever released here in the United States: Modern Money Mechanics.

     So, what is money? Everyone is always clamoring about ‘money this; money that’ but very few actually sit down and think about how to truly define the term money. No worries; Modern Money Mechanics has that covered by giving the following definition: “If money is viewed simply as a tool used to facilitate transactions, only those media that are readily accepted in exchange for goods, services, and other assets need to be considered…Today, in the United States, money used in transactions is mainly of three kinds - currency (paper money and coins in the pockets and purses of the public); demand deposits (non-interest bearing checking accounts in banks); and other checkable deposits, such as negotiable order of withdrawal (NOW) accounts, at all depository institutions, including commercial and savings banks, savings and loan associations, and credit unions (page 1).” In other words, money exists as transaction accounts and currency. Transaction accounts include personal checking as well as savings and loan accounts at member financial institutions while currency is physical paper or coin money held by the public.

     Now that we have a general understanding of what money is, the next logical question arises. What gives money value? How this workbook answers this question is perhaps the most insidious slap in the face to the general public that anyone could ever administer. On page 2, the message is quite clear: “In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value.” You may be wondering where the acceptability of face value stems from. The short hand answer is nowhere; but the book sums the real answer up much more effectively: “Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so (page 2).” And there it is; confidence of the general public is where money derives value—well, sort of. For, this story is only beginning.

     Value is partially derived from scarcity of a good (or money) in relation to its usefulness. “Control of the quantity of money is essential if its value is to be kept stable. Money's real value can be measured only in terms of what it will buy. Therefore, its value varies inversely with the general level of prices (page 2).” Thus, devaluation is built into the system itself and is literally impossible to stop. The book continues, “If…growth in the supply of money does not keep pace with the economy's current production, then prices will fall, the nation's labor force, factories, and other production facilities will not be fully employed, or both (page 3).” The true scope of this situation just continues to grow evermore dimly as our analysis reveals the truth that job loss and inflation too are inherent in this system.

     Understanding what money is and how money derives value, it now becomes necessary to examine where our money comes from. Who makes our money? As mentioned earlier, when the U.S. Federal Reserve (the Fed) came into existence in 1913, its primary role was to act as the central bank of the U.S. In the Federal Reserve Act, the U.S. government granted the Fed sole responsibility for regulating the printing and distribution of currency. Since then, the U.S. Bureau of Engraving and Printing (BEP) have been printing and distributing what are known as Federal Reserve Notes. Very clearly on every bill printed by this institution it is inscribed with the words, “This note is legal tender for all debts public, or private.” So what do these all-too-often overlooked terms “note” and “legal tender” mean? Quite simply a note is any piece of paper arbitrarily assigned a certain “value” based on the arrangement of symbols and denominations which represents an obligation to repay a loan (debt) to the sum of the printed value--a promissory note. Legal tender is any note or good offered to repay a debt. Therefore, Federal Reserve Notes have absolutely nothing of real intrinsic value (e.g. gold, silver) to back up the value displayed by such symbols and denominations which, in reality, depict the amount of debt owed to the Federal Reserve by the U.S. Treasury. In other terms, the money printed by the Federal Reserve is known as “fiat” currency; or artful pieces of fabric with no “real” value yet sanctioned by our government to be legal tender. It may sound hard to believe, but this is only where the deception begins. For, to better comprehend this system, we will now examine how our money is re-created in a fractional reserve banking system. In truth, this is perhaps the most genius yet socially destructive concept to have ever been designed. However, just take a look around at the current global situation across all societies and ask yourself whether or not there may be a better way.

     Modern Money Mechanics goes into an exhaustingly long explication of the beautifully crafted process behind the creation of money. Sparing most of the economic jargon, the process can be chiseled down to a few paragraphs. First, the U.S. Treasury (government) requests a loan from the Fed for literally any amount; let’s say $1-billion. If the Treasury is approved for the loan, the Fed requires what are known as “government securities” in order for the transaction to take place. These government securities come in the convenient form of “bonds”—other artful pieces of fabric printed with fancy symbols and denominations that are suddenly given a value of $1-billion out of thin air. After printing these bonds, the government sends them over to the Federal Reserve. When the Fed receives these bonds, it prints up the artsy pieces of fabric mentioned earlier called Federal Reserve Notes, which are also magically given a value of $1-billion, and sends them over to the government. Once this transaction takes place, the government then deposits the newly acquired money into the Treasury Transactions & Loan (TT&L) account at the Federal Reserve. Tada! $1-billion dollars are injected into the money supply after literally being created out of thin air and instantly become available for new loans. This is known as the “principal” money supply. (Although physical money is still created in this fashion, the process has become instantaneous through the propagation of digital currency. The entire process just described happens on a secure digital network (the FedWire) between the Fed and the Treasury or other member financial institutions. Basically, digital bits are suddenly given intrinsic value in virtually the same manner as physical currency—out of thin air. Committing to the idea of digital bits of information gaining some sort of “value” while travelling through network servers connecting banks to the Fed is a surefire indicator of how insane our society is. But, it is much easier to just swipe a piece of plastic than to fumble around with such a nuisance as actual money; isn’t it?)

     Once the deposit is made, as determined by the Federal Reserve guidelines, the financial institution is required to retain a stated percentage of this deposit in a reserve account set up at the Federal Reserve; essentially releasing the remaining percentage for recirculation as new loans. The book states on page 6, “Under current regulations, the reserve requirement for most transaction accounts is 10 percent.” Therefore, of the $1-billion deposited, $100-million are actually deposited into a reserve account while $900-million are labeled “excess reserves” and become available for loans. What really happens, though, is that the $900-million do not actually come out of the initial deposit and are not in reality used for the loans. Essentially, the initial deposit stands and $900-million are created on top of the $1-billion (this is known as the expansion multiplier.) In theory, this expansion can go on forever, but in general roughly nine (9) times the original deposit ($1-billion in our example) can be created on top of the deposit itself (+$9-billion.)

(See Cumulative Expansion chart on Page 11 in Modern Money Mechanics)

     “Of course they [banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrower’s transaction accounts (page 6).” Therefore, the money for loans is admittedly created out of thin air and exchanged for loan contracts. In other words, money is created out of debt. This debt is ultimately owed to the Federal Reserve by the U.S. Treasury. But, is this debt ever capable of repayment if the money was created by the debt itself through the initial loan? Of course not; and that is the point. As long as currency remains in circulation, even a single dollar, it means that there is a debt owed at least to the sum of the denomination printed on the currency. Simply stated, if the debt owed to financial institutions around the globe were paid in full, not a single penny would be in circulation.

     Thus far, it has been established that money is quite literally created by the Fed out of thin air through loans or debt. The money retains no intrinsic value, has no gold or silver to back up the printed value, and is essentially just a 75% cotton/25% linen composition with colorful ink and misunderstood symbols sanctioned by the U.S. government to serve as “legal tender.” The money is then exchanged for government securities (other fancy pieces of fabric printed by the government) which represent intent to repay this debt. Therefore, every dollar in circulation is and always will be owed to the Fed by the Treasury. Finally, the money supply is increased by an imaginary factor called the “expansion multiplier” which creates even more money out of thin air. The book proceeds to explain variables and actions which affect the expansion or contraction of reserves as well as the money supply itself, but it is clear that if the foundation of this process rests in the fact that money is created out of debt, there remains but a single question: If money is initially created out of a loan for x-amount of dollars, representing the principal money supply, where does the money come from to pay for any interest (y-amount) tacked on to any loans given to the government or the public by lending institutions (x + y)? The answer is simple: it never existed in the first place. In order to pay for such interest, a new loan is required which also comes with more interest. And so an endless cycle of debt through loans is maintained so that new loans are always necessary.

     On page 15, it is stated, “When most people think of money, they think of currency. Contrary to this popular impression, however, transaction deposits are the most significant part of the money stock…Since the most important component of money is transaction deposits, and since these deposits must be supported by reserves, the central bank's influence over money hinges on its control over the total amount of reserves and the conditions under which banks can obtain them.” What this basically insinuates is that the currency in circulation as physical money bears no relevancy in regards to the reserve accounts of financial institutions at the Federal Reserve. The real money stock lies in these “transaction accounts” that include all of the investment stocks which are traded daily by brokers on Wall Street that contribute absolutely nothing at all to the well-being or advancement of society. In other words, the root cause of a vast majority of crimes committed in the United States (physical cash) is merely prestidigitation being performed by the most powerful, imaginary magician of them all—the United States Federal Reserve. Tell that to the private security contractors, privatized prison system workers, government officials, elitists, and multinational corporation execs raking in billions upon billions of taxpayer dollars while 16,000 children die every single day around the world from malnutrition, preventable diseases, and downright neglect; tell that to the hundreds of thousands of people who are murdered yearly for the "paper" in their wallets; tell that to over 2-billion people living on less than $2 a day. Just 1% of the United States’ defense budget, which would be about $6.638-billion, would be suffice to construct hydroponic agricultural systems that could soon-after feed every single starving person on Earth. Instead of finding effective, prudent ways for Humankind to truly prosper and provide the highest standard of living and sustainability to ourselves and global Posterity, we continue subserviently shifting pieces of cotton around in justification for killing even more people by going to war—perhaps the most profitable industry ever; for destroying the entire ecosystem of Earth because it is cheaper dumping our trash into lakes, rivers and oceans; and for literally burning through depleting resources at an increasing rate. Do you think any of these people in economic or monetary hegemony truly give a shit? Clearly, the answer is a resounding FUCK NO. The real question to ask is this: Do any of us give a shit?

     Here’s a thought experiment: Take a $100 bill, for instance. If you and I are sitting at a table and I rip the $100 bill in half and place one of the two halves on the tabletop, could you tell me what it is now worth? Would you say it is worth $50?—Of course not; you could not take this half into a bank, demand $50 in exchange for the half, and expect to be given this amount. One of two things would likely happen: 1. a banker would inform you of the 'illegality' of defacing supposedly 'Federal' currency and attempting to fraudulently perform a transaction with the defaced bill; or 2. a banker would tell you it would not even be worth a single dollar. Next, I lay the other half down on the table and again ask the value. Does this simple act mean full value suddenly appears out of nowhere just because the other half is present? Strangely enough, it does. If you think about it, no one would refuse to take a $100 split in half because with a piece of tape, the bill would magically be as good as new—still worthless yet legal tender to the sum of the printed denomination. Now I take a $1 bill and rip it in half as well. With a piece of tape, I connect one half of the $100 bill with one half of the $1 bill. The obvious question is what is it worth? Is it $50.50?—definitely not. Again it would be unacceptable and deemed worthless. But let’s use gold leaf tape to fasten the halves of the $100 bill back together. Once more, what is it worth; $100?—If so, then what about the value of the tape that was used; is it simply lost to the bill itself? How? And if you don't know, then who does? The idea that value can spring into existence out of thin air and disappear without a trace is completely absurd. Yet this is exactly how money itself is created in the first place and given value. The same fabric that is used to print $1 bills is also used to print $100 bills. The presidents whose faces adorn U.S. currency would more than likely be outraged by the fact that their images are used to perpetuate such a globally destructive scam.

     Sadly, we live in a sick, insane society which clings desperately to such disuniting concepts as individual self-interest, private property, class stratification, free-market trade, corporate aggrandizement, and competition—all stemming inevitably from monetary systems. Not only the fractional reserve banking system, but any monetary system at all is not, never has been, and never will be a fundamental necessity in regards to the distribution of resources. Money is not a resource. Nor is the monetary system a viable solution for any problems other than those used for calculating interest rates. People need access to not excess of the necessities of life. Excess in any monetary system naturally is found in the hands of the few at the expense of the many; thus, perpetuation of class distinctions as well as antagonistic sentiments toward the have-nots by the haves is undoubtedly inherent. We need to take an unprecedented step back and start looking at the Earth as a single organism comprised of many different, interdependent components; for that is exactly what this majestic planet naturally is. Human Beings are but a single species. Yet the choices we collectively make or allow to be made affect literally every single other species of plant and animal life in the global ecosystem. This is perhaps the fundamental difference between us and all other life on Earth. We hold the fate of this entire planet in our hands, but risk destroying it all for a bunch of worthless fabric.