How to "Make" Money

Many people blame the banking and financial mess that the United States is having on bad loans. I agree, but not how you might think.

The value of a loan is based on the value of the collateral that is used to secure the debt. In reality, money is created when loans are given. That may sound strange but it is the truth. So when a bank loans 160k for a house and the house drops in value to 140k the debt becomes worse, it becomes a non equity. If the housing and real estate value boom that was created by easy credit continued, we would not be having the crisis in the financial markets that we have today. In effect our money supply is hampered by debt that is overvalued. Our money is losing value as fast as the loans lose value.

So the cry is “oversight” “regulations” etc, etc. And I agree 100% but most people are fooled into believing that the free market is the cause of the mess, or that “golden parachutes” are the worst thing we have to worry about. The problem is at the bottom, not the top.

Our monetary system was BUILT to crash. It has never been sustainable since the Federal Reserve was created in 1913. Sure it has been milked along with all the ups and downs in the market, but it is rotten to the core. If you did a REAL study of the Great Depression you would see that it was caused by the Federal Reserve System. There was no drought, no national catastrophe; no other reason for our country to be in a financial mess other than the lack of money with value. Our problem is how money is CREATED in the first place. The “roaring twenties” caused the broke thirties. I still can’t figure out why they didn’t chuck the Fed during the depression. You can actually give partial blame to a Mormon named Merriner Eccles.

Money is created by the Federal Reserve loaning it out to the government, at interest. Just think about that for a minute. For every dollar they give out they expect one dollar and six cents (or more) back. And that is the ONLY source of money in the United States. Got it? The system is a spiral going up, and can never be leveled off because in order to pay the interest, they have to create more money, and that money is created by another loan. Inflation, or the quantity of money (and thus prices) going up, is necessary to keep the system afloat. Deflation, or prices going down, will always cause financial trouble in this system, ESPECIALLY in real estate, the largest loans out there.

But guess what, that is only the second worst problem with our financial system. The worst problem is the fact that the Fed only creates a small percentage of our money, the majority of the money is created by banks below the Fed lending out money they do not have. This is how they do it: For every ten bucks you deposit in a checking account at a bank, that bank can loan out nine (in a savings account they can loan out all of it). So your bank balance shows ten, but they loaned out nine of it, so in essence the money is in two places at once. That is what I mean when I say money is “created” when it is loaned out by a bank. This is what is called “Fractional Reserve Banking” Ten thousand people put ten bucks in the bank and ninety thousand is lent out. But if too many take their ten bucks out, and the bank doesn’t meet their reserve requirement at the end of the day, they have to borrow money from other banks overnight to be balanced. They can pay it back the next day with more deposits and/or not giving out loans. But guess what, when a bank is only required to keep ten percent “reserve requirement” it multiplies the problem. That ninety thousand that they loaned out does what? It gets DEPOSITED, and thus becomes added funds that they can use as part of their “reserve requirement” and then can LOAN out 90% of that as well! So for every $100 the Federal Reserve creates, the banks turn it into $1000.

And so the only real and true way to fix our monetary system is to RAISE the “reserve requirement” and create foundational money that is NOT interest bearing. It would be simple to do. The banking industry would need no more “oversight” than that; honesty.

Prior to Abe Lincoln and the Civil War, the government really had no influence on the value of money directly as is mandated in the Constitution, although they tried to control banks through regulation, and three times they allowed a Central Bank, they never before printed their own paper money, but only coined money from gold and silver. Abraham Lincoln, for one year in 1862, printed money based solely on the trustworthiness of the government, and this money had no ties to gold or debt. It was called the “greenback”, and is how he paid the vendors and soldiers of the Civil War. He and the Secretary of the Treasury read in the Constitution that congress could “coin” (print) money and regulate the value thereof, and so they did, independent of gold or debt. But after only one year, they ended the practice in an effort to tie it to gold. Thus began the system of Treasury debt backed money that we use today. The power to print paper money was given back to the large national banks, and greenbacks, (government money without debt), was replaced with banker debt money, and tied to gold only through the false perception that the banks printed money only as receipts for gold. The original greenbacks stayed in circulation for a long time, and their value was real on the same principle as banker credit money; and that is trust. In the greenback case, it was trust in the government to be prudent with that power. In the Treasury debt paper case, it was trust in the government to repay money they get from a trust that the bankers were rich (in gold) enough to loan it. Allowing banks (willingly or not through fractional reserve) to print money on that trust.

“Fiat” Money is money “by decree” or government money. Governments can gain money three different ways, one is to tax the people, two is to borrow, and the third it to create it by “fiat”. People who call gold the only “real” money are accurate in the sense that it is exchangeable without government or banks. But in reality gold is counterfeit money if the government does not accept it by fiat for payments to them, as is true now in the United States. The Current inflationary “fiat” money that we use is actually created by government indebtedness to the Federal Reserve and the Federal Reserve issues this “fiat” money by loaning it to the government. Because of this there is not enough money in circulation to cover all of the debt if you include the interest. To pay off the debt now would be to remove all of the money that is in existence twenty times over. The current ratio of debt to equity is 22:1 in the U.S. securities markets, where debt far outweighs value. If the Federal Reserve was REALLY part of the government, why doesn’t the government get all of the interest income?

The best way to fix the system is simple, and John F Kennedy attempted to start the process shortly before he was assassinated. Executive Order 11110 authorized the Treasury to issue Silver Certificates against the Silver that was in the governments “reserve”. The government can issue silver backed dollars, gold backed dollars, oil backed dollars, coal backed dollars, storable wheat backed dollars, and even real estate backed dollars; money that represents real tangible assets and not debt, stored to secure the value of the money. Just imagine the power Congress really has. I call it the “Storehouse” money system, REAL “supply side” economics. I would not doubt that it would end most inflation. They could even keep the Federal “Reserve” Bank, and make that bank be a storehouse.

A presidential candidate in 1844 proposed that we should make a Central Bank that was owned by the Government, with branches in each state and territory, each raising their own money and lending it at interest to private banks. Interest would be income for the government replacing most taxation. But that candidate was murdered. His name? Joseph Smith.