Money, Debt & Gold

September 17, 1999

Money & Debt

What is Money?
Today's money is debt,
If there is no debt,
There is no money,
In order to increase the money supply,
There must be an increase in debt.

How can money be debt?
The U.S. financial structure is based on a fractional reserve banking system. Under this system, if you deposit $1000 in your local bank, your bank will then deposit this money at the Federal Reserve Bank(Fed). At a reserve requirement of 10%, your local bank can now lend out $10,000. Thus, $1000 deposited puts $10,000 into the system. This also means that money creation can only occur through debt.

Now we know that the expansion can only happen through debt, but the initial reserve deposit is not debt.
Wrong. At the top of a dollar bill it says "FEDERAL RESERVE NOTE", a note is a debt or a promise to pay. Technically, the banks use these "notes" to purchase government bonds, which are then used as the reserve base to expand the money supply. If the Fed wanted to contract the money supply it would buy these bonds back from the banks and the banks would have to contract their credit(lending) ten fold.

What are reserves?
Reserves can be defined as collateral for loans (Fed notes) outstanding. Thus, government bonds (debt) are collateral for more debt.

So debt is a necessary ingredient for money expansion?
Debt is the only ingredient for money expansion. Money is put into the system through bank credit(debt), with the Fed(Central bank of the United States) as the controlling agent.

So the whole financial infrastructure of the United States is based on debt?
Yes. Since just about every country has the same kind of structure it is safe to say that the financial infrastructure of the world is based on debt.

How does a government get in debt to the central bank?
When government expenditures exceed revenues they must sell bonds. The bonds that are not purchased by the public are purchased by the Fed. The Fed and commercial banks own over 1.25 trillion dollars in U.S. government securities.

Where does the Fed get the money to purchase government bonds? They create it. These government bonds are then used as an asset(or base) to expand the money supply.

What would happen if the U.S. Government paid off its debt?
Under the present system, the money supply would implode. This contraction would strangle the economy and a severe economic crisis would ensue. Remember that the Fed uses government bonds as a base to expand the money supply. Without government debt the Fed loses its most potent economic tool – Open Market Operations.

Once in debt it is almost impossible for a country to become debt free.
Correct. Reducing debt would reduce the money supply, this contraction would severely depress an economy. The tax base would erode. The present system not only encourages debt, but enslaves a country by its debt.

Is that why every country with a central bank is heavily in debt with the debt growing each day? Yes. The more a country is in debt to the central bank the more leverage the central bank has in controlling the economy. If all money is debt and debt requires payment of interest, does this mean that all money requires payment of interest?
Yes, each dollar printed or computer entry representing dollars is a debt instrument collecting interest.

Who collects this interest?
The issuer. The Fed creates the money which is channeled through the banking system.

Are you telling me that for each dollar in existence, whether a Fed note or computer entry representing dollars, the banks are siphoning off a percentage of the value of that dollar?
Yes, each time a dollar circulates through the system the general public loses a percentage of its wealth to the banking community.

Under this type of a system it is virtually impossible for the general public as a whole to accumulate wealth.
Correct. Technological advances will give the impression of wealth enhancement, but real wages and standard of living in relative terms will stagnate or decrease.

If what you are saying is true, eventually the banking system will slowly siphon all of the money out of the system.
If the money supply were fixed the redistribution of wealth would be evident, but since the money supply is constantly growing the banking community gains an ever increasing percentage of total wealth.

Is there anything that will guarantee that a dollar keeps circulating through the system? Yes, Karl Marx explained that a progressive income tax in conjunction with a central bank was a necessary component for controlling a nations economy. Income tax guarantees the circulation of Fed notes.

Isn't the Fed a government institution owned by the citizens of the United States?
No. The Fed is owned by private shareholders.

Who are these shareholders?
The Fed is not required to reveal the identity of their shareholders.

How did the Fed become the sole money monopolist for the United States?
According to a Federal Reserve Bank of Minneapolis publication and many other sources, in 1910 Paul Warburg of Kuhn, Loeb and Company met with several other Wall Street financiers to discuss a way of implementing a central bank like that of European central banks. Others attending the meeting were Frank Vanderlip, president of National City Bank; Harry Davison, a J.P. Morgan partner; Benjamin Strong, vice president of Banker's Trust Co. and future governor of the N.Y. Fed; A. Piatt Andrew, assistant secretary of the Treasury and Senator Nelson Aldrich, Chairman of the National Monetary Commission. This private task force designed the present Federal Reserve System.

These were some of the most powerful and influential men in the financial world. Maybe they were trying to figure out a way of returning some of their power and control to the American people?
That would fall under the realm of possibility.

Who's in debt?
Every nation in the world, almost every major corporation in the world, and most of the people in the industrial countries of the world.

In debt to whom?
In debt to the issuers of the money (debt)… The central banks, private banks, commercial banks, and IMF. Don't get confused, some of this money is lent out again by you and me in the form of investment, but the source of the debt is the banks acting through the central bank.

So banks should be abolished?
No. Banks perform a vital function in our economy. It is the present banking system that creates a perpetual spiral of debt reliance and dependency. The practice of debt creation without constraint is an inherent evil that has only one inevitable ending… Economic Collapse.

Money & Gold

What is the connection between money and gold?
Since the United States went off of the gold standard in 1971, Federal Reserve notes(dollars) backed mostly by government bonds are the dominant form of money. Gold has officially been demonetized and now only represents a very small portion of reserves.

Why was gold demonetized?
Gold restricts the amount of credit a bank can issue. Alan Greenspan stated that "The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to unlimited expansion of credit."

Since gold has been stated to be officially demonetized, does it unofficially still posses monetary qualities?
Gold has served as a form of money for over 5,000 years, Federal Reserve notes for 86 years. Lets not be fooled, gold always has been, still is, and always will be the greatest store of value. Currencies come and go, gold is forever.

Does a gold standard guarantee a sound currency?
Not necessarily. A gold standard provides a framework for note issuance. Only a certain proportion of notes can be issued in relation to gold held in reserves. Unfortunately, this ratio is often lowered until the gold standard becomes irrelevant.

Since a "note" is a promise to pay, what does the Fed promise to pay for their notes?
In the past it was a promise to pay gold, then it became a promise to pay silver, then it became a promise to pay nothing.

How did this come about?
Early on gold and silver were used as money. Since gold is very cumbersome, goldsmiths with large vaults began to store peoples gold. They would issue "notes" verifying a persons deposit. When a depositor wanted his gold they would give the note to the goldsmith and he would return to them their gold. Soon these notes began to circulate as money. Goldsmiths evolved into banks and banks issued notes redeemed in gold. In the United States, Federal Reserve notes were redeemable in gold until 1933, and silver until 1964. After this point notes were redeemable for nothing.

What happened to the gold?
The central bank of the United States (Federal Reserve Bank) owns it.

How much gold does the Fed own?
The Fed owns slightly over 8000 tons which is about a quarter of worldwide central bank reserves. Aggregately, central banks of the world possess about a third of all gold bullion.

If gold lacks monetary significance, why do the central banks have 33% of all gold bullion in existence?
Because gold does not lack monetary significance. Central bankers have verbally tried to downplay the importance of gold. Token sales and a media blitz have convinced many that gold is just a commodity.

Why would central bankers want to deemphasize the significance of gold?
Several reasons:

  1. Maintain stability: Currencies and gold have an inverse relationship. A large outward movement towards gold would weaken the value of paper currencies. Remember that the central banks are owned by shareholders whose business is paper wealth.
     
  2. Cover short positions: Central banks have leased an estimated 14,000 tons of gold. This gold has been leased to shareholders and close affiliates. A large upswing in prices would spell doom for short holders.
     

The Future of Money

How long can the current fiat monetary system last?
A debt pyramid monetary system supported by debt has a finite life span. The American super economy is now drowning in the same debt that has encompassed the rest of the world. The dominos are in place. Any event that contracts the money supply or diminishes confidence in the dollar will expose the inherent flaws in a system grounded in debt.

What will happen to the U.S. economy?
Stocks will be worthless. Corporate bonds will go into default. Loss of confidence and inflation will cause a flight of capital from U.S. government securities. Real estate prices will plummet. The U.S. dollar will lose its purchasing power. The only investment alternatives remaining will be items of intrinsic physical worth ….such as gold.

If money will contract how can there be inflation?
Money will contract in the private sector, this will open the floodgate for excess U.S. Government spending. This will lead to stagflation; high inflation accompanied by low output and high unemployment. Since the government spends and does not produce, money entering the system will just raise prices. Post-war Germany is a good example of future monetary events.

How can wealth just disappear?
It never existed in the first place. Paper wealth(today's money) is not value in itself. It is value based on what it can purchase. Paper wealth accumulates in mutual funds, pension funds, the stock market etc. It represents money but is not used to buy goods or services. It is simply used as a store of value. This value or wealth is perceived but does not exist in reality. Reality is exposed when too many people try to use this paper wealth at the same time. Paper money growth accompanied by the realization of paper value are the basis for boom and bust cycles.

What kind of a monetary system will be implemented after the collapse?
I believe there will be a return to a gold standard.

Why?
Gold has been centralized between the central bankers and big investors.

Who are these big investors?
The London Bullion Market Association (LBMA) sets the price and is the world's largest trader of gold. Each transaction is kept secret. Large investors are anonymous.

What will happen to currencies?
I believe that world currencies will regionalize around the dollar, euro, and yen in a progression toward one international currency.

China is the world’s biggest gold producer with more than 355 tons annually. Australia is second.