Freeing Our Money: Today’s Coercion
Modern Economic Control
The Federal Reserve controls the money supply in three ways: 1) Selling or buying U.S. government bonds from the government or in the bond market. To sell bonds is to contract the currency, decreasing the supply of money. To buy bonds is to inflate the currency, increasing the quantity of money. 2) Raising or lowering bank reserve requirements. To raise reserve requirements is a tightening that decreases the money supply, making money harder to obtain. To lower reserve requirements is a loosening that increases the money supply and makes loans easier to obtain. 3) Changing the discount rate—the rate that banks borrow money created by the Fed to lend to the public.
These elements are popularly considered essential to control market dynamics, but are little more than layers of coercive control. Their justification was that with this power, depressions could be scientifically prevented. The problem, as congressman Charles A. Lindberg retorted, was that, “From now on, depressions will be scientifically created.”
“To cause high prices, all the Federal Reserve Board will do, will be to lower the rediscount rate…producing an expansion of credit and a rising stock market, then when…businessmen are used to those conditions, it can check prosperity in mid-career by arbitrarily raising the rate of interest.
It can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by a greater rate variation, and in either case it will possess inside information as to financial conditions and advance knowledge of the coming change, either up or down.
This is the strangest, most dangerous advantage ever placed in the hands of the special privilege class by any government that ever existed. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money. They know in advance when to create panics to their advantage. They also know when to stop panic. Inflation and deflation work equally well for them when they control finance.”
—Charles A. Lindberg (R-MN)
The Illegitimacy of Bonds
All of our money is considered borrowed money (yielding interest), even though it isn’t. The currency is a fresh creation, backed by the good faith of the American population. This is how money is created by the Fed: 1) The Federal Open Market Committee (FOMC) approves the purchase of U.S. bonds, which are simply a promise to pay. 2) The bonds are “purchased” by the Fed. 3) The Fed pays for the bonds with electronic credits added to the bond seller’s bank, but these credits are based on nothing—they are created with the flick of a pen! 4) The bank uses the deposits as reserves, and can loan out up to ten times the amount of the reserves to new borrowers—all at interest. We see our mortgage interest at perhaps ten percent, but at this reserve ratio, the bank can make one-hundred percent on the money.
This method of monetary creation is fundamentally unsound. The creation of a bond must be based on an existing financial instrument. The currency must precede the bond and not be created by the bond, as to retire the bond is to destroy the currency. But the Fed issues currency for bonds as if they’re lending, because lending produces interest.
“If our nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good, also. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond and an additional 20 percent, whereas the currency pays nobody but those who directly contribute in some useful way. It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurer and the other, helps the people.”
—Thomas Edison, 1921