The One Thing I Wish People Would Really Understand
From an article from 2016 on the financial position of the United States in Wikipedia. We find:
“The financial position of the United States includes assets of at least $269.6 trillion (1576% of GDP) and debts of $145.8 trillion (852% of GDP) to produce a net worth of at least $123.8 trillion (723% of GDP)[a] as of Q1 2014.”
I read it and said, “How does this make sense? The opposite side of the coin that says debt, says asset.”
To understand the Federal Reserve System one needs to understand that in creating money, i.e. the Flexible Currency discussed in the Act, they do not give it away but they lend it out. If you ask why that is bad, it is bad because more is always owed than is created and lent out. Let us make a spreadsheet to see how this works. The following chart shows the growth of the money supply at 2% per year with an interest rate of 6%.
As you can see after the 110 years there is 39 times as much owed (principle and interest) as what was created. Since the Federal Reserve counts how much money it has created and publishes it, it is $4 trillion , we would expect to owe $156 trillion today in principle and interest.
This simple calculation shows the power of compounded interest. While I made all these numbers up it shows that the Wiki article may have some validity.
Almost thirty years ago I had this discussion with an employee of the Federal Reserve. When I pointed out that more money is always owed than is borrowed he told me, “As long as the Federal Reserve maintains the right amount and the right kind of money, the rest is just numbers.”
But that is not true. When the Federal Reserve creates Federal Reserve notes they lend them to the member banks that mark up the interest rate and lend them to borrowers. For every dollar of debt we owe, the Member Banks get a percentage of the interest. It is why the financial industry in the United States earns over $3.5 Trillion dollars on $4 Trillion of Federal Reserve Notes.
Sen Rand Paul recently wrote an opinion piece about auditing the Federal Reserve. I have read their website and the Federal Reserve is a Behemoth. They are involved in thousands if not tens of thousands of different activities. While I would bet just about anything there are no falsehoods in what they report, I would bet twice that much that there are no truths either.
But here is the deal, we don’t have to know how it works, like a person doesn’t have to know anything about automobiles to calculate the miles per gallon, the solution is straightforward. The Nobel Prize winning economist Paul Krugman suggested it. Well he suggested minting a Trillion-Dollar coin, but that is not how it would work. How it would work is that the United States Government would pay its bills with checks redeemable for Genuine United States Dollars.
