Where Money Comes From

Share:

When we hear people talk about what a great job Obama has been for the economy it is usually because of the following factors:  He averted the Great Depression, Americans are working again, deficits have gone down, inflation is low, the GDP (Gross Domestic Product) is the highest in the history of the world, and he saved the auto industry etc.

 

This is part 4 of my series on government distortions of economic realities and this may be the most crucial to understand.

The most important step in trying to “Make America Great Again” is to first identify the problems then come up with appropriate solutions.  If you’ve read or watched the other parts to this series you are now aware of how the government manipulates: The Unemployment rate, The Inflation Rate and The GDP.

If you’ve found anything I’ve said before interesting, shocking or appalling then you’ve seen nothing yet until you’ve learned where money comes from.  The history of the FED is an entirely different can of worms riddled with some of craziest and historical facts you were never taught in school but that will be covered at a later date.  To put it bluntly, there is no way you can learn its inner workings and history of the FED and not get p*ssed off.

Ok… so how does money come into existence?                                                                                  1. First the Treasury gives the authority to print money to the FED2016-09-24_14-55-51 2. From there the FED then lends money to the TBTF (Too Big To Fail) Mega banks otherwise known as the primary dealers at .5%2016-09-24_14-55-34

3. Then these same banks then lend money back to the US Government in the open market at an amount that is infinitely higher than what they charged the FED to begin with.                                                         2016-09-24_14-55-17

  • To make matters even worse, The FED was actually purchasing back bonds   from the primary dealers to help stimulate the economy.  In actuality this was a huge bailout for the banks as they got to arbitrage the bonds with no risk and guarantee making money on the deal by front running the FED.

2016-10-10_18-38-44

It took this country from 1913, when the FED was created, until 2008 to accumulate $800BN in excess reserves.  It only took another 6 years to go from $800BN to 4.4 Trillion!

updated

You might now be thinking to yourself ok, but the FED hasn’t had to stimulate for 2 years, we’re finally getting out of the woods…WRONG!

As shown below in Figure 6, no sooner did the FED stop Quantitative easing which will be referred to as printing money from here on out than the other central banks of the world had to pick up the slack.

picture1

The reason this is so concerning is that the FED thinks they are throwing the economy a life jacket when in fact they are throwing it an anchor.

 

Every dollar that comes into existence represents debt.  The first dollar that came into existence in 1913 had a 4% interest rate on it as inferenced from Figure 7

1

Therefore the question is…. If you only created $1 but now owe $1.04 where do you get the extra 4 cents from?

You have to borrow that and the cycle continues.

Therefore in order to borrow money we have to create debt.  The debt is mathematically impossible to pay off from day 1 and the real kicker is things do not have to be this way.

There is NO reason the FED has to exist.  There is no reason we have to get middled twice to borrow money.   The treasury has the authority to perform this function and to issue debt free money.

Thomas Jefferson said it best when he said “”If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…. I believe that banking institutions are more dangerous to our liberties than standing armies…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

To make matters worse the FED is private.  That’s right the 12 member banks are private corporations that are then owned by the mega banks themselves.  This is a classic fox guarding the hen house scenario.

Now for some background I was a part of a very small class that won the National competition on the FED.  I wasn’t a part of the team because I had commitments as VP of the Water Polo team but I was in the same class that they were in and by the time I learned the FED was private I was also a fully licensed Financial Advisor.

I still remember the guy who told me this sort of looked like Rob Zombie and I immediately sought out to prove him wrong.  I ended up being wrong so believe me if this sounds crazy to you, it sounded crazy to me too.

Now getting back to the worst part of this all, the FED gets a 6% dividend of all the interest of all the debt!  That’s right they are fully incentivized to increase the national debt because it will further enrich their pockets in the short term.

So not only do we have to borrow our own money from the big banks and the FED but the FED who are owned by the big banks get to siphon of an automatic 6% for doing nothing!!!!

When the FED prints money it goes to the richest people in the world first, so they can speculate.  When they speculate it drives up the costs of those goods and usually is seen with higher consumer prices.  Many consumers are feeling the hit as evidenced by the fact Donald Trump won the GOP primary and Bernie Sanders would’ve won if it weren’t for Hillary stealing it from him.

If you want to attack income inequality you have to attack and understand the FED.  Forcing the minimum wage to go up is reacting to the symptom and not the cause.  In 1960 the minimum wage was $1.  Expressed another way the minimum wage was four quarters.  In 1960 Quarters were made of real silver.  Those 4 quarters would each be worth roughly $5 a piece based off the price of silver being just under $20 /OZ (as of 9.4.16).

Expressed another way if our money still had silver in it, the true minimum wage would have to be close to $20, to equal the purchasing power someone had in 1960. 

Our current monetary paradigm represents modern day high tech feudalism or high tech slavery or a high tech Ponzi scheme whatever you want to call it but it cannot last forever. Ultimately it’s my goal for you to educate yourself and others how this insidious process works so we can have true Change so we can actually Make America Great Again.

The only way to change the world is for others to know about this.  If you found this post useful please share this post and if you haven’t already please like my page.

Together we can fix this.

 

Cheers,

Tim Picciott

 

 

 

The opinions expressed in this material do not necessarily reflect the views of LPL Financial.

 

Quantitative easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity