By example: the US government decides to spend $20 Billion to restore damaged infrastructure and assist residents with everything from generators to displacement checks due to this past tropical storm seasons ravages.

They ‘appropriate’ an amount deemed necessary for the objectives their collectivist minds believe will ensure success on many levels. This amount is often inappropriate. Government is rarely efficient, the marketplace would be far more efficient, but Government continually seeks it level of incompetence.

Not to distract from the mechanism used to create money from nothing, but here but a few examples of the pork rind inefficiency of Government:

• $6.3 million for wood utilization research

• $2 million for the buyback of the USS Sequoia Presidential Yacht

• $3.3 million for start-up operations at the Capitol Visitor Center

• $1.7 million for the International Fertilizer Development Association

These seemingly insignificant amounts, relative to the Katrina/NOLA bailout, add up.

H.R. 3, the $286.5 billion Transportation Equity Act which President Bush has described this transportation bill as ‘fiscally responsible’ is anything but responsible. It is merely more back bacon for Bechtel and Halliburton in the age of crony capitalism better known as Fascism.

Any of the above appropriations require Government to authorize the United States Treasury to issue Bonds. The majority of our Government finance is done five years and heading quickly towards 2 years and under, effectively claiming an adjustable market rate. In reality, the short end is tied closely to the Federal Funds Rate.

Macroeconomists view the Federal Reserve as controlling the short end of the yield curve. The Federal Funds Rate is employed in response to fundamental macroeconomic realities in order to achieve its stated monetary policy goal of a low and stable inflation and maximum sustainable output.

In effect, moving down the yield curve creates a far more dynamic adjustment to the cost of money; this move down the curve in Government Finance began to occur with the Federal Funds reaching lows unseen in decades.

Congress receives the monies deemed necessary for the appropriation, but how?

Simple:

These IOU’s and administering the national debt is quite simple. In order to cover its annual spending shortfall, government Bills, Notes and Bonds are drawn up by the Treasury. These are sold in at auction to the money markets. The highest bidder owns them. Treasury auctions occur throughout the year in order to assure the revenue Government is required to continue its wanton ways. Of course, these mature at some point and even more money is needed to service the compounding DEBT, so further issuance is needed.

There is no real or imagined wall between the Federal Reserve and the United States Treasury.

The entire purpose of both is quite simple.

It is to convert DEBT into MONEY, or DEBT MONEY, as I prefer.

The degree of separation is simple.

Our Central Bank, the Federal Reserve, writes a check for the Government Bonds (Treasury Bills, Notes & Bonds) only it can cash (legal tender) to Congress in exchange for the Government DEBT. There are additional mechanisms, but Government Bonds comprise the majority of Federal Reserve holdings. Member banks can borrow at the discount window, the Federal Reserve may enter into purchasing DEBT through its Open Market Operations and it may adjust reserve ratios downward to allow member banks greater DEBT creation.

DEBT MONEY has been created on the spot, from nothing in order to provide substance to the Federal Reserves check. In a pure Fiat Monetary System, the Bonds purchased are carried on the Federal Reserve’s balance sheet as “Assets” which, in turn allow for the creation of additional Federal Reserve Notes aka DEBT MONEY, not a Dollar, nothing in reality but legal tender by Government decree.

Pretty neat scam huh?

Here’s how it begins to spiral out of completely out of control…

The DEBT MONEY issued by the Federal Reserve in order to purchase the bonds is spent by Government. The DEBT MONEY created on top of the claimed “Assets” on the Federal Reserve’s balance sheet is, in fact, THE source of all banks loans made within the Federal Reserve System.

A dime cannot be loaned to any businesses or individuals without this mechanism of cooperation between Government and the Federal Reserve.

The Federal Reserve is assured interest on the DEBT MONEY is creates from nothing.

Our entire monetary system is based upon unlimited funding through this mechanism.

The DEBT MONEY base simply expands and as it grows, the greatest tax, Monetary INFLATION is bestowed upon us all.

One of the more pertinent issues since the 1980s is how money creation has begun to move outside of the Federal Reserve System.

© 2005 John Mackenzie
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