Gov't borrowing is a fraud

So how is it that a $100 bill can purchase more than a $1 coin when, in reality, a bit of metal is more useful than a scrap of paper? The answer is simple and profound. The $100 bill has more purchasing power because we believe it does. Its the same thing with bank credit - we believe that numbers written into a ledger that do not even have the utility of a bill or coin is worth just as much as a bill or coin. Paper money was originally nothing more than a receipt for gold and silver that you had deposited for safekeeping. Instead of withdrawing the heavy metals and lugging them around, people would exchange receipts, knowing that the receipt would allow them to withdraw the metals when they wanted it. The receipts were not payment itself; they were only a promise of payment that you could collect at your leisure. Today's paper money is still only a promise of payment - but without the ability to actually collect! Back in the 1930s governments decided to renege on their promises of payment and decreed that the people could not present bills for redemption in gold and silver. By the 1970s, that was also extended to other governments. Paper money, the promise of payment, ceased to be able to fulfill its promise - yet we continue to exchange these receipts. We do so because we need to use something as a means of exchange and bits of paper are far more convenient than dragging four goats down to the computer store to buy a printer. So what backs paper money today? Government. Government issues bills and says they are worth something. They also decree that taxes can only be paid by government sanctioned money and, since we all have to pay taxes, we all have to have the money government sanctions. You've probably heard the phrase "Backed by the full faith and credit of the people of ". That’s all there is too it. We accept these promises of payment and, as long as we don't think too hard on the fact that we cannot collect payment, the world doesn't end. Another way to look at bills is that they are bonds. A bond is simply a promise of payment. When you buy a Canada Savings Bond, the bond itself is nothing more than a promise of payment - a $1000 bond it exactly the same thing as a $1000 bill with just one exception: the bond requires that the government pay extra when you exchange the promise of payment for more promises of payment. So a bill and a bond are identical with the exception of interest. A bond is a bill and a bill is a bond. If you had a $20,000 Canada Savings Bond and offered to give those in exchange for a $20,000 car instead off bills, do you think the dealer would turn you down? Of course not – the bond is actually worth more than $20,000 because of interest. If you owed $20,000 in taxes and offered the government $20,000 in Canada Savings Bonds, would the government turn that down? No. So Bonds and bills and bills are bonds - but bonds require the government to pay over time where bills do not. Bills are "fire and forget" while bonds come back to haunt them. The only other difference between bills and bonds are that we just don't think of bonds as bills so we don't use them in the same way. So now that you realize the money in your wallet is really just bits of paper that represent nothing except a decree of government, you're prepared to see why governments borrowing money from banks is a fraud. When government borrows money from a bank, it prints a bond - a promise of payment - and exchanges it for credit created by a bank out of nothing. Or put another way, government exchanges a promise of payment that is backed by the full faith and credit of the people of for a promise of payment backed by absolutely nothing - then pays twice the value, or more, of the bond over time for the privilege. Or put in a more precise way - government prints money and exchanges it for credit created by a bank and agrees to pay the bank more than twice as much again for the privilege of using their credit. Thomas Edison, while he was campaigning against government borrowing huge sums of money to build the Muscle Shoals Dam, said: "But here is the point: 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. 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 per cent, whereas the currency pays nobody but those who directly contribute to Muscle Shoals in some useful way. " ... if the Government issues currency, it provides itself with enough money to increase the national wealth at Muscles Shoals without disturbing the business of the rest of the country. And in doing this it increases its income without adding a penny to its debt. "It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people. If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold. "Look at it another way. If the Government issues bonds, the brokers will sell them. The bonds will be negotiable; they will be considered as gilt edged paper. Why? Because the government is behind them, but who is behind the Government? The people. Therefore it is the people who constitute the basis of Government credit. Why then cannot the people have the benefit of their own gilt-edged credit by receiving non-interest bearing currency on Muscle Shoals, instead of the bankers receiving the benefit of the people's credit in interest-bearing bonds?" No doubt many readers will be thinking "But government printing money will cause inflation!" This is another less than half-truth, another fraud. Say the Canadian Government printed $1 billion in new bills and used the new money to fund projects across the country. The money supply would immediately be inflated by $1 billion dollars. As this money worked its way through the economy, quite a bit of it would find its way into bank deposits. Not all money in the economy is deposited in banks. Much of it is in non-banking financial institutions (Insurance, stocks and bonds, old socks under the bead) and therefore not available for banks to use to create credit. If half the money ($500 million) ended up in banks that would let banks inflate the money supply with an additional $10 billion in credit. So yes, strictly speaking, it is inflationary for government to print money - but most of the inflation is from banking, not from the money issued by government. The official story is that if government borrows from banks, it is not inflationary. We already know that borrowing from banks is the primary cause of inflation, but when government does it, it causes even more inflation than simply printing money would. When you (personally) borrow money from a bank you are required to sign a lot of papers. One of those papers is a promise to pay, a promissory note or, in other words, a bond. This bond is considered an asset of the bank as it represents future income. This bond is not considered capital as it cannot be spent the way bills can and therefore the bank cannot create more credit using your bond as backing. When government borrows from a bank it does the same thing as you, it also gives the bank a bond. The difference between the two is that the government bond is considered capital - actual money. The bond is actually a deposit which the bank is then allowed to use to create 20 times its value in credit. So if government issues $1 billion in bills, a portion of that money will find its way to banks and be used to inflation the money supply. If government issues a bond and borrows from a bank, every single penny of the issue is available to the bank to inflate the money supply. A $1 billion bond becomes $20 billion in credit. So yes, printing money is inflationary but, borrowing money is even WORSE! http://politicsofmoney.net/bonddebt.htm [Editor's note - good website! Lots of good information! Entire article reprinted with author's permission (below) Dr C] [Proofreader's note: this article was edited for spelling and typos on August 17, 2006]

Note: http://politicsofmoney....

Options

Gov't Borrowing Is A Fraud

Contributed By

Topic

Article Rating

Options

Latest Editorials

Your Voice