Read Online Lies the government told you by Andrew P. Napolitano - Free Book Online Page B
Authors: Andrew P. Napolitano
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where our money comes from.
What supporters of the Federal Reserve Act further argued is that if state banks did not have someone to look out for them, they would in essence overissue their notes and reduce the amount of money they kept in reserve because of their need to make a profit. This action would lead to inflation and economic instability. One would think that if bankers were decentralized and could not depend on each other, then they would sink or swim on their own. In order to continue in prosperity, the bank would likely check itself and make sure that it was safe.
It is actually only when banks are able to cartelize, that is, form their own regulating partnerships so that they can protect themselves from the problem of a bust if they overextend, that they look to the Fed to “protect” them. In a cartel, they can make an agreement to warn each other when reserves are low and therefore not cash the checks from the deposits of banks whose reserves are low. In essence, this is central banking, and this is the Federal Reserve, federal sponsored cartelization, resulting in all of the same worries that purportedly brought the Federal Reserve as an option in the first place.
Private independent banks were not able on their own to do what they could with the Federal Reserve behind them. As Professor Murray Rothbard stated, private “banks . . . would never be able to expand credit in concert were it not for the intervention and encouragement of the government. For if banks were truly competitive, any expansion of credit by one bank would quickly pile up the debts of that bank in its competitors, and its competitors would quickly call upon the expanding bank to redeem in cash.” 18
In essence, a bank could not expand too quickly and therefore cause inflation, without risking its own crash. But when the banks get together and work from one central place, no one needs to worry about crashing because it cannot pay back its debts, since it and its competition are all backed by a “lender of last resort.” It’s like a teenager with an unlimited credit card, who knows that no matter how much money she spends, her parents will always pay the bill. And then imagine that the parents were able to force their neighbors to contribute to payments for that bill. Well, we are those neighbors, paying the bankers’ bills through the constant fall of the value of our dollar.
The Federal Reserve does something similar to fractional reserve banking, except that it has no reserves at all. Let’s say Congress is having a bad year by spending more than it takes in (that would be every single year since the end of the presidency of Andrew Jackson) and some of the bills from social programs have come in, but there is no money in the Treasury. That’s okay, they say, and head over to their favorite banker: The Federal Reserve Bank.
Now, their banker knows that the government already owes him a lot of money, but it’s all right because the interest payments are making the banker very rich. So the banker (the Fed) takes out his checkbook and writes Congress a nice check, with a lot of zeroes at the end of it. The check is signed, and Congress walks away happy. The Federal Reserve does too, even though it should actually be very worried considering that the check should bounce because there is no money in the Federal Reserve account, at least not technically, but that is not a problem. It is called “monetizing the debt,” and if you or I tried to do it, we’d be going straight to jail. But this is one of the functions of the Federal Reserve, and the government is glad to accept it. Not only accept it, but now the Federal Reserve can charge interest on money that it created out of thin air. 19
Now the best part is that the government cashes that check and starts spending the money. Those who get the money from the government put it in their bank accounts. And here is where things might get a little complicated. The local bank gets
What supporters of the Federal Reserve Act further argued is that if state banks did not have someone to look out for them, they would in essence overissue their notes and reduce the amount of money they kept in reserve because of their need to make a profit. This action would lead to inflation and economic instability. One would think that if bankers were decentralized and could not depend on each other, then they would sink or swim on their own. In order to continue in prosperity, the bank would likely check itself and make sure that it was safe.
It is actually only when banks are able to cartelize, that is, form their own regulating partnerships so that they can protect themselves from the problem of a bust if they overextend, that they look to the Fed to “protect” them. In a cartel, they can make an agreement to warn each other when reserves are low and therefore not cash the checks from the deposits of banks whose reserves are low. In essence, this is central banking, and this is the Federal Reserve, federal sponsored cartelization, resulting in all of the same worries that purportedly brought the Federal Reserve as an option in the first place.
Private independent banks were not able on their own to do what they could with the Federal Reserve behind them. As Professor Murray Rothbard stated, private “banks . . . would never be able to expand credit in concert were it not for the intervention and encouragement of the government. For if banks were truly competitive, any expansion of credit by one bank would quickly pile up the debts of that bank in its competitors, and its competitors would quickly call upon the expanding bank to redeem in cash.” 18
In essence, a bank could not expand too quickly and therefore cause inflation, without risking its own crash. But when the banks get together and work from one central place, no one needs to worry about crashing because it cannot pay back its debts, since it and its competition are all backed by a “lender of last resort.” It’s like a teenager with an unlimited credit card, who knows that no matter how much money she spends, her parents will always pay the bill. And then imagine that the parents were able to force their neighbors to contribute to payments for that bill. Well, we are those neighbors, paying the bankers’ bills through the constant fall of the value of our dollar.
The Federal Reserve does something similar to fractional reserve banking, except that it has no reserves at all. Let’s say Congress is having a bad year by spending more than it takes in (that would be every single year since the end of the presidency of Andrew Jackson) and some of the bills from social programs have come in, but there is no money in the Treasury. That’s okay, they say, and head over to their favorite banker: The Federal Reserve Bank.
Now, their banker knows that the government already owes him a lot of money, but it’s all right because the interest payments are making the banker very rich. So the banker (the Fed) takes out his checkbook and writes Congress a nice check, with a lot of zeroes at the end of it. The check is signed, and Congress walks away happy. The Federal Reserve does too, even though it should actually be very worried considering that the check should bounce because there is no money in the Federal Reserve account, at least not technically, but that is not a problem. It is called “monetizing the debt,” and if you or I tried to do it, we’d be going straight to jail. But this is one of the functions of the Federal Reserve, and the government is glad to accept it. Not only accept it, but now the Federal Reserve can charge interest on money that it created out of thin air. 19
Now the best part is that the government cashes that check and starts spending the money. Those who get the money from the government put it in their bank accounts. And here is where things might get a little complicated. The local bank gets
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