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M3, the broadest measure of the U.S. money supply, shot up from $3.7 trillion in February 1988 to $10.3 trillion 14 years later, when the Fed quit reporting it. Why the Fed quit reporting it in March 2006 is suggested by John Williams in a website called "Shadow Government Statistics" (shadowstats.com), which shows that by the spring of 2007, M3 was growing at the astounding rate of 11.8 percent per year. Best not to publicize such figures too widely! The question posed here, however, is this: where did all this new money come from?
The government did not step up its output of coins, and no gold was added to the national money supply, since the government went off the gold standard in 1933. This new money could only have been created privately as "bank credit" advanced as loans.
The problem with inflating the money supply in this way, of course, is that it inflates prices. More money competing for the same goods drives prices up. The dollar buys less, robbing people of the value of their money. This rampant inflation is usually blamed on the government, which is accused of running the dollar printing presses in order to spend and spend without resorting to the politically unpopular expedient of raising taxes. But as noted earlier, the only money the U.S. government actually issues are coins. In countries in which the central bank has been nationalized, paper money may be issued by the government along with coins, but paper money still composes only a very small percentage of the money supply.
In England, where the Bank of England was nationalized after World War II, private banks continue to create 97 percent of the money supply as loans.9
Price inflation is only one problem with this system of private money creation. Another is that banks create only the principal but not the interest necessary to pay back their loans. Since virtually the entire money supply is created by banks themselves, new money must continually be borrowed into existence just to pay the interest owed to the bankers.
A dollar lent at 5 percent interest becomes 2 dollars in 14 years. That means the money supply has to double every 14 years just to cover the interest owed on the money existing at the beginning of this 14 year cycle. The Federal Reserve's own figures confirm that M3 has doubled or more every 14 years since 1959, when the Fed began reporting it. 10 That means that every 14 years, banks siphon off as much money in interest as there was in the entire economy 14 years earlier.
This tribute is paid for lending something the banks never actually had to lend, making it perhaps the greatest scam ever perpetrated, since it now affects the entire global economy. The privatization of money is the underlying cause of poverty, economic slavery, underfunded government, and an oligarchical ruling class that thwarts every attempt to shake it loose from the reins of power.
This problem can only be set right by reversing the process that created it. Congress needs to take back the Constitutional power to issue the nation's money. "Fractional reserve" banking needs to be eliminated, limiting banks to lending only pre-existing funds.
If the power to create money were returned to the government, the federal debt could be paid off, taxes could be slashed, and needed government programs could be expanded. Contrary to popular belief, paying off the federal debt with new U.S. Notes would not be dangerously inflationary, because government securities are already included in the widest measure of the money supply.
The dollars would just replace the bonds, leaving the total unchanged. If the U.S. federal debt had been paid off in fiscal year 2006, the savings to the government from no longer having to pay interest would have been $406 billion, enough to eliminate the $390 billion budget deficit that year with money to spare.
The budget could have been met with taxes, without creating money out of nothing either on a government print press or as accounting entry bank loans. However, some money created on a government printing press could actually be good for the economy. It would be good if it were used for the productive purpose of creating new goods and services, rather than for the non-productive purpose of paying interest on loans.
When supply (goods and services) goes up along with demand (money), they remain in balance and prices remain stable. New money could be added without creating price inflation up to the point of full employment. In this way Congress could fund much-needed programs, such as the development of alternative energy sources and the expansion of health coverage, while actually reducing taxes.
|1||Wright Patman, A Primer on Money (Government Printing Office, prepared for the Sub-committee on Domestic Finance, House of Representatives, Committee on Banking and Currency, 88th Congress, 2nd session, 1964).|
|2||See Federal Reserve Statistical Release H6, "Money Stock Measures," www.federalreserve.gov/releases/H6/20060223 (February 23, 2006); "United States Mint 2004 Annual Report," www.usmint.gov; Ellen Brown, Web of Debt, www.webofdebt.com (2007), chapter 2.|
|3||"A Landmark Decision," The Daily Eagle (Montgomery, Minnesota: February 7, 1969), reprinted in part in P. Cook, "What Banks Don't Want You to Know," www9.pair.com/xpoez/money/cook (June 3, 1993).|
|4||See Bill Drexler, "The Mahoney Credit River Decision," www.worldnewsstand.net/money/mahoney-introduction.html.|
|5||G. Edward Griffin, "Debt-cancellation Programs," www.freedomforceinternational.org (December 18, 2003).|
|6||In the Foreword to Irving Fisher, 100% Money (1935), reprinted by Pickering and Chatto Ltd. (1996).|
|7||Quoted in "Someone Has to Print the Nation's Money . . . So Why Not Our Government?", Monetary Reform Online, reprinted from Victoria Times Colonist (October 16, 1996).|
|8||Chicago Federal Reserve, "Modern Money Mechanics" (1963), originally produced and distributed free by the Public Information Center of the Federal Reserve Bank of Chicago, Chicago, Illinois, now available on the Internet at http://landru.i-link-2.net/monques/mmm2.html; Patrick Carmack, Bill Still, The Money Masters: How International Bankers Gained Control of America (video, 1998), text at http://users.cyberone.com.au/myers/money-masters.html.|
|9||James Robertson, John Bunzl, Monetary Reform: Making It Happen (2003), www.jamesrobertson.com, page 26.|
|10||Board of Governors of the Federal Reserve, "M3 Money Stock (discontinued series)," http://research.stlouisfed.org/fred2/data/M3SL.txt.|
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Brown's eleven books include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies.