Why Doesn't the Government Just Print Its Tax Money?

February 3, 2008  ·  Filed under: Mailbag

From reader Casey McGrath:

So here is something I have never understood. The government prints our money and then gets it circulating in to the system by loaning it to banks at the prime rate — usually 2 or more points lower than retail lending rates. The banks then loan it to corporations and the public at higher rates, the money is then used to pay employees whereupon the government takes back approximately 23% of that same money to pay for the operation of our government. Why doesn’t the government just keep 23% (or the net equivalent of what they currently make off the public) of the money it prints and eliminate all taxes?

I mean isn’t the taxation system just a means of calculating how much the government can spend so we don’t spend more than we are producing and therefore cause inflation?

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32 Responses to “Why Doesn't the Government Just Print Its Tax Money?”
  1. That’s not actually how it works. Newly-printed money is put into circulation when the Fed purchases securities (often US Treasury bonds) from banks. The Fed also has to offer securities (also often US Treasury bonds) as collateral when ordering more money from the Treasury. US Treasury bonds are created when the government needs to borrow money.

    See http://en.wikipedia.org/wiki/Monetary_policy_of_the_USA#Money_creation for more info.

    The reason the government can’t just print money and pay off bills with it is because if an increase in the money supply isn’t backed by an actual increase in productivity, inflation results.

    Barry  ·  Feb 3, 2008 at 10:53 pm  ·  Permalink
  2. Barry wrote:

    > if an increase in the money supply isn’t backed by an actual
    > increase in productivity, inflation results.

    Actually, inflation results whether there is productivity or not as I understand it. Our system of money is based on debt and spending, not productivity.
    Sad. The more debt, the more money must be created to pay-off older debt.
    The increase in the money supply is what creates inflation.

    Jim Lynn

    Jim Lynn  ·  Feb 12, 2008 at 12:07 pm  ·  Permalink
  3. Jim wrote:
    Actually, inflation results whether there is productivity or not as I understand it.
    —–
    An increase in productivity by definition means an increase in supply and efficiency and thus lowers costs which is non-inflationary.
    —–
    Jim wrote:
    The increase in the money supply is what creates inflation.
    —–
    I believe that’s only when the Fed increases money supply. With the FairTax trillions of dollars from offshore accounts will come back to our economy. I believe most of it will go directly to stocks or bonds which increases business capital which is used to improve productivity. Thus I believe there will be a tremendous effect of increased productivity without any inflationary effect of the Fed increasing the money supply. I’ve tried to find a historical example, but it’s rare indeed that so much existing money has ever flooded an economy. Hong Kong may be the best bet, but I’ve yet to find the appropriate statistics. If someone does please let me know.

    dculling  ·  Feb 14, 2008 at 2:15 pm  ·  Permalink
  4. Actually, the Fed does NOT print money. It creates money out of nothing which is then deposited in the reserve accounts of commerical banks who can then loan 90% of that out – Fractional Reserve Banking. This produces an expansion of money supply which we are in-debted to and must pay back with interest. Actually, the government COULD print its own money to cover its National Debt and thus reduce its in-debtedness. As Thomas Eddison said “If a government can produce a $1 bond why can’t it produce a $1 bill?”
    If any government printed its own debt-free money to spend INTO the economy rather than banks lending debt money TO it then debt would decrease. This must be done in a measured way so as not to over expand the money supply whcih reduces it’s relative value. Actually money is worth nothing. It only represents an ability to trade in goods of a known value.

    See the following site which is rather well hidden which explains the way banks produce money out of nothing and lend it to us with interest. It’s from the Federal Reserve Bank of Chicago and clearly shows how banks via debt and interest run a great scam whereby they generate something from nothing that never really exists and creates a credit for it that is a debt to the borrower. Solution is to have a State bank that creates debt-free money to cover the National Debt.
    http://landru.myhome.net/monques/mmm2.html#MODERN

    Gary  ·  Apr 3, 2008 at 8:07 am  ·  Permalink
  5. Keep in mind while all these levers, if you will, are being pulled by the Fed to interfere with the economy, there is the Cantillon effect. Meaning as new money enters the system it takes time for the relationships noted by other posters to take place. Put another way, US military contractors, medical arena and others close to the government generally get dibbs on the “new” money. Thus they are producing while buying supplies that are still discounted, as the inflation effect hasn’t taken place. As inflation takes place over time its the “working man” whose salary is about the last thing to increase to keep up with inflation. In other words he is paying more money for the inflated price of good with his “old” salary. Its also the way that the US government “taxes” you, instead of taxing you directly.

    People running for office would rather “tax” its people in this insidious way instead of overtly calling for a raise in taxes to fund governmental operations. You wouldn’t vote for them! Its one of the key arguments against a central banking system and moving towards a commodity-backed dollar system. Opponents to the gold standard only go as far as stating “The gold standard is foolish and inelastic.” Yes, it is. Governments can no longer willy-nilly enter wars if they dont have the money in the first place. Opponents would not give rise to this, their comeback would be bitter stating that a gold standard “doesn’t allow for emergency money”. Lincoln needed “emergency money” to start the civil war, Lincoln put the gold standard on halt and wrote checks out of thin air. His agenda was more then just freeing slaves as revisionists teach our children in public schools. As a currently unpopular presidential candidate said in his Manifesto, “If this seems odd, then you understand.” Please reference other posters links to how central banking works in a fractional reserve fiat-system. I am familiar with the posted links and they are credible.

    I’m disappointed in my fellow Americans who view the arguments by Libertarians or Nader as “weirdos, strange and too many pie graphs and charts”. Humans often attack what they dont understand. Things are misleading and complicated for a reason; you might have a clue and live in your own best interest. The points I brought up here are specified by scholars from all over the world and throughout American history over the last 200 years. It a simple concept once you digest it. As the current system creates money through the Fed the value of your dollar is diluted and YOU pay the price down the road. An example is how Greenspan was a “hero” for creating the housing boom and now he is a “monster” from the resulting bust from easily had money going to unsophisticated investors who all jumped on the housing bandwagon. In certain counties in Florida and California, towns are virtually created by peoples investment homes they bought with this “new” money, yet no one is around to rent or buy. My condolences to those who didnt see the forces at play, got into the industry and are now broke looking for work. Some have even lost their life’s savings. Dont inconvenience some college professors with this reality as pro-central banking is in vogue and pays $$ in the form of their supportive work being printed in lemming-journal publications. In their ivory tower, there are no victims. As they would have it, with a smiling face, “Efficient markets fix themselves as resources get properly reallocated.” Yea, bud, that takes time. Try telling that line to the guy with a cup in his hand.

    Joe  ·  Jun 12, 2008 at 9:37 pm  ·  Permalink
  6. Why can’t we just print more money that is only spent on things like roads or army and then just lower taxes. Why would we have to pay more money for soemthing if its just for the gov.?

    patrice  ·  Jun 27, 2008 at 7:02 am  ·  Permalink
  7. There is a finite amount of precious metals in the world and if all major currencies suddenly decided to become precious metal backed there would not be enough precious metals in existence to cover the existing value. Countries would find themselves having to strip mine the entire planet just to back the major currencies. Instead, I could support a value based currency where currency is issued based on the overall value of the economy. In this model, one dollar would be more like a piece of stock in the overall economy, similar to stock in a corporation. You could still have inflation or deflation with this model, however, there have been precious metal backed currencies in the past that experienced inflation or deflation.

    For example, if you had a precious metal backed currency, it would be very difficult to back the value of a company like Microsoft. Microsoft created a lot of intellectual value in the form of software and I am not sure you should back intellectual value with gold or silver. Value takes many forms, precious metals is just one form.

    The government could also issue currency to cover the cost of building public infrastruture such as roads, bridges, etc. The underlying asset for the currency issued to build the infrastructure would be the roads and bridges themselves.

    I also think issuance of debt as a way to create money supply is a valid method if used properly. For example, mortgages. Mortgages cause assets to be built, people’s homes, business properties, etc. As long as a proper lending policy is in place so that you do not loan money to people with poor credit, etc., an expansion of the money supply via this method can be valid.

    Overall, I believe the days of precious metal backed currencies are over. The value of worldwide economies far exceeds the value of all precious metals ever mined. This is really a first in the history of human civilization, economies have never been this robust in the past on a worldwide scale.

    GDI  ·  Jul 6, 2008 at 4:20 pm  ·  Permalink
  8. GDI wrote:

    “There is a finite amount of precious metals in the world and if all major currencies suddenly decided to become precious metal backed there would not be enough precious metals in existence to cover the existing value.”

    I don’t see this as being true. If we re-introduced our monetary system to once again be backed by gold and silver (as it is prescribed to in the Constitution), goods and services would take up their place in the market equitable to their value. Having a finite amount of precious metals would simply mean we would have constant deflation as products or services become cheaper as compared to other available options in the market.

    GDI wrote:

    “Overall, I believe the days of precious metal backed currencies are over. The value of worldwide economies far exceeds the value of all precious metals ever mined.”

    This cannot be true. Every good, product, and service has a value. While it may be valued by our economy in a dollar amount that’s constantly being inflated, our stock market still measures itself against the price of gold. This is why ever since we left the gold standard, it costs more and more (in dollars) to buy the same quantity of gold. So while it seems that our economy is much too large to be confined by precious metals, it still is. It’s just through inflation that an ounce of gold once confined to about $21 an ounce in the early 1900s is now worth over $800 an ounce. Having a gold backed economy would make everyone more accountable to what their spending. The government could not bail all these corporations out, create more debt, and expect the taxpayer to pick up the cost through either through inflation or through more taxes. Oh, it’d also be nice to have pennies worth something again rather just having them cost more to produce than they’re actually worth.

    Alan  ·  Sep 22, 2008 at 10:43 am  ·  Permalink
  9. “There is a finite amount of precious metals in the world and if all major currencies suddenly decided to become precious metal backed there would not be enough precious metals in existence to cover the existing value. Countries would find themselves having to strip mine the entire planet just to back the major currencies.”

    You are missing an important point when you say this. To revert to a metallic based currency, all we would need to do is to re-value the metal (gold in this case) to the amount of currency in the system divided by the amount of gold in existence. That would put gold at about $40,000/Oz.

    The main problem, as others have mentioned above, is the debt base monetary system. Bankers get a hell of a free ride and control all governments in the G8 economies, sucking the lifeblood of our billions of workers. In Canada, we have a 500bn debt, and so far have paid over a Trillion in interest to wealthy individuals. Out of the 500bn, only 100bn was used in government sponsored programs. The rest in compound interest. I can’t imagine what those numbers are in the US. Ask Paulson the crook.

    Alain  ·  Oct 10, 2008 at 3:00 pm  ·  Permalink
  10. Obviously there are many problems with the current world financial system. The USD is the de facto reserve currency, and the US is the world’s only superpower. Consequently the US controls all world economies. The current world liquidity crisis is one example of the power of the US in play. No country is large enough to say that there is a better way. Japan showed the world what not to do, and yet the US did exactly that. It propped-up an overpriced stock market. They want a one-way street – ever increasing asset prices. Obviously, this will end in disaster, because those assets will return nothing – which is the whole idea of having capital. Don’t believe me – just look at the Fed Funds Rate. Look at the JCB funds rate. As a result, saving for retirement is a useless illusion. What sort of return are people getting on those McMansions? No one is going to fix this problem because they want to stay in office. What is the end result? I think that it must eventually disintegrate. That disintegration will be a collapse of asset prices and a massive US recession. Why you ask? Because, there will be insufficient funds to fund essential services. At the top of the list will be pensions. People talk about healthcare being a looming problem, but it is not a problem (financially) if you don’t use it, albeit that you may die. Seriously though, the healthcare industry although essential, is overused. Most people in the doctor’s surgery should be simply told to change their diet, exercise, and lifestyle regimes. I am not saying that there are not many people with serious healthcare needs and that this increases as we age. What I am saying is healthcare (doctors) in general is overused and abused. Sorry to digress with that, but it is part of the problem. In my humble opinion, pensions can never be funded completely through investment. Why? Because with the amount of investment required, returns will be zero. Therefore, what is needed in addition to investment in pension funds, is an efficient economy that can contribute to pensions through taxation. Obviously we do not have that – budget deficit, trade deficit, inflation, unemployment, housing crisis, financial crisis. My point is that none of these things are being addressed. We have seen the disintegration of the US economy as a result of plenty of cheap money, and their solution is to provide more of the medicine that created the problem – cheap money. Not only that, but the government takes over all of the losses caused by the failed policies of the Fed. I know that there are many intelligent people involved in these decisions, and I know that they all know much more than I do, so why do they do it? The only answer that I can find to that question is “crony capitalism”.

    brianoh  ·  Nov 1, 2008 at 12:49 am  ·  Permalink
  11. I can’t believe in the 21st century we are still using paper money.

    Joe Kaplan  ·  Jan 15, 2009 at 9:32 pm  ·  Permalink
  12. yeah, but this is bullshit.

    first of all, it should be, and basically is, that money is for productivity. but thats products, and resources is what that is. so for example, one gallon of clean filtered drinkable water costs so and so much.

    inflation does happen, so to try to hold it back doesn’t work. but i guess its just like whatever, it doesnt matter. what matters is that people can afford and can get water, food, shelter etc., and more importantlt that transactions are taking place.

    so since the government prints money, it should also make (set up) resources, so you can give the money back in exchange for goods. and people buy from your store, they should make clean water, housing and food.

    we should of course immediately pay off all debt completely NO MATTER AT WHAT COST. AND DO IT NOW. any debt paying for debt loaning whatver BULLSHIT to pay off old debt is nonsense, and that is what fucks everything up, economically.

    mike  ·  Feb 17, 2009 at 10:21 pm  ·  Permalink
  13. this brings us to look at the global scale. militarily.

    to be powerful militarily takes airplanes of the latest and newest, and carriers.

    more important reliable and proven planes, and their carriers.

    thats just to ensure you cabn fight back globally to a country that starts trouble unto everyone else. can kick his butt so he stops fighting or causing trouble.

    it really is those giant government projects that governments want to make that create these masses of money amounts, and necessitate bonds and that surplus and debt and all that. millions upon millions of dollars. or trillions or billions.

    its really quite complicated, and its really what people believe in and what they want to do, that shows us what we put value into, and what we save or spend these trillions on.

    big ideas and big projects by the government take big amounts. and it all goes economically -out the door- because of those big things.

    and its the same in the detail view. (one individual person) if i go and buy a car for 65 k, now i have ot pay it off and that will take time, and lots of my earnings. and then i will be in debt to my company, as a slave to them until its paid off, and many people will at that point get another one and the process continues, over again, its relaly what do we want to do and how much do we want to push ourselves to do something.

    mike  ·  Feb 17, 2009 at 10:30 pm  ·  Permalink
  14. so its like if we value having no national debt, then we can do that, become free of that. if we don’t care, then it will just be there, the national debt will be there.

    keep in mind that no one person is solely held responsible for this “national ” debt. so, it just continues. if one person would be held responsible, that’s different.

    one individual person probably has been in debt and almost out of money several times, but he has income sources he is waiting on. when they arrrive he has more money to continue on. if he gets more, he will spend more. if he gets less he will spend less. normal.

    so part of it, really ,,,, is having less money, not more. if you are goven more, you will spend more, and then when it slows down, then you are in trouble cause yuor are used to having more.

    of course with a one time need, you put money into a one time thing. like buy a van. once you have the van, you have it. you spent 10 grand and now you have it. you dont need 10 grand any more. you only need 20 bucks for fuel.

    this is the marvel of the modern age.

    mike  ·  Feb 17, 2009 at 10:39 pm  ·  Permalink
  15. Seriously though, the healthcare industry although essential, is overused. Most people in the doctor’s surgery should be simply told to change their diet, exercise, and lifestyle regimes——————————-

    exactly. but they dont get paid for that. the surgeons etc are corrupt. they get paid for operations, not by maintaining people.

    so part of it, is working for a nice, not corrupted system.

    you be healthy yourself, and there you go

    mike  ·  Feb 17, 2009 at 10:44 pm  ·  Permalink
  16. its when people ask for more than thwy should be asking for that things get pushed. pushing the envelope

    mike  ·  Feb 17, 2009 at 11:00 pm  ·  Permalink
  17. I still don’t understand what would happen if the government overflooded the market with money, and kept the inflation under control. Inflation always happens, and as long as is under control I don’t see the problem. The banks would have enough money that they would loan to people, businesses and therefore economic expansion would occurr, and most important it would be better for Full employment to be 0% than 3 – 4 percent. Three and four percent means that hundreds of thousands of people can’t find work.

    jim  ·  Mar 13, 2009 at 4:41 am  ·  Permalink
  18. Jim,

    If the government “overflooded” the market with money, that would be, by definition, inflationary. Full employment, whatever number you want to pick (I believe it currently is defined at between 4-5%), doesn’t mean that people can’t find jobs. It means that they are currently between them. The difference is the employee’s choice to discriminate between jobs they are choosing.

    Even if you accept inflation, flooding the market with money doesn’t necessarily lead to employment. We learned that lesson from the 70′s stagflation.

    Andrew Martin  ·  Mar 13, 2009 at 8:46 am  ·  Permalink
  19. Hi Andrew,

    My main point on my previous email was not about he unemployment.. which is another discussion. The main point was what would happen if the government flooded the market with money, so everyone had enough money to buy whatever they wanted to buy? Stagflation is inflation with unemployment but just think why would we have unemployment if businesses could get loans, and the majority of people had jobs with good salaries which in return would mean good consumption from their part? The problem that I see is that everyone says spend money but they don’t give you the money to spend. How can you consume that way?

    Jim  ·  Mar 14, 2009 at 9:44 pm  ·  Permalink
  20. Jim,

    Unemployment isn’t my main point either. “just think why would we have unemployment if businesses could get loans” That was the thinking in the 70′s, but they did have unemployment. Why? Because a business doesn’t take a loan just for the sake of taking it. The upper end of the income spectrum was so punitive within an economy that basically had no certainty about the value of money that a lot of business didn’t want to take the extra risk. It wasn’t until the Fed Chair, Paul Volker, raised rates to control inflation and Reagan, lowered the punitive progressive income tax, that the economy began to turn around (after the recession of the early 80′s).

    If the government puts more money into the economy without any increase in production, that is by definition inflation. Zimbabwe is a modern example of what happens when a government follows the course you suggest.

    Andrew Martin  ·  Mar 15, 2009 at 12:35 am  ·  Permalink
  21. the goverment takes part of the taxes and uses it to make money. because it takes 4 cents to make a dollar.they make dollar bills 4 by 8 witch makes it cost $1.28.

    eman  ·  Jun 15, 2009 at 8:13 pm  ·  Permalink
  22. Its the government were talking about they listen to our calls they have hidden cameras everywhere and they know they can print their own money. But they dont because its just another way to screw over the taxpayers out of their money because they dont want us having all that extra money. They will never know what its like to be a taxpaying average person because they are so consumed by power and money.

    Mike  ·  Aug 9, 2009 at 7:37 pm  ·  Permalink
  23. 1. Andrew Jackson, Veto of the Bank Bill, to the Senate, (1832)
    ABRAHAM LINCOLN AND THE CIVIL WAR (1861 – 1865)
    With the Central Bank killed off, fractional reserve banking moved like a virus through numerous state chartered banks instead causing the instability this form of economics thrives on. When people lose their homes someone else wins them for a fraction of their worth. Depression is good news to the lender; but war causes even more debt and dependency than anything else, so if the money changers couldn’t have their Central Bank with a license to print money, a war it would have to be. We can see from this quote of the then chancellor of Germany that slavery was not the only cause for the American Civil War. “The division of the United States into federations of equal force was decided long before the Civil War by the high financial powers of Europe. These bankers were afraid that the US, if they remained as one block, and as one nation, would attain economic and financial independence, which would upset their financial domination over the world.”
    Otto von Bismark chancellor of Germany 1876 On the 12th of April 1861 this economic war began. Predictably Lincoln, needing money to finance his war effort, went with his secretary of the treasury to New York to apply for the necessary loans. The money changers wishing the Union to fail offered loans at 24% to 36%. Lincoln declined the offer. An old friend of Lincoln’s, Colonel Dick Taylor of Chicago was put in charge of solving the problem of how to finance the war. His solution is recorded as this. “Just get Congress to pass a bill authorising the printing of full legal tender treasury notes… and pay your soldiers with them and go ahead and win your war with them also.”
    Colonel Dick Taylor When Lincoln asked if the people of America would accept the notes Taylor said. “The people or anyone else will not have any choice in the matter, if you make them full legal tender. They will have the full sanction of the government and be just as good as any money; as Congress is given that express right by the Constitution.”
    Colonel Dick Taylor 1 Lincoln agreed to try this solution and printed 450 million dollars worth of the new bills using green ink on the back to distinguish them from other notes. “The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers….. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power.”
    Abraham Lincoln 2 From this we see that the solution worked so well Lincoln was seriously considering adopting this emergency measure as a permanent policy. This would have been great for everyone except the money changers who quickly realised how dangerous this policy would be for them. They wasted no time in expressing their view in the London Times. Oddly enough, while the article seems to have been designed to discourage this creative financial policy, in its put down we’re clearly able to see the policies goodness. “If this mischievous financial policy, which has its origin in North America, shall become endurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous without precedent in the history of the world. The brains, and wealth of all countries will go to North America. That country must be destroyed or it will destroy every monarchy on the globe.”
    Hazard Circular – London Times 1865 From this extract its plan to see that it is the advantage provided by the adopting of this policy which poses a threat to those not using it. 1863, nearly there, Lincoln needed just a bit more money to win the war, and seeing him in this vulnerable state, and knowing that the president could not get the congressional authority to issue more greenbacks, the money changers proposed the passing of the National Bank Act. The act went through. From this point on the entire US money supply would be created out of debt by bankers buying US government bonds and issuing them from reserves for bank notes. The greenbacks continued to be in circulation until 1994, their numbers were not increased but in fact decreased. “In numerous years following the war, the Federal Government ran a heavy surplus. It could not (however) pay off its debt, retire its securities, because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply.”
    John Kenneth Galbrath The American economy has been based on government debt since 1864 and it is locked into this system. Talk of paying off the debt without first reforming the banking system is just talk and a complete impossibility. That same year Lincoln had a pleasant surprise. Turns out the Tsar of Russia, Alexander II, was well aware of the money changers scam. The Tsar was refusing to allow them to set up a central bank in Russia. If Lincoln could limit the power of the money changers and win the war, the bankers would not be able to split America and hand it back to Britain and France as planned.

    Abraham  ·  May 20, 2010 at 10:02 am  ·  Permalink
  24. The Green Backs worked….think about it people!

    Abraham  ·  May 20, 2010 at 10:04 am  ·  Permalink
  25. I still can’t understand why the govenment can’t just print money and pay all their bills. they show the printing on tv all the time. how does this work? we are so broke but yet we have a legal printing machine that can print all the money we need.

    jody  ·  May 24, 2010 at 3:02 pm  ·  Permalink
  26. Printing money just creates inflation, raising prices. So yes, you have more money, but you can’t buy more stuff. Also, any savings you had is now worth less.

    Morphh  ·  May 26, 2010 at 5:59 pm  ·  Permalink
  27. Words from the leading banking dynasty of America:

    “Today’s Christmas-holiday season continues the tradition set by ancient priesthood, who conducted rituals on the winter solstice to reverse the retreat of the sun from the sky. Their invariable success was followed by wild celebrations. Popular knowledge of seasonal regularities was discouraged by every manner of mysticism and outlandish ritual imaginable. Failures in prediction were blamed on sins of the peoples and used to justify intensified oppression. For centuries, people who had literally no idea of the number of days between seasons and couldn’t count anyway cheerfully gave up a portion of their harvests, as well as their most beautiful daughters, to their “faithful servants” in the priesthood. The power of our finance capitalist money cult rests on a similar secret knowledge, primarily in the field of economics. Our power is weakened by real advances in economic science. (Fortunately, the public at large and most revolutionaries remain totally ignorant of economics.) However, we established money lords have been able to prolong and even reverse our decline by systematically corrupting economic science with fallacious and spurious doctrines. Through our power in the universities, publishing, and mass media we have been able to reward the sincere, professorial cranks whose spurious doctrines happen to rationalize in terms of “common good” the government supported institutions, laws, and economic measures upon which our money powers depend

    “As early as ancient Babylon and India, Central Banking, the art of monopolizing the issuance of money, had been developed into a perfect method for looting the general public. Even today many bankers copy the traditions of the earlier exploitative priesthood and design their banks to resemble temples! Defenses of Central Banking are simply part of the deception that lies at the heart of all power elites.

    “That the Central Bank be directly in our hands is vital until our new order is firmly established throughout the governmental, business, intellectual and political spheres of society. After our order is consolidated, formal nationalization of the Central Bank with great fanfare is usually advisable in order to dispel any lingering suspicion that it is operated for private gain. Of course only loyal agents of the dynasty are allowed to obtain high offices in the Bank and our power remains intact.

    “….We ruling bankers, if able to keep peace among ourselves, become richer and richer as time passes without the annoyance of exerting productive effort of benefit to others.”

    All true knowledge of our social existence is best begun with the study of money creation (via loans) and destruction (via repayments). begin at this fact: no money was ever created, in the history of finances, to pay the interest charged on those loans that make money (the money supply) existent; money was and is always created as principal, never interest. With this fact comes the privilege to control and manipulate everything social, from stock and capital to church and family.

    vendetta  ·  Nov 5, 2010 at 4:45 am  ·  Permalink
  28. Vendatta –

    Wow! That’s deep. But, uh, what does it have to do with the FairTax?

    Hayden Kepner  ·  Nov 5, 2010 at 8:49 am  ·  Permalink
  29. Hayden

    Your question is quite fitting, but was intentionally provoked. What I wrote is just the foundation upon which I will approach the topic relevant to this blog.

    The interest charged on the money supply is a tax (the universal banking tax) that everybody (government, corporations, and individuals) must pay to the banking elite, but more importantly, a tax that seriously cripples the good intentions of any other tax reform.

    In an economic system where the money supply is constituted entirely of loans and at the same time required to commit suicide (make repayments of those loans back to the banks from itself), money will never ever exist to pay this banking tax. So when we are paying this banking tax (interest), it is from the money (money supply) which was just enough to pay back only the loans.

    This means there is always a shortage of money to pay the banking tax that every agent of the economy (government, corporation, and individual) must pay, somewhat progressively because of the compounding arithmetic of interest charges.

    Therefore our economic realities are analogous to the musical chair game, in that, government, corporations, and individuals are always scurrying and competing, sometimes viciously, with each other for the little money that exists so that they each can settle their tax obligations with the banking elite.

    The corporations are increasingly trying to squeeze whatever money they can out of the government and individuals; the government the same out of the corporations and individuals; and the individuals out of the government and corporations so that they can each dispose of their ever existing tax obligations with the banks. This manifests itself in the government’s increasing its taxes (sometimes adding new ones); the corporations’ increasing their prices; and the individuals’ pressing for increase wages.

    Now, mathematically, it is quite obvious that the banking tax places upon the economic community a demand impossible to be fulfilled, requiring the motion of a circular increase of charges (tax, prices, and wages) which can only be corrected by eliminating this banking tax.

    It must be understood that though the government serves the individuals and the corporations politically, it is an individual entity of the existing economy and must ensure its economic survival before that of the other agents in order to serve politically the other agents. Patently, without eliminating the bank tax, the government cannot reduce its taxes on individuals and corporations but only redistribute them through tax reform.

    But what good does tax reform do for any agent of the economy, seeing that shifting some of the taxes from the individuals (consumers) to the corporations will see price increases on the individuals; and from the corporations to the individuals will see increased wage payments from the corporations. And messing with income tax in terms of redistribution is a step towards communism, which, mysteriously, is what we are heading for anyway even without tax reform.

    The only real solution to the burden of the government’s tax system is for the government to take exclusive control of that part of banking that creates money, leaving private banking only the capitalistic freedom to deal in money that already exists, not the power to bring it to existence and then charge the entire economic community an-impossible-to-pay and growing sum to use that money.

    Instead of having privately-owned central and commercial banks create out of nothing the money the economy needs—lending it with interest charges to the agents of the economy—the government should have been creating and spending that money into the economy, thereby reducing significantly the need to impose burdensome taxes on the people to support interest payments to banks, and also eliminating the need to give back to these banks the money stock because it came into the economy as loans.

    If this were the case, taxes would have been minimal but also important in helping the government to control the flow of money both ways; that is, for the control of inflation and deflation.

    Even though money is a claim on real wealth, it is not unfair or ruinous (inflationary) for the government to create and spend money since somebody has to create money and since the government has to make claim on the wealth of the everybody—currently, through taxes—to carry out its functions.

    vendetta  ·  Nov 6, 2010 at 5:35 am  ·  Permalink
  30. US government does print money, but in order for it to have value, it needs a level of scarcity. That is where debt comes from. Scarcity of money creates debt. If somebody were legally allowed to print their own money, then nobody would have debt. US government has been printing new money, or adding to the money supply for many years. Most intensely in years such as 1960′s and 70′s. That is why the gold standard was abandoned, because US government printed a lot of money for wars, and welfare while the economy created the consumer economy that transitioned from a export oriented economy, which meant that the US dollars which represent IOUs backed by gold were in fact couldn’t be backed by gold, but US printed more gold certificates than it had in actual gold. That is why the US gold standard was abandoned. It was a technical default, but the world also transitioned from gold for the same reasons war, and stuff, but still, money printing, actual new units of money has increased over the years, but mildly to keep up with supposed economic growth. Printable money can be a hard currency by having mild to no inflation in comparison to other countries while having economic growth to maintain the value of the currency. In global trade, other countries do more money printing in a certain pace, and order to maintain a currency exchange rate. These countries print money adjusted for US dollar, where they export most of their stuff to, as well as a common denominator for international goods in value. In short, government can, and does print money. Taxation adds value to the money through debt. When a creditor lends to the USA, the creditor expects the interest payments to be higher than the rate of inflation. Printable money is best used spent immediately when there is economic slack, and/or the money supply, the physical money expands beyond the economy. In such a case prices increase higher, thus owning real finite assets become more attractive versus hold the actual money itself.

    Mokojin  ·  Mar 6, 2011 at 9:21 pm  ·  Permalink
  31. I know this point has been hammered already, but why can’t the government take back its power to print and circulate money and regulate the money supply from the FED? Why can’t it print and circulate its own (thus interest or debt-free) new money while taking out the old-probably through taxes or by stimulating GNP production-to control inflation? The last stimulus package (spending to stimulate production) didn’t work because the money was given to banks to then loan out to producers, but the banks didn’t loan it out. So, shouldn’t the government print its own money and bypass the banks, loaning the money directly to job creators and GNP producers and in that way stimulating GDP growth and in turn the growth of incomes to keep up with any resulting inflation?

    Chris Forte  ·  Jul 25, 2011 at 7:24 pm  ·  Permalink
  32. Mokojin: “When a creditor lends to the USA, the creditor expects the interest payments to be higher than the rate of inflation.”

    I’m trying to grasp this but admittedly I am still learning about monetary theory and policy. If the government can print its own money and that money has value as long as GNP-the production of a natiion’s real assets a.k.a. goods and services that money can be used for-keeps up, why do we need lenders? Why do we have creditors? Why do we “borrow”?

    Chris Forte  ·  Jul 25, 2011 at 7:35 pm  ·  Permalink

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