I got a message in my email with the following question.  The email was not addressed to me, but was forwarded to me that asks some very timely questions.  

As I lay awake at night, thinking of the ever-increasing “bailouts” pledged to various interest groups, I have a couple questions.  

First of all, where is the money coming from?  Does the government have access to either the proverbial City of Gold or have its own forest of money trees?  Or perhaps will we find ourselves in the not-so-distant future giving more of our tax dollars to this great cause of saving the everyday American from the consequence of poorly thought-through purchases?

There were other questions, and this post will only look at where the money comes from.

When the United States Treasury runs out of money, as it often does these days, they go to the Federal Reserve Bank for a loan of U.S. Dollars to be paid back with interest.  Every dollar we spend was issued by the Federal Reserve Bank which is a private institution with some government oversight.  The people who own the bank are kept secret.

The dollar’s value is based on the “clap for tinkerbell” theory as explained by Dave Barry, in Dave Barry’s Money Secrets.   It is the kind of thing that sounds like a joke, but is not.

OK, so back to where the money comes from.  It comes from nothing.  Literally.  These dollars for the $700 Billion rescue package come from nothing.

When the country was founded, there was a U.S. Dollar and the value and regulation thereof was set by congress.  Individual banks could issue reserve notes for people who did not want to write out drafts for services rendered, much like a check is used today, or even traveler’s checks in pre-set amounts of money.

There were many tumultuous years where we had a national bank, then didn’t and had one again.  When the Civil War was getting ramped up, Abraham Lincoln needed money to prosecute the war and the large money interests in New York were happy to loan the money at a very high interest rate.  President Lincoln chose to issue green backs for currency based on the full faith and credit of the United States and he successfully was able to finance the war instead of going to a national bank for financing.  He was also assassinated.  Whether the two things are related, I don’t know for sure.  President Kennedy started issuing Silver Certificate dollars from the U.S. Treasury by executive order instead of relying solely on the Federal Reserve.  He was also assassinated.  Whether that was related or not, I don’t know either.

In the 20th Century, the great and final national bank was established by the Federal Reserve Act of 1913.  This has now forever put the United States in debt to a private bank because Congress has abdicated its responsibility and power to issue currency and regulate the value thereof.  U.S. Dollars were once backed by Gold, then there was fractional banking, and now the dollar is backed by essentially nothing.  Clap for Tinkerbell.

It has become even worse.  It used to be that the Federal Reserve would have to print a piece of paper labeled to indicate the value thereof and these dollars issued all had a debt attached to them payable to the Federal Reserve Bank.  Now with electronic banking, the Fed doesen’t even have to do that.  They just type numbers into a computer and make electronic transfers to issue dollars.  They are literally creating money out of nothing.  I have posted earlier on this issue of banking with better citation here.  Governments traditionally have the power to print or coin as much money as necessary to meet the needs of society, in the United States and in many countries around the world, this power has been given over to Central Banks.

Because the United States went off the Gold Standard for the dollar, and electronic banking now makes it possible to create money out of keystrokes on a computer, the short answer is that money comes out of nothing.

What this means is that a privately owned bank can loan money created out of nothing to a Government who will pay it back in interest, based on raising taxes on the citizens of the country.  We are in a position where the bank can make money out of nothing, but for us to pay it back takes years of toil, labor, effort, and life because we have to work for the money.  

How is this much different than slavery?