What does a Central Bank do, how does it create money, & what’s in it for you?
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base.
Investopedia.com is an additional excellent resource on defining what a central bank does.
Understanding the central bank concept is important because all of your financial success starts with how successful the monetary system itself is. The monetary system is the system of how your money works for you. The monetary system is also how your money does not work in your life such as taxes and market crashes. The design of a monetary system impacts your wealth even when you don’t realize it.
In Part 1 of this monetary series, we discussed the real life concept that money is an Agreement. We venture forth here with how our monetary system is set up by the Federal Reserve central banking system and how this impacts you.
How the Federal Reserve Creates Money: Fiat Money & Fractional Reserve Banking
Our monetary system is based on fiat money and fractional reserve banking.
Fiat money is money that is based on nothing but the full faith and credit of the US Government, i.e. money by decree. This is no different than you taking the game of Monopoly money or taking a piece of paper and doing a nice graphic design on it and decreeing it money. Nice idea, but you don’t have the authority to do so. And, if you really did try this, you would likely be put in jail.
Fractional reserve banking takes fiat money and out of thin air, creates loans that have interest rates attached. This is how our money is created. Our total money supply is backed by nothing but debt. If everyone paid back all the money that was borrowed, there would be no money left in existence. This is our current monetary system.
For an in-depth explanation of these concepts, I suggest, again, that you read The Creature from Jekyll Island: A Second Look at the Federal Reserve by G. Edward Griffin, specifically Chapter 9, “The Secret Science” and Chapter10, “The The Mandrake Mechanism.”
Fractional reserve banking is why banks failed after the 1929 stock market crash and during the Great Depression. Fractional reserve banking is how people lost their money that they deposited in the banks. The money wasn’t there.
The Federal Deposit Insurance Corporation (FDIC) was created in 1933 to insure customer deposits in banks. The part most people don’t know is that the FDIC insurance is intended for a single bank failure, not for an entire banking system failure.
Money as Debt… It is Our National Debt
The Government expands the amount of fiat money created by the Federal Reserve through bank fractional reserve lending up to 9 to 10 times the amount of the underlying debt. The Federal Reserve collects the interest on the debt.
The US national debt is over $34 trillion dollars. This means our federal government spends more than the tax revenues taken in from us, the taxpayers. You pay a lot of interest on this debt which will hit $1 trillion a year in interest alone this year. Yes, this is paid by you the taxpayer.
Government Revenue = YOU—the taxpayer—paying taxes.
This debt will never be paid off. There would be no money if we did. It will only grow in our current monetary system. This is why you are paying 50-60% of your earned income in taxes.
Our current monetary system is a system of:
The creation of money as debt with interest attached.
The Federal Reserve is a private corporation making money on creating money as debt.
If there were no debt, there would be no money.
We are experiencing the widest wealth gap than ever before in the history of the world since the US monetary system—under the Federal Reserve—went full fiat in 1971. Our monetary system has been a monetary system of perpetual debt and wealth extraction for the past 50 years. This is how our Federal Reserve central bank system creates money.
Which type of monetary system do you think is the monetary system you want:
Choice 1: Wealth Extraction from You (our current system)
A scheme of wealth extraction with unlimited, unaudited, perpetual debt, interest creation, and the use of secret leveraged counterfeit derivatives.
Choice 2: Creation of Wealth for You
A new system of asset-based wealth creation which also stores increased wealth with transparent verifiable assets.
Next Edition:
Part 3: How the World Turns; The Federal Reserve System, Fiat Money, & the American Taxpayer
Your thoughts and questions are always welcome!
MSM Advisory, LLC. is a professional practice designed to offer you the customized financial planning advice, strategies and implementation to make your dreams come true. Money matters and this is what the money is for… your vision for your life coming to life… for you.
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