A Common Misconception

[icon124]

Recently I've been veiwing, and hearing, about the federal reserve issues money (buys bonds) that can never be fully paid back when accounting for interest. People say because of this the Government is on a never ending borrowing spree to pay off interest.

I believe this is a common misconception. Yes, money is debt...for the federal reserve that is. Because if I take a reserve note to the Fed they have to replace it.

Let's say the government on day 1 in 1913 buys a 1,000 bond from the treasury. 1 year later the treasury has to pay that bond back plus interest. Well were does interest come from? People say since the fed is the only legal creator of money only 1,000 is floating around. Not true. Money was around before the reserve was created, and all anyone had to do was take their own notes in and trade them in for new notes. Therefore, unlike what movies like zeitgeist fail to say is, there is ALREADY enough currency in circulation to pay of interest as well.

Any insight to this situation? Again, money is debt, but not in the sense that we can never pay it off because enough was never created...simply not true. We had more than enough money in circulation to pay of FRN interest. And before the federal reserve was created we had other sources printing money charging no interest, so we can't use that as the orginal source either. Just a thought...anyone else feel the same way?

 

[Truth Warrior]

http://dictionary.reference.com/browse/Federal%20Reserve%20Note

http://dictionary.reference.com/browse/note
8.a paper acknowledging a debt and promising payment; promissory note.

 

[SWATH]

I'm no expert but it seems it works like this:

There are more assets in America, i.e. real estate, businesses, goods, and so forth, than there are FRN's in circulation.

In order to pay back the debt to the FED you have to pay back all the money that was created by them, X = X.

However in order to cover the interest payment, you must liquidate some asset converting it into FRN's, then pay the interest that way.

In essence, each X amount of FRN's sent out into circulation is sticky and comes back to the FED with some amount of asset stuck to it.

If you draw this process out long enough eventually all of the assets are given to the FED as interest payments, until there are no assets left in the hands of the public, they all now belong to the FED (who can freely convert FRN's into assets again in the form of land, houses, buildings, and businesses).

 

[Truth Warrior]

Our $100 Trillion National Debt by Bill Walker

 

[icon124]

I'm no expert but it seems it works like this:

There are more assets in America, i.e. real estate, businesses, goods, and so forth, than there are FRN's in circulation.

In order to pay back the debt to the FED you have to pay back all the money that was created by them, X = X.

However in order to cover the interest payment, you must liquidate some asset converting it into FRN's, then pay the interest that way.

In essence, each X amount of FRN's sent out into circulation is sticky and comes back to the FED with some amount of asset stuck to it.

If you draw this process out long enough eventually all of the assets are given to the FED as interest payments, until there are no assets left in the hands of the public, they all now belong to the FED (who can freely convert FRN's into assets again in the form of land, houses, buildings, and businesses).

See that is where most people get it wrong. X=X*9 pretty much, because of fractional reserve banking. Say for instance the Fed gives a bank 1,000. That means the bank owes the fed 1,000 eventually, but the bank can create somewhere close to 9,000 plus. Most of what is done is electronic so it's not like we physically give the fed 1,000 in FRN.

 

[icon124]

http://dictionary.reference.com/browse/Federal%20Reserve%20Note

http://dictionary.reference.com/browse/note
8.a paper acknowledging a debt and promising payment; promissory note.

YES, it is a debt because it is a liability to the FEDERAL RESERVE NOT US.

ah this place is driving me crazy...if your going to preach something get it right before you try to bring people to your side.

 

[Acala]

Hmmm

Here is how I think about it: the entire money supply, minus the insignificant coinage, exists as a result of being borrowed from banks. Either the government borrowed it from the Fed, or the public borrowed it from commercial banks. If the entire principle of all existing debts was paid off tomorrow there would be no money in circulation (other than the coinage). So there would be no money left with which to pay the interest that had accrued on the debt while it was outstanding.

Yes, there was money in circulation before 1913. It consisted of gold, gold-backed coinage, and (fractionally) gold-backed bank notes. The bank notes were debt to begin with and were taken out of circulation and replaced with FRNs borrowed from the Fed. The gold was confiscated by FDR and replaced by FRNs borrowed from the Fed. The coins were debased. Existing coinage is unborrowed money but is nowhere near enough to pay off the interest on the borrowed currency.

But I could be wrong.

 

[Truth Warrior]

[FONT=Verdana, Arial, Helvetica, sans-serif][FONT=Georgia, Times New Roman, Times, serif]Repudiate the 'National' Debt[/FONT]
Murray Rothbard on saving money and freedom.[/FONT]​