Where Does Money Come From? Who Controls All the Money?

By Jay Fried

Where Does Money Come From_ Who Controls All Our Money_ crypto cryptocurrency blockchain bitcoin

This article will attempt to provide you with an answer to the simple questions of where does money come from & who actually controls this stuff called money. In today’s world, people know that there are flaws in the financial and banking system, people are just unsure how to resolve them.

The First Central Bank

To understand central banking, it is important to understand how the concept came to be. We have to go all the way back to 1694, in Europe. England has just been through 50+ years of war. The English government, broken and exhausted, needed monetary loans to continue to fund and operate their government. Enter William Patterson, the son of a Scottish banker, who crafted the idea of a privately owned bank that could issue the funds out of thin air.

The bank hath benefit of interest on all moneys which it creates out of nothing
– William Patterson

This was the very first modern central banking system in the world. Central banking is more influential than laws, governments, and politicians. However, despite its power, it is rarely the focus of the general public.

Central Banking in the U.S.

We move along to the early 20th Century in the United States. After multiple failed attempts a group of Bankers was on a mission to put a central bank in the United States of America.December of 1910, Senator Nelson Aldrich (Republican from Rhode Island), ordered a private train car leaving from New York with 6 other passengers. Their destination, Jekyll Island off the coast of Georgia. The men were engaged in a ‘Secretive’ meeting that lasted about 9 days, and out of this meeting, they created the Federal Reserve System.

The 6 men brought together by Aldrich included: Heads of Banks, Government Officials (including Head of Treasury), and some of the Wealthiest people at the time. To try and quantify how much monetary power these 6 men had; in 1910 they constituted 25% of the World’s worth.

Selling the New System to the Public

The Bankers sold the public this new system by ensuring its goal was to stabilize the economy and stop the stranglehold of the Wall Street Banks over the American people. The problem was, that the guys that authored the bill were the very same people they said they were trying to stop. If they succeed, this new bill would give the ability to a small group of men to create money from nothing and loan it to the US government for repayment with interest.
Where Does Money Come From_ Who Controls All Our Money_ crypto cryptocurrency blockchain bitcoin

Why are You Keeping Secrets?

Why was this all done in secret? Simply put, the American people did not want a Central Bank. In 1910, unlike today, people had a better understanding of exactly central banking was and what it tried to do. Every country that enacted central banking also began to have wealth inequality, volatile swings between economic booms and busts. After each “Bust”, those in the top of society mysteriously came out richer while everyone else got poorer.

The Aldrich Bill

The Federal Reserve bill was originally called the Aldrich Bill, however, when the bill came before Congress with the Senators name it looked a little ‘phishy’. The Bankers needed to do a better job with the disguise of the bill, it was named the Federal Reserve Act of 1913. Once the naming was adjusted, the proponents of the Act still needed to fool the American public into believing the bill would benefit them. The Bankers began running newspaper articles, claiming that the system would ruin traditional banks. This was a true lesson in reverse psychology, as the average newspaper reader felt if the Bankers were against something it must be good for them. The Bankers also passively fought against Congress, by putting clauses in the bill that limited their power and removed them completely once the bill was passed.
This was the ultimate double fake-out, reminds me of the Showtime Lakers. Magic down the center fakes right to Worthy, looks left to Byron, then back to Worthy for the Jam. And that is really all it took, the bill passed on December 23, 1913, while a majority of Congress was celebrating Christmas with their families. Santa was extremely generous with a small group of 6 men who had complete monopoly over the issuing and creation of American money.

Fast Forward to Present Day

Today, the Federal Reserve is the most powerful entity in the United States. They are seemingly above the law, and not even subject to investigation beyond a simple audit. The central banking model, from the Bank of England and the United States, has now been placed in a majority of countries in the world. The only places that don’t have central banking are North Korea, Iran, and Cuba. Since the end of World War 2, the US Dollar has been the reserve currency of the world. This means all central banks hold USD in their reserves, and essentially all currencies are backed by USD.

The US Dollar Backed by Gold

After World War 2, the Bretton Wood monetary system was created, and all USD was backed by an exchangeable for gold. In 1971, due to falling value of the US Dollar, international capital flowing into the gold market, and the funding of the Vietnam War, President Nixon took the US Dollar off of the Gold Standard. At this point, the dollar became a floating asset, a piece of paper backed by nothing, and has been ever since.

Fiat Currency

Since 1971, the US Dollar has been backed by nothing tangible, and a majority of world currencies are backed by the Us Dollar. This means that a majority of the world’s currency is backed only by trust in the US Government. Money that is not backed by anything tangible (only the government that issued it) is called fiat currency. The word Fiat comes from the Latin phrase, ‘Let it be Done’. Quite literally, the government tells us this paper has value and therefore it has value.A consequence of having money backed by nothing is that whenever the Federal Reserve decides to print more money, it dilutes the currency of all other nations. This is because their reserves are backed by the US Dollar. Any time more money is created each countries reserves is worthless because of the increased supply of USD.

Over the past several years, as the US has printed Trillions of dollars it has started to take an effect. Countries such as China and Russia, have been selling off their USD Reserves in exchange for gold.

Keep the Faith

At this point it is normal to be thinking if every world currency is backed by nothing, how am I able to exchange dollars for goods? The whole economy is running and operating based on ‘faith’. Faith that the unit of currency that you possess will be exchangeable for goods and services that you want.

What Role Does the Central Bank Play?

A Central Bank can be thought of as the entity that manages a nation’s money supply. The central bank can loan money to the government and charge them an interest in repayment.

How it Really Works…

In the United States and most other countries, it works like this. When the government requires more money than they receive from taxes, they ask the Treasury Department for money. The Treasury then receives an IOU (sometimes in the form of a Bond), from the government. The Treasury (through the banks) gives this IOU to the Federal Reserve (or Fed). The Federal Reserve basically issues a check to the Banks for the amount of the IOU. During this exchange between the Fed and the Banks, money is essentially created and can now be used to pay Government bills.

Where Does the Money Really Come From?

Where does the Fed actually get the money to write this check to the banks? The answer may surprise you, like a magic trick, it literally is just created out of thin air. Check writing is a lost art at this point in 2018. However, if I write a check to cover my rent, that amount needs to be present in my bank account when my landlord shows up at the bank to deposit that check. When the Federal Reserve writes a check they are creating new money, this a power greater than God. It’s become a slippery slope, they are writing a check that is creating money from an account that has no money with a currency that has no backing. If a common person participated in the same activities of the Federal Reserve we would go to jail for counterfeiting money.

What Role do Commercial Banks Play?

Every time you take out a loan from a bank, that money is essentially created out of thin air, yet you still need to pay interest on it. We are taught to believe that when we take a loan, the bank is loaning other people’s deposited money in their possession. This is simply not the case. Every time a bank makes a loan, new money is created and essentially added to the borrower’s account. Commercials banks can legally lend out 10X the amount of money they have in reserves, this loophole is called Fractional Reserve Lending.

Why Should You Care?

There are consequences to these actions. When more loans are given out, more money is created, causing the rest of the money circulated to be worth less, this is known as inflation. Inflation is the tax we all pay for the fraud of money printing. Inflation is also the reason that in 1950, the average home cost $7,000 and the average car $2,000. As long as we keep the current system in play, things will continue to seem as though they increase in price, but truly it’s just an effect of our money being worth less.

The Dark Truth on Debt

As mentioned previously, central and commercial banks can create money like a magic trick in the form of loans. The process creates more than new money, it creates Debt. When you take a loan from the bank the bank gives you the money and they record that as a negative asset on their books. Under the central banking system debt is actually money, some experts believe that if there were no debt in the system there would be no money. Essentially, instead of gold backing our monetary value, it is now Debt.We currently operate under what is widely known as the debt-based monetary system, this system has a requirement that debt continues to grow. The system relies on people getting further into debt which in essence creates more money into the system.

Where Does Money Come From_ Who Controls All Our Money_ crypto cryptocurrency blockchain bitcoin

How Does the Fed Control Money?

The Federal Reserve and other Central Banks control money by adjusting its supply and adjusting how much it costs to borrow money (also known as the interest rate). These tools give the Federal Reserve free will to create booms and busts within the economy.Let’s examine a real-life example from the year 2000. Federal Reserve Chairman Alan Greenspan reduced interest rates to 1%. This was done in an effort to fight recession caused when the Dot Com bubble burst, encouraging people to borrow money. 1% interest rate obviously means huge savings on repayment of a large investment like a home and hadn’t available since the 1950’s. Greenspan did this to create a ‘Wealth Effect’. People would start to buy houses because it was cheap to borrow money, with more people buying houses the price of houses would increase. This would create a scenario by which people would feel wealthier and spend more money in the economy.Greenspan’s idea succeeded, but it was what you would call an overachiever. With too many people borrowing money they ultimately couldn’t afford the housing bubble eventually burst in 2008. This is a typical Keynesian approach and a prime example of what can go wrong when governments interfere with the economy.Summary

I think I can summarize this entire article with a quote from James Garfield, 20th President of the United States:

Whoever controls the volume of money in our country is absolute master of allindustry and commerce…when you realize that the entire system is very easilycontrolled, one way or another, by a few powerful men at the top, you will not

have to be told how periods of inflation and depression originate.

I wrote this article because as I start to explain how cryptocurrency works, I started to realize I don’t fully understand how fiat currencies work. As I began to dive deeper into the current banking system I quickly realized crypto is easily explained as compared to Central Banking. As always please leave your thoughts below.

References

James Garfield Wikipedia: https://en.wikipedia.org/wiki/James_A._Garfield

The Meeting at Jekyll Island: https://www.federalreservehistory.org/essays/jekyll_island_conference

Jekyll Island and the Creation of the Federal Reserve: https://www.frbatlanta.org/news/multimedia/2010/10jekyll_history_vid.aspx