Is All Money Debt? Comparing Private Versus Government Entities

Executive Summary

  • The phrase is often stated that all money is debt. The answer is interesting and depends upon the banking system and also on who is being discussed.

Introduction

There are two different scenarios that it is essential to consider concerning this question.

Scenario #1: The Question of the Private Entity

The first scenario is when a private individual or company takes out a loan.

This is explained in the following quotation.

“If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible – but there it is.” ~ Robert W. Hemphill/AZ Quotes.

Money is created when a bank loan is extended. This is how the banks are given the power to create money by the government. There are complicated topics related to reserve requirements, but it is far more accurate and easier to understand by simply thinking of money being created from nothing. When a loan of say $300,000 is created, it appears through the entry on a computer. If the money is used to buy a house, then the buyer (who obtained the loan) provides a check to the seller, which is then given to the seller’s bank. The seller’s bank then creates a credit of $300k, and the loaning bank (which created the money with a credit entry, then records a debit of $300k, which of course takes the buyer’s account to $0 (unless they have other money in the account, but for simplification, they do not).

Therefore this illustrates that money was created from nothing with an accounting entry. The seller’s bank then received payment with an accounting entry. Nothing of actual value was involved. It was fictitious numbers that were created and transferred. Anyone could do the same thing among a group of friends.

Creating One’s Banking System

One could create a new currency called “Superdollars,” and then for the system to work, all the friends in the group would simply accept the Superdollars. Each person could start with, say, 500 Superdollars. Then, if the group of friends sold items to each other or offered each other services — then they would debit and credit the appropriate number of Superdollars from each other’s accounting system, which could be maintained in Google Sheets. Everyone could open the Google Sheet and see the transfer of money between the friends.

This example illustrates how money is just a system of trust and acceptance of that currency. If one thinks of the idea that these Superdollars need to be “backed by gold” or other precious metals, it becomes apparent quickly that there is no need to “back” the Superdollars with anything. The Superdollars are valuable because the group of friends accepts that they will be used. This is why the best description of money is that it is social credit. This is why currencies are very strongly tied to governments. Governments have the power to declare what is the accepted currency in an area.

Scenario #2: The Question of the Government

All of the rules change when the entity in question is the government. And there are also two different scenarios within this one scenario.

Let us begin with the most common scenario. Let us call this Scenario #2A.

Scenario #2A: The Central Bank is Private

Many countries in the world have been tricked into handing their banking over to private interests. This is what the US Fed is. However, the Fed lies about their status on their website, as can be seen in the following quotation.

The Federal Reserve, like many other central banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress.

Well, which is it? Is it independent or accountable to the public? It is challenging to see how the Fed is accountable to Congress, as they refuse to answer questions from Congress, as is shown in the following video.

This does not look particularly accountable, does it? 

Secondly, the Fed is not a government agency. It is not part of the Federal Register and is a private entity. So the fact that it claims to be a government agency illustrates how much central banks lie about their status. The intent of central banks that are in private hands is to deceive the public that the central bank is in private hands. Private bankers will tell any lie they have to keep private control over the money creation power that should reside with governments.

What a Private Central Bank Means

If a central bank is private, this means that it usually creates money through issuing debt. In the case of the US, the Fed and the Treasury perform an exchange. The way that the money supply is managed is explained again by the Fed’s website.

If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.

All of this should be questioned because why does increasing the supply of money or decreasing it involve any bond. And the answer is that under a private central bank, dollars are tied to bonds. This is entirely unnecessary and counterproductive.

The example to consider is if you control an imaginary region with your name as it. So if your name is Sami, then your area would be called Sami-Land. Let us imagine it is an area that is 20 miles by 20 miles around your home. Now the currency of this land is called the Sami, and as you control the printing press, you can make as many Samis as you want — technically, you don’t want too many around, as it will cause inflation. The question you should as a thought experiment, if you wanted to create Samis, why would you need to issue a bond or issue debt? This is a question that private central banks like the Fed do not want anyone to ask. They explain their activities as they are perfectly logical to the outside world. University students are told that the money creation process between the Fed and the Treasury, which results in Treasury Bonds being created, is entirely logical and should never be questioned. However, how the Fed makes money is harmful to the US. And to understand why, let us review the second scenario, which we have called Scenario #2B.

Scenario #2B: The Central Bank is Public

In the second scenario, the central bank has no private involvement. Like the Sami-Land example, however, Sami (unlike US politicians) was not so mentally deficient to outsource his money creation power to corrupt private interests who have no more significant concern for the public good and masquerade as a part of the government, money is created without any debt. So if Emperor Sami wants to have a new amphitheater built, he simply makes or conjures the Sami’s out of thin air to pay builders and buy material. As everyone in Sami-Land accepts Sami’s, they are happy to be paid in this currency. As pointed out, Emperor Sami can create Samis without any debt because the Samis are really just an illusion. They are created with accounting entries. There are some paper Samis in circulation, but that is just around 3% of the money in the system. Nearly all the Samis are just accounting entries carried on the various banks in Sami-Land.

This brings up another topic as to why any private banks exist in Sami-Land at all, as all they do is ride the coattails of the Emperor’s currency. They are troublesome to regulate as they want to charge the citizens of Sami-Land usurious interest and get involved in all manner of shenanigans, but that is a question for a different article.

Conclusion

Money is strongly related to debt. One of the significant ways that money is created is through loans. Loans are created from nothing and rely on banks accepting the accounting entries of other banks.

When governments engage in spending, they can do so by creating the money from nothing if their central bank is public. If the central bank is private, the process is generally that a debt is created. The entire process is bizarre, as, in the case of Treasury Bonds, the government receives money and sells these bonds to its citizens (and sometimes the citizens of other countries). However, the government does not need money from its citizens, as it has the power of money creation.

Simplifying the Process

The entire process of money creation and banking is greatly simplified as long as the money creation function is kept in the government’s hands. Governments can create money. However, they have to be sure not to spend to the degree that they reduce the value of their currency. Therefore, while it is a great power, it not only needs to be managed responsibly, but the ability to create money does not mean that the spending should be used to purchase ineffective items and services. One example of irresponsible spending is as much of the military spending in the US.

When countries are a war, there is a big push for the citizens to buy war bonds. This does not make sense. It proposes that the government needs money from its citizens. That is not possible, as it has the money creation power. There is a great deal of confusion on money and banking by governments. Each government has corrupt private bankers that seek to confuse the politicians of these countries and allocate the social credit of the government’s money to private banking interests. Most of these wars are also not necessary, but they declared as absolutely necessary. Therefore in each war bond poster, there are multiple false claims made to the target audience. The objective of governments and private banking interests is to lie to their citizens about both wars and also how banking works. The less they understand, the more they can be deceived. 

The Fed

Source: https://www.federalreserve.gov/faqs/about_12799.htm