Fed Money Printing Made Easy
A number of years ago, a book on the Fed was written titled The Secrets of the Temple: How the Federal Reserve Runs the Country. It was published in 1989 during the Alan Greenspan era at the Fed, and the title has always struck me as very appropriate. The way the news media treats it, central banking is something of a mystery religion, whose priests are the members of the Fed’s Open Market Committee, the chief priest being none other than the Fed chairman himself.
As they are presented to the public, central bankers are part of an elite priesthood of very smart men and women motivated only by their desire to do what’s best for the country. They have a very complex job, far too complex for ordinary Americans to understand. Further, the activities of this banking priesthood are a matter of national security. As such, their activities must be kept secret. We, the people, are told we must place our implicit faith in this priesthood, knowing and trusting that they act only in our best interests.
According to the mainstream media, that’s all you really need to know about the Fed and its activities. Move along. Nothing to see here.
Of course, when you see an organization whose activities affect the lives of every single man, woman and child in this country, but which is not required to give a public account of its activities, your suspicions should immediately be raised.
Thankfully, there are a few men out there who have explained, in clear language, some of the secrets of the temple. Oddly enough, some of them have come from inside the Fed itself.
In the wake of the 2008 global financial crisis, Chris Martenson did a wonderful series of short videos in which he explained the workings of the financial system. I highly recommend going through them all, but today I would like to focus on one video in particular titled “Crash Course Chapter 8: Money Creation: The Fed.”
The heart of the episode is a reference to a booklet published by the Boston Fed in 1984 called “Putting it Simply,” which actually does explain with remarkable honesty the process the Fed uses to create money.
Recall the quote from Jay Powell where he described how the Fed “flooded the system with money.” Powell stated, “So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds or other government securities.” Powell was telling the truth in what he said, but let’s drill down to the next level. Let’s ask this question, what did Jay Powell mean when he said, “we [the Fed] have the ability to create money digitally?” How does that process really work?
“Well, the “Putting it Simply” book by the Fed and Chris Martenson explains the process in crystal clear language.
When the Fed buys a bond from a bank or other financial institution, they simply transfer money sufficient to cover the cost of the bond to the other bank and then they take possession of the bond.
It’s that simple. A bond is swapped for money. The Fed has the money, the bank has the bond.
Now, where did the Fed get the money to buy the bond?
I’m glad you asked. It literally comes out of thin air as the Fed simply creates money when it ‘buys’ this debt.
Such newly created Fed money is always exchanged for a debt instrument, be that a Treasury bond, a mortgage backed security (or MBS), or even corporate debt on rare occasions, so we can now put the title on this page.
Don’t believe me? Here’s a quote from a Federal Reserve publication entitled “Putting it Simply”
‘When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.‘
Wow. That is an extraordinary power. Whereas you or I need to work to obtain money, and place it at risk in the markets to have it grow, the Federal Reserve simply prints up as much as it wishes, whenever it wants, and then loans it to us all via the US government, with interest.”
Put another way, what the Fed does when it creates money out of nothing to buy U.S. government debt would be called counterfeiting if you or I did it. And if we were caught counterfeiting, we would face stiff penalties. According to this website, “provisions in the federal counterfeiting law provide for a fine of up to $250,000 and a prison sentence of up to twenty years.” But when Alan Greenspan, or Ben Bernanke or Jay Powell does it, they are lauded as heroes. Why is this? The Fed has been given the legal right to print money by the 1913 Federal Reserve Act, the legislation that created the Federal Reserve System.
That the Fed was given the power to create money from nothing can be seen from the very title of the Federal Reserve Act. It reads in part, “An Act to provide for the establishment of Federal reserve banks, to furnish an elastic currency.” The term “elastic currency” means that the number of dollars in existence can be expanded or contracted by the Fed at will. When Scott Pelley and Jay Powell were talking about “flood[ing] the system with money,” during their interview, they were talking about this very thing, the “elastic” dollar which came into being with the Federal Reserve Act. To speak of the dollar as elastic is simply a banker euphemism for “we can create (print) as many dollars as we want.”
The Federal Reserve Act in Light of Scripture
John Robbins defined economics as the study of the logic of human choice. That is to say, it’s the study of the thought processes people use to make decisions on how to allocate their resources. One of the implications of this is that economics is “value free.” Put another way, economics, including the study of banking and monetary policy, tells us about what is rather than what ought to be. Economics is descriptive, it is not prescriptive. When we get into the realm of “ought,” we’re talking about the study of ethics. Ethics is prescriptive, it is not descriptive. Ethics tells us what we ought to do.
With the above definitions of economics and ethics in mind, it may seem odd to some for me to state that the Federal Reserve Act – and all such legislation establishing central banks – is immoral and an abomination in the eyes of God.
This claim is clearly a value judgment. So on what basis do I make such a statement? On the authority of the Word of God.
The logic runs like this. The Bible alone is the Word of God and has a systematic monopoly on truth. And when we say “systematic monopoly on truth,” this includes the systematic truth about both economics and about ethics.
Put very broadly, the Bible is God’s revelation to man. He is the creator; we are his creatures. And because of this relationship, God has the right to command men to do certain things and refrain from doing other things. God is the lawgiver; you and I live under his law and are responsible (answerable) to him. Men ought to obey the law of God and ought not to disregard it.
It was stated above that the Bible has a systematic monopoly on truth. While this includes truth about economic and ethics, it covers all areas of thought, including politics. Therefore, when evaluating the Federal Reserve in light of Scripture, we must do so not only in light of the what the Bible says about economics, but in light of the whole system of truth as revealed in Scripture.
In the Bible, the civil magistrate is given only two functions, punish evildoers and praise the good. There is no provision in Scripture for the civil authorities to go beyond these functions, yet governments today see no philosophical restraint on their powers. Their only limit seems to be what civil magistrates think they can get away with.
But when civil magistrates go beyond the limits of Biblical authority they sin. Since the Bible does not give the job of manufacturing money to the civil magistrate, it is sinful for civil governments to coin money. And if civil magistrates do not have the right to manufacture money themselves, neither do they have the right to outsource the creation of money to a central bank. To do so is also sinful.
Think of it this way, if I do not have the right to steal, neither do I have the right to hire someone to steal on my behalf. The same principle applies to governments. If they do not have the right to manufacture money, neither do they have the right to set up a central bank to do it on their behalf.
From a Biblical standpoint, another problem with the Fed can be seen right in the very title of the Federal Reserve Act in the use of the term “elastic currency,” for this term implies the violation of the Eighth Commandment – thou shalt not steal. As noted above, “elastic currency” means “money printing.” And “money printing” means loss of purchasing power of your dollars. But when your dollars lose purchasing power, that purchasing power does not disappear into the ether. It is transferred to the newly printed dollars and ultimately to those who own the newly printed dollars. An elastic currency is an instrument of theft as surely as lock picks are the tools of the burglar.
The Fed is an instrument of theft. But not only that, it is an instrument of plunder whereby the already rich and well-connected are made even wealthier by plundering the poor and middle classes and transferring their wealth to themselves. Think of the Fed as a sort of reverse Robin Hood, which steals from the poor and middle class and gives to the rich. Not, by the way, that the Bible countenances stealing from the rich and giving to the poor. But I bring this up by way of saying that “elastic currency” spoken of in the Federal Reserve Act is really a transmission belt for transferring wealth away from wage earners straight to the top of the socio-economic pyramid.
We deplorables aren’t supposed to know about this.
But now you do.
Next time, we’ll take a closer look at the problems inherent in the Federal Reserve’s fiat dollar.
Lux Lucet 
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