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1 u b a n k S m U S t C O V e r t h e s e , o a n s w i t h b o n d s o r o t h e r interest-bearing assets which it possesses, but that does not diminish the money-multiplier effect of the new deposit.
2- Debt obligations from the private sector and from other governments also are used in the same way, but government bonds are the primary instruments.
196
THE CREATURE FROM JEKYLL ISLAND
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| SECURITIES ASSET |
An instrument of government debt is considered an
asset because it is assumed the government will keep its
promise to pay. This is based upon its ability to obtain
whatever money it needs through taxation. Thus, the
strength of this asset is the power to take back that which it gives. So the Federal Reserve now has an 'asset'
which can be used to offset a liability. It then creates this liability by adding ink to yet another piece of paper and exchanging that with the government in return for the
asset. That second piece of paper is a ...
1
FEDERAL RESERVE CHECK
There is no money in any account to cover this check.
Anyone else doing that would be sent to prison. It is
legal for the Fed, however, because Congress wants the
money, and this is the easiest way to get it. (To raise
taxes would be political suicide; to depend on the public to buy all the bonds would not be realistic, especially if interest rates are set artificially low; and to print very large quantities of currency would be obvious and controversial.) This way, the process is mysteriously
wrapped up in the banking system. The end result, how-
ever, is the same as turning on government printing
presses and simply manufacturing fiat money (money
created by the order of government with nothing of tan-
gible value backing it) to pay government expenses. Yet,
in accounting terms, the books are said to be 'balanced'
because the liability of the money is offset by the 'asset'
of the IOU. The Federal Reserve check received by the
government then is endorsed and sent back to one of the
Federal Reserve banks where it now becomes a ...
THE MANDRAKE MECHANISM 197
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GOVERNMENT DEPOSIT
Once the Federal Reserve check has been deposited into
the government's account, it is used to pay government
expenses and, thus, is transformed into many ...
GOVERNMENT CHECKS
These checks become the means by which the first wave
of fiat money floods into the economy. Recipients now
deposit them into their own bank accounts where they
become...
COMMERCIAL BANK DEPOSITS
Commercial bank deposits immediately take on a split
personality. On the one hand, they are liabilities to the bank because they are owed back to the depositors. But,
as long as they remain in the bank, they also are consid-
