Creature From Jekyll Island by G. Edward

NATIONAL DEBT NOT NECESSARY FOR INFLATION

Because the Federal Reserve can be counted on to 'monetize''

(convert into money) virtually any amount of government debt, and because this process of expanding the money supply is the primary cause of inflation, it is tempting to jump to the conclusion that federal debt and inflation are but two aspects of the same phenomenon.

This, however, is not necessarily true. It is quite possible to have either one without the other.

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The banking cartel holds a monopoly in the manufacture of money. Consequently, money is created only when IOUs are

'monetized' by the Fed or by commercial banks. When private individuals, corporations, or institutions purchase government bonds, they must use money they have previously earned and saved. In other words, no new money is created, because they are using funds that are already in existence. Therefore, the sale of government bonds to the banking system is inflationary, but when sold to the private sector, it is not. That is the primary reason the United States avoided massive inflation during the 1980s when the federal government was going into debt at a greater rate than ever before in its history. By keeping interest rates high, these bonds became attractive to private investors, including those in other countries.1

Very little new money was created, because most of the bonds were purchased with American dollars already in existence. This, of course, was a temporary fix at best. Today, those bonds are continually maturing and are being replaced by still more bonds to include the original debt plus accumulated interest. Eventually this process must come to an end and, when it does, the Fed will have no choice but to literally buy back all the debt of the '80s—that is, to replace all of the formerly invested private money with newly manufactured fiat money—plus a great deal more to cover the interest. Them we will understand the meaning of inflation.

On the other side of the coin, the Federal Reserve has the option of manufacturing money even if the federal government does not go deeper into debt. For example, the huge expansion of the money supply leading up to the stock market crash in 1929 occurred at a time when the national debt was being paid off. In every year from 1920 through 1930, federal revenue exceeded expenses, and there were relatively few government bonds being offered. The massive inflation of the money supply was made possible by converting commercial bank loans into 'reserves' at the Fed's discount window and by the Fed's purchase of banker's acceptances, which are commercial contracts for the purchase of goods.

Now the options are even greater. The Monetary Control Act of 1980 has made it possible for the Creature to monetize virtually any 1. Only about 11 to 15 per cent of the federal debt at that time was held by the Federal Reserve System.

2- See chapter twenty-three.

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debt instrument, including IOUs from foreign governments. The apparent purpose of this legislation is to make it possible to bail out those governments which are having trouble paying the interest on their loans from American banks. When the Fed creates fiat American dollars to give foreign governments in exchange for their worthless bonds, the money path is slightly longer and more twisted, but the effect is similar to the purchase of U.S. Treasury Bonds. The newly created dollars go to the foreign governments, then to the American banks where they become cash reserves. Finally, they flow back into the U.S. money pool (multiplied by nine) in the form of additional loans. The cost of the operation once again is born by the American citizen through the loss of purchasing power. Expansion of the money supply, therefore, and the inflation that follows, no longer even require federal deficits. As long as someone is willing to borrow American dollars, the cartel will have the option of creating those dollars specifically to purchase their bonds and, by so doing, continue to expand the money supply.

We must not forget, however, that one of the reasons the Fed was created in the first place was to make it possible for Congress to spend without the public knowing it was being taxed. Americans have shown an amazing indifference to this fleecing, explained undoubtedly by their lack of understanding of how the Mandrake Mechanism works. Consequently, at the present time, this cozy contract between the banking cartel and the politicians is in little danger of being altered. As a practical matter, therefore, even though the Fed may also create fiat money in exchange for commercial debt and for bonds of foreign governments, its major concern likely will be to continue supplying Congress.

The implications of this fact are mind boggling. Since our money supply, at present at least, is tied to the national debt, to pay off that debt would cause money to disappear. Even to seriously reduce it would cripple the economy.1 Therefore, as long as the Federal Reserve exists, America will be, must be, in debt.

The purchase of bonds from other governments is accelerating in the present political climate of internationalism. Our own money 1. With the Fed holding only 7% of the national debt, the effect would still be devastating. Since the money supply is pyramided ten times on top of the underlying government bonds, each $1 eliminated from the federal debt would cause the money supply to shrink by 70 cents (1.00 X .07 X 10 = .70).

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supply increasingly is based upon their debt as well as ours, and they, too, will not be allowed to pay it off even if they are able.

TAXES NOT EVEN NECESSARY

It is a sobering thought that the federal government now could operate—even at its current level of spending—without levying any taxes whatsoever. All it has to do is create the required money through the Federal Reserve System by monetizing its own bonds.

In fact, most of the money it now spends is obtained that way.

If the idea of eliminating the IRS sounds like good news, remember that the inflation that results from monetizing the debt is just as much a tax as any other; but, because it is hidden and so few Americans understand how it works, it is more politically popular than a tax that is out in the open.