How Federal Reserve Notes Work

He would issue bank notes that you could use like cash and would have whatever value the market puts on them.

Exactly. It's a perfect way to bail out the rich when they screw things up. Without a fiat currency system, the government would have no way to save bankers from their losses.

 

I don't see why a private mint would do that any more than Kellogs would change out the wheat in Wheaties for sawdust. There might be a short term profit made by it, but corporations serve the shareholders who are people like you and I who invest for the long term. Besides, it's easy enough to only do business with companies that use independent auditors who test their goods. That's common to all industries.

 

there, ftfy

 

Thank you for explaining this. This is much worse than I imagined it to be.

 

I wish I had good news, but the government foresaw this problem.
And if they hadn't already covered it...you would have been gold...

 

The gold standard limits liquidity, that is how it increases value of money. So Ben Bernanke couldn't do easing with it, because the market wouldn't make his bank notes valuable. That is why the federal reserve must control the value of money, so that we can bailout companies who flounder and SAVE JOBS.

The rich are job creators, if they aren't bailed out poorer people lose their jobs, they must be saved by printing currency.

What everyone is missing here, is that federal reserve notes are a safety net for the failures of the free market. It may appear that the rich benefit from QE, but in the end they are the successors of Capitalism, and as we well know when Capitalism fails Socialism must bail it out.

At least in any responsible, moral society, where the Government of that democratic society cares about the livelyhoods of the people, more than the market itself.

 

This is false on so many counts it's hard to address. First of all it's based upon a complete misunderstanding of what the US Constitution states in Artlcle I Section 8 when it delegates the authority to Congress to "coin money, and regulate the value thereof" because this is not the authority to regulate the purchasing power of money. Regulating the value relates to ensuring that that the "lawful" money holds relative value between the gold and silver coins produced by the US Mint. For example, currently a $50 American Gold Eagle coin contains one ounce of pure gold and a $1 American Eagle Silver coin contains one ounce of pure silver.

With gold selling for about $1500/oz and silver selling for about $30/oz this ratio is fairly accurate so that a person would be just as willing to accept fifty $1 American Silver Eagles as one $50 American Gold Eagles. There is a problem though because Congress is inept. A $10 American Eagle contains 1/4th oz of pure gold so the People would prefer to be paid in five $10 American Gold Eagle coins as opposed to one $50 American Gold Eagle because they would have 1 1/4 ounces of gold with the five $10 American Gold Eagles but only 1 oz of gold with a single $50 American Gold Eagle. The really screwed it up with the recently introduced $100 American Platinum Eagle coins because platinum trades for about $1400 (last time I checked) so everyone would rather have $100 in ten $10 American Gold Eagles over any other denomination of US coins.

Basically Congress is doing a horrible jobs of "regulating the value thereof" when it comes to producing lawful money in the United States as American Gold Eagles are the only "lawful money" being produced in the US. Federal Reserve notes are "legal tender" but they are not "lawful money" and there is a difference between the two. Federal Reserve notes are a promissory note redeemable in "lawful money" under Title 12. A $50 Federal Reserve note is a promissory note redeemable in $50 in either American Silver, Gold or Platinum American Eagles under the laws and Constitution of the United States but the Federal Reserve refuses to comply with the law and the US government is not requiring the Federal Reserve to comply with the law.

As we also know the monetary policies of the Federal Reserve that Federal Reserve notes are losing value in the market because they can't be redeemed in lawful money as required by the laws of the United States. When a "currency" has lost over 97% of it's purchasing power no rational person can state that the Federal Reserve is preserving the value of it's currency in the market. Not surprising this also relates to a violation of the laws of the United States. Under Title 31 the Federal Reserve is responsible for ensuring the equal purchasing power of Federal Reserve notes and American Eagle coins but it has not done that. American Eagles and Federal Reserve notes are the only forms of "legal tender" monetary currency in the United States and Title 31 requires them to have equal purchasing power in the United States. Equal purchasing power can only be maintained if these two can be converted from one to the other based upon the denomination value of the "lawful money" established by Congress under the authority of Article I Section 8 clause 4.

Next is the fact that the US government and the Federal Reserve didn't "save" corporations and jobs by an influx fo money if we use GM and Chrysler as examples. Both corporations, after tens of billions of dollars were funneled into them by the US government, still failed and ended up in bankruptcy. Overall hundreds of thousands of jobs were lost at both GM, Chrysler and at their suppliers. It was the voiding of contracts, the discharge of corporate debt, downsizing, the sale of assets, and the purchase of these corporations under Chapter 11 bankruptcy proceedings that allowed a much smaller version of GM and Chrysler to exist today.

GM was purchased by NGMCO Inc and Chysler was purchased by Fiat. Had the US government done nothing the result would have been the same and no government intervention, except by the Bankruptcy Court, was ever required. All of this would have played out without any government funding. At the most the US government could have guaranteed loans for GM and Chrysler based upon their respective bankruptcy reorganization plans similiar to what it did in 1979 with the Chrysler bailout. IN 1979 the US government provided a $1.5 billion loan guarantee to Chrysler and it didn't cost the American taxpayer a dime. Not a single government dollar was given to Chrysler in 1979 and not a single government dollar was required in 2009 for either corporation. With loan guarantees both corporations could have funded their financial needs with bank loans. As it is it appears that US taxpayer is going to lose tens of billions of dollars.

False, consumption creates jobs. Yes, if there is potential consumption then the wealthy can capitalize an enterprise but it is based upon future consumption. Even without the "rich" new enterprises can still be capitalized. Remember a simple fact, only corporate IPO's create real jobs because they capitalize the enterprise. Most stock investments are merely exchanges of ownership of the corporation and not a single dime of these transactions fund the enterprise or create jobs related to the enterprise. Stock market investments, for the most part, don't create any jobs except at the investment companies which are parasitic enterprises when it comes to the economy.

False again. Federal Reserve notes are not a safety net. American Eagle coins are a safety net because they don't lose value over time. Investment history shows that when the "dollar" (i.e. Federal Reserve notes) is weak that investors switch to gold and silver because they don't lose value like Federal Reserve notes. When this happens then US goods cannot be traded for the same amount of foreign goods which increases the cost of living for Americans.

If our government cared about the livelihood of the People it wouldn't be stealing their labor by inflationary monetary policies. A person stores their "labor" in "money" and when that "money" purchases less over time it reflect the theft of the labor of the individiual that' has stored their labor in "dollars". What part of this don't people understand? Inflation is the theft of labor and always has been.

 

It may be against the constitution to print money but its practical, the bailouts saved GM along with bankruptcy filing. They were too deep in debt, no amount of restructuring alone could have pulled them out, they needed taxpayer money to cushion their fall. We had the smartest, Harvard educated, Elite government economists, at the helm evaluating this. BOTH administrations concluded, there was no way to let them fail alone, without causing more turmoil to the economy.

If we ran under a gold standard you can't create more Gold, when big corporations that are too big to fail, fail, more people are left without jobs and on the streets.

This isn't a country known for generous safety nets, we can't afford to NOT do QE or operation twist. These easing efforts keep people in their homes, civilized, and not reduced to crime.

 

They said the same thing about the Vietnam War, all those smart Harvard educated people were the very ones who got us bogged down in that quagmire of death and destruction.

Since the economy is in the crapper, I'd think that is proof enough those Harvard trained fools don't know a thing about the economy, but they do know a lot about power and its uses.

 

As established by the Supreme Court in Julliard v Greenman the US government can issue legal tender currency based upon the power delegated by the US Constitution under Article I Section 8 which authorizes the Congress to "borrow money on the credit of the United States" but people should take note of the fact that this is BORROWING and not creating money. The notes issued are promissory notes subject to redemption. Federal Reserve notes, under the law, are promissory notes that promise redemption in lawful money (i.e. American Eagle coins) but in practice these notes cannot be redeemed. The Fed has no intention of redeeming the notes and therefore the notes are fraudlent and violate US law and the Constitution.

People should read Julliard v Greenman as it is worth the time to understand the Court's logic.
http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=case&court=US&vol=110&page=421

First of all someone needs to explain how government money spends better than private money. As historically noted in 1979 the Chrysler Corporation was bailed out without a single dime of government money being used. The government did provide a $1.5 billion loan guarentee but did not contribute one dime towards funding Chrysler. It can also be noted that every dime that Chrysler borrowed was paid back to the private loan institutions. With GM and Chrysler today the government is being stuck with tens of billions of dollars in losses. Apparently "private money" is better than "government money" when it comes to the corporation repaying the debt.

Can we assume that the "smartest, Harvard educated, Elite government economists" were as qualified as the "smartest, Harvard educated, Elite government economists" that helped draft the Gold Bullion Coin Act of 1985 when they couldn't even add to figure out that five $10 American Gold Eagles and a 1/4 oz more gold content than a singe $50 American Gold Eagle? If anything the "smartest, Harvard educated, Elite government economists" aren't quite as smart as the typical 10 year old in elimentary school based upon their ability to add, subtract, mulitply and divide.

And while these "smartest, Harvard educated, Elite government economists" were embracing the government bailouts numerous private sector economists that could actually add were stating that the bailouts were completely unnecessary. As it turned out the private sector economists were correct because all of the issues were resolved by the Bankruptcy court, not government dollars.

Two points.

First of all in a financial emergency the government can create legal tender promissory notes based upon the Supreme Court decision in Julliard v Greenman cited above.

Next it's the US government that allows the creation of big corporations that are "too big to fail" and even promotes it. Much of the TARP money went to creating even larger banks that are "too big to fail" such as the acquisition of Washington Mutual by Chase that was funded with TARP money.

If a person looks honestly at history it's the US banking system that causes most of our financial problems. In 1929 it was the banks loaning money for stock purchases "on the margin" of only 10% that lead to the Stock Martket Crash in 1929. When we look at our most recent major recession of 2008 the foundation for that crash was based upon the inflationary monetary policies of the Federal Reserve, the biggest private bank in the United States.

Some people look at the Federal Reserve as if it's the savior of America when, in fact, its the direct cause of perhaps half of all the financial problems in America and the indirect cause of most others.

 

another excellent summary.
Two things

1) I would quibble with "private bank" due to the unique, Congress created power the FED has. It is a government mandated banking cartel.

2) It is the direct cause of 100% of the systemic monetary problems of the US. This is not saying there wouldn't be problems with private money (we're human, after all), but when the most basic factor of the economy, namely, the price of money, is controlled by an entity with major incentives to use their power to manipulate interest rates (the price of money) then literally every transaction is affected by that intervention. 100% of transactions are done with misleading or false data

Also a return to private money would force the government to stop waging external wars. I think that alone should be enough