Letter: Federal government responsible for debt
In the United States of America, where does money come from? Who creates it and how do they do it?
In 1913 the U.S. Congress created the Federal Reserve Banking System. The only connections between the federal government and the banking system is the federal reserve chairman is appointed by the president and Congress is supposed to regulate federal activities. However, in recent years, we have elected congressmen who think deregulation is a solution to one financial crisis after another. Any congressman who thinks deregulation is the solution has probably never heard of the “fox in the hen house.” Remember the financial crisis of 2009!
The Federal Reserve in 1913 instituted fractional reserve banking, which is a fraction of the money issued is held in reserve. The system monetizes debt. Money is created by crediting a private or government account each time they borrow money. There is no money unless the private or public sector borrows it. The money returns to nothing when the loan is repaid or written off by debiting the account by the amount paid.
Most people think of bills and coins as money. It is a medium of exchange printed by the federal government for the Federal Reserve. Some politicians would have you believe that if the government needs money it just prints it. If that were true, we wouldn’t have a national debt.
With fractional reserve banking our nation’s economy cannot function unless the private and public sector borrow money. If the private sector borrows money it tries to find a way to pay it back. The government, on the other hand, went from 2000 to 2008 borrowing money to fight two wars and perform all of the other necessary functions of government without paying or without additional revenue.
Now they would have you believe that the only way to balance the budget is to cut it. The last administration to balance the budget only by cuts was the Hoover administration.