Okay, I've seen enough chain letters discussing the cause of our economic
woes, and they're all incorrect, so I figured it was time to write one
that addressed the real issues. I've written this in plain English and
have taken out any technical mumbo-jumbo so people will be able to
understand it clearly. So, even though I will be leaving out some details
everything in this message will be fundamentally true.
Okay, if you want to understand the problem we have with money in this
country, you're going to have to understand 3 things:
1. Who makes our money.
2. How money comes into existence.
3. Inflation is nothing but a tax.
Let's tackle the first part:
PART I - Who Makes Our Money?
Here are 2 different $100 Bills. One has a red seal, the other a green
Notice the top of this bill. It says United States Note. That means it is
a note issued by the United States.
Now notice the top of this bill. It says Federal Reserve Note. That means
it is a note issued by the Federal Reserve. It is NOT issued by the United
States at all.
Well, who is the Federal Reserve? Aren't they part of the government you
might ask? The answer to that is no. The Federal Reserve is a private
company, just like Federal Express. And it is no more federal than Federal
Now both of these $100 Bills cost 4 cents to produce. In the old days the
govt would simply print up a red seal $100 United States Note for 4 cents
and spend the money on something it wanted. Not anymore. Today, the
Federal Reserve gets to produce the $100 Bill for 4 cents and then sells
the $100 Federal Reserve Note to the US Government for $100 Face Amount.
That bears repeating. The Federal Reserve (a private company) gets to
produce slips of paper for 4 cents ($100 Bills) and then sells those
pieces of paper to the US Govt for $100 Face Amount.
Now since the government doesn't have any money of its own how does it buy
these Federal Reserve Notes? It pays for them with debt: Treasury Bonds,
Treasury Notes, & Treasury Bills. If you read the paper or listen to the
nightly news you'll hear the media say things like "The Fed injected
liquidity into the markets..." or "The Fed is buying government
securities..." All this means is that the Federal Reserve is literally
creating money out of thin air and then selling this money to our
government for its face amount. This is the true source of our National
debt, and this is the reason our debt never goes down.
If you read an economics book this will be covered under the term
"Monetization of government debt."
Now some of you might be saying, "Why should I care about any of this?"
I'll tell you why.
You know all that income tax that comes out of your paycheck every week?
Well your money is paying for this. Your income tax dollars do not pay for
things like you think. The personal income tax does not pay for the
military, roads, schools, or anything like that. It simply pays for the
federal reserve notes with the green seal. In fact both the income tax and
Federal Reserve were created in the same year - 1913. The income tax was
created to finance the federal reserve.
Okay, pretty crazy right? Why in the world would our government pay a
private bank for money, and then tax it's own citizens to pay for it, when
we could just issue the money ourself practically for free? There is a
reason, and we'll touch on it later. Right now we're going to explain the
PART II - How Money Comes Into Existence
This part explains why we have booms and busts in the economy.
We now know that the government buys it's money from the private company
called the Federal Reserve. And we know that the government pays for the
money by issuing government debt. Because of this, the government doesn't
even own it's own money, it only rents it.
(A $100 United States Note issued in 1966 only costs America 4 cents.
While a $100 Federal Reserve Note issued in 1966 costs America $100 + $5 a
year in interest for a total of $315.00)
When the government buys one dollar from the federal reserve
The government automatically owes that dollar PLUS 5 cents in interest.
The problem with this is that although the dollar is created, the extra 5
cents in interest is NOT created. This means there is not enough money in
the economy for the government to pay back it's debt. After awhile it's
not even possible for the government to pay the interest on it's debt
unless the money supply is increased.
So out of necessity, the federal reserve & government will start a program
of expanding the supply of money. The federal reserve will create more
money to push down interest rates and the government will take on more
debt to buy more of this money.
This causes malinvestment, which means:
People are encouraged to make wrong decisions because of false signals
they are receiving from the marketplace. Businesses will tend to over
expand when they shouldn't and over produce certain goods. (build too many
houses for example.) Consumers will feel richer and so will wind up buying
more cars, homes, etc. when they really cannot afford to.
This is where programs like the Community Reinvestment Act come into play
as well as agencies like Fannie Mae, Freddie Mac, etc. Anything that
encourages expansion of the money supply (like people borrowing to buy
homes) will be done, and it doesn't matter whether the Republicans or
Democrats are in power. They know they need to keep the supply of money
growing. If they don't then this whole unstable system comes crashing
But since this system of money IS unstable it has to come crashing down
anyway: Eventually the areas in which this money is put will form a
"Bubble". It might be a Stock Market bubble or a real estate bubble, just
to name a few. Eventually these bubbles will burst because they have been
artificially created and are unsustainable. Inflationary booms are always
followed by deflationary busts as a normal cleansing mechanism of the
Now while this bubble is happening, the government can step in through
taxation and confiscation and grab enough dollars to pay for the interest
on its debt. (Income Tax). When the stock market bubble burst, they
replaced it with an even bigger real estate bubble. Now that the real
estate bubble is bursting they are trying to replace it with an even
bigger "bond market/dollar bubble". The dollar bubble being formed now IS
inflation, and will result in prices going up for everything. But like all
bubbles, the dollar bubble will eventually burst and when it does the
value of the dollar will be destroyed.
PART III - Inflation is a Tax (And that's all it is)
Okay, so far we have talked about two types of money, United States Notes
and Federal Reserve Notes. But I have to be honest. Neither of those are
actually money, they are only currency.
Here's the difference.
In 1950, you could buy 4 gallons of gasoline for ONE DOLLAR.
A paper dollar bought 4 gallons of gasoline.
silver dollar bought 4 gallons of gasoline.
Now let's fast foward to 2009
A paper dollar will NOT buy you 4 gallons of gasoline.
You cant even buy ONE gallon of gasoline with it.
But a silver dollar will still buy you 4 gallons of gasoline.
(The silver content is always worth the price of 4 gallons of gasoline.)
Here's another example:
In this picture the price of oil is calculated from the year 2000 and
priced in Dollars, Euros, and Gold. In dollars, the price of oil went up
350%, in euros it went up 200%, but in terms of gold it didn't go up in
price at all.
Why do commodities like gasoline and oil not go up in price when priced in
either gold or silver?
Answer: Gold & Silver are real money. They have intrinsic value. Gold and
silver cannot be printed out of thin air the way paper dollars can, and so
they retain their value.
When the federal reserve prints paper dollars and sells them to our
government, the government is able to go out and buy whatever it wants at
current market prices. But as that money circulates throughout the
economy, the increase in paper dollars causes prices to rise. By the time
the money gets to you and me,the price of a loaf of bread or a gallon of
milk has already gone up. This is how inflation taxes us. The government
who gets to use the newly made money first, steals our purchasing power
through inflation. The end result is that we are taxed without even
knowing it. But we all know we work harder and harder just to get the same
things in life we had before. That is the invisible inflation tax in a
nutshell. This tax affects middle class and poor people the most. And it
is the reason we hear people say "The rich get richer, while the poor get
If we used gold or silver money, the gov't would be stopped from stealing
our purchasing power through inflation.
Why don't we use gold and silver for money anymore? We're supposed to.
It's the law.
The United States Constitution: Article I, Section 10.
No state shall enter into any treaty, alliance, or confederation; grant
letters of marque and reprisal; coin money; emit bills of credit; make
anything but gold and silver coin a tender in payment of debts; pass any
bill of attainder, ex post facto law, or law impairing the obligation of
contracts, or grant any title of nobility.
The founding fathers experienced massive hyperinflation during the
Revolutionary War where the only way the country had to raise revenue was
by printing paper money. Imagine having a pickup truck filled with paper
money, scarcely being able to buy enough groceries to fill up your truck.
It's happened before in America.
"A wagon load of money will scarcely purchase a wagon load of provisions".
- George Washington, 1779.
Now this doesn't mean we have to walk around with bags of gold and silver.
We can still use paper money, checks, debit cards, and electronic banking
that is backed by silver and gold.
Let's take a look at how our $100 Bill is supposed to look. Unlike "Notes"
which are not real money, "Certificates" are indeed real money because
they are redeemable for the actual gold or silver at any time.
PART IV - Why Does Our Government Do This?
Earlier, I told you I would explain why the government does this. And the
answer is because it makes it easier for politicians to get re-elected.
Under our Constitution and a sound money system like a gold standard, the
government would have to tax the citizens with what's called a direct tax.
Let's say the government wants to spend money on some programs and it's
going to cost $300 Billion more than they are going to take in, in
revenue. That means they are going to run a deficit of $300 Billion. With
roughly 300 million citizens in America that results in a cost of $1,000
per man, woman and child. So now you get a knock on your door from a tax
collector and are told that your family of 4 will have to immediately pay
the government $4,000 in a direct tax so the government can spend money on
these programs. What would you do? You would call up your congressman and
bitch. You would tell him that if he doesn't fix the problem he will be
out of a job.
You would take an active role in politics, and that's the last thing
politicians want. They just want to get re-elected without all the hassle.
So instead of taxing you honestly, they purchase money from the federal
reserve, make our national debt go up, and devalue our money through
inflation. And since the effects of inflation are delayed anywhere from
between 6 months to 2 years, by the time gasoline or food prices go up, it
can be blamed on war, greedy arabs, or bad weather, and the politician
[and federal reserve] can escape the blame, even though they are the ones
responsible. So the next time you hear that oil prices are higher because
of a hurricane; remember it's not true.
PART V - How Do We Fix The Economy?
We got into this mess because we over spent, over borrowed, and over
So we need to do the opposite, which is save our money, pay back debt, and
not consume as much.
But wait, I hear some of you say consumption is good for the economy. The
nightly news tells us that the American economy is 2/3 driven by consumer
spending. However, that is just another fallacy.
Production is the true measure of an economy not consumption. Anybody can
eat an ear of corn, but before you can eat the corn, somebody had to grow
it. Anybody can buy a new pair of jeans, but before you can buy them,
somebody had to make the jeans. Somebody always has to produce before some
other person can consume. And saving and spending work the same way. You
have to earn and save your money before you can buy things. Here are two
"fancy" economic terms and my common sense definitions for each. You
should make sure you understand these because you will hear them more as
the economy worsens:
Keynesian Economics: Economic theory that basically says, "Spend all the
money you have. When you run out of money, borrow all you can and spend
that too. When nobody will loan you anymore money, just print the money
and keep spending." This is the policy our government follows. The gov't
spent all our money, borrowed all we can from other countries, so now the
final resort is printing even more money (and paying the federal reserve
Austrian Economics: Economic theory that basically says, "If you want to
buy something, make sure you have the money first. If you don't have the
money then save up your money, and when you have enough, buy what you
want. Pay your credit card balances in full every month and only go into
debt if it's an emergency.
We need to let the free market function. Let the depression happen. If we
let it happen, it will be over in about a year. If we drag it out with
spending plan after spending plan the depression will last for 10 years or
more. [Everybody has heard of the depression of 1929, but most people
never hear about the depression of 1920-1921, which was actually worse.
The difference was, in 1920-1921 the government didn't intervene with
spending programs. Failed companies were allowed to go bankrupt, and bad
debt was eliminated. After a year, the economy took off. The depression of
1929 was met with one government stimulus plan after another. The
depression didn't end until after WWII, in 1946.]
Not only do we, as Americans need to cut back, but we need to produce
goods and export them to other countries. We need to produce goods in
America again. We need to promote jobs here and stop the outsourcing of
American jobs overseas.
But in order to do this we need to decrease the size of government and
increase personal liberty. We need to completely eradicate the Federal
Reserve and Income Tax, and cut government spending by over $1.3 trillion
a year. (which is how much the government collects each year from the
personal and corporate income taxes). Basically, if we just follow the
United States Constitution we can fix our problems.
Imagine the trillion dollars collected each year from the personal income
tax no longer in the hands of the government but in everybodys' hands.
That's a trillion dollars more people will have and they will spend their
money alot more wisely than government does. Most of the time when
government spends money it goes for wasteful programs and everytime the
government wants to bailout somebody they wind up just bailing out their
Imagine with no more corporate income tax, how many companies would be
coming back to America to open up shop here again. There would be so many
companies coming here to open up shop and creating jobs, we would probably
need illegal aliens to work them.
We need to bring back personal Liberty. That can be best summed up as you
should have the right to keep 100% of the fruit of your labors (no income
tax) and spend your money anyway you want. After all, it's your money. But
with Liberty comes responsibility. If you get a paycheck on Friday and
spend it all foolishly on Saturday, you can't run to the government
because you have no money for food for the rest of the week. You instead
will have to turn to your family, friends, and religious leaders or
charity to help you. Eventually, you will learn to be responsible. In turn
society benefits because the more responsible and productive our people
are the better off the country will be. And as an added bonus there will
be less idiots out there trying to sue McDonalds for making them fat or
burning them with "Hot" coffee.
Further Reading, References, & Links
"The Creature From Jekyll Island" by G. Edward Griffin. You can download a
complete audio mp3 of this book at the link:
http://www.spielbauer.com/JekyllDownload.htm, burn it on a CD and
after 1 hour you will know everything about the federal reserve that the
government doesn't want you to know.
"Money, Banking, and the Federal Reserve" - 42 minute video. Complete
history of money and banking. The first 7 minutes or so is reminscient of
a high school educational video, but after that it gets very interesting.
Watch it here:http://www.youtube.com/watch?v=iYZM58dulPE
Learn more about "Austrian Economics" at the Ludwig Von Mises Institute.
Plenty of free mp3 downloads from various economists at
You can also Google or YouTube people like: "Ron Paul", "Peter Schiff",
and "Jim Rogers", to get an honest evaluation of the economy and how it
relates to current events.
http://freedomwatchonfox.com/ every Wednesday at 2pm Eastern Time to
watch Judge Andrew Napolitano's internet program "Freedom Watch" where he
always has new guests who explain the real deal within our government.
And sometimes it helps to talk to somebody who already understands these
things. If you ever have any questions feel free to visit
http://www.ronpaulforums.com. Most people at the forums are familiar
with all the facts in this email and can probably help you answer any
questions you might have.
And don't forget to read the Constitution and Declaration of Independence
every now and then to give yourself a refresher course on Liberty. If
you've never read either, then there is no time like the present to start.
You'll learn a lot from these truthful and wise documents.
Back to "Portal To Alternatives Home".