Monthly Archives: November 2019

An Explanation of the Federal Reserve Money system and what it means for the potential accomplishments of American Democracy

By J.D. ALT

The big surprise of our tour of the Federal Reserve system (please see PARTS 1 & 2) is that the FED (America’s central bank)—as it is presently authorized to operate—can create “money,” as necessary, to support not only the undertakings of private enterprise, but the undertakings of public enterprise as well. Please recall that public enterprise produces needed goods and services which private enterprise cannot produce at a profit or, to make its profit, must set prices higher than what most citizens can afford to pay. To accomplish what private enterprise cannot, therefore, the U.S. Treasury, as directed by Congress, pays U.S. citizens and businesses directly to produce the goods and services of public enterprise.

The fact that the Federal Reserve system is able to create the “money” required for this spending is a surprise because we, the American voters, have always been led to believe that public enterprise is “financed” by a different method: namely, some combination of taxing private profits/income and borrowing from the investment capital of private enterprise. What we discovered, instead, is that, yes, taxes do fund some portion of the Treasury’s spending—but the remainder of the funding is derived from operations that have nothing to do with “borrowing” in any meaningful sense of the term.

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