The Fed continued

The Federal Reserve was created to be the lender of last resort, but what does that mean? When a bank becomes insolvent and runs out of money, they no longer have to close their doors. The bank has to get more money. So, why would a bank run out of money? Where does it get the money? Doesn’t it come from the deposits made by the people? Don’t banks have a huge vault with a lot of money in it? Well, in a way, but as we spoke about earlier, the reason the bank runs out of money is because they lent all of the money out. Being “loaned up” is a term most bankers strive for. Loaning out at a ratio of 90% percent wasn’t enough, they truly wanted to be able to lend at whatever rate they wanted, and now it is common to loan out at a ratio of 300%. When you hear the term to big to fail, this is why the Federal Reserve was created.
So how does all this work? And where does the money come from? This is truly fascinating and if you are not looking closely you will miss it. Remember it is their intention to make this complicated and leave you dazed and confused. It is simple but hard to believe.
In reality, money is created out of debt. This makes sense because you need money to pay for something you are in debt for. The same is true with the government or a bank. When a big bank runs out of money, or in other words, they created bad loans and didn’t receive the payment on them in principal or interest. You may hear that they are too big to fail and need a bailout. The government hears of this and gets involved to vote that the Federal Reserve should bail them out. So, they need to give more money to the bank before it collapses. When  the government gets involved this guarantees a loan because it is assumed that the government is good for it. Don’t be confused they use the term loan but there is not money to loan, the money is created out of nothing and then loaned out charging interest to the United States government.
Here is how this works, the government prints a piece of paper and calls it a treasury bond. The Federal Reserve takes this bond and calls it a security asset. This is an asset on the books for the Fed because it is guaranteed to be paid back by the government, through whatever means necessary (taxes). The Fed writes a check and creates a liability on the books, but this is offset by the asset from the treasury bond. The Fed endorses the check and gives it to the government, then it is deposited into the governments account at one of the branches of the Fed, now it is called a government deposit. This money is used to pay government expenses, and they can now pay their bills with government checks, think government paycheck or social security checks. This is how the first wave of new money makes it into the economy.
Once you and I have this money we deposit it into our accounts at commercial banks but remember that once a bank receives money it now has more that it can lend, this is called “reserves”. It’s all bookkeeping because when you deposit money into your account it is a liability because the bank must give it back whenever you request it. At the same time this money, the “reserves,” can be an asset to lend. So, the assets offset the liabilities. You may be asking yourself if this is possible because you can’t do two separate things with the same money. The answer is that they are not, they are simply creating money out of nothing, this creates inflation. The process goes on a bit further until the bank “runs out of money” and needs more this is called perpetual debt. How long can this go on?
One thing we mentioned earlier is gold. Originally the money was intended to be backed by gold to some extent. It can be hard to print, or make up more money when its backed by something that exists and has inherent value. One can only think that part of the creation of the Fed was to break away from restrictive gold. Once it broke away it could expand a lot faster, and it did.
It took 20 years, and a great depression to make the move of breaking away from gold. In 1933 FDR, by executive order, made gold illegal to own. People accepted this in exchange for all of FDR’s crazy, economically disastrous, ridiculous plans, his “new deal”. It should be no surprise to anyone that the only president to have ever served four terms was also the same president to single handily drive a nail in the coffin of the economy of the U.S.
The Fed has presided over the crashes of 1921 and 1929, and the great depression of 1929 to 1939. Recessions in 1953, 1957, 1969, 1975, 1981. A stock market “Black Monday” in 1987, and 1000% inflation which has destroyed all but 10% of our paper note’s  purchasing power.
What could be worse than this……