How The Federal Reserve Scam Works

From the book "The Creature From Jekyll Island" by G. Edward Griffin.

Although national monetary events may appear mysterious and chaotic, they are governed by well-established rules which bankers and politicians rigidly follow. The central fact to understanding these events is that all the money in the banking system has been created out of nothing through the process of making loans.

A defaulted loan, therefore, costs the bank little of tangible value, but it shows up on the ledger as a reduction in assets without a corresponding reduction in liabilities. If the bad loans exceed the assets, the bank becomes technically insolvent and must close its doors.

The first rule of survival is therefore to avoid writing off large, bad loans and if possible to at least continue receiving interest payments on them.

To accomplish that, the endangered loans are rolled over and increased in size. This provides the borrower with money to continue paying interest plus fresh funds for new spending. The basic problem is not solved, it is postponed for a while and made worse.

The final solution on behalf of the banking cartel is to have the federal government guarantee payment of the loan should the borrower default in the future.

This is accomplished by convincing Congress that not to do so would result in great damage to the economy and hardship for the people. From that point forward, the burden of the loan is removed from the banks ledger and transferred to the taxpayer.

Should this effort fail and the bank be forced into insolvency, the last resort is to use the FDIC to pay off the depositors. The FDIC is not insurance because the presence of "moral hazard" makes the thing it supposedly protects against more likely to happen.

When FDIC funds run out it is provided by the Federal Reserve system in the form of freshly created new money. This floods the economy causing the appearance of rising prices but which, in reality, is the lowering of the value of the dollar.

The final cost of the bailout is passed on to the public in the form of a hidden tax called inflation.


The Austrian Theory of the Business Cycle

It should be called the Austrian Explanation of the Business Cycle, because it's spot on.

The theory proposes that a sustained period of low interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment.

According to the theory, the business cycle unfolds in the following way.

Low interest rates tend to stimulate borrowing from the banking system.

This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system.

This in turn leads to an unsustainable credit-sourced boom during which the artificially stimulated borrowing seeks out diminishing investment opportunities.

This credit-sourced boom results in widespread malinvestments, causing capital resources to be misallocated into areas that would not attract investment if the money supply remained stable.

A correction or "credit crunch" – commonly called a "recession" or "bust" – occurs when exponential credit creation cannot be sustained.

Then the money supply suddenly and sharply contracts when markets finally "clear", causing resources to be reallocated back towards more efficient uses.

The bankers know that this is what happens, and they do it on purpose.
That is why they've bought off politicians to create the Federal Reserve, to abolish a gold standard, and more recently...to "deregulate" banks to allow them to do what they did to our economy.