By Sue Peters
In response to the shutdown of the economy, Congress passed the CARES Act. To date, Congress has appropriated $670 billion in funds to aid small businesses with Small Business Administration (SBA) loans. Also in the CARES Act, Congress appropriated $454 billion in funds for larger businesses, states, and municipalities. These funds, however, do not go to a federal agency like the SBA. These funds go to the Federal Reserve Banks (Fed Banks).
What has not been explained to the American people is that the $670 billion for small businesses is dwarfed by the $454 billion for larger businesses. How? The Fed Banks have the legal power to turn that $454 billion into $4.54 trillion! This is possible because our monetary system is based on debt creation: every time a commercial bank “lends,” the bank is creating a deposit in the borrower’s account. The bank simply types in the amount in the borrower’s account. This is called bank credit, and we use it as money. The fact that our “money supply” is usury, generating interest every second to the banks, is a well-kept secret. The U.S. Constitution placed the power to create money with Congress, but slowly over time, thru legal means, this power was handed over to private bank corporations that create bank credit for our money supply.
But what about “our” central bank, the Fed? No help there. The Fed is composed of twelve regional Fed Banks, all of which are privately owned corporations. All their shares are owned by the member commercial banks. The bigger the bank, like JP Morgan Chase, the more shares. All twelve websites of the Fed Banks end in .org (not .gov).
But one always reads, “The Fed is printing money.” Just like banks create bank credit for our use, the Fed Banks create reserve credit for the banks’ use. We move bank credit from one account to another by depositing a check; the Fed Banks move reserves from one member’s reserve account to another when “clearing” that check. But the two circuits never mingle. We use the one; banks use the other.
So, what is the purpose of Fed Banks reserves? Historically, reserves were government-issued money, but that is no longer true. Today, reserves are Fed Bank-created credit; banks make as many loans as they want to, and Fed Banks create reserves for them. Reserves are created to support the usury of the banks. For example, before the 2008 financial crisis, the banks had created huge amounts of mortgage loans, packaging these financial contracts as mortgage-backed securities (MBS) for sale. Banks and their corporate customers bought them. When the underlying loans began to default, the MBS market price began to drop steeply. Banks and their corporate customers were in danger of insolvency. So the Fed Banks stepped in, created reserves, and bought the crappy MBS securities at full face value from the banks and their corporate investors. This saved the banking system and our money supply of bank credit.
Today, the Fed Banks are ready to save the system again: when you shut down a world economy based on bank credit, debt cannot be paid. The Fed Banks have set up eight new lending and purchasing facilities. They will create reserves to make loans, with debt securities as collateral, or buy the debt securities outright. The reserves will go to banks, who will make the loans or buy the debt securities from issuers or investors using bank credit. This time, the debt securities will come from banks, corporations, money market funds, states, municipalities, hedge funds, and more. So the $450 billion from the Treasury becomes trillions to bail out our bank credit system and our debt economy. Again. But this time the debt burden has gotten much bigger. Hold on to your hats. We need a brand new system.