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Where Does Money Come From? The Giant Federal Reserve Scam That Most Americans Do Not Understand

How is money created?  If you ask average people on the street this question, most of them have absolutely no idea.  This is rather odd, because we all use money constantly.  You would think that it would only be natural for all of us to know where it comes from.  So where does money come from?  A lot of people assume that the federal government creates our money, but that is not the case.  If the federal government could just print and spend more money whenever it wanted to, our national debt would be zero.  But instead, our national debt is now nearly 16 trillion dollars.  So why does our government (or any sovereign government for that matter) have to borrow money from anybody?  That is a very good question.  The truth is that in theory the U.S. government does not have to borrow a single penny from anyone.  But under the Federal Reserve system, the U.S. government has purposely allowed itself to be subjugated to a financial system in which it will be constantly borrowing larger and larger amounts of money.  In fact, this is how it works in the vast majority of the countries on the planet at this point.  As you will see, this kind of system is not sustainable and the structural problems caused by such a system are at the very heart of our debt problems today.

So where does money come from?  In the United States, it comes from the Federal Reserve.

When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.

Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.

The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.

So why does the U.S. government go to all this trouble?  Why doesn't the U.S. government create the money itself?

Those are very good questions.

One of the primary reasons why our system is structured this way is so that wealthy people can get even wealthier by lending money to the U.S. government and other national governments.

For example, last year the U.S. government spent more than 454 billion dollars just on interest on the national debt.

Over the centuries, the ultra-wealthy have found lending to national governments to be a very, very profitable enterprise.

The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.

But wait.

There is a problem.

Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.

So where will the U.S. government get the money to pay that debt?

Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.

But that never actually happens, does it?

And the creators of the Federal Reserve understood this as well.  They understood that the U.S. government would not have enough money to both run the government and service the national debt.  They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.

That is why I call the Federal Reserve a perpetual debt machine.  The Federal Reserve was created to trap the U.S. government in an endlessly expanding debt spiral from which there is no escape.

And the Federal Reserve is doing a great job at what it was designed to do.  Today, the U.S. national debt is more than 5000 times larger than it was when the Federal Reserve was first created.

Another way that money comes into existence in our economy is through the process of fractional reserve banking.

I originally pulled the following simplified explanation of fractional reserve banking off of the website of the Federal Reserve Bank of New York, but it has been pulled down since then.  But I still think it is helpful in understanding the basics of how fractional reserve banking works....

"If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000)."

When you put your money into the bank, it does not say there.  The bank only keeps a relatively small amount of money sitting around to satisfy the withdrawal demands of account holders.  If all of us went down to the banks right now and demanded our money, that would create a major problem.

If I put 100 dollars into the bank and the bank lends out 90 of those dollars to you, now it looks like there are 190 dollars floating around.  I have "100 dollars" in my bank account and you have "90 dollars" that you just borrowed.

The new debt that you have taken on (90 dollars) has "created" more money.  But of course you are going to end up paying back more than 90 dollars to the bank, so more debt has been created than the amount of money that has been created.

And that is one of the big problems with our financial system.  It is designed so that the amount of debt and the amount of money are supposed to be perpetually expanding, and the amount of debt created is always greater than the amount of money that is created.

So is it any wonder that our society is swamped with nearly 55 trillion dollars of total debt at this point?

A debt-based financial system is unsustainable by nature because it will always create debt bubbles that will inevitably burst.

Are you starting to see why so many Americans are saying that we need to abolish the Federal Reserve system?

Our founding fathers never intended for our financial system to work this way.

According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is supposed to have the authority to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures".

So why has this authority been given to a private institution that is dominated by the big Wall Street banks and that has actually argued in court that it is "not an agency" of the federal government?

Thomas Jefferson once said that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing....

I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.

But instead, we have become enslaved to a system where government borrowing actually creates our money.

The borrower is the servant of the lender, and we have allowed our government to enslave us to the tune of nearly 16 trillion dollars.

There are alternatives to this system.  Things do not have to work this way.

Unfortunately, the vast majority of our politicians consider the Federal Reserve to be good for America and steadfastly refuse to do anything to change the status quo.

So if you are waiting for "solutions" to these problems on the national level you are going to be waiting for a very long time.

The debt problems that the United States and Europe are experiencing did not come into existence by accident.  They are the result of fundamental structural problems with the financial system.

A debt-based financial system is always going to fail in the long run.  Unfortunately, most Americans still do not understand this and so we will all get to suffer the consequences.

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  • Snake Pliskin

    Can you heeeeaaaaar it calling EMPIRE
    nwo bring it on

  • Scott

    Two movies that explain the Federal Reserve System:

    “The Creature From Jekyll Island” – Ed Griffin

    “The End of the American Dream”

  • Scooter

    Excellent article as usual. More and more people are catching on, but too little, too late. Keep in mind that there is an end game. The elite do nothing by accident. This system will fail just as it has been designed to. Be on the alert for the most heinous false flag event you can imagine. It will be used to tip the financial scales into global collapse, or vice versa. Either way, it will be ugly. They do not want your money. They knew from the start that the money was worth nothing, it was their idea after all. What they do want is your soul.

  • Cash Snowden

    Loop asks above “but seriously, why can’t the media cover this stuff?” Once you realize what’s been going on with the media, things like Anderson Cooper’s college internship at the CIA will start to pop out at you. Here’s the video, pay close attention. –>

    When you research Irving Kristol (well worth it and I suggest you look into him deeply. Start by googling him) you can see the Republican party was hijacked through deceit by Trotsky followers, neoliberals called neomarxists. You can also find that Kristol’s magazine was published with money from the CIA. Kristol claimed when a reporter broke the story that he didn’t know who his investor was, which is utterly laughable. You can see he has close ties with the Council on Foreign Relations, the Rockefeller think tank. The Federal Reserves BRANCHES are privately own by the big corporate banks, and this is how they control the Fed. These banks are all corporate members and founders of the Council on Foreign Relations. The more you research, the more you will see that the CIA works in lockstep with the CFR and the banksters.

  • Anon

    Excellent points made by “Cash Snowden”, about the CIA, CFR, Rockefellers and other Banksters.

    These financial scandals, and the ‘Fed’ won’t be going away anytime soon, UNLESS YOU GET UP OFF YOUR FAT, LAZY A**ES, and DO SOMETHING!

    HR 459 passed by an overwhelming majority in the House, by a vote of 327-98!
    Now, this bill (S.202) needs a vote in the Senate!



    End the Fed! Whether Congress Wants Us To or Not!

  • Bill

    We have an option people. Ron Paul 2012!

  • Pingback: Some Of The Really Bad Things That Could Happen If You Do Not Prepare For The Coming Economic Collapse

  • money

    ron paul 2012! I wish it were possible.

    • Masterlock2020

      If only. But that would have required an informed citizenry. Ron Paul was probably our last hope too, which makes it especially sad.

      And even when the country collapses, most will not have the slightest understanding of why.

      It especially sucks to know it’s coming but to be powerless to stop it.

      A majority of Americans are now unfit to govern themselves due to ignorance and apathy.

      The whole system is corrupt.

  • Trailoftears

    The Federal Reserve/Vampire promises you easy money/eternal life.
    The one thing neither one says is the thirst that they both inflict on you. The Fed thirst means DEDT and the Vampire thirst means hunger, both detrimental to a good life. Neither the FED nor the Vampire will ever allow you to see a “Sunrise or Sunset” just debt or hunger until you DIE!!!!
    America is now Enslaved to the international Bankers how IRONIC !!!!

  • usurykills

    Your conclusion that “debt-based” money has to fail is not supported by the evidence you give.

    You say yourself the debt grows because of interest — that the money to pay the interest is never created.

    Therefore, the problem is not debt but interest.

    Of course, you have been taught that interest is necessary by people with a vested “interest.”

    Bernanke doesn’t charge his pals interest. Those guys know what’s going on.

  • Joe Pijanowski

    There are two white papers which verify how the fed works AND proposes and proves the solution. One is by Michael Kumhof and Jaromir Benes from the IMF. Google the “The Chicago Plan revisited”. The other is by Kaoru Yamaguchi. The bill is HR2990….. short and to the point.

  • Danbo

    This is possibly the silliest article I’ve read in years, pandering to the silliest of people.

  • stanfrommarietta

    This book is based on a fallacy. It overlooks the fact that all those securities held by the Fed, which it bought from banks, who got them from Treasury in return for money for deficit spending, were bought by the Fed with money it created out of thin air, effectively redeeming the debt to the banks. The Fed is a government entity in such purchases, and functions as an agent of government. Hence we do not owe the Fed anything except a 6%-of-the- interest transaction fee on the purchase of the securities. Otherwise just who is owed for the securities at the Fed? No one. So, the so-called debt is not really a debt. The Fed can redeem all securities bought by investors and foreign countries as safe investments (like CD’s) with US dollars. These investments do not fund government spending. The Fed can always create whatever money it needs to return the money plus interest to the investors. In the meantime the Fed likely destroyed the money of the investors while recording the amount.

  • Gunzo

    I honestly think that the common man is swindled. There was a reason why income taxes were higher and much higher. Ordinary people do not know how to “rake” money. Rich could do that easily. As this article says, our govt has been made a slave to the rich and we are all working to satisfy the rich. Well, in a way, that is how the societies worked through out history. But the way tax are levied, common man ends up paying all the taxes and the rich just to get to “rake: the money as Warren Buffett said about Mitt Romney!

  • pacman925

    YES !

  • Eric Lee

    um, 10 dollar bills are still around..

    • Nate

      If I am correct GT Horvat did not just mean 10 dollar bills but bills that were not Federal Reserve notes. If they were not Fed notes theu did not add to the debt just as minting coins does not add to the debt.

    • DS

      Um, he’s talking about ten dollar United States notes, NOT ten dollar Federal Reserve Notes.

  • ThePowerElite


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