The creation of fiat currency is perpetuating the largest fleecing of American taxpayers in our entire history. The fact that it continues unabated is a testament to the creativity that devised this intricate system and the relative indifference of so many Americans.
The framers of the constitution knew from past experience that fiat currency was a recipe for disaster. The Continental Currency was printed in large volume to pay for the Revolutionary War. It became worthless paper over time because it was not backed by anything of value.
That war began as a tax revolt. Following the end of conflict, the framers were intent on avoiding past mistakes. Fiat currency and any type of central bank were among them. The following excerpt from the Constitution is part of that effort.
"Article I, Section 10, Clause 1: No State shall coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt."
So how did we stray from that path of good intentions? A good place to start would be 1913 where two things entered the lives of all Americans. To assume they were not intertwined is perhaps a bit naive.
In 1913, the federal reserve banking system was launched. And that same year, authority to impose a federal income tax was established. The paths of both have been parallel since that year.
The fiat currency spiral was accelerated in 1971 when Richard Nixon severed all ties to any gold standard. A fear of growing debt was part of this decision. Since that time, the American dollar has lost any true store of value, which is a definition of actual money. We have fiat currency, not money.
I would suggest three very good books to help you understand the dynamics of fiat currencies to go along with Mike Maloney's excellent video presentation found at the end of this page.
Mike Maloney is also the author of the first book titled, "Guide To Investing In Gold And Silver."
The other two editions, also found in our list of classic books, are;
"How An Economy Grows And Why It Crashes" by Andrew and Peter Schiff
"Why "A" Students Work For "C" Students And "B" Students Work For The Government" by Robert Kiyosaki.
All of the debate about debt ceilings are really a waste of time. The system is built so that increasing debt is required to keep it moving. The accompanying video near the end of the page, tells us a more complete history of money.
Here is an outline so you can follow along and notice the key points.
Debt is created when the treasury issues bonds, which are promises to pay later for things we get now. Just like using a credit card. The federal reserve bank, which is not federal, has no reserves and is not a bank, writes a check to buy those bonds. They have no money in any checking account, but they still write the check. Here is a quote directly from the Boston FED branch.
"When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money." --" Putting It Simply", Boston Federal Reserve Bank
The federal reserve then puts this money into the big banks, which in turn loan it out with interest. Money created from nothing is loaned out with interest. The fiat currency sent to the U.S. Treasury for those bonds is used for public works, entitlements and of course, wars.
Working people deposit currency into banks where by the magic of fractional banking, more of it is lent out with interest to buy things. More debt is created. Created from that original bond purchase with a check written with no account to back it up.
As more currency is created, purchasing power goes down. This begins the massive ripoff of the American people. Next comes the income tax part of the sinister equation. We pay taxes which go to back to the U.S. treasury. A very large part of that tax money goes to pay principle and interest on that debt created out of nothing. Part two of the scheme.
And here is part three. The federal reserve is not part of the government. It is a private institution and has stock holders. The original stock holders were the very large banks, mostly based in New York who were behind the creation of this central bank following a secret meeting at Jekyll Island. The framers of the constitution warned us about central banks. As did Thomas Jefferson.
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs."--Thomas Jefferson, U.S. President.
Here is some information directly from the federal reserve website.
The big banks make money off repetitive transactions between the federal reserve and the U.S. Treasury. They make money via interest on debt they purchase at treasury auctions. And they make more money as stock holders in the federal reserve system. Is this not a glaring conflict of interest? And also brilliant in it's planning and execution?
The thirty minute video which follows this paragraph gives a great explanation of this process and also explains why the debt ceiling debate is a waste of time. I wrote in the opening that the success of this manipulation is dependent upon the indifference of all of us. The video is thirty minutes long. About the length of one sitcom. Please take that time to watch it. Then pass it along. You'll see why our elected leaders refuse to take on this problem.
The current system is weighted in favor of a power elite. We have given up that power by allowing this fiat currency ripoff. We can take it back. But it will take a united effort.
The system in place will be defended at all costs by the big banks which profit from the entire mechanism. And as debt continues to mount, our own federal government will eventually be placed at a decision crossroad.
They can only tax so much. That will be their first barrage. The call to "tax the rich" has begun in earnest. Next will be excessive taxes on consumable goods. The argument will be that this "is fair to everyone."
But the reality is that use taxes such as sales tax hurts lower income people the most. Which will force the final arrow in the quiver.
They can always inflate away the mountain of debt owed to other nations. But to do this will require wiping out the value of millions of citizen's savings and asset columns.
If you study the history of fiat currency from years ago and understand the history of money, you'll realize that currency backed by nothing is destined to fail.
This is another part of your financial literacy curriculum.
Please use it wisely.