[Don’t look too closely or you’ll see that, when the Fed makes loans to banks, it is a cheap parlor trick that involves neither actual money nor any real lending. In the guest commentary below, Robert Moore, a frequent contributor to the Rick’s Picks forum, explains what is really going on. RA]
What is the difference between counterfeiting and lending? The Merriam Webster dictionary defines the noun “loan” as follows: 1) Money lent at interest; 2) Something lent for the borrowers temporary use; 3) The grant of temporary use. A loan typically involves an asset that is idle (like spare money, a spare house, or a spare shovel) which someone else can put into economic use; and the rent typically comprises compensation for said use. Rents typically cover wear and tear (if the real asset is a durable good), or are offered as a premium or share of generated profits, paid in good intention for the purpose of showing your appreciation for the lender’s generosity in extending their financial asset for your use.
But definition number one above is the one I want to focus on here: money lent at interest. Recently, the wheels seemingly fell off the wagon with that one, because, since early 2009, the Federal Reserve has been “lending” money to large commercial and foreign banks at effectively 0% interest. Why is this important? Look again at the definitions above. If the loan is money, but without interest (which a 0% rate certainly implies), then the lender’s motive behind the loan must be “for the borrower’s temporary use”- meaning that the Fed must be expecting the banks to return the money at some point; otherwise, the “loan” becomes a gift.
Now, for a moment, just imagine that your neighbor stops by on a warm Saturday afternoon and asks if he can use a shovel for a few hours. If you oblige, do you expect him to bring it back with a “usage fee” or interest paid for use? Of course not. But the fact that he borrowed your property, then used it, then returned it when done, fully qualifies the transaction as a loan.
What’s more interesting is that — as we all know — the Fed needn’t even have the money on its balance sheet in order to lend it; all that’s required is crediting the commercial bank’s (or the Treasury’s) account with the agreed-upon amount, and — voila! — there is now money where none had existed.
Shovel Analogy
Back to our shovel analogy: Imagine that your neighbor stops by and asks if he can use a shovel for a few hours; and you, possessing no shovel, but possessing the willingness to lend him a shovel, suddenly make a shovel magically appear in his hands from nothing. Why, you would be as powerful as the Federal Reserve! So, in reality, what the Fed is doing is issuing dollars (creating currency), but merely calling it a “loan” without any expectation that they will ever see those funds again. Technically, what the Fed is doing is “gifting” but calling it lending. A ruse, for sure.
So, why do they call it a loan? Because the term “loan” always carries with it the connotation that there is a claim (a lien, if you will) against the borrower. When the lent asset is currency, then the counterparty is most often the Treasury, which assumes a debt (a bond) in exchange for the lent funds. This debt is then shifted onto the backs of the population as a lien – i.e., a claim on someone else’s productivity.
Taking License
So, we have the few (i.e., central bankers and treasurers) pledging the future productivity of others (the masses) against their free will and without their direct consent. This is an interesting dynamic, since central bankers and treasurers are not elected by the masses. The question must logically follow as to how they are legally authorized to represent the masses, or to burden us with the debt that they create when they “lend” more currency into existence.
U.S. law clearly states that a dollar is 371 grains of fine silver. It also states that only Congress has the power to emit bills of credit and to coin money and regulate the value thereof. The Federal Reserve’s official bio says that Congress abrogated this power to the Fed via law, but nowhere is there a constitutional clause or amendment that says Congress is authorized to abrogate that power.
So the Federal Reserve is out there emitting bills of credit (i.e., bank notes) into circulation, and calling them dollars, in spite of the fact that they do not meet the definition of a dollar. And the Treasury is borrowing these notes in exchange for a lien placed on the electorate without their direct electoral consent.
Again, it is all sleight of hand based on a ruse. The reality lies in the fact that while the Fed can create enough currency to purchase a shovel at the current price, the Fed can not create a shovel from nothing.
Like Pro Wrestling
So I ask you: What is the difference between counterfeiting and lending? The answer, if you choose to believe the Fed, is nothing. The challenge we face today is that, more and more, the magician’s parlor trick is being detected by the audience; the hand is not moving fast enough to distract the eye. Pretty soon the audience will discover that it isn’t magic at all and that the magician is merely a charlatan — a counterfeiter of something that the audience formerly thought was real.
Let’s all just hope that (like professional wrestling) the audience will continue participating for the entertainment factor.
(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)
Correct. “Silver” specie money are defined as weight of silver. It would be weird if it was otherwise.
But, it should not be. There is no need for a “dollar”. I am not sure if you understand, that the whole reason to define a dollar is to fool you into getting used to “dollar”, and then to stop applying former definition.
Money do not need to be “dollars”. Money can be perfectly fine, useful, honest, etc., if they are simply defined as weight of silver or gold. The price can be, say, 371 grains of silver, instead of 1 dollar, or 1 gram of silver, or one ounce, or whatever it needs to be.
The whole act of defining of a monetary unit as a weight of precious metal already carries a purpose behind it, – to force you to use the coin of the realm, thus, forcibly excluding you from trading in freedom money – just weights of precious metals.
As for “nobody forces you to use territorial fiat script right now”, I believe you are mistaken.
FRNs are declared legal tender. From US Treasury:
http://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx
“The pertinent portion of law that applies to your question is the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled “Legal tender,” which states: “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.”
This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy.”
If you do not understand what all this means, it is really simple: if you take my anything (say, a car) on agreement that you will return it, and then you are not returning it for whatever reason, the legally, I can not refuse if you pay me in Federal Reserve Notes. It is your right and my obligation to accept counterfeit notes as payment. If I do not accept, then I will be left without payment, if I continue to pursue you, the the state will violently stop me.
Gold clauses are prohibited.
As you can see, there is, factually, no choice. Legal tender is violently enforced.