When the Fed buys a government security (i.e., lends money to the government
-- public debt) or lends to a member bank (for the purpose of increasing
that bank's fractional reserve so that bank can make loans) throught the
discount window (private debt), money is created.  This money is not even
printed until it becomes a currency demand (you go to an ATM).  It simply
exists as computer entries.

When the Fed sells government securities (redeems public debt) or is paid
back by a member bank, money is destroyed (i.e., the computer entries are
"balanced" -- deleted).

All money (a concept that includes "all currency" but which exceeds "all
currency") in circulation results from the Fed buying securities (lending to
the government) and lending to banks (to individuals and corporations).  The
"reserve" of "fractional reserve" is really simply an obligation to pay the
Fed.  That is what I meant by debt.  The money does not exist until someone
owes it (either the taxpayers or a borrower).  The money cannot be redeemed
by the issuer in gold or silver or platinum or even oil or toothpaste.  It
only exists as somebody's promise to pay.

Look at a dollar bill.  Notice that it's called a "Federal Reserve Note".  A
"Note" is by definition a redeemable instrument, but if you send a dollar to
the Fed and ask them to redeem it, you'll be lucky if they send you four
quarters (lucky because a quarter at least has SOME value), but they'll more
likely just tell you to get lost, because there IS nothing with which to
redeem it, except someone else's debt, which will be paid in Federal Reserve
Notes of equal value to the one you possess - someone else's promise to pay.

Of course, banks make profits on ALL of these transactions.  And when the
banks go belly-up, we the people give them even more money.  Jim X knew the
score.

Dirk Johnson

-----Original Message-----
From: Tim Romano [mailto:[log in to unmask]]
Sent: Wednesday, December 27, 2000 4:24 AM
To: [log in to unmask]
Subject: Re: value / money / debt


What is "debt"?
Tim Romano


DIrk Johnson wrote:

[...]    The entire U.S. (and European) system
is based upon debt, not value.  If all debt were paid, under the current
system of banking, there would be no money at all.

The money is created from debt and then used as a "reserve" to create
further debt under a fictitious fractional reserve (fictitious because the
reserve doesn't actually exist except as previous debt), which in turn is
used as a reserve upon which fractional loans and so forth again and again
up to, if memory serves me, 23 times, when it exhausts itself.  Of course,
new debt is simply issued by the government (bonds, bills, notes) and new
money is printed to buy it and the whole shebang starts again.  Banks charge
interest on all of it. [...]