FRB

Thomas Lee Abshier, ND
—-
Naturopathic Physician

Christian Counselor

Political Philosopher & Author

—
Consultant, Speaker, Author

Naturopathic Medical Consultations

Marriage & Personal Counseling

—

(503) 255-9500
drthomas@naturedox.com

The Christian Constitutional Republic
One Nation Under God

Government of, by, and for the People

Liberty and Justice for All
by: Thomas Lee Abshier, ND

FRB
By: Thomas Lee Abshier, ND
11/24/2011

From: John F:
To: Thomas Lee Abshier, ND
Sent: Sunday, November 20, 2011 10:40 PM

John F: I am unable to bootstrap your understanding of Austrian Economics all by myself in the time we have.

Here is a training video on orientation to Central Bank & Fractional-Reserve loaning, that can give more details more plainly than I can. You will find better explanation of where the missing 16 trillion came from that I was trying to explain to you.

Video lecture: http://www.youtube.com/watch?feature=player_embedded&v=6HAEPSt_12U#!

Power Point documents associated with the lecture: https://docs.google.com/present/view?id=dxgszkt_1331hqvzsbc4&interval=60&pli=1

From: John F.
To: Thomas Lee Abshier, ND
Sent: Wednesday, November 23, 2011 12:12 PM

On Wed, Nov 23, 2011 at 5:54 AM, Thomas Lee Abshier, ND wrote:

Thomas A2: The video had little to do with Austrian economics. Rather, it was a lecture from the Mises Institute, which is a Libertarian site. Murphy was using one of the Austrian economists as an example of a person who held an opposing point of view to his.

The video link you provided didn’t say anything about the extra $16 Trillion dollars on the Fed’s balance sheet. Murphy mentioned Fractional Reserve Banking (FRB), but there was nothing new in his explanation.

I think you believe that the $16 Trillion on the Fed’s balance sheet was created by Fractional Reserve Banking. I can agree with you if you mean that the Fed loaned $16 Trillion to restore the Minimum Cash Reserve requirement of all the banks in the world. If that was the case, the Fed would have created that amount out of nothing, and loaned it to all the banks in the world. This was not taxpayer money, this was money that the Fed created out of nothing. I doubt that only the domestic banks needed this amount of money to restore their minimum cash reserve requirements. I suspect, if this entire thing is true, that it was done to prop up banks around the entire world.

Normally, banks require only short term loans from the Fed to do Fractional Reserve Banking. The bank only borrows money from the Fed when their cash deposits go below their minimum reserve of 10% of their total amount on deposit. It is only when banks go below the Minimum Reserve Requirement of 10% of the amount on deposit that they must borrow from the Fed. Even then, the loan is usually only for a short time. I mention this because you speak as though the Fed is the source of the multiplication of money supply that occurs due to FRB. This is not true, this multiplier effect is due to the numerous cycles of deposit, loan, spend; deposit, loan, spend; that a dollar goes through when deposited in an FRB bank. (See greater detail below.)

In a recent conversation you said you thought that banks first loaned money based upon their deposits, and then once they had a loan on the books, they loaned 90% of the value of that first loan, and then 90% of the value of that second loan, etc. There are you tube videos (Money as Debt) that talk about banks doing this, as though FRB allowed banks to make loans based on the value of a previous loan. They have interpreted the FRB regulations to mean that they can make loans on all their assets, and since loans are an asset they can loan more money every time they make a new loan.

I’m almost certain this is not accurate. My reading of Fed policy is that banks may only loan money based on the amount of deposits in the bank. (Aside: I don’t think there is a restriction on the equity invested in the bank by stock holders, partners, and/or owners. I think this is the reason why the Fed rules do not require a minimum reserve for banks smaller than a certain capitalization.)

In other words, banks may only loan the amount of money they have above their minimum cash reserve requirement. The Fed sets the requirements for Cash Reserve Requirements, and currently they require each bank hold 10% of the banking deposits in cash to meet withdrawal demands.

If there was in fact $16 Trillion loaned from the Fed in short term borrowing to the domestic commercial banks to maintain their required minimum reserves, then the economy was/is truly in very bad shape.

In our past discussions, you have made statements that sounded like you believe that banks create new money when they loan out money under Fractional Reserve Banking.

This is incorrect. No new money is created in FRB, there is only the appearance of new money. The effect of FRB is to increase the effective money supply by increasing the velocity of money. FRB does not actually increase the amount of money put into circulation by the Fed.

Under FRB, banks loan out 90% of the dollars they have on deposit. If deposits come back into the bank from the money they loaned, then the banks loan out 90% of that money, then it happens a third, fourth, fifth time... till the total effect is to put 10 times the amount of money in circulation as was originally deposited. This process has the effect of increasing the money supply, but it does not actually increase the number of dollars in circulation, only the speed at which dollars move relative to a deposit which is spent once and then stays in the bank. This is a theoretical multiplier, but in actuality the amount is far less.

Another objection you have raised to FRB is that money is in two places at once. You claim that the dollar is in the bank in the depositor’s account, and the dollar is also in the borrower’s account. But, this is not true. You have confused the concept of one account which is completely unencumbered, with two accounts that are related and ownership is conditional. This is an example of “shifting frames.” You have blurred two types of money together (encumbered and unencumbered money). After disregarding the distinction between encumbered and unencumbered money, you tell the story of unencumbered money and declare that there is double, triple, quadruple... the amount of money that was deposited. This line of reasoning has embedded within it errors of definition, and hence an argument that produces a faulty conclusion.

The concept that FRB allows money to be fully owned (unencumbered) by two people at the same time is wrong. Money in circulation is not doubled, it is merely in serial ownership, much faster than normal.

When the depositor’s money is loaned, the depositor loses control of that money. The borrower has control of that money until he spends it, and which time it goes to the control of another person who puts it back in the bank. There is only one person in control of the money at any one time. This is serial ownership.

The situation gets muddled because of the promise of the bank to give control of the money back to the depositor upon demand. This would appear to be a situation where the borrower had the money, and the depositor had the money also. But, that is not the case, it is simply that Depositor B’s money was given to the depositor A. If the cash reserve limit is reached and Depositor A wants his money back, the bank must borrow money from the Fed or one of the Primary Dealers to restore the minimum reserves.

The bottom line, the initial deposit goes from being owned free and clear by the depositor, to being connected to a line of many depositors and borrowers. The unencumbered money, owned free and clear, once loaned, and reloaned, appears to be many dollars, but it is actually the same dollar, connected to many people, with only one person at a time having controlling interest in the money.

If any of the depositors in the chain withdraws their deposit, that withdrawal is subtracted from the excess above the bank’s minimum reserves. When the dollars are withdrawn by a depositor, the money is gone, it is not in the bank, the bank has no control, interest, or power over that money. Dollars are never created by any bank (except the Fed). The bank is simply in control of the deposited dollars for a time as authorized by the depositor. When the dollars have left the bank, those dollars have literally left the bank, there was a withdrawal, there is no longer any connection between the bank and those dollars. And yes, real physical dollars, and the value they symbolize has been withdrawn and is now in the possession of the depositor.

There are no metaphysical or real dollars that the commercial banks or Primary Dealer banks speak into existence. The physical dollars are created by the Fed out of nothing, loaned to the Primary Dealers (Goldman Sachs, Citibank, etc.), then loaned to the Commercial Banks, who loan those dollars to the borrower. The dollars deposited in the bank literally leave possession of the bank when they are loaned or withdrawn. The loaning party has claim to the dollars loaned if the terms of the loan are violated. But, that is a contingency, rather than an actionable authorization to use the dollars loaned. The borrowing party is encumbered with a promise to repay, but the dollars have left the bank,a and only that promise to repay remains with the bank who loaned the money.

In summary, upon loaning the money, the borrower is in possession of it. The depositor still has the right to withdraw the money, and he can do so as long as no more than 10% of the total deposits at the bank are withdrawn at the same time. But just because the depositor has the contractual right to withdraw his money doesn’t mean that the bank has his money in its possession.

If 90% of the money has been loaned, and the other 10% is then withdrawn in a bank run, the bank has no money to disburse to meet its contract to satisfy demand deposits. Thus, the entry of the FDIC to prevent bank runs. As in, “It’s a Wonderful Life”, the assets of the bank are now in businesses and in people’s commitments to repay the loans they were given.

If the depositor has less than the amount insured by the FDIC on deposit, then he will be able to withdraw that amount from the bank, regardless of its solvency. But, this assumes that the government and society are still viable. If more than 10% of the total amount deposited in the bank is withdrawn at once, the bank will be unable to give any more money to meet additional demands for withdrawal until loans are repaid, additional deposits are made, or the bank borrows money.

The source of the $16 trillion you said was now on the Fed’s balance sheet (as revealed by audit) is likely due to the Fed simply printing it, and then loaning it through the 12 Primary Dealers (e.g. Citibank, Bank of America, UBS, Goldman Sachs...) to meet the minimum reserve requirements of the banks around the world. An article (which appears to from a conspiratorialist website) attributing the $16 trillion to this theory can be found at the following site:

Fed Audit Reveals Source of $16 Trillion Dollar Increase in Balance Sheet
or Click Here:

As far as what I got from the Robert Murphy lecture, in the link you provided, I did not learn anything about how FRB contributed to, or caused, the $16 Trillion dollar addition to the balance sheet.

But, I did learn a new concept. Murphy proposed the idea that it was necessary for the Fed to impose a uniform minimum reserve requirement on all banks to make Fractional Banking work. The reason for this was to prevent the natural movement of money from banks with a lower minimum reserve to banks with a higher reserve requirement.

John F2: Are you saying by this, that you understand that NYFED Central issues all new dollars that arrive in the worldwide quantity, and that it prevents the Member Banks from adding new dollars to the total?

Thomas A2: John, I agree with that concept, but it is not new, nor what I was saying. Of course the NY Fed creates all new money and distributes it.

I was referring to the concept that Murphy discussed about how money would flow toward the bank with the greatest reserve requirement. The Fed, by mandating a uniform minimum reserve requirement for all member banks, stopped the natural flow of money toward one bank because of a differential in reserve requirement. This prevented the bankruptcy of those with the least reserve requirement. This concept was in the second half of the lecture.

Regarding FRB, Murphy noted that a bank cannot withstand the draw down if everyone withdraws all their money at the same time. No argument with that point. The possibility of a bank run makes the FRB system vulnerable to failure. Of course, this was the reason that the FDIC was put in place. This is the weakness of Fractional Reserve Banking, it is not as robust as 100% reserve or Gold Backed currency. But, it provides for the possibility of faster expansion of productivity. It just requires a moral people to be righteous and resist the temptation to use the power of FRB and Central Banking for selfish purposes. FRB and Central Banking will collapse the currency if they are used to allow the government to steal from the economy by printing (counterfeiting) money for its own benefits.

John F: Fractional Reserve Banking (FRB) is not a failure, and has not failed. It has exceeded the purpose for which it was designed beyond all hope. The dollar will never fail, and it has never changed. It will always be what it has always been: nothing. What is changing will be men's faith in the lie.

Thomas A2: Fractional Reserve Banking is not a lie. The fact that the bank loans out 90% of the money deposited is openly published, and any person believing the bank keeps all of the money in store for their eventual withdrawal is naive, uneducated, or in denial.

You have assumed that the intended purpose of FRB is to destroy the value of money, or for bankers to control the world. That is one possibility, but your fervent belief in that possibility, and a group of conspiratorialists who believe the same thing, does not make it true.

The bottom line of all this discussion is that FRB, Central Banking, and Monetary Policy, and Fiscal Policy are the current methods of controlling the value of the dollar. The most expeditious way of bringing the nation/world to prosperity is to sanctify these systems. I know you believe they are all inherently evil/Satanic/unGodly, but I disagree. I believe almost anything can be sanctified if it is put in its proper time, place, and attitude/perspective in relationship to God and His Law.

Gold (inherently valuable substance) is good as a symbol for money, but it is not necessarily the highest, best, or only medium for money -- (an approximation of the stand which you have taken regarding money and to proper solution to the problems of money, trade, and banking). But, this concept can, and should, be incorporated into an integrated understanding of economic principles. (Note: the word “should” means that it is a good idea, and will work well, and will be in concert with Godly principles and ways. “Should” does not necessarily imply enforcement with guns, badges, and fines. Most solutions will naturally be adopted with enough education, and allowing the market to embrace it by the force of purchase support.)

There are other reasons that FRB may have been included in the banking policy. Likewise, the reason for the adoption of Central Banking was not necessarily to use it as an instrument of bank domination of the world governments and their economies. Granted, these are possibilities, and there may be cabals that desire these ends. But, just because one group has plans and desires to use an institution for an evil purpose does not prove the institution is evil. Those who intend evil play the polarity of evil in that system, but just because there is an evil polarity, using the tools of society, industry, or economy for evil, does not make those tools evil. The machinery of banking can be used for evil or good. Neither FRB nor Central Banking are necessarily evil, and neither is gold backed currency necessarily good.

Central Banking places a nation at more risk for inflation, an FRB system is more susceptible to bank runs, and an economy using only gold as money is susceptible to deflation and underemployment.

A gold-based currency, that is, a currency whose value is regulated to maintain a constant dollar-gold weight ratio, will maintain a stable value over time -- I consider a stable dollar-value ratio the ultimate goal of all monetary/fiscal policy. This ideal scenario can be achieved by using an appropriate mix of the tools of monetary and fiscal policy. The largest portion of all price-wage policy should be dictated by the market itself. Only those obstacles which prove stubbornly insoluble by current market dynamics should be solved by authoritarian directives (fixed interest rates, rules of trade, wage &/or price controls, risk limitations.) In general, the market needs little fixing if the flow of information and capital are without resistance. Debt should only be incurred in emergency, or to increase physical capital to increase productivity. If necessary at all, money supply/monetary policy and fiscal policy should be regulated to enable willing workers to work. Charity (welfare, unemployment, WIC ...) should be handled by the private sector to allow and enable accountable charity.

Central Bank policy, when used properly, can regulate the value of money to moderate the forces of inflation and deflation through interest rate modulation and other tools.

FRB can be used as a way to let the market expand and contract the money supply according the demand to consume, and willingness of others to produce. FRB is most probably an extension of a monetary system handed down from previous generations. It has potential weaknesses, and if those vulnerabilities are not protected by policy and caution, they can produce economic disaster. The formation of the FDIC was an example of such compensation.

The “Money as Debt” videos traced the story of the banker that held money in vaults for people, and gave them certificates of deposits for their gold. He was also in the business of loaning gold at interest. Paper money developed because people found it more convenient to trade the certificates of deposit instead of trading the physical gold. The banker found that he needed to kept only a small fraction of the total in reserve to meet the small demand for the occasional withdrawal of gold. This system worked well as long as there was not a run on his gold bank.

This system has been duplicated ever since in the banking system. But, FRB is very vulnerable to the occasional bank run. This is why the FDIC was established. And, for the most part it has been successful in providing loans for business and consumers. The banker makes more money by having more loans out in the economy. Likewise, the economy has more money available to buy, and more money to fund production.

In your strongly declarative indictment of FRB as intentionally destructive of monetary integrity, you have chosen one possible explanation of the purpose of FRB. And, it appears that you have filtered every piece of economic data through that lens and ignored that there are other forces and factors operating in this axis.

Fractional Reserve Banking is a contract that men enter into with full knowledge. Educated men know that their money will be loaned out, and any thinking man knows that if everyone tries to take all their deposits out at the same time, there will be not be enough money in reserve to meet the demand caused by a bank run.

The dollar is not a lie. The promise by the bank to repay dollars for the dollars deposited is not a lie, it is a qualified promise. The educated/thinking man understands the risks and qualifications of the promise.

The promise by a borrower to pay back a loan in dollars is not a lie. The loan was made in dollars, and the loan will be paid back in dollars. Either the borrower will pay back the dollars by engaging in productive trade as enabled by the loan, or use the loan for consumption, and engage in other unrelated productive work, and use the proceeds from that exchange to repay the loan. The repayment by dollars received by gift, inheritance, or lottery is merely money obtained from others who engaged in productive enterprise.

We trust that we can exchange our valuable work for dollars, and then trust that we can redeem those dollars in the market for other valuable goods and services. That trust is not a lie as long as we live in a contract-honoring society. The contract we have all implicitly engaged is, the honoring of the contract to give and redeem valuable goods and services in exchange for dollars. This promise and trust is valid as long as people exchange their time and effort for an acceptable number of dollars, whether as employee or entrepreneur. The truth of the dollar is: people trust that the dollar represents value created by an implicit societal contract. We live in a sea filled with an invisible, implicit, universal social agreement. We have each agreed to take possession of goods and services and dollars only upon satisfaction of the terms of an appropriate and mutually agreeable contract to exchange ownership. This contract, along with money and valuable goods and services, is what makes money and trade real, and righteous.

The loan by the bank to a borrower has embedded within it an explicit contract, a promise, a covenant, to pay back dollars. And, those dollars are obtained by creating value somewhere in the economy. The dollar created by the Fed out of nothing begins the process of new money becoming real, and the maturing continues another step when it is loaned to the Primary Dealer, who promises to pay back those dollars plus interest. The loan becomes more real when the Local Commercial Bank borrows it from the Primary Dealer, with a promise to pay that loan back with interest. Those dollars become even more mature/real when those dollars are loaned to a borrower, with a promise to pay back those dollars with interest after having created value. All those newly created dollars become fully real when the borrower creates goods and services equivalent to the value of the dollars that were printed as new money. The death cycle of the money begins its completion when the bank receives the dollar back, who then pays back the Primary Dealer, who pays back the Fed. Money begins its life as an idea, and ends as an idea. It has a time of physical life in between those two extremes. The death of new money occurs after the borrower has completed his creative work and exchanged his goods and services for dollars at a profit, and returns the full loan amount to the bank. The physical life of mature money occurs during the entire life of the loan. The monthly payments reduce the physical stature and presence of the loan, but its death by gradual diminution comes only after full retirement of the loan.

In the beginning of the life cycle of the dollars, those newly created dollars represent a promise to create value. At maturity, the dollar symbols exchanged in the economy are a representation of value created. During that time of maturity, ownership of a dollar indicates the right to exchange a dollar for utility and/or pleasure. The dollar is something, it is a representation of value.

It is a lie that the dollar is nothing.

"Its a Wonderful Life" shows this. The money was loaned out, and it took time to pay it back, so people "drawing money out" does result in "no money being in the bank".

Of course that is true. That's trivial. Even the most rudimentary understanding of FRB reveals that everyone can't go to the bank and withdraw all their money. This is not some great revelation that should cause us all to gasp, slap our heads, see the light, and immediately abolish FRB.

In FRB, if you loan out 90% of the money on deposit, and if there is an economic downturn, and people don't trust that the bank will ever pay back your deposited money, the population may then panic and produce a bank run. That is why the FDIC was established, which has pretty much stopped runs on the banks since the Great Depression.

These concepts make sense, only if dollars are something instead of nothing, if it is meaningful for something (anything) to be "in the bank", and that there exists something that can be "drawn out".

These concepts do make sense because the dollar IS something. The dollar IS a representation of value. The dollar has both physical substance as a symbol, and a carrier of the abstract quality of value.

The dollar is NOT nothing. Society widely accepts the concept of value, even though “value” is abstract and poorly defined by words and theory. There is "something" in the bank. It is the repository of “contracts to repay value”. Those "promises to repay" have value on the market and can be traded. Each of those promises has a "present value" and a "maturity value". Thus, the bank is certainly a holder of "something" if "value" is a something, and "promise to produce value" is a something. The bank serves a very valuable service as a point of accountability for the promise of the borrower to repay. The government should serve as the judge and enforcer of that contract in case of breech of its terms.

When money is deposited in a bank, the depositor is loaning that money to the bank at interest, and a contract is signed describing the terms of the loan (i.e. that it will be repaid at interest, and will be loaned out at interest during the time of deposit). When a loan is made by the bank, money leaves the bank, and a contract replaces the money on deposit. The “contract to repay” is the valuable asset, the "something" held in place of the money that was deposited. The promise/contract to repay dollars loaned with interest is the valuable "something" that the bank owns. The bank cannot loan money against that promise, which is claimed by some videos on the Internet. This claim is a false explanation, a misunderstanding, a misstatement of the authority of the bank to loan money under the current rules of FRB. Again, people pay back loans by producing value in the economy, receive money for it, and then repay the loan.

All these mental concepts were rendered null, void, and meaningless after Aug 1971 (June 25, 1968 in the American banks).

When Nixon took the dollar off of the interchangeability of currency for silver, this only meant that you couldn't demand silver for paper money. There was no change in the fundamental commitment to exchange value for dollars. The exchange of value for dollars is the primary reason for ownership and transfer of dollar ownership. Exchange of silver for currency was only a backup value for the dollar. Dollar-Silver interconversion was a policy requirement of law meant to prevent government from inflating the money supply inordinately, because there was ultimately a responsibility that government had, to exchange dollars for silver. This requirement was not what made money real, it was what prevented government from abusing its power to create new money. It was an insurance policy for the people that their money would retain value even in the case of government inflating the money supply. The effect of stopping the dollar-silver conversion policy was to remove the insurance policy from the dollar. And yes, this does make the dollar a less secure instrument. But, it does not remove its value to being equivalent to “nothing”. Instead, the dollar is now naked, it is uninsured, it is dependent upon the policies of government regarding regulation of the money supply, to do so in a responsible manner. The real purpose of owning dollars is not to buy silver or to exchange them for silver. Dollars are a medium of exchange, a symbol for produced value and a symbol of having created value. The dollar is a means of carrying that value to an impersonal market for anonymous and non specific exchange of utility/pleasure value for these symbols of potential real value. The dollar in itself, in the largest part, is not “real” value, but it does symbolize the potential for ownership of real value. The dollar symbolizes value produced by people, and the number of dollars offered in a transaction symbolizes the value they are willing to exchange for releasing ownership of the value they have produced.

Can you understand, yet, that when you think you are withdrawing dollars from your bank, no dollars leave the bank?

That is not true. When I withdraw physical dollars (physical symbols representing value), the dollars, and all remnants of those dollars leave the bank. The relationship the bank has with those dollars begins when I deposit dollars in the bank. At that time ownership control is transferred to the bank. The bank is only given conditional ownership of those dollars, since I can choose to take those dollars out at any time. As long as I leave the contract in force, the bank has controlling interest on those dollars, and in general the bank loans those dollars to others. The loan of those dollars causes the dollars to leave control of the bank, and give conditional ownership to the borrower. The borrower has full discretionary use of those dollars, and the bank only retains the right to demand payment of principle and interest payments at regular intervals as specified by the loan contract. In each step of the process there is a loan, a contract, and a conditional transfer of ownership. The dollars leave each party, but a contract remains that ties the two parties together until completion of the terms of the contract.

When dollars leave the bank in a loan to a borrower, a promise to repay those dollars stays in the bank. The dollars have left, they are not still in the bank, only the contract remains. When I deposit dollars in a bank, the dollars leave my possession, and I retain a contract, a contract to receive interest as long as the dollars are in deposit, and to receive the dollars back upon my demand. This is a loan contract; I am loaning money to the bank under the conditions of receiving interest, and return of the principle upon demand. When I withdraw my deposited dollars from the bank, the loan agreement is completed. The bank no longer has any conditional ownership control of the money, and they do not have any dollars. There is no remnant or trace of the dollars once in their possession. They are not the source of the dollars, nor do they have any eternal attachment to dollars deposited or loaned through their institution.

Dollars are symbolic of value created by the worker, and thus symbolic of the value the worker has a right to consume. And, since all men are both workers and consumers, there is a constant negotiation between the two as to the trade value of one commodity for another -- the medium of this negotiation and exchange of value is money. Money is a physical symbol representing the abstract quality of “value”.

In a fiat money system, there is very little commodity value associated with the dollar symbol. It is only the symbolic trade value of the dollar that is of great value. When a loan is made, the dollar symbols, the tokens used to represent the trade value of the dollar, leave the bank. Upon making the loan by the bank to borrower, funds are transferred to the borrower's checking account. At that point, the bank no longer has a legal right to use those symbols to consume value, or to loan those dollars to another person. The dollars return to control of the bank at the time of default, in which case liquidation of assets, garnishment, liens, etc can be applied as remedies to return the store of value to the bank.

There are a number of rights and obligations which the bank has in relationship to the money deposited and money loaned. The bank has the right to loan the deposited dollars during the time of the bank’s dollar ownership. The bank has the obligation to keep a minimum reserve of cash on hand in relationship to the total deposits. The depositor has the right to withdraw his principle upon demand. The depositor has the right to receive interest during the time of deposit. This relationship between depositor and bank is established by the deposit contract signed by the customer at the time of creating the savings/checking account. The terms of the limits on how much money may be loaned of the total deposited in the bank is established by the Fed's minimum Reserve Requirement, which is currently at 10%.

No dollars are in the bank.

This is not true. This statement is based on the premise that dollars are some abstract “nothing” that don’t exist anywhere because the Fed printed them out of nothing, and therefore they always, and forever, are nothing, and represent nothing. You have used a theological concept that you believe is true to justify your belief that the Fed creating new money is evil/bad/wrong/cursed/subject to divine penalty, because people can create nothing, since only God can create.

This is all completely wrong. Men commonly fashion symbols out of physical substance to represent other things. Art is the organization of matter/substance to represent something else. The dollar is a physical substance used to represent the abstract quality of value. The dollar is not value, the dollar must be associated with value by commitment, contract, or agreement before the dollar acquires the ability to be truthfully said to represent value.

The dollar is a physical substance (whether electronic, paper, base or valuable metal). The dollar symbols have a strict chain of custody and authentication. They are hard to create without the resources of the government at one’s disposal. The number of them in circulation is controlled by a central authority that tries to responsibly manage the economy. A wise government/Central Bank increases and decreases their number in an attempt to maintain the all-value:all-dollar ratio at a roughly constant number.

You can argue that the central authority has abused its power, or is trying to take control by manipulation of the number of dollars, or that they are fools and have no idea how to regulate the value/dollar ratio, or you can want the regulation of money supply to be done by the market, a committee, or economy at large; but none of these objections have any bearing on whether the dollar is real. The dollar represents value, and value is real.

When the dollar is in possession of the bank, there are dollars in the bank. When the dollars ARE withdrawn from the bank the dollars are NOT in the bank.

Your comment, that “No dollars are in the bank” represents a serious misunderstanding of the relationship between the metaphysical and physical universe.

The bank has to keep 10% of the total number of their dollars, that have been deposited or invested, in reserve. You don't believe a dollar exists, so that concept probably seems wrong to you. But, for those who understand that dollars are physical tokens that are symbolic of value (an abstract/metaphysical quality), physical dollars are seen symbols that represent value. Dollars are only in ownership in one place at a time, although the ownership may be encumbered by various forms of contract obligation. Dollars are used when attempting to acquire physical value. The dollars are proxies for value created, and thus are a convenient form of trading value for value without considering issues of mutual need for the other’s form of value creation.

If you wish to criticism FRB, do it for the right reason. Only 10% of the dollars deposited are kept in reserve. This is not fraudulent, it just makes the system more brittle. The obvious flaw arises if everyone came to withdraw their dollars at the same time. When that happens the bank does not survive. Unless they receive a loan (which may have happened widely during the 2008 credit crisis) the bank will have to cease business, liquidate and distribute assets, and declare bankruptcy.

When you close your account, the bank that used to owe you umpteen dollars no longer owes you those dollars when they give you scrip (dollars) in the quantity equal to the dollars you had on deposit. You can then hand those dollars over to another bank, which will receive that scrip, and set up a new account and then they will "say" that they owe you that quantity of dollars. But, they will only say they owe you that money. They cannot define or describe what they owe you. Nor, can they ever pay what they owe you. All they can do is shift the debt so that somebody else says that they owe you. Or, they can tell you that what they used to owe you, that they have given to someone else.

You have a central error of analysis embedded within this scenario of withdrawing money from a savings/checking account. “They cannot define or describe what they owe you. Nor, can they ever pay what they owe you.” This is erroneous.

When you deposit money in the bank, as a loan to them, the amount the bank owes you is in dollars. And, when you withdraw that money, receive the dollars once in deposit from the account, they have fulfilled their contract of deposit, safe keeping, interest, and repayment.

Your argument is that the dollar is "nothing" and therefore nothing cannot be described, defined, owed, or paid. But, your fundamental assumption of the dollar being "nothing" is in error. See paragraph above describing why money is if fact "something". You base the illegitimacy of the fiat money system on this argument, and in fact this premise, the arguments using it, and the conclusion that follows, is totally false.

Regarding your discussion of the flow of money when you open and close an account: As the depositor, you own the dollars that you deposited in the savings account. When you deposit dollars into a savings account you conditionally transfer title to those dollars to the bank as the managing partner in the financial arrangement. The bank promises to return your money either on demand, or after a period of time, plus interest, up to the amount insured by the FDIC. In return for the interest, the bank has put you at a small risk, and you as the depositor are connected to the borrowers that the bank approves for loan. In essence, you as the depositor will be paid interest by those people in the community who are engaged in work, and are paying back their loan plus interest.

When any entity (person or institution) has free and clear title to dollars, he has the right to take ownership of a corresponding amount of value (as traded at current rate in the economy). In the case of a bank, they have a conditional ownership during time money is held in deposit, which means they have the right to loan that money at interest, with the hope of those dollars being returned plus interest. If the bank simply stored the money for safe keeping, then no interest would be forthcoming to the depositor. In fact, the bank would charge a fee for providing the service of safe storage from disaster and theft.

On the other side, the borrower, the person with a dollar debt to the bank (and to you the depositor indirectly), has the obligation to return a quantity of dollars to the lender, as specified by contract. (The lender retains title to those dollars lent, but has given conditional title to the borrower. The terms of a secured loan contract may specify surrender of a security in case of default, until he has been repaid.)

In general, the deposit is real. (That is, the deposit is in dollars, which are symbols of real value that acquire a more specific value amount (trade equivalency) in the process of agreement on the numbers of dollars that equate to the perceived value of an item under negotiation.) Likewise, the loan is in real dollars, the withdrawal is in real dollars, the transfer of dollars to a new account is real, and the new loan is real.

The collapse of your argument comes because of the fact that dollars are real. They do not need to have metal in deposit somewhere to be real. The fact that dollars can be converted, by societal agreement, from symbol to value (as measured in utility and pleasure) gives the dollar reality. Dollars are real, in that they are representative of produced and consumable value.

As long as you hold to the notion that dollars are only real unless they are officially redeemable in silver, gold, or other valuable substance kept in reserve as the “real” store of value, you will never be able to accept that fiat money is in fact real. And it is “real” because it represents ownership of real consumable value.

I think part of the key here is to be recognized is that there is a difference between hope and a covenantal obligation.

No, the loan made when money is loaned, on every level, is a covenantal obligation. The is no abstract, unenforceable “hope” on any level of money creation. There is a contract made when a deposit is made into a bank that uses Fractional Reserve Banking in its loaning practices. You are confusing risk and certainty. You are pretending that there is no risk in 100% time reserve banking, and therefore calling it a covenant. No, there is risk associated with a 100% time reserve deposit too. If the borrower does not repay the bank in the specified period, there is still a risk of default.

You are trying to make the case that there is a covenant with 100% time reserve, and that there is only the “hope” of being repaid from a Fractional Reserve Bank. But, there is essentially the same risk in both situations, and both contracts of deposit and loan are covenants. One covenant has the terms of not being able to withdraw for a period of time, and the other has the covenant of demand withdrawal and earning interest during the time of deposit.

If the general economy fails, then neither the money borrowed from the 100% reserve bank, nor the Fractional Reserve Bank will be withdraw-able. There is no 100% secure, risk free investment you can make. There is no covenant with the bank that you can make that is any stronger than that the bank commits to exercise prudence in lending, and in turn promises to return your money upon repayment of the borrowers contract. The amount of money kept in reserve does not change the fact that both lenders have promised to repay the value deposited with interest.

Every deposit made into a bank is done so with conditions. Likewise, the borrower contracts to repay according to certain terms, conditions, and under penalty of certain remedies. If the borrowers do not repay, the bank cannot repay the depositor, and the bank will fail. No system, whether 100% reserve, or Fractional Reserve, is immune to this sequence of events. Money is of course deposited with the hope that it can later be withdrawn, but the terms of enforcement make it stronger than hope. The depositor-bank contract truly is a covenant, with enforceable conditions, regardless of whether FRB or 100% reserve banking.

Money is not loaned to borrowers on the hope that it will be repaid, it is a covenant. The covenant is enforceable by liens and state judicial and punitive action. In every transaction in the chain of monetary custody there is a contract, which has terms of enforcement, usually liens and monetary penalties that are enforceable in case of default. And yes, there is a time delay between the time of judgment and enforcement of the contract. And yes, if everyone withdraws their money at the same time, the contract/covenant/hope will fail. But, failure of the economy will result in failure of the bank, and loss of the deposit, regardless of the type of banking system, regardless of the covenant between bank and depositor.

If you have a title deed, or a claim check, for which someone is responsible (i.e. they could get punished, cursed, or sanctioned) if they do not deliver to you that thing, then there is something real and there is ownership of it.

As per the above paragraph, there is a covenant with enforcement available in every stage of the monetary system. Dollars created out of nothing by the Central Bank have no associated righteous authority to demand consumption of value in the economy, unless there is a commitment by the recipient of those dollars to repay an equal number of dollars back to the lender. This is the major point of vulnerability of the Central Banking/Fiat money system to corruption, and decay of value into hyperinflation. If the Central Bank chooses to use tricks to put money directly into circulation (i.e. by collusion with the Primary Dealers to launder money/disguise the money trail coming from the Fed, to buy T bills, and thus evade the safeguards against monetization of government debt), this puts the system at risk of inflation and hyperinflation.

When dollars are paid for a "thing", this transaction is one of paying dollars for value. Ownership of dollars is traded for the ownership of a "thing". Both the dollar and the thing bought are real things. Purchase of goods and services gives one title to the thing. Work and entrepreneurship gives one title to dollars. Typically, dollars are obtained by production, and dollars are traded for goods and services by consumption. Both transactions involve a transfer of title. The dollar is very much real, as it symbolizes consumable value created in the economy.

The Federal Reserve Note and token coinage partakes of Hope, but there is no covenant.

The Fed creates money out of nothing. The Fed has no right to consume value in the economy with that money. At the point of printing by the mint, and purchase by the Fed, the money has only the hope of becoming associated with the production of value. Prior to loaning newly created money to the Primary Dealers, there is no covenant established. When the Central Bank loans that money to a Primary Dealer, such as GS, there is a covenant established, a promise to pay back that money in a certain time at a certain interest.

GS could spend that money on infrastructure, employee bonuses, or any other consumable it so desired, but that would not change or affect the contract/covenant/promise to pay back that number of dollars plus interest back to the Fed.

Again, your point is that unless there is 100% reserve metal behind the money, or 100% reserve deposit in the banking-deposit-lending system, that there really is no commitment, no covenant to pay the bearer of the FRN any value at all. Your point is that one can only "hope" that the market gives me value in return for my FRN, since the money has been loaned out that I deposited, and since there is no alternate value for which I can redeem my dollars. On the other hand, you feel that the silver certificate (funded with 100% of the metal that could be demanded by the notes in circulation) is more dependable as a store of value that could be redeemed for a measure of more tangible, recognizable, acceptable value.

And of course, you are right regarding the increased security of having two forms of value behind the money supply. Certainly having metal and consumable value behind the dollar is more solid than having only consumable value redemption. But, your argument is not that a silver backed certificate, gold reserve system, is more reliable by a factor of double. Rather, you argument is that the FRN/dollar has NO reliability, that FRB represent NO contract/covenant at all. You believe that the dollar has no value, is imaginary, a lie, a fraud, and a deception... You argue that there is NO quantity, measure, and substance behind the FRN. But, all of these accusations are not true.

The FRN/fiat dollar is valuable to the extent that the market recognizes that it represents value produced, and is therefore willing to use it as a symbol representing value, and the right to take ownership of value. There is quantity, measure, and substance behind the dollar, but it is not shiny metal, it is the abstraction of all goods and services that it can be traded for.

But, the same is true for 100% silver backed paper notes or silver dollars. These substances are valuable to the extent that there are goods and services available in the economy to trade for. There is little value associated with a large quantity of silver when there are no goods and services to consume in the economy.

There is only acceptance, and this is changing, and will soon change radically, as more and more people come to the realization that you will be coming to, that the State, the Fed, the Banks - are not God, and nothing becomes because they say it should become.

I have already had the realization of what the dollar is. The dollar symbolizes value. Ownership of the dollar, which is a thing, and symbolizes something, is acquired by work. Thus, the dollar symbolizes the value that was created by labor.

(Note: the word "created" is used intentionally and provocatively to challenge us to expand our understanding of man’s capability to create in comparison to God's creative ability.)

Human work is done by creating value out of the raw materials that God made. But, that is not essentially different than much of God’s work in creating the world and life. God organized the matter, which He created, into the animate and inanimate creations of the world. Thus, creativity (in the organizing sense) is not totally the domain of God.

We are also gods, but we are not God. We were created in His image, and our creativity is expressed by creating value out of the material substrate that God created. (We cannot create something out of nothing. But, if perhaps we can create in this way, it is certainly only on a very limited scale in comparison to the magnificence and grandeur of God’s ability to create.) The way we, as men create, is by organizing matter. But, our creativity (organizing matter) is very similar to the way that God organized the various life forms.

In the beginning, God created all the particles that constitute the physical universe out of nothing. First He created the conscious particles and embedded them with the law. He then gave them positions, and then allowed them to communicate (let there be light). The particles then moved according to the dictates of the embedded Law. With sufficient energy imparted to them, these elemental points of consciousness aggregated to form the subatomic particles, atoms, and the various compounds. The energy of each particle, and its interaction with particles in its environment, dictated the interaction, and the particles formed. Thus, it was probably only necessary for God to set up the initial conditions of the universe to for it to become largely what we see it as today. Thus, the watchmaker view of God that wound up the universe and let it run, may be somewhat true. But almost certainly, the laws embedded inside the elemental conscious particles would not naturally organize into the various and multitudinous forms of life that God has created. Thus, God is both the creator out of nothing, and the organizer of that which has already been created. The idea to organize and create functional assemblies is used in the sequence of manifesting God’s creative abilities.

In comparison, man’s creative ability involves taking raw materials, and fashioning them in a way that reflects the utility he has visualized. Man is strongly tempted by pride, and ignorance, to exalt his creative ability above God's, but such a perspective can only be seen as foolish from God’s viewpoint. God purposefully did not create the works that men create, as this was the work that men had to do as they toil.

Men find it difficult to resist the temptation to rebel, and declare independence and superiority to God. Men know that their work is creative, but their limited perspective blind them from seeing the insignificance of their creativity in comparison to God’s magnificence. Men create in a way similar to God, but in a magnitude that pales into insignificance in comparison.

Men have organized the matter/substances that God created, and fashioned them into witty inventions that made life easier, safer, and more comfortable. God engaged in a similar creation, as He created (fashioned and moved the previously created substrate) the planets, suns, galaxies, oceans, and in particular the plants, fish, foul, and creeping things.

God's creativity stopped short of creating all the comforts and conveniences that men want and need. He left this piece of the creation open as the domain for men to express that small measure of divine creativity He gave us. God gave us the full spectrum of life challenges, which included giving us god-like powers. If the purpose of this life is to overcome, to mature into the fullness and stature of Christ, then we must have some measure of the ability to create as He does. I believe dealing with divine power in a small way is necessary for men to mature toward putting on the mind of Christ.

I believe organizing and creating in the creation are major life potentials, capabilities, and gifts which we must work to mature and master. Men must learn to exercise his free will along the axis of creativity, and learn to organize the creation in a Godly way.

It is not man's place to create a new universe, and populate it with new beings and matter, for that we should depend on God, bow to His power, and Trust in His protection and mercy. Rather, man's ability to create is largely around organizing the substrate of creation. And while man’s capability in this arena is small compared to God's, it is nevertheless creative organization in the same way that God was creative in His organization of the particles of creation. Thus, rather than discounting man, and saying that God is the only being in the universe capable of creativity, we must step up to the responsibility He has given us, and acknowledge we, as mere men, as mortals, that we have a creative ability that we must use, and master. And all the while, we must maintain humility, bowing the to true source of creativity and life. Man's ability and power is small in creativity, while God's power is complex, deep, and enduring.

All that to say, that the Fed creating dollar bills, organizing the matter to create tokens, that represent contracts/general certificates/titles of ownership of value as a precursor to creating contracts, is entirely within the domain of men's righteous ability and authority to create contracts, symbols, and value out of the substrate of creation.

This argument that men will lose faith in the dollar because it is unrighteous and outside the domain of Godly authority is not correct. Men will lose faith in the dollar if the Fed colludes with the government to put dollars into circulation for direct consumption, without establishing a contract to produce value in return.

Fractional Reserve Banking has an effect on inflation if loans are made for consumption in excess of the loans made for production of value. If we are going to use a fiat money system, we must close these two loopholes with appropriate policy on the central level or local level. I personally believe the system would work well as a hybrid of local and national control. I advocate this model because it models the human nervous-endocrine metabolic control system.

Even though "they say" they cannot fulfill their promises.

The concept that men cannot pay off debt because dollars do not exist is wrong. It is impossible to properly understand the economic forces, and how to direct them to produce prosperity, until abstract concepts such as the dollar, value, debt are rightly understood.

All debtors can fulfill their promises to pay off debt, and do so with physical dollars. All borrowers can satisfy their obligation to pay back value, and they can satisfy that debt by using dollars. There is no mystical archetypal dollar that cannot be accessed. The dollar is a concept of a unit of value per symbol of value. Value is a metaphysical concept, and the dollar is a metaphysical concept, but both have physical correlates. Value is anything that men find useful or pleasurable. The dollar is a physical symbol that is associated with value. The market determines the ratio of amount of value to number of physical dollar symbols. It cannot be determined by theory or by isolation of “value” from a physical substance or action. Value is an ephemeral quality, a subjective evaluation of the soul, and a comparison is made in the market where a worker subjectively values the work he did, the dollars he received, and determines if he is willing to surrender the number of dollars asked by the market for an item. This act of comparison of personal effort, created value, and dollars, with an asking price, and accepting the trade as fair IS the method by which the value:dollar ratio is established by the market. All reductionistic criticisms of the concepts of the “dollar” and “value”, and their relationship, with comments like “What is value?”, or “How much value is there in this item?” or “What is this dollar worth?” are all completely unanswerable. The dollar and value are only defined in relationship to the soul and its response. The dollar and value cannot be defined as isolated entities. Alone, they can be defined as abstract possibilities, but only in relationship can they be seen as real, definable, specific, and quantifiable. Holding to such notions as “the dollar defined by its market value, is not real”, and claiming that only gold is real money because it has Quantity, Measure, and Substance, will lead to erroneous conclusions such as, “Debt cannot be paid because dollars are not real.”

Borrowers, commercial banks, and Primary Dealers (e.g. Goldman Sachs) are all obligated by contract to pay back debt of dollars, with physical dollars, that represent physical value. And, paying their debts with physical dollars actually discharges those debts. These dollar symbols are real physical substances (whether base metal, electronic, valuable metal, or paper they are all physical and real).

No one but the Fed has the societal authority to create more dollars. Fractional Reserve Banking does not make more dollars, it only loans out 90% of the dollars that are re-deposited after they are loaned. The government can spend more dollars than it takes in by borrowing, which does not increase the money supply. If government colludes with the Fed to create new money, launder it through the Primary Dealers by selling them T Bills, and then spend it in the economy, this is the imaginary money that you refer to. If money is created, and then spent into the economy to consume value, that is theft. That is all this conversation need be about.

Every type of work that produces consumable value is trade-able in the market, and its value is defined in terms of dollars by the purchaser. Every person, business, or bank can repay their promise to pay back the bank, the primary dealer, and the Fed by engaging in profitable activities. Doing work entitles one to ownership of the physical symbols of value, and then these physical symbols can then be given to the party who holds the contract of debt/credit, and transfer ownership of dollars to him.