Interesting facts concerning the Federal Reserve you may not have known. by Milton Friedman

Interesting facts concerning the Federal Reserve you may not have known.

by Milton Friedman on Thursday, July 22, 2010 at 6:28pm

Friedman was in favor of abolishing the Federal Reserve System and replacing it with a mechanical system that would keep the quantity of money increasing at a steady rate, issued directly by the government and reducing fractional reserve banking powers for the banks.


Money is created out of debt through loans, loans based on the banks reserves, and the reserves are derived out of deposits. Through this fractional reserve system any one deposit can create nine times its original value, which in return has debased the value of money over time raising prices in society. Because this money is created out of debt and circulated randomly through commerce, people become detached from their original debt creating a disequilibrium were people are forced to compete for labor in order to pull enough money from the money supply to cover their costs of living.

• When the US government needs money, around $10 billion, it goes to the Federal Reserve. In return the Federal Reserve buys $10 billion dollars in Federal Bonds, the government then prints out pieces of paper called Treasury Bonds which the government places a sum on, giving the bonds a sum of $10 billion which is given to the Federal Reserve. In return the Federal Reserve prints out Federal Reserve notes which it designates with a value of $10 billion which it hands to the US government in exchange for the Treasury Bonds. After the US government places these federal notes into deposit into the US treasury, these notes then become “legal tender money” adding $10 billion to the US money supply. In reality, this transaction takes place electronically.

• Only 3% of our money supply exists, with the rest 97% either digital or made up.


• Since government bonds are instruments of debt, when the Federal Reserve purchases these bonds with money made from thin air, the government has to pay back that loan at an interest rate.

• Under current regulation, the reserve requirement against most transaction accounts is 10%. This means that with a $10 billion deposit, 10%, which is one billion of 10 billion, is held as the required reserve while the other 9 billion is considered as an “excessive” reserve which can be used as the basis for new loans. This 9 billion actually DOES NOT come from the 10 billion dollar loan, but is additionally created from thin air making a total of $19 billion. This is how the money supply is expanded. The 9 billion can be created simply because there is a demand for the loan and there is a 10 billion dollar deposit to satisfy the reserve requirements. New Money has been created!

• Deposit Money Creation Loan/ Loan cycle can go on for infinity. The average result is that 90 billion dollars can result from that 10 billion dollar loan. In other words, 9 times any deposit can be created out of thin air.

• Where does the value for this new money come from? From the money supply which already exists, this thus steals value from the existing supply, which leads to inflation.

• The fractional reserve system of monetary expansion is inherently inflationary, for the act of expanding the money supply without there being a proportional expansion of goods and services in the economy; it will always debase a currency.

• “…as the new deposits created out of these loans at each stage are added to those created at all earlier stages and those supplied by the initial reserve creating action.”

• When the government borrows money from the Federal Reserve—or when a person borrows money from a bank—it must be paid back at a set interest rate. In other words, each dollar borrowed must be paid back to the Fed at an interest.

• The “Principle” is the money supply.

• Where is the money to pay off these interests? Nowhere, it doesn’t even exist.

• The amount of money owed to the banks will always exceed the actual amount in circulation.

• Principle=money available. Principle + Interest= money owed. Because of this simple equation, this is why inflation is a constant in our economy, for new money is always needed to cover the perpetual deficit built into the system caused by the need to pay off interest.

• Mathematically defaults and bankruptcies are built into this system and because of this there will always be poor pockets of society that get screwed over into perpetual poverty.

• The purpose of the Federal Reserve is to transfer wealth from the American citizens to the major banking institutions which own it, socialism for the rich.

• Because of this, if an individual is unable to pay for their mortgages, they are able to take your property—and to make it worse, such incidences are inevitable do to the reserve practice, and the money loaned legally didn’t exist in the first place.

• Modern Money Mechanics:
“If business is active, the banks with excess reserves probably will have opportunities to loan the $9000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans in to accept promissory notes in exchange for credits to the borrower’s transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system.”


• To explain the quote above, money does not come out of their existing assets; the bank is simply inventing it putting up nothing of its own except for theoretical liability on paper.

• Every time you borrow money from the bank, the money given to you is not only counterfeit but it is an illegitimate form of consideration and avoids the contractor—bank—to repay for the bank never had the money for property to begin with.

• Private European central banking institutions stated that:
“…slavery is but the owning of labor and carries with it the care of the laborers, while the European plan…is that capital shall control labor by controlling wages.”

• The Federal Reserve System is in fact a perpetual system of modern slavery.

• This process of manipulation of debt spreading across the world, bribery and political overthrows is also known as globalization.

• Just as the Federal Reserve keeps the American people indentured slaves through perpetual debt, inflation and interests, the IMF and World Bank serve this purpose on a global scale.

• In 1999 the World Bank insisted that the Bolivian government sell the public water system of its third largest city to a US corporation with ties to the Federal Reserve, Bechtel, which caused the water bills of the people to skyrocket for now they were making payments to a foreign corporation with no rights to be in Bolivia, eventually causing revolts which resulted in the nullification of the Bechtel contract. Another result of globalization.

• After Jamaica accepting loans and conditionality’s from the World Bank, lost its largest cash crop markets, while corporations connected to the World Bank took a stake on the Jamaican agricultural markets destroying the lives of farmers in the country. This type of tie of corporations with the World Bank is called corporatism or mercantilism, not capitalism.

• Another result of globalization has been sweat shop factories.

• The World Bank has done nothing rather than increase poverty. There is only a 40% success rate of all World Bank projects.

• In the late 1960’s the World Bank handed to Ecuador large loans, from 1968-1998 poverty increased in Ecuador from 50% to 70%. Under/unemployment grew by 15% to 70%. Public debt increased from $240 million to $16 billion. Recourses for the poor decreased by 20% to 6%. By 2000, 50% of Ecuador’s national budget went to paying its debts.