How Money Is Created: Part 1

The first way money is created in American begins with the Congress.

(1) Congress passes laws that specify what the government will pay for.

(2) When money is needed to pay for something that Congress has authorized, the Treasury Department creates Treasury Bills, Notes and Bonds in the amount that is needed. The Treasury Bills, Notes and Bonds are I.O.U.s that taxpayers have to pay.

(3) The Treasury Department orders the amount of money they need and sends the Taxpayer I.O.U.s over to the Federal Reserve Bank to pay for the new money created by the Federal Reserve. (By the way, the Federal Reserve is not a government agency. It is a corporation owned by private banks.)

(4) The Federal Reserve Bank creates the new money ordered by the Treasury Department.

(5) The new money created by the Federal Reserve Bank are I.O.U.s from the Federal Reserve Bank called “Federal Reserve Notes.” The Treasury Department traded Taxpayer I.O.U.s for Federal Reserve Bank I.O.U.s.

(6) The Federal Reserve Bank delivers the new money (Federal Reserve I.O.U.s) to the Treasury Department.

(7) The Treasury Department pays the bills with the Federal Reserve I.O.U.s.

(8) The Federal Reserve Bank sells the Taxpayer I.O.U.s to 21 Primary Dealers (banks or securities broker-dealers). They are the only ones authorized to trade directly with the Federal Reserve System.

(9) The 21 Primary Dealers sell the Taxpayer I.O.U.s to the public for a profit.

(10) Uncle Sam pays the interests due on the Taxpayer I.O.U.s (Treasury Bills, Notes & Bonds) to those who hold them.

(11) If the Treasury Department does not have enough money to pay off the Taxpayer I.O.U.s or the interest due on them, the process starts over again (go back to #1 above).

Making good decision requires knowing the facts about the subject. This lesson should have been taught to you in elementary school. But, I have met many people -- from high school drop-outs to college professors with Ph.D.s -- who knew nothing about how money is created. Now that you understand this phase of money creation, think about who is involved, what they do, and how they make money. 

Make sure you share this with others and teach it to your friends and family. You know that they won't learn about it in most schools.

Well that's enough cogitating for this lesson.
JM