What Does Paul Ryan NOT Understand about Reserve Banking?
From http://neweconomicperspectives.org/
By J. D. Alt
It’s clear that Paul Ryan believes the Federal government uses money created by the U.S. banking industry for its sovereign spending. If this actually were the case, we’d be correct in believing that, like the rest of us, the Federal government has to EARN the dollars it spends—in its case, by collecting taxes, fines and fees—or it will have borrow them from someone who has more dollars than they need. There would also be some justification for Congressman Ryan’s fearful belief that the Federal government is spending a whole lot more dollars than it “earns” and, as a result, is having to borrow way more dollars that it can ever pay back.
In truth, however, the Federal government does NOT use money created by U.S. banks—it is the other way around: U.S. banks have accounts at the Federal Reserve which they use to leverage money created by the Federal government. And this operational relationship leads inexorably to three apparent realities that Congressman Ryan would do well to consider and understand before he succeeds in leading our nation into poverty.
Reality No. 1: The U.S. economy uses TWO kinds of primary money.
This reality can be clearly observed by watching carefully what happens when the Federal government spends. Let’s say the government buys $100 worth of Medicare services from Dr. X. If you look casually at this transaction, it appears that the U.S. Treasury makes an electronic payment into Dr. X’s account at Chase Bank and, just as we’d expect, the doctor’s Chase account increases by $100, and the Treasury’s account (at the Federal Reserve) decreases by $100. If you look a bit closer, however, you’ll see that something else happens as well: the Treasury simultaneously makes ANOTHER payment of $100—this one into the “reserve” account that Chase Bank is required to maintain at the Federal Reserve. Why does that happen? And why does it appear the Treasury has paid the $100 twice...
Read more: http://neweconomicperspectives.org/2013/04/what-does-paul-ryan-not-understand-about-reserve-banking.html
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