“Olde Reb”  (c)copyright 2011 All Rights Reserved

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The $8.4 trillion in income does not reveal itself in the ANNUAL REPORT TO CONGRESS; Ref. Tables 10 and 11, pages 454 to 462 REPORT for 2009. Id.  (Auctions are not Open Market transactions. Securities that are not sold are assigned to SOMC.) This appears to be $8.4 trillion that is concealed from Congress and the public.

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Revised 3/14/2011

PREFACE:   This mathematical analysis shows how:

1.  The present practice in the U.S. of creating book-entry money via T-securities (deficit spending) in the amount of the principal of the security, with a promise to repay the principal PLUS the interest, is impossible.  The interest is never created; the debt is perpetual and must continually be increased or the economy will collapse from de-leveraging;

2. All other fiscal obligations of the nation must be curtailed while the growth in debt will escalate.  The exponential growth of the interest and snow-balling debt will increase until the entire wealth of the nation, and of future generations, is inadequate to fund it;

3.  ALL money created by Treasury securities goes into the pocket of the Fed ($8.4 trillion for 2010). Not only does the Fed receive the interest (if not sold), but also the value of the security upon maturity (or by sale). Congress has temporary benefit of $1.4 trillion deficit money (until maturity) during 2010;

4.  The operation is, as in any Ponzi scheme, predestined for inherent national bankruptcy when buyers to roll over the debt cannot be found. As the scheme becomes visibly precarious, the interest rate will sky-rocket and accelerate the collapse.
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The Federal Reserve uses euphemistic smoke and mirrors to obscure their scam. With full knowledge the following is not the way the Fed/government describes the system, allow me to offer a different analysis of their operation.

Congress can pay for federal expenses with funds collected from taxes, but Congress is never satisfied with this amount. The desire to buy votes/campaign contributions from special interest groups induces congress-critters to spend more, and this is identified as deficit spending. To create this make-believe money requires the assistance of the Federal Reserve.

Congress will give the Fed a T-security (bill, bond, or note) and the Fed will accept the document as an asset of one of the twelve FR Banks. The Fed will then establish a line of credit for the U.S. government (a book entry)  in the same amount and list the liability as Federal Reserve Notes.  Voila !!  Fiat money has just been created for Congress to spend.  Ref:  2009 Annual Report to Congress by the Board of Governors,  page 448. http://www.federalreserve.gov/boarddocs/rptcongress/annual09/pdf/ar09.pdf  The accumulated securities that are not redeemed add up to the national debt. More