Inflation Crisis
by Kevin McCormick, October 2020
The Federal Reserve Monetary System (the FED system) is based on the foundation of bank-created credit. Banks create both loans and the money to fund the loans. This is an accounting system in which banks make the ledger entries. If there is a balance in a deposit account, then the owner of that account can obtain currency or make payments up to that balance amount. This takes a while to grasp – money has no tangible or physical basis in this system. It is an interlocked account ledger, called a payment system, in which debt, money, and payments are bank accounting transactions.
Money is created to fund loans and then issued to the borrower, usually by making a payment on behalf of the borrower, but access to money is tightly controlled. For example, a mortgage loan is actually paid directly to the seller in the transaction closing, and most or all of that amount is paid to the seller’s mortgage creditor. An auto or credit card loan is paid directly to the seller as well. Thus, “money” is issued into the economy in a controlled fashion through bank credit creation, and according to the banking cartel agenda. Other creditors do not have this ability, so not all debt will have this money creation aspect.
There is also an interest component to these loans. The borrower must repay the loan amount together with interest. The interest may be most of the monthly payment, as is typical in mortgage payments or minimum credit card payments. The source of money for the interest payment is an obscure topic, not addressed in economics or monetary theory. The only apparent source of money for interest payments is new bank debt creation. A constantly expanding amount of debt creation and money issuance in the FED system creates the money for borrowers to make their payments. In other words, continuous monetary inflation is a requirement of the FED system.
The main published monetary data statistics, M1, M2, Private Credit, and Federal Debt, demonstrate exponential inflation. If you understand exponential growth, then you know it reaches shocking amounts which are so out of order that something must break. In this case, the exponential growth of FED system debt and money is completely out of order in relation to the population and the environment. This leads to the question of whether the FED system will break due to runaway exponential monetary inflation.
A key issue in the FED system is whether borrowers can make their payments. It is clear however, with Private Credit at $100,000 per person and Federal Debt at $80,000 per person, we are hopelessly drowning in FED system debt. Couple this with only $15,000 per person in M1 money supply (readily spendable money), and one can see that the challenge of balancing this monetary morass is intimidating. One must also consider that a person who does not gain from this FED system inflation may be effectively excluded from society by the large sums now required.
If enough borrowers cannot pay, then the system is in danger of collapse and being rejected by the public. If, on the other hand, the monetary inflation and money distribution are managed such that borrowers are able to make payments, then the system can continue, despite its onerous burdens and gross inequality. Whether the FED system is on its last legs is a question I cannot answer. The system does not serve the public and should be replaced, but corporate propaganda and public misunderstanding has thus far prevented the idea of monetary reform from becoming part of the political debate.
Due to the FED system, we are in an inflation crisis. Runaway inflation of debt created money has put us in a position of staggering sums of debt, with far less staggering sums of money. Yet neither establishment political party treats this as a serious issue. They will not look behind the curtain of propaganda and misinformation. Too many people suffer from lack of needed money because the debt-money agenda of the FED system, while creating exponential inflation, is designed for banking cartel profits and not to serve the public.