Punchinello’s Chronicles

March 26, 2009

Get Out of Debt with a Federal Reserve Personal Loan

Filed under: Surely a Jest? — Punchinello @ 3:05 pm
Tags: , , ,

This is fascinating! When the United States Congress passes things like the stimulus bills, leading to massive spending, where does the money come from? Some people know that we just print funny-money that has no value. But let’s forget about that for a moment.

The US government issues bonds and treasury bills as “securities.” In other words, they create I.O.U.s and sell those to anyone in the world who wants to make some interest money.

Let’s say you want to buy a skateboard and it’s going to cost you $10. You don’t have ten bucks, so you go to your friends and ask to borrow the money. One way is a simple loan. But another way is to create 10 little I.O.U. pieces of paper, each one is worth $1.

You tell your friends that if they buy $1 in I.O.U.s, you’ll pay them back their dollar in 1 year, and give them 10-cents interest. You’re paying them to use their money, and they’re making money by lending you the dollar.

That’s pretty much how T-bills and US bonds work. Totally over-simplified, but that’s the basics.

Now suppose you go to your friends, but nobody wants to buy your paper. Nobody wants your I.O.U.s because they know you’ve been borrowing so much money, you’ll never be able to pay them back. Then what?

What’s now happening is that you put on a different hat and become the Federal Reserve.

Think about how and where you get the actual printed pieces of paper. You sit at the computer, draw up something in PowerPoint, then print it on your computer printer. Nobody worries about it because “it’s just a piece of paper.” It’s not like you’re counterfeiting money, right?

When you’re out talking with your friends, you’re wearing your US Treasury hat. When you’re printing your I.O.U.s, you’re wearing your Federal Reserve hat. Either way, it’s still YOU! The same person!

So let’s suppose you can’t sell your pieces of paper to your friends. You still want the skateboard, but nobody’s lending you the money, regardless of how much interest you’ll pay them.

The solution? Buy your OWN paper!

You go to your friends, tell them you have $10 in I.O.U.s, and they’re selling like hotcakes! In fact, you just sold $5 in bonds that morning! Nobody asks who bought them, nobody knows, and nobody cares. All they know is that “someone” bought them.

Therefore, they must be worth something. Or so the logic goes.

How did you buy your own I.O.U.s? Nobody knows; it’s a mystery.

Well, not entirely a mystery. Remember, the Federal Reserve and the US Treasury eventually end up being part of the United States government. And “someone” in that government has the legal right to print actual money. Actual dollar bills.

Why not print your own money, then use that money to buy your own I.O.U.s? That’s what we’re now doing.

The current 2-, 5-, and 7-year auctions of US debt are reported as being “normal.” That “soothes the investor concerns” that there’s too much debt. In a time when “supply” is expected to be very high.

“Supply” means debt! With over $2-TRILLION in new debt, you can damn-fer-sure-betcha that there’s going to be a massive flood of treasury bills and bonds! Who’s buying them? Who’s “soothing investor concerns?”

To know, you have to actually read several different news articles, widely separated. It’s the Federal Reserve who’s buying up US Treasury debt!

In the analogy, YOU are using your own non-money to loan yourself money. Try THAT the next time you use your credit card at the local Wal-Mart! When the machine comes back, “Insufficient funds,” tell the clerk that it’s okay. Tell the clerk that you have an I.O.U. that you bought for $10, and you’ll give it to the clerk as payment.

Yah. That’ll work!



  1. […] Get Out of Debt with a Federal Reserve Personal Loan « Punchinello … […]

    Pingback by Get Out of Debt with a Federal Reserve Personal Loan « Punchinello … — March 26, 2009 @ 6:05 pm | Reply

  2. Try reading “Creature of Jekyll Island” the author beleives in the conspiracy theory that the bankers are working in concert with such groups as the Council on Foreign Relations and the Trilateral Commission to bring about a socialist-world system in which an elite composed of intellectuals and bankers will rule over the entire planet. Griffin even spends a chapter outlining how this system could come about, and the consequent results of this socialist system.

    Comment by una vocce — April 1, 2009 @ 4:59 pm | Reply

  3. Sounds like something George Soros would be interested in…!

    Comment by Punchinello — April 1, 2009 @ 10:57 pm | Reply

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