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The Death of Detroit: A Warning for U.S. Cities in Financial Distress

For whatever reason, despite enormous propaganda from across the news media, and I am talking blogs to MSM, the belief is that the Fed has pumped huge sums of money into the system since the financial crisis started, they have not done so. They have re-directed money from the main street to the elite bankers, but they haven't printed any new money. Take a look yourself, the Fed data shows there is no growth in money supply (M2). This lack of money printing means a crash of the entire economic structure that grew up based on continuous Fed money printing. This inflation based economic structure includes the tax system. The tax system for almost all cities and states was designed to siphon money off inflation growth (It's less painful than straightforward taxes.. Taxes on profits and real estate sales always are). With no inflation, the tax systems are not generating anywhere near the money needed to support built-in spending. Thus the cities and states crisis.

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Comment by Olde Reb
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    How come  has accepted comments on this article but is not available for this comment ????

ActrFshr states: “(I)f Americans do take the stand to coordinate the stop to the rise in debt and followed through on it, America may be able to recover.”

ActrFshr does not understand the mathematics.

Every “dollar” in debt that Congress spends is the result of their giving the Fed a security (bill, bond, or note) for that amount. The Fed gets the security; Congress gets the line of credit on the accounting books of the Fed and their checks are honored by the commercial banks.

The principal of the security has been created by the Fed/Congress. Every dollar has been created in this manner. (Fractional reserve multiplication by the commercial banks is dependent upon the principal so created). The promise is to pay back the principal PLUS the interest. The interest has not been created. The only way to pay the interest is to pay it from principal created from more debt (issue more securities). It is impossible for Congress to pay off the national debt. (The American people are out of the loop). Ever increasing national debt is inevitable or the economic scheme will collapse.

If the concept that interest on the national debt must be paid from new debt is understood, the operation of a Ponzi scheme is obvious. All Ponzi schemes have identical conclusions.

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I am not certain that the Fed can arbitrarily create money. They can certainly directly infuse money into circulation that is available on their accounting books.

Congress has constitutional authority to “coin money” that has been stretched to include making paper legal tender. The procedure is for Congress to give securities (bills, bonds or notes) to the Fed and the Fed makes a credit on their books (fiat money) for the U.S. Treasury. Presto !! The checks drawn on the government are then honored.

To make it appear the government is borrowing money to finance the deficit, the Treasury acts as auctioneer to help sell securities to the Primary Dealers. The smoke and mirror scheme actually removes money from circulation in the same manner as when the FOMC sell assets. If all of the securities owned by the Fed were sold, there would be no money in circulation. The money that is left in circulation then becomes the Reserves for commercial banks that is multiplied by fractional reserve practice.

The Fed has been pressuring commercial banks, along with pension funds and government agencies, to buy more securities. With the banks holding more securities and less cash, the fractional reserve practice is restricted. This is the cause of reduced M2 and M3.

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