There is no US dollar. There are Federal Reserve dollars, but the Federal Reserve is about as federal as Federal Express. The stockholders of the Federal Reserve are not taxpayers. They are large banks. The regional directors of the Federal Reserve are appointed by the banks. Only the chairman of the Federal Reserve is appointed by the US president.
Between 1861 and 1913, the US government issued US dollars, and it may do so again.
How Tax Money is Spent
Most people believe that the government pays its expenses with taxes it collects. In reality, the government sells bonds, and uses the proceeds for its obligations. Tax money is used to repay those bonds, plus interest. You might ask, why not just spend tax money directly?
Politicians are under perpetual pressure to cut taxes and provide more services. Those two things cannot happen at the same time. Or can they? Whenever politicians want to spend more than the government has collected in taxes, there is a way to do it and to pass responsibility to future politicians: State-backed securities. Those politicians, in turn, pass the problem down the line.
The more interest piles up, the harder it is to balance the budget. The answer? More debt. It is an addiction.
State Securities
A state security, like a treasury bond, gives financiers a way to tap the tax keg. Tax money may thus be shunted to subsidize the lives of financiers rather than those of tax-payers.
Debt Service
In 2020, 10% of the US government budget was dedicated to debt service, and is predicted only to rise. Peter G. Peterson Foundation In other words, the tables have been reversed. The banks tax the government.
How Money is Created
Most of the money in circulation is not created by the central bank. Most is created by private banks. Money is created at the moment any bank issues a loan. A bank with $100 in its safe may issue a loan for $1000. When the loan is repaid, that $900 is erased from the ledger (extinguished) and all that remains in the ledger is the original $100 plus the interest paid. It’s a great business. All that is required is a ledger — and the belief that the ledger can create money.
When a bank creates money in order to buy a state security (quantitative easing), it is in the best business of all.
There is no reason for the middle man. A government can create money as easily as a bank. The worst thing a government can do, the irresponsible printing of money for political purposes, is already happening (quantitative easing). The difference is that quantitative easing requires interest payments. We could enjoy our demise for free.
Tax Currency
The US government could pay its expenses with US dollars, instead of paying interest for the privilege of using Federal Reserve dollars.
Government receives tax payments in the national currency, thereby creating a closed financial ecosystem. After so many recurrent financial crises, why do citizens allow this? This is a question for future activism.
