Who Controls the Money Supply – Fed or We the People?

ANSWER: Ironically you hit it on the head. You will deal with someone you TRUST and you will not deal with someone you do not TRUST. This is the very essence of everything – CONFIDENCE. J.P. Morgan explained it best to someone else who did not understand money or banking. So don’t laugh – you are absolutely correct and in that comment lies the fate of the entire financial system.

Other emails have come in saying Bitcoin is controlled by “We the People” rather than 12 guys at the Fed. OMG! How many times do I have to explain that the Fed CANNOT CONTROL the Money Supply. The Bulk of money is created by the VELOCITY of money through lending at the banks called LEVERAGE (Fractional Banking). This is when markets crash and the dollar is rising because the two are never equal. Assets become over-valued in a Bubble and they crash because there is not enough actual money to represent those valuations. The ” REAL money supply” is often a multiple of the actual money on the books and is known as the VELOCITY. Then the bulk of the actual money created by government is NOT by the Fed, it is by Congress through debt. I have shown this chart many times. It shows that 70% of the national debt is actually accumulative interest payments. Had the Fed actually been in charge of the money supply, it would have been one-third of its current size (WITHOUT DEBT). Yes, had we just printed what we need the money supply would be far less. That is 70% which went to interest not the poor, schools, or roads. Changing money to gold or bitcoin or whatever, will not address the real problem

Why was there no inflation with QE1-3? Because the bond holders were not exclusively domestic. The economy is porous and the dollar is used globally. The Fed cannot control even long-term interest rates nor can they dictate to the banks. They handed the banks TARP, but they did not lend the money. Everything is indirect – not direct control and that is much of the problem.

It is these simplistic labels attached on the Fed as the greatest evil that prevents people from (1) understanding the VELOCITY of money through banking, and (2) Congress’ convenient pointing-fingers at the Fed to deflect blame from themselves. I’m sorry, but I think you need to understand economics 101. Not everything can be blamed on the Fed. The vast majority of the money is created between debt and lending the same $100 several times.

And as for this nonsense that Bitcoin is controlled by “We the People” – give me a break. The people control the money supply right now. We either hoard and save not borrowing, which reduces the VELOCITY of money and why the ECB is going negative to try to force people to spend, or we spend and leverage the whole system up. We are our own masters and do not even understand who is driving this car.

Politicians spend more to buy votes from whom? The People. Anyone on Capitol Hill will tell you even the CONSERVATIVE Republicans during the 2007-2009 Crash lobbied on the Hill saying Congress had to reduce spending, just not theirs. The money supply is controlled by “We the People” and if you think creating some independent board will eliminate corruption, you might be interested in buying the Brooklyn Bridge while your at it for your retirement. Communism failed because human nature took over. It does not matter who is in control, once control is given, they will put their hand in the cookie jar.

There is a lot more to all this nonsense than one-dimensional ideas that try to pin-blame on just one entity for then all solutions will only create chaos as Andrew Jackson unleashed.