Truth

Joe Blow says:

Sorry to kind of bend this one off topic but I am over debunking 9/11 and have just watched Zeitgeist Addendum. I had not actually realised that there was this sequel to the first movie (consisting of three parts) and I am shocked to find that its over simplifications and embellishments are magnified further in the sequel.

Zeitgeist Part III – Don’t mind the men behind the curtain
I had already come to the conclusion that the third part’s claims that the more war there is and hence the more debt there is the more profit the international bankers make were incorrect. Firstly, if a government gets into too much debt then the value of its government bonds decrease in value as they look like a more risky investment. It is possible to make money out of war bonds but not everybody wins and these investments are not made through private bank ownership in the Federal Reserve Bank (Fed). Secondly, the private member banks that own stock in the12 regional Reserve Banks do not make any profit as the dividend on their stock is set by law at 6%. The profits that the Federal Reserve Bank makes after it has covered the bank’s operational costs, paid the 6% dividend to the private member banks and kept enough in surplus to cover the value of the member banks stock goes back to the government.

Addendum
This movie sets up a very simplified explanation for how the Federal Reserve System works in America. It states correctly that when the government borrows money from the Fed this increases money in the money supply. Treasury prints new money which it then gives to the Fed and which the Fed pays for at a cost of 3 to 4 cents per note. Then it lends this money to the government (back to Treasury) in return for government bonds which are IOUs. In fact all money is government IOUs or promises for legal tender which can be exchanged for goods and services. The whole system runs on the trust that the government will make good on these promises.

It also states correctly how the fractional reserve banking system works. However, the movie seems to confuse how this form of money creation is in fact separate and distinct from the printing of money by the Fed. Money is always stretched through the system by the on-lending of money between banks. It is the addition of new money into the money supply that is one of the main ways in which inflation is created not this on-lending.

Where the movie really gets it extremely wrong is when it stops referring to the manual “Modern Money Mechanics” and sneakily concludes on its own that more money needs to be continuously fed into the system to cover the interest on all of the money lent by the government and that if all debts were paid back even to the government then there would be no money. Firstly, this is true to a certain extent in theory except for the fact that the very nature of money itself is an IOU and we always incur new debts to the government when we have to pay taxes. So for there to never be any money in the system we would have to have no taxes. When was the last time that a government stopped asking for any taxes at all to be paid?

Secondly, the value of goods and services do not stay the same therefore it is not a zero-sum game where for every amount of interest that needs to be paid by the government it is necessary to print more money. Prices change. They go up and down. Where the value of some goods may increase others may go down. Some people make money on an investment and others lose money on an investment. When money is lost some where it is often gained somewhere else but not always. Some debts are bad and get written off. When prices go too high for the money supply to cope with, those prices cannot increase beyond the amount of money in the money supply. It is not the other way around like the movie rather simply concludes where prices rise because of interest thereby meaning that more money needs to be fed into the system. The money supply dictates the prices not the other way around.

Thirdly, if interest on money lent to the government means that more money has to be continuously put into the system to cover the interest payments then you would expect inflation (rising prices) to be caused by high interest rates as more money is put into the system. However, when interest rates rise the money supply contracts because less people borrow money because lending money is more expensive and therefore there is less money flowing around creating less demand and therefore lower prices. This is the exact opposite of what you would expect if you were to believe the overly simplified assumptions about the relationship between interest and inflation in Addendum.

Fourthly, the government could cover the interest on its loans to the Fed with the profits from the Fed and the tax revenues it raises from you and me. However, this is difficult to do if it gets into too much debt as the value of government bonds fall and the interest payments on the debt increases the more debt that it gets into. Therefore, there is a limit to how much money the government can keep printing as the more money it prints the greater the money supply increases and the higher prices get and the less value the currency has which means that buyers of bonds demand higher returns making debt more expensive until inflation turns into hyperinflation and the whole system falls on its arse. However, governments can lend from other countries without increasing the money supply. For example, China buys a whole lot of US Treasury bonds with its currency the yuan which the American government or the Chinese government exchanges for US dollars which are already in circulation thereby not increasing the money already in supply. This is why Obama and Hillary have been kissing Chinese butt a lot on TV recently.

I hope that explains things better and points out the inconsistencies in the economic theory behind Zeitgeist Addendum. Please send this e-mail to anyone you know that has been brainwashed by this movie and otherwise spread the word so that people are not unwittingly made chumps because of their general ignorance on how the federal reserve system works.

I’m not an economist so if anyone has more know how and can see any inconsistencies in my own version of how the system works please let everyone know.

Happy New Year,

Joe.