‘Let There Be Money’

Email Print

‘Let There Be MONEY’

by Andrew P. Napolitano by Andrew P. Napolitano Recently by Andrew P. Napolitano: The Case Against Military Tribunals

The American International Group (AIG) announced today that it has finalized a deal that would in effect reduce the insurance company’s debt to the Federal Reserve to the tune of $25 billion. This is a clear example of how the Federal Reserve (which is not possessive of a reserve of anything but its own unknown fantastic resources) can create wealth out of thin air, and enrich itself by "lending" money. The big picture here is that after numerous financial transactions involving AIG, JP Morgan Chase, the Treasury Department, and the NY Federal Reserve Bank during the fall of 2008, AIG ended up with $85 billion which it used to make emergency payments to its largest creditors, the largest of which was $13 billion to (are you ready?) Goldman Sachs. Now AIG has announced that it will pay back about $25 billion to the Fed. But the Fed never loaned real money to AIG, it loaned "fiat" money.

Here is how the Fed pulled off this deal. (I will use round numbers for the sake of simplicity.) JP Morgan Chase has an account at the Fed into which it has deposited, let’s say, for example, $500,000,000. The Fed asks Chase to be its intermediary to AIG. In other words, the Fed will "give" $49.5 billion to Chase and Chase will transfer $49.5 billion to AIG, and AIG will owe the Fed $49.5 billion, plus interest. Chase will earn a seven-figure fee for this service. So, how does the Fed get $49.5 billion into Chase’s hands? Does it send $49.5 billion in gold bricks to Chase? No. Does it send a wheelbarrow full of $49.5 billion in cash to Chase? No. Does it write a $49.5 billion check to Chase from its own money? No. The Fed "gives" $49.5 billion to Chase by adding two zeroes to Chase’s account at the Fed. Thus, $500,000,000 at the stroke of a few computer keys, becomes $50 billion. This is called "fiat" money ("fiat" is Latin for "let it be," as in "let it come into existence") because it was just created out of thin air on the Fed’s balance sheet. The Fed is the only bank in the U.S. which may lawfully do this. Chase then serves as the Fed’s agent, and sends a Chase check to AIG for $49.5 billion, and AIG promises to repay the $49.5 billion, not to Chase, but to the Fed. Note, that the Fed has not parted with so much as a dime of its wealth, but AIG now has $49.5 billion in real cash with which to pay its creditors.

Now the Fed comes calling on AIG and wants some of its "loan" repaid. So, how does AIG repay the loan? It gives the Fed $25 billion in shares of stock in a corporation that AIG owns, and permits the Fed to sell those shares. When the Fed does sell those shares, it will reduce AIG’s debt to the Fed by the amount the Fed receives for the shares and it will increase the Fed’s wealth by that amount. Thus, in this example, the Fed did not part with a dime but it will be $25 billion richer when this partial payback by AIG is completed. So the Fed loaned fiat money, but was paid back in real money. The consequences of this is a serious reduction on the value of the dollar for all of us and the fraudulent enrichment of those who own the Fed. Since the Fed began creating fiat money in 1913, the value of the dollar has been reduced by 92%. Will this madness never end?

Andrew P. Napolitano [send him mail], a former judge of the Superior Court of New Jersey, is the senior judicial analyst at the Fox News Channel. His next book is Lies the Government Told You: Myth, Power, and Deception in American History, (Nelson, 2010).

The Best of Andrew P. Napolitano

Email Print
  • LRC Blog

  • LRC Podcasts