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U.S. Taxpayer & Our Money Supply
Written by Robert Gaffney   
Monday, 24 November 2008

This piece was authored by Taxpayers Union of Louisiana member Robert Gaffney.  He can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .  Thanks to Robert for this excellent explanation of money and our current situation.

People can often become confused about money supply and why there are so many different measurements (M1, M2, M3, MZM, TMS…).  In short, people disagree about what constitutes money.  Money, most simply, is a common medium of exchange.  The market, left alone, will select a highly marketable commodity to serve as money.  In most free economies throughout history, gold and silver (specie) have generally become money.

Yet, credit to these commodities can also serve as money (called money substitutes), given the right conditions.  The most common forms are bank notes and checking accounts.  The key feature for a form of credit to become a money substitute was that it would have to be convertible into money at any time without a fee, by a trustworthy institution.  Today, there are a wide range of money substitutes and cleverly-similar items, and the various definitions of money supply attempt to determine which sets of these should actually be considered part of the money supply.

Money substitutes do not necessarily increase the money supply, if a money substitute’s circulation involves equal money being removed from circulation (such as being held in a bank vault).  Yet, holding such reserves has been virtually abandoned by modern banking.  Rather than simply warehousing commodity money, banks have traditionally leant some of it out, operating with reserves that can only cover a fraction of all liabilities.  Many believe that if there were truly free banking that allowing fractional reserves would be neither problematic, nor inherently inflationary.  Government intervention allows the unchecked, uniform expansion of money and credit, which it uses for its own benefit, despite the problems this poses upon the public.  Today, because of central banking and irredeemable, easily-created fiat currency, banks keep virtually no reserves and the money supply haphazardly expands, both in cash and money substitutes.

While bank notes and checking accounts are nearly universally considered money, the following credit claims or assets are debatable for inclusion in the money supply. Savings accounts, including money market deposit accounts, can often be redirected into a checking account or turned into cash on demand, representing instant and guaranteed nominal purchasing power to its holder.  Some consider this economically no different from other money substitutes; however, dissenters argue that banks can optionally request 30 days before transfer, and that savings accounts are not commonly checked against (although they can be using certified or cashier’s checks).  Time deposits are not always immediately redeemable for money or may involve a penalty to do so; however, small time deposits can often be redeemed on demand with negligible penalties, and are thus included in some money supply measurements.  Money market mutual funds are accounts that one can sometimes write checks against and always redeem instantly for cash.  They would appear to constitute money; however, they are simply claims to liquid investments brokered by an institution.  When you make a deposit, your money is used to purchase investments and continues to circulate, and when you check against your account, investments are sold to raise the money necessary to cover the payment.  These investments do not function as money, nor are they guaranteed to be more valuable than the original deposit (although in practice they nearly always are).

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Last Updated ( Tuesday, 25 November 2008 )
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Taxpayer Calamity becoming Constitutional Disaster?
Written by John Roberts   
Tuesday, 11 November 2008

The expansion of the bailout and Federal Reserve loan programs are now happening even faster than anyone could have imagined.  Today we learn that Bloomberg News has filed suit against the Federal Reserve Bank of New York for failure to respond to their Freedom of Informaton Act request.  That request was for information about which companies have received the over $2 trillion dollars in loans now on the Fed's balance sheet.  It's the first time ever the total loans have topped $2 trillion and is up over 140% this year.  These loans are seperate from the $700 billion dollar bailout package, you've got to add them together, along with the $25 billion going to the automakers (and they want more) and the loans to AIG insurance.  Yes, that's right, the original bailout for AIG of $85 billion on September 14th has already gone right out the window and become a $150 billion package with more favorable terms for AIG and a five year payback instead of two.  So we just get to wait an extra three years to find out the taxpayers will get the shaft on this one, as usual.  The Bloomberg News request and subsequent avoidance from the Fed for the disclosure of who has received these trillions of taxpayers dollars is very disturbing.  All through out the bailout hearings the tag team of Bernanke and Paulson, under oath before Congressional committees, repeatedly claimed they were in favor of transparency and releasing as much information as possible to the taxpayers.  Yet when Bloomberg began asking for this same type of transparency on other loans on the NY Fed's balance sheet, over a trillion dollars worth of new loans this year, the Fed didn't even bother to respond as is required by law under the FOIA.

Have you seen a list of the companies who are now actively involved in bailouts or have already taken bailout taxpayer funds?  Just over a month ago we were told this $700B bailout would start the economy on the right track again and the taxpayers would end up probably making money.  In just a few short weeks this has all changed, big surprise.  The government doesn't really know what it's doing and is now prepared to drag down the U.S. taxpayer even further.  Besides banks, some of which continue to fail (two this weekend), now the auto industry in Detroit, numerous insurance companies, as previously mentioned the biggest insurance company AIG has almost doubled what they need, Fannie Mae already taken over by the federal government has announced a $29 billion dollar loss and will likely need more money pronto, state and local goverments are pressing for passage of a $100 billion bailout for them, it's not going to end, this run on sentence could go on much longer!  The day the federal government can inject itself into the U.S. economy and be successful is the day a marxist government will be reconsituted from Lenin's grave and establish itself in D.C.  The hole is just getting deeper and the crisis extended by the propping up of institutions that have failed with leadership that has failed and will continue to fail.  How do you explain giving billions of taxpayers' dollars to company executives who have already lost billions of dollars of company funds and expect a different result?  Isn't that insane?

This is not to mention the companies who have been doing a good job and are, or were, making money, but are now at a huge disadvantage by not receiving "free money" from the taxpayers' account!  How would you feel if you had worked hard at a McDonalds and become a manager and then got a loan to buy your own franchise.  You then worked even harder making it successful and paid off your loan only to see your across the street competitor, Spanky's Burgers, take out big bank loans to try to beat you with several unsuccessful strategies and just as you were about to win the burger battle the mayor of your town said Spanky's can't go out of business it's too important for employment, competition and he just likes Spanky's so we're going to lend Spanky's all the money they need to continue in business.  Of course Spanky's will eventually fail, but at what cost to you and the town's taxpayers?

Now the worse news...British Prime Minister Gordon Brown gave a speech today in which he repeatedly called for a new "global society".  Britain is of course our closest ally in the world so what their leaders have to say is of some importance.  Here are a couple of quotes you may be concerned about,   "The alliance between Britain and the U.S. -- and more broadly between Europe and the U.S. -- can and must provide leadership, not in order to make the rules ourselves, but to lead the global effort to build a stronger and more just international order"  and  "...And if we learn from our experience of turning unity of purpose into unity of action, we can together seize this moment of change in our world to create a truly global society."  and lastly,  you'll just have to trust me that he went on about protecting "middle income countries" by expanding the International Monetary Fund (undoubtedly at U.S. taxpayer expense primarily) and having new global financial system rules.

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Last Updated ( Tuesday, 11 November 2008 )
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Ready for Bailout "Working Paper 666"???
Written by John Roberts   
Friday, 24 October 2008

Are you ready for this?  Trust me you're really not, but here goes.  Remember all the government officials who claimed the average taxpayer (most of whom opposed the big government bailout plan) did not understand what was going on and should be ignored when they called Congress and the Whitehouse.  Every leadership official from the administration and Congress told us there were major forces at work in the economy which THEY NEEDED TO FIX.  Here's a run down of the crisis items from early September;

1. Credit was dried up and businesses and individuals could no longer get the loans they needed.
2. Banks would not lend other banks any money.
3. Large corporations couldn't sell their commercial paper to get operating capital they needed.
4. Without banks functioning better the economy was going to enter a depression any day now.

Today is Thursday October 23rd, some six weeks after the alarm bells were rung by Paulson, Bernanke and the leadership of Congress.  Tomorrow will be three weeks since the ridiculous bailout bill was passed by Congress and signed into law by the President.  Any normal observer of this situation can see it was our leaders in charge who were wrong and do not know what is happening.  The plan for the $700 billion dollars approved over the objections of a majority of taxpayers changes weekly, if not more often.  Nothing they claimed was going to happen has happened.  The stock market has certainly crashed and is now even worse since the bailout, but that may be only because Congress hasn't yet passed a new bailout plan whereby only stock buying is allowed and selling is outlawed.  As funny as this sounds, it makes just as much sense as what they did three weeks ago.  Don't believe me?  Well, today a new research paper was released which illustrates that all four of the above listed crisis indicators don't really exist.  Yes, the four main reasons for the entire $700 billion bailout are now said to NOT EXIST.  You might conclude that there is some wingnut out there who doesn't understand what the Treasury Department and the Federal Reserve have been telling us, namely items 1-4.  Anybody can write a paper saying Paulson and Bernanke are wrong.

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Last Updated ( Friday, 24 October 2008 )
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