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 think of it I mean why do we allow an energy to counterfeit currency into existence and buy assets such as bonds which is cash flow from all of our future taxation it's the national debt that they're buying and while they're doing that they're bidding these bonds away from us so this could be a private investor that is getting a deal on the bonds instead of the Federal Reserve but they're going to raise the price of those bonds uh artificially inflating it causing these massive Bubbles and

bidding those assets away from private investors like you this is so incredibly immoral it should be illegal and it was before the Federal Reserve was created the following presentation is based on content from my new book The Great gold and silver Rush of the 21st century to read the free online chapters or order the book please go to ggsr21.com thanks foreign welcome to part two of chapter four of the great gold and silver Rush of the 21st century in the last part we learned that the entire world monetary system is

nothing but ious for ious and what those ious basically owe all of us is our own future taxation that's what gives them value now we're going to learn not what they are but how they are created and so this part is called iousa in anticipation of taxation of the population of the nation and to get right down to it I'm going to use quotes from the Federal Reserve the U.S department of the treasury and once again the bank of England's pamphlet money Creation in the modern economy so how does the Federal Reserve create

currency usually through something called open market operations so what are open market operations the open market desk at the Federal Reserve Bank of New York or the desk permanently or temporarily buys or sells treasuries issued or guaranteed by the U.S treasury or U.S government agencies when Securities are bought or sold reserves in the banking system are increased or decreased respectively but I wanted to dig a little bit deeper than that so I took a look at the Federal Reserve Act and in section 14 open market operations

subsection B you know it says all of this legal mumbo jumbo but if you want to know the true meaning read only the red words to buy and sell bonds and notes of the United States issued in anticipation of the collection of taxes uh or other obligations which are direct obligations of the United States or which are fully guaranteed by the United States as to the principle and interest may be bought and sold but only in the open market and this is also important but the whole thing is to buy and sell

part of our future tax flow part of our future lifetimes part of our future work hours but they can only do it in the open market and that's very very important as you will see later and it reflects on the entire rest of this chapter and it has caused a lot of the problems that we see with QE that has everything that has gone wrong since 2008 to understand it you have to understand how this works so uh the Federal Reserve Act allows the FED to buy and sell treasuries our national debt or any other obligation guaranteed

by the government in anticipation of future extraction of taxes from the population they mostly buy U.S treasuries but since 2008 they've added mortgage-backed Securities and that's where the term other obligations comes in and mortgage-backed securities what gives them value basically is your mortgage payments now if the mortgage-backed security was issued by a GSE so if the MBS was issued by a GSE which means government-sponsored Enterprise like Fannie Mae Freddie Mac or Jenny May then your MBs is guaranteed

by wait for it drum roll please you because if it's guaranteed by the government it's guaranteed by your taxes so the Federal Reserve is now the largest lien holder on your future taxes and on real estate in General on your mortgage so open for business what does it mean when it says that the Federal Reserve can buy but only in the open market you'd think that it means that they could buy and the same on the same exchanges that we can but it doesn't actually mean that so from whom do they

buy the Federal Reserve Act specifies that the Federal Reserve may buy and sell treasury Securities but only in the open market the Federal Reserve meets this statutory requirement by conducting its purchases and sales of Securities chiefly and this is important chiefly because it isn't only through the open market it's mostly through the open market but they have found ways of getting around the Federal Reserve Act through transactions with a group of major Financial firms so-called primary

dealers that have an established trading relationship with the Federal Reserve Bank of New York and that comes from the Federal Reserve Bank of New York the the quote uh and then a quote from the U.S department of the treasury primary dealers are trade encounter parties of the New York fed in its implementation of monetary policy see they are also expected to make markets for the New York fed on behalf of its official account holders as needed and to bid on a pro rata basis in all treasury auctions at reasonably competitive

prices that's a quote from the Department of the treasury now I've bolded some of these words so you can read it like this primary dealers are trading counterparties of the New York fed they are also expected to bid in all treasury auctions because that's basically what this says so if you look at chapter four of hidden secrets of money it shows you that process the primary dealers buy from the treasury and then they sell to the fed and they make a markup on it now I believe the reason that Congress put this that this

open market clause in there is so that the FED can't show favoritism to One bank or another the bank of England for instance can purchase directly from a bank so it would be possible to if you if you don't like a bank to charge them more uh on things to make it harder for them to make a profit and for uh somebody that that's uh that you're showing favoritism to to give them special deals uh that keeps that type of uh favoritism at Bay by putting this in there but it creates a big problem later

with the accumulation of Bank Reserves as we will see which has caused huge dislocations in the entire economy so this is a completely different open market than the you the ones that you and I use the FED has to use its primary dealers but the primary dealers can buy from the treasury or from anyone else they want any brokerage firms they can buy on the exchanges so they can buy from you and me through our you know we put our uh a treasury bond that we own on an exchange and uh the primary dealer

can buy that and sell it to the Federal Reserve so uh it's it's an open market they just can't deal directly with the banks that tells us uh how they conduct business but it doesn't tell us who the primary dealers are they're some of the largest financial institutions of the in the world uh at the writing of this which was a few months ago there were 25 of them I don't know exactly how many are there are today they include companies like B of A Securities Canter Fitzgerald Citigroup Global markets

Goldman Sachs HSBC Securities JPMorgan Securities Morgan Stanley UBS Securities Wells Fargo Securities and others now you'll notice those names are either like Canter Fitzgerald is not a bank uh Citigroup Global markets is not a bank B of A Securities is not a bank Bank of America is a bank but B of A Securities is not they can't the FED cannot deal direct with any of the banks they these uh primary dealers that they deal with are either investment Banks Bank holding companies or brokerages

they're all non-bank entities and they do not have Reserve Accounts at the Federal Reserve but they either are owned by a holding company that owns a bank that they deal with or they've got another arm of their business another separate separate entity that's under the same corporate umbrella that is a bank that they deal with or they just have an outside bank that they deal with but they are all non-bank entities so according to the Federal Reserve Act the Federal Reserve can only buy in the open

market but unlike the the bank of England and other Banks who can deal directly with the the commercial Banks the Federal Reserve cannot deal directly with the banks the Federal Reserve Act forbids it and it must transact only with its primary dealers but the primary dealers can buy from from anyone that can buy from a pension fund they can buy like I said through a brokerage house which means they could be buying a bond from you or me um now you'll see how is it how important it is later but you need to know that

the primary dealers are private sector non-bank financial institutions the one of the reasons I want you to know that is because that in chapter one we had a lot of quotes from a pamphlet from the bank of England called money Creation in the modern economy and they are really forthcoming uh very open about how banking works and uh so anyway I'm going to use some more of those quotes later on here the Federal Reserve here's how the Federal Reserve spells it out where it says private sector counterparties

those are the primary dealers they're talking about the Federal Reserve Act requires that the desk conduct its purchases and sales in the open market to do so the desk has established relationships with private sector counterparties that are active in the market for U.S government securities the Federal Reserve pays for the those Securities by crediting The Reserve accounts of the correspondent banks of the primary dealers the correspondent banks in turn credit the Dealer's bank account in this way open market

purchases leads to an increase in reserve balances this is the big problem because they get stuck there you'll see this in a moment check out this diagram here of how it works it isn't just a transaction of buying from a private uh non-bank entity it's about a transaction of buying from a private non-bank entity paying the bank in reserves which the bank cannot pay the private entity so the bank is instructed to create another for every billion dollars of bonds that the FED buys they pay Bank Reserves of a billion

and instruct the bank to then create a billion dollars worth of bank credit and put it in the primary dealers checking account so for every one billion dollars the FED dollars the Federal Reserve wants to inject into the markets to stimulate the economy the Federal Reserve simultaneously buys one billion dollars worth of U.S treasuries or mortgage-backed Securities from one of its primary dealers but since the primary dealers dealer does not have a reserve account at the Federal Reserve unless the Federal Reserve sends an

armada of Armored Cars packed with a billion dollars of paper paper ious the Federal Reserve notes it cannot pay the primary dealer directly so the Federal Reserve imagines one billion dollars worth of brand new base currency iodu digits types them into the reserve account of their primary dealer's correspondent bank and simultaneously instructs the bank to imagine one billion dollars of brand new bank credit IOU reminder digits into the primary dealer's checking account and abracadabra alakazam gortu barata nicto

if you've ever watched The Day the Earth Stood Still you'll know what I'm talking about the FED has one billion dollars in U.S treasuries and mortgage-backed securities the bank has one billion dollar more dollars more Central Bank ious in its Reserve account and the primary dealer has one billion dollars uh more worth of reminders that it is owed ious in its checking account and the fund can now go shopping for more assets with those reminders and everyone is happy uh so again for every one billion

dollars of assets the FED purchases one billion dollars of Central Bank ious we were created and another billion dollars of bank credit ious entered circulation through the primary dealers checking account but the big problem here is that for every one billion dollars worth of assets that the FED purchased uh that billion dollars worth of Base currency that was created uh gets stuck it's it's reserves and it can only be used for interbank settlement and they don't need that many uh base currency ious in their

Reserve accounts to be able to do business with one another so these keep on piling up and the gravity of this situation will be revealed in upcoming sections so Supersize Me the Federal Reserve claims that QE is just reducing the number of short-term treasuries it holds while massively increasing their Holdings of longer-term treasuries which is notes and bonds so here's how the Federal Reserve describes it the Federal Reserve greatly expanded its Holdings of long-term Securities through open market

purchases with the goal of putting downward pressure on longer term interest rates and thus supporting economic activity and job creation by making Financial conditions more accommodative what is it saying there it's saying that if it purchases a bunch of uh long-term bonds and notes that the extra demand drives up the price on those price the the interest rate is the inverse of price so it pushes interest rates down when interest rates fall you buy more houses and cars and everything else and

when you do that you're going to take out a loan when you take out a loan you're creating currency your signature is what is creating the the i o the bank will imagine ious and loan them to you at interest when your signature hits that paper so um if you look behind the curtain though you're going to see that they're doing business the same old way QE is really just open market operations but a whole lot bigger now right after the financial crisis of 08 Ben Bernanke did liquidate all of the short-term U.S

treasuries but we've replaced all of them so QE is not this uh twist in the uh the maturity dates of these ious that they are buying from the treasury that's what a U.S treasury is once again it's another IOU the important thing here here is uh that they call them large-scale asset purchases how large are they from before the financial crisis of 2008 to 2022 the Federal Reserve Holdings of long-term notes and bonds Rose by a factor of 10.5 times the total Securities held outright which

includes the long-term bonds and the short-term treasuries and mortgage-backed securities Rose 10.75 times but since Bank Reserves get stuck in their Reserve accounts they were up by a factor of more than 400 times and they used to have something called required reserves and excess reserves and the required reserves were the reserves that were required to keep the banking system operating smoothly the excess reserves was anything above that and the excess reserves have grown by roughly 2 500 times

so why quantitative easing the goal is to manipulate the bond market and artificially create Demand by the Federal Reserve to raise bond prices thereby pushing down interest rates and the interest rate is the inverse of the price the intention is to stimulate the economy the result is that lower interest rates and all this brand new currency that was pumped directly into the financial sector created massive bubbles in both real estate and the stock markets and the knock-on effect as you will see shortly is that Wall Street

was enriched at the expense of Main Street Wall Street made out well Main Street paid out but my big question is why aren't we all questioning the morality of this think of it I mean why do we allow an energy to counterfeit currency into existence and buy assets such as bonds which is cash flow from all of our future taxation it's the national debt that they're buying and while they're doing that they're bidding these bonds away from us so this could be a private investor that is getting a

deal on the bonds instead of the Federal Reserve but they're going to raise the price of those bonds uh artificially inflating it causing these massive Bubbles and bidding those assets away from private investors like you this is so incredibly immoral it should be illegal and it was before the Federal Reserve was created q e f e d and b-o-e so we've established that the Federal Reserve Act forbids the Federal Reserve from purchasing Securities directly from commercial Banks they must use their net network of

private sector non-bank entities the primary dealers as the middleman the bank of England however can deal directly with the commercial Banks but uh with the financial crisis of 2008 the bank of England adopted a program of quantitative easing by doing exactly what the Federal Reserve has always done buying from private sector non-bank entities thus for the purpose of explaining QE we can treat the Federal Reserve and the bank of England actions as equivalent to each other uh with that in mind I'm going back to

the bank of England for a moment because as I said their pamphlet money Creation in the modern economy they are much more forthcoming in their description of banking so I'm going to use quotes from that pamphlet again uh so remember narrow money is currency that the banks use broad money is the currency that we use so what is the my question what is the point of QE QE is intended to boost the amount of money in the economy directly by purchasing assets mainly from non-bank Financial companies

question why purchase from non-bank Financial companies answer while asset purchases from Banks increase the monetary base or narrow money purchases from non-banks increase the monetary base and Broad money at the same time Banks gain both new reserves and a corresponding new customer deposit when assets are purchased from non-banks as I said before when they're making these purchases from non-banks for every dollar they purchase of assets two dollars are created one is a reserve dollar the other one is a bank credit

dollar so how did my question how does QE work if the bank of England purchases an asset from a non-bank company it pays for the asset via the seller's Bank it credits the reserves of the seller's bank with the funds and the bank credits the account of the seller with a deposit so again two dollars are created one that gets trapped in in the banking system in reserves and one that gets credited to the seller's checking account this means that while assets purchased from non-banks increase the

monetary base or narrow money purchases from non-banks increase the monetary base and Broad money at the same time question but aren't all the extra reserves just free base currency ious for the banks answer as a byproduct of QE new Central Bank Reserves are created the additional reserves are simply a byproduct of this transaction it's sometimes argued that because they are assets held by commercial banks that earn interest these reserves represent free money for banks while Banks do earn interest on the

newly created reserves QE also creates an accompanying liability for the banks in the form of and the bank of England used a pension fund here as an example so this is just an example so any of any private entity that the bank purchased from uh the Pension funds deposit which the bank itself will typically have to pay interest on in other words QE leaves banks with both a new IOU from the central bank but also a new equally sized IOU to Consumers and I just find this hilarious that the bank of England is admitting in this

pamphlet that is nothing but ious so but but I thought you said that lending creates deposits are there any loans here QE boosts broad money without directly lending to or requiring an increase in lending QE works by circumventing the banking sector aiming to increase private sector spending directly so normally currency is brought into existence when we take out a loan but we have to repay the the principal on that loan so we have to save up currency when we pay it back that currency extinguishes the debt uh and

those dollars are annihilated they vanish and we're always borrowing just a little bit more currency into existence then we're we're creating more than we're extinguishing by paying and uh and so the currency Supply grows very slowly but here they're creating currency that isn't there's no loan against it so it's not being extinguished so if you're injecting currency directly into the economy without an offsetting loan to be repaid won't that lead to inflation

answer this will further boost nominal spending and should ultimately bid up the prices of goods and services leading to higher inflation and this last bit is just a comment from me it's not a question well the thought be careful what you wish for comes to mind I want to thank you for watching this video of chapter of of part two of chapter four of the great gold and silver Rush of the 21st century and you're going to see how important this part was when you watched the next part thanks for watching but

this is by no means the whole story if you want the full story including my free online only chapters and companion videos there's a wealth of information at ggsr21.com thanks [Music]