Chapter XI More of the Steps in the Creation of Money

desperately to hide the fact, that, in reality, they are lending no funds; but create funds every time the Reserve authorities buy investment obligations, or make a loan, and every time any commercial bank buys investment obligations, or makes a loan. Just as Congress, by law, empowered the Reserve authorities to write a cheque against no funds; the Reserve Act empowers commercial banks, who are member banks — and there are some 8,000 (total 14,537) other State banks and trust companies who do business as branches or under trusteeship of member banks) to write a cheque against no funds. A congressman wrote me that he used to think that when the Reserve Banks, which are the fiscal agents of the Government (keeping its deposits and clearing the Government's cheques paid to customers for materials and services) bought U.S. Bonds, that the Reserve Banks just gave the Government credit in its deposit account for the bonds; but now he has learned that "Instead money is created in the form of Federal Reserve notes taken from the Treasury's Bureau of Engraving and Printing, and used to buy United States Government Bonds." He has been brain washed. The Congressman did say this: ". . . when Government bonds are bought for the 12 Federal Reserve banks, the capital stock and surplus of the banks is not used for this purpose, and funds of the Reserve banks are not used for this purpose, and the deposits of member banks are not used for this purpose." The Congressman is wool-gathered in the assertions that the Reserve banks use Reserve notes (greenbacks in daily circulation) to pay the Government for the bonds. He is not wool-gathered in his statement that they do not use capital, surplus or bank deposits for banks do not, never did lend their capital, their surplus or their depositors' deposits. But let's note how silly the Congressman's assertion that the Reserve authorities get from the Government Reserve (free) notes, and then hand them back to the Government in payment for the U.S. Bonds. The Government prints these bonds for the Reserve Banks at a cost of only 30 cents a $1,000 and the Treasury keeps them in storage, just like a printer would keep a customer's letterheads in storage, doling them out