Exerpt from book: "Honest Money"

"Honest Money" exerpt from Chapter 9, by Gary North

"Three counterfeiters are discovered. The first one is a middle-class man who owns a cheap offset printing press. He has printed 500 $20 bills and spent them into circulation.

The second one is a U.S. government official. He works for the Bureau of Engraving and Printing. He has printed up a million $20 bills, and the government has spent them into circulation.

The third is the Chairman of the Board of a multibillion- dollar New York bank. His bank has loaned a billion dollars of fractionally reserve bank money to Mexico’s government-owned petroleum company, Pemex. The price of oil has collapsed, so Pemex can’t pay its bills. What happens to the three counterfeiters? The first man is convicted of counterfeiting and is sent to jail. The second man works until age 65 and is given a pension. But what about the third man, the chairman? Here is where it could get interesting. The third man goes to the nation’s central bank, the Federal Reserve System, which in turn calls the Mexican government, which immediately prints a Mexican bond for $25 million, which is then bought by the Federal Reserve System with electronic money created out of nothing. This Mexican bond then becomes part of the “legal reserve” which supposedly undergirds the U.S. monetary system. (This was made legal in the infamous Monetary Control Act of 1980, against which only 13 congressmen voted.) The Mexican government sends the money to Pemex, which then remits $25 million to pay this quarter’s interest payment to the New York bank. Three months from now, another $25 million will fall due. The chairman of the New York bank gets a round of applause from the bank’s board of directors, and perhaps even a $100,000 bonus for his brilliant delaying of the bank’s crisis for another three months. The $25 million then multiplies through the U.S. fractional reserve banking system, creating millions of new commercial dollars in a mini-wave of inflation.

This scenario could really take place, given United States law. Is this system just? Would you say that the law unduly respects neither the mighty nor the poor man?"
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