Monetizing Belief

The Sale of Indulgences & The Federal Reserve

I. Introduction

Money is nothing but a gauge that measures goods and services. Yet people conflate it with actual wealth. That’s like confusing the inch marks on a measuring tape with an actual 2x4.

We often hear that the Federal Government is broke, for example. That makes as much sense as a contractor running out of inches during a kitchen remodel. The Feds have a “money printer”. They can instantly gin up as many dollars as we need to properly keep score in our economy; just as your contractor can have all the inches needed to measure up your new cabinets.

There is a fake monopoly being protected here. And that monopoly is for-profit credit creation.

II. The Sale of Indulgences

During the Middle Ages, people believed the Roman church was their exclusive conduit to God. So the church monetized that monopoly—it set up a toll booth on exclusive access to the Almighty…by charging people for God’s forgiveness from their sins. It capitalized, in other words, on a fake monopoly.

Looking back, it’s hard to believe that people fell for the scam. We can’t imagine paying an invoice from the church after a spirited session on Pornhub. But questioning church authority never occurred to the Medieval mind. Without a second thought, those folks accepted the teachings of the church as bedrock reality.

But we’ve accepted a very similar made-up monopoly by believing we must pay bankers for credit creation. And that fake monopoly is far more lucrative than anything in the Medieval church’s wildest dreams.

III. Inflation

When we haven’t collected enough taxes to cover the cost of critical goods or services, we shrug our shoulders and borrow from the wealthy to cover the deficit. Because the wealthy have all the extra money, we allow them to charge us for it. But we could just as easily tax it from them. Or create it out of thin air with a money printer.

Inflation is the boogeyman that gets trotted out to scare us away from printing up our own dollars. After all, money only makes a reliable gauge when the volume of dollars in circulation matches the volume of goods and services being exchanged. This valid line of reasoning is used to protect a fake monopoly on credit creation.

But banks are constantly flooding the economy with new dollars by creating credit. These dollars pour into the economy without any regard for the inflation it causes. That’s why home prices are through the roof.

IV. Home Prices

An entire generation has been priced out of home ownership. The most common explanation floating around out there is supply-and-demand. Zoning regulations and NIMBYism (“Not In My Backyard”) are cited as burdensome restrictions that curtail supply and push up prices.

But according to the United Way, there are 28 vacant homes for every homeless person in America. And they’re not all out in rural West Virginia. They’re located where people actually want to live; there are 5.5 million empty homes across the 50 biggest US metros. The vacant rate is 7.22%. We do not have a supply problem.

It is CREDIT that’s the culprit. To understand how credit deranges prices, simply imagine what home prices would be like if there was no credit available. With no one to issue 30-year mortgages, homes prices would max out at the amount of cash people actually have on hand.

That's not to suggest that credit isn’t a useful tool. It's just a thought experiment to properly locate the problem. The issue is not with the supply-and-demand of homes. It's with the supply-and-demand of money itself.

V. Credit Creation

As mentioned above, banks flood our economic system with new dollars, with no regard for the rampant inflation they cause. It is commonly estimated that over 90% of the dollars in circulation come from credit creation, not from the printing press.

Here’s how credit creation works: you deposit $100 into your bank and they use that to create $100 worth of credit for the next customer. Notice that your bank doesn’t draw down your checking account; you’ll never know they’ve lent out your money. But they will charge interest on the credit they created with your money.

The bank will approve your debit card for $100 AND the next customer’s credit card for $100. Now there’s $200 floating around in the economy based on your original $100. A merchant who accepts both debit and credit cards can’t tell the difference between dollars created by credit and dollars that originally came from a printing press.

The vast majority of the money in circulation comes from credit creation taking place at banks. Not from the printing press controlled by the Federal government. And that’s the way they want it, because this way banks get to charge us for access. It works exactly the same way as the Sale of Indulgences during the Middle Ages. Our faith is once again being monetized.

VI. Compound Interest

Compound interest is not intuitive. Albert Einstein once called it “the most powerful force in the universe”. People don’t realize that by paying off your home over 30 years, you also buy a second house for your bank. 3.33% is the interest rate at which the bank doubles its investment on a 30-year mortgage. And there are 80 million mortgages in the US, most with rates north of 4%. Interest payments are a much more significant expense than property taxes. These days, people have no idea who Caesar is.

He’s hiding at the banks, not parading around in public. During the fiscal year 2022, we paid half a trillion dollars in interest on the national debt. If we didn’t allow our need for credit to be held hostage and monetized, we could cut the bankers out. They’d all have to get jobs at Burger King like the rest of us.

VII. Conclusion

The river of wealth flowing from the have-nots to the haves is far wider and deeper than it ever was during the Middle Ages. And—like the Sale of Indulgences which characterized that era—it’s based on a fake monopoly. The bankers are collecting staggering amounts of interest off the rest of us for the “service” of credit creation. But in reality, we have no more need of their services than the denizens of Medieval society needed to pay for forgiveness of sin.

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

-Thomas Jefferson