First of all, thank you for the response and the write-up.

There are major problems with the whole train of thought, both of its parts. I'll address them in the same order as you mentioned them.

The Federal Reserve is supervised by the Board of Governors. It has 14 members and 7 of them (including the chairman) are appointed by the US government, ans specifically the President. Therefore, the US government controls the Fed.

Now of course, you can rightfully argue that this is a sham and the politicians are controlled by the banks etc. But accepting the argument, then what would be the difference if credit was created instead by the Department of X? Same politicians, same banks, same corruption.

The Fed does not really loan the government and the government does not really have to pay it back with interest. On the contrary, the Fed is the instrument by which the government sucks out money from the economy (and other economies!). Read this again and I'll explain how it works.

The government wants to borrow value on the cheap:

• It issues Treasuries
• You, me, institutional buyers (think pension funds) and China buys them (i.e. both locals and foreigners)
• If the process is left on its own, interest payments will skyrocket and the payments to foreigners are going to be especially painful and tricky to avoid. This is bad, so we need a plan.
• Those who bought the Treasuries go to the commercial banks and exchange them for credit (money), for example $1 in bond, $0.95 in credit to your bank account. Where did the commercial banks get all that credit though? From the Fed.
• The Fed comes in and tells the commercial banks, "hey guys, here's the credit you want, I want the Treasuries as collateral and oh, btw, you'll pay me 0.25% interest."
• Commercial banks happily oblige because they themselves sell that credit to the market at a much higher rate.
• Treasuries' interest rate goes down very very much (because the Fed-held ones are out of circulation), keeping the scheme going for a much longer period of time.
• The Fed keeps the Treasuries on its balance sheet. Eventually they mature (i.e. they have to be paid by the government).
• How exactly does the government pay for them? You guessed it, it issues new Treasuries, which locals and foreigners buy and get bought by commercial banks and get bought by the Fed.
• The wheel goes on and on, powered by compressed air.
• The government will never actually provide value to the Fed to "pay". Once this is not sustainable any more, it - the government - will forcefully depreciate the pay-out value of the Fed-held Treasuries.
• There will be a short period of waves and the scheme will start over again in some variation.

This is an ingenious way of leeching value from the economy and foreign countries. And if we disregard the moral vector, we can say it's a beautiful pyramid scheme where all practitioners profit until it breaks down.

Naturally, that's not all there is to the Fed's activities but that's enough in our context.

And now you can see that the example with Citi is incoherent. The very role of the Fed is to create credit for the commercial banks and earn interest from them, as part of the "leech value" scheme.

And now to the second part.

The proposed "frugal fiat" scheme is worthless because it serves nobody. It's basically a virtual gold replacement (since production is more or less stable and predictable, just like gold).

• If you're on the monetary expansion side, you lose all the benefits of fiat (the magic wheel we described above included).
• If you're on the sound money side, it makes no sense because a) it's still affecting the natural interest rate (this is a bit technical, I won't expand on it for now) and b) it's fragile as hell. There's always an emergency or two that justifies raising the monetary ceiling (remember that debt ceiling that goes up every time with a Kabuki theater?).

First of all, thank you for the response and the write-up.

There are major problems with the whole train of thought, both of its parts. I'll address them in the same order as you mentioned them.

The Federal Reserve is supervised by the Board of Governors. It has 14 members and 7 of them (including the chairman) are appointed by the US government, ans specifically the President. Therefore, the US government controls the Fed.

Now of course, you can rightfully argue that this is a sham and the politicians are controlled by the banks etc. But accepting the argument, then what would be the difference if credit was created instead by the Department of X? Same politicians, same banks, same corruption.

The Fed does not really loan the government and the government does not really have to pay it back with interest. On the contrary, the Fed is the instrument by which the government sucks out money from the economy (and other economies!). Read this again and I'll explain how it works.

The government wants to borrow value on the cheap:

• It issues Treasuries
• You, me, institutional buyers (think pension funds) and China buys them (i.e. both locals and foreigners)
• If the process is left on its own, interest payments will skyrocket and the payments to foreigners are going to be especially painful tricky to avoid. This is bad, so we need a plan.
• Those who bought the Treasuries go to the commercial banks and exchange them for credit (money), for example $1 in bond, $0.95 in credit to your bank account. Where did the commercial banks get all that credit though? From the Fed.
• The Fed comes in and tells the commercial banks, "hey guys, here's the credit you want, I want the Treasuries as collateral and oh, btw, you'll pay me 0.25% interest."
• Commercial banks happily oblige because they themselves sell that credit to the market at a much higher rate.
• Treasuries' interest rate goes down very very much (because the Fed-held ones are out of circulation), keeping the scheme going for a much longer period of time.
• The Fed keeps the Treasuries on its balance sheet. Eventually they mature (i.e. they have to be paid by the government).
• How exactly does the government pay for them? You guessed it, it issues new Treasuries, which locals and foreigners buy and get bought by commercial banks and get bought by the Fed.
• The wheel goes on and on, powered by compressed air.
• The government will never actually provide value to the Fed to "pay". Once this is not sustainable any more, it - the government - will forcefully depreciate the pay-out value of the Fed-held Treasuries.
• There will be a short period of waves and the scheme will start over again in some variation.

This is an ingenious way of leeching value from the economy and foreign countries. And if we disregard the moral vector, we can say it's a beautiful pyramid scheme where all practitioners profit until it breaks down.

Naturally, that's not all there is to the Fed's activities but that's enough in our context.

And now you can see that the example with Citi is incoherent. The very role of the Fed is to create credit for the commercial banks and earn interest from them, as part of the "leech value" scheme.

And now to the second part.

The proposed "frugal fiat" scheme is worthless because it serves nobody. It's basically a virtual gold replacement (since production is more or less stable and predictable, just like gold).

• If you're on the monetary expansion side, you lose all the benefits of fiat (the magic wheel we described above included).
• If you're on the sound money side, it makes no sense because a) it's still affecting the natural interest rate (this is a bit technical, I won't expand on it for now) and b) it's fragile as hell. There's always an emergency or two that justifies raising the monetary ceiling (remember that debt ceiling that goes up every time with a Kabuki theater?).

First of all, thank you for the response and the write-up.

There are major problems with the whole train of thought, both of its parts. I'll address them in the same order as you mentioned them.

The Federal Reserve is supervised by the Board of Governors. It has 14 members and 7 of them (including the chairman) are appointed by the US government, ans specifically the President. Therefore, the US government controls the Fed.

Now of course, you can rightfully argue that this is a sham and the politicians are controlled by the banks etc. But accepting the argument, then what would be the difference if credit was created instead by the Department of X? Same politicians, same banks, same corruption.

The Fed does not really loan the government and the government does not really have to pay it back with interest. On the contrary, the Fed is the instrument by which the government sucks out money from the economy (and other economies!). Read this again and I'll explain how it works.

The government wants to borrow value on the cheap:

• It issues Treasuries
• You, me, institutional buyers (think pension funds) and China buys them (i.e. both locals and foreigners)
• If the process is left on its own, interest payments will skyrocket and the payments to foreigners are going to be especially painful tricky to avoid. This is bad, so we need a plan.
• Those who bought the Treasuries go to the commercial banks and exchange them for credit (money), for example $1 in bond, $0.95 in credit to your bank account. Where did the commercial banks get all that credit though? From the Fed.
• The Fed comes in and tells the commercial banks, "hey guys, here's the credit you want, I want the Treasuries as collateral and oh, btw, you'll pay me 0.25% interest."
• Commercial banks happily oblige because they themselves sell that credit to the market at a much higher rate.
• Treasuries' interest rate goes down very very much (because the Fed-held ones are out of circulation), keeping the scheme going for a much longer period of time.
• The Fed keeps the Treasuries on its balance sheet. Eventually they mature (i.e. they have to be paid by the government).
• How exactly does the government pay for them? You guessed it, it issues new Treasuries, which locals and foreigners buy and get bought by commercial banks and get bought by the Fed.
• The wheel goes on and on, powered by compressed air.
• The government will never actually provide value to the Fed to "pay". Once this is not sustainable any more, it - the government - will forcefully depreciate the pay-out value of the Fed-held Treasuries.
• There will be a short period of waves and the scheme will start over again in some variation.

This is an ingenious way of leeching value from the economy and foreign countries. And if we disregard the moral vector, we can say it's a beautiful pyramid scheme where all practitioners profit until it breaks down.

Naturally, that's not all there is to the Fed's activities but that's enough in our context.

And now you can see that the example with Citi is incoherent. The very role of the Fed is to create credit for the commercial banks and earn interest from them, as part of the "leech value" scheme.

And now to the second part.

The proposed "frugal fiat" scheme is worthless because it serves nobody. It's basically a virtual gold replacement (since production is more or less stable and predictable, just like gold).

• If you're on the monetary expansion side, you lose all the benefits of fiat (the magic wheel we described above included)
• If you're on the sound money side, it makes no sense because a) it's still affecting the natural interest rate (this is a bit technical, I won't expand on it for now) and b) it's fragile as hell. There's always an emergency or two that justifies raising the monetary ceiling (remember that debt ceiling that goes up every time with a Kabuki theater?).