Business & Money

Debt Monetization: The Subject President Obama and Rep. Paul Ryan Won't Touch

By Cedric Muhammad Guest Columnist- | Last updated: Apr 28, 2011 - 9:03:33 AM

What's your opinion on this article?


'Until President Obama and Rep. Paul Ryan are willing to speak these truths, the burden of debt can never be lifted.'
“The Federal Reserve has surpassed China as the leading holder of US Treasury securities…”

‘Fed Passes China In Treasury Holdings' Financial Times, February 2, 2011

Republicans and Democrats discussing the problem of America's annual deficit and cumulative national debt is a positive step. That the crisis of unfunded liabilities—the $53 trillion commitment to pay Medicare and Social Security benefits to ‘Baby Boomers' (the 64 million Americans born in between 1946 and 1964)—is finally receiving more attention is good news. But no matter how forthrightly these two problems are addressed, the root of this country's debt burden will never be solved until the privately-owned Federal Reserve's unique power to create money is challenged.


Because each time the Federal Reserve creates money it creates debt.

Let's look at this process from the perspective of four respected monetary authorities.

In 1964 Congressman Wright Patman stated, “The dollar represents a dollar debt to the Federal Reserve System. The Federal Reserve Banks create money out of thin air to buy Government bonds from the United States Treasury, lending money into circulation at interest, by bookkeeping entries of checkbook credit to the United States Treasury. The Treasury writes up an interest bearing bond for one billion dollars. The Federal Reserve gives the Treasury a one billion dollar credit for the bond, and has created out of nothing a one billion dollar debt which the American people are obligated to pay with interest.”

In his 1994 book, The Secret World of Money, Andrew Gause writes in response to the question, “Are Federal Reserve Notes really ‘dollars'?”, “Our Bureau of Engraving and Printing prints the money, and then sells it to the Federal Reserve Bank simply for the cost of the printing. The Federal Reserve bank then loans it back to our Government. The Federal Reserve also demands security to back up the loan, so Congress authorizes the Treasury to print US bonds which are given to the Federal Reserve as collateral against this loan. This means that the United States has been mortgaged to a handful of international bankers.”

Making clear the Fed's powers are even greater in this digital age, Alan Blinder, former vice chairman of the Board of Governors of the Federal Reserve and professor of economics at Princeton University, said the following on the October 7, 2008 edition of PBS NewsHour:

“…we use the euphemism ‘print money.' What that really means is somebody is on a keyboard creating electronic images of money. Large amounts of money are not cash. So these are credits at the Federal Reserve system basically. A central bank can do that; a commercial bank cannot do that.”

In a November 5, 2010 Wall Street Journal article by Jon Hilsenrath, “Fed Treads Into a Once-Taboo Realm” we read:

“The Federal Reserve will print money to buy nearly as much U.S. Treasury debt in the next eight months as the U.S. government will issue.

“The Fed's decision this week to buy $600 billion more of U.S. Treasury debt is setting off a debate about the risks of a central bank entwining its policies so tightly with the government's fiscal fortunes. The Fed is essentially lending enough money to the government to fund its operations for several months, something called ‘monetizing the debt.'

In normal times, this is one of the great taboos of central banking because it is seen as a step toward spiraling inflation and because it risks encouraging reckless government spending.”

Read Minister Farrakhan's A Torchlight For America for one of the clearest explanations of U.S. Treasury Securities and how the federal debt is financed.

According to the Federal Reserve Bank H.4.1 Release, on November 4, 2010 the Federal Reserve was holding $840 billion in U.S. Treasury Securities. As of April 7, 2011 the Federal Reserve acknowledges holding $1 trillion, 358 billion in U.S. Treasuries. In 1993, A Torchlight For America noted that 70 percent of the government securities held had to be paid back within 5 years. In November of 2010, $364 billion of Treasury Securities held by the Fed had a maturity of 1-5 years while $247 billion matured within 5 to 10 years. In the latest Federal Reserve Release (April 7, 2011) we see that $579 billion matures in 1 to 5 years and $489 billion matures in 5 to 10 years.

Then there is the $1 trillion of the mortgage backed-securities the Fed bought during the financial crisis due in 10 years and later. When the U.S. Treasuries and Mortgage Backed Securities the Federal Reserve holds are considered together, the time horizon over which the American public and economy are in debt to the Federal Reserve is an entire generation. The financial future of an entire generation has been “mortgaged” when one considers this in combination with the unfunded liabilities (Social Security/Medicare) that must be paid to the Baby Boomers.

Until President Obama and Rep. Paul Ryan are willing to speak these truths, the burden of debt can never be lifted.

Three steps in the right direction would be

1) mandating that the Federal Reserve Bank of New York be covered by the Freedom Of Information Act (FOIA);

2) publicly revealing its original stock certificate; and

3) consideration of Rep. Ron Paul's HR 459, “To require a full audit of the Board of Governors of the Federal Reserve System and the Federal reserve banks by the Comptroller General of the United States before the end of 2012, and for other purposes.”

(Cedric Muhammad is a monetary economist, political strategist and brand manager. He is the author of ‘The Entrepreneurial Secret' book series [] and CEO of the Africa PreBrief economic information service []. Cedric does not provide investment advice but has a referral relationship with SDL Numismatic Properties Inc.—a specialist in rare coin investments. To enjoy a discount, please visit: or call 1-800-878-2646 and utilize code ‘cmcap').