Federal Reserve Note, Rediscounting

[mikecz]

So doing a little research, I've found the remedy to FRNs, while has it's pro's, definitely has cons from behind the curtain...

It has to do with rediscounting. So a few things I've found. Things have changed now, with inter bank lending, but back at it's founding, The federal reserve act created a whole new tool, the federal reserve note, which allowed members and some non member banks to move assets (eligible paper, commercial loans etc.) into currency, federal reserve notes. But, obviously, there was a charge for exchanging your commercial loans into currency, the discount rate.

Example; The bank writes up a note to a commercial enterprise for 8% interest, and a person comes in requiring a huge cash withdrawl. Well you the bank, have that 8% asset, so you go to the federal reserve get your currency, federal reserve notes at 6%, for that loan, and satisfy the customers demand. You still make 2% (8-6) and get all the currency you need. This is why people say FRNs represent debt, they are literally used by the federal reserve to purchase loans or other eligible paper from member banks. The reserve bank, one of 12, that issued the FRNs was required to carry minimum (this is a while back) 40% gold to back those FRNs they issued. On the surface you think, "Hey thats cool, they need to have a huge reserve to back their obligations." But think of this, they bought a commercial loan for...60% off! They printed up the FRNs and gave them to the bank to purchase the commercial paper, dollar for dollar, as collateral and charged a fee for that transaction, an interest rate. All of those profits garnered from the eligible paper was used to, you guessed it, buy more gold to support further FRN lending. This is literally a public policy to slowly accumulate all the gold in the economy. Another way to look at it, the reserve bank can print out $100 worth of FRN for $40 worth of gold. What can they do with that $60, yes, buy gold, to lend more FRNs They get a discount on everything. If you flip the remedy on its head, the bank, after rediscounting it's loan (or trading eligible commercial paper) for FRNs can redeem those FRNs for LAWFUL MONEY and use the LAWFUL MONEY as a reserve. Sure, they have to buy them from the FED, but so what, once that Lawful money is held as a reserve, they can fractionally lend the $hit out of it.

This ACT is so maniacal, it can hardly be grasped. The act allowed for banks commercial paper which by the way were first bought with bank checks, negotiable instruments that really are never redeemed and are complete bull, to be sold or transferred to currency, or FRNs. Again, the reserve bank bought $100 dollars worth of commercial paper, for $40 of gold and charged interest. Since there was a requirement to carry a reserve (Gold) at the reserve bank, all the good real money trickled into the reserve banks. The member banks really didn't have the need for gold. The reserve banks just printed up the FRNs and bought everything at a discount. The banks needed to carry at least a reserve in lawful money, well, that required them to either get lawful money from their depositors, cash, or, rediscount their loans to FRNs at interest and convert them to lawful money. So now we have a public policy to concentrate gold into the bankers vaults.

The FRN is easily convertible to Lawful money, so the banks can use the FRN as a reserve, indirectly because it's convertible. If you can do it, they can too. FRNs though cost money to garner, because they have to be purchased. Also, this, 38 CFR 11.81, I believe is a hint as to what happens when you nakedly endorse a check. The bank uses that check as, you guessed it, commercial paper, which is eligible to be rediscounted! to FRNs. That check is not money, it's a negotiable instrument, so they can accept or decline it. The bank gets a loan from you, uses it to get a loan from the Federal Reserve, and fractionally lends upon it. That check you wrote represents nothing other then a bank demand deposit, which really is just a promise to pay, from another bank. When you redeem lawful money, the bank can't sell your commercial paper for FRNs, that money has to be held in your account as a reserve. It requires the bank to use your negotiable instrument, which is not money, to buy FRNs or lawful money (because they have to convert it) and hold that for you. There is also the tax benefits, but, there are plenty of threads on this forum.

The Fed used to control monetarty policy by raising or lowering the reserve requirements, but, when that went down to practically nothing, they resorted to the discount rate. Basically what it costs the bank to rediscount their paper. The economy is completely in the tank, reserve requirements are basically nothing, and now, the discount rate has been at .25% for years. Somethings gotta give...

page 256 shows the flipside of remedy.
http://books.google.com/books?id=Z0n...lawful&f=false