# A Mathematical Analysis of the Central Bank System

## Three Tools for Controlling the Number of Monetary Units in Use

To understand the ramifications, end result and motivation behind the creation of the Central Bank Regime, we examine it mathematically. Reflecting on my days as a student of physics, we often analyzed boundary points, which made the models much easier to work with and clearer, for unwieldy parts of the math would become manageable.

The central bank manipulates the economy by influencing the amount of currency units in circulation. It has 3 tools at its disposal.

1. Regulating the Fractional Reserve Requirements - binds the banks to have an appointed ratio of reserves to outstanding loans.
2. Open Market Operations - purchase & sale of bonds
3. Designating the interest rate of Discount Loans - loans provided by the Central Bank to customers

Lowering reserve requirements, engaging in the purchase of bonds and lowering the discount rate all serve to increase the amount of currency units. The opposite has the reverse effect.

## The Math

With that said, let us choose the boundary point to be the time when there are no central bank notes in circulation. Notice that in point (1) above, the ratio may change to any degree, but the number of certificates in circulation do not, for multiplying by zero always nets zero. We can then neglect (1) for this boundary point.

Notice also that holding bonds and loans as a creditor are essentially the same thing. The debtor or bond issuer is obliged to pay at regular installments over a period of time the face value of the debt, or bond, plus interest. The gross profit for the Central Bank is then the total interest paid by the debtor. So then, we can lump (2) and (3) together, as they are the same mechanism.

This is where the mysterious haze lifts. If the reader thinks that the Central Bank existed to provide stability and ensure growth, he is gravely mistaken. Consider the following: sum D (debt) is injected into circulation via the loan (or purchase of a bond) at time-0, while sum D + I (interest) is removed from the system via the repayment of the loan including interest at time-1. The bottom line is that in the Central Bank arrangement, the Central Bank by contract must take more notes out of the system than it puts in over time. As the Central Bank is the sole source of notes, the number of notes in circulation must decrease over time.

Going back to boundary point zero, what do we see? If there exist zero monetary units in circulation, and D is loaned to a debtor, then there is a total of D notes in circulation at time-0. But rub is this, the debtor must repay D + I at time-1 where D + I is greater than D. The debtor has signed a contract he cannot possibly honor, for he will always be at the very least the amount I short of repayment.

The debtor has two choices. He can either obtain I by taking on more debt, or he can default by declaring bankruptcy. If he takes on more debt, he has not solved his problem, but rather he has only postponed the inevitable bankruptcy into the future. The bankruptcy can only be temporarily avoided by every increasing amounts of debt.

Due to the fact that D + I is always greater than D, a central bank debt regime cannot begin from time zero where there exist no currency units. The insanity of the design is much too obvious. It must then substitute itself for a preexisting monetary arrangement, ideally in an incremental plan so as to not arouse the ire of the victims. The history of banking in the United States is a perfect execution of such. The Federal Reserve pushed the constitutional dollar defined as a weight of gold out of business. So, there existed an amount of currency notes M at the point of establishing the Federal Reserve.

When we assume a scenario where there already exists an amount M of notes, where M is much greater than D, it is only a mater of time until D + I equals M. At this inflection point, the same scenario as depicted above unfolds.

## The Consequences

### Waves of Defaults, Recessions & Depressions

The careful observer understands that the Central Bank system requires then that waves of default must occur for mathematical reasons (as opposed to economical reasons). This is very destructive for the laborer and business owner alike. Like the game of musical chairs, someone is always left without a seat through no fault of their own. The simple laws of addition and subtraction cannot be contradicted. The depression ensuing in 1929 came about due to the printing of massive amounts of currency, and then removing them from circulation. Without a central bank, the depression would never have happened, the dust bowl in the farmer's belt aside.

The repetitive waves of insolvency have the mathematical outcome of ensuring that the amount of notes in circulation continually rises over time, for the debt notes never return to the Central Bank. The economic result is that the note will always fall in value relative to itself compared to a previous point in time. This requires then that this "phony money" cannot be a store of value, meaning it cannot be properly regarded as economic money.

The fact is, the bank is continually claiming more monetary units than it provides. An analogy for the central bank is be a black hole from which light does not escape. Another analogy is a whirlpool. It literally sucks peripheral banks, business, people and families down into the deep with no chance of escape. It is a man-made catastrophic disaster.

### Monopoly Profit

A debt based banking system is the great oxymoron, for the first mission of a bank is be a place for storing capital. In this light, it is exceedingly anti-capitalistic. One questions the wisdom of creating wealth only and solely by first creating debt.

The difference between what the author calls free-market money [money as decided by the majority of economic actors] and central bank money [money as enforced by government violence] is subtle, but has implications. In the free-market version, monetary debt on one side of the ledger is balanced by monetary capital on the other. The central bank ledger is different. On the one side we remain with monetary debt, but on the other we have, to be honest, nothing.

The meaning of this becomes clear. On the free-market, no one can loan debt as a creditor - with the purpose of earning interest payments on the principle - unless one first has deposited earned capital. The central bank, however, does not follow this rule. It does not earn anything prior to lending money with the aspiration of earning interest payment. It "produces" money on their printing machine in the cellar, and the "capital" is ready to work. It is, in effect, living off the profit of capital as if they had been a productive member of society, having provided a good or service first, although they decidedly have not.

This is a counterfeiter's dream come true. But instead of being direct about it by slipping bills he has printed to vendors of goods and services, he purchases the things his heart desires with the interest collected on debt provided to debtors. This may seem inefficient, but when large amounts are lent, one can live very nicely. A renovated castle in France comes to mind. The central bank has the added advantage that his counterfeiting is authorized by law, and all competing counterfeiting is deemed illegal, so a monopoly is insured, along with monopoly profits.

Anyone who believes the schemers of this con job were, and still are, not aware of what they were doing is in error. This is the prefect crime - for the criminals cannot be brought to justice. Every perfect crime has a mastermind. The legislative branch of every government on this planet is a conspirator, otherwise it cannot work. No one in his right mind would accept rectangular formed pieces of paper as payment for services just because it has the phrase "this note is legal tender for all debts, public and private". Only the violence of government can convince the vendor otherwise.

Keep in mind that from an accounting standpoint, the Central Bank must always be bankrupt, for it has no hope of collecting from debtors. One may be tempted to think that they therefore cannot be turning a profit. But this not the case. The true profit is the interest payments to the Central Bank minus the cost of printing little paper rectangles with odd, hard to reproduce, art. Since the artwork is in essence zero, the raw profit is the interest payment itself. So where does this profit go? Are taxes paid on it?

Further winners in this subterfuge are the first and second tier banks, who are the first ones in the line of the debt distribution network. These are able to take a cut on the profit with essentially, and in reality, zero risk and zero earned prior capital. Good political contacts come in handy. They live hanging on the backs of the producers, all the while alleging to be doing us the favor of "managing the economy".

### Honest Money

Article 1 section 8 of the US Constitution shows the framer's intent on the government's management of money: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.

Notice the phrase "fix the Standard of Weights and Measures". This is in reference to gold. The framers of the constitution believed if the US Dollar were to be defined as a weight and measure of Gold, no funny business would ensue. They were wrong. They supposed those assuming their shoes in the future would not become intrigued by the seduction of easy, flexible money.

The framers of the US Constitution did not foresee that their sons and daughters may not love the truth as they. They should have written something to the effect that the government will not manage, regulate or otherwise have anything whatsoever to do with the coinage of money. This aligns with the theory of public policy recorded by the Apostle Paul in Romans 13 that government is only concerned with the regulation of human action, not of anything else. Luke chapter 3 details the fruits of government personnel ruling according to the god of mammon, as opposed to the God of Justice. Sure, the next generations bent on socialism profit could still change the laws, but government would have been one additional step away from being able to commit this crime against the citizenry.

### Managing the Economy?

The advantage, we are told, of central bank managed money, is that of flexibility. This is like saying it is beneficial to use sand as a foundation for a house, because the sand is easily malleable. Surely one could then build cheaper and faster. The house will fall, due to the fact that its foundation moves to and fro when the storms come. Any economy built on the arrangement of "flexible money" to spur faster economic growth will likewise fall in the face of adversity. The booms and ensuing busts, recessions and depressions are correctly attributed to this "flexible money". The free-market money order does not allow money to instigate mad booms and deep depressions, for the very reason that it is inflexible. Ludwig von Mises proved this. See his book, "The Theory of Money and Credit". Having a rock solid, inflexible monetary program would serve all of us well. Soft, putty money is useless for creating a strong economic foundation.

Apparently, we are supposed to believe that we become rich by taking on ever increasing amounts of debt, and that the central bankers are working to ensure a stable economy by engineering a banking system that demands insolvency wave after insolvency wave.

### The Profit Motive Socialism Style

The political impact is that the government has the power to consume without bound. The gulag works like this: government creates a legal tender law requiring all providers of services to accept the Federal Monetary Unit as if it were money. If the pudding currency were actual money, there would be no reason to enforce the use of it! By the very law, they prove they know that debt currency is in fact not money!

The second part of the bamboozle is that the government then issues "bonds", which are bought by the Central Bank, either directly or through third parties. The government then takes the "money" received via the selling of bonds to pay for services. The government is in fact printing for itself currency at arms length. It certainly has the air of being above-the-table, but let us not allow ourselves to be fooled. Outsourcing the printing press does not change the issue.

The more government consumes, the less the private public consumes. And this is the point: maximizing government consumption at the expense of the private sector. It should not come to anyone's surprise that government violence instituted and protects the Central Bank monopoly. The scheme is a transfer of wealth from the productive to government, without the public realizing it.

The smoke and mirrors tactic of the central bank system is used, for government knows the public would not stand for the government over "spending" and the "printing money for itself" if it were done in a less covert manner. Adding insult to injury, income taxes are confiscated from the productive to pay interest payments to the central bank masters. The central bank is in effect directly collecting taxes from us!

It should also be clear that those feeding at the public trough have no interest in killing the goose laying the golden eggs either. This includes "businesses" having government contracts as their main source of income, and especially the "industries" wholly or mostly owned, regulated and/or funded by the government. These consists of education, transportation, medical and countless other "services". With so many profiting from the misdeed, it is hard to see how the system is to be stopped prior to self destruction.

Furthermore, we know then that the government has no intention of repaying the bonds. Any government going through so much trouble to be deceptive in the area of money cannot be rationally believed to be honest with repayment. But even so, if the debt were to be repaid, waves of default would ensue, for the number of monetary units would decrease, making the settlement of debt for more persons and businesses impossible. Finally, politicians are acquainted with the fact that they lose their jobs, power and prestige when the economy goes south.

The Central Bank acts as a drug, stimulating "growth". But this growth is borrowed from the future, with an overall net negative when longer time periods are accounted for. But politicians are not interested in the long-term effects of using steroids to pump up the economy. The economy has to hum at least until the next election. What happens afterwards is not his problem. But, and this is the catch, it is the reader's problem!

### Slavery

Another economic consequence of this system is that every laborer must become a slave, directly or indirectly, of the central bank. So this is a slavery program. If one wants to be a part of the market place, one must use central bank notes. But the notes can only be initially obtained by taking on debt, which effectively makes the central bank a part owner in every economic undertaking by assuming a percentage of the profit in the form of interest payments.

Continuing on, we find that the central bank "earns" notes, with which it competes against us for consumables, without having first earned anything by producing something of value. Would it not be nice to print notes in the basement, loan them out, collect interest, and then spend the income based on interest? This person consumes resources, without ever having produced any. In effect, if we boil away the tapestry, Central Banking is nothing other than counterfeiting.

## Interest Rates Up, Interest Rates Down

This is the reason we continually hear that the Central Bank should decrease the Discount Rate with the intent to stave economic contractions and throttle growth. What they really mean is that the problem of insolvency is increasing. Increasing the number of monetary notes in the system eases the problem. Voilá, the "geniuses" at the Central Bank saved the managed market. They have only tabled the day of reckoning into the future, where the catastrophe will be even greater.

With honest coinage, insolvency does not occur due to purely mathematical reasons, because the credit bank is not the source of the backing money. A slow, but steady, progress on the economic front is the result. Neither wild swings of growth and deceleration, nor speculative runs with their ensuing busts exist in this market.

There are many other social ills, injustices and economic hardships due to the Central Bank. These will not be hashed out further. We have hit the main points. The only course of action is to avoid debt in all forms. The Central Bank only works when people accept the phony money in taking debt. When taking on debt stops, the game stops. Other than that, write your elected leaders.

We needn't believe that shenanigans with coinage started with central banking. It is but a modern, sophisticated method of gulling the users of wealth with false weights and measures.

• Hosea 12:8-9 A huckster keeps false scales, and he loves to cheat. Efrayim says, ?I have gotten so rich! I have made me a fortune! And in all my profits no one will find anything wrong or sinful.?
• Amos 8:5-6 You say, ?When will Rosh-Hodesh be over, so we can market our grain? and Shabbat, so we can sell wheat? You measure the grain in a small eifah, but the silver in heavy shekels, fixing the scales, so that you can cheat, buying the needy for money and the poor for a pair of shoes, and sweeping up the refuse of the wheat to sell!?
• Micah 6:11-12 Should I declare innocent wicked scales and a bag of fraudulent weights? The rich men there are full of violence, the inhabitants tell lies, with tongues of deceit in their mouths.
• Proverbs 11:1 False scales are an abomination to ADONAI, but accurate weights please him.
• Proverbs 20:23 ADONAI detests a double standard in weights, and false scales are not good.

Author: Scott Wallace Brians
Date: 22 December 2006
Web Site: www.his-kingdom.net