This is reported to be the testimony of Marriner Eccles, Governor of the Federal Reserve Board, before the House Committee on Banking and Currency, on September 30, 1941.

Does this mean that only enough money exists to pay the principal on all debts that exist, leaving nothing to pay the interest and nothing for anything else? One hears that credit card companies like to have customers who run up a lot of debt and then make the minimum payments every month for decades, but that seems like nothing compared to this. The inventors of such a "money system" appear to want the whole universe in that position, and it appears that they've got what they want.

Congressman Patman: "How did you get the money to buy those two billion dollars worth of Government securities in 1933?"

Governor Eccles: "Out of the right to issue credit money."

Patman: "And there is nothing behind it, is there, except our Government's credit?"

Eccles: "That is what our money system is. If there were no debts in our money system, there wouldn't be any money."

  • $\begingroup$ First you have to recognise what money is (essentially something available to be spent at will). Then how it can be created (in different ways) by commercial and central banks. Your quotation has the Federal Reserve saying it can create money at will, though during normal times this carries an inflationary risk, and in extraordinary times (such as the last nine years) distorting the Fed's balance sheet. So it can, if it wishes, ensure there is enough money. But sometimes, such as during Paul Volcker's chairmanship when it was attacking inflation, it restricted the amount of money. $\endgroup$ – Henry Nov 3 '16 at 21:33
  • $\begingroup$ But the claim here is that money is created ONLY when it is to be loaned. Thus only enough money is created to pay the principal. There isn't enough in existence anywhere to pay more than the principal. $\endgroup$ – Michael Hardy Nov 4 '16 at 1:30
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    $\begingroup$ Money is not created to be loaned, it is created when it is loaned (see an earlier question). Banks lend it to people and companies, expecting both the interest and principal to be repaid from the borrowers' future earnings or profits. But the interest due does not need extra money to be created for this to happen - if I borrow to buy a car now, I am in effect promising to hand over some of the value of my future work (the money I am paid) to the lender. $\endgroup$ – Henry Nov 4 '16 at 8:30
  • $\begingroup$ @Henry : Your grasp of the obvious is intact, and I wonder if you're assuming mine is not and I needed this explanation. $\endgroup$ – Michael Hardy Nov 4 '16 at 15:58

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