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November 07, 2014, 05:20:58 AM |
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In a traditional money issuing process, you have 100 dollar worth of gold, you can issue 100 dollar currency. Those currency can flow back to you in exchange for the gold. After you spent the currency, you must have gold ready for redeem. This process is very sound and all the currency is backed by your gold
Notice the ownership here: You have gold ownership, and you also have the initial ownership of your issued currency. After your currency were spent, you don't have the ownership of them anymore, but you still have the ownership of your gold, until someone redeem them. Then you gain the ownership of currency back, of course you should destroy them since now they are backed by nothing
In today's system, government issue bond, bond is a type of asset with value, similar to gold, even better, means principle payment in future + interest. So they issue the bond and have the ownership of the bond. However, when they issue currency backed by those bond, things changed: The FED issued currency and gained the ownership of those bond! The ownership of the bond has shifted from the government to FED
If government have the bond ownership, they could receive the interest income from the bond, but if FED has the bond, government would have to pay FED those interest.
See the difference here? That is the reason why government owing more and more interest to FED, which should not happen at the first place
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