How Banks Create Money
Setting Up The Fed

They (those clever persons) start The Fed with 100,000 M-oz. worth of securities (don't ask where they came from) for which they record 100,000 R-oz. of capital.

Click to read about the distinction between M-oz. and R-oz.
The charts below show account balances before the completion of the transactions shown. To see the effect of these transactions click After Transactions. To return to before click Before Transactions.
To View Before Transactions
To View After Transactions
The Banks
Assets Liabilities & Capital

No effect on banks accounts.

Watch the New Fed
The Fed
Assets Liabilities & Capital

Increase Securities by 100,000 M-oz.

Increase Capital by 100,000 R-oz.

Enter the Fed

At this time The Federal Reserve and The Banks have no connection. But, when have we ever seen the government set up an organization that does not get involved in other people's business?

They set up The Fed to act as a bank for banks. Keep this in mind: With only a few specific exceptions, The Fed only does business with banks. As The Banks' bank, The Fed conducts business only with (or through) their customers—banks.

Those same politicians that created The Fed wanted it to take “control” of the banking system. As the first step to that end, they decided that banks should not hold gold in their vaults. (Again, don’t ask why.)

So, where do we go from here?

The next page shows what happened when the gold held by banks gets transferred to The Federal Reserve.