1. Government $ Spend Trillions $ Government $ Government Payroll $ $ Federal Programs $ $ War Can only spend what it takes from it’s citizens Federal Reserve $ 16 Trillion 1913 IOU’s ( Bonds ) FiatMoney(Paper) INFLATION !! The Effect is: High Prices! Mal-investmentsMal-investments Boom and Bust CyclesBoom and Bust Cycles RecessionsRecessions The General Theory, 1936 All Spending = Income Keynesian Economics

2. Fractional Reserve Banking Fractional Reserve Banking FederalReserve Sets Fed Fund Rate Discount Rate Buys the Bonds (Credits Reserve Account by Account by $1 million) Overnight Loans @ Fed Fund Rate Fund Rate Sells IOU’s: BONDS ($1 MILLION) Excess Reserves Above 10% of Deposits Commercial Bank Bank Commercial Deficit Reserves Deficit Reserves Below 10% of Below 10% of Deposits Deposits Can Not Extend Credit / Loans Prime Rate Rate Expands Expands Credit / Loans Businesses Individuals - 10%

3. Inflation Process OPEN MARKET OPERATIONS $1 Million Purchase of Gov’t. Bonds Federal Reserve Commercial Bank Securities Firm Wall Street Sells Buys Writes a check ----- Fed Ban k Money Multiplier 10 / 1 $9 Million in New Loans TOTAL: $10 Million Money Supply Increase! via Check Book Deposits Deposits Fed’s Check $1 Million Deposits $1 Million Check with Fed ======== Reserves increase by $1 Million

4. U.S. Competitive Banking System Bank-to-Bank Inflation ProcessFederalReserve Commercial Bank # A Commercial Bank # B $1 Million Reserves Lends $9M check book deposit to Macy’s Buys $9 Million in furniture from XYZ Company Check from # A Macy’s Deposits $9M Check into Bank # B Bankrupts Bank # A Bank # B Presents $9M check for redemption from Bank #A Formula (1 Minus the Minimum Reserve Requirement) Bank #A = $1 Million x.90 = $900,000 Bank #B = $900,000 x.90 = $810,000 Bank #C = $810,000 x.90 = $729,000 Eventually over 100 banks pyramid $9M on $1 Million in Reserves: TOTAL $10 MILLION

5. THE PROBLEM The Commercial banking System has Excess Reserves of about ($)1.5- Trillion Dollars! Legally they can create ($) 15-Trillion Dollars in new loans (inflate the quantity of money)! 1.Already the National Debt at 16 Trillion is out of control. 2. The pressure on U.S. Treasuries and the Dollar is threatening. 3.Prices on everything are continually increasing and now poised to soar (including interest rates)!