How Does Inflation Happen? Part 1: The Magical Bank Account


What if I told you that every single day, your government was actively stealing from you?

You might not believe it at first, or you might brush me off as some sort of crazy conspiracy theorist.

I know, because not too long ago I would’ve said the same thing.

These statements sound extreme, but stick with me here, because what you’re about to learn will open your eyes to reality of the situation we’re in.

There are several easy-to-understand and well-documented facts that clearly show the corruption happening below the surface of our system that are not a matter of opinion.

These things are happening, and we can either decide to realize it and stop it, or let it continue to happen to us.

When we actually look at the system and truly understand two critical factors – the Federal Reserve and fractional reserve lending – it becomes painfully clear how manipulative our economic system is.

In Part 1 of this series, we’re going to look at the Federal Reserve and its Magical Bank Account.

Politics: Where It All Begins

To explain the Magical Bank Account and where it fits in the system, we need to start at the top: Politics and government initiatives.


To fund government initiatives and programs, the US Treasury borrows currency by issuing a bond, which is essentially an “IOU”.

It is a loan, which is paid back over the course of our future – meaning that we, as a nation (and as a world, since this is absolutely not a system exclusive to the USA), are trading our future prosperity to pay for the present.

Of course the problem with this is that we continue spending more and more, and are simply trading our future more and more for the present.

At some point – a point coming very soon – we won’t be able to trade our future for the present any longer, because it will have caught up with us and we will have already spent it. This is when the debt bubble bursts and our economy goes through the radical changes that are coming.

But what’s more jarring about this is that this is not the only source of debt accumulation as a nation, as big banks add to this massively as we move down the chain, and the people are the ones responsible for paying it all back.

Paying For Bonds From The Magical Bank Account

So after the US Treasury creates these bonds, they sell them to big banks for actual currency to spend on these government initiatives.

These big banks, which hold many of the purse strings and skim off a little bit of profit at every step of the economic system, then sell these bonds to the Federal Reserve at a profit.

This is where things get truly magical, however, because the Federal Reserve buys these bonds from them out of thin air.


They write checks to these banks that draw from an account that always has a zero dollar account balance, and yet the checks still clear.

What this means is that when the Federal Reserve buys the bonds from the bankers, they are, quite literally, creating currency out of thin air (and remember, currency is not real money, but rather a receipt for real money, meaning they’re printing more receipts for real money, devaluing the currency).

“When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.” – “Putting It Simply”, Boston Federal Reserve

To recap this all simply, what is happening is that the Federal Reserve is creating currency out of nothing in order to pay for the government initiatives that cost more than we have as a country (and since our political leaders keep promising more and more to the unsuspecting public, they are creating more and more currency than ever before).

We are in debt, and we’re paying for it by printing more dollars.

So as we can see, this is where inflation initially happens – when the Federal Reserve pays for bonds from their magical, zero dollar account balance.

They have, essentially, unlimited control over the economy because of this.

What Would You Do With A Magical Bank Account?

Think about it… If you had a magical account that always said zero dollars, yet you could spend an unlimited amount of money from that account, you would, in a very real sense, have unlimited money.

You could do anything you wanted, having unlimited economic power.

But, as you spend this money, something very damaging to our economy is happening. Nothing comes for free.

As you spend from this account, you are creating more total dollars, which makes each dollar within the entire system less valuable.

For you, this might not be a big deal, since you could easily use this magic money to buy plenty of physical assets or commodity money (like precious metals and cryptocurrencies), and you can always just print more currency if you need it.

But to everyone else that does not have this magical account, and especially to the masses of people that don’t even know that you have this account, you would be setting them up for massive loss, and essentially stealing from them.

You Create Value, They Take That Value From You

Again, let’s think about it… In a system where this magical bank account doesn’t exist, when people create or perform some value to the world, they are given a token to signify that value they created, which they can then use later to receive an equal amount of value, as decided by the people collectively.

To put this in real numbers, say I created a nice pair of shoes for someone, and the value I have given them is equal to “100 value credits”. These value credits are the actual value I have created.

Because each dollar is worth 1 value credit, I receive 100 dollars to signify these 100 value credits I’ve created.

Now when I go spend that 100 dollars, I’m spending the equivalent value of creating those shoes.

100 dollars = 100 value credits

But let’s put the Magical Bank Account back into the picture.

Now, I have 100 dollars that I received for providing that person with 100 credits worth of value.

But because you’re creating dollars from a magical account – because you’re spending dollars without having earned them through providing value and creating value credits – the dollars become diluted, meaning they don’t hold as much value as they previously did.

So even though I worked to create 100 credits worth of value, the 100 dollars I receive might now only hold the equivalent of 90 credits worth of value. In this case, the value of 1 dollar dropped to 0.9 value credits, which is the actual value I’ve created.

100 dollars = 90 value credits

So even though I did something that created 100 credits worth of value, I’m only getting to recognize 90 value credits, because the 100 dollars I earned are now worth less.

The Federal Reserve Is Economic Robbery

Can you begin to see the bigger picture here?

By spending freely from this Magical Bank Account, you would be stealing from every person who is creating value in exchange for currency (dollars).

This is exactly what is happening in the Federal Reserve, and they are stealing from every single person who uses US dollars by skimming value off the top to hold for themselves (and remember, money, currency, and the economy are only truly about the exchange of value and nothing more).


We assume that a dollar is real value – real money – when really it’s just a receipt for real money – a receipt that the Federal Reserve can create more of out of thin air, making each receipt worth less real value.

When we see thieves and criminals robbing liquor stores and banks, we think it’s bad.

When we see large scale embezzlement and insider trading, we think it’s evil.

Then what does that make what the Federal Reserve is doing, which is the largest and most deceitful form of robbery?

And to reiterate, it’s not just the Federal Reserve in the USA that is doing this – every major nation has a very similar system in place, and it’s stealing from the people who don’t get this privilege of having a Magical Bank Account.

Don’t Get Robbed By The Magical Bank Account

Any currency that has the ability to be manipulated through unlimited printing (aka any fiat currency) will inevitably rob you of the value you create for this world.

It may not seem like a big deal since we’ve become so used to it in our current economic climate, but realize that this isn’t something that is sustainable.

Those at the top will steal as much currency as they can while they undermine the system and the people that make up the system, until the whole thing collapses and they walk away with their pockets full.

Those in the system will have their lives destroyed if they aren’t prepared, which is why this is so important.

Luckily you DO have a choice to switch away from these printable fiat currencies by moving to real money that can’t be printed – precious metals and cryptocurrencies.

But if you think what the Federal Reserve is doing is wrong, know that this is actually only the starting point.

What the bankers do as we move down the chain of the economy acts as a multiplier to this initial scam, resulting in an absolutely absurd level of inflation and currency creation.

We’ll be discussing this in Part 2, when we discuss the concept of fractional reserve lending.

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February 15th 2018, 23:38

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