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In contrast, when federal, state or local governments lend their own money, profit isn't at issue so rates can be low and affordable to businesses, farmers, and private individuals. Moreover, for federal and municipality needs, government-issued credit is interest-free.
Brown explained that "fractional reserve banking" dates from the 17th century, done then mainly in gold and silver coins. Early bankers soon realized it was simpler to use deposit receipts (called notes) as a means of payment so they began creating money by making loans through promises to pay, and more could be issued than the amount of coins on hand as only enough were needed to service redemptions - today's idea of a reserve requirement.
What began earlier as notes, today are accounting entries that literally create money out of thin air. Moreover, it works the same for government as for privately-owned banks, except as publicly-run institutions, their mandate greatly differs:
-- they don't have to earn profits;
-- they're not beholden to Wall Street or shareholders; and
-- only the state, community, (or federal government's) creditworthiness matters. So far, in over 230 years, no state ever went out of business, and, except for Arkansas during the Great Depression, none ever defaulted, even when poorly governed.
Further, they can lend to themselves and municipalities interest-free, as well as to businesses, farmers, and individuals at low affordable rates to create sustainable, inflation-free growth. Moreover, the more often loans roll over, the more debt-free money is created - inflation-free if used productively for growth, not speculation, big bonuses and other excesses.
In fact, as long as new money produces goods and services, inflation can't occur. Only imbalances cause problems - "when 'demand' (money) exceeds 'supply' (goods and services)." Price stability is assured when both increase proportionally, and that's exactly how it worked in colonial America and under Lincoln during the Civil War.
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