FRNs are 'First Liens' -- WHO KNEW?

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machinehead's picture
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
FRNs are 'First Liens' -- WHO KNEW?

This is a quote directly from the US Treasury's education web pages ... 'The Beginning of Money,' as it were:

Congress has specified that a Federal
Reserve Bank must hold collateral equal in
value to the Federal Reserve notes that the
Bank receives. This collateral is chiefly
gold certificates and United States
securities. This provides backing for the
note issue.

The idea was that if the Congress
dissolved the Federal Reserve System, the
United States would take over the notes
(liabilities). This would meet the
requirements of Section 411, but the
government would also take over the assets,
which would be of equal value. Federal
Reserve notes represent a first lien on all
the assets of the Federal Reserve Banks, and
on the collateral specifically held against

Federal Reserve notes are not redeemable
in gold, silver or any other commodity, and
receive no backing by anything This has been
the case since 1933. The notes have no value
for themselves, but for what they will buy.
In another sense, because they are legal
tender, Federal Reserve notes are "backed" by
all the goods and services in the

OMG! Was this actually written by a lawyer? Has he been disbarred yet?

A lien has a very specific function, giving any creditor the ability
to attach assets to satisfy a debt or judgment. This is exactly what
Federal Reserve Notes do NOT offer -- you cannot redeem a pile of FRNs
for the securities on the asset side of the Fed's balance sheet. As a
sovereign entity, Usgov presumably could do anything ... thus the weasel
words 'The idea was ...' in the 2nd paragraph. But describing FRNs as
'first liens' is an outright lie, as there is no statutory provision for their redeemability.

The lies go from the sublime to the ridiculous in the 3rd paragraph,
where it is grandiosely claimed that FRNs are 'backed by all the goods
and services in the economy.'

Money mouthMoney mouthMoney mouth

It's obvious to me that by the time they got to this megalomaniacal
wind-up, the authors were rolling up those FRNs to snort lines of
cocaine, laughing like fiends with tears running down their cheeks.
That's like Bernie Madoff telling you, 'You're rich, pal. You've got
a $100 million account with me. You can buy anything you want with this
purchasing power. My fund is backed by ALL THE GOODS AND SERVICES IN

Money mouthMoney mouthMoney mouth

Excuse me, I feel sick ...

machinehead's picture
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: FRNs are 'First Liens' -- WHO KNEW?

By the way -- it is equally true that a Zimbabwean $100 trillion
dollar note is backed by 'all the goods and services in the Zimbabwean

Maybe that's why Zimgov announced today that folks can use foreign currencies instead.

year, the Central Bank was forced to slash 10 zeros from the local unit
in an effort to make the currency more manageable.' Thank
goodness we don't have to deal with sextillions. Although they sound
interesting ...

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