Federal Government creates money by borrowing from the Federal Reserve Bank. The Federal Reserve Bank holds, by law, a licensed monopoly from the Federal Government on money management, and can "create" money, at will, without asset backing, at whatever interest rate it deems appropriate. It attempts to manage the money supply by central control, the function handled by individual traders in self managed systems. Since the government does not put up any assets as collateral for its borrowing from the Federal Reserve Bank, it is trust that the government (i.e. all the citizens) will repay government loans and the interest on them that keeps the money system alive.

Dr. Martenson presents a short and interesting understanding how money is created. It provides a foundation for appreciating the implications of the massive levels of debt and how debt came into being. As John Kenneth Galbraith once said, "The process by which money is created is so simple, the mind is repelled." Dr. Martenson walks through this simple process of fractional reserve banking