Debt-damned economics: either learn monetary reform, or kiss your assets goodbye (1 of 7)

The following is my high school teaching assignment for Advanced Placement (AP) Macroeconomics students (available as extra credit for other classes) on how money is created. It’s been communicated and shared with ~2,000 AP economics teachers. I offer this education for non-profit use; divided into seven sections:

Instructions: Economics studies the creation and management of money, goods, and services. In order to understand the multi-trillions-value topic of how money is created, this assignment has you:

  • Read conservatively non-controversial text to understand the mechanics of how what we use for money is created.
  • Read brief quotes of various “expert witnesses” to remind you that our lives in the present exist within a US history that demands citizen responsibility to maintain its freedoms from oligarchs, AND to consider that the current system of how money is created as debt is perhaps the most important historical example of oligarchic interest: controlling the legal authority to create “money.”
  • Answer questions for each of the six reading sections, and prepare to discuss your responses in class. This assignment is 18 points for your written responses to section questions: 3 points for each of the 6 sections.


  1. Contextual orientation: seeing the past as clearly as possible
  2. Money and bank credit
  3. Fractional reserve banking
  4. Debt (public, private) and money supply
  5. Historical struggle between government-issued money and private bank-issued credit
  6. Cost-benefit analysis for monetary reform in your world of the present

Written short-responses instructions: “Short-responses” can be brief; they can be bullet points. They must clearly demonstrate your understanding of the ideas. Please note: do not directly copy your responses with classmates: you are welcome to benefit from class discussions to improve your ideas, but plagiarized work results in zero grades for giver and receiver, plus school policy consequences.

1. Contextual orientation: seeing the past as clearly as possible (pages 6 – 9)

  • Explain how much or how little you currently know about how what we use for money is created. Ask your parents or two other people older than you how much they know on this subject, and briefly report.
  • Historical oligarchs control government (rules, enforcement, and judiciary), media (propaganda to keep them in power), and money (to enrich themselves and pay-off their minions). If the public are ignorant of how money is created, explain the risk of oligarchic takeover that is successfully hidden by purchased propaganda.
  • President John Adams stated Americans’ ignorance on this topic of money creation is the source of all our problems. Robert Hemphill said our monetary system is a tragic absurdity giving Americans a hopeless position. President Teddy Roosevelt said that both political parties were owned by corrupt business and political oligarchs (this is over 100 years ago). Given these warnings, explain your motivation to now learn the mechanics of how the US creates what we use for money.

2. Money and bank credit (10 – 15)

  • Explain what these are: money, legal tender, fiat money, commodity money.
  • Explain what bank credit is.
  • At this point, explain if it makes more sense to you that governments create money to pay for public goods and services to have the best infrastructure we can imagine, the related employment, and falling prices, OR to allow privately-owned banks to create what we use for money as a debt payable back to them with interest. Given that banks got this power, and reflecting your entire education of Earth’s history of power and control, explain your hypothesis of how banks got control over money-creation.

3. Fractional reserve banking (16 – 19)

  • Explain what a “reserve requirement” is for a bank. If a bank has $ 1 million in customer deposits, how much credit can they create with a 10% reserve requirement if they follow that rule?
  • For the overall economy (macro picture), explain what happens to the total “money” supply if the Federal Reserve buys $1 million in US Government bonds. That is, when the Fed increases the amount of “money” in the US economy by $1 million, how can that amount be increased throughout the banking system in our fractional reserve system.
  • Explain who owns the Federal Reserve. Explain why you think its owners call their business “Federal” when it isn’t a part of the federal government, and “Reserve” when they create credit out of nothing rather than somehow lending a reserve (cash held back or set aside to meet unexpected demands).

4. Debt (public, private) and money supply (20 – 27)

  • Explain how in our “modern” monetary system that what we use for money is created as debt. Explain how in this system, the only way the US economy can have more of what we use for money means increasing total debt.
  • Explain how the US federal government never pays off the national debt. Explain how the annual interest cost compares to the amount required to end all global poverty.
  • Considering Congressman Grayson’s questioning of the Fed’s Inspector General (watch the 5-minute video), the ever-increasing $18 trillion US national debt, “too big to fail” banks gambling with $300 trillion in derivatives, the big banks creating thousands of shell companies to hide $10 trillion in assets from taxes, the richest .01% hiding ~$30 trillion in tax havens, explain if it seems that our Federal Reserve and fractional reserve system should have an independent audit, and have independent analyses to compare costs and benefits of creating debt-free public money compared to the system we have.

5. Historical struggle between government-issued money and private bank-issued credit (28 – 29)

  • Explain how Thomas Jefferson is correct in his quote that the US legislature (Congress) can restore a just monetary system whenever they say so.
  • Explain a section from The Money Masters that you found helpful to understand the historical struggle between government-issued money and bank-issued credit.
  • Explain a section from The Money Masters that you found helpful to understand the historical struggle between government-issued money and bank-issued credit.

6. Cost-benefit analysis for monetary reform in your world of the present (30 – 39)

  • Explain how monetary reform would pay the US national debt cost-free to taxpayers, and the strategy to avoid inflation. Explain your conclusions how well the Federal Reserve has done delivering on their promises of stable prices, maximum employment, and lowest interest rates.
  • Explain your conclusions how honest corporate media have been reporting to Americans on our system of what we use for money.
  • Explain what value you’ve gotten from this assignment. Please add any suggestions for improvement.
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  • Tom

    Oh, how I wish I had learned this in high school! Money mechanics is now one of what I call “The Three Subjects” without which it is impossible to understand the world we live in. (The other two are evolutionary psychology and psychopathy.)

  • Bernhard Voelkelt

    Hi Carl… I am really enjoying your present contributions here on Washington’s Blog – Your essay on teaching critical thinking and now this one on debt, monetary and fiscal policies. A question, will you be attending the June conference at the Claremont Colleges (Pomona)?

    • Carl_Herman

      Yes (sorry I missed this question in the comments). The public is invited:

      • Bernhard Voelkelt

        Don’t worry, Carl…. with all the things you have going on simultaneously it is difficult to stay on top of things. Regardless, thanks for answering my question. I am a Pitzer College alumnus in the fields of political science and psychology and still engaged with Claremont on several levels. I also live fairly close by and will make an effort to attend several sessions.

  • jannerfish

    It’s wonderful that someone is finally introducing this crucial information in schools. Your students are lucky to be the beneficiaries of your course. I hope other educators are willing to follow in your footsteps.