The Creation of the Federal Reserve System (Part 4)

I don't think you guys understand how excited I am that you are finally understanding this. It brings tears to my eyes!! Slowly but surely we will move on to where you guys understand how the Govt creates money through deficit spending. But let's not move too fast. It took you two months to figure out what I was talking about before, so I understand this is going to be a grueling process.

But I am proud!! High Five!!

 

Cooool, let me explain how the government creates money.


government creates bonds (with interest)

fed creates dollars

treasury trades bonds to the fed for dollars in the amount of the principle on the bonds.


...thats about it!


which begs the question; why at least does the treasury not just print its own dollars interest free?

if the treasury can print a dollar bond they can print a dollar bill!

 

Problem with your theory. The Fed is not allowed to give dollars to the Govt in exchange for bonds. So the trick is to figure out who is!!

 

The fed is where dollars are originally created, the fed is certainly allowed to buy government bonds. That's it's purpose as the lender of last resort.


anyone else can buy bonds with dollars already in circulation.

banks can also create money through loans, limited theoretically by reserve reqirments.

 

You're a liar and a little spoiled child. You don't know jack (*)(*)(*)(*) about banking yet you think you can lecture everyone. The mail man who picks up checks from my desk at 3:00 pm everyday understands banking better than you, and he did not have to spend $150 thousand for the garbage education you got in Alaska.

You're a clown and a laughing stock. Everyone is laughing at you everywhere you go. What a pathetic individual. The good news is you're running out of trolling materials, finally.

 

Weak attempt to save your little troll face. LMAO!!!!

Be a man and admit that you're a lying fraud. Everyone sees your bull(*)(*)(*)(*) from day one, you do not fool anyone with your garbage.

akphitroll failed yet again, it's quite a trend here.

 

LOL. My naive little child never cease to amuse me. Your understanding about fiscal management is simply awful, and government does not create money via deficit spending. I strongly suggest you to demand a refund from whatever that (*)(*)(*)(*)ty school you went to. It's embarrassing.

Treasury Operations

The Treasury deposits its receipts from taxes and the sale of its securities in commercial bank accounts, known as Treasury Tax and Loan (TT&L) accounts. The Treasury writes checks against its account at the Fed. That injects base money into the banking system, which increases aggregate banking system reserves. However it simultaneously transfers funds from its TT&L accounts to replenish its Fed account, which reduces banking system reserves. By targeting a constant balance in its Fed account, it minimizes disturbances in the aggregate reserves of the banking system, and thereby facilitates the Fed’s control of the Fed fund rate. For all practical purposes, the Treasury pays its bills out of its commercial bank accounts.

The Treasury has no use for funds in its TT&L accounts in excess of its near-term payment obligations. On average it matches inflows against outflows by selling or redeeming its securities as required. In effect, the public pays for those securities with funds received from government deficit spending itself. Thus, except for short-term transients, neither budget deficits nor budget surpluses affect the money supply.

 

That does not mean the multiplier doesn't exist. It just means it is inaccurate at explaining the relationship between reserves and loans. It still does explain the maximum amount of money that can potentially be created by reserves, however.

 

Actually it has been for the past 40 years. This is because the dollar moved to a fiat standard 40 years ago, and the Austrians know all too well that all fiat currencies fail.

Bull(*)(*)(*)(*). You have been asked many, many, many times to provide evidence that a receipt gold standard causes non negligible economic downturn, and you failed. How can you make such a claim about Austrian economics when your entire theory has absolutely no proof to debunk it?

Ron Paul accurately began predicting the housing bubble as early as late 2001. Prove that his predictions were inaccurate.

 

Bad troll.

You have been proven wrong and now you are grasping for straws. You are desperate at this point; you know that you are intentionally taking what I said out of context. You know I was discussing the multiplier in terms of textbook theory, not as it works in the real world. If you understand how education in the sciences works, you'll understand that teachers (like myself) always begin educating the pupil (you) with basic theory first, and then once the theory is agreed upon (which you were struggling with), then the move can be made to discussing real-life applications.

Unfortunately, we didn't get to the point where it was appropriate to discuss real-life applications because you were still under the misguided belief that deposits = cash, that banks and primary dealers create money out of thin air, that swiping your debit card is identical to paying in cash, that when the Fed creates more money that it doesn't create more money, that banks need don't need excess reserves (which includes capital reserves) to loan, and that a sandwich exists before you make it. Until we resolve these incorrect, silly, and logically flawed notions you have about how the banking system works, a discussion about real-life applications will go no where without you trolling the hell out of me, as you have done. An apology from you would be most appropriate.

Bad troll.

 

I've already explained to you several times why nobody is in agreement with your positions. I gave at least 7 different things that you are wrong about.

1. Primary dealers do not create money to buy govt securities.
2. The multiplier does in fact exist as it explains the max amount of money banks can create
3. Deposits != Cash
4. Swiping your debit card is not the same as paying in cash.
5. Banks cannot make loans without excess reserves (which includes any capital they choose to inject into their excess reserves - proven by the investopedia definition of "excess reserves").
6. Banks do not create money out of thin air.
7. When the Fed creates more money, it does in fact (believe it or not) create more money.

 

I agree to disagree with you on number six regarding some entities of the private sector not being able to create forms of money out of thin air; the market for derivatives is one example. It could even be considered a form of natural right for artificial persons as well.

 

Please explain how they create money out of thin air.

 

Any letter of credit will work as a simple example regarding financial forms of money.

In a case of commodities, something similar can be done with bills of credit on a ratio of goods on hand.

In both cases, those firms run the risk of not being able to pay their creditors, in a worst case scenario; but, under normal business conditions it easily and conveniently converts physical assets or a portion thereof, to money for all intents and purposes.

New money is "created" on the confidence and expectation of the agreed upon value.

 

LOC is a "promise" to pay, it's a "pre-approval" from banks, there is nothing to do with how banks create money.

And of course, you first have to be qualified for it before banks can grant you or your company a LOC or pre-approval.

 

Hi Snoop,

I don't mind arguing with you since usually resort to fallacies to try to make a point you don't have. It is good practice.

A letter of credit is one form of money that can be created out thin air with a pen and a blank piece of paper. I am assuming good business practice except in special cases for illustration.

 

I've never seen any definition of money that considers LOC, other liquidable assets, or anything else you just listed to be "money". Banks do not create money out of thin air.

 

In one case, you could take a letter of credit to a person who is willing to honor that letter of credit and exchange it for goods or legal tender or both.

 

Geezz, please refrain from talking about banking when you have zero knowledge, otherwise you run the risk of making yourself look like a complete fool.

LOC or pre-arpproval letter is NOT money. It's simply a "PROMISE" from banks.

Good businesses still have plenty of access fo credit market. In fact, 90% of US economy is running on credits.

You're just another akphitroll, I bet you do not even understand half you what you spew on this board everyday. Scary weird.

 

LOL. Are you slow or something? You can't exchange LOC for goods and services. You're exchanging loan/money/legal tender....for goods and services.

LOC is simply a pre-approval letter from banks because the seller does not trust you financially, therefore they need some guarantee from third party, in this case, it's your bank. And of course, you have to be eligible for that financial backing. If you have a history of being a bad borrower, then good luck.

 

A letter of credit or bill of credit has historically been used as forms of money.

Only the several States of our Union are Prohibited from creating their own money.

 

A letter of credit is money to the extent it is a medium of exchange. Your special pleading is interesting, as a form of propaganda and rhetoric.

 

Letter of credit or pre-approval is a form of money. That's new to me too.

LMAO!!!

 

Depends on how you define "money". You're taking the most basic, loose definition of the term, ie. "anything which is used as a medium of exchange". In that case, plenty of things have been historically used as money like cigarettes.

But it would be silly to say that cigarettes are "money" in the context of this conversation, just like it is silly to say that LOCs and bills of credit (aside from the Federal Reserve Note) are money. They are assets, not money. Huge difference. Assets may be directly convertible to money, but that does not mean they are money. There is no equation for money supply that the govt uses which counts bank assets as money.

 

Case in point.

You don't understand what letter of credit is. You're babbling, swinging and of course missing. Thanks for a laugh btw.

Whenever I need a laugh, I often visit this board, and I'm never disappointed.