How Federal Reserve Notes Work

There has been much talk about the federal reserve manipulating the money supply, and causing the recession. So it is important to understand how the federal reserve notes actually work.

Basically, the federal reserve will only issue notes to member banks in exchange for some form of collateral.
http://www.federalreserve.gov/aboutthefed/section16.htm

Usually this collateral consists of mortgages and loans. So effectively, federal reserve notes are backed by bank mortgages on property that have not been completely paid off, and by the obligations of people who have borrowed money from the bank. But these poses a fundamental problem. How much is the property and obligations worth? Specifically, if the federal reserve decides to introduce more money, it will cause inflation, decreasing the value of these obligations (since the borrower typically must pay back a fixed dollar ammount). So the actual effect of introducing more money creates additional inflation, in addition to the obvious direct effect.

There have been assertions that the federal reserve can just print all the money it wants and buy up all the assets in the country.

Generally, the federal reserve is "holding" assets that have been used as bank collateral, and issuing notes back to the bank. Effectively then, federal reserve notes are IOU's on the assets. The banks can get back their assets by paying back the notes that were given to them in exchange. So the federal reserve is not buying up the assets only to sell them back for more money after they have caused inflation. Theoretically, the banks could give back all their notes to the bank and get back all the assets that the federal reserve is holding.

Treasury notes/bonds are actually issued by the US Treasury, not the Federal Reserve. The Treasury collects taxes, and is responsible for paying all the country's expenses. If the expenses are greater than taxes collected, the Treasury issues Treasury notes or bonds. This is basically borrowing money from wealthy people and private corporations, which must be paid back with interest. The Treasury will try to offer as small of an interest rate as it can get away with while still getting enough investors to loan it money.
There a legally-imposed (by Congress) debt ceiling. If this is not raised, the Treasury will eventually not be able to pay the countries expenses, because it would not be allowed to borrow any more money (issue more notes/bonds).
It should be noted that although the Treasury actually prints the notes, the notes are given to the Federal Reserve, and it is the Federal Reserve that basically tells the Treasury how much to print! The Federal Reserve orders new currency from the Bureau of Engraving and Printing (which is part of the Treasury. The Federal Reserve pays only for the printing costs the notes. The cost to print a single note was about 5.7 cents (in 2005), although the cost has probably risen to about 8-12 cents today. Essentially the Federal Reserve pays the Treasury 5.7 cents, and gets 100 dollars back! But remember, although the US Treasury is the one printing it, it is only doing so on behalf of the Federal Reserve, since the notes are technically Federal Reserve Notes, not money issued directly by the US government. The Federal Reserve has never been rigorously audited, and many of its activities are not completely transparent. To many people, the system sounds like a complete scam.

U.S. Constitution, Article I, Section 8, says that only the U.S. Congress has the ability "to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures". However, Congress has apparently appointed the Federal Reserve with the responsibility to control the money supply, and make decissions about how much money to print, in accordance with the law (The Federal Reserve Act ch. 6, 38 Stat. 251). The Federal Reserve, however, is not actually a government institution, as it is privately owned by the member banks.

There does not exist any federal law which requires that private businesses must accept cash as a form of payment. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a state law which says otherwise. However, taxes must be paid based on the market value of any form of exchange, and these taxes must be paid in legal tender. The Treasury does issue gold coins (American Eagle) which can be used as legal tender. This was only done relatively recently, in 1985, as the government had previously confiscated by law all the gold coins it had previously put into circulation.

So theoretically, it is possible to avoid inflation eating away at your savings by buying gold coins. However, the price (and actual value) of gold can greatly fluctuate, and the price of gold is very high at this time. Because of speculators, much of the present value of gold may likely be a bubble, and people who are now buying gold could lose much of their money.

In any case, you do basically need to somehow obtain federal reserve notes to buy gold. Theoretically, it is not legal to simply operate in a pure barter economy with other people. Any form of economic exchange is taxed, and you must somehow indirectly render your services to the government to obtain money with which to pay taxes. This was an early controversy in the United States. In the "Whiskey Rebellion", farmers on the western frontier used whiskey as a form of money to make exchanges. The government put a tax on the whiskey, and refused to accept the whiskey as a form of money used to pay the taxes, instead forcing the farmers to pay gold coin. The problem was that the farmers were isolated from the centers of government and gold was not very available to them. Essentially, the government was forcing them to somehow obtain gold as payment for taxes if they wished to barter.

Hopefully, this should answer all those questions sceptics have about how the money system in the USA works. Feel free to add comments or additional information.

 

Great summary. I think it's also worth noting that using paper money as legal tender is unconstitutional as specifically stated in Article 1, section 10 (it says only gold & silver can be used). This is why paper money started with the gold standard which lead to fractional reserve banking which lead to printing money out of thin air.

I like this cartoon... sums it up in a simplistic, humorous matter
[ame="http://www.youtube.com/watch?v=8ZScgai5Cl0&list=FLJ7C0cPx2C104tGLVa-MVWQ&index=5"]The Best Cartoon Ever Made! (The American Dream) Part 1 of 2 - YouTube[/ame]
[ame="http://www.youtube.com/watch?v=w1g3ftFTRSY&feature=BFa&list=FLJ7C0cPx2C104tGLVa-MVWQ&index=4"]The Best Cartoon Ever Made! (The American Dream) Part 2 of 2 - YouTube[/ame]

 

By constitutional law the Bureau of Engraving and Printing (BEP, GOV) is the only entity allowed to manufacture, print, or mint US Monies. The Federal Reserve System is the only entity authorized by the US Government to legally destroy currency deemed unfit for circulation. All currency destroyed must be reported to the US Treasury so new monies can be produced by the Bureau of Engraving and Printing to replace that which has been destroyed. The only means in which the Federal Reserve System can create money is by offering banking institutions additional credit on the reserves held by the Federal Reserve System to those financial institutions in need of additional assistance. These “loans” must be approved by the US Treasury, which theoretically gives the Treasury absolute power over monetary policy, as the Federal Reserve System is required tp operates within guidelines set forth by the US Treasury.

But effectively, much like the Supreme Court, the Treasury is reluctant to excercise its technical power beyond its basic legally mandated responsibilities, so effectively the Federal Reserve is left with a very broad influence over the money supply. It would also be very easy for the Federal Reserve to "fudge" the numbers to get the Treasury to give it almost however much money it wants.

There seems to be several fundamental flaw in the system. Basically, the president is invested with too much power to appoint the governors (this is also true of the supreme court).
And the governors are essentially given free reign over the economy, the Treasury has a very "hands-off" approach and basically goes along with whatever the Federal Reserve wants.

 

The question naturally arrises, since federal reserve notes are secured with mortgages and loans, what causes inflation?

This is a complex and controversial subject, but I will try to keep the answer as simple as possible, avoiding potential causes of short-term inflation.

First, one needs to realise that "money" does not only exist in the form of paper federal reserve notes. When someone borrows money from the bank, the bank acts as if the loan obligation it owns is real money, even though it does not actually have the paper notes. This money can then be "loaned" out again, a second time, in the form of recorded money. The people taking out the loans rarely ever actually withdraw paper notes. The recorded money, which does not really exist in a physical form, just moves around to different bank accounts. Some people have difficulty believing that banks actually can get away with this! This is called fractional banking.

As an example, Anders puts 5000USD of paper notes into the bank. The bank then loans out the paper notes to Karl. Anders then decides to buy a car from a used car saleswoman named Gunilla. He writes her a cheque for 5000USD. Gunilla brings the cheque to the bank and the bank then tells her that the 500 dollars have been "deposited" into her account. So Anders gets the car. Meanwhile, Karl takes his 5000 dollars and buys a second car from Gunilla.
Gunilla immediately deposits her money into her bank account, which happens to be at the same bank. Anders and Karl drive off in their used cars. Gunilla has 10,000 USD in her bank account, or so she believes. In fact, the bank only has 5000 USD in paper notes! The next day, Gunilla withdraws 200 USD. The bank gives her the money. So it appears to Gunilla that she can withdraw her money any time she wants to. Of course, Karl owes the bank money. Essentially 5000 of the dollars in Gunilla's account is actually in the form of the money that Karl owes to the bank. But it is very unlikely that Gunilla will ever withdraw out all her money at the same time.

When you put money into a bank, it should be remembered that the bank is not just a giant safe to store your money in. It is an investment. The bank uses your money to make loans. The people who have invested money in the bank can pull their money out any time they wish, provided of course that they all do not pull out too much of their money out all at once. Sometime this does actually happen, which can result in insolvency. When this happens, basically government regulators actually enter into the bank branches, with little warning, and basically take over. The bank employees are required to take orders from a government manager, and the bank then pays out money from a federally-run insurance program, which the banks are required by law to pay fees towards.

In the USA, the Federal Reserve has been appropriated the power, by law, to require all banks to deposit a certain percentage of paper federal reserve notes into the Federal Reserve Bank for every dollar that exists in their bank accounts. This effectively limits how much money banks can "create".
However, even this limit does not apply to certain types of other financial institutions or smaller banks. Essentially banks with less than $10.7 million in their accounts do not have any reserve requirement, while those with less than $58.8 million only need to have a liquidity ratio of 3%. Since 1990, savings banks holding the accounts from other financial institutions has not been subject to any reserve requirements.

As of 2008, there was only about 853.2 billion US federal reserve notes and US coins in circulation, about 60% of it being held abroad, and it is thought that a significant portion of it being held in huge money hoards by criminals.
However, it is thought that there exists about 8.4 trillion US dollars of "money", due in large part to fractional reserve banking. The US debt, by comparison, is 14 trillion dollars! This debt is in the form of treasury bills and bonds, which in many ways act like another form of money. The more debt the United States gets into, the more loan obligations will be floating around, and this will cause inflation. By the very act of promising to pay paper money in the future, the government is effectively "creating" money now. Of course, people do not typically go around buying things with treasury notes, but if there are mone treasury notes for people to hold, the wealthy investors tend to hold onto less money in bank accounts.
And banks can also hold treasury note/bonds instead of federal reserve notes to fulfill their reserve requirements.

 

Obviously there is the question "How is the government ever going to pay off its debts?".

Remember, the Federal Reserve "supposedly" is not supposed to print more money unless it holds more collateral. And there is obviously more US debt than there are federal reserve notes. The IRS (part of the US Treasury) collected $1.061 Trillion in taxes in 2010.

The Federal Reserve system is also the only agency that is not financed by direct taxation; it actually orders the treasury to print a little extra money for the specific purpose of paying its own expenses! Every other government agency is funded by the taxes which the Treasury collects. Even the Treasury itself does not print its own money to pay for its own expenses!
Many of you may likely be a little outraged by this, but that is how things work. Richard Branson commented that in the 1980's the commercial property industry in Texas hit hard times. There were plenty of vacant large office buildings, and the rents fell to bargain levels. Despite this, the Federal Reserve ordered the construction of a new 200 million dollar marble-coated branch office in Dallas.

The Federal Reserve is not audited by the Internal Revenue Service, or by the Securities and Exchange Commission, but rather by a private "independant" auditer, Deloitte and Touche LLP. Let's hope they have more integrity than the Arthur Andersen accounting firm, which let Enron get away with massive fraud. Oh wait! Deloitte and Touche were also the auditors for Bear Sterns, which was at the heart of the whole mortgage backed security scandal before the firm collapsed! http://www.finalternatives.com/node/4043

Bear Stearns stock was artificially collapsed so that illegal insider traders would make billions and J.P. Morgan would be paid $55 billion of US tax payer money to shore up themselves and buy Bear Stearns at bankruptcy prices. http://www.optionsforemployees.com/articles/article.php?id=130

It is the government (IRS) which audits individual taxpayers, and the government (SEC) which audits publicly traded corporations. Why is the government not the one auditing the Federal Reserve Bank?

...But I digress, back to the Federal Reserve:

As of 2010, the audit showed that the combined Federal Reserve banks hold 2.4 trillion dollars in assets. About 1 trillion of that is in the form of Treasury bonds. Another 1 trillion is in the form of government-backed mortgage securities (mostly issued by Fannie Mae and Freddie Mac). 968 billion dollars of the above assets are being held by the Federal Reserve from other banks as a reserve requirement.

There are supposedly 941 billion dollars worth of federal reserve notes (regular dollar bills).

 

The Fed is supposed to have collateral to back up all its federal reserve notes. But the Fed is using Treasury bonds as collateral. It has 1 trillion dollars worth of treasury bonds in fact.

Here is the problem. The United States government is paying private investors to borrow the money it is printing. Since the collateral being held for this money is just an obligation from the government, it is not even as if the government is actually borrowing anything of physical value. The government could save billions of dollars if it just printed its own money and stopped paying interest to the Fed to use money.

The Treasury is printing money for the Fed, the Fed only has to pay the cost of printing, which is 12 cents for a 100 dollar bill. Because the government spends more than it collects in taxes, the Treasury needs to borrow some of that money. The Treasury gives the Fed treasury bonds, which are basically IOU's.
The Fed does not need to hold any other collateral to order the printing of that money, since the Treasury bonds themselves can be used as collateral.
Basically, to summarise, the Fed gives the US government 12 cents. The US government prints 100 dollars for itself to spend. But the US government also has to give the Fed a 100 dollar IOU, because since the money is actually a "federal reserve note", it has to be "borrowed" from the Fed. When the US government finally gets around to collecting the taxes to pay for all its irresponsible spending, it will have to pay back the IOU, with interest, to the Fed. Remember, the Fed is privately owned. The interest payments are profits that will be paid out as dividends to the stock owners of banks affiliated with the Federal Reserve. The Federal Reserve had 81.7 billion dollars in profits in 2011. And that is if we are to believe the audit done by Deloitte & Touche, the same private corporation that let Bear Sterns (which was at the heart of the mortgage crisis) get away with fraud before it finally collapsed.*
Meanwhile, the 100 dollar bill given to the Fed must either be immediately lent out, or destroyed, because the Fed is not supposed to have, or have issued out, more money than the value of assets in holds in collateral. So the Fed uses the money to buy mortgages. The mortgages themselves are loan obligations, which are considered collateral assets.

Theoretically, Federal Reserve notes are supposed to be a liability for the Federal Reserve. This means that federal reserve notes are, at least by definition, an IOU from the Fed for the assets it holds as collateral. The problem is that the Fed is collecting interest on this money. Imagine if you went to the bank to borrow money and they paid you the interest to borrow the money, instead of the other way around! Yet this is exactly what the Fed does.

*since 1978, when congress passed the Federal Banking Agency Audit Act, the Fed has also been audited by the Government Accounting Office.

 

You seem to be somewhat misinformed about the Whiskey Rebellion, or Shay's Rebellion, which occurred in the central and western part of Massachusetts, not the "western frontier". It was not a matter of the Massachusetts legislature passing a law requiring the payment of taxes in gold or silver, but private debt.

Most farmers distilled their excess grain into whiskey because the transportation system was so primitive moving the grain itself was prohibitively costly. The price of whiskey was very important to everyone, when the law was passed the price of whiskey plummeted as farmers became desperate for scarce to non-existent gold. Unable to sell their whiskey to pay off their debts they rebelled. The rebellion was defeated but the law was repealed.

The farmers and merchants had never received gold when they got their loans, only private bank notes, gold and silver were non-existent where these people lived and at times even bank notes were scarce. The notion that they could repay their debts with gold was absurd from the start.

In fact, a proximate cause of the American Revolution a few years earlier was the passage of a law that required all taxes and duties and fees payable to the crown to be paid in gold, little of which was available in the colonies making it impossible for most people to afford things like tea and paper or caused them to go into debt in order to register land titles and such and debasing the price of goods as so many chased after scarce hard money. It caused enough popular resentment to fuel a revolution.

 

Not quite. The Whiskey Rebels had become an armed militia outside the law, so President Washington assembled a militia to arrest them. It was the subject of the first presidential proclamation in history, which outlines the reasons for Washington taking this action.


Read it yourself.

http://www.earlyamerica.com/earlyamerica/milestones/whiskey/text.html

 

*snicker* western frontier in the 1790s. Red states are not better than the northeast, that's why our incomes are higher up here, i assume.

Here's your collateral: A bunch of machineguns in your face if you don't think a target of 3% inflation per year is ok. Yes, sounds very horrible and slippery slope etc.

Why would you think this is not ok? Oh you probably think inflation is way higher than that, sorry.

Would you prefer that the government prints money WITHOUT PAYING IT BACK?

Oh, I bet you would prefer if the government never borrows money and we ignore all of the beneficial effects that "monetary policy" can and has had over the past 100 years.

I mean, counter-cyclical fiscal policy where we go into debt when there is an irrational speculation boom and wall street poos in its pants and hides in a corner like the idiot that it is and nobody hires anyone and we begin a self reinforcing cycle of decreasing aggregate demand!

(We should absolutely balance the budget and run a big ol surplus during boom times like 2000-2008 and the nineties under clinton/gingrich)

The stock owners of the banks affiliated with the Fed are Giving Money to the Fed who then Gives it to the government so they can pay our firemen and soldiers. Right?

They give it to the government now, and lose all potential investment gains they could have made elsewhere, so they demand a price for that.

What am I missing here?

Those banks then sell bonds to individuals like you and me and giant corporations and grammy who gave me a "$50 savings bond" when I was a child and I practically yelled at my mom because I couldnt understand why I had to wait to spend it.

You think people should loan money to the government and get zero interest rate returns?

They will stop loaning money to the government when that happens.

When that happens, either firemen do not get paid, or the government will

the government will

put money into the economy of today without taking it out of the economy of the future.

The current plan, as you describe, is to take money from the future and put it into the economy of today. This will cause inflation today (which is super low because the problem you describe is very small), and it will ..... someday.... when we no longer finance our debt by taking out loans of increasing size... cause DEFLATION IN THE FUTURE.



The one thing to worry about is if we only ever pay our bills by taking out debt from the future.

There is no historical reason to think that America has backed itself into that corner at this time (please correct me if I am wrong on that, and be specific).

Especially not when the entire rest of the world is gleefully enjoying the relative security provided by our bountifully secure bond investments.

When they stop wanting to buy our bonds, because our govt is so crappy (like S&P the corrupt piece of garbage tried to tell us was the case, unlike all other ratings agencies) then we have a problem.

Before that happens, treasury yields will increase. The PROFIT that the lenders DEMAND will INCREASE.

They will want a higher price for their HIGHER RISK.


Here is what I think is fundamentally important when thinking about the Fed policy today, correct me if I am wrong:

2.23% rate of return on a ten year bond is REALLY LOW and that is the rate today, August 25th.

Is that low? Is the fact that it is low important for any reason?

Is it's lowness a big fiat lie? Obama is pulling treasury yield numbers from his butt and forcing people to buy them?

Or is the free market buying them because it is a good investment? Who is buying them today? Anyone? Everyone!?


edit- Thank you original poster for your long and informative post. The world needs more of that. sorry if I misunderstood and/or am misinformed

 

Sorry I tried to edit the uppermost rude comment in my previous post but there is a 20 minute limit. The internet turned me into a jerk

 

Anyway, how the Federal Reserve Bank operates is as follows. Each regional Federal Reserve Bank has a number of local private banks which are members. Member banks are required to deposit their reserves with the local Federal Reserve Bank, which pay a nominal interest on these reserve deposits.

If the Fed raises the reserve requirement member banks are required to deposit more money with the Fed, If it lowers it banks make withdrawals. This is one way that the Fed can control the money supply.

The Fed makes loans available to member banks at whatever interest rate it decides, this is the Fed rate. A low interest rate encourages banks to borrow and increase the money supply, a high the rate discourages borrowing and decreases the rate of increase in the money supply.

The Fed also has another lending facility, member banks can borrow money from the Fed in exchange for physical collateral, debt instruments like mortgages for example, or shares in stocks. The banks can redeem this collateral at any time with cash. The Fed can demand that the banks redeem this collateral at full face value or sell it itself on the open market if the bank defaults. Buying and selling collateral of member banks is another way the Fed can control the money supply.

The Fed also has an open market operation. In this case it buys and sells assets on the open market on its own account.

When the Fed buys assets or makes loans to member banks or lowers reserve requirements or interest rates it adds money to the economy, when it sells assets or makes collateral redemptions or raises reserve requirements or interest rate it removes money from the economy.

The current 2.4 Trillion in assets the Fed holds is basically money it has put into the economy for the short term. If inflation becomes a risk it could sell these assets and remove a few $Trilion from the economy very quickly. If that is not enough it could raise interest rates and reserve requirements though this would take longer to effect the money supply because it takes time for these efforts to effect economic activity.

The operation of central banks is fairly straightfoward. Its basic remit is to maintain a supply of money equal to the needs of the economy. Unfortunately this is not so easy as traditional central bank actions like changing reserve requirements and raising interest rates take and average of 18 months before their effects are felt.

In Brazil, which has had a booming economy over the past decade or so which has attracted a lot of foreign investment the central bank's main concern is to prevent a bubble economy of overinvestment which will be inevitably followed by a crash. In order to prevent this interest rates and reserve requirements for banks are kept at high levels to keep growth in the supply of money close to a longer term sustainable economic growth rate despite high current demand. Due to the continuing flood of foreign investment which works against these initiatives, Brazil has also implemented currency controls.

The failure of the Fed to recognize the asset bubble in the 2000s was not a failure of central banking but the criminal failure of the Feds managers who chose to ignore the many obvious signs of an asset bubble because of an ideological blindness to market fallibility.

 

I think one thing left out of the equation is what you can do with money. Money is an instrument to "get stuff done". So you get a loan from the bank for X and owe Y over Z years... you wind up with X dollars in hand.

The idea is to earn more interest than Y (the bank). You do this through business.

With business, you have the money to set up your business and earn A: your investment plus profit. (Naturally A is always larger than Y, otherwise you go bankrupt.)

As long as A (your goods at a profit) is larger than Y (what you owe the bank), you are in business.

This should be the additude of Americans- to start new businesses with lent money in the hopes of turning a profit.

 

This is one of the biggest misconceptions!

The Fed can increase the money supply simply by buying treasury bonds!
All the Fed has to do is spend some of its money to buy treasury bonds from the Treasury. Then it uses those bonds as "collateral assets" to order the printing of more money from the Treasury. So basically, the Treasury gives the Fed their original money back! (minus miniscule printing costs)

About 1 Trillion of those "assets" held by the Federal Reserve are actually Treasury bonds.

 

One real potential for corruption is the interest that the "Federal Reserve Bank" in America pays out to manipulate the market interest rates. When it wants to increase the interest rate, all that money goes to wealthy investors with much money in their bank accounts. When the Reserve Bank "attempts" to decrease the interest rate, it has to borrow the money from somewhere else, to just relend it out again at a lower interest rate, again loosing money. The problem is where the Reserve bank gets the money to do this. Essentially from the interest the USA government is paying them to borrow money that the USA Treasury itself printed (since American dollars are just notes from the privately-owned Reserve Bank, not directly backed by the USA government). the Reserve Bank also gets plenty of money by expanding the money supply while overvalueing its collateral assets. In other words, it is ordering the printing of more money from the USA Treasury than it is actually using to buy the additional collateral assets. The Federal Reserve Bank's buying of bad residential mortgages was one example of this.

 

[ame="http://www.youtube.com/watch?v=j2AvU2cfXRk"]Clarke and Dawe - Quantitative Easing - YouTube[/ame]

 

LMAO!!! "one of our clients wants a trillion of these things(US dollars)"...."can you get printers to do that"?

That is exactly what is happening...nope....not going to cause inflation!!! As soon as the FED raises rates....BOOM....banks will fail....govt is unable to service our enormous keynesian spending and debt. There is NO chance the FED can raise rates. Nope....just going to keep printing and bailing our foreign central banks with US dollars. It is all they can do. They are just going to try and inflate their way out of this mess and there is no chance that not only the american citizens will stand for it....the rest of the world currently importing said inflation is not going to stand for it either.

Gas at $4.00 a gallon? That is CHEAP compared to what it is going to be in the near future.

 

More money could be printed without inflation if the central banks issuing the notes backed it with sufficient reserve assets. But this is not what is happening.

It is just like a publically traded company issuing a new round of corporate stock below the market price. It would dilute the value of the original stock.

 

Buying Treasury bonds is just another open market operation to increase the money supply, as I explained.

The Fed does not use Treasury bonds as collateral assets to get money printed. If the Fed wants more Federal Reserve Notes it simply contracts the Treasury to print them up and pays the printing costs. If the government wants some of these notes for itself it must borrow them on the open market, at interest, by selling Treasury notes or bonds.

The Fed is prohibited from buying Treasuries directly, it must buy them on the open market like every other investor.

The only misconception here is yours that the Fed needs collateral to get the Treasury to print Federal Reserve Notes. It is almost like you believe that all the money in the US physically exists when in fact the vast majority of money in the US is entirely imaginary, existing only as numbers on balance sheets. Printed money is a small and shrinking fraction of the overall money supply.

 

i think this is a good explanation of how the fed works

[ame="http://www.youtube.com/watch?v=jFnH9MCdpLo"]http://www.youtube.com/watch?v=jFnH9MCdpLo[/ame]


this covers a lot more detail and history: 'historical beginnings… the federal reserve'

 

the more money in circulation chasing a finite supply of goods and services, the higher the unflation rate...simple no?

 

hope you enjoy that 10 dollar loaf of bread in a few years time

 

i hope you get tired of hyperbolic rhetoric and come around to reality one day

 

you mean like the 5 dollar gallon of gasoline I was predicting and the now 3 dollar loaf of bread? That reality?

 

i don't know where you shop, but i certainly don't pay that

 

I am talking good quality bread at a bakery......not the mass produced crap at the grocery store! Sure you can buy crap for 1.50 but a good loaf of bread is about 3 dollars now or double where it was in 2005!