The Creation of the Federal Reserve System (Part 2)

Discussion in 'Political Opinions & Beliefs' started by Dr. Righteous, Dec 27, 2011.

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  1. Dr. Righteous

    Dr. Righteous Well-Known Member

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  2. Dr. Righteous

    Dr. Righteous Well-Known Member

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    Of course it's a fact. All fiat currencies in history have failed. The current ones that are being used in the world are failing too. You have been so indoctrinated by your Keynesian viewpoint that you're incapable of seeing that.

    Its failure was not a natural occurance. Governments forced it to fail by outlawing it. The fact that you're not admitting that this is a significant difference to me just means you are intentionally being obtuse.

    False. The Fed is incapable of determining what the exact supply of money needs to be in order to maintain price stability. Proven by the fact that prices have been wildly inflated since 1913.

    Repetetive and already debunked.

    <<<Mod Edit: Personal Attack Removed>>>
     
  3. Dr. Righteous

    Dr. Righteous Well-Known Member

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    Your guilt by association strawman tactics are not going to work in this thread. Take them elsewhere.
     
  4. botenth

    botenth Banned

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    That's the reality.



    The truth is the only valid use of every medium.
     
  5. Dr. Righteous

    Dr. Righteous Well-Known Member

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    That's because the Fed can create as much money as Congress needs. Without it, Congress wouldn't be able to fight as many wars as they want to. Are you an ardent supporter of endless unnecessary wars? Do you like war?

    OK <<<Mod Edit: Personal Attack Removed>>>

    Repetetive and debunked in the old thread, hundreds of posts ago. The Great Depression was a failure of fractional reserve banking, not the gold standard.

    http://www.politicalforum.com/political-opinions-beliefs/172839-fed-caused-great-depression.html

    There is no data which disproves my position. You have failed to present it. There is zero evidence that gold standards cause any non-negligible economic downturn.

    Your utopian world of infinite credit is collapsing before your eyes and you call the prospect of failure "laughable"? I don't see too many people laughing. <<<Mod Edit: Flamebait Removed>>>

    Debunked in the OP and countless posts ago.

    They're not forced to depend on the Fed, but they do rely on the Fed to create them enough money to finance their exponential growth of spending.

    Please show me where I said that the Fed "tells Congress to make money". Post number and link please.

    Your incoherent babbling has been noted.

    That's the first thing you've said so far that's made any sense.

    I have not seen one shred of math in any of your posts regarding the Fed.

    Hardly. You are just misinformed and needed re-educated. He gave up because you are hopelessly stubborn.
     
  6. akphidelt2007

    akphidelt2007 New Member Past Donor

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    Alright, we left off at a wonderful point where Roon once again is trying to tell me that 2+2 does not = 4.

    What's so funny is inside your head you honestly think you are correct about this. Banks DO NOT LEND reserves. Reserves never leave the system unless they are exchanged for currency.

    The reserve requirement is the ratio between reserves and deposits. So if there are $100 in reserves and $500 in deposits. The bank has $50 in required reserves and $50 in excess reserves... aka $100 in reserves. If they make $500 more in loans than the bank has $100 in reserves and $1000 in deposits.

    I suggest you take a step back and just listen rather than talk because you are confusing those that actually do want to learn.

    This is absolutely incorrect. The Fed has no control over how much Congress spends and Congress does not need the Fed to create money for them to spend. You are 100% wrong about this... but I'm sure you will continue spouting the same nonsense. And I have never once said the Fed does not make money. I said they make a "form" of money that does not add to the amount of money we have.
     
  7. akphidelt2007

    akphidelt2007 New Member Past Donor

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    And if you don't believe me, then here is what the Fed says about their monetary operations...

    Source: http://www.federalreserve.gov/faqs/money_12853.htm


    And if you don't understand how the banking system works, I suggest you read... http://www.rayservers.com/images/ModernMoneyMechanics.pdf

    I know it doesn't have very many pictures and it's more than a paragraph long so the majority will not want to read it.
     
  8. akphidelt2007

    akphidelt2007 New Member Past Donor

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    This is 100% false. And you can't even provide a source that backs this statement. The Govt is in no way, shape, or form dependent on the Fed creating money for them to spend. The Fed's job is to make Govt spending usable by providing adequate reserves and currency for the Govt created deposits. They do not tell the Govt how much money the Govt has... that is completely false.

    This is your opinion backed by zero facts. Almost every country that was on a gold standard during the great depression did much worse than countries that were not. That is a fact.

    "Countries that were not on the gold standard in 1929--or that quickly abandoned the gold standard--by and large escaped the Great Depression
    Countries that abandoned the gold standard in 1930 and 1931 suffered from the Great Depression, but escaped its worst ravages.

    Countries that held to the gold standard through 1933 (like the United States) or 1936 (like France) suffered the worst from the Great Depression"

    Source: http://www.j-bradford-delong.net/politics/whynotthegoldstandard.html

    Well if this is what it means to collapse than keep the collapse coming because all this stuff I keep getting with all the money I'm making is fun!!

    Just saying debunked doesn't mean it actually is

    No they don't

    Ask me a mathematically based question on why the Fed does what it does and I will tell you

    Funny thing is I'm telling you what normal people learn when they get educated in economics. You are the one that has come up with a completely off the wall theory that very few intelligent people would even consider. And I'm the one who needs to be "re-educated"?
     
  9. Dr. Righteous

    Dr. Righteous Well-Known Member

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    Putting words in my mouth. I never said they were. I said the Fed can create as much money as Congress needs it to.

    Putting words in my mouth, again. I never said they tell the "govt how much money the govt has".

    Your source is lumping a true gold standard in with a fractional reserve standard and simply calling it "the gold standard". This is deceptive and false. The US was on a fractional reserve standard. There were no countries on a true gold standard around the time of the Great Depression.

    Your Federal Reserve Notes won't buy you anything after they hyperinflate.

    Hmm. Maybe you should go back and read the thread then.

    Where is Congress getting all of the money it's spending?

    No thanks.

    How can you claim to be intelligent if you're using poor debate skills and constantly getting your facts wrong? Just because my viewpoint is outside of the mainstream doesn't make it wrong. In Nazi Germany, it was outside of the mainstream to oppose the Nazis. Your method of thinking is dangerous and is what breeds totalitarianism. Conformity inside your little box is all you know -everything else is bad.
     
  10. akphidelt2007

    akphidelt2007 New Member Past Donor

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    There that's better than. So you admit Congress does not need the Fed's permission to spend money. Good job.

    So then if you agree with me, what is your problem?

    Well then show me a true gold standard, lol. You can't because they don't exist, because intelligent people understood that they were dumb. Only the most uneducated of individuals still advocate a true gold standard.

    Yea yea, we've heard the hyperinflation talk for the past 40 years and all that's happen is people have been able to buy more. You can't even articulate why hyperinflation will happen in America. Your only point is that other fiat currencies have faced hyperinflation. What a very astute observation, lol.

    A mixture of private sector, foreign central banks, investment banks, and primary dealers

    Then don't bring it up

    Yes, basic math in economics is equivalent to Nazis killing tons of Jews. <<<Mod Edit: Personal Attack Removed>>> Your viewpoint is strictly philosophical. There is no truth to anything your saying except in your head.
     
  11. Dr. Righteous

    Dr. Righteous Well-Known Member

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    I'm not "admitting" anything, because I never once claimed that Congress needs the Fed's permission to spend money. I said that the Treasury needs the Fed's permission to print money. Get your facts straight<<<Mod Edit: Personal Attack Removed>>>

    That you put words in my mouth.

    The Byzantine Empire used a gold standard for 800 years and it flourished as the center of world commerce without going bankrupt or even getting into debt once. There is no evidence they had any non-negligible economic downturns at all.

    <<<Mod Edit: Response to Personal Attack Removed>>>

    That is 100% false. Folks who saved their money in 1971 have seen an 82% devaluation in their purchasing power since then.

    The dollar has devalued over 96% since 1913. It won't be long before it approaches the asymptotic limit of infinitely close to 100% devaluation.

    By what mechanism does it get the money from these sources?

    I only bring it up because you haven't provided any such thing.

    Nice strawman. I was comparing the concept of having a viewpoint that is outside of mainstream thought. Not using "basic math" in economics.

    <<<Mod Edit: Flamebait Removed>>>
     
  12. akphidelt2007

    akphidelt2007 New Member Past Donor

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    And you are wrong again. The Treasury does not need the Fed's permission to credit your account with MONEY. The Fed, the Treasury, and the Primary Dealers work together every day to make sure all the spending Congress has approved gets to the people they approve it for. The Treasury or the Fed can not tell Congress that they will not create money for their spending.

    Even though you think the Fed is private, they are not. If they refused to create enough reserves for the banking system so that we can withdraw our Government created money, Congress would just drop the Fed. And that is hypothetical since that would never happen.
    [/QUOTE]

    Yes, they also died from plagues, and fought with swords. I'm so glad their economy flourished using gold when the printing press or the computer had not even been invented. Great example!! So what will you say if the United States lasts 800 years?

    If they stuck it in their mattress

    Yes but there are more dollars. So try to make more 2011 dollars instead of saving your 1913 dollars

    The question is by what mechanism does these sources get the money to lend to the Govt? And the way they get it is through the primary dealers who purchase almost 70% of all Govt debt and purchases the debt with bank money just like they lend you or I money for a house. That is how the Govt creates money.

    Likewise
     
  13. Dr. Righteous

    Dr. Righteous Well-Known Member

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    Crediting one's account with money is not the same thing as printing money. Quit putting words in my mouth.

    Congress doesn't have the power to create money in the first place. Where did you get such a silly idea?

    Where did I say that the Fed is private? Post# and link please.

    Basic economics and the laws of mathematics are no different than they were 1500 years ago.
    You still have failed to disprove my claim that there is zero evidence of any non-negligible economic downturns that occur when a true gold standard is used.

    It's not going to.

    Or how about being a little more realistic, like if they stuck it in a bank?

    What about people who can't work or make more money? Tough (*)(*)(*)(*) for them, I guess.

    False. The government debt that gets purchased is done so with money that already existed. Purchasing govt securities from the govt does not create any new money. The only time new money is created is when the Fed purchases those securities on the open market.
     
  14. akphidelt2007

    akphidelt2007 New Member Past Donor

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    So what is the difference between printing Federal Reserve Notes or the Govt crediting your account with bytes? Do you not consider your deposits money?

    They do not have the power to create Federal Reserve notes. They have the power to credit your account with dollars. What is the difference between a Federal Reserve note and a dollar in your bank account?

    So is basic medicine and basic math. What's your point. Somehow economics defies everything else and the unsophisticated figured out the optimal economic theory before they could even figure out the earth wasn't the center of the universe?

    Same difference. The metaphor for sticking in the mattress means doing nothing with it to get a return.

    Who says they would be making the same amount of money in your system?

    100% incorrect. Try again! How does money "already exist" when it is a made up currency that no one can create?

    100% incorrect. When the Primary Dealers purchase treasuries from the Govt they adjust their reserve ratio and in return give the Treasury an account called a TT&L account. Trust me I understand more about Fed and Treasury operations than anyone on this site. The Primary Dealers who purchased over $3 trillion of Govt debt this year did not use money that already existed to purchase that. They leverage their reserves just like they do to give you a mortgage.

    This is where you and most peoples fundamental beliefs are incorrect about America and the economic system. The Govt determines how much money is created, they don't need your money to spend money, they don't need to issue debt to spend money. They simply can spend whatever they want because there is an unlimited bottomless pit of money because it's a friggin made up currency.
     
  15. SiliconMagician

    SiliconMagician Banned

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    Ummm.. this is only true for as long as the bond market will buy our bonds. The Euro is currently in big trouble despite being a "made up currency" because if you can't sell anymore debt.. you are screwed.

    Someone in the private sector has to buy the debt.

    You say debt is basically the new gold right?

    If no one buys your gold no matter what your asking price, it becomes worthless.

    Same with debt, which is a commodity.
     
  16. akphidelt2007

    akphidelt2007 New Member Past Donor

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    This is 100% incorrect. Only 1% of bonds issued by the Govt are bought by the nonbank public. 71% are bought by Primary Dealers who are required to bid at every single auction, 19% our purchased by foreign central banks, and 9% are purchased by investment banks.

    Primary Dealers are mandated to participate in every auction, which means there is always demand for bonds and there is always a buyer from every bond issued. And they don't use existing money. They leverage the reserves they have just like they lend you and I money. The Primary Dealers bought over $3 trillion worth of bonds this year.

    If no one buys our debt that means they are either saving it or spending it. If they are spending it we don't need to issue more debt, if they are saving it, then the Primary Dealers will purchase tons of debt just like they did the past 2 years.

    Debatable
     
  17. SiliconMagician

    SiliconMagician Banned

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    Then how the hell is Europe in so much trouble and a new crisis breaks out at every bond auction? Are you trying to say that in America, we force people to buy our bonds, but Europe doesn't? Under you're scenario, Greece shouldn't be in any trouble becuase the ECB should be forced by law to buy Greek debt, regardless of level. Yet they aren't.

    Please show me an article stub that shows these primary dealers are forced by law to participate. If I ran any sort of business and someone told me "You have to buy my debt, you have no choice." I would cash in my chits, shut down operations and say "(*)(*)(*)(*) you"


    *shrug*

    Everything I've read in mainstream publications at least implies that the entire bond auction process is completely voluntary.
     
  18. akphidelt2007

    akphidelt2007 New Member Past Donor

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    You are comparing apples and oranges. The European system is NOTHING like ours. Greece is screwed because they have no control over their monetary system. Their only hope is if the controllers of the monetary system (aka the EU) decides that they are willing to sell or print up enough money to save them. And if they don't, most likely Greece will opt out of the Euro so they can have their own control of their own monetary system like America.

    Greece is almost no different than California. It is a state that is revenue constrained. America has literally no similarities to Greece whatsoever.

    Dude, I'm not lying to you and I'm not some conspiracy theorist. Everything I say is 100% researched and backed by actual data and evidence provided by either the Fed, Treasury, or research papers by actual economists. To be a Primary Dealer you must agree on making a market for bonds and you must participate in every auction. These Primary Dealers purchase over 70% of bonds auctioned off by the Govt. This is the actual money the Govt uses to credit our accounts.

    If you want evidence here it is...

    Source: http://www.newyorkfed.org/markets/pridealers_policies.html

    If you want proof that Primary Dealers purchase 70% of bonds auctioned off by the Govt...

    Source: http://www.newyorkfed.org/research/current_issues/ci13-1/ci13-1.html

    These are two sources from the Federal Reserve itself. You can't get anymore concrete evidence than this. And 19% of treasury auctioned off our purchase by foreign central banks. 10% are purchased by investment banks in America, and only 1% is purchased by the nonbank public... as in you and I.
     
  19. cenydd

    cenydd Well-Known Member Past Donor

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    Reminder to everyone on this thread. Please note the forum's Mission Statement:
    Please keep this spirit in mind, and familiarize yourselves with the rules about Flamebait and Personal Attacks.

    thank you,

    Cenydd
    Site Moderator
     
  20. Dr. Righteous

    Dr. Righteous Well-Known Member

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    The govt crediting my account can be done so without necessarily having to create money to do it.

    Agreed.

    Nothing.

    I'm sure most of them didn't think about the technical aspects of how it worked, they just knew that it did. But it's not really hard to figure out. Ancient people were not as stupid as you think. For not having any science or math, they figured out basic engineering principles that allowed them to construct buildings and basic infrastructures. Look at all of the technological advancements the Romans made in that regard.

    If you're coin clipping, you're ripping people off by stating that the currency you're trading is worth more than it actually is. Eventually the market figures out that alot of coins are worth less than face value, and it causes prices to rise. But since you had been coin clipping, you still had the advantage of increased purchasing power before prices rose. For this reason, coin clipping was considered counterfeiting in ancient times and was punishable by death in many societies for this reason. This was a rather effective method of keeping the currency sound in a technologically deficient time period. Today, there are simply more sophisticated methods of coin clipping, but it is effectively the exact same thing. These basic economic principles have not changed.

    Becuase there is zero evidence of any non-negligible economic downturn when a true gold standard is used. I have also shown you that the average rate of growth of real private GDP per capita has been about half as large under our fiat system (1971-2011) as it was under our previous fractional reserve standard from 1929-1971. Add these two facts together and we can easily conclude that people would be making more money under the system I support.

    Only the Fed can create money. It is illegal for anybody else to create money. The Fed is prohibited from purchasing government debt directly from the govt, by law. It is illegal for govt debt to be purchased directly from the govt by creating money.

    This statement doesn't make any sense. The Fed can create money.

    That does not create any money. They are using money that already existed to do that.

    Sure you do. Tell that to Iriemon - I'm sure he will have just as good of a laugh as I just did.

    Leveraging their reserves does not create any new money.

    Correct. That's becuase the Fed is a cartel between banks and government. The Fed's most influential member banks leverage their reserves, as you said, to purchase more government debt. The Fed then purchases that debt from the banks (for a handsome profit) with money created out of nothing, so the banks are reimbursed (and then some). Any interest the Fed collects on the govt debt it holds as collateral gets remitted back to the treasury minus 6% for operating costs. The government is able to spend the money that the banks lent to it, and that newly circulating money winds up in the banks, ready to be loaned out so the banks can collect interest on up to 10 times the initial amount. It is a continuous cycle, and the circulation of all that newly created money eventually causes prices to rise. In contrast, the banks are collecting interest and the government is able to spend more money. The government and banks are gaining purchasing power due to this money creation while consumers are losing purchasing power by having to pay higher prices. It is a transfer of wealth from consumers to the government and banking system.
     
  21. akphidelt2007

    akphidelt2007 New Member Past Donor

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    Lol, really? So what do you call the accounts they create then?

    Yes, economics did evolve and yes gold was a pivotal piece to the evolution. But economics didn't stop in the ancient times just like medicine, science, and technology. The people in the 1100s didn't know more about economics than us just like they didn't know more about science.

    And why did Govt's coin clip? For the exact same reason fiat money came about. This is one of the failures of the gold standard even though you will not call it that.

    Between 1934-1971 our system was no different than it is now other than the way the banks and Treasury interacted. The only thing that changed in 1971 was we would no longer accept FOREIGN exchanges for gold. The American people were not allowed to exchange dollars for gold since 1934 and the Govt did pump fiat money in to the system all throughout.

    And what's even more funny is the biggest increase in per capita gdp came during war time where the Govt basically employed the country and flooded the economy with fiat money.

    Only the Fed can create Federal Reserve Notes. They can not create deposits in our system. As in they can't give you or I money. Yes, so who is "funding" the Govt and where are they getting the money from?

    They create a form of money which I never said otherwise. Ask yourself this question. Why is the monetary base not included in the M1 or M2 money supply? M1 and M2 include demand deposits in the banking system and savings deposits. Why do they not include the money the Fed makes? It's because it would be double accounting... because the monetary base simply is the backing for M1 and M2.

    So when the Fed creates monetary base money the private sector doesn't get any more money.

    Are you 100% sure that the Primary Dealers who purchased over $3 trillion of Govt debt this year are using existing money? Good luck trying to prove that!

    This is just saying words. There is nothing of substance here. Iriemon copped out big time when he realized that I was right and he stuck to his little semantic argument even though I was proving him wrong every time he brought it up. And Iriemon is definitely the worst example you can bring up since he agrees with most of what I'm saying, lol.

    Sure it does. Deposits in America ARE money. The MONEY I have in my account is money. If the Govt gives me $10,000 in my account they are giving me TEN THOUSAND DOLLARS. When the Primary Dealers give the Govt $100 billion in exchange for pieces of paper and the Govt credits our accounts with $100 billion, that is $100 billion more we have to transact, pay taxes, and purchase the debt from the secondary market.

    Why do you think Primary Dealers are required to participate in every auction and why do you think these market makers purchase over 70% of all treasuries auctioned directly from the Govt?

    Banks don't worry about that. They simply lend to any qualified (or even sometimes unqualified) borrowers. The reserves are simple the Fed's way of targeting the fed funds rate by making borrowing more or less expensive for banks. The banking system is incredibly complex and I'd be happy to go in to details about it if you want.

    And you are failing to grasp the big picture. The Govt and banks aren't people... they do not gain "purchasing power". When the Govt spends money or the banks spend money they are spending it in to the private sector and real humans are going out purchasing goods and services.

    When the banks invest in Treasuries they are not using their profit or deposits, they are leveraging their reserves.
     
  22. 4Horsemen

    4Horsemen Banned

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    One thing we can all agree on, the Federal Reserve is no more "Federal" than Federal Express is.

    the powers that be, have made a play on the words.
     
  23. Dr. Righteous

    Dr. Righteous Well-Known Member

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    New accounts...lol. That doesn't mean they create new money every time they create a new account.

    You missed the point. The fundamental building blocks of math, economics, science, and engineering have remained the same.

    So you admit that the reason governments use fiat currency is as a method to extract wealth from the general public without having to raise taxes on them?

    I disagree with your opinion for reasons previously stated.

    False; the dollar was still redeemable in silver until the late 1960s. It was on a fractional reserve standard until at least 1968.

    Prove it.

    The Fed controls the creation of the Federal Reserve Notes, the treasury is the only entity which can print Federal Reserve Notes by law.

    This is a lie. I can go and purchase a Treasury Bond, and the FOMC could buy it off me if I wanted to, and credit my bank account with freshly created money.

    Taxing and borrowing. What they don't collect in taxes, they borrow from banks, corporations, foreign central banks, foreign governments, and individuals.

    False. If I sell a treasury bond to the Fed, it credits my account with freshly created money. If I withdraw that money and spend it, then there is more money circulating in the private sector.

    I'm not sure what exactly it is you're trying to say here. Are you suggesting they may have counterfeitted it?

    The primary dealers have to sell their govt securities to the Fed in order for any new money to be created.

    Because the Fed is a cartel between banks and government. Primary dealers profit handsomely selling securities to the Fed; the government gains purchasing power without having to raise taxes; the government spends that money and it ends up in the banks as deposits, ready to be loaned out and collected interest on; and it only costs the government 6% of the interest rate on the securities to pay for Fed operating costs.

    Of course, because the Fed and govt are willing to bail out the most influential Fed member banks when these reckless lending practices get them into trouble.

    No thanks, I already understand how all of that works.

    The freshly created money they have is a "creation" of purchasing power that didn't exist before. Of course, purchasing power can't just be created by creating money out of thin air - it has to come from somewhere. That "somewhere" is inflation.

    Prove it.
     
  24. akphidelt2007

    akphidelt2007 New Member Past Donor

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    I never said that and you dodged the question. Is an account money?

    I agree. There is not much difference between how the economy works now than it did 1000 years ago. We are only more intelligent and sophisticated in how we manage it.

    No I do not admit that at all

    Lol, you could not redeem dollars for silver, lol.

    Real GDP per capita almost doubled during WWII which happened to coincide with the biggest spending spree in the history of America

    [​IMG]

    Thanks for this useless bit of information

    It can but it doesn't and it wouldn't change anything if it did

    Where do the banks, corporations, foreign central banks, foreign governments, and individuals get all these trillions of dollars to "lend" to the Govt?

    The Fed wouldn't buy a treasury from you and if it did it wouldn't change how the Govt still creates money.

    And in your hypothetical case there would be more liquidity circulating the private sector. All the Fed does is exchange non-interest bearing debt with interest bearing debt. Basically controls inflation through liquidity. They didn't create money, they simply gave you your money back now instead of when the debt matures.

    No, I'm saying they created it out of thin air just like they do to give you money for a mortgage.

    No they don't. If the primary dealers give $1 billion to the Govt and the Govt gives you and I $1 billion, we now have $1 billion more to transact with. The Fed purchases the debt from the Primary Dealers to give them more reserves which cheapens the cost of borrowing between the banks. You are completely misunderstanding the relationship between the Fed and the private sector.

    The cost of the Fed and the money the Primary Dealers make is minimal to the amount of money the Govt spends.

    The Fed doesn't bail out banks with private sector money, they bail them out with reserves so that banks can still lend money without massive borrowing costs.

    You obviously do not

    Inflation is simply more money chasing the same or relatively less amount of goods. So what happens if more money leads to more goods?
     
  25. Roon

    Roon Well-Known Member

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    It also coincided with one of the greatest periods of austerity in US history.

    Nobody will deny that the government can employ everyone by simply instituting a draft during war time. The quality of life will just really really suck.
     
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