Fed Creates $1 Trillion 'Out of Thin Air"

[lomiller]

I think you are in error there. It might be that the Treasury buys back Dept. debt it has already delivered to the Fed. Where do the funds come from with which to do that? Out of thin air.
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When the treasury buys back debt, it does so with tax dollars. It doesn’t matter whether it’s buying this debt from the fed or not. Since the money supply needs to grow, the Fed probably doesn’t buy back debt all that often. The Fed also has the authority to lend to member banks and can create money that way, but again that’s an emergency interment that isn’t used often.

One thing the Fed does buy from the Treasury is paper and coin currency. The amount the Fed owes the treasury for the paper currency in circulation roughly balances the amount of federal debt the Fed holds. At least this was the case before the recent crisis. Perhaps this is what you were thinking of.

 

[mhaze]

Again, that leveraging was only part of the issue. The real problem is not the debt itself, but the fact that it was leveraged so many times that the debt has no relation to the initial value, be it a mortgage or other financial instrument.

Cutting goverment spending in this scenario will do nothing to deal with the major issues. There are only two real options with regard to these banks and companies that engaged in this nonsense: 1) let them fail 2) somehow pay off those obligations.

Letting them fail would destroy business in a way that I don't think anyone is prepared for. Take just AIG. They insure so many aspect of modern business, from the materials GM uses to build their cars, to construction equipment, to basically every aspect of our lives. Because of their size they're able to insure business transactions that no one else can. Thus, if they are allowed to go bankrupt, all of those activities will not be insured. Without insurance a great many deals will be stopped, businesses will have further difficulty getting loans, and on down the line. Most people have correctly judged that this would be terrible.

So the only remaining option is to bail them out. ....

Completely false. AIG has many business units. The one that did credit derivatives is not the one that insures your house or your local metro subway. Bankrupcy allows splitting out the business units, selling some which are profitable, and dissolving the others.

 

[mhaze]

When the treasury buys back debt, it does so with tax dollars. It doesn’t matter whether it’s buying this debt from the fed or not.

One thing the Fed does buy from the Treasury is paper and coin currency. The amount the Fed owes the treasury for the paper currency in circulation roughly balances the amount of federal debt the Fed holds. At least this was the case before the recent crisis. Perhaps this is what you were thinking of.

No, no and no. Paper currency if I recall was either 8 or 80B in total for the US. There is no relation between paper currency and anything other than the amount of paper currency needed by the market forces.

And we are seeing the buying of treasury bills by the Gov., which is no different than borrowing from one credit card to pay another. There are NO TAX DOLLARS INVOLVED!

 

[mhaze]

Just how do you think that the government would get enough tax money out of a constantly deflating economy to pay interest on the huge national debt we built up and even pay interest on the huge balance of payments debt we have? We already pay heavy taxes and who would vote for large tax increases as wealth and income continues to slide?

As I said in the last paragraph, the only alternative to bankrupty is inflating. Saying it is better to let the economy collapse is like saying, "if Iran gives us any more trouble, drop a few atomic bombs on them." It is not a viable solution and is not going to happen.

So you'd prefer the bankrupcy of the American people to the bankrupcy of the American government?

WOW!!!!!

 

[lomiller]

No, no and no. Paper currency if I recall was either 8 or 80B in total for the US.

When you don’t know something it’s not appropriate to make up a number and stick it in. The Fed’s balance sheet shows a liability of $860 billion in outstanding Federal Reserve notes.

And we are seeing the buying of treasury bills by the Gov.,

We are seeing the buying of treasury bills by the Fed...

There are NO TAX DOLLARS INVOLVED!

well duh, if there were tax dollars involved when the Fed bought federal securities no money would be created, and increasing the money supply was the whole point of the exercise

 

[mhaze]

What are you talking about? Earlier you used the phrase "paper money". That is not related to anything except how much money consumers want in paper form. It isn't related to M1, M2, or M3.

It's really just petty cash in the grand scheme.

 

[JihadJane]

There's no record of Jefferson every saying or writing that, and no reason to believe that he did.

And in any case, the issue at hand is not allowing private banks to control the issue of money.

Perhaps it was his cat.

 

[Piggy]

Perhaps it was his cat.

It was read into the Congressional record at some point as a quotation from Jefferson. Probably had been circulating for some time prior.

It's very common for spurious quotations to get attributed to public figures like Jefferson, Franklin, Twain, or George Carlin. This one dead-ends at the congressman's words.

And the sentiments don't match up to Jefferson's actual writings.

 

[gdnp]

It was read into the Congressional record at some point as a quotation from Jefferson. Probably had been circulating for some time prior.

It's very common for spurious quotations to get attributed to public figures like Jefferson, Franklin, Twain, or George Carlin. This one dead-ends at the congressman's words.

And the sentiments don't match up to Jefferson's actual writings.

In the words of Albert Einstein, as quoted in Prometheus's sig, "If you can't think of something relevant to say, just make something up and attribute it to some really smart dead guy."

 

[lomiller]

What are you talking about? Earlier you used the phrase "paper money". That is not related to anything except how much money consumers want in paper form.

Do you even know what a Federal Reserve Note is?

 

[mhaze]

Do you even know what a Federal Reserve Note is?

Here is your statement which I took exception to.

One thing the Fed does buy from the Treasury is paper and coin currency. The amount the Fed owes the treasury for the paper currency in circulation roughly balances the amount of federal debt the Fed holds.

Why not just fix it, instead of trying to side step? Your statement is flat clearly wrong. The amount of paper currency has NO RELATION TO ANYTHING EXCEPT CONSUMER DEMAND FOR MONEY IN PAPER FORM.

Really, I doubt if transactions involving paper comprise 1% by dollar volume of total transactions. Further velocity of circulation of paper is likely way less than electronic.

 

[lomiller]

Why not just fix it,

Fix what? My post is correct, the Federal Reserve owes the Treasury $860 billion for outstanding reserve notes AKA bills or paper money. The Federal Reserve in turn owns ~1.2 trillion in US paper that’s up from ~$900 billion last year.

The amount of paper currency has NO RELATION TO ANYTHING EXCEPT CONSUMER DEMAND FOR MONEY IN PAPER FORM.

Then why are you bringing it up? I brought it up in response to charles brough’s belief that the treasury (not the fed) is producing money from thin air and asked him if that is what he was referring to. You in turn claimed there was only “$8 billion or maybe $80 billion” in paper currency in circulation. You were wrong, and now you are simply trying to divert attention from that fact.

 

[Piggy]

Then why are you bringing it up? I brought it up in response to charles brough’s belief that the treasury (not the fed) is producing money from thin air and asked him if that is what he was referring to. You in turn claimed there was only “$8 billion or maybe $80 billion” in paper currency in circulation. You were wrong, and now you are simply trying to divert attention from that fact.

This conversation seems to be moving in every direction except forward.

It's almost Pythonesque....

"My Aunt Matilda is vacationing seaside in Bolivia."

"But Bolivia is land-locked."

"It if were land-locked, she couldn't be at the beach, and she is, so you're wrong."

"No, I think you've got it wrong. See, look at the map here."

"That map is from 1982."

"Do you think Bolivia has changed its borders?"

"Are you saying countries never change their borders?"

"I'm saying Bolivia hasn't."

"What about the Louisiana Purchase and Manifest Destiny? Would you look at a map made in 1800 and declare that the United States has no west coast?"

"I'm saying either your aunt is vacationing seaside or in Bolivia, but not both."

"Answer my question about Manifest Destiny."

"We were talking about your aunt's vacation."

"Refusal noted."

"Are you sure you heard her right? Maybe she said Columbia."

"So you're calling my aunt a liar?"

"Huh?"

"You said you think she lied to me."

"I just said maybe she said Columbia."

"Why would she say that? Are you accusing her of smuggling drugs?"

"What drugs?"

"You tell me. You're the one who brought it up. I don't see why else you would say she's secretly in Columbia."

"Look, this has nothing to do with drugs."

"So now you deny saying that my aunt went to Columbia."

"I don't know where your aunt is."

"Well if you don't know where she is, you can't sit there and tell me she's not on the Bolivian coast!"

"Bolivia has no coast!"

"And where do you get that idea -- your ancient maps? Who made that map anyway? How do I know it's even accurate?"

"Pick any map you want, Bolivia has no coast."

"I asked you who made that map. Yet another question dodged. "

"It doesn't matter who made the map."

"So you believe any map you see? How about if I draw you a map on this napkin and put India in North America. I suppose you'd believe that, too. "

"Why don't you look at your own map, then."

"Why don't you give me a straight answer? You've dodged every question and you've got no evidence that there's no seaside in Bolivia. If Bolivia has no coast, then why I haven't heard about it?"

"How should I know?"

"Another thing you admit to not knowing. But you think you're an expert."

"Tell your Aunt Matilda to bring back some shells for me, ok?"

 

[gdnp]

This conversation seems to be moving in every direction except forward.

It's almost Pythonesque....

"My Aunt Matilda is vacationing seaside in Bolivia."...

Is this original? I googled it and can't find a reference in Monty Python. If it is, you should be writing comedy, not wasting your time here.

 

[lomiller]

:lol:

edit what no :lol: smiley?

 

[Piggy]

Is this original? I googled it and can't find a reference in Monty Python. If it is, you should be writing comedy, not wasting your time here.

Yeah, it's original, not Python. I just meant the conversation sometimes had the feel of a Python skit, then gave my own example off the cuff.

I do write (and research) for a living.

So then I come home and write some more. Weird, I know. But hey, I'm a word nerd, what can I say?

 

[Skeptic Ginger]

While I don't claim much expertise in this area yet, I've been doing some reading and trying to get a broader view of the issues here. In doing so, I've come across Stephen Zarlenga's ideas on monetary reform. They are worth looking at. That doesn't mean I am or am not advocating his ideas. But they are credible. He hasn't been completely dismissed as too fringe or anything. I don't think we can or should go back to the gold standard. But I do think the control of money creation should be in the public and not private hands. I believe that is also what Zarlinga is getting at and his view is that US creation of money (via Fed Reserve credit policies) is currently controlled by the private banking sector.


Economics: A Clandestine Religion Masquarading As A Science; Stephen Zarlenga; [2004]

Review of Stephen Zarlenga's "The Lost Science of Money"; Edward J. Dodson


Gold Newsletter interview with Zarlenga

Despite AMI's research conclusions that gold need not and should not play an important role in monetary systems, in May, 2000 The Gold Newsletter published a controversial interview with AMI Director Stephen Zarlenga. The interview was made possible thanks to the rare talent of interviewer Robert Meier to get to the heart of the subject without grating on the sensitivities of their readers, who generally (and sometimes passionately) hold views contrary to those excerpted here:

True to our tradition of presenting both sides of gold - related arguments, we recently conducted the following interview with Mr. Zarlenga, his first interview since making a long-term bearish forecast for gold in 1987. We invite our readers to send us their comments on and/or rebuttals to Mr. Zarlenga's views.

AMI - My [Zarlenga's] Talk at the 2007 Green Party National Convention

After a high ranking member of the American Green Party heard my presentation on monetary reform at an AMI Chapter meeting in the midwest, I was invited to make a similar presentation at the national Convention in Reading Pennsylvania on July 12, 2007. I call it Greening The Dollar - Reclaiming our democratic Values Through Monetary Reform

The Significance of Publicly Created Money - Comments on Early Day Motion 323 by an American Financial Expert


Wiki on Monetary Reform for some background information.

 

[six7s]

Yeah, it's original, not Python. I just meant the conversation sometimes had the feel of a Python skit, then gave my own example off the cuff.

I do write (and research) for a living.

So then I come home and write some more. Weird, I know. But hey, I'm a word nerd, what can I say?

'Suck it, Brian'?

 

[mhaze]

Yeah, it's original, not Python. I just meant the conversation sometimes had the feel of a Python skit, then gave my own example off the cuff.

I do write (and research) for a living.

So then I come home and write some more. Weird, I know. But hey, I'm a word nerd, what can I say?

Well, you done did nail that one.

 

[charles brough]

When the treasury buys back debt, it does so with tax dollars. It doesn’t matter whether it’s buying this debt from the fed or not. Since the money supply needs to grow, the Fed probably doesn’t buy back debt all that often. The Fed also has the authority to lend to member banks and can create money that way, but again that’s an emergency interment that isn’t used often.

One thing the Fed does buy from the Treasury is paper and coin currency. The amount the Fed owes the treasury for the paper currency in circulation roughly balances the amount of federal debt the Fed holds. At least this was the case before the recent crisis. Perhaps this is what you were thinking of.

As you just wrote, the government as we have claimed, can and does create money. It has just created one trillion new dollars this way in order to stem the economic slide. It had no choice because the Neo Conservative Republicans have been so critical of Obama's stimulus package when two the Bursh Administration passed and failed that there was no other choice. As you indicate, it is done only in an emergency.

No one claims the government does it for fun!