check out this link detailing a phone conversation with the federal reserve bank in san fransisco. I realize the source is the definition of sketchy, but it is definatley an interesting read. read the article here anyway, the basic idea is that the federal reserve is a private corporation that can create wealth out of more or less nothing. the reason this article caught my attention is the fact that the price of gold is at a twenty five year high. are there any economics experts out there who can either rebute or verify this guys claims?
Fed can create money, not wealth, from nothing. Too much money creations can destroy wealth. US will be doing it soon as that is only way the debt can be paid when baby boomers stop paying taxes and start collecting social security. This is also major part of reason gold is up - people with foresight can see the dollar is going down soon and are "running for cover" to gold and commodities like oil, copper, etc - all are up in price by factor of more than two from just a one or two years ago. (I did not read your link so no comments on it.)
Read second to last post on page if you want to understand the Fed. http://www.sciforums.com/showthread.php?t=46259&page=1&pp=20
The conversation on that website looks pretty plausible to me. It appears that the guy who was asking the questions didn’t really have any idea how the Fed works. Yes, the Fed purchases new bills from the U.S. Treasury Department for a few cents per bill; the price that they pay is just to cover the actual cost of printing the money. The thing to keep in mind is that the Fed (or the people who own the banks that own stock in the Fed) can’t just go out and spend the money that they purchase from the treasury department. They can only lend it out to banks and make money on the interest. That’s the big point that all these conspiracy theorists don’t seem to understand. So while the Fed might spend millions of dollars to purchase bills from the treasury department that have a face value of many billions, they aren’t actually making billions in profit, since they can’t actually spend the bills that they purchase. The bills are only valuable to the Fed in that they can lend them out to banks. Also, there is a limit on how much profit the Fed shareholders can keep in a year. Any ‘profit’ that the Fed makes off of interest from its loans above 6% of its stock value goes back to the government. Essentially, owning stock in the Fed pretty much guarantees that you will earn 6%/year on your investment. This is not a spectacular return on an investment, but it’s a pretty safe investment in that you don’t have to worry about the stock value dropping. Also, it's important to note that the companies that own the Fed don't actually have control over it; it is controled by the government.
A quick note on what I said in my last post, since looking back at it I realize I wasn't very clear: Only about 20% of our money actually exists in printed form. The other 80% exists as bank deposits that can be tracked and moved around electronically. The Fed purchases printed money from the treasury department when a bank is running low on cash - the cash is sent to the bank that needs it to stock ATM machines etc, and the equivalent deposit record of "unprinted money" is erased. Also, the Fed has to purchase a lot of new bills each year to replace old bills that wear out (the old bills are destroyed). In either case, the printed money isn't actually new money.
You've found the ultimate conspiracy: The "Federal" Reserve. /sarcasm ... My numbers are soft, but in the US in 2005 there were about 9 trillion dollars in circulation worldwide; as of now in 2006 the US deficit is about 8.1 trillion. The US is so close to going bankrupt it isn't funny. Hi- Argentina, anyone? ... Edit: Must Read U.S. National Debt Clock FAQ
Thanks for this and prior post. I am not ignorant about the Fed, but have learned from you. I have two questions for you: (1)I have often said that, contrary to common belief, in "slack times" (low utilization of existing production capacity) the Fed's lowering of the rediscount rate is really "like pushing on a string," but it does have a psychological effect. (I.e. except for the psychological effect, the Fed is a “toothless tiger” in slack times.) Last time I said this, I illustrated it this way: With all the over capacity in existing optical fiber networks, it would take a negative discount window rate to get Corning Glass to invest in new (or modernization of existing) optical fiber production capacity. Do you think I have this right? (I do worry I may be in error when I so strongly disagree with such well accepted views.) (2) I believe that several times more paper money is in circulation outside of US, but often in coffee cans and mattress, not banks, than in US. (For example, I have $3000 in a small fire resistant box in Brazil. - I never had that much in cash when living in USA.) Thus I ask: is your "20% green paper" number for the US circulation only? It is my understanding that in Russia alone there are more dollars than in all of US. Comments?
