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I have always found the Federal Reverse system confusing. Does anyone have a simple explanation about they manage the US monetary system? How do they control money, inflation, etc?
Also, just how does the Fed and US government manage to get Trillions of Dollars to spend? Do they just print money out of thin air, like the rumor goes? Or is there some real systemic way money is created by the government to spend?
There is so many bad rumor about Fed and US government creating money, causing inflation, etc it hard to really figure what is going on. It would nice to hear what really is going on and sort all rumors US monetary system.
I highly recommend HappyTexan's book, but it is a lonnnng read!
The quick and dirty: the government needs some $$$, say to fund the war in Iraq. After approval by Congress and signature by the Prez, it goes to the US Treasury. The Treasury Secretary authorizes that amount in US Treasury bonds. The T-bonds go to the Federal Reserve (a private, for-profit bank), in trade for the required funds, which do indeed come from "thin air". They either print it, or nowadays more likely just put in a computer entry.
What just happened? The private for-profit Federal Reserve just got perfectly good and valuable Treasuries, backed by the full faith and credit (e.g. you and me) of the US, in exchange for debt paper money. Those treasuries pay interest! The US Gov't pays the Fed INTEREST to borrow US money from them!
I highly recommend HappyTexan's book, but it is a lonnnng read!
The quick and dirty: the government needs some $$$, say to fund the war in Iraq. After approval by Congress and signature by the Prez, it goes to the US Treasury. The Treasury Secretary authorizes that amount in US Treasury bonds. The T-bonds go to the Federal Reserve (a private, for-profit bank), in trade for the required funds, which do indeed come from "thin air". They either print it, or nowadays more likely just put in a computer entry.
What just happened? The private for-profit Federal Reserve just got perfectly good and valuable Treasuries, backed by the full faith and credit (e.g. you and me) of the US, in exchange for debt paper money. Those treasuries pay interest! The US Gov't pays the Fed INTEREST to borrow US money from them!
As I always say - good work if you can get it!
Hi Nor'Eastah,
The money made in interest to the Fed is actually paid back to the Treasury. Its a great myth buster red herring for Fed cheer leaders. The real scam is when the commercial banks turn a $1 in to $10 loanable dollars and collect interest on that. It used to be a hazard for banks during banks runs when people would find out the money was not there. The only risk has now been sealed with the Federal Reserve and bailouts. The small newer competition dies and the old guard big boys get the bailout.
Hilarious how public forums give people the chance to make stuff up and fully expect others to believe them. The Fed is not part of the US govt and only works with the Treasury for strategic reasons. The Fed is the only organization with the authorization to print money, a power you don't want a government to have. The Fed is "owned" by private banks, but its not a normal ownership role. The Fed merely attempts to influence the prevailing interest rates and economic conditions, but it has little real control ultimately of the actual situation in either. The Fed does get a say in the money supply levels, but because reckless actions would endanger their owing banks, they tend to be rather prudent about what gets printed. Since they don't take orders from the US govt directly, they will always default to the best decision for the economy and not the whims of Congress or the President.
remembert the forum rules: never let the facts get in the way of a good story.. the fed is not even listed under gov't offices. its in the yellow pages by federal express. its seperate from the gov't.there are theories out there that actually think lincoln and kennedy were assinated because of defying them.
some of it is just taking events and adding another reason why but heck who knows whats true.
I have always found the Federal Reverse system confusing.
The Federal Reserve is a central bank. Every country on Planet Earth has one to four central banks, even Vatican City.
The central bank of the US is called the Federal Reserve, but in other countries the central bank might be called Bank of "-----" (insert name of country) or National Bank of "-----" or Central Bank of "------" (insert name of country) or something else entirely.
At one time, the US had several central banks, and because they competed against each other and served regional interests, it created great conflicts with disastrous results, namely depressions, recessions and panics. It also created situations were one region of the country was in serious long term recession while other regions of the country were financially stable or experienced tremendous growth.
The US central bank, or the Federal Reserve as you call it, does exactly the same thing as every existing central bank on Planet Earth does.
You might notice that some countries are in financial straits while other countries in a situation that is quite peachy.
That has nothing to do with the central banks and everything to do with the people and the governments.
Quote:
Originally Posted by unseengundam
How do they control money, inflation, etc?
In theory a central bank, any central bank, adjusts the Money Supply to GDP in order to control Real Inflation or Real Deflation.
Quote:
Originally Posted by unseengundam
Do they just print money out of thin air, like the rumor goes?
For the most part, every central bank on Planet Earth, including the US central bank (the Federal Reserve) creates money "out of thin air."
There are no countries who are on the gold standard, although there are a few countries that have large gold reserves or large foreign currencies reserves or a combination of the two.
Not being on the gold standard is a good thing, but then I might be incorrectly assuming that you don't want you or your children to die with your guts splattered all over the ground in some foreign country trying to acquire gold or acquire access to gold, or that you want the chance to own a home some day.
Quote:
Originally Posted by Willy702
Hilarious how public forums give people the chance to make stuff up and fully expect others to believe them. The Fed is not part of the US govt and only works with the Treasury for strategic reasons.
The president appoints the head of the Federal Reserve.
Quote:
Originally Posted by Willy702
Since they don't take orders from the US govt directly, they will always default to the best decision for the economy and not the whims of Congress or the President.
Perhaps not, but Congress can negate any action taken by the Federal Reserve, which in and of itself is a means of control. The fact that Congress may be unwilling to take action to negate anything the Federal Reserve can do does not mean Congress is not in control.
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