The FED does not print money

[shrpblnd]

In many posts, people state "the FED prints money," or "cranks up the printing press."

While it may be a colloquial expression, it is incorrect and a gross oversimplification of monetary policy.

It is critical to understand that at any point in time, only a fraction of the money supply consists of cash, either paper dollars or coins. Instead the vast majority of the money supply is held in demand deposits or checking accounts. Most of us may have thousands of dollars in the bank, but might only a few hundred in our wallets or purses.

Commercial banks in turn rarely keep significant amounts of cash in their vaults. Ever go down to your bank and ask for $10K in cash without prior notice? You will get laughed at. At one point I worked for a business that needed large amounts of cash for operations and they always had to give 48 hours notice prior to making a large withdrawal.

Money held as cash generates no interest. Instead the commercial banks bundle up any unneeded cash, and send it to their Reserve Bank. The Reserve Bank verifies the currency, shredding any dollar bills that are worn out, and credits the depositing commercial bank's reserve account. The remaining paper dollars are stored in the Federal Reserve's vault. The commercial bank is then allowed to make loans against this reserve.

When a commercial bank needs more cash for customer withdrawals, they request it from the Federal Reserve Bank. The FED deducts the value of the currency from the bank's reserve account, plus a delivery charge, and sends it out via armored car.

If the Federal Reserve Bank does not have enough existing currency in it's vault to satisfy the needs of the commercial banks, it orders the paper dollars from the Bureau of Engraving and Printing. The FED pays for the cost of printing the currency, but does not pay for the value of the paper dollars. Instead the Federal Reserve deducts the value of the currency from their reserves. The same procedure is true for coins, but they are ordered from the US Mint. This is the process in which new bills and coins enter circulation.

Printing paper money does not cause the money supply to increase. When dollar bills are issued, it results in a corresponding decrease in reserves or demand deposits. Therefore, when an individual wants to hold more of their money in the form of cash, they are simply changing the nature of the money from a demand deposit to cash.

Instead, the Federal Reserve increases the monetary supply two ways:

1) Buying Treasury Bonds.

2) Loaning money through the discount window to member banks.

Commercial banks also increase the monetary supply whenever they receive a deposit and then make new loans based on the fractional reserve system.

The Federal Reserve and the FOMC can influence how much money the commercial banks create in three ways:

1) Changing the fed funds rate, which is the rate commercial banks charge each other for loans. This is the most effective method.

2) Changing the discount rate, which is the rate the FED charges member banks for loans. This is less effective because if member banks use the discount window too frequently, there are regarded as having poor financials.

3) Changing the reserve requirements that commercial banks must have, prior to making a loan. This is rarely used because it is difficult to make precise changes in the money supply.

The FED can always pump up the money supply when desired, but they certainly don't have to start any printing presses to do it. In fact, the widespread use of debit/credit cards, electronic funds transfers, and automatic payments have dramatically reduced the amount of currency held by the public as a percentage of the total money supply over the last 20 years. Big ticket items are rarely paid for with cash these days.

Welcome to the digital age.

[Alric]

Well they try to make it sound complex. If everyone knew(and understood) what they did, they would probably be in jail. No they don't actually have to print money anymore, but you know what we mean when we say that.

As for the banks "reserve" money, that is a joke. In banking reserve means money they don't actually have. Paper money isn't stored any where, they use every last dime they have to loan out to make more money.

[runcible]

I see no reference to Jews, the UN, the global Zionist conspiracy, the NWO, or the underground race of molemen in your explanation of how the Federal Reserve works.

Ergo, your explanation must be wrong.

I will now denounce you as a gov't shill as is the custom of my tribe.

Shill! Shill!

[hoarder]

In many posts, people state "the FED prints money," or "cranks up the printing press." They issue it out of thin air, which is about the same thing. The remaining paper dollars are stored in the Federal Reserve's vault. The commercial bank is then allowed to make loans against this reserve. Umm..you forgot to mention fractional reserve banking. When dollar bills are issued, it results in a corresponding decrease in reserves or demand deposits. But not when digital money is issued as debt. Instead, the Federal Reserve increases the monetary supply two ways:

1) Buying Treasury Bonds.

2) Loaning money through the discount window to member banks. Again you left out fractional reserve banking. They issue as debt about ten times as much as they have on deposit.

Commercial banks also increase the monetary supply whenever they receive a deposit and then make new loans based on the fractional reserve system. Ahhh there it is, but you hid the kicker.

You're post makes an issue out of whether money is printed or issued out of thin air. That is not the issue, the fact that it comes from thin air and has never been audited is the issue.


Welcome to GIM.

[shrpblnd]

The point of my post was that when we boil down how the Fed increases the money supply to these colloqial expressions, we lose the meaning of how the FED really works.

Alric writes:
If everyone knew(and understood) what they did, they would probably be in jail. No they don't actually have to print money anymore, but you know what we mean when we say that.

No, the officers of the Federal Reserve would not be in jail. They have broken no laws. If you don't agree with the law, write your congressman.

Horder writes:
They issue as debt about ten times as much as they have on deposit.

No, the Federal Reserve in fact does not. Since it is only the lender of last result to member banks, it's loan portfolio is quite small compared to a commercial bank. The Fed does buy Bonds, but this is not considered a loan. Remember that the majority of all interest paid to the FED is returned back to the Federal Government. What the FED does is indulges the Federal Government's reckless spending.

Ahhh there it is, but you hid the kicker.

You're post makes an issue out of whether money is printed or issued out of thin air. That is not the issue, the fact that it comes from thin air and has never been audited is the issue.

I hid no such thing. It was in bold type for emphasis.

For the record, are you against all FIAT money or just the kind created by the FED and commercial banks? The Continental Congress and Lincoln also issued FIAT money to cover the cost of war, and proved they had even less restraint than the FED does.

Finally, the FED has been audited continously since it's inception. It undergoes far more scrutiny than any publically traded corporation. Check your facts on this one.

[GREENSILVERHORN]

The FED. owns anyone or anything that ever set foot near it.

Those that have tried to make honest money have been eliminated.

We will pay whatever they raise our fee to regardless of the consequences.

We are slaves.

[hoarder]

No, the officers of the Federal Reserve would not be in jail. They have broken no laws. If you don't agree with the law, write your congressman.

Complexity has a motive, complexity is their defense. The Congresscattle will do nothing to confront the banksters because they would first have to spend hundreds of hours studying it just to get a rudimentary idea how it works and then they would be smeared by the media for daring to question it. It's much easier for them to discard such letters and proceed with whatever the media wants them to do so they can continue to have the social position they cherish.

Are you attempting to say the banksters do not issue ten times as much as they have on deposit or are you trying to skirt the issue with entity definitions?
The "Federal" Reserve is a system, not an entity in itself.

[blueice]

The poster is a Shill !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!

Run for the hills guys. :smile:

[Alric]

If I started a bank and tried to do that stuff I would be thrown in jail. So would anyone else.

I like how its the "lender of last result". That means when a bank gets in trouble because it loaned out to much money from fractional banking and it has none left to pay the people they come running to the FDIC, then the FDIC doesn't actually have money it supposed to have either so it comes running to the federal reserve, and since the federal reserve doesn't have any money either, it prints it.

Thats why if TSHTF you can pretty much kiss your money good bye.

You made another great point, they buy bonds. They don't actually have any money themself. They have a bond and they call it cash and then make a loan to someone using it. Nice trick right?

[shrpblnd]

gasilat writes:
Help us out with the facts on the auditing. Got a link?

Edward Flaherty had done a far better job of documenting this already, and it is not worth repeating the effort.

You can view exactly the scope of the audits the FED both historically and currently goes through here:

http://www.geocities.com/CapitolHill/Senate/3616/flaherty6.html

Gasilat is correct that certain things are excluded from the audit. The major accounting firms never analyze everything. Auditors only ensure that the reported financial statements fairly represent the organization's performance, by analyzing the data on a test basis to verify that the financial statements are "free from material misstatement."

No corporate or government entity to date has ever provided 100% transparency. Look at the snow job Enron pulled on their accountants. Even legit corporations maintain certain "trade secrets." Look at the "black" budgeting that the defense department conducts.

Hoarder writes:
Complexity has a motive, complexity is their defense.

Last time I checked monetary policy is complex. Whether the FED performs this role or the government does, it is still a complex subject. Proposals to simply increase the money supply by a pre-defined rate has been discredited by most economists, because this approach neglects the velocity of the money supply which can be as important as the volume.

Are you attempting to say the banksters do not issue ten times as much as they have on deposit or are you trying to skirt the issue with entity definitions?

Let me be clear. The Federal Reserve does not rely on the fractional reserve system, only commercial banks do. Are you suggesting that Bank of America and Wells Fargo are the FED? This is incorrect. They are separately incorporated entities that only own stock in the FED.

Alric writes:
If I started a bank and tried to do that stuff I would be thrown in jail. So would anyone else.

No you wouldn't. Not if you comply with the same banking laws that every other bank complies with.

Also, you have the order of a bank run reversed. A bank that needs reserves would first attempt to borrow money from another bank. If that is not successful, they will apply for a loan from the FED, and only if the FED turns them down and the bank is liquidated, are depositors paid off by the FDIC.

[Alric]

Last time I checked monetary policy is complex. Whether the FED performs this role or the government does, it is still a complex subject. Proposals to simply increase the money supply by a pre-defined rate has been discredited by most economists, because this approach neglects the velocity of the money supply which can be as important as the volume.

Take a bar of gold, turn it into a coin. Could be that simple. They made it complex though.

[shrpblnd]

Alric writes:
Take a bar of gold, turn it into a coin. Could be that simple. They made it complex though.

So you are against all FIAT money, not just the kind produced by the FED and the banks.

Ah, if it were only that simple. Whatever its virtues, the gold standard does not guarantee stable prices. In order to have stable prices the production of gold must precisely match the growth rate of the economy. This has rarely happened and when it does, it occurs for only a short duration. Instead, massive waves of inflation and deflation are the result.

Gold advocates like to point out that under the gold standard the price level in the US in 1800 was almost precisely the same more than a century later. This leaves out what happened to prices inbetween. A vast inflationary wave after the civil war, was followed by an equally vast deflationary wave beginning in 1884. Remember William Jennings Bryans famous Cross of Gold speech delivered in 1896? The farmers were getting crushed by falling prices.

One of the largest inflationary periods occured in Europe in the 16th century. Explorers began importing vast amounts of gold plundered from the Incan Mines in the new world. The result was a century long inflation of over 600 percent.

[Alric]

As you will notice however, its still worth something today. Infact you just said it was locally in europe, which means if you had gone to china in that time, your gold would still have been worth the same.

As for the 98% loss of value in the dollar over the years, what do you call that? Stable? I never said gold is perfect, but its far better than fiat.

[hoarder]

Edward Flaherty had done a far better job of documenting this already, and it is not worth repeating the effort. Edward Flaherty has already been thoroughly refuted on this forum, perhaps you could support these positions in your own words.No corporate or government entity to date has ever provided 100% transparency. Exxon and Coca-Cola don't issue money out of thin air.
Proposals to simply increase the money supply by a pre-defined rate has been discredited by most economists, because this approach neglects the velocity of the money supply which can be as important as the volume. Who owns the economists that the media keeps trotting out in front of the public to support the fiat regime? (I know the answer)What about proposals like JFK's to simply have the treasury issue the money and cut out the middleman?
Let me be clear. The Federal Reserve does not rely on the fractional reserve system, only commercial banks do. Are you suggesting that Bank of America and Wells Fargo are the FED? This is incorrect. They are separately incorporated entities that only own stock in the FED. I am letting you be clear, but you keep playing the entity definition game in your answers. The "fed" is a system, not an entity. The private banks are the entities that benefit.No you wouldn't. Not if you comply with the same banking laws that every other bank complies with. The regulators determine who gets scrutiny. Considering how high the stakes are in this funny-money game, you can rest assured the the regulators are in someone's pocket.

Banks can issue millions and millions out of thin air as debt to their cronies, as long as they keep issueing new loans to cover the old, there is no danger of default.

[eat_beef]

Skyvike, you have no idea what measure of joy you bring to my days when you nuke :spam4:.

Thank you.

[GREENSILVERHORN]

Originally Posted by shrpblnd http://goldismoney.info/forums/images/buttons/viewpost.gif (http://goldismoney.info/forums/showthread.php?p=280610#post280610)
Let me be clear. The Federal Reserve does not rely on the fractional reserve system, only commercial banks do. Are you suggesting that Bank of America and Wells Fargo are the FED? This is incorrect. They are separately incorporated entities that only own stock in the FED.




Explain Bernanke sending out federal loan officers to approve/disapprove of lending procedures or revising them to restrict money supply recently?

Own stock?

Fed reems them the sameway they reem us.

[shrpblnd]

gasilat writes:
For many years the auditors have respectfully disagreed with your assertion hat the Federal Reserve is adequately audited.

I never said these audits could not be more complete. I was simply correcting hoarder who said they had never been audited. Even the Comptroller remarked at the complexity of doing a FED audit stating: "We recognize that changes in the GAO's audit authority with respect to the Federal Reserve involve complex considerations."

My point is that these audits are already more thorough than what is undertaken by virtually all other major coporations.

skyvike writes:
The only difference of course is when the "inflation" settled out, the gold was still gold.

But you are ignoring the enormous damage done to the economy and the citizens of the country during this period. With FIAT money now, gold is still gold. I am free to invest in it, and I currently do.

There is absolutely no reasonable justification for the American people to pay interest to the Federal Reserve for money the Fed creates out of thin air to loan us.

Remember that the majority of all interest paid to the FED is returned back to the Federal Government.

And please cut out the character assasination. I thought this forum was for people that wanted to learn about the working of the FED. Let's stick to the facts.

I have a B.S. in Business Administration. Currently, I work in the IT field, and subsequently assist in implementing a lot of accounting systems and controls.

Previously, I have worked for a mutual fund, and a mortage brokerage company.

If you know anyone that WILL pay me for my opinions on this silly little forum, please let me know. I can use the cash.

[hoarder]

My point is that these audits are already more thorough than what is undertaken by virtually all other major coporations. How many major corporations have the power to issue legal tender out of thin air? That's an inappropriate comparison, besides, you have not demonstrated that the Fed has kept their books in as good an order as the corporations you compare it to.

[GREENSILVERHORN]

Remember that the majority of all interest paid to the FED is returned back to the Federal Government.



Why not make it 0% then?

You obviously need more schooling. don't take it personally, just take it.

[hoarder]

Why not make it 0% then?


Note that the amount they keep is undisclosed. I think they made it variable to make it more difficult to disclose.

Even if it's as low as 1/8 percent....imagine 1/8 percent of trillions of dollars!

But this is not where all the skimming takes place. They issue money out of thin air to cooperating entities. That's where the real profit is.

[GREENSILVERHORN]

Again your complexity theory rings true, Hoarder.

[Alric]

The reason the government doesn't print the money is because it would be obvious to everyone their making money out of thin air. The way it is now though, they can atleast try to cover it up.

So instead of just printing the money they need, they act like their "borrowing" it and are going to pay it back.

[Wyldwil]

:adore: :adore: :adore: :adore: :adore: OMFG!!!!

:stupido2: *****note to self...must search ALL "Skyvike" posts*****

[shrpblnd]

skyvike writes:
Clearly, you've bought all the rationalizations by the fed and their lackeys about how inflation is caused by demanding workers and creating money out of thin air causes the economy to grow and everyone to prosper.

I have said no such thing. Inflation is caused by increasing the money supply faster than the rate of economic growth. It is the same as feeding a child too much. It doesn't make the child grow faster, it just makes him fat. The money supply must expand by the rate of economic growth, with some adjustments for velocity, for prices to remain stable. It is difficult to accurately measure both the money supply and the rate of economic growth, and this causes mistakes in monetary policy.

If we're going to do it this way, why not have the treasury print the money? Then we wouldn't have to pay it back.

This would constitute FIAT money by the government. Please be consistant in your debate. If you want gold backed currency, the government must acquire the gold necessary to do that.

the facts remain:

The Federal Reserve is a privately owned banking cartel, owned mostly by the old banking families in Europe, and it creates money out of thin air to loan the America people when the American people have had the power to do that themselves all along.

The Federal Reserve is a hybrid institution that mixes private and public control. Woodrow Wilson called it a "Great Compromise" between the bankers and the Populists. You may argue that the bankers control the politicians, but that is a separate issue.

The Federal Reserve is owned by its member banks, not old banking families in Europe. Anyone that has done any research, agrees on this point including Edward Griffin who wrote The Creature from Jekyll Island. I have never disputed that the FED creates money out of thin air. The Federal Government had this power, but it delegated it to the Federal Reserve, when the government proved themselves too incompetent to manage the process.

it was thrust upon the America people through political skulduggery

Banking reform had been debated and discussed for over two decades prior to the Federal Reserve. William Jennings Bryan made it a compaign issue in 1896. The need for reform was so painfullly obvious after the Bank Panic of 1907 that the Federal Reserve Act was passed in 1913. Neither side got everything they wanted. The bankers certainly did not like the idea of a politically appointed Board of Governors telling them what to do. The Federal Reserve Act was also changed during the depression to give more power to the Board of Governers (over the objection of the bankers), and also in the 80's with the Monetary Control Act because so many banks were leaving the Federal Reserve System.

Sadly most legislation dealing with complex problems is the result of political skulduggery. Recent examples would include Medicare Drug benefits (which were a sell out to the drug companies), and reforms to Bankruptcy (which were a sell out to the credit card industry), and your cynicism is warranted.

The last line of my previous post was sarcasm. If you took it seriously, you should be laughing because the joke is on you.

I have studied the Federal Reserve and the financial industry for years, and clearly have a better understanding than you, because I don't have to result to petty insults to make my points.

[Alric]

There was nothing wrong with the money before they changed it. Any problems we had at the time is because of poor banking practices not because our money had some kind of problem.

Some compromise, the government got the power to make money to continue with their endless spending and the bankers got to keep getting rich off there poor banking practices. The only losers are the american people.

[hoarder]

The Federal Reserve is a hybrid institution that mixes private and public control. Woodrow Wilson called it a "Great Compromise" between the bankers and the Populists. You may argue that the bankers control the politicians, but that is a separate issue. It is because you say so. You're as skilled as Flaherty at skirting the issues and sugar coating.

The Federal Reserve is owned by its member banks, not old banking families in Europe. And who owns the member banks? International bankers.The Federal Government had this power, but it delegated it to the Federal Reserve, when they proved themselves too incompetent to manage the process. Aren't we Americans fortunate these wise, generous and altruistic international bankers are doing for us what incompetent politicians couldn't do? Gee, I'll have to remember to put them on my Christmas card list.

[GREENSILVERHORN]

Again, why not a bill at the end of the year from the Fed. for service fees?

Then it really could be 0% rate. Everything would be nice and clear then.

If the members own it, they must be in collusion or price fixing for their relative intrest rates.

No competition here.

Again the Fed. controls its members. You have it backwards.

Or is this approach to simple for you.

They have their hand on the dollar spigot.

[WideOpen]

Hell, there are no rules here— we're trying to accomplish something.
Thomas Alva Edison, US inventor and businessman (1847 – 1931)
:rose:

[GREENSILVERHORN]

I am reminded of Braveheart when the Prince's male concubine states "I am skilled in the art of military tatics" and Longshanks tosses him out the window.:D

[WideOpen]

Aux innocents les mains pleines.