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sabang

You are good people. And you are being right, royally screwed by your government. It is not a government of the people, by the people, for the people. Not now. It is a government of the Rich, by the Rich, for the Rich. They stuff it up, you bail them out. To add insult to injury, you even pay more tax than them in the first place.

My first example (of several) is the current Federal reserve bailout, to help the distressed US financial system after the sub-Prime morgage collapse. The Federal Reserve has pumped hundreds of billions of dollars in liquidity into the system, bailed out several financial institutions to save them from collapsing, it has reduced interest rates to well below anything resembling market rates or the inflation rate. It is now lending money to financial institutions, at dirt cheap rates, and accepting sub prime debt as collateral. This has never happened before- do you think that sub Prime debt will all be paid back? Ha- the stuff can hardly be given away, no one wants it- except the Fed, which will lend you cheap money against this worthless collateral. If you are a bank that is- don't even bother trying if you are a citzen.

Your currency, in which you place so much faith, has tumbled enormously as a result of these actions, plus the reckless profligacy of your government. On an international scale, your net wealth has plumetted startlingly.

But anyway, you would naturally think that, with interest rates being at these record lows, the interest rates that the beleagured American working man is paying on his mortgage (quite probably a negative equity mortgage now too) would go down as well. This is standard lending practice, right?

Wrong, think again. MORTGAGE INTERST RATES HAVE GONE UP SINCE THE SUB PRIME COLLAPSE. Yes, you are paying more interest, for cheaper money. The bailout is for the banks and assorted Lenders only- you, Sucker, pay more.

How much more? Well, "The interest rate on a 30-year fixed-rate mortgage has climbed to 6.37% from 5.5% since January 24, according to the Mortgage Bankers Association, as financial institutions try to cover $US195 billion in mortgage-related losses and shore up capital for more."

Nice, hey. They stuff up, you pay more, and your tax dollars are also being used to bail them out. Lets get this straight- the Fed is gambling with your money, your currency, your wealth, to try and bail out some Rich failures. It is printing money hand over fist, and basically giving it to a select few- which does not include yourself, Sucker.

Some excerpts from a Sydney Morning Herald article I read this morning, Linky below:-

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To err is human. To blame someone else is politics.

Norton

So far no military coup has put the government we have in place. We have what we have because we elected people to office who don't have the slightest interest in the welfare of individual Americans but are only interested in staying in power and pandering to the lobbyists and special interest groups who provide the fuel to achieve this. If and when the average American punishes both Dems and Reps for dereliction of duty by getting rid of them, we deserve what we get.

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Hootad Binky

Great OP!

Milkman

This thread has a lot of potential. I've been learning and re-learning some of the old economic concepts of Monetary Policy. M3 money supply, Fiat currency, etc.

My ignorant question is this: where does the Fed get this money that they keep giving to people/banks/firms to provide "liquidity?"

It seems there is no end in sight. Helicopter cash injections.

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Hootad Binky

Thanks sabang for putting everything into such clear perspective!

Yeah good question where does the Fed "get" money from: "treasury bonds"?

Norton

"Federal Reserve System income is derived primarily from interest earned on U.S. government securities that the Federal Reserve has acquired through open market operations. This income amounted to $36.452 billion in 2006. Additionally, income from fees for the provision of priced services to depository institutions totaled $909 million. The remaining income of $477 million includes earnings on foreign currencies, earnings from loans, and other income."

FRB: Press Release--Reserve Bank income and expense data and transfers to the Treasury for 2006--January 09, 2007

Milkman

Norton, thanks.

Do you think the Fed can just print more money (M3)?

The M3 Money Supply is now secret. The info is not available to the public.

Norton

By law money can only be printed by the US Treasury Department. This is not to say the Fed is not influential in decision to mint more money.

Butterfly

There is a huge confusion in the public between the Fed and the Treasury,

The Fed uses Bonds to create money through the multiplier effect, nothing else. The Treasury is the financing arm of the government, which has nothing to do with the Fed.

The Fed is a super bank that control the flow of money or "create" money using financial "mechanics", while the Treasury is the borrowing arm of the government (Bonds) to finance government projects (annual deficit, wars etc...)

A cooperation of the Fed and Treasury to "monetize debt" has been a possible nightmare scenario, but it hasn't happened yet. It's a complex process by which money is created by the Fed through manipulation of Treasury bonds with the complicity of the US Treasury.

lom

It's ok as long as they don't manipulate the US citizens

blackgang

They print the fuking stuff, so all they have is printed paper with no backing and no gold standard no more, that was dropped so that they could print worthless paper to bail out who the fuck ever, and now we are just plain fucked.
Now we are spending the 5 Cent dollar.

Rich gets richer and the poor get poorer and their ass just gets sore'er

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sabang

The process of 'money creation' is basically a pyramid, with the Federal Reserve at the top, the Commercial banks below, other lenders, such as Investment Banks and S&L's below that.

Each of these entities create more 'money' by Lending. Only a small fraction of the money in circulation is represented by cash, i.e. greenbacks. The Lending activities the banks can do are restricted and regulated by several mechanisms-

1- Reserve requirements. For every dollar you lend, you must have a certain fraction deposited with the Fed. One easy way to curtail lending (i.e. growth in money supply) is increasing minimum reserve requirements. Or lowering the interest rate you pay on those reserves. Also asset base requirements- for every dollar you lend, you must have a certain minimum liquid asset base, that is a minimum fraction of those loans outstanding. This can be varied too.

2- Open market activities- this is the most transparent of the Fed's operations. To increase liquidity, buy T Bonds and inject cash into the economy. The Fed collects the interest, the sellers are paid out for their bonds. Reduce liquidity- Fed sells bonds. The buyers pay out cash for their future interest payments, the Fed takes the cash out of the economy. Buyers hard to come by? Simple- increase the interest rates. The Fed basically controls the interest rates, in consultation with the US Treasury. Historically, this was only ever done with AAA+ US Treasury Bonds. Now, the Fed is buying, and Lending against, Junk. Extremely dangerous.

3- Moral persuasion. If the Fed has a word in your ear, Bankers listen. Otherwise they might increase your reserve requirements, or order a thorough audit on your operations. In that game, you don't argue with the Fed.

4- Cash creation. The Fed has a license to print money, and an effective monopoly on this. I say effective, because it is nowhere enshrined in law. It is under no obligation to disclose this either. Interestingly, President JFK set out to overturn this 'monopoly'. If I recall correctly, some non-Fed bank notes were even printed and issued, soon before he was assassinated. One for the Conspiracy theorists. The idea died with him, and was quietly buried.

sabang

The sole Issuer of US bank notes is the Federal Reserve norton, not the Treasury. There is legally no reason that the Treasury cannot issue currency also, but it doesn't.
The Fed has been issuing US bank notes since 1914, shortly after it's creation.

Norton

Thanks for the clarification. Seems I'm giving away my age here. No intent to split hairs but it was my understanding the Treasury was solely responsible for minting (printing) through it's Bureau of Engraving and Printing. The printed money is then distributed to the Federal Reserve Bank. Assume from your previous post, the Feds are the only agency that can "authorize" the printing?

Butterfly

Actually the US Treasury print the bank notes, not the Fed. The Fed is in charge of distribution and stocking.

Regardless, cash and bank notes are only a partial amount of what constitute "money". So "creating" money is much more than printing notes, it's increasing the circulation of notes and other monetary units through different mechanisms. The multiplier effect is the actual "printing mechanism"

Federal Reserve System - Wikipedia, the free encyclopedia

sabang

^^ & ^. The US Treasury acts as the Printer only (well who knows what might get siphoned off for spooks and corrupt foreign dictators, but thats another story ). Kinda stands to reason- they also print T Bonds, Muni Bonds and all sorts of other crap.

The Fed orders the new notes for circulation, solely. They decide how many new notes are to be issued, and they can in fact take notes out of circulation also, not that they would normally be bothered- as you pointed out BF, bank notes are a tiny fraction of money supply.

The Fed itself is quite a fascinating topic, so heres a linkie to an old thread if you're interested:-
http://teakdoor.com/us-domestic-issu...l-reserve.html (The US Federal Reserve)

Norton

Always makes for a fascinating topic when the agency has no oversight or public disclosure requirement.

Butterfly

^ The Fed is the most powerful institution of the US, bigger than Congress and the WH put together. The Chairman is the strongest person after the President, officially, but he is actually stronger, as he can offset any fiscal policies through their own mechanism, hence erasing the effects of a tax cut or tax increase to the public