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THE FEDERAL RESERVE Fractional Reserve Lending (Banking 101)
Financial Sense Online ^ | 29 Nov 2005 | Douglas Gnazzo

Posted on 11/29/2005 1:19:18 PM PST by hubbubhubbub

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To: hubbubhubbub
Deflation cripples debtors only. For everyone else it raises their standard of living.

How does it raise anyones standard of living?

61 posted on 11/29/2005 6:10:40 PM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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To: Travis McGee

Thanks for those quotes and link.


62 posted on 11/29/2005 6:14:13 PM PST by little jeremiah
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To: hubbubhubbub
Huh?????

The random half-sentence you clipped out of its context confused me, too. I'm not sure I have your point, but if it's what I think it is, you'll note I didn't claim Romans or pre-revolutionary French didn't know how to devalue their currencies. They just didn't know the economic effects that policy would have. It would take another couple of centuries for Friedman to come around and refine the monetary theory of inflation, which retrospectively explains lots of historical hyperinflation but which wasn't known at the time of those historical eras.
63 posted on 11/29/2005 6:15:07 PM PST by Turbopilot (Nothing in the above post is or should be construed as legal research, analysis, or advice.)
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To: hubbubhubbub

Thanks


64 posted on 11/29/2005 6:23:19 PM PST by 185JHP ( "The thing thou purposest shall come to pass: And over all thy ways the light shall shine.")
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To: Toddsterpatriot

1. Everything they buy is cheaper.

2. Their money is worth more.

3. Their debts owed are paid back in more valuable money.


65 posted on 11/29/2005 6:36:23 PM PST by hubbubhubbub
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To: hubbubhubbub
1. Everything they buy is cheaper.

So, everything that is produced, for instance automobiles, is cheaper?

66 posted on 11/29/2005 6:37:45 PM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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To: Turbopilot

The treasury prints "bonds and notes" that they sell to the Federal Reserve. The treasury doesn't print money that they then sell to the Fed.

No charge for corrections.


67 posted on 11/29/2005 6:40:10 PM PST by hubbubhubbub
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To: Toddsterpatriot

If it was laying around in $US it would be.

I don't work for a living cause I could not find anyone to pay me for taking naps.

I do make money though. LOL


68 posted on 11/29/2005 6:42:28 PM PST by hubbubhubbub
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To: Toddsterpatriot

Depends on where (what currency the automaker pays their costs of production in) the automobile is produced but you're getting the hang of it.


69 posted on 11/29/2005 6:45:44 PM PST by hubbubhubbub
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To: hubbubhubbub
Everything produced in the US. So, every year an American car would be cheaper than the year before?
70 posted on 11/29/2005 6:50:50 PM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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To: Toddsterpatriot
Does anyone have an example of the Federal Reserve buying bonds during an auction?

This used to occur in the '70s, and is no longer permitted. Having the Fed buy bonds directly from the Treasury "monetizes the debt" and was one of the engines of inflation in the 1970s. Now the Fed must purchase in the secondary market.

Which means that 90% of the money supply is non-existent, nothing more than a fleeting illusion.

It only seems like it's bad to those who think the money supply can be completely backed by gold, or gold and silver. This has never been the case in America. Under the gold standard specie was technically "money" and everything else, including most bank balances, was credit or 'bank money'. Beginning with Alexander Hamilton a large portion of the American money supply was 'non-existent' in that it wasn't directly backed with a deposit of gold. One of Hamilton's innovations to save the finances of the nascent American republic was to pay interest in gold and to accept currency as payment for tariffs and taxes. This had the effect of bidding up currency and Treasury debt to the value of an equivalent amount of gold.

71 posted on 11/29/2005 7:02:36 PM PST by Pelham
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To: hubbubhubbub
If you want to "score points" by nitpicking, it'd help to not be wrong.

From Merriam-Webster.com:

Main Entry: mon·ey
Pronunciation: 'm&-nE
Function: noun
Inflected Form(s): plural moneys or mon·ies /'m&-nEz/
Usage: often attributive
Etymology: Middle English moneye, from Middle French moneie, from Latin moneta mint, money -- more at MINT
1 : something generally accepted as a medium of exchange, a measure of value, or a means of payment: as [...] c : PAPER MONEY

Sounds like a Federal Reserve Note to me. FRNs are also included in M1, the most restrictive economic definition of money.

But hey...no charge for corrections.
72 posted on 11/29/2005 7:03:40 PM PST by Turbopilot (Nothing in the above post is or should be construed as legal research, analysis, or advice.)
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To: cynicom

The greenback was the paper money issued by Lincoln to pay for his war- which resulted in a run on gold at the time. You could find greenbacks as late as the 1963 currency issue- you can identify them by the legend "U.S. Note" in place of the more common "Federal Reserve Note".


73 posted on 11/29/2005 7:10:48 PM PST by Pelham
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To: Pelham

One day we will able to paper our walls with American money. Even start fires in wood stove with it.


74 posted on 11/29/2005 7:13:50 PM PST by cynicom
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To: Travis McGee
If you want to get some more laughs, at the expense of that great simpleton. Thank goodness we are SO MUCH SMARTER than him!

Jefferson opposed the First Bank of the United States on Constitutional grounds. Fortunately, Washington realized that Jefferson was full of it, ignored his protests and signed the bill proposed by Hamilton. The sound finances of the Federal Government enabled the United States to buy Louisiana from Napoleon with US Bonds. Yes, the USA had a better credit rating than France in 1803.

Jefferson was an expert on many issues; finance was not one of them.

75 posted on 11/29/2005 7:16:02 PM PST by You Dirty Rats (I Love Free Republic!)
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To: Toddsterpatriot
I thought the advantage of using gold was that the value of the currency would be fixed? If the gold is bouncing around it sounds like you're back to an unstable currency.

Unless gold is discovered at the rate of growth in the economy, then prices will be more unstable in a gold-based currency.

Fixing gold at $x per ounce keeps the price of gold stable, not the prices of everything else. If gold is discovered than prices will increase. If gold is not discovered in sufficent quantities then you have deflation.

76 posted on 11/29/2005 7:21:12 PM PST by You Dirty Rats (I Love Free Republic!)
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To: hubbubhubbub
How does deflation cripple the economy??????

See Japan in the past few years for a case study. Deflation discourages spending and lowers the velocity of money -- thus further lowering prices and eventually output. MV = PQ.

77 posted on 11/29/2005 7:23:47 PM PST by You Dirty Rats (I Love Free Republic!)
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To: You Dirty Rats; hubbubhubbub
If gold is not discovered in sufficent quantities then you have deflation.

Hmmmm...sounds familiar.

Some people claim that money supply doesn't impact prices. That they're only determined by supply and demand.

Supply and Demand determine prices. Once again Econ 101.

326 posted on 11/28/2005 7:07:07 AM CST by hubbubhubbub

78 posted on 11/29/2005 7:34:17 PM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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To: american spirit

Money is not supplied as debt but as a medium of exchange. The decision as to the proper rate of issuance is a technical question which the Fed is charged with answering. When it answers correctly things are fine when not adjustments must be made. But such answers will no longer be made by random discoveries of precious metals in random places.

The value of the money is what it obtains in exchange. It is a claim on the American or World economy. Or can be transformed into debt. But debt is not proper money for exchange purposes.

These issues require separation of the functions of money which have different aspects of importance.


79 posted on 11/29/2005 8:26:39 PM PST by justshutupandtakeit (Public Enemy #1, the RATmedia.)
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To: hubbubhubbub
Deflation cripples debtors only. For everyone else it raises their standard of living. [because]
1. Everything they buy is cheaper.

Everything would be cheaper, *including* labor.

2. Their money is worth more.

But they'd have *less* money since their labor would be worth less.

3. Their debts owed are paid back in more valuable money.

Scratching my head on that one. If deflation cripples debtors, seems to me that debts wouldn't get repaid at all.

80 posted on 11/29/2005 8:27:59 PM PST by Sandy
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