To: Alberta's Child
Ya but I think your missing something, or maybe I am.
I think the story is that the banks can borrow ten times their deposits from the fed, and only have to keep a tenth of the deposits on hand.
So they loan out their customers money, and borrow money from the fed to loan out as well.
So the banks borrow the money from the fed.
Where does the fed get it?
By holding the unsold Government bonds and listing them as assets, and printing money, using the bond as an asset of security.
But the asset is not backed by anything. It is a printed note from the government that went unsold.
Smoke and mirrors.
Without the apparent bifurcation of Fed and Gov, and the complicity of their partners the banks, the whole system would fail.
If we all decided to go down and take our cash and buy gold, or oil or land or soybeans, the cash is not there. It does not exist.
At a certain point [10%] draw down...the only thing you could get is a note from the bank that is backed by a note from the fed, that is backed by a note printed by the government that nobody wanted.
LOL...
241 posted on
12/02/2005 11:27:00 AM PST by
antaresequity
(PUSH 1 FOR ENGLISH, PUSH 2 TO BE DEPORTED)
To: antaresequity
The Fed "gets" its money from the Treasury, and Congress, in a fashion. In theory, the Fed could purchase the entire Treasury debt, and that's the limit of how much money it could create. But monetizing the entire debt would be inflationary, to say the least, so we wouldn't like that very much.
One of the roles of the Fed is to alter the mix of currency to debt, according to how the economy is acting. If inflation heats up the Fed can sell Treasury bonds in the open market, which serves to 'soak up' money, and hopefully that will slow down inflation. If the economy is stalling the Fed can buy Treasury bonds, 'injecting' money into the economy which could help to stimulate trade.
243 posted on
12/02/2005 3:31:40 PM PST by
Pelham
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