Didn't say that they did. The Fed has to do it.
Looks like the Fed held M1 steady for the 3 years in the above graph. Are you claiming no one could pay off any debt because the Fed didn't create the money for the interest?
Posted on 08/10/2010 11:49:47 AM PDT by John W
Acknowledging that the recovery has slowed, the Federal Reserve announced Tuesday that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities, The New York Times’s Sewell Chan reports from Washington.
By buying government debt, the Fed is taking an unmistakable step to maintain the large amount of money that it pumped into the economy, starting in 2007, to prop up the financial and housing markets.
(Excerpt) Read more at dealbook.blogs.nytimes.com ...
Perhaps you could explain this: "Acknowledging that the recovery has slowed, the Federal Reserve announced Tuesday that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities, The New York Times’s Sewell Chan reports from Washington."
Sure sounds like the Fed is going to own some of our debt.
As I showed with the accounting entries. When the Fed receives cash, that terminates the original entry that created that cash. Once cash reaches the Fed, it has disappeared from the economy. When the Fed re-enters the market, that is new cash created by the Fed with an accounting entry.
Yes We Scam!
We are taking an IOU out of one pocket and exchanging it for a larger IOU that was in our other pocket. Then we will trade that IOU for an even larger IOU and so on.
Wasn't it Hamilton who said that 'government debt serves most of the purposes of money', or something like that?
Our present government debt is not funded if your idea of funded is that it be at least theoretically possible to repay the entire debt including principle, and it's funded only by the skin of its teeth if all you have in mind is paying interest in perpetuity. They're holding interest rates next to zero as the only means possible of avoiding the day on which all the money they can plausibly collect in taxes will not suffice to pay interest; on that day, you're bankrupt and nobody and nothing can hide it.
The effect that is having on the economy is severe. Middle class people have no way of investing money at present. All they can do with it is save it, spend it, or do things which resemble gambling with it.
Our whole system is a house of cards at present and the part of the system which includes bankers creating money and fractional reserve banking clearly needs to be replaced.
Moreover the idea that governments create inflation when they create money is wrong. Banks create inflation. They create money out of thin air and lend it at interest without putting the money to pay the interest into the system at the same time. The process would simply absorb all existing money in a space of about 15 years which is why our M3 money supply doubles every fifteen years or so, from MORE debt and more fractional reserve expansion and inflation.
A government, on the other hand, assuming it had anybody's trust to do so or was somehow limited to infrastructure spending via such a process, could create money out of thin air without interest being due i.e. eliminate the middle men (bankers) along with their inflation and interest schemes.
Again my own ideal solution would be to have the power to create money reside in churches, but that's never going to happen. Ellen Brown is promoting the idea of state banks. The idea DOES seem to have worked pretty well in North Dakota.
When they’re done re-investing the interest, their balance sheet (and the money supply) remains unchanged. No new money.
About half the cost of the war was financed by war bonds, most of which were bought by corporations, the rest by individuals. But there was still plenty of other government debt in the market and that's what the Fed was buying.
Another bit of related trivia is that 1946 had the highest rate of inflation in the twentieth century. That's the year that war time price controls were lifted.
Has to be. That's what interest is, new money. It has to be created by buying additional debt. In a fiat currency, the only way the economy can grow is by issuing additional debt. That's the point, doncha know?
The people paying off their mortgages didn't create new money.
No, interest is a rental payment made for the loan of the money. New money's created out of thin air when banks get collateral and loan out cash that they're borrowing from their depositors.
I apologize if I'm not explaining it right --please let me know if it's easy or hard to follow.
Exactly, in fact paying off a loan reduces the money supply.
Again, the interest has to come from new money that is only created with new debt. Otherwise you get deflation. There's no other way.
You're focused on one part and ignoring the whole.
Again, the interest has to come from new money that is only created with new debt.
Every month I pay my mortgage and I haven't created any new debt to do it. Sorry.
Simple assumption to illustrate. No money, no debt, no economy. Then assume 1 Fed fiat-creation event that causes $10B in new debt (and therefore money) that enters the economy @ 5% interest (assumes bank reserve requirement multiplier). You have a $10B economy. After 1 year, all loans must be repaid plus interest as $10.5B.
Physically impossible to pay unless the Fed has had subsequent fiat-creation events that have increased the money supply by at least $.5B because there is only $10B in 'money' in the economy. Now the Fed can keep pushing the reserve requirement down, thereby creating 'new money', but it's still an increase in debt to do so.
"I apologize if I'm not explaining it right --please let me know if it's easy or hard to follow."
Let me know if you understand what I said above. The only way that the economy grows in a fiat-currency environment is through new debt. That money paid in interest had to be created through other Fed 'money creation' events, either direct or through reserve requirement decreases. There's no other way.
Didn't say that they did. The Fed has to do it.
"Every month I pay my mortgage and I haven't created any new debt to do it."
Didn't say you did. The Fed has to do it.
" Sorry."
Indeed.
Didn't say that they did. The Fed has to do it.
Looks like the Fed held M1 steady for the 3 years in the above graph. Are you claiming no one could pay off any debt because the Fed didn't create the money for the interest?
Thanks, Moonman62. That last part is ANOTHER piece of factual evidence I was unaware of that would be useful when arguing with people about price controls.
The government had to lift the controls. Some items such as meat were in short supply.
Looks a little cherry-picking going on. Here's a longer-term view that better illustrates what I'm talking about.
Point remains. In a fiat-currency, new debt must be created for economic growth. Otherwise you enter deflation. The Fed is doing everything it can to avoid deflation.
Cherry-picking? You claimed I couldn't pay the interest on my mortgage unless the Fed created new money. I don't know about you, but I paid my mortgage over that 3 year period. Despite the supposed impossibility of it. So how do you explain that?
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