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 ...
Here is your problem. There is only 10 oz of gold, not 15.
"Remember that in real live there's more than 15 oz of gold that exists, and that when push came to shove the banks more often than not came up with the gold needed to cover deposits at the end of the day. Just the same, gold got created out of thin air ever time loans were made."
In real 'live', only 10 oz of gold exists. In a fiat-currency, you can 'create' as much as you want but the Fed has to issue new debt.
Try again...
If 10 oz of gold is all the gold in the world and you borrow 10 oz @ 5% interest, the total gold supply must increase by 1/2 oz or you cannot pay the gold loan plus interest one year later. Either I don't get all my gold back or the lender doesn't get his 1/2 oz of interest.
Here's a graph of M1 over the past 35 years. All debt, all issued by the Fed.
The Fed doesn't issue debt.
Forget whether you think it's my problem or your problem and let's stick to reality. There've been actual real life banks that got 10 oz deposited, then 5 oz loaned out, and they ended up with passbook accounts showing a total of 15 oz on deposit.
Gold standard. Money created out of thin air.
We don't have to like it or approve of it but it's how banks have worked for over four centuries.
And the sad thing? It's not even that complicated. Anyone with a medical, engineering, math, accounting or hard science degree can easily grasp these fundamentals within 10 minutes.
But they don't because they're too busy pursuing the rigorous demands of their respective professions.
They don't say banking is boring for nothing. It's why bankers seem so devoid of life. All this amazing wealth for practically little effort, other than constantly running a con upon fear of being caught out.
Keep trying with your simple example; I've found it works as well if I get cajoled into trying to explain. If I borrow $100 dollars @ 5%, where do I get the $5 to pay the interest if the money supply is fixed?
In a FRB fiat system, money is credit, therefore credit must continually expand in order to provide the add'l money necessary to pay interest on the old balance. A beautiful closed loop absolutely dependent on inflation.
The way to bring this mofo down is deflation. It may not happen in 2010, but as the sheep discover the power of deflation to break our bonds, perhaps one day a leader will actually run on a platform advocating such a measure.
That's right. The Fed creates 'fiat' with an accounting entry that it injects into the economy as 'cash' by buying debt. It collects interest on this debt that it 'bought' with an accounting entry. Pretty cool gig, if you can get it.
There is only 10 oz of gold in the example. If you really think that 15 oz actually exist, I'd say you've got some cognitive challenges.
Gold provides a useful base for monetary revaluation purposes (as FDR demonstrated). But in an aggregate money-credit system where credit represents 95%+ of the total, monetary measures are useless, as not-so-gentle Ben is discovering to his great surprise.
Or is he surprised? Personally, I believe the meme that the money-elite knew these measures would never work is gaining strength. Rather, they took the bail-out money and ran.
Once made whole with cash, they're just waiting around until the deflationary collapse kicks in, then they will be able to buy assets for pennies on the dollar.
Not really.
"The vast majority of people simply do not understand these simple concepts, which is why the money-elite rule the world."
These guys understand what I'm saying. They just don't want to admit it. Others will get the picture as they continue to think about it.
"And the sad thing? It's not even that complicated. Anyone with a medical, engineering, math, accounting or hard science degree can easily grasp these fundamentals within 10 minutes."
It's not a problem of ability with these guys.
"The way to bring this mofo down is deflation. It may not happen in 2010, but as the sheep discover the power of deflation to break our bonds, perhaps one day a leader will actually run on a platform advocating such a measure."
They don call him 'Helicopter Ben Bernanke' for nuttin!
That's the bad news. The "good news" (as it were) is that it won't last very long. The game is almost up. Debt interest finance is not additive - it is logarithmic. Once the interest curve spikes upwards (as ours has), it steepens rapidly, until even interest payments become impossible (as the cost of finance precludes any hope of investment).
Politicians lie. Math does not.
Rather, they book both the deposit & asset out of thin air when the loan is made, then go shopping for the incremental reserve. Even better, the reserve itself is typically phantom as well. (Especially if they are a Fed member which has reserves already sitting there that were themselves conjured out of thin air.)
A truly beautiful zero bound system; the only restriction is **confidence**. That's why all efforts have been directed towards re-igniting lending. The game must continue, or all is lost (for them anyway).
Where does all the interest go that they collect?
Break it down for me.
That works for about 10 seconds, until the borrower cashes the check to buy the home, car etc......
You really think Toddsterpatriot gets it, but is just being argumentative? To what purpose? Isn’t he a conservative? Aren’t your interests aligned?
Now I know for certain you're not only clueless, but a clueless disruptor to boot. Throwing out nonsense in order to try & make a point.
When the seller cashes the check, the bank need to come up with the money. Try starting a bank with some of that "out of thin air" money you're talking about.
You can write me from jail.
Yeah, sure. Just 'borrow' your reserves from the Fed. It's all about increasing debt.
"A truly beautiful zero bound system; the only restriction is **confidence**. That's why all efforts have been directed towards re-igniting lending. The game must continue, or all is lost (for them anyway)."
Well, psychology is a powerful obstacle but it will eventually be overcome. Deflation happens for a while, but once confidence is gone, velocity goes through the roof and price inflation roars. The trick is figuring out when that is going to happen.
At least you admit that the Fed does collect interest on debt that it 'bought' with an accounting entry.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.