How does the Federal Reserve influence entitlement payments? And specifically, how does QE3 affect them?
OK.
Imagine you are the gummint.
I am a “bank” (lender).
You come to me to borrow “money”.
I say OK, but here’s the deal.
I will cash your checks, but only with my “money”, which I chose to call “djf Reserve Notes”.
You go off your merry way and print checks and send them out.
I open a few more branches, and print the “notes” I need to honor the checks.
Now I don’t care about who or what the checks are for. The ONLY thing I care about is “Are you, the gummint, able to pay me back?” And when I say “pay me back”, I’m NOT talking about “djf Reserve Notes”. As far as I am concerned, “djf Reserve Notes” are junk, just pieces of paper, valueless, they are one and one thing only:
Evidence of debt.
When I say “pay me back”, I mean something REAL! Real money, real power, real estate, influence, SOMETHING!
Realize something else:
If you, the gummint, gets too extravagant in one area or another, I (the lender) have the ABSOLUTE OPTION to TELL YOU WHAT YOU CAN OR CANNOT SPEND “money” ON!
Because I can say at any time to someone who comes in with a “check”, “Sorry. The person who wrote that check doesn’t have enough in his account. Call your Congressperson and ask why.”
See?
That’s how it’s working today. That’s the power “the lenders” have. That’s also why they cannot tolerate any other form of money, be it gold, silver, United States Notes, baked beans, or sea shells...
Sure, the Senators and Congressmen make some “rules” and some “laws” in the Capitol, but nothing of significance that would change the above relationship.