The Creation of the Federal Reserve System (Part 4)

The current money scam is not convenient enough for you?

 

Our federal Congress is delegated the Power to fix the Standard of money for the Union.

Why do you have a problem if the private sector uses monopoly money if it better suits their immediate needs?

 

I'm not aware of any problem private sector is having with current currency. What is their immediate needs?

Why do you think allowing everyone to create their own money is a better solution to our current system?

 

Not having enough cash on hand is one example.

 

That is flat out lying and you know that. There are plenty of cash in the system right now. Liquidity is not a problem. The biggest problem is consumers are saturated in personal debts, they can no longer take out new debts, thus there is significant lack of loan demands. Are you pulling a page out of akphitroll playbook now? Making (*)(*)(*)(*) up as you go?

 

The problem is interest.

the interest + principle exceeds available currency.

currency only exists in the amount of the principle.

the interest compounds and you get an exponential debt vortex trap.

the only relief comes in the form of government debt spending.

this is not a free market nor capitalism, its some kind of fascist system.

 

This is not true. You don't need more debt to pay off interest. The only way your theory works is if all debt matured at the exact same time.

 

The interest gradually outpaces time.

 

No it doesn't. It was barely above 1% of GDP last year. This is what we call the "mathematical flaw".

The Govt does not need to go in to more debt to pay interest payments.

 

Akphidelt is correct. The reason we don't need to create more money is because GDP is continuously expanding. Interest payments come from real wealth generated by real productivity. A good bit of the revenue generated from the income tax pays the interest on the debt. Something like 36% IIRC.

Banks who hold interest bearing securities massively profit from this fact. Interest is the method by which the banking system extracts wealth from the public. Banks can use their profits to purchase more interest bearing securities. The more the govt spends, the more the banking system profits.

If interest payments were growing at a faster rate than GDP then the govt would need to create more money to pay off the interest.

 

They already print since 2008. Ben the Printer has approx $3 trillions digital money on balance sheet to play around with. Theorically speaking, he could flip US bonds as he wishes indefinitely.

 

I wonder if banks make any profit when the Fed buys securities off them.

 

They do. You can bank on that. Profits are shared among bankers and US Treasury in a form of corporate tax. Bankers are biggest winners in this massive money scam.

 

Not from a demand side perspective; since we currently have a surplus of labor instead of a climate where higher wages is what attracts more labor.

The obligation of Contracts is not usually considered a form of liquidity in those circumstances.

 

The private sector is supposed to have a profit motive.

 

When you have the central bank and government in collusion, creating money for the profit of commerical banks, that's not a very "private" business transaction. Like most Americans, you are confused about the difference between a free market and a corporatist market.

 

This is how it works. This is why Govt deficit spending ultimately decides how much money/assets is created.

When a Primary Dealer or bank purchases a security for their own account this is what happens.

Primary Dealer Balance Sheet Before Purchase
A | L
Exc Reserves 400 | Deposits 1000
Req Reserves 100
Loans 500

So now the primary dealer purchases a t-bill from the Govt for 100.
A | L
Exc Reserves 390 | Deposits 1000
Req Reserves 110 | TT&L Acct 100 (Treasury Acct)
Loans 500
Govt Debt 100

You notice how purchasing Govt debt for the banks is no different than making a loan. Which is why I always say Govt debt is a loan.

Now the Govt wants to spend $100 and it calls up it's TT&L at the bank and has it transferred to the Fed.

After transfer of $100 from TT&L Acct
A | L
Exc Reserves 300 | Deposits 1000
Req Reserves 100
Loans 500
Govt Debt 100

Now here is the MAGIC!! Suppose the Govt pays someone at the same bank just for simplicity sake. Or you can just imagine this is the banking system as a whole. Here comes Houdini!!

Govt spends $100
A | L
Exc Reserves 390 | Deposits 1100
Req Reserves 110
Loans 500
Govt Debt 100

OMG!!! There are more deposits in the banking system! So now the private sector can take that extra $100 and purchase the Govt Debt from the bank. Or the Fed can come in and replace that Govt debt with more reserves.

Every single time the Govt deficit spends it is increasing the private sectors net financial assets. It is the basis for Fed money creation and bank money creation.

 

Nice way to not answer my question.

Again, why do you think allowing everyone to create their own money is a better solution? Do you have any idea how that might affect not just US economy but with global trading?

Leave your Keynesian economy for another day, I can slap you around with that issue later.

 

Govt spends $100
A | L
Exc Reserves 390 | Deposits 1100
Req Reserves 110
Loans 500
Govt Debt 100

Now the Fed wants to increase the amount of reserves in the banking system. What do they do? They take it from the Primary Dealer and it looks like this.

A | L
Exc Reserves 490 | Deposits 1100
Req Reserves 110
Loans 500

Notice how there is absolutely NO changes to deposits.

 

Your (*)(*)(*)(*) is boring akhphitroll, stop spamming kid.

 

If you want to play around with this a bit more and see a visual transformation of balance sheets as actions are performed in the system. This is a wonderful site!!

http://econviz.org/macroeconomic-balance-sheet-visualizer/

Notice how on the bottom of the drop down of actions they have...

"Government Issues Debt (Banks buy via TT&L)"

Than they have

"Treasury moves funds from bank TT&L to Central Bank"

Watch the magic happen!

 

If you understand what I'm saying, basically it means there is absolutely no solvency risk in America... there is no way we can become bankrupt, there is no way we can run out of money.

The Govt debt held by the public is actually an ASSET to the private sector. And all the Govt does is swap this interest bearing asset with a non-interest bearing asset. Both Govt debt and USD is a liability to the Govt... all they do is exchange them back and forth.

Think of treasuries as a savings account and USD as a checking account with the US Govt.

 

How can money only profit commercial banks under any form of Capitalism?

I only agree with you to the extent money interests can make more money for monied interests. I do not believe it to be wrong under any form of Capitalism where economic discrimination is both legal and socially acceptable.

 

In case you missed the point; creating forms of wealth can be considered a natural right.

Creating negotiable paper can also be considered a natural right and incidental to convenience for Commerce.

 

I'm not asking you how wealth is created. I'm asking you why do you think allowing everyone to create their own money is a better solution? Do you have any idea how that change might affect US and global economy?

If you can't explain your case, I can safely assume you're talking out of your ass yet again.